** **

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-K /A**

 

**(MarkOne)**

 

| **ý**                                                                                                                                                                                                                                                                                              |   | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**     |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                    |   |                                                                                          |
| **For the fiscal year ended December  31, 2001.**                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                    |   |                                                                                          |
| **o**                                                                                                                                                                                                                                                                                                   |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                                    |   |                                                                                          |
| **For the transition period from                         TO                       .** |

 

| **Commission File Number 0-27416**                                                                                          |
|-----------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                        |
| ****                                                                                                                        |
| **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) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. ýYES   oNO

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K.  o

 

Aggregate value of shares of common stock held bynonaffiliates of the registrant based upon the closing price on The NasdaqNational Market on December 5, 2002 (only shares held by directors, officersand their affiliates, and holders of more than 5% of Class A or Class B stockare excluded):  $16,688,669

 

Number of shares of common stock outstanding as of theclose of business on December 5, 2002:

 

|                                      | Class  A | 11,193,622 |   |
|-------------------------------------------|---------------|------------|--------|
|                                      | Class B       | 727,416    |   |
| **Documents incorporated by  reference:** |

Portions of thedefinitive Proxy Statement relating to the 2002 Annual Meeting of Shareholdersheld on May 16, 2002 at the Holiday Inn of Alexandria (“Proxy Statement”) areincorporated by reference into Part III of this report.

 

 

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**EXPLANATORY NOTE**

 

THIS AMENDMENT TO THE REGISTRANT’S REPORT ON FORM 10-K FOR THE YEARENDED DECEMBER 31, 2001 IS BEING FILED TO INCLUDE A RESTATEMENT OF THECOMPANY’S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2001.  SEE NOTE 1 TO THE CONSOLIDATEDFINANCIAL STATEMENTS FOR A SUMMARY OF THE SIGNIFICANT EFFECTS OF THERESTATEMENT.

 

ONLY PART I, ITEM 1, PART II, ITEMS 6 – 8, AND PART IV, ITEM 15, ALL OFWHICH ARE INCLUDED IN THIS AMENDMENT, HAVE BEEN REVISED TO REFLECT THERESTATEMENT.

 

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**TABLE OF CONTENTS**

 
| **PART I**                                                                                           |
|------------------------------------------------------------------------------------------------------|
| ITEM 1.   BUSINESS                                                                              |
|                                                                                                 |
| **PART II**                                                                                          |
| ITEM 6. SELECTED  FINANCIAL DATA.                                                                    |
| ITEM  7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS |
| ITEM  7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 |
| ITEM  8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                 |
|                                                                                                 |
| **PART IV**                                                                                          |
| ITEM  15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 10-K                         |
| SIGNATURES                                                                                           |
| SECTION 302 CERTIFICATIONS                                                                           |

 

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Throughout this document, Rural Cellular Corporation and itssubsidiaries are referred to as “RCC,” “we,” “our,” or “us.”

 

## **PARTI**

## ** **

## **ITEM 1.**                                                     BUSINESS

 

*Referencesin this Form 10-K/A to “Rural Cellular,” “RCC,” “we,” “our,” and “us” refer toRural Cellular Corporation and its subsidiaries as a combined entity, exceptwhere it is clear that those terms mean only the parent company.*

 

#### ***Forward-LookingInformation***

 

This Form 10-K/A includes “forward-lookingstatements” within the meaning of Section 27A of the Securities Act andSection 21E of the Securities Exchange Act. All statements regarding usand our expected financial position, business, and financing plans areforward-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,” “pro forma,” “anticipates,”“intends,” or the negative or other variations of any such term or comparableterminology, or by discussions of strategy or intentions. Although we believethat the expectations reflected in such forward-looking statements arereasonable, our expectations may prove not to be correct. A number of factorscould cause our actual results, performance, and achievements or industryresults to be materially different from any future results, performance, orachievements expressed or implied by such forward-looking statements. Thesefactors include, but are not limited to:

 

•              the competitive environment in the wireless andtelecommunications industries and in the markets we serve, including thequality and pricing of comparable wireless communications services offered byour competitors;

•              economic conditions in our geographic markets andin general;

•              demographic changes;

•              our ability to attract and retain qualifiedpersonnel;

•              our ability to meet the obligations of ourindebtedness;

•              our ability to meet our schedule for buildout ofour wireless network;

•              our business plan and our strategy forimplementing 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 andfinancing needs;

•              the availability of adequate quantities of systeminfrastructure and customer equipment and components to meet our servicedeployment and marketing plans and customer demand;

•              our ability to achieve and maintain marketpenetration and average customer revenue levels sufficient to provide financialviability;

•              our ability to integrate the operations of anybusinesses we acquire;

•              our ability to scale our billing, collection,customer care, and similar back-office operations to keep pace with customergrowth and increased system usage rates;

•              future legislation or regulatory actions relatingto specialized mobile radio services, other wireless communications services,or telecommunications services generally;

•              other risks and uncertainties described from timeto 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 performance .”

 

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In addition, such forward-looking statements arenecessarily dependent upon assumptions, estimates, and data that may beincorrect or imprecise and involve known and unknown risks, uncertainties, andother factors. Accordingly, forward-looking statements included in this reportdo not purport to be predictions of future events or circumstances and may notbe realized. All subsequent written and oral forward-looking statementsattributable to us or persons acting on our behalf are expressly qualified intheir entirety by the foregoing cautionary statements. Given theseuncertainties, you are cautioned not to place undue reliance on suchforward-looking statements. We disclaim any obligation to update any suchfactors or to announce publicly the results of any revisions to any of theforward-looking statements contained in this report to reflect future events ordevelopments.

 

***Factorsthat may affect our performance***

 

**Our future operating results could fluctuate significantly.**

 

We believe that our future operating results andcash flows may fluctuate due to many factors, some of which are outside ourcontrol. These factors include the following:

 

•                  increased costs we may incur in connection withthe buildout of our networks and the further development, expansion, andupgrading of our wireless systems;

•                  fluctuations in the demand for our services andequipment and wireless services generally;

•                  increased competition, including pricecompetition, which has led to declining average monthly local service revenuesper customer for us and our competitors;

•                  changes in our roaming revenues and expenses dueto renegotiation of our roaming agreements and the development of neighboringor competing networks;

•                  changes in the regulatory environment;

•                  the cost and availability of equipmentcomponents;

•                  changes in travel trends; and

•                  changes in general economic conditions that mayaffect, among other things, demand for our services and the creditworthiness ofour customers.

 

We incurred net losses applicable to common shares of approximately$102.1 million, $83.3 million and $11.1 million in the years ended December 31,2001, 2000 and 1999, respectively. Losses are likely to be significant for thenext several years as we seek to increase our customer base in existingmarkets. We may not generate profits in the short term or at all. If we fail toachieve profitability, that failure could have a negative effect on the marketvalue of our common stock.

### ** **

### **Our stock price has been and may continue to bevolatile.**

 

The trading price of our Class A common stock has been and is likely tocontinue to be highly volatile and could be subject to wide fluctuations inresponse to factors such as:

 

•                  actual or anticipated variations in quarterly operating results;

•                  changes in financial estimates and recommendations by securitiesanalysts;

•                  conditions or trends in the wireless communications industry;

•                  changes in the economic performance and/or market valuation of otherwireless communications companies;

•                  our announcement of significant acquisitions, strategic partnerships,joint ventures or capital commitments;

•                  additions or departures of key personnel; and

•                  other events or factors, many of which are beyond our control.

 

In addition, the stock market in general, and The Nasdaq NationalMarket in particular, has experienced extreme price and volume fluctuationsthat have often been unrelated or disproportionate to the operating performanceof

 

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companies with securities listed on these exchanges and quotationsystems. These broad market and industry factors may materially and adverselyaffect the market price of the Class A common stock, regardless of our actualoperating performance. In the past, following periods of volatility in themarket price of listed companies’ securities, securities class-actionlitigation has often been instituted against these companies. This kind oflitigation, if instituted against us, could result in substantial costs and adiversion of management’s attention and resources, which would materially andadversely affect our business, financial condition and operating results.

 

**We may not be able to integrate acquired wirelesscommunications providers successfully, which could adversely affect ourfinancial performance.**

 

A significant component of our growth has beenthrough acquisition of other regional wireless providers. Our ability toimplement our growth strategy depends, in part, on our success in integratingour recently acquired wireless communications businesses as well as any wemight acquire in the future. This may impose strains on our management andfinancial resources. Some of the challenges we have faced and will face inintegrating acquired wireless communications services businesses includeintegrating operations and technology, billing systems, and customer servicepractices with our existing networks, all of which may have an adverse effecton the quality of service, customer satisfaction, and retention in the regionsin which integration is taking place. The pursuit and integration of acquiredwireless communications providers may require substantial attention from ourmanagement and will limit the amount of time they can devote to managing ourcombined operations. We cannot guarantee that we will be able to successfullyintegrate newly acquired wireless communications providers into our businessmodel. If we fail to do so, if we fail to manage our growth, or if we encounterunexpected difficulties during expansion and integration, it would have anegative impact on the performance of our newly acquired businesses as well ason our business as a whole.

 

**A significant portion of our revenues is from roaming. Basedon industry trends, outcollect roaming yield has been declining over the lastfew years and is expected to decline in the future. As a result, futureoperating results could be adversely affected if increases in roaming minutesdo not offset anticipated decreases in roaming yield.**

 

Our roaming agreements are short to medium term,including some which are terminable with 30 days’ written notice, and may beterminated prior to expiration upon breach of any of the material terms. Whenthese agreements expire or are terminated, we may be unable to renegotiatethese roaming agreements or to obtain roaming agreements with other wirelessproviders upon acceptable terms. Failure to obtain acceptable roamingagreements could lead to a substantial decline in our revenues and income.

 

In addition, changes in the network footprints ofour competitors and of our roaming partners could have a material adverseeffect on the terms of our roaming agreements and on our outcollect revenuesand incollect expenses. For example, if a roaming partner from whom we derive asignificant amount of revenue in one of our service areas were to build its ownnetwork in that service area, our outcollect revenues derived from our roamingrelationship with that partner in that area might decrease or even ceasealtogether, and our leverage in negotiating favorable incollect rates in thatpartner’s network areas could decrease as well.

 

A substantial portion of our roaming revenues isderived from agreements with two national wireless providers, AT&T Wirelessand Verizon Wireless. Changes in their operations or a significant decline inthe number of their customers could adversely affect our business. For the yearended December 31, 2001, AT&T Wireless accounted for approximately 50%, andVerizon Wireless accounted for approximately 20%, of our total roaming minutes.

 

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**Our roaming revenues are subject to some effects ofseasonality, and as a result, our overall revenue and operating income are alsosubject to seasonal fluctuations.**

 

In 1999, 2000, and 2001, a substantial amount ofour revenues was derived from roaming charges incurred by other wirelessproviders for use of our network by their customers who had traveled within ourservice areas. Our service areas include a number of resort destinations thatcontribute to our roaming revenues. As a result, our roaming revenues increaseduring vacation periods, introducing a measure of seasonality to our revenuesand operating income. See “Management’s Discussion and Analysis of FinancialCondition and Results of Operations— Seasonality.”

 

**We have a significant amount of debt and preferred stock,which may limit our ability to meet our debt service and dividend obligations,to borrow additional money, or to survive a downturn in our business.**

 

As of December 31, 2001, we had approximately$1.286 billion of long-term consolidated debt, approximately $505.8 milliontotal liquidation preference of preferred stock, and consolidated shareholders’deficit of approximately $33.8 million. Of the $505.8 million of preferredstock, $388.3 million can be exchanged, at our option, subject to compliancewith certain leverage ratios under our credit facility and the indenturesrelated to our senior subordinated notes, for senior subordinated indebtedness.

 

The current levels of our debt could haveimportant consequences, including the following:

 

•                        we must use a substantial portion of our cashflows from operations to make principal and interest payments on our debt andpay cash dividends on our preferred stock, thereby reducing funds that wouldotherwise be available to us for working capital, capital expenditures, futurebusiness opportunities, the payment of cash dividends on our common stock, andother purposes;

•                        we may not be able to obtain additional financingfor working capital, capital expenditures, and other purposes on termsfavorable to us or at all;

•                        borrowings under our bank credit facilities areat variable interest rates, making us vulnerable to increases in interestrates;

•                        we may have more debt than many of ourcompetitors, which may place us at a competitive disadvantage; and

•                        we may have limited flexibility to react tochanges in our business.

 

We may incur additional debt in the future to fundthe expansion and maintenance of our business. If we do so, the related risks could intensify.

 

**The restrictive covenants in our existing debt and preferredstock instruments and agreements may limit our ability to operate our business.**

 

The instruments governing our debt, including ourcredit facility, the indentures governing our senior subordinated notes, andthe certificates of designation governing our preferred stock, imposesignificant operating and financial restrictions on us. These restrictionssignificantly limit, among other things, our ability and the ability of oursubsidiaries to:

 

•             incur additional debt;

•             pay dividends;

•             repay junior debt priorto stated maturities;

•             allow the imposition ofdividend restrictions on certain subsidiaries;

•             sell assets;

•             make investments;

•             engage in transactionswith shareholders and affiliates;

 

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**•            **create liens; and

•             engage in some types ofmergers or acquisitions.

 

Our credit facility requires us to maintainspecified financial ratios. Substantially all our assets are subject to lienssecuring our credit facility. These restrictions could limit our ability toobtain future financing, make needed capital expenditures, withstand a downturnin our business, or otherwise conduct necessary corporate activities. Ourfailure to comply with these restrictions could lead to a default under theterms of the relevant debt or a violation of the terms of the preferred stockeven though we are able to meet debt service and dividend obligations.

 

If there were an event of default under ourcredit facility or other debt, the holders of the affected debt could elect todeclare all of that debt to be due and payable which, in turn, could cause allof our other debt to become due and payable. We and our subsidiaries might nothave sufficient funds available, and we might be unable to obtain sufficientfunds from alternative sources, to make these payments. Even if we can obtainadditional financing, the terms might not be favorable to us. If the amountsoutstanding under our credit facility were accelerated and we could not obtainsufficient funds to satisfy our obligations, our lenders could proceed againstour assets and the stock and assets of our subsidiaries. As a result, any eventof default could have a material adverse effect on our business and financialcondition.

 

**We expect to require substantial amounts of capital in thefuture. Our ability to generate the capital required to meet our obligationsand to maintain and develop our systems depends on many factors beyond ourcontrol.**

 

We have required, and will continue to require,substantial capital to maintain, upgrade, and develop our wireless systems andthose we may acquire. We had capital expenditures of $46.0 million during theyear ended December 31, 2001. We have budgeted capital expenditures for fiscal2002 of approximately $75 million, including maintenance of our existinginfrastructure, enhancing coverage in covered service areas, and meeting thebuildout requirements for our PCS licenses. We may also require additionalfinancing for future acquisitions, to refinance our debt at its finalmaturities, and to meet mandatory redemption provisions on our preferred stock.Our sources of additional capital may include public and private equity anddebt financings, including vendor financing. The extent of the additionalfinancing that we may require will depend on the success of our operations. Theavailability of additional financing is dependent on conditions in the capitalmarkets. We may not be able to obtain additional financing on terms acceptableto us and within the limitations contained in the instruments governing ourdebt and our preferred stock, or any future financing arrangements. If wecannot raise sufficient funds to meet our planned growth or debt and preferredstock repayment obligations, including upon a change of control, we may delayor abandon some or all of our planned development or seek to sell assets toraise additional funds, either of which could materially limit our ability tocompete.

 

**We operate in a very competitive business environment, whichcan adversely affect our business and operations. Competitors who offer moreservices than we do may attract our targeted customers.**

 

The wireless communications industry is highlycompetitive. Many of our competitors and potential competitors havesubstantially greater financial, personnel, technical, marketing, and otherresources than we do, as well as other competitive advantages. Some competitorsmay market services we do not offer, such as cable television, internet access,landline local exchange, or long distance services, which may make theirservices more attractive to customers. Competition for customers is basedprincipally upon services and features offered, system coverage, technicalquality of wireless systems, price, customer service, capacity, and strength ofdistribution channels.

 

In each of our markets we compete with severalother wireless licensees. To a lesser extent, we also compete in many of ourservice areas with dispatch and conventional mobile telephone companies,satellite telephone service providers, resellers of wireless services, pagingcompanies, and landline telephone service providers. We expect this competitionto increase in the future, and we may not be able to compete successfully.

 

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**We will likely incur operating costs due to unauthorized useof our network.**

 

As do most companies in the wireless industry, wewill likely incur costs associated with the unauthorized use of our network,including administrative and capital costs associated with detecting,monitoring, and reducing the incidence of fraud. Fraud impacts interconnectioncosts, capacity costs, administrative costs, fraud prevention costs, andpayments to other carriers for unbillable fraudulent roaming.

 

**Our business could be materially and adversely affected byour failure to anticipate and react to frequent and significant technologicalchanges.**

 

The telecommunications industry is subject torapid and significant changes in technology that are

evidenced by:

 

•             the increasing pace ofdigital upgrades to existing analog wireless systems;

•             evolving industrystandards;

•             the availability of newradio frequency spectrum allocations for wireless services;

•             ongoing improvements inthe capacity and quality of digital technology;

•             shorter developmentcycles for new products and enhancements;

•             developments inemerging wireless transmission technologies; and

•             changes in end-userrequirements and preferences.

 

We may be required to select in advance onetechnology over another. At the time we make our selection, it may beimpossible to predict accurately which technology may prove to be the mosteconomic, efficient, or capable of attracting customer usage. Consequently, itis possible that we may select a technology that does not achieve widespreadcommercial success and, as a result, our business, results of operations andfinancial condition could be materially and adversely affected. Moreover, oneor more of the technologies that we currently utilize may become inferior orobsolete at some time in the future.

 

**The success of our operations depends upon the managementskills and experience of our executive team.**

 

We believe that our future success will depend inlarge part on our continued ability to attract and retain highly qualifiedtechnical and management personnel. We believe that there is, and will continueto be, intense competition for qualified personnel in the wirelesscommunications industry, and we cannot assure you that we will be successful inretaining our key personnel or in attracting and retaining other highlyqualified technical and management personnel. We do not currently maintainkey-man life insurance on any of our executives or other employees.

 

**Our business is subject to extensive government regulation.The applicable legislation and regulations, and changes to them, couldadversely affect our business by increasing our expenses. We may also be unableto obtain regulatory approvals necessary to operate our business. Any failureto obtain these approvals could negatively affect our results of operations.**

 

The Federal Communications Commission (the “FCC”)regulates many aspects of our business, including the licensing, construction,interconnection, operation, acquisition, and sale of our wireless systems, aswell as the number of wireless licenses permitted in each of our markets. Stateand local regulatory authorities also, to a lesser extent, regulate aspects ofour business and services. In addition, the Federal Aviation Administrationregulates aspects of construction, marking, and lighting of communicationstowers on which we depend for the placement of our wireless transmitters. Changesin legislation and regulations governing wireless activities and wirelesscarriers, our failure to comply with applicable regulations, or our loss of orfailure to obtain any license or licensed area could have a material adverseeffect on our operations. In addition, some aspects of the Communications Actof 1934, as amended, place additional burdens upon us or subject us toincreased competition and increase our costs of doing business.

 

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The FCC and state authorities are increasinglylooking to the wireless industry to fund various initiatives, including federaland state universal service programs, telephone number administration, servicesto the hearing-impaired, and emergency 911 networks. In addition, many stateshave imposed significant taxes on providers in the wireless industry and haveadopted or are considering adoption of regulatory requirements on customerbilling and other matters. These initiatives are imposing increased costs on usand other wireless carriers and may otherwise adversely affect our business.For example, the FCC has mandated that wireless providers supply the geographiccoordinates of a customer’s location, either by means of network-based orhandset-based technologies, to public safety dispatch agencies. This rule willimpose significant costs on us and could lead us to increase subsidies onhandsets to offset the increased costs of handset-based technologies. There canbe no assurance that we will be able to meet the FCC’s 911 requirements or thatwe will not be subject to fines by the FCC in connection with our failure tocomply with these requirements.

 

Each of our wireless licenses is subject torenewal upon expiration of its current ten-year term. Grants of wireless licenserenewals are based upon FCC rules establishing a presumption in favor oflicensees that have complied with their regulatory obligations during theten-year license period. However, we cannot assure you that the FCC will grantus any future renewal applications or that our applications will be free fromchallenge. In addition, FCC rules require wireless licensees to meet buildoutrequirements with respect to particular licenses, and failure to comply withthese and other requirements in a given licensed area could result inrevocation or forfeiture of our license for that area or the imposition offines by the FCC.

 

**We are subject to certain limitations on foreign ownershipand transfers of control.**

 

The Communications Act of 1934, as amended, andrelated regulations prohibit the holding of a common carrier license by acorporation if more than 20% of the licensee’s capital stock, or more than 25%of the capital stock of the licensee’s controlling company is owned directly orbeneficially by non-U.S. citizens. For this purpose, capital stock includes allequity interests, including our Class A and Class B common stock and ourpreferred stock. Absent FCC approval of foreign ownership exceeding theselimits, failure to comply with these requirements may result in a FCC orderrequiring divestiture of foreign ownership. In addition, fines or denial ofrenewal or revocation of the license is possible. The Communications Act of1934 and related regulations also require prior approval of changes in controlof entities holding common carrier licenses. Our Articles of Incorporationpermit us to redeem our common stock where necessary to preserve our licenses,and we could be required to expend substantial amounts to comply with theownership restrictions. Also, these regulations limit our ability to raise newcapital from foreign persons or to sell assets to foreign persons.

 

**Equipment failure and natural disasters may adversely affectour operations.**

 

A major equipment failure or a natural disasteraffecting any of our central switching offices, microwave links, or cell sitescould have a material adverse effect on our operations. Our inability tooperate any portion of our wireless system for an extended time period couldresult in a loss of customers or impair our ability to attract new customers,which would have a material adverse effect on our business, results ofoperations, and financial condition. Although we have not experienced a majorequipment failure and we believe that we have purchased insurance sufficient tocover potential losses, we may not be adequately insured against such an event.

 

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**If wireless handsets are perceived to pose health and safetyrisks, we may be subject to new regulations, and demand for our services maydecrease.**

 

Media reports have suggested that certain radiofrequency emissions from wireless handsets may be linked to various healthconcerns, including cancer, and may interfere with various electronic medicaldevices, including hearing aids and pacemakers. Concerns over radio frequencyemissions may have the effect of discouraging the use of wireless handsets,which would decrease demand for our services. In recent years, the FCC andforeign regulatory agencies have updated the guidelines and methods they usefor evaluating radio frequency emissions from radio equipment, includingwireless handsets. There also are some safety risks associated with the use ofwireless handsets while driving. Legislation has been proposed in the United StatesCongress and many state and local legislative bodies to restrict or prohibitthe use of wireless phones while driving motor vehicles. Similar laws have beenenacted in other countries and, to date, the State of New York and a smallnumber of localities in the United States have passed restrictive laws.Concerns over these safety risks and the effect of any legislation that may beadopted in response to these risks could limit our ability to market and sellour wireless services. Additionally, litigation relating to illness, accidents,deaths, or serious bodily injuries allegedly incurred as a result of wirelessphone use could result in damage awards and adverse publicity.

 

**We have shareholders who could exercise significant influenceon management.**

 

The holders of our Class M convertible preferredstock currently are able to elect two members to our board of directors and canvote, on an as-converted basis, approximately 2,075,471 shares of our Class Acommon stock, which represented as of December 5, 2002 approximately 10.1% ofthe voting power of our common stock. If these holders were to disagree withdecisions made by management or the board of directors about our plans oroperations, they might be able to bring significant pressure to change such plansor operations.

 

**Antitakeoverprovisions could adversely affect the price of our Class A common stock.**

 

Some of the following provisions of our Articles of Incorporation,Amended and Restated Bylaws and Minnesota law could delay or prevent a changeof control or a change in management that holders of Class A common stock mayconsider beneficial:

 

•                                                    provisionsfor a classified board of directors;

•                                                    provisionsfor advance notice for director nominations and shareholder proposals;

•                                                    provisionsallowing holders of our class B common stock 10 votes per share as compared toone vote per share for our class A common stock;

•                                                    provisionsfor supermajority votes to approve mergers or amend specified provisions of theArticles and Bylaws; and

•                                                    statutorylimits regarding share acquisitions and business combinations.

 

We also have adopted a share rights plan under which the exercise ofpreferred stock purchase rights attached to each share of common stock, couldresult in substantial dilution to any person or group acquiring 15% or more ofour stock without approval from our board of directors.

 

In addition, the documents governing our indebtedness containlimitations on our ability to enter into a change of control transaction. Underthese documents, the occurrence of a change of control transaction, in somecases after notice and grace periods, would constitute an event of defaultpermitting acceleration of the indebtedness.

 

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**We aresubject to limitations on our ability to pay cash dividends on and repurchaseor otherwise satisfy our obligations under our senior exchangeable preferredstock and junior exchangeable preferred stock. As a result, if we do notsatisfy these obligations, we may be in default under our existing debt, andthe holders of these series of preferred stock may have the right to electdirectors to our board of directors.**

 

Our ability to pay cash dividends and to redeem the senior exchangeablepreferred stock and junior exchangeable preferred stock or repurchase theexchange debentures when required is substantially restricted under variouscovenants contained in documents governing our outstanding preferred stock andour debt. In addition, under Minnesota law, we can pay dividends on or redeemour capital stock, including the senior exchangeable preferred stock and thejunior exchangeable preferred stock, only if our board of directors determinesthat we will be able to pay our debts in the ordinary course of business afterpaying the dividends or completing the redemption. We cannot predict what thevalue of our assets or the amount of our liabilities will be in the future.Accordingly, we cannot assure you that we will be able to:

 

•                  pay cash dividends on the senior exchangeable preferred stock or juniorexchangeable preferred stock;

•                  redeem the senior exchangeable preferred stock or junior exchangeablepreferred stock in the event of a change of control or otherwise; or

•                  exchange the senior exchangeable preferred stock or the juniorexchangeable preferred stock for exchange debentures.

 

If we fail to comply with the terms of the senior exchangeablepreferred stock or the junior exchangeable preferred stock, the holders ofthese series of stock will each have the right to elect directors to our board.In addition, the failure to comply could constitute an event of default underour existing debt. As a result, the lenders of this debt could acceleratepayment of all amounts owing under the debt.

 

###### ***(a)***                                 General Development of Business

 

We are a wireless communicationsservice provider in the United States, focusing on rural markets. Our networkcovered a total population of approximately 5.9 million and servedapproximately 633,000 voice customers, excluding wholesale customers, as ofDecember 31, 2001. We believe that rural markets provide strong growthopportunities because these markets typically have lower current penetrationrates and less competition for customers than markets in larger metropolitanareas. In addition, our rural markets generally contain a number of vacationdestinations and significant highway miles. For these reasons, and because ofthe distance between population centers, many potential customers spendsubstantial time traveling through our service areas, resulting in higher roamingrevenues than in urban markets.

 

The following chart summarizes our existing wireless systems as ofDecember 31, 2001:

 
| **Regions**        |   | **Percentage  Ownership** |   | **Total********Licensed  POPS(1)** |   | **Marketed  POPs(1)** |   | **Voice  Customers(2)** |   | **Penetration****%****(2)** |   | **Square  Miles** |   | **States**         |   |
|--------------------|--------|---------------------------|--------|------------------------------------|--------|-----------------------|--------|-------------------------|--------|-----------------------------|--------|-------------------|--------|--------------------|--------|
| Cellular:          |   |                      |   |                               |   |                  |   |                    |   |                        |   |              |   |               |   |
| Midwest            |   | 100                       | %      | 1,019,000                          |   | 731,000               |   | 101,933                 |   | 13.9                        |   | 45,000            |   | MN, SD             |   |
| Northeast          |   | 100                       | %      | 3,175,000                          |   | 2,037,000             |   | 236,442                 |   | 11.6                        |   | 46,000            |   | MA, ME, NH, NY, VT |   |
| South              |   | 100                       | %      | 1,474,000                          |   | 1,474,000             |   | 118,594                 |   | 8.0                         |   | 71,000            |   | AL, KS, MS         |   |
| Northwest          |   | 100                       | %      | 919,000                            |   | 919,000               |   | 161,383                 |   | 17.6                        |   | 81,000            |   | OR, WA             |   |
| Cellular Total     |   |                      |   | 6,587,000                          |   | 5,161,000             |   | 618,352                 |   | 12.0                        |   | 243,000           |   |               |   |
|               |   |                      |   |                               |   |                  |   |                    |   |                        |   |              |   |               |   |
| PCS:               |   |                      |   |                               |   |                  |   |                    |   |                        |   |              |   |               |   |
| Wireless  Alliance |   | 70                        | %      | 732,000                            |   | 732,000               |   | 14,417                  |   | 2.0                         |   | 19,000            |   | MN, ND, SD, WI     |   |
| Total              |   |                      |   | 7,319,000                          |   | 5,893,000             |   | 632,769                 |   | 10.7                        |   | 262,000           |   |               |   |

 

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(1) Updated to reflect2000 U.S. Census Bureau data.

 

(2) Represents theratio of wireless voice customers at the end of the period to marketed POPs.Customer numbers exclude paging and long distance customers.

 

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Within each of our four regions,we operate through the development of a local presence in the communities weserve, which we believe enhances our competitive position and allows us totailor our products and services to meet our customers’ specific needs. Whereappropriate, we leverage our service programs and operating practices acrossour various markets.

 

We have invested capital and resourcesto enhance the quality of our networks, expand our geographic footprint, andbroaden our service offerings. As a result of our network investments, webelieve our customers receive a high level of both regional and local wirelesscoverage, minimal call blocking and dropped calls, seamless call delivery andhand-off, and access to digital services. Our digital offerings are availablein all of our markets and include caller identification, short messageservices, and numeric paging, as well as other ancillary services such asvoicemail and call waiting. As of December 31, 2001, approximately 62% ofour wireless customers were using digital handsets whose digital features canbe utilized in approximately 90% of our service areas.

 

***(b)******         FinancialInformation about Segments***

 

Our business consists of one segment, the operations of wirelesscommunication systems in the United States.

 

***(c)   Description ofBusiness/Service Areas***

 

**Marketingof Products and Services**

 

We have developed our marketing strategy on a market-by-market basisand offer service plan options to our customers tailored to address theirspecific needs and to encourage cellular usage. Most service plans have a fixedmonthly access fee, which includes a specified number of minutes, and incrementalfees for enhanced services. As a result of our focus on marketing strategies aswell as the upgrade of our networks to digital capability, we are able to offerour customers a wide array of services on an individual or bundled basis. Webelieve these services stimulate demand for wireless usage and increasecustomer loyalty. These services include the following:

 

•                  *Caller ID*— Allows a customer to see thephone number and name of the calling party before answering the call or afternot answering a call.

•                  *Short Message Service*— Allows a customerto receive and send text messages or content messages.

•                  *Numeric Paging*— Allows calling parties toleave a phone number rather than a voice message.

•                  *Visual Message Notification*— Allows acustomer to know that a text or voice message has been received by displayingan icon on the customer’s phone.

•                  *Group Ring*— Allows a customer to havemultiple phones ring simultaneously when a single cellular phone number iscalled.

•                  *Add-A-Line*— Allows an additional phone tobe included on a single account for a flat fee, permitting a customer to sharethe service plan minutes.

•                  *Voicemail*— Allows a customer to receiveand retrieve voicemail.

•                  *Regional Personal Toll-Free Number*—Provides a customer with a regional personal toll-free number, which encouragescustomers to distribute their cellular numbers and keep their telephones turnedon to accept incoming calls.

•                  *Nationwide Calling Option*— Allows acustomer to pay a flat fee for all long distance calls made from our serviceareas.

•                  *Phone Service*— Allows customers theoption to lease handsets for a nominal monthly charge. This service reducescustomers’ concerns regarding equipment obsolescence and enables us to bettercompete with our competitors’ free handset offers.

•                  *Paging Services*— Marketed both throughour own system, covering northern Minnesota and eastern North Dakota, and as areseller of paging services covering most of our other service areas.  We market our paging services as part of ourbundled service offerings.

•                  *Voice Activated Dialing* — Marketed toprovide unique speech recognition services to wireless customers. Theseservices, which include voice activated dialing, require no extra equipment forthe customer to buy or install and overlays on their existing wireless serviceas a voice alternative to touchtone.

 

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In addition to tailoring our service plans based on features andminutes of use, we also offer our customers regional calling plans and roamingpackages that allow our customers to pay home usage rates while travelingwithin specified regional zones, both within and outside of our cellularservice areas. We have also established preferred roaming contracts anddeveloped system integration with adjacent cellular carriers, which permit ourcustomers to receive automatic call delivery, call forwarding, toll-free accessto voicemail, call hand-off, and reduced roaming rates nationwide.

 

Roaming is an integral component of our service offerings. We havestructured our roaming agreements to enable us to provide expanded networkaccess to our customers both regionally and nationally and provide roamingrates based upon factors such as network coverage, feature functionality, andnumber of customers.  A substantial portion of our roaming revenue isderived from agreements with two national wireless providers, AT&T Wirelessand Verizon Wireless. For the year ended December 31, 2001, AT&T Wirelessaccounted for approximately 50%, and Verizon Wireless accounted forapproximately 20%, of our total roaming minutes.  RCC has three agreements with AT&T Wireless, each coveringseparate divisions of its total service area. Under our agreements withAT&T Wireless, Verizon Wireless and other roaming partners, the roamingyield per minute RCC receives from outcollect calling minutes in addition tothe cost per minute RCC pays for its customers incollect activity, decline overtime.

 

The following table lists our consolidatedhistorical quarterly roaming yield per minute and incollect cost per minute:

 
|                                                      |   | **1st Qtr** |   | **2nd Qtr** |   | **3rd Qtr** |   | **4th Qtr** |   | **Annual  Average** |   |
|-----------------------------------------------------------|--------|-------------|--------|-------------|--------|-------------|--------|-------------|--------|---------------------|--------|
| Approximate Outcollect Yield Per Minute (including  toll) |   |        |   |        |   |        |   |        |   |                |   |
| 2000                                                      |   | $           | 0.52   |        | $      | 0.49        |   | $           | 0.49   |                | $      | 0.45 |   | $ | 0.49 |   |
| 2001                                                      |   | $           | 0.38   |        | $      | 0.36        |   | $           | 0.36   |                | $      | 0.29 |   | $ | 0.34 |   |
|                                                      |   |        |   |        |   |        |   |        |   |                |   |
| Approximate Incollect Cost Per Minute                     |   |        |   |        |   |        |   |        |   |                |   |
| 2000                                                      |   | $           | 0.42   |        | $      | 0.40        |   | $           | 0.40   |                | $      | 0.38 |   | $ | 0.40 |   |
| 2001                                                      |   | $           | 0.30   |        | $      | 0.26        |   | $           | 0.24   |                | $      | 0.22 |   | $ | 0.25 |   |

 

We also have agreements with the North American Cellular Network, whichis one of the largest wireless telephone network systems in the world, linkingcellular operators throughout the United States and Canada and enablingcustomers to use their cellular phones to place and receive calls in theseareas as easily as they do in their home areas. Through North American CellularNetwork, customers are able to receive calls automatically without the use ofcomplicated roaming codes as they roam in more than 5,000 cities and towns inthe United States and Canada. In addition, North American Cellular Networkenables special services such as call forwarding and call waiting toautomatically follow customers as they travel.

 

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**Distribution and Sales**

 

We market our wireless products andservices through direct sales distribution channels, which include companyowned retail stores and account executives. We also utilize indirect salesdistribution channels, including independent sales agents. All distributionchannels are managed on a regional basis. We believe that our decentralizedsales distribution strategy contributes to our service offering success becauseour regions are able to tailor their respective programs to meet the needs ofeach local market.

 

Our distribution channels include the following:

 

•                  direct sales through:

 

•                        retail stores and kiosks that we operate and staffwith our employees. As of December 31, 2001, we had 84 stores, primarilylocated in our more densely populated markets. In addition, we had eightstand-alone kiosks. Our retail locations help us establish our presence andpromote retail customer sales and service; and

 

•        account executives who are our employeesand focus on business and major account sales and service; and

 

•                  indirect sales through independent sales agents.Our independent sales agents are established businesses in their communitiesand may include retail electronics stores, farm implement dealers, automobiledealers, automobile parts suppliers, college and university bookstores, videoand music stores, and local telephone companies. Most of the agents sell ourservices in conjunction with their principal business. We provide cellular,digital, and paging equipment to the agents for sale or rent to customers, andthe agents market our services utilizing a cooperative advertising program.

 

Each region is responsible for recruiting,training, and supporting sales personnel for each distribution channel. Thetraining and support provided to sales personnel is extensive and continuous.

 

**Customer Service**

 

To provide consistently superiorcustomer service in our service centers, we have implemented sophisticatedlocal monitoring and control systems and maintain customer service departmentsconsisting of highly trained personnel who are aware of the needs of thecustomers in our local markets. Our customer service centers are located inAlexandria, Minnesota; Bangor, Maine; Enterprise, Alabama; and Bend, Oregon.Our customer service centers in the Northeast and Midwest region can beaccessed 24 hours a day, 365 days a year, and are capable of handlingboth routine and complex technical questions. We believe that having customerservice centers located in or near our regional clusters provides a significantcompetitive advantage because it reinforces the local nature of our product andallows the customer service representatives to offer more customized service asa result of their inherent local knowledge. The customer service centers arealso responsible for processing new service orders and service changes forexisting customers and maintaining customer records. Our customer servicecenters maintain a quality control process that monitors call centerperformance and balances customer service center resources to match call centerload levels.

 

Customers are contactedperiodically and offered additional calling features such as voicemail, callwaiting, and call forwarding and are recommended the best service pricing planfor that customer’s usage levels. We believe these contact programs enhancecustomer loyalty, maintain high retention rates, and increase sales ofadditional features that increase customer airtime usage and generate customerreferrals.

 

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**ServiceMarks**

 

The following table summarizesthe brand names we use to market our services in our different regions.

 
| **Region**    |   | **Wireless Voice**                                  |   | **Paging**                                               |   | **Long Distance**                                   |   |
|---------------|--------|-----------------------------------------------------|--------|----------------------------------------------------------|--------|-----------------------------------------------------|--------|
| **Northeast** |   | UNICEL®, CELLULARONE®, StarCellular® |   | UNICEL Paging Service®, PAGING by CELLULARONE® |   | LONG DISTANCE by CELLULARONE®, SimplyOne® |   |
| **Midwest**   |   | CELLULAR 2000®, UNICEL®                   |   | KEYPAGE®                                            |   | N/A                                                 |   |
| **Northwest** |   | CELLULARONE®                                   |   | N/A                                                      |   | N/A                                                 |   |
| **South**     |   | UNICEL®                                        |   | N/ A                                                     |   | N/A                                                 |   |

 

We own the UNICEL®,StarCellular®, and SimplyOne® marks. The CELLULAR 2000® name and related marks are owned by Cellular2000, Inc., of which we currently own a 50% interest. The only business ofCellular 2000, Inc. is the licensing of its service mark to itsshareholders. We do not pay any license fees for the use of the CELLULAR 2000®mark.  The CELLULARONE® mark is owned byCellular One Group, and we use the CELLULARONE® service mark pursuant tolicensing agreements with Cellular One Group.

 

**NetworkOperations**

 

***Cellular***

 

We develop and build our wirelessservice areas in response to customer demand by adding channels to existing cellsites and by building new cell sites to increase coverage and capacity. Whereappropriate, we also upgrade acquired properties to enable us to providesimilar quality service over our entire network. We expect to continue ourwireless system expansion where necessary to add and retain customers, enhancecustomer usage on our systems, and increase roaming traffic. We also enhanceour systems through scalable network equipment, cell site splitting, cell sitesectorization, and digital upgrades of our systems. In addition to the customerquality aspects, these enhancements generally provide improved network systemperformance and efficiency of operations.

 

Our cellular network consisted of622 cell sites as of December 31, 2001. We will continue to develop ourwireless service areas by building new cell sites in locations that increasecapacity and improve coverage. In 2001 we added 18 sites through theacquisition of Saco River while adding an additional 12 sites through lease orconstruction. We plan to lease and purchase additional cell sites during 2002.The additional cell sites will further expand capacity and will allow customersto use lower-powered or hand-held portable telephones throughout our serviceareas and network.

 

We currently rely on TDMA as theprimary digital standard for our wireless systems. With TDMA technology ourcustomers’ phones have digital compatibility with other wireless systems usingTDMA service. Further, the built-in intelligence of digital handsets allows usto manage our incollect costs.

 

***Wireless Alliance***

 

At December 31, 2001, WirelessAlliance had 62 cell sites. Wireless Alliance has a global system for mobiletechnology-based personal communications services network, or “GSM.” WirelessAlliance utilizes Voicestream Wireless Corporation’s switch.

 

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***Other Licenses***

 

Currently we own, but have not yet developed operating plans for,several additional wireless licensed properties. These wireless licensesinclude both local multi-point distribution system and personal communicationsservices spectrum.

 

•           Our local multi-point distribution systemlicensed properties cover approximately 2.6 million POPs and either overlap orare adjacent to our cellular systems. We currently plan to use a portion of thelocal multi-point distribution system licenses for testing new products,services and systems. We will then conduct market research on these productsand services to determine whether to introduce them in our existing markets.

 

•           In 1999 we acquired a PCS BTA license fora market adjacent to our Midwest region that covers 288,000 POPs. During thefourth quarter of 2001, we began the TDMA buildout of this service area.

 

•           As part of the January 2001 acquisitionof Saco River, we acquired PCS licenses covering 1.1 million POPs in Portland,Maine and Manchester, New Hampshire.

 

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Information regarding RCC’s service areas and licenses is set forth inthe following tables.

 

**Built Out Voice License Summary**

 
|                                              |   | **%  Ownership** |   | **Marketed  POPs** |   | **License**        |   | **Spectrum** |   | **Date of  Acquisition** |   |
|---------------------------------------------------|--------|------------------|--------|--------------------|--------|--------------------|--------|--------------|--------|--------------------------|--------|
| **Cellular**                                      |   |             |   |               |   |               |   |         |   |                     |   |
| Midwest:                                          |   |             |   |               |   |               |   |         |   |                     |   |
| Minnesota RSA 1                                   |   | 100              | %      | 50,000             |   | Cellular  - B side |   | 25  MHz      |   | 04/01/91                 |   |
| Minnesota RSA 2                                   |   | 100              | %      | 65,000             |   | Cellular  - B side |   | 25  MHz      |   | 04/01/91                 |   |
| Minnesota RSA 3                                   |   | 100              | %      | 58,000             |   | Cellular  - B side |   | 25  MHz      |   | 04/01/91                 |   |
| Minnesota RSA 5                                   |   | 100              | %      | 215,000            |   | Cellular  - B side |   | 25  MHz      |   | 04/01/91                 |   |
| Minnesota RSA 6                                   |   | 100              | %      | 274,000            |   | Cellular  - B side |   | 25  MHz      |   | 04/01/91                 |   |
| South Dakota RSA 4                                |   | 100              | %      | 69,000             |   | Cellular  - B side |   | 25  MHz      |   | 02/01/99                 |   |
| Total Midwest                                     |   |             |   | 731,000            |   |               |   |         |   |                     |   |
| Northeast:                                        |   |             |   |               |   |               |   |         |   |                     |   |
| Maine, Bangor MSA                                 |   | 100              | %      | 145,000            |   | Cellular  - B side |   | 25  MHz      |   | 05/01/97                 |   |
| Maine, RSA 1                                      |   | 100              | %      | 84,000             |   | Cellular  - B side |   | 25  MHz      |   | 07/31/98                 |   |
| Maine, RSA 2                                      |   | 100              | %      | 142,000            |   | Cellular  - B side |   | 25  MHz      |   | 05/01/97                 |   |
| Maine, RSA 3                                      |   | 100              | %      | 227,000            |   | Cellular  - B side |   | 25  MHz      |   | 05/01/97                 |   |
| Massachusetts RSA 1                               |   | 100              | %      | 72,000             |   | Cellular  - A side |   | 25  MHz      |   | 07/01/98                 |   |
| New Hampshire, Portsmouth MSA                     |   | 100              | %      | 299,000            |   | Cellular  - B side |   | 25  MHz      |   | 01/01/01                 |   |
| New Hampshire RSA 1                               |   | 100              | %      | 229,000            |   | Cellular  - A side |   | 25  MHz      |   | 07/01/98                 |   |
| New York RSA 2                                    |   | 100              | %      | 230,000            |   | Cellular  - A side |   | 25  MHz      |   | 07/01/98                 |   |
| Vermont, Burlington MSA                           |   | 100              | %      | 154,000            |   | Cellular  - A side |   | 25  MHz      |   | 07/01/98                 |   |
| Vermont RSA 1                                     |   | 100              | %      | 217,000            |   | Cellular  - A side |   | 25  MHz      |   | 07/01/98                 |   |
| Vermont RSA 2                                     |   | 100              | %      | 238,000            |   | Cellular  - A side |   | 25  MHz      |   | 07/01/98                 |   |
| Total Northeast                                   |   |             |   | 2,037,000          |   |               |   |         |   |                     |   |
| South:                                            |   |             |   |               |   |               |   |         |   |                     |   |
| Alabama RSA 3                                     |   | 100              | %      | 136,000            |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Alabama RSA 4                                     |   | 100              | %      | 145,000            |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Alabama RSA 5                                     |   | 100              | %      | 221,000            |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Alabama RSA 7                                     |   | 100              | %      | 172,000            |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Kansas RSA 1                                      |   | 100              | %      | 27,000             |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Kansas RSA 2                                      |   | 100              | %      | 30,000             |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Kansas RSA 6                                      |   | 100              | %      | 19,000             |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Kansas RSA 7                                      |   | 100              | %      | 81,000             |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Kansas RSA 11                                     |   | 100              | %      | 94,000             |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Kansas RSA 12                                     |   | 100              | %      | 47,000             |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Kansas RSA 13                                     |   | 100              | %      | 28,000             |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Mississippi RSA 1                                 |   | 100              | %      | 183,000            |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Mississippi RSA 3                                 |   | 100              | %      | 160,000            |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Mississippi RSA 4                                 |   | 100              | %      | 131,000            |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Total South                                       |   |             |   | 1,474,000          |   |               |   |         |   |                     |   |
| Northwest:                                        |   |             |   |               |   |               |   |         |   |                     |   |
| Oregon RSA 3                                      |   | 100              | %      | 159,000            |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Oregon RSA 4                                      |   | 100              | %      | 226,000            |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Oregon RSA 6                                      |   | 100              | %      | 213,000            |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Washington RSA 2                                  |   | 100              | %      | 139,000            |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Washington RSA 3                                  |   | 100              | %      | 59,000             |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Washington RSA 8                                  |   | 100              | %      | 123,000            |   | Cellular  - A side |   | 25  MHz      |   | 04/01/00                 |   |
| Total Northwest                                   |   |             |   | 919,000            |   |               |   |         |   |                     |   |
| Total   Cellular                             |   |             |   | 5,161,000          |   |               |   |         |   |                     |   |
| **Wireless Alliance (PCS)**                       |   |             |   |               |   |               |   |         |   |                     |   |
| Duluth, Minnesota/Superior, Wisconsin  BTA 119:   |   | 70               | %      | 279,000            |   | PCS  - B Block     |   | 20  MHz      |   | 04/10/97                 |   |
| Fargo, North Dakota/Moorhead, Minnesota BTA  166: |   | 70               | %      | 183,000            |   | PCS  - B Block     |   | 20  MHz      |   | 04/10/97                 |   |
| Grand Forks, North Dakota  BTA 166:               |   | 70               | %      | 98,000             |   | PCS  - B Block     |   | 20  MHz      |   | 04/10/97                 |   |
| Sioux Falls, South Dakota  BTA 422:               |   | 70               | %      | 172,000            |   | PCS  - B Block     |   | 20  MHz      |   | 11/06/97                 |   |
| Total PCS                                         |   |             |   | 732,000            |   |               |   |         |   |                     |   |
| Total                                             |   |             |   | 5,893,000          |   |               |   |         |   |                     |   |

 

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**Unbuilt Voice License Summary**

 
|                                       |   | **%********Ownership** |   | **POPs** |   | **License**   |   | **Spectrum** |   | **Date of  Acquisition** |   |
|--------------------------------------------|--------|------------------------|--------|----------|--------|---------------|--------|--------------|--------|--------------------------|--------|
| Midwest                                    |   |                   |   |     |   |          |   |         |   |                     |   |
| St. Cloud, MN BTA 391                      |   | 100                    | %      | 288,000  |   | PCS - C Block |   | 30 MHz       |   | 07/01/99                 |   |
| Northeast                                  |   |                   |   |     |   |          |   |         |   |                     |   |
| Manchester &  Nashua, NH  BTA 274 |   | 100                    | %      | 617,000  |   | PCS - F Block |   | 10 MHz       |   | 01/01/01                 |   |
| Portland, ME BTA  357                      |   | 100                    | %      | 521,000  |   | PCS - F Block |   | 10 MHz       |   | 01/01/01                 |   |
|                                       |   |                   |   | 1,426,00 |   |          |   |         |   |                     |   |

 

**Local Multipoint Distribution Service (“LMDS”) LicenseSummary**

 
| **Market**                                 |   | **%  Ownership** |   | **Call Sign** |   | **Spectrum** |   | **Date of  Acquisition** | ** ** |
|--------------------------------------------|--------|------------------|--------|---------------|--------|--------------|--------|--------------------------|------------|
| Brainerd, MN,  BTA 054-A                   |   | 100              | %      | WPOK 264      |   | 27.5 GHz     |   | 08/09/99                 |       |
| Burlington, VT  BTA 063-A                  |   | 100              | %      | WPOK 265      |   | 27.5 GHz     |   | 08/09/99                 |       |
| Duluth, MN BTA  119-A                      |   | 100              | %      | WPOK 266      |   | 27.5 GHz     |   | 08/09/99                 |       |
| Eau Claire, WI  BTA 123-A                  |   | 100              | %      | WPOK 267      |   | 27.5 GHz     |   | 08/09/99                 |       |
| Fergus Falls, MN  BTA 142-B                |   | 100              | %      | WPOK 274      |   | 31.3 GHz     |   | 08/09/99                 |       |
| Glens Falls, NY  BTA 164-A                 |   | 100              | %      | WPOK 268      |   | 27.5 GHz     |   | 08/09/99                 |       |
| Keene, NH BTA  227-A                       |   | 100              | %      | WPOK 269      |   | 27.5 GHz     |   | 08/09/99                 |       |
| La Crosse,  WI-Winona, MN BTA 234-A        |   | 100              | %      | WPOK 270      |   | 27.5 GHz     |   | 08/09/99                 |       |
| Lebanon-Claremont,  NH BTA 249-A           |   | 100              | %      | WPOK 271      |   | 27.5 GHz     |   | 08/09/99                 |       |
| Mankato-Fairmont,  MN BTA 277-B            |   | 100              | %      | WPOK 275      |   | 31.3 GHz     |   | 08/09/99                 |       |
| Plattsburgh, NY  BTA 352-A                 |   | 100              | %      | WPOK 272      |   | 27.5 GHz     |   | 08/09/99                 |       |
| Rochester-Austin-Albert  Lea, MN BTA 378-B |   | 100              | %      | WPOK 276      |   | 31.3 GHz     |   | 08/09/99                 |       |
| Rutland-Bennington,  VT BTA 388-A          |   | 100              | %      | WPOK 273      |   | 27.5 GHz     |   | 08/09/99                 |       |

 

Source: Updated toreflect 2000 U.S. Census Bureau data.

 

***Suppliers and Equipment Partners***

 

We do not manufacture any customer or network equipment. The high degreeof compatibility among different manufacturers’ models of handsets and networkfacilities equipment allows us to design, supply, and operate our systemswithout being dependent upon a single source of equipment. We currentlypurchase handsets primarily from Motorola, Inc., Ericsson, Inc. and NokiaTelecommunications, Inc. We currently purchase network equipment from NorthernTelecom, Inc., Lucent Technologies Inc., Harris, Inc., NokiaTelecommunications, Inc., Alcatel, Erickson, Inc. and Motorola, Inc.

 

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**Competition**

 

We compete against severalwireless carriers in each of our markets and also compete with a number ofenhanced specialized mobile radio service providers. We compete for customersbased on numerous factors, including wireless system coverage and quality,service value equation (minutes and features over price), local marketpresence, digital voice and features, customer service, distribution strength,and name brand recognition. Some competitors also market other services, suchas long distance, landline local exchange, and internet access service, withtheir wireless telecommunication service offerings. Many of our competitorshave been operating for a number of years, currently serve a substantialcustomer base, and have significantly greater financial, personnel, technical,marketing, sales, and distribution resources than we do.

 

The following table lists ourcompetitors on a market-by-market basis:

** **
| **Region**                                                            |   | **Cellular********Competition**                                  |       | **PCS / ESMR  Competition**                                                    |       |
|-----------------------------------------------------------------------|--------|------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| **Cellular**                                                          |   |                                                             | ** ** |                                                                           | ** ** |
| **Midwest:**                                                          |   |                                                             | ** ** |                                                                           | ** ** |
| Minnesota RSA 1  and 2                                                |   | Western Wireless Corporation                                     |       | Cellular Mobile Systems of St. Cloud (“CMS”)                         |       |
| Minnesota RSA 3,  5 and 6                                             |   | American Cellular Corporation                                    |       | WirelessNorth, L.L.C., CMS, Nextel Communications,  Inc., Voicestream Wireless |       |
| South  Dakota  RSA 4                                             |   | Western Wireless Corporation                                     |       | Sprint PCS                                                                     |       |
| **Northeast:**                                                        |   |                                                             |       |                                                                           |       |
| Maine, Bangor  MSA, RSA 1, 2 and 3                                    |   | United States Cellular Corporation                               |       | N/A                                                                            |       |
| Massachusetts  RSA 1                                                  |   | Cingular Wireless                                                |       | N/A                                                                            |       |
| New Hampshire,  Portsmouth, MSA                                       |   | AT&T Wireless                                                |       | Sprint PCS, Nextel Communications, Inc., Voicestream  Wireless                 |       |
| New  Hampshire  RSA 1                                            |   | United States Cellular Corporation                               |       | N/A                                                                            |       |
| New York RSA 2                                                        |   | Verizon Communications                                           |       | N/A                                                                            |       |
| Vermont  Burlington MSA, RSA 1                                        |   | Verizon Communications                                           |       | N/A                                                                            |       |
| Vermont RSA 2                                                         |   | United States Cellular Corporation                               |       | N/A                                                                            |       |
| **South:**                                                            |   |                                                             |       |                                                                           |       |
| Alabama RSA 3                                                         |   | Cingular Wireless                                                |       | VoiceStream Wireless                                                           |       |
| Alabama RSA 4                                                         |   | ALLTEL Corporation                                               |       | VoiceStream Wireless, Pine Belt Wireless                                       |       |
| Alabama RSA 5                                                         |   | ALLTEL Corporation, Cingular Wireless, Public  Service Telephone |       | VoiceStream Wireless, Nextel Communications, Inc.                              |       |
| Alabama RSA 7                                                         |   | ALLTEL Corporation                                               |       | VoiceStream Wireless, Sprint PCS Group                                         |       |
| Kansas RSA 1, 2,  6, 7, 12 and 13                                     |   | ALLTEL Corporation                                               |       | Westlink Communications (1,2,6,7,12)                                           |       |
| Kansas RSA 11                                                         |   | ALLTEL Corporation                                               |       | PanHandle Telecommunications Systems, Inc.                                     |       |
| Mississippi RSA  1 and 4                                              |   | Cingular Wireless, Cellular Telepak, Inc.                        |       | VoiceStream Wireless, Telecorp PCS, Inc.                                       |       |
| Mississippi RSA  3                                                    |   | Cellular Telepak, Inc                                            |       | VoiceStream Wireless, Telecorp PCS, Inc.                                       |       |
| **Northwest:**                                                        |   |                                                             |       |                                                                           |       |
| Oregon RSA 3                                                          |   | United States Cellular Corporation, AT&T  Wireless           |       | Sprint PCS, Qwest, Nextel Communications, Inc.                                 |       |
| Oregon RSA 4                                                          |   | Verizon Communications, AT&T Wireless                        |       | VoiceStream Wireless,  Sprint PCS,  Qwest,  Nextel Communications, Inc.        |       |
| Oregon RSA 6                                                          |   | United States Cellular Corporation                               |       | Sprint PCS,  Nextel Communications, Inc., VoiceStream Wireless Corporation     |       |
| Washington RSA 2  and 3                                               |   | Verizon Communications                                           |       | Sprint PCS,  VoiceStream Wireless Corporation                                  |       |
| Washington RSA 8                                                      |   | Inland Cellular, AT&T Wireless                               |       | Sprint PCS,  Qwest                                                             |       |
| **PCS****- Wireless Alliance:**                                       |   |                                                             |       |                                                                           |       |
| Duluth,  Minnesota / Superior, Wisconsin                              |   | Verizon Communications, Dobson Communications                    |       | WirelessNorth, L.L.C., Sprint PCS, Nextel  Communications, Inc.                |       |
| Fargo, North  Dakota / Moorhead, Minnesota; Grand Forks, North Dakota |   | Western Wireless Corporation, Verizon Communications             |       | WirelessNorth, L.L.C., Sprint PCS, Nextel  Communications, Inc.                |       |
| Sioux Falls,  South Dakota                                            |   | Western Wireless Corporation, Verizon  Communications.           |       | Sprint PCS, Nextel Communications, Inc                                         |       |

 

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The telecommunications industryis experiencing significant technological changes, as evidenced by the increasingpace of improvements in the capacity and quality of digital technology, shortercycles for new products and enhancements, and changes in consumer preferencesand expectations. Accordingly, with the entry of new competitors and thedevelopment of new technologies, products, and services, competition in thewireless telecommunications industry has been dynamic and intense.

 

In the future, we expect to faceincreased competition from entities holding licenses for PCS spectrum not yetoperating in our markets. We believe that PCS networks will continue to befocused primarily in urban areas due to capital and population coveragerequirements. The FCC has issued licenses for both narrowband and broadbandPCS, and six broadband licenses were issued in each of our cellular serviceareas. Narrowband PCS typically provides advanced paging and messagingservices. Broadband PCS consists of wireless two-way telecommunicationsservices for voice, data, and other transmissions employing digitalmicro-cellular technology. Many broadband PCS providers compete with existingwireless systems. Under FCC rules, license holders are allowed to disaggregatethe spectrum covered by their license. Accordingly, we may face competitionfrom additional providers of PCS if the FCC approves a disaggregation ofspectrum for any license for PCS in one of our service areas. In addition, theOmnibus Budget Reconciliation Act of 1993 required, among other things, theallocation to commercial use of a portion of 200 MHz of the spectrum currentlyreserved for government use. Some portion of this spectrum may be used tocreate new land-mobile services or to expand existing land-mobile services.Further, the FCC has auctioned or announced plans to auction licenses in the 39GHz spectrum and 700 MHz spectrum that may be used for wireless communicationsthat would compete with our services.

 

Specialized mobile radio andother private radio systems, such as those generally used by local dispatch,fleet services, and other communications services that have the technicalcapability to handle mobile telephone calls, including interconnection to thelandline telephone network, may provide competition in some markets. Inaddition, enhanced specialized mobile radio systems may compete with our wirelessservices by providing high quality digital communication technology, lowerrates, enhanced privacy, and additional features such as paging, particularlyin metropolitan areas.

 

We also compete to a lesserextent with resellers, landline telephone service providers, fixed wirelessservices, and satellite-based telecommunications systems. The FCC requires allwireless licensees to provide service to “resellers.” A reseller provideswireless services to customers but does not hold a FCC license and might notown facilities. Instead, the reseller buys blocks of wireless telephone numbersand capacity from a licensed carrier and resells service through its owndistribution network to the public. Thus, a reseller is both a customer of awireless licensee’s service and also a competitor of that licensee. Severalsmall resellers currently operate in our systems.

 

We anticipate that market pricesfor wireless communications service and equipment will continue to decline inthe future based upon increased competition and cost reductions. Our ability tocompete successfully is dependent, in part, on our ability to anticipate andrespond to various competitive factors affecting the industry. Our marketingand sales organization includes a group that carefully monitors and analyzescompetitive products and service offerings, changes in consumer preferences,changes in demographic trends and economic conditions, and pricing strategiesby competitors that could adversely affect our operations or present strategicopportunities.

 

We believe that we arestrategically positioned to compete with other communications technologies thatnow exist and with wireless resellers. Continuing technological advances intelecommunications and FCC policies that encourage the development of newspectrum-based technologies make it difficult, however, to predict the extentof future competition.

 

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**Legislation and Regulation**

 

***Overview***

 

Our business is subject to varying degrees offederal, state and local regulation. The FCC has jurisdiction over allfacilities of, and services offered by, telecommunications common carriers suchas us, to the extent those facilities are used to provide, originate, orterminate interstate or international communications. The Communications Act of1934, as amended (the “Communications Act”), preempts state and localregulation of the entry of, or the rates charged by, any provider of commercialmobile radio service (“CMRS”), which includes our cellular service and broadbandpersonal communications service. Otherwise, state and local regulatorycommissions retain jurisdiction over most of the same facilities and servicesto the extent they are used to originate or terminate intrastate communicationsand with respect to zoning and similar matters. In addition, many of theregulations issued by these regulatory bodies may be subject to judicialreview, the result of which review we are unable to predict.

 

***Federal Regulation***

 

*The following summary of regulatory developments andlegislation does not purport to describe all present and proposed federal,state, and local regulation and legislation affecting the telecommunicationsindustry. Many existing federal and state laws and regulations are currentlythe subject of judicial proceedings, legislative hearings, and administrativeproposals that could change, in varying degrees, the manner in which thisindustry operates. Neither the outcome of these proceedings nor their impactupon the telecommunications industry on us can be predicted at this time.*

 

We must comply with the applicable requirementsof the Communications Act, which was amended by the Telecommunications Act of1996 (the “1996 Act”) and other legislation. The 1996 Act effected plenarychanges in regulation at both the federal and state levels that affectvirtually every segment of the telecommunications industry. The stated purposeof the 1996 Act is to promote competition in all areas of telecommunicationsand to reduce unnecessary regulation to the greatest extent possible.

 

The 1996 Act greatly expands the FCC’sinterconnection requirements for incumbent local exchange carriers by requiringthem to:

 

•                  provide physical co-location;

•                  unbundle and provide access to components oftheir local service networks to other providers of local service; and

•                  establish wholesale rates for the services theyoffer at retail.

 

The 1996 Act also requires all local exchangecarriers to:

 

•                  establish number portability;

•                  establish dialing parity; and

•                  provide nondiscriminatory access to telephonepoles, ducts, conduits, and rights-of-way.

 

In addition, the 1996 Act requires local exchangecarriers to compensate telecommunications carriers for traffic originated bythe local exchange carriers and terminated on the other carriers’ networks;these arrangements are reciprocal, thus requiring the interconnecting carriersto compensate the local exchange carriers for calls originated by theinterconnecting carriers and terminated on the local exchange carriers’network. The FCC is considering alternatives to its current rules on reciprocalcompensation in an ongoing proceeding concerning inter-carrier compensation.The 1996 Act requires all telecommunications carriers, including us, to provideinterconnection upon reasonable request.

 

Local exchange carriers are required to negotiatein good faith with carriers, such as us, requesting any of the abovearrangements. If a requesting carrier and the local exchange carrier cannotreach an agreement within the prescribed

 

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time, either carrier may request bindingarbitration by the appropriate state commission. Where an agreement cannot bereached, carriers remain subject to the interconnection obligations establishedby the FCC and state telecommunications regulatory commissions.

 

The FCC is charged with establishing nationalguidelines to implement the 1996 Act. The FCC has established detailed rulesregarding rates and terms for interconnection between telecommunicationscarriers and local exchange carriers and regarding the implementation ofdialing parity. In addition, in July 2000, the FCC adopted an order denyingrequests for mandatory interconnection between resellers’ switches and CMRSproviders’ networks and declining to impose general interconnection obligationsbetween such networks. Negotiated interconnection agreements are subject tostate approval and various rules of the FCC, some of which are subject topending regulatory proceedings or court review. The states’ regulatory commissionsmust consider applications for approval of interconnection agreements in amanner consistent with the terms of the Communications Act. The FCC’s rules aswell as the state arbitration proceedings will directly impact the nature andcost of the facilities necessary for interconnection of our wireless systemswith local, national, and international telecommunications networks. Theagreements will determine the nature and amount of revenues we can receive forterminating calls originating on the networks of local exchange and othertelecommunications carriers and how much we pay for having calls that weoriginate terminated on the local exchange carriers’ networks.

 

The FCC also regulates the construction,operation, and acquisition of wireless systems in the United States. CMRSproviders operate under licenses granted by the FCC within a specified marketarea. These licenses are usually auctioned by the FCC after being allocated inspecified frequencies and being made subject to specific FCC rules. The unavailabilityof licenses in desired frequency ranges, as well as the high cost of acquiringsuch licenses, may hinder our ability to modify existing facilities, secureauthorization for additional facilities and introduce advanced “thirdgeneration” wireless services. In particular, the FCC recently conducted anauction of common carrier paging licenses for use of particular frequencies indesignated geographic areas. We did not purchase paging licenses in thatauction, meaning that we cannot now apply to enlarge the areas served by ourpaging systems unless we purchase rights to do so from the appropriategeographic area license holder or participate in a future FCC auction.

 

FCC licenses are generally transferable, subjectto specified limitations prescribed by the Communications Act and the FCC. TheFCC’s prior approval is required for the assignment or transfer of control of alicense for a wireless system. Before we can complete any such purchase orsale, we must file appropriate applications with the FCC, and the public is bylaw granted a period of time, typically 30 days, to oppose or comment on them.In addition, the FCC has established transfer disclosure requirements thatrequire licensees who assign or transfer control of a license acquired throughan auction within the first three years of their license terms to fileassociated sale contracts, option agreements, management agreements, or otherdocuments disclosing the total consideration that the licensee would receive inreturn for the transfer or assignment of its license. Non-controlling minorityinterests in an entity that holds a FCC license generally may be bought or soldwithout FCC approval, subject to the FCC’s spectrum aggregation limits and FCCnotification.

 

Near the conclusion of the generally ten-yearterm of a CMRS license, licensees must file applications for renewal oflicenses to obtain authority to operate for up to an additional ten-year term.Applications for license renewal may be denied if the FCC determines that therenewal would not serve the public interest, convenience, or necessity. The FCCalso may revoke a license prior to the end of its term in extraordinarycircumstances. In addition, at license renewal time, other parties may filecompeting applications for the authorization. The FCC has adopted specificstandards stating renewal expectancy will be awarded to a CMRS licensee thathas provided substantial service during its license term and has substantiallycomplied with applicable FCC rules and policies and the Communications Act. Ifthe FCC awards the CMRS licensee a renewal expectancy, its license renewalapplication generally is granted and the competing applications are dismissed.

 

Although we are unaware of any circumstances thatwould prevent the approval of any future renewal application, no assurance canbe given that the FCC will renew any of our licenses. Moreover, althoughrevocation and involuntary modification of licenses are extraordinary measures,the FCC has the authority to restrict the operation of a licensed facility orrevoke or modify licenses. None of our licenses has ever been revoked orinvoluntarily modified.

 

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We are required by the FCC’s rules to constructfacilities covered by certain licenses and to offer services to a certainpercentage of the population covered by those licenses within specifiedperiods, based on the date of the grant of the licenses. Our PCS licenses aresubject to forfeiture by the FCC, as are all similar licenses held by othercompanies, if these buildout requirements are not satisfied in a timely manner.We are in the process of building out a PCS system under a license whichrequires a certification of sufficient construction by September 29, 2004, anda certification of sufficient additional construction by September 29, 2009, ifa forfeiture of license is to be avoided. That license is for 30 MHz of PCSspectrum in the St. Cloud, Minnesota Basic Trading Area. We have reason tobelieve that our construction will progress at a pace that allows for timelycertifications to the FCC of full compliance with the constructionrequirements. CMRS providers also must satisfy a variety of FCC requirementsrelating to technical and reporting matters, including coordination of proposedfrequency usage with adjacent systems in order to avoid electrical interferencebetween adjacent systems. The FCC also requires licensees to secure FCC consentto system modifications in specified instances.

 

CMRS systems are subject to Federal AviationAdministration regulations respecting the location, marking, lighting, andconstruction of transmitter towers and antennas and may be subject toregulation under the National Environmental Policy Act and the environmentalregulations and registration requirements of the FCC. The FCC has also adoptedguidelines and methods for evaluating radio frequency emissions from radioequipment. We believe that all wireless devices we currently provide to ourcustomers, and all towers that we own or occupy, comply with these standards.

 

The 1996 Act mandates that telecommunicationscarriers contribute to the federal Universal Service Fund, the purpose of whichis to ensure that basic telephone services are available and affordable for allcitizens. The Universal Service Fund is intended to promote access tocommunications services in high cost areas and for low income persons, schools,libraries, and rural health care providers. We also are required to contributeto state universal service funds. The federal Universal Service Fund isadministered jointly by the FCC, the fund administrator, and state regulatoryauthorities, some of which are still in the process of establishing theiradministrative rules. Because we are permitted to collect the requiredcontribution amounts from our customers, we expect that our obligation tocontribute to the Universal Service Fund will have a minimal financial impacton us.

 

We also are required to contribute annually tothe Telecommunications Relay Service Fund and the North American Numbering PlanAdministration Fund, Local Number Portability, and to remit regulatory fees tothe FCC with respect to our operations. We do not expect that thesecontribution obligations will have a material financial impact on us.

 

Cellular and broadband CMRS providers also mustcomply with the FCC’s rules regarding emergency 911 service. There is a stagedprocess for the required deployment of enhanced 911 services, referred to bythe FCC as Phase I and Phase II. Under Phase I, cellular and broadband CMRS providerswere required as of April 1, 1998, or within six months of a request from thedesignated Public Safety Answering Point (“PSAP”), whichever is later, toprovide, if available to the serving carrier, the telephone number of theoriginator of a 911 call and to provide to the designated PSAP the location ofthe cell site or base station receiving a 911 call from any mobile handsetaccessing their systems through the use of Automatic Number Identification andPseudo-Automatic Number Identification. We comply with Phase I requirements asthey are applicable to us. Under Phase II, cellular and broadband CMRSproviders must provide to the designated PSAP the location of all wireless 911callers, by longitude and latitude, in conformance with particular accuracyrequirements. To comply, licensees may elect either network-based or mobileradio handset based location technologies and thereafter meet, according to aphased-in schedule, the enhanced 911 service standards stated in the FCC’srules. We notified the FCC of our intention to utilize network-based locationtechnologies to provide Phase II enhanced 911 service. Pursuant to terms andconditions of an FCC “Order to Stay” adopted in July 2002, granting us anextension of the compliance deadlines, we are subject to requirements of theFCC that require 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, orwithin six months of a PSAP request, whichever is later, and to 100% of arequesting PSAP’s coverage area or population by March 1, 2004 or within 18months of such a request, whichever is later. We have received requests fromPSAPs for deployment of Phase II enhanced 911 service that relate to all areasin the states of Minnesota and Vermont where we provide cellular or PCSservices. It is questionable that either request would be deemed validaccording to FCC guidelines for the evaluation of such requests, so as totrigger our deployment obligations under Phase II. If we determine that we willbe unable to meet any applicable deadline, we will submit  to the FCC a petition for temporary waiverand extension of time to deploy

 

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Phase II enhanced 911 service, citing technologicalor other hindrances to timely implementation. We have no assurance that any such petitions will be granted, or that wewill not be subject to one or more enforcement orders or fines by the FCC inconnection with our failure to comply with Phase II enhanced 911 requirements.In November 1999, the FCC determined that a cost recovery mechanism no longerhas to be in place before a carrier is obligated to provide enhanced 911services. The implementation of enhanced 911 obligations may have a financial impacton us. We are not yet able to predict the extent of that impact.

 

Cellular and PCS providers are required toprovide number portability, which enables customers to change providers andservices without changing their telephone number. By November 24, 2003, CMRSproviders must be able to offer number portability without impairment ofquality, reliability, or convenience when switching service providers,including the ability to support roaming throughout their networks. The FCC hassolicited further comment on the appropriate cost recovery methods regardinglong-term number portability. To date, the FCC has not generally extended thisdeadline. Although the failure to comply with this obligation could result in afine or revocation of our licenses, we are not yet able to predict whether wewill be able to comply with the number portability requirements prior to theexisting deadline.

 

PCS licensees must comply with microwaverelocation rules. For a period of up to ten years after the grant of a PCSlicense (subject to extension), a PCS licensee will be required to sharespectrum with existing licensees that operate specified fixed microwave systemswithin a PCS licensee’s markets. To secure a sufficient amount of unencumberedspectrum to offer our PCS efficiently, we may need to negotiate agreements torelocate many of these existing licensees. In places where relocation isnecessary to permit offering of our PCS, any delay in the relocation of theselicensees may adversely affect our ability to commence timely commercialoperation of our PCS services. In an effort to balance the competing interestsof existing microwave users and newly authorized PCS licensees, the FCC hasadopted a transition plan to relocate these microwave operators to otherspectrum blocks and a cost sharing plan so that if the relocation of anincumbent benefits more than one PCS licensee, the benefiting PCS licenseeswill share the costs of the relocation. We believe that we are in compliancewith applicable spectrum relocation requirements enacted by the FCC.

 

Telecommunications carriers also are subject tothe Communications Assistance for Law Enforcement Act, also known as the“Wiretap Act,” which is under the purview of the Department of Justice. TheWiretap Act requires carriers to have a specific number of open ports availablefor law enforcement personnel with the appropriate legal authority to performwiretaps on each carrier’s network. Full implementation of the Wiretap Act’sassistance capability requirements was previously required by June 30, 2000.However, because the FCC found that there was a lack of equipment available tomeet these requirements, it accepted petitions for a two-year extension of thisdeadline on a carrier-by-carrier basis. We submitted such a petition and weregranted a two-year extension, until June 30, 2002, to comply with the WiretapAct’s assistance capability requirements. We are not yet in compliance for thesame reason, and we petitioned the FCC for another two-year extension, whichremains pending. Additional requirements have been adopted to require cellularand PCS licensees to accommodate interception of digital packet modetelecommunications. We will become obligated to comply with these requirementsonly if and when we commence to offer services that make use of digital packetmode technology. If we are not able to comply with the Wiretap Act prior to theapplicable deadlines, we could be fined up to $10,000 per day. We are not yetable to predict whether we will be able to comply with the Wiretap Actrequirements prior to the current deadlines.

 

For most of our facilities, we use lead-acidbatteries as back-up power sources. As a result, we are subject to annualreporting requirements under the Community Right-To-Know Act. In addition, wemay be subject to other environmental controls or liabilities due to failure tocomply with reporting requirements or emissions or contamination regulations inconnection with facilities we own or operate or have previously owned oroperated. Although we are not aware of any material liabilities of this type,we cannot assure you that none will arise in the future.

 

On November 8, 2001, the FCC adopted a revisionof its rules that impose spectrum aggregation limits and that limit ownershipinterests in both cellular carriers where such carriers have overlappingcellular geographic service areas. Specifically, the FCC decided to raise itsspectrum aggregation limit in the Metropolitan Statistical Areas from 45 MHz to55 MHz. That change became effective on or about February 13, 2002. The limitremains 55 MHz in the Rural Service Areas. On January 2, 2003, the spectrum capis scheduled to be eliminated completely in favor

 

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of a case-by-case review of spectrum transactions.The FCC also lifted entirely, as of approximately February 13, 2002, itscellular cross-interest rule as it applies to ownership interests in cellularcarriers in the Metropolitan Statistical Areas, but it left in placeindefinitely its cellular cross-interest rule as it applies to ownershipinterests in cellular carriers in the Rural Service Areas, subject to requestsfor waivers to be considered on a case-by-case basis. We believe that we are incompliance with both the current and the newly adopted spectrum aggregationlimits and with the cellular cross-interest rule.

 

The FCC has adopted rules to govern customerbilling by all telecommunications carriers. It adopted additional detailedbilling rules for landline telecommunications service providers and isconsidering whether to extend these rules to CMRS providers, which could add tothe cost of our billing process as we modify our systems to conform to any newrequirements. The FCC has also adopted rules that determine the obligations oftelecommunications carriers to make their services accessible to individualswith disabilities. The rules require wireless and other providers to offerequipment and services that are accessible to and useable by persons withdisabilities. While the rules exempt telecommunications carriers from meetinggeneral disability access requirements if these results are not readilyachievable, it is not clear how the FCC will construe this exemption.Accordingly, the rules may require us to make material changes to our network,product line, or services at our expense.

 

In August 2000, the FCC addressed the extent towhich the Communications Act limits plaintiffs in class action lawsuits againstCMRS providers to recover damages and obtain other remedies based on alleged violationsof state consumer protection statutes and common law. It ruled that theCommunications Act did not preempt state rate regulation as a matter of law,but that whether a specific damage award is prohibited would depend on thefacts of a particular case. This ruling might promote the filing of additionalclass actions against the industry and increase the potential for damagesawards by courts.

 

The FCC rules currently require licensees inbroadband PCS, cellular, and most specialized mobile radio services to providea manual roaming service upon reasonable request to any customer whose handsetis capable of accessing their systems. A proceeding has been initiated by theFCC to consider whether the manual roaming service obligation should cease asof some date and be replaced with a requirement that subject carriers provideautomatic roaming on a non-discriminatory basis. With automatic roaming,customer calls can be processed and completed without interruption, whereaswith manual roaming the serving carrier will not complete a call unless thecustomer provides call billing information. Automatic roaming currently isavailable only where the serving carrier has a roaming agreement with thecustomer’s home carrier.

 

The FCC has opened a proceeding to consideractions it could take to remove unnecessary regulatory barriers to thedevelopment of more robust secondary markets in radio spectrum usage rights.The proceeding includes an examination of how leasing of spectrum usage rightsby wireless licensees could be accomplished in a manner that promotes theefficient utilization of spectrum. The FCC indicated that it will reviewimpediments to leasing of spectrum that are related to current policies basedupon its past interpretation of transfer of control issues.

 

The FCC in November 2002 reallocated 90 MHz ofspectrum, in bands below 3 GHz, for fixed and mobile wireless services so as toprovide for the introduction of new advanced wireless services to the public.At the same time the FCC issued a Notice of Proposed Rule Making to allow foradoption of rules to govern licensing of the spectrum by auction and operationsusing the spectrum by licensees. Our ability to offer certain new advancedwireless services in any given area, including third generation as well asfuture generations of wireless systems, may depend at least in part upon ourability to acquire a portion of this spectrum in an upcoming auction.

 

The FCC recently conducted an auction to licensespectrum for commercial wireless services on spectrum currently used for analogtelevision broadcast service on TV channels 52-59 (the “Lower 700 MHz band).Another auction is scheduled in 2003 to reoffer licenses in the Lower 700 MHzband that were not sold in the 2002 auction. A future auction is anticipated tolicense for commercial wireless services spectrum currently used for TVchannels 60-69 (the “Upper 700 MHz band”). Broadcasters licensed in either the Lower 700 MHz band or the Upper 700MHz band are encouraged initially, and ultimately will be required by the FCCabsent a waiver of applicable rules, to terminate analog broadcast operationsin these bands and make the spectrum available to the auction winners forcommercial wireless services.  Spectrumacquired by successful bidders in the Lower 700 MHz band or in the

 

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Upper 700 MHz band is not subject to the FCC’sspectrum aggregation limit of 55 MHz, which limit is scheduled to be eliminatedin any event as of January 2, 2003.

 

***Limitation on ForeignOwnership***

 

Ownership of our capital stock by non-U.S.citizens is subject to limitations under the Communications Act and FCCregulations. Under existing law, no more than 20% of an FCC licensee’s capitalstock may be directly owned or voted by non-U.S. citizens or theirrepresentatives, by a foreign government or its representatives, or by aforeign corporation. If an FCC licensee is controlled by another entity, up to25% of that entity’s capital stock may be owned or voted by non-U.S. citizensor their representatives, by a foreign government or its representatives, or bya foreign corporation. Indirect foreign ownership above the 25% level may beallowed should the FCC find such higher levels not inconsistent with the publicinterest.

 

***State and LocalRegulation***

 

We are also subject to regulation by state andlocal governments. The extent of this regulation varies from state to state.The Communications Act preempts state and local regulation of the entry of orthe rates charged by any CMRS provider, subject to the ability of a state topetition the FCC for authority to regulate rates due to local marketconditions. The states in which we operate our systems do not currentlyregulate the rates for any CMRS, but could petition the FCC for authority in thefuture. The siting and construction of CMRS transmitter towers, antennas, andequipment shelters are often subject to state or local zoning, land use, andother regulation.

 

We are subject to state and local environmentallegislation and regulations, including land use and related permittinglegislation and regulation. We believe that we are currently complying withthese laws and regulations, but we cannot assure you that we may not violatethem in the future.

 

***Consumer SafetyConcerns***

 

Media reports have suggested that radio frequencyemissions may be linked to various health concerns, including cancer, and thatthey interfere with various medical devices, including hearing aids andpacemakers. Wireless operators such as us may be subject to potential litigationrelating to these health concerns. Class action lawsuits asserting productsliability, breach of warranty, and other claims have in fact been filed againstother carriers. The complaints seek damages for personal injuries and the costsof headsets for wireless phone users as well as injunctive relief. Suchlitigation would have a material adverse effect on our results of operations.

 

Another source of potential litigation resultsfrom accidents, death, and bodily injuries attributable to use of wirelessphones while driving motor vehicles. Such litigation, as well as lawsprohibiting or restricting use of wireless phones while driving, could have amaterial adverse effect on our results of operations. On June 28, 2001, NewYork State enacted a law prohibiting the use of handheld wireless phones whiledriving other than through the use of hands-free equipment. To date, a smallnumber of communities in the United States have also passed restrictive localordinances. These laws or, if passed, other laws could have a material adverseeffect on our results of operations by causing customer usage to decline.

 

**Employeesand Sales Agents**

 

As of December 6, 2002, we had 1,074 employees,including 481 in sales and marketing, 289 in customer service, 165 in networkand systems operations, 93 in administration and 46 in finance and accounting.Approximately 53 of our employees were part-time. None of our employees isrepresented by a labor organization, and we believe we have excellent relationswith our employees. In addition, we utilize approximately 470 independent salesagents. Wireless Alliance has no full-time or part-time employees but operatesutilizing our employees.

 

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**PART II**

 

## **ITEM6.   SELECTED FINANCIAL DATA**

 

The data set forth below should be read in conjunction with“Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and the consolidated financial statements and accompanying notesincluded elsewhere in this Form 10-K/A.

 

Our financial performance, and the year-to-year comparability of suchperformance, has been affected by acquisitions, (see discussion in Item 7),increased borrowings under our credit facility, issuance of preferredsecurities, development of Wireless Alliance and the issuance of seniorsubordinated notes to fund our growth. Accordingly, we do not believe ourhistorical financial condition and results of operations set forth below areindicative nor should they be relied upon as an indicator of our futureperformance.

 

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The following tables set forth certain of our consolidated financialand operating data as of and for each of the five years in the period endedDecember 31, 2001. We derived the selected financial data for each of the fiveyears ended December 31 from our consolidated financial statements.

 
|                                                                                              |   | **Years  ended December 31,** |         |
|---------------------------------------------------------------------------------------------------|--------|-------------------------------|--------------|
| **(In thousands, except per share and other operating data)**                                     |   | **2001  (As restated)**       |         | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
| **Statement of Operations Data:**                                                                 |   |                          | ** **   |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
|                                                                                              |   |                          |         |   |   |   |   |   |   |   |   |
| Revenues:                                                                                         |   |                          |         |   |   |   |   |   |   |   |   |
| Service                                                                                           |   | **$**                         | **305,988**  | ** ** | $ | 238,556 |   | $ | 125,361 |   | $ | 90,997 |   | $ | 52,456 |   |
| Roaming                                                                                           |   | **116,541**                   | ** **   | 98,693 |   | 43,081 |   | 19,821 |   | 9,622 |   |
| Equipment                                                                                         |   | **18,627**                    | ** **   | 18,848 |   | 7,299 |   | 2,700 |   | 1,020 |   |
| Total revenues                                                                                    |   | **441,156**                   | ** **   | 356,097 |   | 175,741 |   | 113,518 |   | 63,098 |   |
| Operating  expenses:                                                                              |   |                          | ** **   |   |   |   |   |   |   |   |   |
| Network costs                                                                                     |   | **101,509**                   | ** **   | 85,988 |   | 38,549 |   | 33,863 |   | 20,773 |   |
| Cost of  equipment sales                                                                          |   | **28,415**                    | ** **   | 34,711 |   | 10,951 |   | 5,968 |   | 2,807 |   |
| Selling, general  and administrative                                                              |   | **117,855**                   | ** **   | 95,034 |   | 54,753 |   | 39,156 |   | 25,225 |   |
| Depreciation and  amortization                                                                    |   | **112,577**                   | ** **   | 91,078 |   | 41,277 |   | 26,532 |   | 12,458 |   |
| Total operating  expenses                                                                         |   | **360,356**                   | ** **   | 306,811 |   | 145,530 |   | 105,519 |   | 61,263 |   |
| Operating income                                                                                  |   | **80,800**                    | ** **   | 49,286 |   | 30,211 |   | 7,999 |   | 1,835 |   |
| Other income  (expense):                                                                          |   |                          | ** **   |   |   |   |   |   |   |   |   |
| Interest expense                                                                                  |   | **(130,432**                  | **)**        | (89,839 | ) | (27,116 | ) | (19,060 | ) | (6,065 | ) |
| Interest and  dividend income                                                                     |   | **1,172**                     | ** **   | 2,249 |   | 467 |   | 1,461 |   | 232 |   |
| Minority  interest                                                                                |   | **—**                    | ** **   | — |   | 1,663 |   | 4,553 |   | 3,082 |   |
| Other                                                                                             |   | **(752**                      | **)**        | (24 | ) | (338 | ) | (535 | ) | (350 | ) |
| Other expense,  net                                                                               |   | **(130,012**                  | **)**        | (87,614 | ) | (25,324 | ) | (13,581 | ) | (3,101 | ) |
| Income (loss)  before income taxes, cumulative effect adjustment and extraordinary item           |   | **(49,212**                   | **)**        | (38,328 | ) | 4,887 |   | (5,582 | ) | (1,266 | ) |
| Income tax  provision                                                                             |   | **—**                    | ** **   | — |   | 37 |   | — |   | — |   |
| Net income  (loss) before extraordinary item and cumulative effect adjustment                     |   | **(49,212**                   | **)**        | (38,328 | ) | 4,850 |   | (5,582 | ) | (1,266 | ) |
| Extraordinary  item – early extinguishment of debt                                           |   | **—**                    | ** **   | (925 | ) | — |   | (1,042 | ) | — |   |
| Net income  (loss) before cumulative effect adjustment                                            |   | **(49,212**                   | **)**        | (39,253 | ) | 4,850 |   | (6,624 | ) | (1,266 | ) |
| Cumulative  effect adjustment                                                                     |   | **1,621**                     | ** **   | — |   | — |   | — |   | — |   |
| Net income  (loss)                                                                                |   | **(47,591**                   | **)**        | (39,253 | ) | 4,850 |   | (6,624 | ) | (1,266 | ) |
| Preferred stock  dividend                                                                         |   | **(54,545**                   | **)**        | (44,081 | ) | (15,912 | ) | (9,090 | ) | — |   |
| Net loss  applicable to common shares                                                             |   | **$**                         | **(102,136** | **)** | $ | (83,334 | ) | $ | (11,062 | ) | $ | (15,714 | ) | $ | (1,266 | ) |
| Basic and  diluted weighted average common shares outstanding                                     |   | **11,865**                    | ** **   | 11,510 |   | 9,047 |   | 8,916 |   | 8,853 |   |
|                                                                                              |   |                          | ** **   |   |   |   |   |   |   |   |   |
| Net loss  applicable to common shares before extraordinary item and cumulative effect  adjustment |   | **$**                         | **(8.74**    | **)** | $ | (7.16 | ) | $ | (1.22 | ) | $ | (1.64 | ) | $ | (0.14 | ) |
| Extraordinary  item                                                                               |   | **—**                    | ** **   | (0.08 | ) | — |   | (0.12 | ) | — |   |
| Cumulative  effect adjustment                                                                     |   | **.13**                       | ** **   | — |   | — |   | — |   | — |   |
| Net loss per  basic and diluted share                                                             |   | **$**                         | **(8.61**    | **)** | $ | (7.24 | ) | $ | (1.22 | ) | $ | (1.76 | ) | $ | (0.14 | ) |
| EBITDA(1)                                                                                         |   | **$**                         | **193,377**  | ** ** | $ | 140,364 |   | $ | 71,488 |   | $ | 34,531 |   | $ | 14,293 |   |

 

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(1)          EBITDA is the sum of earnings before interest, taxes,depreciation and amortization and is utilized as a performance measure withinthe wireless industry. EBITDA is not intended to be a performance measure thatshould be regarded as an alternative for other performance measures and shouldnot be considered in isolation. EBITDA is not a measure of financialperformance under generally accepted accounting principles and does not reflectall expenses of doing business (e.g., interest expense, preferred dividends,depreciation). Accordingly, EBITDA should not be considered as having greatersignificance than or as an alternative to net income or operating income as anindicator of operating performance or to cash flows as a measure of liquidity.Also, as calculated above, EBITDA may not be directly comparable to similarlytitled measures reported by other companies.

 

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|                                                           |   | **As of  December 31,** |        |
|----------------------------------------------------------------|--------|-------------------------|-------------|
| **(In  thousands, except per share and other operating data)** |   | **2001  (As restated)** |        | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
| **Balance Sheet Data:**                                        |   |                    |        |   |   |   |   |   |   |   |   |
| Working capital  (deficit)                                     |   | **$**                   | **(18,273** | **)** | $ | (23,578 | ) | $ | (5,887 | ) | $ | (9,538 | ) | $ | 514 |   |
| Net property and  equipment                                    |   | **244,980**             |        | 234,490 |   | 130,651 |   | 131,714 |   | 77,920 |   |
| Total assets                                                   |   | **1,836,779**           |        | 1,771,796 |   | 526,278 |   | 480,524 |   | 181,588 |   |
| Total long-term  liabilities                                   |   | **1,286,301**           |        | 1,157,472 |   | 339,742 |   | 298,851 |   | 128,000 |   |
| Total  shareholders’ (deficit) equity                     |   | **(33,830**             | **)**       | 79,955 |   | 9,427 |   | 19,279 |   | 33,731 |   |
|                                                                |        |                         |             |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
|                                     |   | **As of  December 31,** |       |
|------------------------------------------|--------|-------------------------|------------|
|                                     |   | **2001**                |       | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
| **Other  Operating Data:**               |   |                    |       |   |   |   |   |   |   |   |   |
| Customers:                               |   |                    | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Voice:                                   |   |                    |       |   |   |   |   |   |   |   |   |
| Postpaid Cellular                        |   | **585,097**             | ** ** | 515,425 |   | 227,619 |   | 186,892 |   | 84,600 |   |
| Prepaid Cellular                         |   | **33,255**              | ** ** | 20,832 |   | 2,494 |   | 296 |   | — |   |
| Wireless  Alliance                       |   | **14,417**              | ** ** | 15,865 |   | 15,658 |   | 16,208 |   | 17,167 |   |
| Wholesale                                |   | **29,139**              | ** ** | 12,727 |   | — |   | — |   | — |   |
| Paging                                   |   | **9,740**               | ** ** | 12,214 |   | 12,476 |   | 11,254 |   | 9,312 |   |
| Total customers                          |   | **671,648**             | ** ** | 577,063 |   | 258,247 |   | 214,650 |   | 111,079 |   |
|                                     |   |                    | ** ** |   |   |   |   |   |   |   |   |
| Marketed POPs(1)                         |   | **5,893,000**           | ** ** | 5,443,000 |   | 3,118,000 |   | 3,049,000 |   | 1,939,000 |   |
|                                     |   |                    | ** ** |   |   |   |   |   |   |   |   |
| Penetration(2)                           |   | **10.7**                | **%**      | 10.1 | % | 7.9 | % | 6.7 | % | 5.2 | % |
|                                     |   |                    | ** ** |   |   |   |   |   |   |   |   |
| Retention(3)                             |   | **97.8**                | **%**      | 98.2 | % | 98.3 | % | 98.3 | % | 98.4 | % |
|                                     |   |                    | ** ** |   |   |   |   |   |   |   |   |
| Average monthly  revenue per customer(4) |   | **$**                   | **59**     | ** ** | $ | 61 |   | $ | 54 |   | $ | 55 |   | $ | 56 |   |
|                                     |   |                    | ** ** |   |   |   |   |   |   |   |   |
| Acquisition cost  per customer(5)        |   | **$**                   | **287**    | ** ** | $ | 358 |   | $ | 365 |   | $ | 395 |   | $ | 358 |   |
|                                     |   |                    | ** ** |   |   |   |   |   |   |   |   |
| Cell sites /  Base stations:             |   | **684**                 | ** ** | 654 |   | 328 |   | 286 |   | 121 |   |

 

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(1)          For2001, updated to reflect 2000 U.S. Census Bureau Official Statistics.   For years 1997 through 2000, updated toreflect July 1, 1997, 1990 U.S. Census Bureau Official Statistics.

 

(2)          Represents the ratio of wireless voice customers at the endof the period to marketed POPs.

 

(3)          Determined for each period by dividing total postpaidwireless voice customers discontinuing service during such period by theaverage postpaid wireless voice customers for such period (customers at thebeginning of the period plus customers at the end of the period, divided bytwo), dividing that result by the number of months in the period, andsubtracting such result from one.

 

(4)          Determined for each period by dividing the sum of access,airtime, roaming, long distance, features, connection, disconnection, and otherrevenues for such period by the monthly average postpaid wireless voicecustomers for such period (customers at the beginning of the period pluscustomers at the end of the period, divided by two), and dividing that resultby the number of months in such period.

 

(5)          Determined for each period by dividing selling andmarketing expenses, net costs of equipment sales, and depreciation of rental telephoneequipment by the gross postpaid wireless voice customers added during suchperiod.

 

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**ITEM 7.****                                                     MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

As discussed in Note 1 to the Notes to Consolidated FinancialStatements in Item 8, the consolidated financial statements for the year endedDecember 31, 2001 have been restated. The following Management’s Discussion and Analysis of FinancialCondition and Results of Operations reflects these restatements.

 

**BUSINESSOVERVIEW**

 

We have materially expanded ourbusiness since 1996 through a series of acquisitions, increasing the populationto whom we market our services from 636,000 to 5.9 million, covering theMidwest, Northeast, South, and Northwest regions. As of December 31, 2001, weprovided wireless voice services to approximately 633,000 customers, excludingwholesale customers.

 

Our principal operating objectiveis to increase revenues and achieve profitability through the development ofnew markets and increased penetration in existing markets. We believe that wecan achieve this objective because our rural markets provide growthopportunities due to their lower current penetration rates and reducedcompetition for customers as compared to wireless systems located in largermetropolitan areas.

 

Our revenues primarily consist ofservice, roaming, and equipment revenues, each of which is described below:

 

•      **Service** revenues include monthly access charges, chargesfor airtime used in excess of the time included in the service packagepurchased, activation fees, long distance charges derived from calls placed bycustomers as well as wireless and paging equipment lease revenues. Alsoincluded are activation fees and charges for such features as voicemail, callwaiting, and call forwarding. Service revenues also include incollect revenues,which are the charges to our customers when they use their wireless phones inother wireless markets. The Company does not charge installation or connectionfees.

 

•      **Roaming** revenues include only outcollect revenues, whichwe receive when other wireless providers’ customers use our network.

 

•      **Equipment** revenues include sales of wireless and pagingequipment, accessory sales to customers, and network equipment reselling.

 

Our operating expenses includenetwork costs, cost of equipment sales, selling, general and administrativeexpenses, and depreciation and amortization, each of which is described below:

 

•      **Network costs** include switching and transport expenses andexpenses associated with the maintenance and operation of our wireless networkfacilities, as well as charges from other service providers for resold minutesand the expense associated with incollect revenues.

 

•      **Cost of equipmentsales** includes costs associatedwith telephone equipment and accessories sold to customers. In recent years, weand other wireless providers have increased the use of discounts on phoneequipment as competition between service providers has intensified. As aresult, we have incurred, and expect to continue to incur, losses on equipmentsales per gross additional customer. We expect to continue these discounts andpromotions because we believe they will result in increases in the number ofour wireless customers and, consequently, increased service revenues. Cost ofequipment sales does not include depreciation and amortization or the cost ofhandsets leased to customers, which is capitalized and depreciated over the19-24 month period of the lease.

 

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•      **Selling, generaland administrative** expensesinclude salaries, benefits, and operating expenses such as marketing,commissions, customer support, accounting, administration, and billing.

 

•      **Depreciation andamortization** represents the costsassociated with the depreciation of our fixed assets and the amortization ofour intangible assets, primarily wireless license acquisition costs, goodwill,and customer lists. Depreciation and amortization also includes the depreciationof the capitalized cost of handsets leased to customers over a 19-24 monthlease period. Our depreciation and amortization expense reflects ouracquisition activities and the buildout and upgrade of our network.

 

In addition to the operating expensesdiscussed above, we also incur other expenses, primarily interest expenserelated to financing.

 

•                  **Interestexpense** primarily results from borrowings under the credit facilityand the senior subordinated notes, the proceeds of which were used to financeacquisitions, repay other borrowings and further develop RCC’s wirelessnetwork. Also contributing to interest expense are adjustments reflecting theineffective portion of a derivative’s change in fair value, the change in fairmarket value of derivatives not qualifying for hedge accounting under SFAS No.133, the amortization of deferred financing costs and the noncash amortizationof costs incurred from unwinding certain financial instruments.

 

Preferred stock dividends arerelated to our issuances of preferred securities in 1998 and 2000 inconjunction with our acquisition activity.

 

### **CRITITAL ACCOUNTING POLICIES**

 

The following discussion and analysis is based upon our consolidatedfinancial statements, which have been prepared in accordance with accountingprinciples generally accepted in the United States of America.  The preparation of our consolidatedfinancial statements requires management to make estimates and assumptions thataffect the reported amounts of revenue and expenses, and assets and liabilities,during the periods reported.  Estimatesare used when accounting for certain items such as unbilled revenues, allowancefor doubtful accounts, depreciation and amortization periods, income taxes,valuation of intangible assets, and litigation contingencies.  We base our estimates on historicalexperience, where applicable, and other assumptions that we believe arereasonable under the circumstances. Actual results may differ from ourestimates under different assumptions or conditions.

 

We believe that the following critical accounting policies affect ourmore significant judgments and estimates used in the preparation of ourconsolidated financial statements.

## ** **

**Revenue Recognition - Service**

 

We recognize service revenue based upon minutes of use processed andcontracted fees, net of credits and adjustments for service discounts. As aresult of our billing cycle cut-off times, we are required to make estimatesfor service revenue earned but not yet billed at the end of each quarter. Theseestimates are based primarily upon historical minutes of use processed.  We follow this method since reasonablydependable estimates of the revenue can be made.  Actual billing cycle results and related revenue may vary,depending on subscriber usage and rate plan mix, from the results estimated atthe end of each quarter.

 

**Revenue Recognition - Roaming Revenueand Incollect Cost**

 

We generate revenue from charges to our customers when they use theircellular phones in other wireless providers’ markets (“Incollect Revenue”).  Until April 2000, RCC included IncollectRevenue in the roaming revenue line item in our statement of operations.  Expense associated with Incollect Revenue,charged by third-party wireless providers, was also included in roaming revenueon a net basis. RCC used this method because, historically, we have passedthrough to our customers most of the costs related to Incollect Revenue.However, the wireless industry, including RCC, has increasingly been usingpricing plans that include flat rate pricing and larger home

 

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service areas. Under these types of plans, amounts charged to us byother wireless providers are not necessarily passed through to our customers.

 

In April 2000, RCC adopted a policy to include the associated expensefrom our incollect activity in network cost rather than reducing roamingrevenue and to include Incollect Revenue as service revenue rather than inroaming revenue. Roaming revenue includes only the revenue from other wirelessproviders’ customers who use RCC’s network (“Outcollect Revenue”). The 2000 and1999 consolidated financial statements were reclassified to conform to thispresentation. This change in presentation has no impact on operating income.

 

Roaming revenues and incollect cost information is provided to RCCprimarily through a third party centralized clearinghouse. From theclearinghouse we receive final settlement data at the middle of each month andpreliminary settlement data at the end of each month. Management bases itsaccrual of roaming revenue and incollect expense from both mid-month andend-of-month clearinghouse reports. RCC follows this method since reasonablydependable estimates of roaming revenue and incollect cost can be made.

 

**Allowancefor Doubtful Accounts**

 

We maintain an allowance for doubtful accounts for estimated lossesresulting from the inability of our customers to make required payments. Webase our estimates on the aging of our accounts receivable balances and ourhistorical write-off experience, net of recoveries. If the financial conditionof our customers were to deteriorate, additional allowances may be required.

 

**Depreciation of Property andEquipment**

 

When recording the depreciation expense associated with our wirelesscommunications equipment, we use estimated useful lives. To monitor for changesin technology and industry conditions, we periodically evaluate the usefullives of our wireless communications equipment. These evaluations could resultin a change in their useful lives in future periods.

 

**Impairmentof Long-Lived Assets**

 

RCC assesses the impairment of its long-lived assets whenever events orchanges in circumstances indicate that the carrying value may not berecoverable. Factors management considers that could trigger an impairmentreview include significant underperformance relative to minimum futureoperating results and a significant change in the manner of use of the assets,significant technological or industry changes, or the strategy for our overallbusiness. When we determine that the carrying value of certain long-livedassets may not be recoverable based upon the existence of one or more of theabove indicators of impairment, we then measure any impairment based on aprojected discounted cash flow method using a discount rate determined bymanagement to be commensurate with the risk inherent in our current businessmodel.

 

**IncomeTaxes**

 

We account for income taxes in accordance with SFAS No. 109,“Accounting for Income Taxes.”  As partof the process of preparing the consolidated financial statements, we arerequired to estimate income taxes in each of the jurisdictions in which weoperate. This process involves estimating actual current tax exposure togetherwith assessing temporary differences resulting from differing treatment ofitems for tax and accounting purposes. These differences result in deferred taxassets and liabilities.  We must thenassess the likelihood that deferred tax assets will be recovered from futuretaxable income and, to the extent we believe that recovery is not likely, wemust establish a valuation allowance. To the extent the RCC increases ordecreases the valuation allowance in a period, we must include an expense orbenefit within the tax provision in the consolidated statement of operations.

 

Significant management judgment is required in determining theprovision for income taxes, deferred tax assets and liabilities, and anyvaluation allowance recorded against net deferred tax assets. As of December31, 2001, we had recorded a full valuation allowance of $23.3 million due touncertainties related to the Company’s ability to utilize the deferred taxassets, that primarily consist of certain net operating losses (NOL) carriedforward, before they expire. The valuation allowance is based on our historicaloperations projected forward, our estimate of future

 

30

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taxable income and the period over which deferred tax assets will berecoverable. It is possible that RCC could be profitable in the future atlevels which cause us to conclude that it is more likely than not that we willrealize all or a portion of the NOL carryforward. Upon reaching such aconclusion, we would immediately record the estimated net realizable value ofthe deferred tax asset at that time and would then provide for income taxes ata rate equal to our combined federal and state effective rates, which wouldapproximate 38% under current tax law. Subsequent revisions to the estimated net realizable value of thedeferred tax asset could cause the provision for income taxes to varysignificantly from period to period, although our cash tax payments wouldremain unaffected until the benefit of the NOL is utilized.

 

**LitigationContingencies**

 

In the ordinary course of business, RCC is subject to litigation andcontingencies.  Management must use itsbest judgment and estimates of probable outcomes when determining the impact toRCC and our financial results.  RCCassesses the impact of claims and litigation on a regular basis and updates theassumptions and estimates used to prepare our consolidated financialstatements.

 

#### ***RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS***

 

In July2002, the Financial Accounting Standards Board (“FASB”) issued Statement ofFinancial Accounting Standards (“SFAS”) No. 146, “Accounting for CostsAssociated with Exit or Disposal Activities.” SFAS No. 146 supercedes previousaccounting guidance, principally Emerging Issues Task Force Issue No. 94-3,“Liability Recognition for Certain Employee Termination Benefits and OtherCosts to Exit an Activity (including Certain Costs Incurred in aRestructuring).” SFAS No. 146 requires companies to recognize costs associatedwith exit or disposal activities when they are incurred rather than at the dateof a commitment to an exit or disposal plan. Examples of costs covered by SFASNo. 146 include lease termination costs and certain employee severance coststhat are associated with a restructuring, discontinued operation, plantclosing, or other exit or disposal activity. We will adopt SFAS No. 146prospectively to exit or disposal activities initiated after December 31, 2002.

 

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASBStatements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and TechnicalCorrections.” SFAS No. 145 requires that gains and losses from theextinguishments of debt be classified as extraordinary items only if they meetthe criteria in Accounting Principles Board Opinion No. 30 (“Opinion No. 30”).SFAS No. 145 is effective for RCC beginning January 1, 2003. Upon the adoptionof SFAS No. 145, RCC will reclassify prior period statements of operations toconform to the presentation required by SFAS No. 145. Under SFAS No. 145, wewill report gains and losses on extinguishments of debt in interest expense.

 

In October 2001, the FASB issued SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No.121, “Accounting for the Impairment of Long-Lived Assets and for Long-LivedAssets to Be Disposed Of.” SFAS No. 144 develops a single accounting model forlong-lived assets to be disposed of, such assets are held and used or newlyacquired. RCC adopted this statement on January 1, 2002. There was no impact toour financial statements.

 

In July 2001, the FASB issued SFAS No. 143, “Accounting for AssetRetirement Obligations.” SFAS No. 143 provides accounting and reportingstandards for costs associated with the retirement of long-lived assets. Itrequires entities to record the fair value of a liability for an assetretirement obligation in the period in which it is incurred. When the liabilityis initially recorded, the entity capitalizes the cost by increasing thecarrying amount of the related long-lived asset. Over time, the liability is accretedto its present value, and the capitalized cost is depreciated over the usefullife of the related asset. Upon settlement of the liability, an entity eithersettles the obligation for its recorded amount or incurs a gain or loss uponsettlement. We have not yet determined the effect this new accounting standardmay have on our results of operations, financial position and cash flows. Wewill be required to implement this standard effective January 1, 2003.

 

In July 2001, the FASB issued SFAS No. 141, “Business Combinations” andNo. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires allbusiness combinations initiated after June 30, 2001 to be accounted for usingthe purchase method. SFAS No. 141 also sets forth recognition criteria for intangibleassets other than

 

31

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goodwill as well as disclosure requirements for business combinations.RCC adopted SFAS No. 141 on July 1, 2001. The adoption of SFAS No. 141 had no impact on RCC’s consolidatedfinancial statements.

 

Effective January 1, 2002, we adopted SFAS No. 142, “Goodwilland Other Intangible Assets.” SFAS No. 142 established new standardsrelated to how acquired goodwill and other intangible assets are to be recordedupon their acquisition as well as how they are to be accounted for after theyhave been initially recognized in the financial statements. Effective with theadoption of this standard, RCC is no longer amortizing goodwill.  Additionally, we have reassessed the usefullives of previously recognized intangible assets. A significant portion of ourintangible assets consists of licenses that provide our wireless operationswith the exclusive right to utilize certain radio frequency spectrum to providecellular communication services. While licenses are issued for only a fixedtime, generally ten years, such licenses are subject to renewal by the FCC.Renewals of licenses have occurred routinely and at nominal cost. Moreover, wehave determined that there are currently no legal, regulatory, contractual,competitive, economic or other factors that limit the useful life of ourwireless licenses. As a result, licenses will be treated as an indefinite-livedintangible asset under the provisions of SFAS No. 142 and will not be amortizedbut rather will be tested for impairment. We will reevaluate the useful lifedetermination for licenses each quarter to determine whether events andcircumstances continue to support an indefinite useful life.

 

RCC has completed a transitional impairment test for both itsconsolidated goodwill and licensing costs and determined that there wereimpairments of $5.0 million and $412.0 million, respectively.  RCC used a fair value approach, usingprimarily discounted cash flows, to complete the transitional impairmenttests.  In accordance with SFAS No. 142,the impairment charges are recorded in RCC’s consolidated financial statementsfor the first quarter of 2002.

 

On aprospective basis, RCC is required to test both consolidated goodwill and otherindefinite-lived intangible assets, including licenses, for impairment on anannual basis based upon a fair value approach. Additionally, goodwill will betested for impairment between annual tests if an event occurs or circumstanceschange that would more likely than not reduce the fair value of entity belowits carrying value. These events or circumstances would include a significantchange in the business climate, including a significant sustained decline in anentity’s market value, legal factors, operating performance indicators,competition, sale or disposition of a significant portion of the business, orother factors.  Other indefinite-livedintangible assets will be tested between annual tests if events or changes in circumstancesindicate that the asset might be impaired. RCC will perform its annualimpairment test for both goodwill and licensing costs during the fourth quarterof 2002, using methodologies consistent with those applied for its transitionalimpairment tests performed as of January 1, 2002.

 

**STRATEGIC HISTORY**

 

We were founded in 1991 through the combination of five partnershipsholding different cellular licenses in Minnesota. Since then, we have completedthe following acquisitions:

 

•      In May 1997, we acquired wireless operations and licenses coveringportions of Maine for approximately $85.7 million.

 

•      In July 1998, we acquired wirelessoperations and licenses covering all of Vermont and portions of Massachusetts,New Hampshire, and New York for approximately $262.5 million.

 

•      In August 1998, we acquired wirelessoperations and a license in western Maine for approximately $7.5 million.

 

•      In February 1999, we acquiredwireless operations and a license in South Dakota for approximately$11.9 million.

 

•      In April 2000, in the Triton Cellularacquisition, we acquired wireless operations and licenses covering portions ofAlabama, Kansas, Mississippi, Oregon, and Washington for approximately$1.265 billion.

 

32

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•      In January 2001, in the Saco River acquisition, we acquiredwireless operations and licenses in the Portsmouth, New Hampshire service areasfor approximately $194.3 million in cash. In the acquisition, we alsoacquired the ILEC business of Saco River. We sold the Saco River ILEC in October 2001for approximately $35.5 million in cash and used the net proceeds to repayindebtedness under the credit facility.

 

All of these acquisitions wereaccounted for as purchases and subsequent operating results have been  included in our historical financialstatements from their respective dates of acquisition. As a result of ouracquisitions, we do not believe our historical financial condition and resultsof operations are necessarily indicative nor should they be relied upon as anindicator of future performance.

 

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**RESULTSOF OPERATIONS**

 

The following table presents certain consolidated statement ofoperations data as a percentage of total revenues as well as other operatingdata for the periods indicated.

 
|                                                                                   |   | **Years  ended December 31,** |   |
|----------------------------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                                                   |   | **2001  (As restated)**       |   | **2000** |   | **1999** |   |
| REVENUES:                                                                              |   |                          |   |   |   |   |   |
| Service                                                                                |   | 69.4                          | %      | 67.0 | % | 71.3 | % |
| Roaming                                                                                |   | 26.4                          |   | 27.7 |   | 24.5 |   |
| Equipment                                                                              |   | 4.2                           |   | 5.3 |   | 4.2 |   |
| Total revenues                                                                         |   | 100.0                         |   | 100.0 |   | 100.0 |   |
|                                                                                   |   |                          |   |   |   |   |   |
| OPERATING  EXPENSES:                                                                   |   |                          |   |   |   |   |   |
| Network costs                                                                          |   | 23.0                          |   | 24.1 |   | 21.9 |   |
| Cost of  equipment sales                                                               |   | 6.4                           |   | 9.7 |   | 6.2 |   |
| Selling, general  and administrative                                                   |   | 26.7                          |   | 26.7 |   | 31.2 |   |
| Depreciation and  amortization                                                         |   | 25.5                          |   | 25.6 |   | 23.5 |   |
| Total operating  expenses                                                              |   | 81.6                          |   | 86.1 |   | 82.8 |   |
| OPERATING   INCOME                                                                |   | 18.4                          |   | 13.9 |   | 17.2 |   |
|                                                                                   |   |                          |   |   |   |   |   |
| OTHER INCOME  (EXPENSE):                                                               |   |                          |   |   |   |   |   |
| Interest expense                                                                       |   | (29.6                         | )      | (25.2 | ) | (15.4 | ) |
| Interest and  dividend income                                                          |   | 0.3                           |   | 0.6 |   | 0.3 |   |
| Minority  interest                                                                     |   | —                        |   | — |   | 0.9 |   |
| Other                                                                                  |   | (0.2                          | )      | 0.0 |   | (0.2 | ) |
| Other expense,  net                                                                    |   | (29.5                         | )      | (24.6 | ) | (14.4 | ) |
|                                                                                   |   |                          |   |   |   |   |   |
| INCOME (LOSS) BEFORE INCOME TAX, EXTRAORDINARY ITEM, AND CUMULATIVE  EFFECT ADJUSTMENT |   | (11.1                         | )      | (10.7 | ) | 2.8 |   |
| INCOME TAX PROVISION                                                                   |   | —                        |   | — |   | 0.0 |   |
| INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT  ADJUSTMENT              |   | (11.1                         | )      | (10.7 | ) | 2.8 |   |
| EXTRAORDINARY ITEM-EARLY EXTINGUISHMENT OF DEBT                                        |   | —                        |   | (0.3 | ) | — |   |
| NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT ADJUSTMENT                                  |   | (11.1                         | )      | (11.0 | ) | 2.8 |   |
| CUMULATIVE EFFECT ADJUSTMENT                                                           |   | 0.3                           |   | — |   | — |   |
| NET  INCOME (LOSS)                                                                |   | (10.8                         | )      | (11.0 | ) | 2.8 |   |
| PREFERRED STOCK DIVIDEND                                                               |   | (12.4                         | )      | (12.4 | ) | (9.1 | ) |
| NET  LOSS APPLICABLE TO COMMON  SHARES                                            |   | (23.2                         | )%     | (23.4 | )% | (6.3 | )% |
| EBITDA(1)                                                                              |   | 43.8                          | %      | 39.4 | % | 40.7 | % |

 

----

(1)          EBITDA is the sum of earnings before interest, taxes,depreciation and amortization and is utilized as a performance measure withinthe wireless industry. EBITDA is not intended to be a performance measure thatshould be regarded as an alternative for other performance measures and shouldnot be considered in isolation. EBITDA is not a measure of financial performanceunder generally accepted accounting principles and does not reflect allexpenses of doing business (e.g., interest expense, preferred dividends,depreciation). Accordingly, EBITDA should not be considered as having greatersignificance than or as an alternative to net income or operating income as anindicator of operating performance or to cash flows as a measure of liquidity.Also, as calculated above, EBITDA may not be directly comparable to similarlytitled measures reported by other companies.

 

34

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**YearsEnded December 31, 2001 and 2000**

### ** **

***Revenues***

 

***Service Revenues.***Consolidated service revenues for 2001 increased 28.3% to $306.0 million from$238.6 million in 2000. The revenue growth reflects the additional revenueresulting from the acquisitions of Triton Cellular in April 2000 and Saco Riverin January 2001 together with additional customers added through increasedpenetration in existing markets.

 

***Roaming Revenues.***Reflecting the acquisition of Triton Cellular and Saco River together withincreases in outcollect roaming minutes, consolidated roaming revenues for 2001increased 18.1% to $116.5 million from $98.7 million in 2000. Roaming minutesin existing markets have increased in part due to the activation of additionalcell sites and increased industry-wide wireless usage. Partially offsetting therevenue increase during 2001 was the decrease in outcollect roaming yield perminute. Including toll, outcollect roaming yield decreased to $0.34 per minutein 2001 as compared to $0.49 in 2000. AT&T Wireless and Verizon Wirelessaccount for approximately 70% of our outcollect minutes. We expect increases inoutcollect minute volumes to continue offsetting declines in roaming yield perminute, resulting in moderate roaming revenue growth in 2002 as compared to2001.  RCC’s newly signed amendment withAT&T Wireless is effective through December 2004 and covers our Northeastand Midwest regions.

 

***Equipment Revenues.***Consolidated equipment revenues for 2001 decreased 1.2% to $18.6 million from$18.8 million in 2000. The decrease in equipment revenue reflects theadditional equipment revenue from the Triton Cellular and Saco Riveracquisitions offset by reductions in equipment margin, network equipment resellingand an increase in phone service leasing.

 

***Operating Expenses***

 

***Network Costs.***Primarily reflecting the additional network costs from the acquisition ofTriton Cellular and Saco River and increases in incollect minutes, consolidatednetwork costs for 2001 increased 18.1% over 2000 to $101.5 million as comparedto $86.0 million in 2000. Also contributing to this increase was the costrelating to greater incollect activity resulting from service plans withexpanded local service areas. Offsetting the increase in incollect minutes wasa decline in per minute cost in 2001 to $0.25 from $0.40 in 2000. Totalincollect cost was $49.8 million in 2001 as compared to $48.6 million in 2000.As a percentage of total revenues, consolidated network costs for 2001 decreasedto 23.0% from 24.1% in 2000.

 

***Cost of Equipment Sales.***Cost of equipment sales for 2001 decreased 18.1% to $28.4 million as comparedto $34.7 million in 2000. As a percentage of revenue, cost of equipment salesfor 2001 decreased to 6.4% as compared to 9.7% in 2000. Contributing to thedecrease in cost of equipment sales was a greater emphasis on our phone serviceleasing plans during 2001 under which the cost of handsets is capitalizedrather than expensed as cost of equipment sold. The initial cost of thesecapitalized handsets is not included in acquisition cost per customer (“ACPC”),contributing to the decrease in 2001 as compared to 2000. The capitalized costof the handset is depreciated over a period of 19-24 months. During 2001, wecapitalized approximately $20.1 million in phone service handsets.

 

***Selling, General and Administrative.***Selling, general and administrative (“SG&A”) expenses for 2001 increased24.0% over 2000 to $117.9 million from $95.0 million. The increase in SG&Aexpenses primarily reflects RCC’s ownership of Triton Cellular and Saco Riveroperations in 2001. Also contributing to the increase in SG&A expense wasan increase in the provision for doubtful accounts to $13.8 million in 2001 ascompared to $5.1 million in 2000. SG&A expenses, as a percentage of sales,was 26.7% in 2001 and 2000.

 

***Depreciation and Amortization.***Depreciation and amortization expense for 2001 increased 23.6% over 2000 to$112.6 million from $91.1 million. The increase reflects added amortizationfrom the intangible assets acquired

 

35

----

 

from Saco River and depreciation attributable to Saco River’s existingproperty, plant and equipment. Also contributing to added depreciation expenseduring 2001 was $46.0 million of capital expenditures during the year endedDecember 31, 2001.

 

With respect to goodwill and intangible assets acquired prior to July1, 2001, we are required to adopt SFAS No. 142 effective January 1, 2002.Goodwill amortization of $12.3 million and $10.5 million is included in theaccompanying consolidated statements of operations for the years ended December31, 2001 and 2000, respectively. License amortization of $23.9 million and$19.5 million is included in the accompanying consolidated statements ofoperations for the years ended December 31, 2001 and 2000, respectively.  Effective January 1, 2002, amortization ofgoodwill and licenses will not be included in the statements of operations.

 

***Other Income (Expense)***

 

***Interest Expense.***Interest expense for 2001 increased 45.2% to $130.4 million as compared to$89.8 million in 2000. The increase primarily reflects increased borrowingsunder the credit facility to complete the acquisitions of Triton Cellular andSaco River and a $16.4 million noncash charge reflecting accounting forderivative instruments pursuant to SFAS No. 133 (as amended by SFAS No. 138,)which we adopted on January 1, 2001.

 

***Preferred Stock Dividends***

 

Preferred stock dividends in 2001 increased 23.7% to $54.5 million ascompared to $44.1 million in 2000. The increase primarily resulted from theissuances of junior and senior exchangeable preferred stock in February 2000,Class T preferred stock in March 2000, and Class M preferred stock in April2000. See note 1 of our consolidated financial statements for additionalinformation regarding preferred stock dividends.

 

Also contributing to the increase in preferred stock dividends is ourpractice of paying dividends by issuing additional shares of exchangeablepreferred stock rather than in cash, thereby increasing the basis forsubsequent dividend distributions. Throughout 2001, RCC issued 22,817 and19,618 shares of senior and junior exchangeable preferred stock, respectively.

 

**Years Ended December 31, 2000 and 1999**

 

***Revenues***

 

***Service Revenues.***Servicerevenues for 2000 increased 90.3% to $238.6 million from $125.4 million in1999. This growth reflects the additional revenues resulting from the TritonCellular acquisition combined with additional net prepaid and postpaidcustomers added through increased penetration in existing markets.

 

***Roaming Revenues.***Reflectingthe acquisition of Triton Cellular in April 2000 combined with increases inoutcollect roaming minutes, consolidated roaming revenues for 2000 increased129.1% to $98.7 million from $43.1 million in 1999. Roaming minutes in existingmarkets increased in part due to the activation of additional cell sites andincreased industry-wide wireless usage resulting from the popularity ofsingle-rate calling plans. Partially offsetting the increase in roaming minutesof use during 2000 was the decrease in roaming yield per minute, includingtoll, to $0.49 as compared to $0.68 in 1999.

 

***Equipment Revenues.***Equipmentrevenues for 2000 increased 158.2% to $18.8 million from $7.3 million in theprior year. This growth reflects our ownership of Triton Cellular for ninemonths in 2000 as well as increases in direct phone sales programs.

 

36

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***Operating Expenses***

 

***Network Costs.***Primarilyreflecting the additional network costs resulting from the acquisition ofTriton Cellular, our consolidated network costs for 2000 increased 123.1% to$86.0 million from $38.5 million in 1999. As a percentage of total revenues,consolidated network costs for 2000 increased to 24.1% from 21.9% in 1999.Certain service plans in the newly acquired Triton regions, which had extendedfootprints for their customers, incurred higher than expected incollect minuteincreases, which contributed to the increase in network costs as a percentageof total revenues.

 

***Cost of Equipment Sales.***Reflectingadditional equipment costs resulting from the acquisition of Triton Cellular,cost of equipment sales for 2000 increased 217.0% over 1999 to $34.7 million.As a percentage of revenues, cost of equipment sales increased to 9.7% ascompared to 6.2% in 1999. Contributing to the increase in cost of equipmentsales, as a percentage of revenues, were handset costs resulting from themigration of existing customers from analog service to digital service andgreater emphasis on the purchase of digital phones rather than leasing them.

 

***Selling, General and Administrative.***Selling,general and administrative expenses for 2000 increased 73.6% over 1999 to $95.0million. The increase in selling, general and administrative expenses primarilyreflects our ownership of Triton Cellular operations for the last threequarters of 2000. The increase also reflects higher costs related to moreaggressive promotional activity during 2000 as compared to 1999. Reflectingefficiencies resulting from the acquisition of Triton Cellular, selling,general and administrative expenses, as a percentage of revenues for 2000,decreased to 26.7% from 31.2% in 1999.

 

***Depreciation and Amortization.***Depreciationand amortization expense for 2000 increased 120.7% over 1999 to $91.1 millionfrom $41.3 million. The increase reflects added amortization relating to theintangible assets acquired from Triton Cellular, additional depreciationattributable to Triton’s property, plant and equipment, and the depreciationrelated to $54.8 million of capital expenditures during 2000.

 

***Other Income(Expense)***

 

***Interest Expense.***Interest expense for 2000 increased 231.3% to$89.8 million as compared to $27.1 million in 1999. The increase primarilyreflects increased borrowing under the credit facility to complete theacquisition of Triton Cellular.

 

***Interest and Dividend Income.***Interestand dividend income for 2000 increased to $2.2 million, as compared to $467,000during 1999. This increase primarily reflects interest earned by our interestbearing restricted escrow accounts and other cash balances funded throughincreased borrowings and proceeds from the sale of common and preferred stock.

 

***Preferred Stock Dividends.***Preferredstock dividends in 2000 increased 177.0% to $44.1 million as compared to $15.9million in 1999. The increase primarily resulted from the issuances of juniorand senior exchangeable preferred stock in February 2000, Class T preferredstock in March 2000, and Class M preferred stock in April 2000. Dividends onthe senior and junior exchangeable preferred stock were paid through theissuance of additional shares of exchangeable preferred stock. During 2000, weissued as dividends 19,707 and 13,283 shares of senior and junior exchangeablepreferred stock, respectively.

 

37

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**Liquidity and Capital Resources**

 

Our primary liquidity requirements are for working capital, capitalexpenditures, debt service, acquisitions, and customer growth. In past years,we have met these requirements through cash flow from operations, sales ofcommon and preferred stock, borrowings under our credit facility, and issuanceof senior subordinated notes. As of December 31, 2001, we had a credit facilitywith a consortium of lenders providing up to $275.0 million in revolving loansand $986.7 million in term loans. As of December 31, 2001, $1.112 billion wasoutstanding under the credit facility.

 

Our credit facility contains certain financial covenants that, amongother things, limit our ability to incur indebtedness, make investments, createor permit liens, make capital expenditures, make guarantees and pay cashdividends. Our credit facility also requires the use of derivatives to manageinterest rate risk (see Item 7A for further discussion.) On December 14, 2000and March 31, 2001 we obtained amendments and waivers of certain financialcovenants in the credit facility. As of December 31, 2001, we were incompliance with all covenants and had $115.2 million available for borrowing.

 

On January 16, 2002, we issued $300 million aggregate principal amountof 9 3⁄4% senior subordinated notes due 2010. The net proceeds from the offeringsof the notes were used to pay down borrowings under our credit facility resultingin availability under the credit facility increasing to $262.9 million. Inconnection with the offering of the notes, we amended the terms of our creditfacility to:

 

•         permit us to issue the notes,

•         allow us to repay a portion of the term loans andrevolving loans without reducing our borrowing availability under the revolver,

•                            change the total leverageratio, ratio of annualized operating cash flow to interest expense, and proforma debt ratio to reflect the offering and to provide us with greaterflexibility,

•         decrease the permitted seniorleverage ratio,

•         make some technical changes tothe restricted payment covenant and the description of permitted indebtedness,

•         expand the kinds of events thatwould trigger the change of control default, and

•         remove a requirement to sellsome of our assets.

 

Over the next twelve months, we expect to be able to meet our workingcapital, capital expenditures, and debt service requirements and achievecustomer growth using cash flow from operations and borrowings under our creditfacility. If we make an acquisition, we may need to finance such acquisitionwith additional debt or equity capital from either the bank markets or thecapital markets. Over the longer term, our ability to meet our liquidityrequirements will depend on our future operating performance and other factors,many of which are outside of our control.

 

For the year ended December 31, 2001, we paid interest on our 9 5/8%senior subordinated notes and our credit facility of $12.0 million and $104.9million, respectively, with cash from operations. In 2002, we expect to fundour cash interest payments on the 9 5/8% senior subordinated notes, 9 3⁄4% seniorsubordinated notes, and the credit facility with cash from operations.

 

We currently pay dividends on our senior and junior exchangeablepreferred stock by issuing additional shares of exchangeable preferred stock.After May 15, 2003, we may be required to pay cash dividends on our seniorexchangeable preferred stock, and beginning February 15, 2005, we may berequired to pay cash dividends on our junior exchangeable preferred stock.

 

38

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The following table summarizes our anticipated cash requirementsthrough December 31, 2006 under our contractual obligations existing as ofJanuary 16, 2002, excluding interest payable under the credit facility, the 95/8% senior subordinated notes, and the 9 3⁄4% senior subordinated notes. 

 
|                                                                                   |   | **Total** |      | **2002** |   | **2003** |   | **2004** |   | **2005** |   | **2006** |   | **Thereafter** |    |
|----------------------------------------------------------------------------------------|--------|-----------|-----------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------------|---------|
| **(in thousands)**                                                                     |   |      |      |     |   |     |   |     |   |     |   |     |   |           |    |
| **Debt service**                                                                       |   |      |      |     |   |     |   |     |   |     |   |     |   |           |    |
| Credit facility                                                                        |   | $         | 813,853   |     | $      | —   |   | $        | 37,001 |     | $      | 62,808   |   | $              | 74,035  |   | $ | 89,754 |   | $ | 550,255 |   |
|                                                                                   |   |      |      |     |   |     |   |     |   |     |   |     |   |           |    |
| 9 3⁄4% Senior subordinated notes   (due 1/15/2010)                             |   | 300,000   |      | —   |   | —   |   | —   |   | —   |   | —   |   | 300,000        |    |
| 9 5/8% Senior subordinated  notes  (due 5/15/2008)                                     |   | 125,000   |      | —   |   | —   |   | —   |   | —   |   | —   |   | 125,000        |    |
|                                                                                   |   |      |      |     |   |     |   |     |   |     |   |     |   |           |    |
| Senior exchangeable preferred stock  (due 5/15/2010)                                   |   | 254,776   |      | —   |   | —   |   | —   |   | —   |   | —   |   | 254,776        |    |
| Senior exchangeable preferred security cash dividends beginning August  15, 2003       |   | 202,860   |      | —   |   | 14,492   |   | 28,980   |   | 28,980   |   | 28,980   |   | 101,428        |    |
|                                                                                   |   |      |      |     |   |     |   |     |   |     |   |     |   |           |    |
| Junior exchangeable preferred stock (due 2/15/2011)                                    |   | 255,863   |      | —   |   | —   |   | —   |   | —   |   | —   |   | 255,863        |    |
| Junior exchangeable preferred security cash dividends beginning May 15, 2005 |   | 188,040   |      | —   |   | —   |   | —   |   | 23,505   |   | 31,340   |   | 133,195        |    |
|                                                                                   |   |      |      |     |   |     |   |     |   |     |   |     |   |           |    |
| Class M Voting  Convertible Preferred Stock                                            |   | 288,155   |      | —   |   | —   |   | —   |   | —   |   | —   |   | 288,155        |    |
|                                                                                   |   |      |      |     |   |     |   |     |   |     |   |     |   |           |    |
| Other long-term obligations                                                            |   | 6,500     |      | —   |   | 6,500    |   | —   |   | —   |   | —   |   | —         |    |
|                                                                                   |   | 2,435,047 |      | —   |   | 57,993   |   | 91,788   |   | 126,520  |   | 150,074  |   | 2,008,672      |    |
|                                                                                   |   |      |      |     |   |     |   |     |   |     |   |     |   |           |    |
| **Operating  lease obligations**                                                       |   | 24,390    |      | 7,142    |   | 5,410    |   | 4,023    |   | 2,716    |   | 1,476    |   | 3,623          |    |
|                                                                                   |   |      |      |     |   |     |   |     |   |     |   |     |   |           |    |
| Total contractual cash obligations                                                     |   | $         | 2,459,437 |     | $      | 7,142    |   | $        | 63,403 |     | $      | 95,811   |   | $              | 129,236 |   | $ | 151,550 |   | $ | 2,012,295 |   |

 

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*assumes that senior exchangeable preferred stockdividends are paid in kind through May 15, 2003.

**assumes that junior exchangeable preferredstock dividends are paid in kind through February 15, 2005.

 

Capital expenditures for 2001 were approximately $46.0 million. Thesepurchases reflect the continued expansion of our existing wireless coverage,leasing of handsets to certain customer groups, and upgrading of existing cellsites and switching equipment. Although budgeted capital expenditures forfiscal 2002 were approximately $75 million, there are no outstanding firmpurchase commitments. Capital expenditures in 2002 will include the maintenanceof our existing infrastructure, enhancing coverage in our service areas, andmeeting the buildout requirement for our PCS licenses.

 

Net cash provided by operating activities was $75.5 million for theyear ended December 31, 2001. Adjustments to the $47.6 million net loss toreconcile to net cash provided by operating activities included $112.6 millionin depreciation and amortization, a $16.4 million change in financialinstruments valuation, a cumulative effect adjustment of $1.6 million, a$849,000 decrease in accounts receivable, a $7.8 million decrease in accountspayable, a $1.2 million increase in advance billings and customer deposits, anda $1.4 million decrease in other accrued expenses.

 

Net cash used in investing activities for the year ended December 31,2001 was $174.5 million. The principal use of cash was the January 2001acquisition of Saco River Telegraph and Telephone partially offset by the saleof the Saco River ILEC in October 2001. Also contributing to cash used ininvesting activities was $46.0 million in purchases of property and equipment.

 

Net cash provided by financing activities was $98.8 million for theyear ended December 31, 2001, consisting primarily of $349.3 million from theissuance of long-term debt, partially offset by $256.1 million in repayments oflong-term debt. In addition, we received $8.7 million in proceeds from enteringinto a swaption contract and paid $4.4 million in debt issuance costs.

 

39

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#### ***Other Matters***

#### *** ***

#### ***Inflation***

 

The impact of inflation on our operations has not been significant.

#### *** ***

#### ***Seasonality***

 

We experience seasonal fluctuations in revenues and operating income.Our average monthly roaming revenue per cellular customer increases during thesecond and third calendar quarters. This increase reflects greater usage by ourroaming customers who travel in our cellular service area for weekend andvacation recreation or work in seasonal industries. Because our cellularservice area includes many seasonal recreational areas, we expect that roamingrevenues will continue to fluctuate seasonally more than service revenues.

 

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## ** **

## **ITEM7A.**                                            QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK

 

We have used senior subordinated notes and bank creditfacilities to finance, in part, our acquisition activities, capitalrequirements, and operations. These on-balance sheet financial instruments, tothe extent they provide for variable rates of interest, expose us to interestrate risk, with the primary interest rate risk exposure resulting from changesin LIBOR or the prime rate, which we use to determine the interest rates thatare applicable to borrowings under our bank credit facilities. We usederivative financial instruments to help manage interest expense.

 

RCC’s financialinstruments are as follows:

 
|                                           |   |                 |    | **Carrying value**      |      | **Estimated fair market value** |   |
|------------------------------------------------|--------|----------------------|---------|-------------------------|-----------|---------------------------------|--------|
| **(Dollars in thousands)**                     |   | **Notional  amount** |    | **December  31,  2001** |      | **December  31,  2000**         |   | **December  31,  2001** |   | **December  31,  2000** |   |
|                                           |   |                 |    |                    |      |                            |   |   |   |   |   |
| **Financial assets**                           |   |                 |    |                    |      |                            |   |   |   |   |   |
| Cash                                           |   | $                    | —  |                    | $         | 1,995                           |   | $ | 2,205 |   | $ | 1,995 |   | $ | 2,205 |   |
| (*)  Interest rate flooridor **:**             |   |                 |    |                    |      |                            |   |   |   |   |   |
| Fleet  Bank (terminates May 12, 2003)          |   | 252,000              |    | 1,699                   |      | 1,019                           |   | 1,699 |   | 2,640 |   |
| Accounts receivable, net                       |   | —               |    | 45,279                  |      | 43,324                          |   | 45,279 |   | 43,324 |   |
| Total  financial assets                        |   | $                    | 252,000 |                    | $         | 48,973                          |   | $ | 46,548 |   | $ | 48,973 |   | $ | 48,169 |   |
| **Financial  liabilities**                     |   |                 |    |                    |      |                            |   |   |   |   |   |
| Credit facility                                |   | —               |    | $                       | 1,111,510 |                            | $      | 1,018,350 |   | $ | 987,145 |   | $ | 993,899 |   |
| 9 5/8% Senior Subordinated Notes               |   | —               |    | 125,000                 |      | 125,000                         |   | 127,031 |   | 116,875 |   |
| 11 3/8% Senior exchangeable preferred stock    |   | —               |    | 215,373                 |      | 192,556                         |   | 187,375 |   | 141,710 |   |
| 12 1⁄4% Junior exchangeable preferred stock |   | —               |    | 172,901                 |      | 153,283                         |   | 145,237 |   | 131,094 |   |
|                                           |   | —               |    | 1,624,784               |      | 1,489,189                       |   | 1,446,788 |   | 1,383,578 |   |
| Derivative financial instruments               |   |                 |    |                    |      |                            |   |   |   |   |   |
| Interest rate swap agreements:                 |   |                 |    |                    |      |                            |   |   |   |   |   |
| TD  Securities (terminates May 16, 2005)       |   | 84,000               |    | 5,854                   |      | —                          |   | 5,854 |   | 3,275 |   |
| PNC  Bank (terminates May 16, 2003)            |   | 42,000               |    | 2,703                   |      | —                          |   | 2,703 |   | 1,610 |   |
| Union  Bank (terminates May 16, 2003)          |   | 84,000               |    | 5,387                   |      | —                          |   | 5,387 |   | 3,188 |   |
| Fleet  Bank (terminates May 16, 2005)          |   | 42,000               |    | 2,791                   |      | —                          |   | 2,791 |   | 1,600 |   |
| Interest rate collar agreements:               |   |                 |    |                    |      |                            |   |   |   |   |   |
| PNC  Bank (terminates May 25, 2003)            |   | 47,000               |    | 2,025                   |      | —                          |   | 2,025 |   | 960 |   |
| Fleet  Bank (terminates May 25, 2003)          |   | 94,000               |    | 3,553                   |      | —                          |   | 3,553 |   | 987 |   |
| Union  Bank (terminates June 5, 2003)          |   | 96,000               |    | 2,961                   |      | —                          |   | 2,961 |   | — |   |
| PNC  Bank (terminates June 6, 2003)            |   | 94,000               |    | 3,301                   |      | —                          |   | 3,301 |   | 919 |   |
| Union  Bank (terminates June 5, 2003)          |   | 46,000               |    | 1,746                   |      | —                          |   | 1,746 |   | 617 |   |
| (**)  Swaption**:**                            |   |                 |    |                    |      |                            |   |   |   |   |   |
| TD  Securities (terminates March 15, 2008)     |   | 131,016              |    | 12,628                  |      | —                          |   | 12,628 |   | — |   |
|                                           |   | 760,016              |    | 42,949                  |      | —                          |   | 42,949 |   | 13,156 |   |
| Other financial instruments                    |   | —               |    | —                  |      | 7,374                           |   |   |   | 7,374 |   |
| Other long-term liabilities                    |   | —               |    | 6,842                   |      | 6,748                           |   | 6,842 |   | 6,748 |   |
| Total  financial liabilities                   |   | $                    | 760,016 |                    | $         | 1,674,575                       |   | $ | 1,503,311 |   | $ | 1,496,579 |   | $ | 1,410,856 |   |

 

----

(*) During 2000, RCCentered into an interest rate instrument (“Flooridor”). The Flooridor does notqualify for hedge accounting treatment under SFAS No. 133 and as such isrecorded in the balance sheet at fair value within other assets with relatedchanges in fair value included in the statement of operations.

(**) RCC has $125 millionin subordinated debt that was issued in May 1998 and matures in May 2008. The$8.7 million value of an embedded call option within the subordinated debt wasmonetized in March 2001 resulting in a swaption. The swaption does not qualifyfor hedge accounting treatment under SFAS No. 133 and as such is recorded inthe balance sheet at fair value within long-term liabilities with relatedchanges in fair value included in the statement of operations.

 

41

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At December 31, 2001, we had debt totaling $1.112billion under our credit facility. We have interest rate swap and collaragreements covering debt with a notional amount of $629.0 million toeffectively change the interest on the underlying debt from a variable rate toa fixed rate for the term of the agreements. After giving effect to theseinstruments, approximately 61% of our debt was essentially fixed rate debt atDecember 31, 2001. For fixed rate debt, interest rate changes impact the fair marketvalue of the instrument but do not impact our earnings or cash flows.Conversely, for variable rate debt, interest rate changes generally do notimpact the fair market value of the instrument but do impact our futureearnings and cash flows, assuming other factors are held constant.

 

At the same time we entered into swap agreements witha total notional amount of $252.0 million, we also entered into two“flooridors” with an equivalent total notional amount in order to furthermanage our interest expense. We paid the counterparty $1.2 million to enterinto the flooridors. Under the flooridors, if, as of a quarterly referencedate, LIBOR is less than 7.35% but greater than 6.85%, the counterparty isrequired to make a quarterly payment to us equal to the difference betweenLIBOR and 7.35% on the notional amount of $252.0 million. If, as of a quarterlyreference date, LIBOR is less than 6.85%, the counterparty is required to makea quarterly payment to us equal to 0.50% on the total notional amount. If LIBORis equal to or greater than 7.35%, neither party is required to make a payment.The flooridors terminate on May 12, 2003. As of December 31, 2001, we recordedthe flooridors at their fair market value as a $1.7 million asset within otherassets.

 

Our existing 9 5/8% senior subordinated notes maturein 2008. They are redeemable at our option for a premium after May 15, 2003.Under some conditions, it could become economically desirable for us to redeemthe notes. In order to monetize the value of the option to redeem those notes,we entered into a “swaption” with respect to the notes. The counterpartypurchased the swaption from us on March 1, 2001 for $8.7 million. Under theswaption, the counterparty has the right, but not the obligation, to receive aquarterly payment based on a rate of 9.625% per annum on the $131.0 millionnotional amount of the swaption in return for a quarterly payment based onLIBOR plus 1.50% per annum on that notional amount. This right is firstexercisable on March 13, 2003. The swaption terminates on March 15, 2008. As ofDecember 31, 2001, the swaption was carried on our balance sheet at its fairmarket value as a $12.6 million liability within long-term liabilities.

 

See Notes 6 and 13 of our consolidated financialstatements for additional information regarding financial instrument activity.

 

## **ITEM 8.**                  FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA

 

See ConsolidatedFinancial Statements and Notes thereto commencing on Page F-1.

 

 

42

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# **PARTIV**

 

## **ITEM 15.**                      EXHIBITS,FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K/A

 
| **(a)** | **(1)**                                                                                                                                  | **Consolidated Financial Statements**                                                                                               |
|---------|------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                     |                                                                                                                                |
|    |                                                                                                                                     | Independent Auditors’  Report and Report of Independent Public Accountants                                                     |
|    |                                                                                                                                     |                                                                                                                                |
|    |                                                                                                                                     | Consolidated Balance Sheets  as of December 31, 2001 (as restated) and 2000                                                         |
|    |                                                                                                                                     |                                                                                                                                |
|    |                                                                                                                                     | Consolidated  Statements of Operations for the Years Ended December 31, 2001 (as restated),  2000 and 1999                          |
|    |                                                                                                                                     |                                                                                                                                |
|    |                                                                                                                                     | Consolidated  Statements of Shareholders’ (Deficit) Equity for the Years Ended December 31,  2001 (as restated), 2000 and 1999 |
|    |                                                                                                                                     |                                                                                                                                |
|    |                                                                                                                                     | Consolidated  Statements of Cash Flows for the Years Ended December 31, 2001 (as restated),  2000 and 1999                          |
|    |                                                                                                                                     |                                                                                                                                |
|    |                                                                                                                                     | Notes to  Consolidated Financial Statements                                                                                         |
|    |                                                                                                                                     |                                                                                                                                |
|    | **(2)**                                                                                                                                  | **Consolidated Financial Statement Schedules**                                                                                      |
|    |                                                                                                                                     |                                                                                                                                |
|    |                                                                                                                                     | The following financial  statement schedules are filed as part of this Form 10-K/A:                                                 |
|    |                                                                                                                                     |                                                                                                                                |
|    |                                                                                                                                     |                                                                                                                                | Independent Auditors’  Report and Report of Independent Public Accountants |
|    |                                                                                                                                     |                                                                                                                                |   |
|    |                                                                                                                                     |                                                                                                                                | Schedule  II - Valuation and Qualifying Accounts |
|    |                                                                                                                                     |                                                                                                                                |   |
|    |                                                                                                                                     |                                                                                                                                | All 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)**                                                                                                                                  | **Exhibits**                                                                                                                        |
|    |                                                                                                                                     |                                                                                                                                |
|    |                                                                                                                                     | See Exhibit Index on  page 79.                                                                                                      |
|    |                                                                                                                                     |                                                                                                                                |
| **(b)** | **Reports on Form 8-K**                                                                                                                  |
|    |                                                                                                                                     |
|    | A Report on Form 8-K  dated November 6, 2001, reporting under Items 7 and 9, was filed during the  three months ended December 31, 2001. |
|    |                                                                                                                                     |
| **(c)** | **Exhibits**                                                                                                                             |
|    |                                                                                                                                     |
|    | See Exhibit Index on  page 79.                                                                                                           |
|    |                                                                                                                                     |
| **(d)** | **Financial Statement Schedules**                                                                                                        |
|    |                                                                                                                                     |
|    | See Item 15 (a) (2),  above.                                                                                                             |

## ** **

## **43**

## ****

##  

## **SIGNATURES**

 

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

 
|                    | Rural Cellular  Corporation             |
|-------------------------|-----------------------------------------|
|                    | /s/ Richard P. Ekstrand                 |
|                    | *Richard P. Ekstrand*                   |
|                    | *President and Chief Executive Officer* |
| Date: December 20, 2002 |                                    |
|                    |                                    |
|                    | Rural Cellular  Corporation             |
|                    | /s/ Wesley E. Schultz                   |
|                    | *Wesley E. Schultz*                     |
|                    | *Chief Financial Officer*               |
| Date: December 20, 2002 |                                    |

 

44

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SECTION 302 CERTIFICATION

CERTIFICATION OFPRINCIPAL EXECUTIVE OFFICER

 

I, Richard P. Ekstrand,certify that:

 

(1) I have reviewed this Annual Report on Form 10-K/Aof Rural Cellular Corporation, a Minnesota corporation (the “Registrant”);

 

(2) Based on my knowledge, this annual report does notcontain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this annual report; and

 

(3) Based on myknowledge, the financial statements, and other financial information includedin this annual report, fairly present in all material respects the financialcondition, results of operations and cash flows of the Registrant as of, andfor, the periods presented in this annual report.

 

 
| Date: December 20, 2002 | By: /s/ Richard P.  Ekstrand |   |
|-------------------------|------------------------------|--------|
|                    | Richard P. Ekstrand          |

 

45

----

 

SECTION 302CERTIFICATION

CERTIFICATION OFPRINCIPAL FINANCIAL OFFICER

 

I, Wesley E. Schultz,certify that:

 

(1) I have reviewed thisAnnual Report on Form 10-K/A of Rural Cellular Corporation, a Minnesotacorporation (the “Registrant”);

 

(2) Based on my knowledge, this annual report does notcontain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this annual report; and

 

(3) Based on myknowledge, the financial statements, and other financial information includedin this annual report, fairly present in all material respects the financialcondition, results of operations and cash flows of the Registrant as of, andfor, the periods presented in this annual report.

 

 
| Date: December 20, 2002 | By: /s/ Wesley E.  Schultz |   |
|-------------------------|----------------------------|--------|
|                    | Wesley E. Schultz          |

 

46

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# **INDEPENDENT AUDITORS’ REPORT**

 

Shareholders and Board ofDirectors

Rural CellularCorporation and Subsidiaries

Alexandria, Minnesota

 

We have audited the accompanying consolidated balancesheet of Rural Cellular Corporation and Subsidiaries (the Company) as ofDecember 31, 2001 and the related consolidated statements of operations,shareholders’ (deficit) equity, and cash flows for the year then ended.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audit.  Thefinancial statements of the Company as of December 31, 2000 and 1999 andfor each of the two years in the period then ended were audited by otherauditors who have ceased operations. Those auditors expressed an unqualified opinion on those financialstatements in their report dated February 1, 2002.  Those auditors reported on the 2001 financial statements prior tothe restatement discussed in Note 1.

 

We conducted our audit inaccordance with auditing standards generally accepted in the United States ofAmerica.  Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.  We believe that our audit provides areasonable basis for our opinion.

 

In our opinion, the 2001financial statements referred to above present fairly, in all materialrespects, the financial position of the Company as of December 31, 2001and the results of its operations and its cash flows for the year endedDecember 31, 2001 in conformity with accounting principles generallyaccepted in the United States of America.

 

As discussed in Note 5,effective January 1, 2001, the Company adopted the provisions of SFASNo. 133, *Accounting for Derivative Instruments and Hedging Activities*,as amended by SFAS No. 138, *Accounting for Certain Derivative Instruments andCertain Hedging Activities*(an amendment of SFAS No. 133).

 

As discussed in Note 1,the accompanying 2001 consolidated financial statements have been restated.

 

Deloitte & Touche LLP

 

Minneapolis, Minnesota

November 12, 2002

 

47

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## **THIS IS A COPY OF APREVIOUSLY ISSUED REPORT**

 

###### ***According to the Securities and Exchange Commission’samendment of Rule 2-02 of Regulation S-X, the following report is a copy of areport previously issued by Arthur Andersen LLP (Andersen), our formerindependent public accountants, who have ceased operations.  This report has not been reissued byAndersen.  Andersen reported on suchfinancial statements prior to the restatement discussed in Note 1.***

 

 

**REPORTOF INDEPENDENT PUBLIC ACCOUNTANTS**

 

To Rural Cellular Corporation:

 

We have audited the accompanying consolidated balancesheets of Rural Cellular Corporation (a Minnesota corporation) and subsidiariesas of December 31, 2001 and 2000, and the related consolidated statements ofoperations, shareholders’ (deficit) equity and cash flows for each of the threeyears in the period ended December 31, 2001. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

We conducted our audits in accordance with auditingstandards generally accepted in the United States.  Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement.  An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, the financial statements referred toabove present fairly, in all material respects, the financial position of RuralCellular Corporation and subsidiaries as of December 31, 2001 and 2000, and theresults of their operations and their cash flows for each of the three years inthe period ended December 31, 2001 in conformity with accounting principlesgenerally accepted in the United States.

 

As explained in Note 5 to the financial statements,effective January 1, 2001 the Company adopted the provisions of SFAS No.133,“Accounting for Derivative Instruments and Hedging Activities.”

 

Arthur Andersen LLP

 

Minneapolis, Minnesota,

February 1, 2002

 

48

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**RURAL CELLULAR CORPORATION ANDSUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**(In thousands)**

 

**ASSETS**

 
|                                                                              |   | **As of  December 31,**               |          |
|-----------------------------------------------------------------------------------|--------|---------------------------------------|---------------|
|                                                                              |   | **2001  (As restated -  see Note 1)** |          | **2000** |   |
| CURRENT  ASSETS:                                                                  |   |                                  |          |   |   |
| Cash                                                                              |   | **$**                                 | **1,995**     |   | $ | 2,205 |   |
| Accounts  receivable, less allowance of $4,016 and $2,385                         |   | **45,279**                            |          | 43,324 |   |
| Inventories                                                                       |   | **6,617**                             |          | 6,753 |   |
| Other  current assets                                                             |   | **2,408**                             |          | 2,618 |   |
| Total  current assets                                                             |   | **56,299**                            |          | 54,900 |   |
| PROPERTY  AND EQUIPMENT, less accumulated depreciation of $137,776 and $93,446    |   | **244,980**                           |          | 234,490 |   |
|                                                                              |   |                                  |          |   |   |
| LICENSES  AND OTHER ASSETS:                                                       |   |                                  |          |   |   |
| Licenses,  less accumulated amortization of $50,409 and $26,500                   |   | **1,030,624**                         |          | 960,570 |   |
| Goodwill,  less accumulated amortization of $32,493 and $18,538                   |   | **361,184**                           |          | 352,442 |   |
| Customer  lists, less accumulated amortization of $45,730 and $21,536             |   | **113,299**                           |          | 129,794 |   |
| Deferred  debt issuance costs, less accumulated amortization of $8,306 and $5,163 |   | **22,549**                            |          | 22,331 |   |
| Restricted  funds in escrow                                                       |   | **—**                            |          | 10,000 |   |
| Other  assets, less accumulated amortization of $1,230 and $908                   |   | **7,844**                             |          | 7,269 |   |
| Total  licenses and other assets                                                  |   | **1,535,500**                         |          | 1,482,406 |   |
|                                                                              |   | **$**                                 | **1,836,779** |   | $ | 1,771,796 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

49

----

 

**LIABILITIES AND SHAREHOLDERS’(DEFICIT) EQUITY**

 
|                                                                                        |   | **As of  December 31,**                  |          |
|---------------------------------------------------------------------------------------------|--------|------------------------------------------|---------------|
|                                                                                        |   | **2001  (As restated -****see  Note 1)** |          | **2000** | ** ** |
| CURRENT  LIABILITIES:                                                                       |   |                                     |          |   |   |
| Accounts  payable                                                                           |   | **$**                                    | **35,356**    | ** ** | $ | 41,545 |   |
| Advance  billings and customer deposits                                                     |   | **9,315**                                | ** **    | 7,563 |   |
| Accrued  interest                                                                           |   | **13,033**                               | ** **    | 15,724 |   |
| Dividends  payable                                                                          |   | **5,710**                                | ** **    | 5,085 |   |
| Other  accrued expenses                                                                     |   | **11,158**                               | ** **    | 8,561 |   |
| Total  current liabilities                                                                  |   | **74,572**                               | ** **    | 78,478 |   |
| LONG-TERM  LIABILITIES                                                                      |   | **1,286,301**                            | ** **    | 1,157,472 |   |
| Total  liabilities                                                                          |   | **1,360,873**                            | ** **    | 1,235,950 |   |
|                                                                                        |   |                                     |          |   |   |
| COMMITMENTS  AND CONTINGENCIES (Note 10)                                                    |   |                                     | ** **    |   |   |
|                                                                                        |   |                                     |          |   |   |
| REDEEMABLE  PREFERRED STOCK                                                                 |   | **509,736**                              | ** **    | 455,891 |   |
| SHAREHOLDERS’  (DEFICIT) EQUITY:                                                       |   |                                     | ** **    |   |   |
| Class  A common stock; $.01 par value; 200,000 shares authorized, 11,176 and 11,034  issued |   | **112**                                  | ** **    | 110 |   |
| Class  B common stock; $.01 par value; 10,000 shares authorized, 728 and 782 issued         |   | **7**                                    | ** **    | 8 |   |
| Additional  paid-in capital                                                                 |   | **191,964**                              | ** **    | 190,751 |   |
| Accumulated  deficit                                                                        |   | **(213,050**                             | **)**         | (110,914 | ) |
| Accumulated  other comprehensive loss                                                       |   | **(12,863**                              | **)**         | — |   |
| Total  shareholders’ (deficit) equity                                                  |   | **(33,830**                              | **)**         | 79,955 |   |
|                                                                                        |   | **$**                                    | **1,836,779** |   | $ | 1,771,796 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

50

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**RURAL CELLULAR CORPORATION ANDSUBSIDIARIES**

### **CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(In thousands, except per share data)**

 
|                                                                                              |   | **For the  years ended December 31,** |         |
|---------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------------|
|                                                                                              |   | **2001  (As restated -  see Note 1)** |         | **2000** |   | **1999** |   |
| REVENUES:                                                                                         |   |                                  |         |   |   |   |   |
| Service                                                                                           |   | **$**                                 | **305,988**  | ** ** | $ | 238,556 |   | $ | 125,361 |   |
| Roaming                                                                                           |   | **116,541**                           | ** **   | 98,693 |   | 43,081 |   |
| Equipment                                                                                         |   | **18,627**                            | ** **   | 18,848 |   | 7,299 |   |
| Total  revenues                                                                                   |   | **441,156**                           | ** **   | 356,097 |   | 175,741 |   |
|                                                                                              |   |                                  |         |   |   |   |   |
| OPERATING  EXPENSES:                                                                              |   |                                  | ** **   |   |   |   |   |
| Network  costs, excluding depreciation and amortization                                           |   | **101,509**                           | ** **   | 85,988 |   | 38,549 |   |
| Cost  of equipment sales                                                                          |   | **28,415**                            | ** **   | 34,711 |   | 10,951 |   |
| Selling,  general and administrative                                                              |   | **117,855**                           | ** **   | 95,034 |   | 54,753 |   |
| Depreciation  and amortization                                                                    |   | **112,577**                           | ** **   | 91,078 |   | 41,277 |   |
| Total  operating expenses                                                                         |   | **360,356**                           | ** **   | 306,811 |   | 145,530 |   |
|                                                                                              |   |                                  |         |   |   |   |   |
| OPERATING  INCOME                                                                                 |   | **80,800**                            | ** **   | 49,286 |   | 30,211 |   |
|                                                                                              |   |                                  |         |   |   |   |   |
| OTHER  INCOME (EXPENSE):                                                                          |   |                                  | ** **   |   |   |   |   |
| Interest  expense                                                                                 |   | **(130,432**                          | **)**        | (89,839 | ) | (27,116 | ) |
| Interest  and dividend income                                                                     |   | **1,172**                             | ** **   | 2,249 |   | 467 |   |
| Other                                                                                             |   | **(752**                              | **)**        | (24 | ) | 1,325 |   |
| Other  expense, net                                                                               |   | **(130,012**                          | **)**        | (87,614 | ) | (25,324 | ) |
| INCOME  (LOSS) BEFORE INCOME TAX, CUMULATIVE EFFECT ADJUSTMENT AND EXTRAORDINARY ITEM             |   | **(49,212**                           | **)**        | (38,328 | ) | 4,887 |   |
| INCOME  TAX PROVISION                                                                             |   | **—**                            | ** **   | — |   | 37 |   |
| INCOME  (LOSS) BEFORE CUMULATIVE EFFECT ADJUSTMENT AND EXTRAORDINARY ITEM                         |   | **(49,212**                           | **)**        | (38,328 | ) | 4,850 |   |
| EXTRAORDINARY  ITEM – EARLY EXTINGUISHMENT OF DEBT                                           |   | **—**                            | ** **   | (925 | ) | — |   |
| INCOME  (LOSS) BEFORE CUMULATIVE EFFECT ADJUSTMENT                                                |   | **(49,212**                           | **)**        | (39,253 | ) | 4,850 |   |
|                                                                                              |   |                                  |         |   |   |   |   |
| CUMULATIVE  EFFECT ADJUSTMENT                                                                     |   | **1,621**                             | ** **   | — |   | — |   |
|                                                                                              |   |                                  |         |   |   |   |   |
| NET  INCOME (LOSS)                                                                                |   | **(47,591**                           | **)**        | (39,253 | ) | 4,850 |   |
|                                                                                              |   |                                  |         |   |   |   |   |
| PREFERRED  STOCK DIVIDEND                                                                         |   | **(54,545**                           | **)**        | (44,081 | ) | (15,912 | ) |
|                                                                                              |   |                                  |         |   |   |   |   |
| NET  LOSS APPLICABLE TO COMMON SHARES                                                             |   | **$**                                 | **(102,136** | **)** | $ | (83,334 | ) | $ | (11,062 | ) |
| WEIGHTED  AVERAGE COMMON SHARES OUTSTANDING, BASIC AND DILUTED                                    |   | **11,865**                            | ** **   | 11,510 |   | 9,047 |   |
|                                                                                              |   |                                  | ** **   |   |   |   |   |
| NET  LOSS APPLICABLE TO COMMON SHARES BEFORE EXTRAORDINARY ITEM AND CUMULATIVE  EFFECT ADJUSTMENT |   | **$**                                 | **(8.74**    | **)** | $ | (7.16 | ) | $ | (1.22 | ) |
| EXTRAORDINARY  ITEM                                                                               |   | **—**                            | ** **   | (0.08 | ) | — |   |
| CUMULATIVE  EFFECT ADJUSTMENT                                                                     |   | **0.13**                              | ** **   | — |   | — |   |
| NET  LOSS PER BASIC AND DILUTED SHARE                                                             |   | **$**                                 | **(8.61**    | **)** | $ | (7.24 | ) | $ | (1.22 | ) |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

51

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**RURAL CELLULAR CORPORATION ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTS OFSHAREHOLDERS’ (DEFICIT) EQUITY**

**FOR THE YEARS ENDED DECEMBER 31,2001, 2000 AND 1999**

**(In thousands)**

 
|                                                                                  |   |                      |   |                      |   |       |   |       |   | **Additional  Paid-In  Capital** |   | **Accumulated  Deficit** |    | **Accumulated  Other  Comprehensive  Loss** |   | **Shareholders’  (Deficit) equity** |   | **Comprehensive  Loss** |    |
|---------------------------------------------------------------------------------------|--------|---------------------------|--------|---------------------------|--------|------------|--------|------------|--------|----------------------------------|--------|--------------------------|---------|---------------------------------------------|--------|------------------------------------------|--------|-------------------------|---------|
|                                                                                  |   | **Class A  Common Stock** |   | **Class B  Common Stock** |   |       |   |       |   |                             |
|                                                                                  |   |                      |   |                      |   |       |   |       |
|                                                                                  |   | **Shares**                |   | **Amount**                |   | **Shares** |   | **Amount** |   |                             |   |                     |    |                                        |
| BALANCE,  December 31, 1998                                                           |   | 7,780                     |   | $                         | 78     |       | 1,203  |       | $      | 12                               |   | $                        | 35,707  |                                        | $      | (16,518                                  | )      | $                       | —  |   | $ | 19,279 |   | — |   |
| Conversion of Class B common  stock to Class A common stock                           |   | 171                       |   | 2                         |   | (171       | )      | (2         | )      | —                           |   | —                   |    | —                                      |   | —                                   |   | —                  |    |
| Stock issued through employee stock purchase plan                                     |   | 17                        |   | —                    |   | —     |   | —     |   | 151                              |   | —                   |    | —                                      |   | 151                                      |   | —                  |    |
| Stock options exercised                                                               |   | 122                       |   | 1                         |   | —     |   | —     |   | 1,058                            |   | —                   |    | —                                      |   | 1,059                                    |   | —                  |    |
| COMPONENTS OF COMPREHENSIVE LOSS                                                      |   |                      |   |                      |   |       |   |       |   |                             |   |                     |    |                                        |   |                                     |   | —                  |    |
| Net loss applicable to common shares                                                  |   | —                    |   | —                    |   | —     |   | —     |   | —                           |   | (11,062                  | )       | —                                      |   | (11,062                                  | )      | (11,062                 | )       |
| BALANCE,  December 31, 1999                                                           |   | 8,090                     |   | 81                        |   | 1,032      |   | 10         |   | 36,916                           |   | (27,580                  | )       | —                                      |   | 9,427                                    |   | —                  |    |
| Conversion of common stock  to  Class T preferred stock                               |   | (43                       | )      | —                    |   | (105       | )      | (1         | )      | (7,539                           | )      | —                   |    | —                                      |   | (7,540                                   | )      | —                  |    |
| Issuance of common stock,  net                                                        |   | 2,749                     |   | 27                        |   | —     |   | —     |   | 160,409                          |   | —                   |    | —                                      |   | 160,436                                  |   | —                  |    |
| Conversion of Class B common  stock to Class A common stock                           |   | 145                       |   | 1                         |   | (145       | )      | (1         | )      | —                           |   | —                   |    | —                                      |   | —                                   |   | —                  |    |
| Stock issued through employee stock purchase plan                                     |   | 38                        |   | —                    |   | —     |   | —     |   | 375                              |   | —                   |    | —                                      |   | 375                                      |   | —                  |    |
| Stock options exercised                                                               |   | 55                        |   | 1                         |   | —     |   | —     |   | 590                              |   | —                   |    | —                                      |   | 591                                      |   | —                  |    |
| COMPONENTS OF COMPREHENSIVE LOSS                                                      |   |                      |   |                      |   |       |   |       |   |                             |   |                     |    |                                        |   |                                     |   |                    |    |
| Net loss applicable to common shares                                                  |   | —                    |   | —                    |   | —     |   | —     |   | —                           |   | (83,334                  | )       | —                                      |   | (83,334                                  | )      | (83,334                 | )       |
| BALANCE,  December 31, 2000                                                           |   | 11,034                    |   | 110                       |   | 782        |   | 8          |   | 190,751                          |   | (110,914                 | )       | —                                      |   | 79,955                                   |   | —                  |    |
| Conversion of Class B common  stock to Class A common stock                           |   | 54                        |   | 1                         |   | (54        | )      | (1         | )      | —                           |   | —                   |    | —                                      |   | —                                   |   | —                  |    |
| Stock issued through employee stock purchase plan                                     |   | 25                        |   | —                    |   | —     |   | —     |   | 620                              |   | —                   |    | —                                      |   | 620                                      |   | —                  |    |
| Stock options exercised                                                               |   | 63                        |   | 1                         |   | —     |   | —     |   | 593                              |   | —                   |    | —                                      |   | 594                                      |   | —                  |    |
| COMPONENTS OF COMPREHENSIVE LOSS                                                      |   |                      |   |                      |   |       |   |       |   |                             |   |                     |    |                                        |   |                                     |   |                    |    |
| Net loss applicable to common shares (as restated  – see Note 1)                 |   | —                    |   | —                    |   | —     |   | —     |   | —                           |   | (102,136                 | )       | —                                      |   | (102,136                                 | )      | (102,136                | )       |
| Cumulative effect of SFAS No. 133 at January 1,  2001 (as restated – see Note 1) |   | —                    |   | —                    |   | —     |   | —     |   | —                           |   | —                   |    | (5,526                                      | )      | (5,526                                   | )      | (5,526                  | )       |
| Current year effect of SFAS No. 133 (as restated –  see Note 1)                  |   | —                    |   | —                    |   | —     |   | —     |   | —                           |   | —                   |    | (7,337                                      | )      | (7,337                                   | )      | (7,337                  | )       |
| Total comprehensive loss                                                              |   | —                    |   | —                    |   | —     |   | —     |   | —                           |   | —                   |    | —                                      |   | —                                   |   | (114,999                | )       |
|                                                                                  |   |                      |   |                      |   |       |   |       |   |                             |   |                     |    |                                        |   |                                     |   |                    |    |
| BALANCE,  December 31, 2001  (As restated  – see Note 1)                         |   | 11,176                    |   | $                         | 112    |       | 728    |       | $      | 7                                |   | $                        | 191,964 |                                        | $      | (213,050                                 | )      | $                       | (12,863 | ) | $ | (33,830 | ) |   |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

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**RURAL CELLULAR CORPORATION ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In thousands)**

 
|                                                                                               |   | **For the  years ended December 31,** |        |
|----------------------------------------------------------------------------------------------------|--------|---------------------------------------|-------------|
|                                                                                               |   | **2001  (As restated -  see Note 1)** |        | **2000** |   | **1999** |   |
| OPERATING  ACTIVITIES:                                                                             |   |                                  |        |   |   |   |   |
| Net  income (loss)                                                                                 |   | **$**                                 | **(47,591** | **)** | $ | (39,253 | ) | $ | 4,850 |   |
| Adjustments  to reconcile to net cash provided by operating activities:                            |   |                                  | ** **  |   |   |   |   |
| Depreciation  and amortization                                                                     |   | **112,577**                           | ** **  | 91,078 |   | 41,277 |   |
| Extraordinary  item - early extinguishment of debt                                                 |   | **—**                            | ** **  | 925 |   | — |   |
| Equity  in losses of unconsolidated affiliates                                                     |   | **2**                                 | ** **  | 2 |   | 3 |   |
| Mark-to-market  adjustments - financial instruments                                                |   | **16,425**                            | ** **  | — |   | — |   |
| Cumulative  effect adjustment                                                                      |   | **(1,621**                            | **)**       | — |   | — |   |
| Other                                                                                              |   | **1,962**                             | ** **  | 1,419 |   | (618 | ) |
| Change  in other operating elements:                                                               |   |                                  | ** **  |   |   |   |   |
| Accounts  receivable                                                                               |   | **849**                               | ** **  | (14,071 | ) | (3,365 | ) |
| Inventories                                                                                        |   | **292**                               | ** **  | 145 |   | (2,098 | ) |
| Other  current assets                                                                              |   | **605**                               | ** **  | 192 |   | 187 |   |
| Accounts  payable                                                                                  |   | **(7,786**                            | **)**       | 25,297 |   | (181 | ) |
| Advance  billings and customer deposits                                                            |   | **1,199**                             | ** **  | 1,721 |   | 34 |   |
| Other  accrued expenses                                                                            |   | **(1,410**                            | **)**       | 14,717 |   | 323 |   |
| Net  cash provided by operating activities                                                         |   | **75,503**                            | ** **  | 82,172 |   | 40,412 |   |
| INVESTING  ACTIVITIES:                                                                             |   |                                  | ** **  |   |   |   |   |
| Purchases  of property and equipment, net                                                          |   | **(45,979**                           | **)**       | (54,832 | ) | (26,287 | ) |
| Purchases  of wireless properties, net of cash acquired                                            |   | **(178,566**                          | **)**       | (1,232,692 | ) | (11,465 | ) |
| Proceeds  from sale of properties                                                                  |   | **48,929**                            | ** **  | — |   | — |   |
| Pending  acquisition costs                                                                         |   | **—**                            | ** **  | (10,000 | ) | (36,360 | ) |
| Purchases  of FCC licenses                                                                         |   | **—**                            | ** **  | — |   | (8,656 | ) |
| Other                                                                                              |   | **1,080**                             | ** **  | (1,763 | ) | 19 |   |
| Net  cash used in investing activities                                                             |   | **(174,536**                          | **)**       | (1,299,287 | ) | (82,749 | ) |
| FINANCING  ACTIVITIES:                                                                             |   |                                  | ** **  |   |   |   |   |
| Proceeds  from issuance of common stock related to employee stock purchase plan and  stock options |   | **1,214**                             | ** **  | 966 |   | 1,210 |   |
| Proceeds  from offering of common stock, net                                                       |   | **—**                            | ** **  | 160,436 |   | — |   |
| Proceeds  from issuance of preferred securities, net                                               |   | **—**                            | ** **  | 263,394 |   | — |   |
| Proceeds  from issuance of long-term debt                                                          |   | **349,344**                           | ** **  | 1,104,948 |   | 67,000 |   |
| Repayments  of long-term debt                                                                      |   | **(256,089**                          | **)**       | (299,350 | ) | (27,000 | ) |
| Proceeds  from swaption                                                                            |   | **8,720**                             | ** **  | — |   | — |   |
| Proceeds  from interest rate swap transactions                                                     |   | **—**                            | ** **  | 6,550 |   | 982 |   |
| Payments  of debt issuance costs                                                                   |   | **(4,366**                            | **)**       | (18,909 | ) | (632 | ) |
| Net  cash provided by financing activities                                                         |   | **98,823**                            | ** **  | 1,218,035 |   | 41,560 |   |
| NET  INCREASE (DECREASE) IN CASH                                                                   |   | **(210**                              | **)**       | 920 |   | (777 | ) |
| CASH,  at beginning of year                                                                        |   | **2,205**                             | ** **  | 1,285 |   | 2,062 |   |
| CASH,  at end of year                                                                              |   | **$**                                 | **1,995**   | ** ** | $ | 2,205 |   | $ | 1,285 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

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**RURALCELLULAR CORPORATION**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**DECEMBER 31, 2001 AND 2000**

 

**1.  Restatement:**

 

Subsequentto the issuance of our 2001 financial statements, it was determined that theoriginal treatment of certain derivatives and hedge instruments was not inaccordance with Statement of Financial Accounting Standards (“SFAS”) No.133,“Accounting for Derivatives and Hedging Activities” (“SFAS No. 133”), asamended. In addition, a correction was made to the calculation for noncashdividends on our Class M preferred stock.

 

Thefollowing table summarizes the changes to RCC’s consolidated financialstatements for the year ended December 31, 2001 resulting from the restatement.

 
| **Effects of Restatement on Financial  Statements** |
|-----------------------------------------------------|
| *(In  thousands, except per share data)*            |

 
|                                                                 |   | **Year ended**               |     |
|----------------------------------------------------------------------|--------|------------------------------|----------|
|                                                                 |   | **December  31, 2001**       |     |
|                                                                 |   | **As  originally  reported** |     | **As  restated** |   |
| Interest  expense, net                                               |   | $                            | (114,100 | ) | $ | (129,260 | ) |
| Net  loss before cumulative effect adjustment and extraordinary item |   | (34,052                      | )        | (49,212 | ) |
| Cumulative  effect adjustment                                        |   | 137                          |     | 1,621 |   |
| Net  loss                                                            |   | (33,915                      | )        | (47,591 | ) |
| Preferred  stock dividend                                            |   | (53,644                      | )        | (54,545 | ) |
| Net  loss applicable to common shares                                |   | (87,559                      | )        | (102,136 | ) |
| Net  loss per basic and diluted share                                |   | $                            | (7.38    | ) | $ | (8.61 | ) |

 
|                                  |   | **As of**                   |      |
|---------------------------------------|--------|-----------------------------|-----------|
|                                  |   | **December 31, 2001**       |      |
|                                  |   | **As originally  reported** |      | **As restated** |   |
| Long-term  liabilities                |   | $                           | 1,290,338 |   | $ | 1,286,301 |   |
| Redeemable  preferred stock           |   | 508,836                     |      | 509,736 |   |
| Accumulated  deficit                  |   | (198,473                    | )         | (213,050 | ) |
| Accumulated  other comprehensive loss |   | $                           | (30,577   | ) | $ | (12,863 | ) |

 

**2.  Organization andNature of Business:**

 

Rural Cellular Corporation and its subsidiaries (the“Company” or “RCC”), a Minnesota corporation, provide wireless communicationservices in portions of the Midwest, South, Northeast and Northwest areas ofthe United States. The Company operates its cellular and paging systems underlicenses granted by the Federal Communications Commission (“FCC”). TheCompany’s operations are subject to the applicable rules and regulations of theFCC.

 

RCC’s cash requirements will begin to increasestarting in 2003 and in future years due in part to the required amortizationof the Company’s credit facility and the required distribution of preferredstock cash dividends.   In addition, as thewireless industry upgrades its existing networks to 2.5G and 3.0G technologies,the Company may also deploy substantial cash resources toward the upgrade ofits networks starting in 2003.

 

AtDecember 31, 2001, the Company had negative working capital of $(18.3) millionand a shareholders’ deficit of $(33.8) million.

 

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**3.  Strategic History:**

 

RCCwas founded in 1991 through the combination of five partnerships holdingdifferent cellular licenses in Minnesota. Since then, it has completed thefollowing acquisitions (the “Acquisitions”):

 

•                  In May 1997, RCC acquiredwireless operations and licenses covering portions of Maine for approximately$85.7 million.

 

•      In July 1998, RCC acquired wirelessoperations and licenses covering all of Vermont and portions of Massachusetts,New Hampshire, and New York for approximately $262.5 million.

 

•      In August 1998, RCC acquired wirelessoperations and a license in western Maine for approximately $7.5 million.

 

•      In February 1999, RCC acquiredwireless operations and a license in South Dakota for approximately$11.9 million.

 

•      In April 2000, in the Triton Cellularacquisition, RCC acquired wireless operations and licenses covering portions ofAlabama, Kansas, Mississippi, Oregon, and Washington for approximately$1.265 billion.

 

•      In January 2001, in the Saco Riveracquisition, RCC acquired wireless operations and licenses in the Portsmouth,New Hampshire service areas for approximately $194.3 million in cash. Inthe acquisition, RCC also acquired the ILEC business of Saco River. RCC soldthe Saco River ILEC in October 2001 for approximately $35.5 millionin cash and used the net proceeds to repay indebtedness under the creditfacility.

 

#### ***AccountingTreatment***

 

The purchase prices forthe Acquisitions were allocated to the net assets based on their estimated fairvalues and the excess was allocated to licenses and goodwill. The Acquisitionswere accounted for under the purchase method of accounting; accordingly,operating results have been included from the date of acquisition.

 

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The following unauditedpro forma information presents the consolidated results of operations as if theacquisitions of Triton Cellular and Saco River, excluding Saco River’s ILEC,had occurred as of January 1, 2000. This summary is not necessarily indicativeof what the results of operations of the Company and Triton Cellular and SacoRiver would have been if they had been a single entity during such period, nordoes it purport to represent results of operations for any future periods. 

 
|                                                                 |   | **Years  ended December 31,** |         |
|----------------------------------------------------------------------|--------|-------------------------------|--------------|
| **(in thousands except per share)**                                  |   | **2001**                      |         | **% of Rev** |   | **2000** |   | **% of Rev** |   |
| REVENUES:                                                            |   |                          |         |   |   |   |   |   |   |
| Service                                                              |   | **$**                         | **305,988**  |   | **69.4** | **%** | $ | 278,127 |   | 65.7 | % |
| Roaming                                                              |   | **116,541**                   |         | **26.4** |   | 123,938 |   | 29.2 |   |
| Equipment                                                            |   | **18,627**                    |         | **4.2** |   | 21,703 |   | 5.1 |   |
| Total  revenues                                                      |   | **441,156**                   |         | **100.0** |   | 423,768 |   | 100.0 |   |
| OPERATING  EXPENSES:                                                 |   |                          |         |   |   |   |   |   |   |
| Network  costs                                                       |   | **101,509**                   |         | **23.0** |   | 103,165 |   | 24.3 |   |
| Cost  of equipment sales                                             |   | **28,415**                    |         | **6.4** |   | 39,627 |   | 9.4 |   |
| Selling,  general and administrative                                 |   | **117,855**                   |         | **26.7** |   | 112,606 |   | 26.6 |   |
| Depreciation  and amortization                                       |   | **112,577**                   |         | **25.5** |   | 110,699 |   | 26.1 |   |
| Total  operating expenses                                            |   | **360,356**                   |         | **81.6** |   | 366,097 |   | 86.4 |   |
| OPERATING  INCOME                                                    |   | **80,800**                    |         | **18.4** |   | 57,671 |   | 13.6 |   |
| Net  loss before extraordinary item and cumulative effect adjustment |   | **(49,212**                   | **)**        | **(11.1** | **)** | (63,387 | ) | (15.0 | ) |
| Net  loss applicable to common shares                                |   | **$**                         | **(102,136** | **)** | **(23.2** | **)%** | $ | (111,634 | ) | (26.3 | )% |
| Weighted  average common shares outstanding                          |   | **11,865**                    |         |   |   | 11,510 | ** ** |   | ** ** |
| Net  loss per basic and diluted common share                         |   | **$**                         | **(8.61**    | **)** |   |   | $ | (9.70 | ) |   | ** ** |

 

**4.  Summary ofSignificant Accounting Policies:**

 

***Roaming Revenue Reclassification***

 

RCC generates revenue from charges to its customerswhen they use their cellular phones in other wireless providers’ markets(“Incollect Revenue”). Until April 2000, RCC included Incollect Revenue in theroaming revenue line item in its statement of operations. Expense associatedwith Incollect Revenue, charged by third-party wireless providers, was also includedin roaming revenue on a net basis. RCC used this method because, historically,it has passed through to its customers most of the costs related to IncollectRevenue. However, the wireless industry, including RCC, has increasingly beenusing pricing plans that include flat rate pricing and larger home serviceareas. Under these types of plans, amounts charged to RCC by other wirelessproviders may not necessarily be passed through to its customers.

 

In April 2000, RCCadopted a policy to include the associated expense from its incollect activityin network cost rather than reducing roaming revenue and to include IncollectRevenue as service revenue rather than in roaming revenue.  Roaming revenue includes only the revenuefrom other wireless providers’ customers who use RCC’s network (“OutcollectRevenue.”) The 2000 and 1999 consolidated financial statements werereclassified to conform to this presentation. This change in presentation has no impact on operating income.

 

Roaming revenues and incollect cost information isprovided to RCC primarily through a third party centralized clearinghouse. Fromthe clearinghouse we receive final settlement data at the middle of each monthand preliminary settlement data at the end of each month. Management bases itsaccrual of roaming revenue and incollect expense from both mid-month andend-of-month clearinghouse reports. RCC follows this method since reasonablydependable estimates of roaming revenue and incollect cost can be made.

 

56

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#### ***Recently Issued Accounting Pronouncements***

 

InJuly 2002, the Financial Accounting Standards Board (“FASB”) issued Statementof Financial Accounting Standards (“SFAS”) No. 146, “Accounting for CostsAssociated with Exit or Disposal Activities.” SFAS No. 146 supercedes previousaccounting guidance, principally Emerging Issues Task Force Issue No. 94-3,“Liability Recognition for Certain Employee Termination Benefits and OtherCosts to Exit an Activity (including Certain Costs Incurred in aRestructuring).” SFAS No. 146 requires companies to recognize costs associatedwith exit or disposal activities when they are incurred rather than at the dateof a commitment to an exit or disposal plan. Examples of costs covered by SFASNo. 146 include lease termination costs and certain employee severance coststhat are associated with a restructuring, discontinued operation, plantclosing, or other exit or disposal activity. We will adopt SFAS No. 146prospectively to exit or disposal activities initiated after December 31, 2002.

 

In April 2002, the FASB issued SFAS No. 145,“Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB StatementNo. 13, and Technical Corrections.” SFAS No. 145 requires that gains and lossesfrom the extinguishments of debt be classified as extraordinary items only ifthey meet the criteria in Accounting Principles Board Opinion No. 30 (“OpinionNo. 30”). SFAS No. 145 is effective for RCC beginning January 1, 2003. Upon theadoption of SFAS No. 145, RCC will reclassify prior period statements ofoperations to conform to the presentation required by SFAS No. 145. Under SFASNo. 145, we will report gains and losses on extinguishments of debt in interestexpense.

 

In October 2001, the FASB issued SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assetsand for Long-Lived Assets to Be Disposed Of.” SFAS No. 144 develops a singleaccounting model for long-lived assets to be disposed of, whether previouslyheld and used or newly acquired. RCC adopted this statement on January 1, 2002.There was no impact to our financial statements.

 

In July 2001, the FASB issued SFAS No. 143,“Accounting for Asset Retirement Obligations.” SFAS No. 143 provides accountingand reporting standards for costs associated with the retirement of long-livedassets. It requires entities to record the fair value of a liability for anasset retirement obligation in the period in which it is incurred. When theliability is initially recorded, the entity capitalizes the cost by increasingthe carrying amount of the related long-lived asset. Over time, the liabilityis accreted to its present value, and the capitalized cost is depreciated over theuseful life of the related asset. Upon settlement of the liability, an entityeither settles the obligation for its recorded amount or incurs a gain or lossupon settlement. We have not yet determined the effect this new accountingstandard may have on our results of operations, financial position and cashflows. We will be required to implement this standard effective January 1,2003.

 

In July 2001, the FASBissued SFAS No. 141, “Business Combinations” and No. 142, “Goodwill and OtherIntangible Assets.” SFAS No. 141 requires all business combinations initiatedafter June 30, 2001 to be accounted for using the purchase method. SFAS No. 141also sets forth recognition criteria for intangible assets other than goodwillas well as disclosure requirements for business combinations. RCC adopted SFASNo. 141 on July 1, 2001.  The adoptionof SFAS No. 141 had no impact on RCC’s consolidated financial statements.

 

57

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Effective January 1,2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets.”SFAS No. 142 established new standards related to how acquired goodwilland other intangible assets are to be recorded upon their acquisition as wellas how they are to be accounted for after they have been initially recognizedin the financial statements. Effective with the adoption of this standard, RCCis no longer amortizing goodwill. Additionally, we have reassessed the useful lives of previouslyrecognized intangible assets. A significant portion of our intangible assetsconsists of licenses that provide our wireless operations with the exclusiveright to utilize certain radio frequency spectrum to provide cellularcommunication services. While licenses are issued for only a fixed time,generally ten years, such licenses are subject to renewal by the FCC. Renewalsof licenses have occurred routinely and at nominal cost. Moreover, we havedetermined that there are currently no legal, regulatory, contractual,competitive, economic or other factors that limit the useful life of ourwireless licenses. As a result, licenses will be treated as an indefinite-livedintangible asset under the provisions of SFAS No. 142 and will not be amortizedbut rather will be tested for impairment. We will reevaluate the useful lifedetermination for licenses quarter to determine whether events andcircumstances continue to support an indefinite useful life.

 

RCC has completed atransitional impairment test for both its consolidated goodwill and licensingcosts and determined that there were impairments of $5.0 million and $412.0million, respectively.  RCC used a fairvalue approach, using primarily discounted cash flows, to complete thetransitional impairment tests.  Inaccordance with SFAS No. 142, the impairment charges are recorded in RCC’sconsolidated financial statements for the first quarter of 2002.

 

Ona prospective basis, RCC is required to test both consolidated goodwill andother indefinite-lived intangible assets, including licenses, for impairment onan annual basis based upon a fair value approach. Additionally, goodwill willbe tested for impairment between annual tests if an event occurs orcircumstances change that would more likely than not reduce the fair value ofentity below its carrying value. These events or circumstances would include asignificant change in the business climate, including a significant sustaineddecline in an entity’s market value, legal factors, operating performanceindicators, competition, sale or disposition of a significant portion of thebusiness, or other factors.  Otherindefinite-lived intangible assets will be tested between annual tests ifevents or changes in circumstances indicate that the asset might be impaired.RCC will perform its annual impairment test for both goodwill and licensingcosts during the fourth quarter of 2002, using methodologies consistent withthose applied for its transitional impairment tests performed as ofJanuary 1, 2002.

 

#### ***Principlesof Consolidation***

 

The consolidatedfinancial statements include the accounts of RCC and its wholly-ownedsubsidiaries and its majority owned joint venture, Wireless Alliance, LLC(“Wireless Alliance”)*.* All significant intercompany balancesand transactions have been eliminated.

 

***Revenue Recognition***

 

The Company’s revenues primarily consist of service,roaming and equipment revenues, each of which is described below:

 

•                  **Service** revenues include monthly accesscharges, charges for airtime used in excess of the time included in the servicepackage purchased, activation fees, long distance charges derived from callsplaced by customers as well as cellular and paging equipment lease revenues.Also included are activation fees and charges for such features as voicemail,call waiting, and call forwarding. Service revenue also includes Incollectrevenue.  The Company does not chargeinstallation or connection fees.

 

•                  **Roaming** revenues include OutcollectRevenue.

 

•                  **Equipment** revenues include sales ofcellular and paging equipment, accessory sales to customers, and networkequipment reselling.

 

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***Income Taxes***

 

The Company follows the liability method of accountingfor income taxes, and deferred income taxes are based on the estimated futuretax effects of differences between the financial statement and tax bases ofassets and liabilities based on enacted tax laws.

 

***Net Income (Loss) Per Common Share***

 

Basic EPS is computed by dividing net income (loss) bythe weighted average number of shares outstanding during the year. Diluted EPSis computed by including dilutive common stock equivalents with the basicweighted average shares outstanding.  Potential common shares of 1,588,734, 1,266,422 and 1,046,547 related tothe Company’s outstanding stock options were excluded from the computation of dilutedloss per share for the years ended December 31, 2001, 2000 and 1999,respectively, as inclusion of these shares would have been antidilutive.

 

#### ***CashEquivalents***

 

The Company considers all highly liquid investmentswith an original maturity of three months or less to be cash equivalents.

 

***Inventories***

 

Inventories consist ofcellular telephone equipment, pagers and accessories and are stated at thelower of cost, determined using the average cost method, or market.

 

***Property and Equipment***

 

Property and equipmentare recorded at cost.  Additions,improvements or major renewals are capitalized, while expenditures that do notenhance or extend the asset’s useful life are charged to operating expenses asincurred. Depreciation is computed using the straight-line method based on theestimated useful life of the asset.

 

The components of property and equipment and theuseful lives of the Company’s assets are as follows as of December 31:

 
| **(in thousands)**                     |   | **2001**     |        | **2000** |   | **Useful  Lives** |   |
|----------------------------------------|--------|--------------|-------------|----------|--------|-------------------|--------|
| Land                                   |   | **$**        | **7,021**   |     | $      | 6,145             |   | N/A |   |
| Building  and towers                   |   | **89,113**   |        | 81,424   |   | 15-39 Years       |   |
| Equipment                              |   | **225,098**  |        | 192,580  |   | 2-10 Years        |   |
| Phone  service equipment               |   | **31,998**   |        | 17,761   |   | 19-24 Months      |   |
| Furniture  and fixtures                |   | **22,401**   |        | 18,431   |   | 3-10 Years        |   |
| Assets  under construction             |   | **7,125**    |        | 11,595   |   | N/A               |   |
|                                   |   | **382,756**  |        | 327,936  |   |              |   |
|                                   |   |         |        |     |   |              |   |
| Less—accumulated  depreciation    |   | **(137,776** | **)**       | (93,446  | )      |              |   |
| **Property  and equipment – net** |   | **$**        | **244,980** |     | $      | 234,490           |   |   |   |

 

The Company’s networkconstruction expenditures are recorded as assets under construction until thesystem or assets are placed in service, at which time the assets aretransferred to the appropriate property and equipment category.  Throughout the years ended December 31, 2001and 2000, as a component of assets under construction, the Company capitalized$1.7 million and $2.2 million, respectively, in salaries of the Company’sengineering employees during the construction period for projects that extendedbeyond one year.  The Company did notcapitalize interest cost in 2001. During 2000, the Company capitalized $420,000in interest cost that was related to the digital upgrade in the Company’sNortheast region. Depreciation expensetotaling $49.3 million, $43.8 million and $29.2 million was recorded for theyears ended December 31, 2001, 2000 and 1999, respectively.

 

At December 31, 2001, accumulated depreciation onphone service equipment was approximately $18.6 million as compared to $14.8million at December 31, 2000.

 

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***Licenses and Other Intangible Assets***

 

Licenses consist of the cost of acquiring paginglicenses, the value assigned to the Wireless Alliance personal communicationsservices (“PCS”) licenses, other PCS licenses, local multipoint distributionservice (“LMDS”) licenses, and the value assigned to cellular licenses acquiredthrough acquisitions. Other intangibles, resulting primarily from acquisitions,include the value assigned to customer lists and goodwill. Amortization iscomputed using the straight-line method based on the estimated useful life ofthe asset (see discussion of recently issued accounting pronouncements in Note4.)

 

The components oflicenses and other intangible assets are as follows as of December 31:

 
|                         |   | **2001**                   |          | **2000**                      |   |                     |   |
|------------------------------|--------|----------------------------|---------------|-------------------------------|--------|--------------------------|--------|
| **(in thousands)**           |   | **Gross  Carrying  Value** |          | **Accumulated  Amortization** |   | **Net  Carrying  Value** |   | **Gross  Carrying  Value** |   | **Accumulated  Amortization** |   | **Net  Carrying  Value** |   | **Amortizable****Lives** |   |
| **Licenses**                 |   | **$**                      | **1,081,033** | ** **                    | **$**  | **(50,409**              | **)**  | **$** | **1,030,624** |   | $ | 987,070 |   | $ | (26,500 | ) | $ | 960,570 |   | 30-40 Years |   |
|                         |   |                       |          |                          |   |                     |   |   |   |   |   |   |   |   |   |
| **Other intangible assets:** |   |                       |          |                          |   |                     |   |   |   |   |   |   |   |   |   |
| Goodwill                     |   | **393,677**                | ** **    | **(32,493**                   | **)**  | **361,184**              |   | 370,980 |   | (18,538 | ) | 352,442 |   | 20-40 Years |   |
| Customer lists               |   | **159,029**                | ** **    | **(45,730**                   | **)**  | **113,299**              |   | 151,330 |   | (21,536 | ) | 129,794 |   | 7-10 Years |   |
| Total                        |   | **$**                      | **1,633,739** | ** **                    | **$**  | **(128,632**             | **)**  | **$** | **1,505,107** |   | $ | 1,509,380 |   | $ | (66,574 | ) | $ | 1,442,806 |   |   |   |

 

Intangible assets amortization expense wasapproximately $62.1 million and $46.8 million for the years ended December 31,2001 and December 31, 2000, respectively. It is estimated to be approximately $20.8 million for 2002, $20.6million in each of 2003 through 2006, and $10.4 million in 2007 (see discussionof recently issued accounting pronouncements in Note 4.)

 

***Deferred Debt Issuance Costs***

 

### **Deferreddebt issuance costs relate to the credit facility and the senior subordinatednotes (see Note 5). These costs are being amortized over the respectiveinstruments’ terms.**

 

***Other Assets***

 

Other assets primarily consist of costs related torestricted investments, spectrum relocation and investments in unconsolidatedaffiliates. Restricted investments represent the Company’s investments in stockof the CoBank, ACB and are stated at cost, which approximates fair value.  The restricted investments were purchasedpursuant to the terms of a loan agreement and are restricted as to withdrawal.Spectrum relocation costs are being amortized over 15 years. Investments inunconsolidated affiliates are accounted for using the equity method andrepresent the Company’s ownership interests in Cellular 2000, Inc.  Cellular 2000, Inc. is an entity organizedto own the Cellular 2000 trade name and the related trademark.  Other assets also include the fair marketvalue of an interest rate instrument (“Flooridor”), which was entered into during2000 and terminates in 2003 (see Note 6.)

 

***Business and Credit Concentrations***

 

RCC operates in one business segment, the operation ofwireless communication systems in the United States. No single customeraccounted for more than 10% of revenues or accounts receivable in 2001, 2000 or1999.

 

60

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***Long-lived Assets***

 

The Company periodically evaluates whether events andcircumstances have occurred that may affect the estimated useful life or therecoverability of the remaining balance of its goodwill and other long-livedassets in accordance with SFAS No. 121, “Accounting for the Impairment ofLong-Lived Assets and for Long Lived Assets to be Disposed Of.”  If such events or circumstances were toindicate that the carrying amount of these assets would not be recoverable, theCompany would estimate the future cash flows expected to result from the use ofthe assets and their eventual disposition. If the sum of the expected future cash flows (undiscounted and withoutinterest charges) were less than the carrying amount of goodwill and otherlong-lived assets, the Company would recognize an impairment loss.  The Company did not record any impairmentcharges in the year ended December 31, 2001. If asset recovery is in question, the Company uses an estimate of futurenet undiscounted cash flows over the remaining useful lives of the long-livedassets to measure recoverability. Effective January 1, 2002, the Company will follow the provisions ofSFAS No. 142 and SFAS No. 144 for assessing the impairment of goodwill andother intangible assets.

 

***Use of**Estimates***

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereported periods.  Ultimate resultscould differ from those estimates.

 

Certain amounts in prior periods have beenreclassified to conform to the current presentation; such reclassifications hadno effect on previously reported results of operations or shareholders’(deficit) equity.

 

***Comprehensive Loss***

 

The Company follows the provisions of SFAS No. 130,“Reporting Comprehensive Income,” which established standards for reporting anddisplay of comprehensive income and its components.  Comprehensive income (loss) reflects the change in equity of abusiness enterprise during a period from transactions and other events andcircumstances from nonowner sources. For the Company, comprehensive loss represents net loss and the deferredgain (loss) on derivative instruments. In accordance with SFAS No. 130, the Company has chosen to disclosecomprehensive loss in the accompanying statement of shareholders’ (deficit)equity.

 

**5.  Long-termLiabilities:**

 

The Company had thefollowing long-term liabilities outstanding as of December 31 (in thousands):

 

|                                        |   | **2001**  |      | **2000**  |   |
|---------------------------------------------|--------|-----------|-----------|-----------|--------|
|                                        |   |      |      |      |   |
| Credit  facility:                           |   |      |      |      |   |
| Revolver                                    |   | $         | 159,800   |      | $      | 93,350 |   |
| Term  Loan A (terminates 04/03/2008)        |   | 426,508   |      | 450,000   |   |
| Term  Loan B (terminates, 04/03/2008)       |   | 225,101   |      | 237,500   |   |
| Term  Loan C (terminates, 04/03/2009)       |   | 225,101   |      | 237,500   |   |
| Term  Loan D (terminates, 10/03/2009)       |   | 75,000    |      | —    |   |
|                                        |   | 1,111,510 |      | 1,018,350 |   |
|                                        |   |      |      |      |   |
| Deferred  gain on hedge and swap agreements |   | —    |      | 7,374     |   |
| 9  5/8% Senior Subordinated Notes           |   | 125,000   |      | 125,000   |   |
| Derivative  financial instruments           |   | 42,949    |      | —    |   |
| Other                                       |   | 6,842     |      | 6,748     |   |
| Long-term  liabilities                      |   | $         | 1,286,301 |      | $      | 1,157,472 |   |

 

61

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***Credit facility –***Advances under the credit facility bear interestat the London Interbank Offering Rate (“LIBOR”) plus an applicable margin basedon the Company’s ratio of indebtedness to annualized operating cash flow as ofthe end of the most recently completed fiscal quarter.  As of December 31, 2001, the effective rateof interest on the credit facility, excluding the impact of hedge agreements,was 4.9%.  A commitment fee not toexceed 0.50% on the unused portion of the credit facility is payable quarterly.Borrowings under the credit facility are secured by a pledge of all the assetsof the Company, excluding its ownership in the stock of Cellular 2000, Inc. andits 70% ownership in Wireless Alliance, LLC. The credit facility is subject tovarious covenants, including the ratio of indebtedness to annualized operatingcash flow and the ratio of annualized operating cash flow to interest expense. Mandatorycommitment reductions are required upon any material sale of assets. On December 14, 2000 and March 31, 2001 theCompany obtained amendments and waivers of certain of the financial covenantsin the credit facility. As of December 31, 2001, the Company was in compliancewith all covenants.  At December 31,2001, the Company had $115.2 million available under its credit facility.

 

***Deferred gain onhedge and swap agreements****–*In May 2000, the Companysettled swaps it had entered into in August 1998 with a total notional amountof $165 million, resulting in a gain of approximately $3.1 million.  In July 2000, the Company settled swaps ithad entered into in February 1999 with a total notional amount of $250 million,resulting in a gain of approximately $4.3 million.  In accordance with SFAS No. 133, effective January 1, 2001, gainsnot accreted from these transactions were reclassed into other comprehensiveloss within the equity section of the balance sheet.  These gains are being accreted into income over the originalterms of the settled swaps.

 

***9 5/8% Senior Subordinated Notes*** - OnMay 14, 1998, the Company issued $125 million principal amount of 9 5/8% SeniorSubordinated Notes due 2008. Interest onthe Senior Subordinated Notes is payable semi-annually on May 15 and November15 of each year. The Senior Subordinated Notes will mature on May 15, 2008, andare redeemable, in whole or in part, at the option of the Company, at any timeon or after May 15, 2003.

 

***Derivative financial instruments –***seeNote 6.

 

### ***Other* –**Inconjunction with the acquisition of Triton Cellular, the Company became partyto a purchase option agreement whereby it may acquire certain cell sites in thefuture for $6.5 million.  The optionexpires February 28, 2003.  Since theCompany expects to exercise the option, the unpaid portion of the total costhas been included as long-term debt. The Company assumed an agreement to utilize the assets covered by theoption for the period prior to exercising the option.  The ongoing payments pursuant to this agreement have beenreflected as interest expense in the accompanying consolidated statements ofoperations.

 

Maturities of the creditfacility and the 9 5/8% Senior Subordinated Notes are as follows;

 

| **(in thousands)  Year** |   | **Credit  Facility** |      | **9 5/8%  Senior  Subordinated  Notes** |   | **Total** |   |
|--------------------------|--------|----------------------|-----------|-----------------------------------------|--------|-----------|--------|
| 2002                     |   | $                    | —    |                                    | $      | —    |   | $ | — |   |
| 2003                     |   | 43,924               |      | —                                  |   | 43,924    |   |
| 2004                     |   | 74,560               |      | —                                  |   | 74,560    |   |
| 2005                     |   | 96,438               |      | —                                  |   | 96,438    |   |
| 2006                     |   | 171,860              |      | —                                  |   | 171,860   |   |
| Thereafter               |   | 724,728              |      | 125,000                                 |   | 849,728   |   |
| Total                    |   | $                    | 1,111,510 |                                    | $      | 125,000   |   | $ | 1,236,510 |   |

 

See Note 13 regardingevents subsequent to December 31, 2001.

 

62

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### **6.**              FinancialInstruments:

 

The Company is required by theterms of the credit facility to maintain interest rate swaps on at least 50% ofthe principal amount of the loans outstanding for an average period ofthree years from the date of the hedge agreements. The intent of these derivative financial instruments is to manageinterest expense. FASB Statement No.107, “Disclosures about Fair Value of Financial Instruments,” requiresdisclosure of fair value information about financial instruments for which itis practicable to estimate that value, whether or not recognized in the balancesheet. In cases where quoted market prices are not available, fair values arebased on estimates using present value or other valuation techniques. SFAS No.107 excludes certain financial instruments and all non-financial instrumentsfrom its disclosure requirements.

 

The Company’sfinancial instruments are as follows:

 
|                                           |   |                 |    | **Carrying value**      |      | **Estimated fair market value** |   |
|------------------------------------------------|--------|----------------------|---------|-------------------------|-----------|---------------------------------|--------|
| **(Dollars in thousands)**                     |   | **Notional  amount** |    | **December  31,  2001** |      | **December  31,  2000**         |   | **December  31,  2001** |   | **December  31,  2000** |   |
|                                           |   |                 |    |                    |      |                            |   |   |   |   |   |
| **Financial assets**                           |   |                 |    |                    |      |                            |   |   |   |   |   |
| Cash                                           |   | $                    | —  |                    | $         | 1,995                           |   | $ | 2,205 |   | $ | 1,995 |   | $ | 2,205 |   |
| (*)  Interest rate flooridor **:**             |   |                 |    |                    |      |                            |   |   |   |   |   |
| Fleet  Bank (terminates May 12, 2003)          |   | 252,000              |    | 1,699                   |      | 1,019                           |   | 1,699 |   | 2,640 |   |
| Accounts receivable, net                       |   | —               |    | 45,279                  |      | 43,324                          |   | 45,279 |   | 43,324 |   |
| Total  financial assets                        |   | $                    | 252,000 |                    | $         | 48,973                          |   | $ | 46,548 |   | $ | 48,973 |   | $ | 48,169 |   |
| **Financial  liabilities**                     |   |                 |    |                    |      |                            |   |   |   |   |   |
| Credit facility                                |   | —               |    | $                       | 1,111,510 |                            | $      | 1,018,350 |   | $ | 987,145 |   | $ | 993,899 |   |
| 9 5/8% Senior Subordinated Notes               |   | —               |    | 125,000                 |      | 125,000                         |   | 127,031 |   | 116,875 |   |
| 11 3/8% Senior exchangeable preferred stock    |   | —               |    | 215,373                 |      | 192,556                         |   | 187,375 |   | 141,710 |   |
| 12 1⁄4% Junior exchangeable preferred stock |   | —               |    | 172,901                 |      | 153,283                         |   | 145,237 |   | 131,094 |   |
|                                           |   | —               |    | 1,624,784               |      | 1,489,189                       |   | 1,446,788 |   | 1,383,578 |   |
| Derivative financial instruments               |   |                 |    |                    |      |                            |   |   |   |   |   |
| Interest rate swap agreements:                 |   |                 |    |                    |      |                            |   |   |   |   |   |
| TD  Securities (terminates May 16, 2005)       |   | 84,000               |    | 5,854                   |      | —                          |   | 5,854 |   | 3,275 |   |
| PNC  Bank (terminates May 16, 2003)            |   | 42,000               |    | 2,703                   |      | —                          |   | 2,703 |   | 1,610 |   |
| Union  Bank (terminates May 16, 2003)          |   | 84,000               |    | 5,387                   |      | —                          |   | 5,387 |   | 3,188 |   |
| Fleet  Bank (terminates May 16, 2005)          |   | 42,000               |    | 2,791                   |      | —                          |   | 2,791 |   | 1,600 |   |
| Interest rate collar agreements:               |   |                 |    |                    |      |                            |   |   |   |   |   |
| PNC  Bank (terminates May 25, 2003)            |   | 47,000               |    | 2,025                   |      | —                          |   | 2,025 |   | 960 |   |
| Fleet  Bank (terminates May 25, 2003)          |   | 94,000               |    | 3,553                   |      | —                          |   | 3,553 |   | 987 |   |
| Union  Bank (terminates June 5, 2003)          |   | 96,000               |    | 2,961                   |      | —                          |   | 2,961 |   | — |   |
| PNC  Bank (terminates June 6, 2003)            |   | 94,000               |    | 3,301                   |      | —                          |   | 3,301 |   | 919 |   |
| Union  Bank (terminates June 5, 2003)          |   | 46,000               |    | 1,746                   |      | —                          |   | 1,746 |   | 617 |   |
| (**)  Swaption**:**                            |   |                 |    |                    |      |                            |   |   |   |   |   |
| TD  Securities (terminates March 15, 2008)     |   | 131,016              |    | 12,628                  |      | —                          |   | 12,628 |   | — |   |
|                                           |   | 760,016              |    | 42,949                  |      | —                          |   | 42,949 |   | 13,156 |   |
| Other financial instruments                    |   | —               |    | —                  |      | 7,374                           |   |   |   | 7,374 |   |
| Other long-term liabilities                    |   | —               |    | 6,842                   |      | 6,748                           |   | 6,842 |   | 6,748 |   |
| Total  financial liabilities                   |   | $                    | 760,016 |                    | $         | 1,674,575                       |   | $ | 1,503,311 |   | $ | 1,496,579 |   | $ | 1,410,856 |   |

 

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(*) During 2000, RCCentered into an interest rate instrument (“Flooridor”). The Flooridor does notqualify for hedge accounting treatment under SFAS No. 133 and as such isrecorded in the balance sheet at fair value with other assets with relatedchanges in fair value included in the statement of operations.

(**) RCC has $125 millionin subordinated debt that was issued in May 1998 and matures in May 2008. The$8.7 million value of an embedded call option within the subordinated debt wasmonetized in March 2001 resulting in a swaption. The swaption does not qualifyfor hedge accounting treatment under SFAS No. 133 and as such is recorded inthe balance sheet at fair value with long-term liabilities with related changesin fair value included in the statement of operations.

 

63

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At December 31, 2001, RCC has interest rate swapand collar agreements covering debt with a notional amount of $629.0 million toeffectively change the interest on the underlying debt from a variable rate toa fixed rate for the term of the agreements. After giving effect to theseinstruments, over 61% of the Company’s debt was essentially fixed rate debt atDecember 31, 2001.

 

At the same time RCC entered into swap agreementswith a total notional amount of $252.0 million, RCC also entered into two“flooridors” with an equivalent total notional amount in order to furthermanage interest expense. RCC paid the counterparty $1.2 million to enter intothe flooridors. Under the flooridors, if, as of a quarterly reference date,LIBOR is less than 7.35% but greater than 6.85%, the counterparty is requiredto make a quarterly payment to the Company equal to the difference betweenLIBOR and 7.35% on the notional amount of $252.0 million. If, as of a quarterlyreference date, LIBOR is less than 6.85%, the counterparty is required to makea quarterly payment to the Company equal to 0.50% on the total notional amount.If LIBOR is equal to or greater than 7.35%, neither party is required to make apayment. The flooridors terminate on May 12, 2003. Because the flooridor doesnot qualify for hedge accounting, all adjustments to fair value are recognizedin earnings.

 

As required by SFAS No. 133 (as amended by SFAS No. 137 and No. 138),“Accounting for Derivative Instruments and Hedging Activities,” (“SFAS No.133”), the Company must record in its balance sheet, either as an asset or aliability, the financial instrument’s fair market value.  In addition, SFAS No. 133 requires thatchanges in the fair value of derivatives will either be offset against thechange in the fair value of the hedged assets or liabilities or recognized inaccumulated other comprehensive loss until the hedged item is recognized inearnings. The ineffective portion of a derivative’s change in fair value willbe immediately recognized in earnings. SFAS No. 133, as amended, was effectiveJanuary 1, 2001 for the year ended December 31, 2001. The adoption of SFAS No.133 has not significantly altered the Company’s hedging strategies; however,its application may increase the volatility of interest expense and othercomprehensive income (loss).

 

Because LIBOR rates have declined subsequent to the inception of theCompany’s swaps and collars, their respective market valuations have decreased.Therefore, as required by SFAS No. 133, this decline in market valuation isreflected in the financial statements by the increase in the derivativefinancial instrument liabilities together with adjustments to interest expense.

 

The following table sets forth these adjustments for 2001 (asrestated):

 
| **(In thousands)**                                                   |   | **Prior to  SFAS  No. 133  Adjustment**                        |       | **SFAS No.  133  Adoption (January 1,  2001)**  |       | **SFAS No.  133  Adjustment**                                      |       | **As  Reported**                       |       |
|----------------------------------------------------------------------|--------|----------------------------------------------------------------|------------|-------------------------------------------------|------------|--------------------------------------------------------------------|------------|----------------------------------------|------------|
| *Statement  of Operations Data:*                                     |   |                                                           | ** ** |                                            | ** ** |                                                               | ** ** |                                   | ** ** |
|                                                                 |   |                                                           |       |                                            |       |                                                               |       |                                   |       |
| Interest  expense                                                    |   | $                                                              | 114,007    |                                            | —     |                                                               | $          | 16,425                                 |       | $ | 130,432 |   |
| Cumulative  effect adjustment                                        |   | —                                                         |       | $                                               | (1,621     | )                                                                  | —     |                                   | $          | (1,621 | ) |
|                                                                 |   |                                                           |       |                                            |       |                                                               |       |                                   |       |
|                                                                 |   | **At  December 31,  2000  prior to SFAS  No. 133  adjustment** |       | **SFAS No.  133  Adoption on  January 1, 2001** |       | **SFAS No.  133  Adjustment  for year  ended  December 31,  2001** |       | **As  Reported at  December 31, 2001** |       |
| *Balance Sheet Data:*                                                |   |                                                           |       |                                            |       |                                                               |       |                                   |       |
|                                                                 |   |                                                           |       |                                            |       |                                                               |       |                                   |       |
| ASSETS:                                                              |   |                                                           |       |                                            |       |                                                               |       |                                   |       |
| Derivative  financial instruments included in other assets           |   | $                                                              | 1,019      |                                            | $          | 1,621                                                              |       | $                                      | (941       | ) | $ | 1,699 |   |
|                                                                 |   |                                                           |       |                                            |       |                                                               |       |                                   |       |
| LIABILITIES:                                                         |   |                                                           |       |                                            |       |                                                               |       |                                   |       |
| Derivative  financial instruments included in long- term liabilities |   | $                                                              | 7,374      |                                            | $          | 5,782                                                              |       | $                                      | 29,793     |   | $ | 42,949 |   |
|                                                                 |   |                                                           |       |                                            |       |                                                               |       |                                   |       |
| SHAREHOLDERS’  (DEFICIT) EQUITY:                                |   |                                                           |       |                                            |       |                                                               |       |                                   |       |
| Accumulated  other comprehensive loss                                |   | —                                                         |       | $                                               | (5,526     | )                                                                  | $          | (7,337                                 | )          | $ | (12,863 | ) |
|                                                                      |        |                                                                |            |                                                 |            |                                                                    |            |                                        |            |  |  |  |  |  |  |  |

 

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**7. Redeemable Preferred Stock:**

 

TheCompany has issued the following preferred stock with liquidation preferencesof $1,000 per share (as restated, see Note 1):

 
|                                        |   | **Redemption  Date** |   | **Dividend  rate per  annum** |   | **Conversion  price to  common  stock** |   | **Other  features,  rights,  preferences  and powers** |       | **Number of  shares  originally  issued** |    | **Shares  distributed as  dividends  through  Dec. 31, 2001** |   | **Accrued  dividends at  Dec. 31, 2001  (In thousands)** |   |
|---------------------------------------------|--------|----------------------|--------|-------------------------------|--------|-----------------------------------------|--------|--------------------------------------------------------|------------|-------------------------------------------|---------|---------------------------------------------------------------|--------|----------------------------------------------------------|--------|
| Senior  Exchangeable Preferred Stock        |   | 05/15/2010           |   | 11.375                        | %      | —                                  |   | Non-Voting                                             |       | 150,000                                   |    | 65,373                                                        |   | $                                                        | 3,062  |   |
| Junior  Exchangeable Preferred Stock        |   | 02/15/2011           |   | 12.250                        | %      | —                                  |   | Non-Voting                                             |       | 140,000                                   |    | 32,901                                                        |   | $                                                        | 2,648  |   |
| Class M Voting  Convertible Preferred Stock |   | 04/03/2012           |   | 8.000                         | %      | $                                       | 53.000 |                                                   | Voting     |                                      | 110,000 |                                                          | — |                                                     | $      | 16,300 |   |
| Class T Convertible  Preferred Stock        |   | 04/03/2020           |   | 4.000                         | %      | $                                       | 50.631 |                                                   | Non-Voting |                                      | 7,541   |                                                          | — |                                                     | $      | 527 |   |
| Total                                       |   |                 |   |                          |   |                                    |   |                                                   |       | 407,541                                   |    | 98,274                                                        |   | $                                                        | 22,537 |   |

 

Preferredsecurity balance sheet reconciliation (in thousands):

 
|                                                                  |   | **As of  December 31, 2001** |    |
|-----------------------------------------------------------------------|--------|------------------------------|---------|
| Preferred  securities originally issued                               |   | $                            | 407,541 |   |
| Preferred  dividends issued (Junior and Senior)                       |   | 98,274                       |    |
| Accrued  long-term preferred security dividends (Class M and Class T) |   | 16,827                       |    |
| Unamortized  issuance costs                                           |   | (12,906                      | )       |
| Net  preferred securities                                             |   | $                            | 509,736 |   |

 

Dividendson the Senior Exchangeable Preferred Stock are cumulative, payable quarterly,and may be paid, at the Company’s option, on any dividend payment dateoccurring on or before May 15, 2003, either in cash or by the issuance ofadditional shares of Senior Exchangeable Preferred Stock having an aggregateliquidation preference equal to the amount of such dividends.

 

Dividendson the Junior Exchangeable Preferred Stock are cumulative, are payablequarterly, and may be paid, at the Company’s option, on any dividend paymentdate occurring on or before February 15, 2005, either in cash or by theissuance of additional shares of Junior Exchangeable Preferred Stock having anaggregate liquidation preference equal to the amount of such dividends.

 

Dividends on the Class M Preferred Stock arecompounded and accrue at 8% per annum and are payable upon redemption or uponliquidation of the Company.  The Class Mpreferred 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 preferred stockare entitled to vote on all matters submitted to the holders of the commonstock on an as-converted basis.

 

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In order to comply withthe FCC rules regarding cross-ownership of cellular licensees within a givenmarket, the Company issued 7,541 shares of Class T Convertible Preferred Stockto Telephone & Data Systems, Inc. (“TDS”) with a par value of $1,000 pershare on March 31, 2000 in exchange for 43,000 shares of Class A Common Stockand 105,940 shares of Class B Common Stock owned by TDS. TDS or the Company canconvert the Class T preferred stock into the original number of shares of ClassA or Class B Common Stock in the future if ownership by TDS of the Common Stockwould then be permissible under FCC rules. Dividends on the Class T preferredstock are cumulative and have a fixed coupon rate of 4% per annum and arepayable in April 2020.  Dividends arenot payable if the shares are converted.

 

TheSenior Exchangeable Preferred Stock is senior to the Junior ExchangeablePreferred Stock, Class M Convertible Preferred Stock, Class T ConvertiblePreferred Stock and common stock of RCC with respect to dividend rights andrights on liquidation, winding-up and dissolution of RCC.  The Junior Exchangeable Preferred Stock isjunior to the Senior Exchangeable Preferred Stock and Class T ConvertiblePreferred Stock and senior to the Class M Convertible Preferred Stock andcommon stock with respect to dividend rights and rights on liquidation,winding-up and dissolution of RCC. Shares of the Senior and Junior Exchageable Preferred Stock and Class TConvertible Preferred Stock are non-voting, except as otherwise required by lawand as provided in their respective Certificates of Designation.

 

We arerequired to redeem the Senior Exchangeable Preferred Stock, Junior ExchangeablePreferred Stock, Class M Convertible Preferred Stock, and Class T ConvertiblePreferred Stock at 100% of their total liquidation preference plus accumulatedand unpaid dividends at their respective redemption dates.

 

**8.  Shareholders’(Deficit) Equity:**

 

***Authorized Shares***

 

The Company has 300,000,000 shares of authorizedcapital 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***

 

Class A common shareholders are entitled to one votefor each share owned while Class B common shareholders are entitled to tenvotes for each share owned.  Each shareof Class B common stock may at any time be converted into one share of Class Acommon stock at the option of the holder. All issued Class B common shares may also be converted into anequivalent number of Class A common shares upon the affirmative vote of notless than 66 2/3% of the then issued Class B common shares.  Further, Class B common shares areautomatically converted to an equal number of Class A common shares if they aretransferred to anyone who is not an affiliate of the transferring shareholderof the Company.

 

The followingtable shows certain information relating to the RCC’s outstanding shares andvoting rights as of December 20, 2002:

 
| **Class of Stock**         |   | **Shares  outstanding** |   | **Voting rights  per share** |   | **Total votes per  class** |   |
|----------------------------|--------|-------------------------|--------|------------------------------|--------|----------------------------|--------|
| Class A common stock       |   | 11,193,622              |   | 1                            |   | 11,193,622                 |   |
| Class B common stock       |   | 727,416                 |   | 10                           |   | 7,274,160                  |   |
| Class M preferred stock(1) |   | 2,075,471               |   | 1                            |   | 2,075,471                  |   |
| Total                      |   | 13,996,509              |   |                         |   | 20,543,253                 |   |

 

----

(1) Reflecting theconversion of Class M Preferred Stock into common stock at $53 per share

 

66

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On April 30, 1999 RCC adopted rights plans for itsClass A Common Stock and Class B Common Stock. The rights’ plans give eachholder of Class A Common Stock the right to purchase 1/100th of a newlyauthorized preferred share that is essentially equivalent to one share of ClassA Common Stock and each holder of Class B Common Stock the right to purchase1/100thof a newly authorized preferred share, essentially equivalent to one share ofClass B Common Stock.  The exerciseprice for both the Class A rights and the Class B rights is $120 per right.

 

The rights become exercisable by existing shareholdersonly following the acquisition by a buyer, without prior approval of theCompany’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% ofthe outstanding Common Stock.  If aperson acquires 15% or more of the Company’s Common Stock, each right (except thoseheld by the acquiring person) will entitle the holder to purchase shares of theCompany’s Class A or Class B Common Stock, as appropriate, having a marketvalue of twice the right’s exercise price, or, in effect, at a 50% discountfrom the then current market value.  Ifthe Company were acquired in a merger or similar transaction after a personacquires 15% of the Company’s outstanding Common Stock, without prior approvalof the board of directors, each right would entitle the holder (other than theacquirer) to purchase shares of the acquiring company having a market value oftwice 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 CommonStock, the rights can be redeemed by the board of directors for $.001 perright.

 

***Stock Compensation Plans***

 

The stock compensationplan (the “Plan”) for employees authorizes the issuance of up to 2,400,000shares of Class A common stock in the form of stock options, stock appreciationrights or other stock-based awards.  ThePlan 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 thegrant (100% in the case of incentive stock options).  Options and other awards granted under the Plan vest and becomeexercisable as determined by the Board of Directors or a stock optioncommittee.

 

The stock option plan fornonemployee directors authorizes the issuance of up to 210,000 shares of ClassA common stock.  In May 2002, this planwas amended to increase the number of shares authorized for issuance up to400,000 shares.  The plan provides thatthe option price shall not be less than the fair market value of the Class Acommon stock outstanding on the date of grant. The options vest and become exercisable one year following the date ofgrant and expire five years thereafter.

 

The employee stockpurchase plan authorizes the issuance of 250,000 shares of Class A commonstock. Employees who satisfy certain length of service and other criteria arepermitted to purchase shares at 85% of the fair market value of the Class Acommon stock on January 1 or December 31 of each year, whichever is lower.

 

67

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Optionsoutstanding for employees and nonemployees as of December 31, 2001 haveexercise prices ranging between $8.75 and $79.25. Information related to stockoptions is as follows:

 
|                                            |   | **2001**   |   | **2000**                              |   | **1999**   |      |
|-------------------------------------------------|--------|------------|--------|---------------------------------------|--------|------------|-----------|
|                                            |   | **Shares** |   | **Weighted  Average  Exercise Price** |   | **Shares** |      | **Weighted  Average Exercise  Price** |   | **Shares** |   | **Weighted  Average  Exercise Price** |   |
|                                            |   |       |   |                                  |   |       |      |   |   |   |   |   |   |
| Outstanding, beginning of period                |   | 1,266,422  |   | $                                     | 25.80  |       | 1,046,547 |   | $ | 12.36 |   | 872,700 |   | $ | 11.17 |   |
| Granted                                         |   | 477,006    |   | 30.68                                 |   | 299,950    |      | 70.86 |   | 323,250 |   | 14.53 |   |
| Exercised                                       |   | (70,844    | )      | 11.05                                 |   | (55,375    | )         | 10.92 |   | (129,903 | ) | 9.95 |   |
| Canceled                                        |   | (83,850    | )      | 46.90                                 |   | (24,700    | )         | 40.66 |   | (19,500 | ) | 10.99 |   |
|                                            |   |       |   |                                  |   |       |      |   |   |   |   |   |   |
| Outstanding, end of period                      |   | 1,588,734  |   | $                                     | 26.78  |       | 1,266,422 |   | $ | 25.80 |   | 1,046,547 |   | $ | 12.36 |   |
|                                            |   |       |   |                                  |   |       |      |   |   |   |   |   |   |
| Exercisable, end of period                      |   | 700,781    |   | $                                     | 18.33  |       | 488,052   |   | $ | 12.28 |   | 317,557 |   | $ | 11.15 |   |
| Weighted average fair value of  options granted |   |       |   | $                                     | 24.67  |       |      |   | $ | 55.94 |   |   |   | $ | 10.94 |   |

 

Thefollowing table summarizes information concerning currently outstanding andexercisable options:

 
| **Exercise Price Range** |   | **Number  Outstanding** |   | **Weighted Average  Remaining  Contractual Life** |   | **Weighted Average  Exercise Price** |   | **Number  Exercisable** |    | **Weighted Average  Exercise Price** |   |
|--------------------------|--------|-------------------------|--------|---------------------------------------------------|--------|--------------------------------------|--------|-------------------------|---------|--------------------------------------|--------|
| $0.00 - $9.99            |   | 334,953                 |   | 5                                                 |   | $                                    | 8.98   |                    | 295,953 |                                 | $      | 9.00 |   |
| $10.00 - $19.99          |   | 531,975                 |   | 6                                                 |   | $                                    | 13.57  |                    | 297,875 |                                 | $      | 13.96 |   |
| $20.00 - $29.99          |   | 280,000                 |   | 9                                                 |   | $                                    | 27.38  |                    | 5,000   |                                 | $      | 27.38 |   |
| $30.00 - $39.99          |   | 194,656                 |   | 9                                                 |   | $                                    | 35.35  |                    | 29,123  |                                 | $      | 35.30 |   |
| $40.00 - $49.99          |   | 20,000                  |   | 8                                                 |   | $                                    | 43.25  |                    | 8,000   |                                 | $      | 43.25 |   |
| $50.00 - $59.99          |   | 21,100                  |   | 9                                                 |   | $                                    | 53.69  |                    | 8,220   |                                 | $      | 55.30 |   |
| $60.00 - $69.99          |   | 36,750                  |   | 4                                                 |   | $                                    | 68.25  |                    | 36,750  |                                 | $      | 68.25 |   |
| $70.00 - $80.00          |   | 169,300                 |   | 9                                                 |   | $                                    | 78.37  |                    | 19,860  |                                 | $      | 78.11 |   |
| $0.00 - $80.00           |   | 1,588,734               |   | 8                                                 |   | $                                    | 26.78  |                    | 700,781 |                                 | $      | 18.33 |   |

 

The Company accounts for stock options underAccounting Principles Board Opinion No. 25, under which no compensation costhas been recognized.  Had compensationcost for the Company’s plans been determined consistent with SFAS No. 123,“Accounting for Stock-Based Compensation,” the Company’s results of operationsand net loss per share would have been adjusted to the following pro formaamounts:

 

|                                           |   | **Years  ended December 31,** |     |
|------------------------------------------------|--------|-------------------------------|----------|
| **(in thousands, except for per  share data)** |   | **2001**                      |     | **2000** |   | **1999** |   |
| Net  loss applicable to common shares:         |   |                          |     |   |   |   |   |
| As  reported                                   |   | $                             | (102,136 | ) | $ | (83,334 | ) | $ | (11,062 | ) |
| Pro  forma                                     |   | (107,877                      | )        | (85,610 | ) | (12,510 | ) |
| Net  loss per basic and diluted share:         |   |                          |     |   |   |   |   |
| As  reported                                   |   | $                             | (8.61    | ) | $ | (7.24 | ) | $ | (1.22 | ) |
| Pro  forma                                     |   | $                             | (9.09    | ) | $ | (7.44 | ) | $ | (1.38 | ) |

 

68

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The fairvalue of each option grant is estimated on the date of the grant using theBlack-Scholes option-pricing model with the following weighted averageassumptions used for grants in 2001, 2000 and 1999: expected volatility of67.71%, 63.47% and 54.78%, respectively; risk-free interest rates of 7.25% in2001 and 8.25% in 2000 and 1999; expected life of 10 years and no expecteddividend yield.  The per share weightedaverage fair value of options granted in 2001, 2000 and 1999 was $24.67, $55.94and $10.94 per share, respectively.

 

**9.  Income Taxes:**

 

Thecomponents of the Company’s income tax provision are as follows (in thousands):

 

|     |   | **Years  ended December 31,** |   |
|----------|--------|-------------------------------|--------|
|     |   | **2001**                      |   | **2000** |   | **1999** |   |
| Current: |   |                          |   |   |   |   |   |
| Federal  |   | $                             | — |   | $ | — | ** ** | **$** | **—** | ** ** |
| State    |   | —                        |   | — | ** ** | **37** | ** ** |
|     |   | —                        |   | — | ** ** | **37** | ** ** |
| Deferred |   | —                        |   | — | ** ** | **—** | ** ** |
|     |   | $                             | — |   | $ | — | ** ** | **$** | **37** | ** ** |

 

The Company’s income tax provision for the year endedDecember 31, 1999 relates to franchise fees for states in which the Company hasoperations.

 

The income tax effect ofthe items that create deferred income tax assets and liabilities are as follows(In thousands):

 

|                              |   | **December  31,** |       |
|-----------------------------------|--------|-------------------|------------|
|                              |   | **2001**          |       | **2000** |   |
| Deferred  income tax assets:      |   |              | ** ** |   |   |
| Operating  loss carryforwards     |   | **$**             | **73,487** | ** ** | $ | 52,116 |   |
| Tax  credit carryforwards         |   | **85**            | ** ** | 85 |   |
| Temporary  differences:           |   |              | ** ** |   |   |
| Allowance  for doubtful accounts  |   | **1,467**         | ** ** | 769 |   |
| Derivatives                       |   | **15,675**        | ** ** | — |   |
| Other                             |   | **3,265**         | ** ** | 2,407 |   |
| Valuation  allowance              |   | **(33,915**       | **)**      | (19,242 | ) |
| Total  deferred income tax assets |   | **60,064**        | ** ** | 36,135 |   |
| Deferred  income tax liabilities: |   |              | ** ** |   |   |
| Depreciation                      |   | **(20,555**       | **)**      | (12,721 | ) |
| Intangible  assets                |   | **(37,545**       | **)**      | (21,714 | ) |
| Other                             |   | **(1,964**        | **)**      | (1,700 | ) |
| Net  deferred income tax asset    |   | **$**             | **—** | ** ** | $ | — |   |

 

In assessing therealizability of deferred tax assets, management considers whether it is morelikely than not that some portion or all of the deferred tax assets will not berealized.  The ultimate realization ofdeferred tax assets is dependent upon the generation of future taxable incomeduring the periods in which those temporary differences become deductible.  Management has considered the scheduledreversal of deferred tax liabilities and tax planning strategies in making thisassessment.  Based upon the assessment,management has established a valuation allowance for net deferred income taxassets currently not expected to be realized due to the uncertainty of futuretaxable income.

 

69

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As of December 31, 2001, the Company had tax operating losscarryforwards of approximately $193 million available to offset future incometax liabilities.  These carryforwardsexpire in the years 2006 through 2021. The Tax Reform Act of 1986 contains provisions that may limit theavailability and timing of usage of net operating loss carryforwards in theevent of certain changes in the ownership of the Company’s Common Stock.

 

**10.  Commitments andContingencies:**

 

***Employment Agreements***

 

The Company hasemployment agreements with certain executive officers with terms of threeyears.  These agreements provide forpayment of amounts up to three times their annual compensation if there is atermination of their employment as a result of change in control of theCompany, as defined in the agreements. The maximum contingent liability under these agreements was $5.2 millionat December 31, 2001.

 

#### ***Legaland Regulatory Matters***

 

The Company is subject to various legal and regulatorymatters arising in the normal course of business.  Management does not believe any of these matters will have asignificant effect on the Company and its financial position or results ofoperations.

 

***Leases***

 

The Company leases office space and real estate undernoncancelable operating leases.  Futureminimum payments under these leases as of December 31, 2001 are as follows:

 

| **Year**   |   | **Amount**          |   |
|------------|--------|---------------------|--------|
|       |   | **(in  thousands)** |   |
|       |   |                |   |
| 2002       |   | $                   | 7,142  |   |
| 2003       |   | 5,410               |   |
| 2004       |   | 4,023               |   |
| 2005       |   | 2,716               |   |
| 2006       |   | 1,476               |   |
| Thereafter |   | 3,623               |   |
| Total      |   | $                   | 24,390 |   |

 

Under the terms of thelease agreements, the Company also is responsible for certain operatingexpenses and taxes.  Total rent expenseof $8.3 million, $5.8 million and $3.3 million was charged to operations forthe years ended December 31, 2001, 2000 and 1999.

 

**11.  DefinedContribution Plan:**

 

The Company has a definedcontribution savings and profit-sharing plan for employees who meet certain ageand service requirements.  Under thesavings portion of the plan, employees may elect to contribute a percentage oftheir salaries to the plan, with the Company contributing a matching percentageof the employees’ contributions.  Underthe profit-sharing portion of the plan, the Company contributes a percentage ofemployees’ salaries.  Contributionscharged to operations for the years ended December 31, 2001, 2000 and 1999 were$728,000, $662,000 and $435,000, respectively. The percentages the Company matches under the savings portion of theplan and contributes under the profit-sharing portion of the plan aredetermined annually by the Company’s Board of Directors.

 

70

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**12.  Supplemental CashFlow Information**:

 

|                                 |   | **Years  ended December 31,** |        |
|--------------------------------------|--------|-------------------------------|-------------|
|                                 |   | **(in  thousands)**           |        |
|                                 |   | **2001**                      |        | **2000** |   | **1999** |   |
| **Cash  paid for:**                  |   |                          |        |   |   |   |   |
| Interest                             |   | **$**                         | **116,961** |   | $ | 76,640 |   | $ | 25,488 |   |
| Income  taxes                        |   | **—**                    |        | — |   | 46 |   |
| **Noncash  financing transactions:** |   |                          |        |   |   |   |   |
| Preferred  stock dividends           |   | **$**                         | **54,545**  |   | $ | 44,081 |   | $ | 15,912 |   |

 

**13. Subsequent Events:**

 

***9 3⁄4% Senior Subordinated Notes*** - OnJanuary 16, 2002, the Company issued $300 million of aggregate principal amount9 3⁄4% senior subordinated notes due 2010. The net proceeds from the salewere used to pay down existing debt. Intereston the 9 3⁄4% senior subordinated notes is payable semi-annually on January15 and July 15. The 9 3⁄4% senior subordinated notes will mature on January15, 2010, and are redeemable, in whole or in part, at the option of theCompany, at any time on or after January 15, 2006.  In addition, at any time prior to January 15, 2005, the Companymay redeem up to 35% of the aggregate principal amount of 9 3⁄4% seniorsubordinated notes with the net cash proceeds of a qualifying event at a priceequal to 109.75% of the aggregate principal amount thereof, plus accrued andunpaid interest, if any, to the date of redemption; provided that at least 65%of the aggregate principal amount of notes issued under the indenture(including additional notes but without taking into account notes that areissued in exchange for other notes under a registration rights agreement)remains outstanding immediately following such redemption.

 

Within 30 days after theoccurrence of a change of control, the Company will be required to make anoffer to purchase all outstanding 9 3⁄4% senior subordinated notes at aprice equal to 101% of the aggregate principal amount thereof, plus accrued andunpaid interest, if any, to the date of purchase. As defined, the 9 3⁄4%senior subordinated notes are unsecured senior subordinated obligations of theCompany and will be subordinated in right of payment to future seniorindebtedness of the Company and effectively subordinated to all obligations ofthe Company’s subsidiaries.

 

The following tablereflects the application to the credit facility of the net proceeds from thesale of the 9 3⁄4% senior subordinated notes;

 
| **Credit Facility** |   | **(In  thousands)** |    |
|---------------------|--------|---------------------|---------|
| Revolver            |   | $                   | 139,658 |   |
| Term  A             |   | 67,222              |    |
| Term  B             |   | 35,478              |    |
| Term  C             |   | 35,479              |    |
| Term  D             |   | 11,821              |    |
| Total               |   | $                   | 289,658 |   |

 

71

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As of January 14, 2002, maturities of the credit facility, the 9 5/8%Senior Subordinated Notes and the 9 3⁄4% Senior Subordinated Notes are asfollows:

 
| **(in thousands)  Year** |   | **Credit  Facility** |    | **9 5/8%  Senior  Subordinated  Notes** |   | **9 3⁄4%  Senior  Subordinated  Notes** |   | **Total** |    |
|--------------------------|--------|----------------------|---------|-----------------------------------------|--------|--------------------------------------------|--------|-----------|---------|
| 2002                     |   | $                    | —  |                                    | $      | —                                     |   | $         | —  |   | $ | — |   |
| 2003                     |   | 37,001               |    | —                                  |   | —                                     |   | 37,001    |    |
| 2004                     |   | 62,808               |    | —                                  |   | —                                     |   | 62,808    |    |
| 2005                     |   | 74,035               |    | —                                  |   | —                                     |   | 74,035    |    |
| 2006                     |   | 89,754               |    | —                                  |   | —                                     |   | 89,754    |    |
| Thereafter               |   | 550,255              |    | 125,000                                 |   | 300,000                                    |   | 975,255   |    |
| Total                    |   | $                    | 813,853 |                                    | $      | 125,000                                    |   | $         | 300,000 |   | $ | 1,238,853 |   |

 

On January 16, 2002, we issued $300 million aggregateprincipal amount of 9 3⁄4% senior subordinated notes due 2010. The net proceedsfrom the offerings of the notes were used to pay down borrowings under ourcredit facility resulting in availability under the credit facility increasingto $262.9 million. In connection with the offering of the notes, we amended theterms of our credit facility to:

 

•           permitus to issue the notes,

•                                allowus to repay a portion of the term loan and revolving loans without reducing ourborrowing availability under the revolver,

•                                changethe total leverage ratio, ratio of annualized operating cash flow to interestexpense, and pro forma debt ratio to reflect the offering and to provide uswith greater flexibility,

•           decreasethe permitted senior leverage ratio,

•                                makesome technical changes to the restricted payment covenant and the descriptionof permitted indebtedness,

•                                expandthe kinds of events that would trigger the change of control default, and

•                                removea requirement to sell some of our assets.

 

In January 2002, in conjunctionwith the issuance of the 9 3⁄4% senior subordinated notes and the resultinghigher proportion of fixed rate debt as compared to floating rate debt, RCCreviewed its derivatives portfolio. After this review, the Company enteredinto, at market, two reverse swap hedging transactions with combined notionalvalue of $135.4 million effectively increasing the proportion of RCC’s floatingrate debt. In the reverse swaps, the Company agreed to receive a fixed rate of9.75% in exchange for paying LIBOR plus a spread.  If LIBOR plus the applicable spread is less than 9.75%, theCompany receives a payment from the counter party for the difference betweenthe two rates on the notional amount. If LIBOR plus the applicable spread is more than 9.75%, the Company willmake a payment to the counterparty based on the difference in rates on thenotional amount.

 

The following financialinstruments were entered into in January 2002:

 
| **Instrument**    |   | **Notional  Amount  (in thousands)** |    | **RCC  Receives** |   | **RCC  Pays**               |                        | **Effective  Date** |             | **Termination  Date** |             |
|-------------------|--------|--------------------------------------|---------|-------------------|--------|-----------------------------|-----------------------------|---------------------|------------------|-----------------------|------------------|
| Reverse  Swap;    |   |                                 |    |              |   |                        |                        |                |             |                  |             |
|              |   |                                 |    |              |   |                        |                        |                |             |                  |             |
| Fleet  Bank       |   | $                                    | 75,000  |              | 9.75   | %                           | LIBOR + 630.0  basis points |                | January 15, 2002 |                  | January 15, 2010 |   |
|              |   |                                 |    |              |   |                        |                        |                |             |                  |             |
| Dresdner  Bank AG |   | 60,390                               |    | 9.75              | %      | LIBOR + 622.5  basis points |                        | January 17, 2002    |             | January 15, 2010      |             |
|              |   | $                                    | 135,390 |              |   |                        |                        |                |             |                  |             |   |

 

72

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In conjunction withentering into the reverse swaps, RCC unwound two fixed pay swaps with a totalnotional amount of $126.0 million and one collar with a notional amount of$94.0 million. There was no disbursement of cash involved in the terminationbecause the cost involved in unwinding the fixed pay swaps and the collar, asreflected by the negative market value of these financial instruments,effectively increased the spread over LIBOR on the reverse swaps. In addition,the cumulative changes in fair value recorded within other comprehensive loss associatedwith the unwound fixed pay swaps and the collar is being amortized over theoriginal lives of the instruments.

 

The following financial instruments were unwound inJanuary 2002:

 
|                                           |   |                     |   | **(in  thousands)**       |   |
|------------------------------------------------|--------|--------------------------|--------|---------------------------|--------|
|                                           |   | **Interest  rate range** |   | **Notional  Amount**      |   | **Negative  market  valuation plus  accrued interest** |   |
|                                           |   | **Not to  exceed**       |   | **Not to be  less  than** |   |   |   |
| **Instrument**                                 |   |                     |   |                      |   |
| Collar;  Fleet Bank (unwound January 14, 2002) |   | 9.000                    | %      | 5.810                     | %      | $ | 94,000 |   | $ | 5,006 |   |
|                                           |   |                     |   |                      |   |   |   |   |   |
| Swap;  Fleet Bank (unwound January 14, 2002)   |   | 6.530                    | %      | 6.530                     | %      | 42,000 |   | 3,575 |   |
| Swap;  Union Bank (unwound January 17, 2002)   |   | 7.591                    | %      | 7.591                     | %      | 84,000 |   | 7,752 |   |
|                                           |   |                     |   |                      |   | 126,000 |   | 11,327 |   |
|                                           |   |                     |   |                      |   | $ | 220,000 |   | $ | 16,333 |   |

 

At January 17, 2002,after giving effect to these changes in financial instruments and the 9 3⁄4%Senior Subordinated Notes, approximately 56% of the Company’s debt isessentially fixed rate debt as compared to approximately 61% at December 31,2001.

 

 

73

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**14.  Quarterly Resultsof Operations (Unaudited):**

 

Certain unaudited quarterly results for 2001 and 2000are set forth below (In thousands, except per share data and  average monthly revenue per customer):

 
|                                                                 |   | ***2001 Quarter Ended***     |    |
|----------------------------------------------------------------------|--------|------------------------------|---------|
|                                                                 |   | **March 31**                 |    | **June 30** |   | **September  30** |   | **December  31** |   |
|                                                                 |   | **As  originally  reported** |    | **As  restated** |   | **As  originally  reported** |   | **As  restated** |   | **As  originally  reported** |   | **As  restated** |   | **As  originally  reported** |   | **As  restated** |   |
| Revenues:                                                            |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Service                                                              |   | $                            | 70,036  |   | $ | 70,036 |   | $ | 80,151 |   | $ | 80,151 |   | $ | 80,234 |   | $ | 80,234 |   | $ | 75,567 |   | $ | 75,567 |   |
| Roaming                                                              |   | 23,215                       |    | 23,215 |   | 28,350 |   | 28,350 |   | 38,106 |   | 38,106 |   | 26,870 |   | 26,870 |   |
| Equipment                                                            |   | 5,133                        |    | 5,133 |   | 4,545 |   | 4,545 |   | 4,842 |   | 4,842 |   | 4,107 |   | 4,107 |   |
| Total  Revenues                                                      |   | 98,384                       |    | 98,384 |   | 113,046 |   | 113,046 |   | 123,182 |   | 123,182 |   | 106,544 |   | 106,544 |   |
|                                                                 |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating  income                                                    |   | 15,833                       |    | 15,833 |   | 23,534 |   | 23,534 |   | 27,971 |   | 27,971 |   | 13,462 |   | 13,462 |   |
|                                                                 |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| EBITDA(1)                                                            |   | $                            | 42,731  |   | $ | 42,731 |   | $ | 51,223 |   | $ | 51,223 |   | $ | 56,814 |   | $ | 56,814 |   | $ | 42,609 |   | $ | 42,609 |   |
|                                                                 |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest  expense, net                                               |   | $                            | (31,280 | ) | $ | (37,104 | ) | $ | (31,919 | ) | $ | (30,614 | ) | $ | (29,242 | ) | $ | (40,285 | ) | $ | (21,659 | ) | $ | (21,257 | ) |
| Net  loss before cumulative effect adjustment and extraordinary item |   | (15,447                      | )       | (21,271 | ) | (8,380 | ) | (7,075 | ) | (1,267 | ) | (12,310 | ) | (8,958 | ) | (8,556 | ) |
| Cumulative  effect adjustment                                        |   | 137                          |    | 1,621 |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Net  loss                                                            |   | (15,310                      | )       | (19,650 | ) | (8,380 | ) | (7,075 | ) | (1,267 | ) | (12,310 | ) | (8,958 | ) | (8,556 | ) |
| Preferred  stock dividend                                            |   | (12,947                      | )       | (13,163 | ) | (13,250 | ) | (13,430 | ) | (13,563 | ) | (13,791 | ) | (13,884 | ) | (14,161 | ) |
| Net  loss applicable to common shares                                |   | (28,257                      | )       | (32,813 | ) | (21,630 | ) | (20,505 | ) | (14,830 | ) | (26,101 | ) | (22,842 | ) | (22,717 | ) |
| Net  loss per basic and diluted share                                |   | $                            | (2.39   | ) | $ | (2.77 | ) | $ | (1.82 | ) | $ | (1.73 | ) | $ | (1.25 | ) | $ | (2.20 | ) | $ | (1.92 | ) | $ | (1.91 | ) |

 
|                                  |   | **As of  March 31, 2001**    |      | **As of June  30, 2001** |   | **As of  September 30, 2001** |   | **As of  December 31, 2001** |      |
|---------------------------------------|--------|------------------------------|-----------|--------------------------|--------|-------------------------------|--------|------------------------------|-----------|
|                                  |   | **As  originally  reported** |      | **As  restated**         |   | **As  originally  reported**  |   | **As  restated**             |      | **As  originally  reported** |   | **As  restated** |   | **As  originally  reported** |   | **As  restated** |   |
| Long-term liabilities                 |   | $                            | 1,431,026 |                     | $      | 1,430,600                     |   | $                            | 1,378,940 |   | $ | 1,375,738 |   | $ | 1,353,440 |   | $ | 1,352,253 |   | $ | 1,290,338 |   | $ | 1,286,301 |   |
| Redeemable  Preferred stock           |   | 459,570                      |      | 459,785                  |   | 470,372                       |   | 470,768                      |      | 481,481 |   | 482,105 |   | 508,836 |   | 509,736 |   |
| Accumulated  deficit                  |   | (139,171                     | )         | (143,727                 | )      | (160,801                      | )      | (164,232                     | )         | (175,631 | ) | (190,333 | ) | (198,473 | ) | (213,050 | ) |
| Accumulated  other comprehensive loss |   | $                            | (16,763   | )                        | $      | (11,996                       | )      | $                            | (15,519   | ) | $ | (9,282 | ) | $ | (33,134 | ) | $ | (17,869 | ) | $ | (30,577 | ) | $ | (12,863 | ) |

 

|                                  |   | **2000  Quarter Ended** |   |
|---------------------------------------|--------|-------------------------|--------|
|                                  |   | **March 31**            |   | **June 30** |   | **September  30** |   | **December  31** |   |
| Revenues:                             |   |                    |   |   |   |   |   |   |   |
| Service                               |   | $                       | 33,594 |   | $ | 66,608 |   | $ | 69,936 |   | $ | 68,418 |   |
| Roaming                               |   | 10,310                  |   | 27,138 |   | 35,409 |   | 25,836 |   |
| Equipment                             |   | 2,725                   |   | 6,011 |   | 4,800 |   | 5,312 |   |
| Total  Revenues                       |   | 46,629                  |   | 99,757 |   | 110,145 |   | 99,566 |   |
|                                  |   |                    |   |   |   |   |   |   |   |
| Operating  income                     |   | 4,321                   |   | 14,390 |   | 22,238 |   | 8,337 |   |
| Net  loss applicable to common shares |   | $                       | (6,020 | ) | $ | (26,418 | ) | $ | (19,243 | ) | $ | (31,653 | ) |
| Basic  and diluted net loss per share |   | $                       | (0.57  | ) | $ | (2.24 | ) | $ | (1.63 | ) | $ | (2.68 | ) |
| EBITDA(1)                             |   | $                       | 15,521 |   | $ | 40,185 |   | $ | 48,925 |   | $ | 35,733 |   |

 

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(1)          EBITDAis the sum of earnings before interest,taxes, depreciation and amortization and is utilized as a performance measurewithin the wireless industry. EBITDA is not intended to be a performancemeasure that should be regarded as an alternative for other performancemeasures and should not be considered in isolation. EBITDA is not a measure offinancial performance under generally accepted accounting principles and doesnot reflect all expenses of doing business (e.g., interest expense,depreciation). Accordingly, EBITDA should not be considered as having greatersignificance than or as an alternative to net income or operating income as anindicator of operating performance or to cash flows as a measure of liquidity.Also, as calculated above, EBITDA may not be directly comparable to similarlytitled measures reported by other companies.

 

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# **INDEPENDENT AUDITORS’ REPORT**

 

**Shareholdersand Board of Directors**

**RuralCellular Corporation and Subsidiaries**

**Alexandria,Minnesota**

 

 

We have audited the consolidated financial statementsof Rural Cellular Corporation and Subsidiaries (the Company) as of and for theyear ended December 31, 2001 and have issued our report thereon dated November12, 2002 which expresses an unqualified opinion and includes explanatoryparagraphs relating to: (1) the adoption of Statement of Financial AccountingStandards (SFAS) No. 133 (as amended by SFAS No. 138), described in Note 5, and(2) the restatement described in Note 1; such consolidated financial statementsand report are included elsewhere in this Form 10-K/A.  Our audit also included the financialstatement schedule of the Company listed in Item 15 (a)(2).  This financial statement schedule is theresponsibility of the Company’s management. Our responsibility is to express anopinion based on our audit.  In ouropinion, such financial statement schedule, when considered in relation to thebasic consolidated financial statements for the year ended December 31, 2001taken as a whole, presents fairly in all material respects the information setforth therein.

 

Deloitte & Touche LLP

 

Minneapolis, Minnesota

November 12, 2002

 

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THIS IS A COPY OF APREVIOUSLY ISSUED REPORT

 

###### ***According to the Securities and Exchange Commission’samendment of Rule 2-02 of Regulation S-X, the following report is a copy of areport previously issued by Arthur Andersen LLP (Andersen), our former independentpublic accountants, who have ceased operations.  This report has not been reissued by Andersen.  Andersen reported on such financialstatements prior to the restatement discussed in Note 1.***

 

**REPORTOF INDEPENDENT PUBLIC ACCOUNTANTS**

 

To Rural Cellular Corporation:

 

Wehave audited, in accordance with auditing standards generally accepted in theUnited States, the consolidated financial statements included in Rural CellularCorporation’s Form 10-K and have issued our report thereon dated February 1,2002.  Our audit was made for thepurpose of forming an opinion on those statements taken as a whole.  The schedule listed in the index ofconsolidated financial statements is the responsibility of the Company’smanagement and is presented for purposes of complying with the Securities andExchange Commission’s rules and is not part of the basic consolidated financialstatements.  This schedule has beensubjected to the auditing procedures applied in the audits of the basicconsolidated financial statements and, in our opinion, fairly states in allmaterial respects the financial data required to be set forth therein inrelation to the basic consolidated financial statements taken as a whole.

 

Arthur Andersen LLP

 

Minneapolis, Minnesota

February 1, 2002

 

76

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**RURAL CELLULAR CORPORATION ANDSUBSIDIARIES**

**Schedule II - Valuation andQualifying Accounts**

 

***Allowance for Doubtful Accounts:***

*** ***
|                           |   | **Years  Ended December 31,** |   |
|--------------------------------|--------|-------------------------------|--------|
| **(in thousands)**             |   | **2001**                      |   | **2000** |   | **1999** |   |
| Balance,  at beginning of year |   | $                             | 2,385  |   | $ | 894 |   | $ | 1,555 |   |
| Additions  charged to income   |   | 16,291                        |   | 9,440 |   | 3,029 |   |
| Write-offs                     |   | (14,660                       | )      | (7,949 | ) | (3,690 | ) |
| Balance,  at end of year       |   | $                             | 4,016  |   | $ | 2,385 |   | $ | 894 |   |

** **

**77**

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** **

**EXHIBIT INDEX**

 
| **Number** |   | **Description**                                                                                                                                                                                                                                                                                                                              |   |   |
|------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|       |   |                                                                                                                                                                                                                                                                                                                                         |   |   |
| 3.1(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        |   | 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 the 9 5/8% Senior Subordinated Notes Due  2008                                                                                 |   | [2]    |
| 4.2        |   | 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 the 9 3/4% Senior Subordinated Notes Due  2010                                                                      |   | [18]   |
| 4.3        |   | Certificate of  Designation of 11 3/8% Senior Exchangeable Preferred Stock                                                                                                                                                                                                                                                                   |   | [2]    |
| 4.4        |   | Certificate of  Designation of 12 1/4% Junior Exchangeable Preferred Stock                                                                                                                                                                                                                                                                   |   | [1]    |
| 4.5(a)     |   | Class A Share Rights  Agreement dated April 30, 1999                                                                                                                                                                                                                                                                                         |   | [3]    |
| 4.5(b)     |   | Amendment to the Class  A Rights Agreement dated March 31, 2000                                                                                                                                                                                                                                                                              |   | [4]    |
| 4.6(a)     |   | Recapitalization  Agreement dated October 31, 1999 by and between Rural Cellular Corporation  and Telephone and Data Systems, Inc.                                                                                                                                                                                                           |   | [5]    |
| 4.6(b)     |   | First Amendment to  Recapitalization Agreement dated December 6, 1999 by and between Rural  Cellular Corporation and Telephone and Data Systems, Inc.                                                                                                                                                                                        |   | [5]    |
| 4.6(c)     |   | Second Amendment to  Recapitalization Agreement dated March 31, 2000 by and between Rural Cellular  Corporation and Telephone and Data Systems, Inc.                                                                                                                                                                                         |   | [5]    |
| 4.6(d)     |   | Registration Rights  Agreement dated March 31, 2000 by and between Rural Cellular Corporation and  Telephone and Data Systems, Inc.                                                                                                                                                                                                          |   | [5]    |
| 4.6(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                                                                                                              |   | [5]    |
| 4.7(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 Investments, Inc. (collectively “Class M Investors”) |   | [5]    |
| 4.7(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                                                                                             |   | [5]    |
| 4.7(c)     |   | Registration Rights  Agreement dated April 3, 2000 among Rural Cellular Corporation and Class M  Investors                                                                                                                                                                                                                                   |   | [5]    |
| 10.1(a)    |   | Second Amended and  Restated Loan Agreement dated April 3, 2000 among Rural Cellular Corporation  and certain financial institutions and Toronto Dominion (Texas), Inc. as  administrative agent                                                                                                                                             |   | [6]    |
| 10.1(b)    |   | Third Amended and  Restated Loan Agreement dated June 29, 2000 among Rural Cellular Corporation  and certain financial institutions and Toronto Dominion (Texas), Inc. as  administrative agent                                                                                                                                              |   | [7]    |
| 10.1(c)    |   | First Amendment to the  Third Amended and Restated Loan Agreement dated December 14, 2000 among Rural  Cellular Corporation and certain financial institutions and Toronto Dominion  (Texas), Inc. as administrative agent                                                                                                                   |   | [8]    |
| 10.1(d)    |   | Second Amendment to the  Third Amended and Restated Loan Agreement dated March 31, 2001 among Rural  Cellular Corporation and certain financial institutions and Toronto Dominion  (Texas), Inc., as administrative agent                                                                                                                    |   | [9]    |
| 10.1(e)    |   | Third Amendment to the  Third Amended and Restated Loan Agreement dated January 10, 2002, among Rural  Cellular Corporation and certain financial institutions and Toronto Dominion  (Texas), Inc., as administrative agent                                                                                                                  |   | [18]   |
| 10.2(a)    |   | Trademark and Trade  Name License Agreements between Cellular 2000, Inc. and North Woods Cellular  Partnership, Northern Lights Cellular Partnership, Great River Cellular  Partnership, Cellular Five Partnership and Heartland Cellular Partnership                                                                                        |   | [10]   |
| 10.2(b)    |   | Assignment and  Assumption Agreements by and between Rural Cellular Corporation and each  partnership                                                                                                                                                                                                                                        |   | [10]   |
| *10.3      |   | 1995 Stock Compensation  Plan, as amended to date                                                                                                                                                                                                                                                                                            |   | [11]   |
| *10.4      |   | Stock Option Plan for  Nonemployee Directors, as amended to date                                                                                                                                                                                                                                                                             |   | [12]   |
| *10.5(a)   |   | Employment Agreement  with Richard P. Ekstrand effective January 22, 1999                                                                                                                                                                                                                                                                    |   | [13]   |
| *10.5(b)   |   | Amendment to Employment  Agreement with Richard P. Ekstrand effective January 1, 2001                                                                                                                                                                                                                                                        |   | [8]    |
| *10.5(c)   |   | Second Amendment to  Employment Agreement with Richard P. Ekstrand effective July 24, 2001                                                                                                                                                                                                                                                   |   | [14]   |
| *10.5(d)   |   | Third Amendment to  Employment Agreement with Richard P. Ekstrand effective August 23, 2001                                                                                                                                                                                                                                                  |   | [14]   |
| *10.6(a)   |   | Employment Agreement  with Wesley E. Schultz effective January 22, 1999                                                                                                                                                                                                                                                                      |   | [13]   |
| *10.6(b)   |   | Amendment to Employment  Agreement with Wesley E. Schultz effective January 1, 2001                                                                                                                                                                                                                                                          |   | [8]    |
| *10.6(c)   |   | Second Amendment to  Employment Agreement with Wesley E. Schultz effective July 24, 2001                                                                                                                                                                                                                                                     |   | [14]   |
| *10.6(d)   |   | Third Amendment to  Employment Agreement with Wesley E. Schultz effective August 23, 2001                                                                                                                                                                                                                                                    |   | [14]   |
| *10.7(a)   |   | Employment Agreement  with Ann K. Newhall effective February 6, 1999                                                                                                                                                                                                                                                                         |   | [15]   |
| *10.7(b)   |   | Amendment to Employment  Agreement with Ann K. Newhall effective January 1, 2001                                                                                                                                                                                                                                                             |   | [8]    |
| *10.7(c)   |   | Second Amendment to  Employment Agreement with Ann K. Newhall effective July 24, 2001                                                                                                                                                                                                                                                        |   | [14]   |
| *10.7(d)   |   | Third Amendment to  Employment Agreement with Ann K. Newhall effective August 23, 2001                                                                                                                                                                                                                                                       |   | [14]   |
| *10.8(a)   |   | Change of Control  Agreement with Scott Donlea effective January 1, 2001                                                                                                                                                                                                                                                                     |   | [8]    |
| *10.8(b)   |   | Amendment to Change of  Control Agreement with Scott Donlea effective July 24, 2001                                                                                                                                                                                                                                                          |   | [14]   |
| *10.9(a)   |   | Change of Control  Agreement with David Del Zoppo effective January 1, 2001                                                                                                                                                                                                                                                                  |   | [8]    |
| *10.9(b)   |   | Amendment to Change of  Control Agreement with David Del Zoppo effective July 24, 2001                                                                                                                                                                                                                                                       |   | [14]   |
| *10.10     |   | Key Employee Deferred  Compensation Plan                                                                                                                                                                                                                                                                                                     |   | [16]   |
| *10.11     |   | Retention Bonus and  Severance Benefit Plan 2001                                                                                                                                                                                                                                                                                             |   | [14]   |
| *10.12     |   | Management Incentive  Plan                                                                                                                                                                                                                                                                                                                   |   | [17]   |
| 21         |   | Subsidiaries of  Registrant                                                                                                                                                                                                                                                                                                                  |   | [18]   |
| 23         |   | Consent of Deloitte  & Touche LLP                                                                                                                                                                                                                                                                                                        |   | **     |
| 99.1       |   | Section 906  Certification  Sarbanes-Oxley Act of  2002                                                                                                                                                                                                                                                                                 |   | **     |
| 99.2       |   | Section 906  Certification  Sarbanes-Oxley Act of  2002                                                                                                                                                                                                                                                                                 |   | **     |

 

78

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| [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  Registration Statement on Form S-4 (SEC No. 333-57677), filed June 25, 1998,  and incorporated herein by reference.  |
| [3]  |   | Filed as an exhibit to  Registration Statement on Form 8-A filed May 19, 1999 and incorporated herein  by reference.                         |
| [4]  |   | Filed as an exhibit to  Registration Statement on Form 8-A/A-1 filed April 18, 2000 and incorporated  herein by reference.                   |
| [5]  |   | Filed as an exhibit to  Report on Form 8-K dated April 1, 2000 and incorporated herein by reference.                                         |
| [6]  |   | Filed as an exhibit to  Report on Form 8-K/A dated April 1, 2000 and incorporated herein by  reference.                                      |
| [7]  |   | Filed as an exhibit to  Report on Form 10-Q for the quarter ended June 30, 2000 and incorporated  herein by reference.                       |
| [8]  |   | Filed as an exhibit to  Report on Form 10-K for the year ended December 31, 2000, and incorporated  herein by reference.                     |
| [9]  |   | Filed as an exhibit to  Report on Form 10-Q/A for the quarter ended March 31, 2001, and incorporated  herein by reference.                   |
| [10] |   | Filed as an exhibit to  Registration Statement on Form S-1 (Sec. No. 33-80189) filed December 8, 1995  and incorporated herein by reference. |
| [11] |   | Filed with definitive  proxy statement for 2000 Annual Meeting on April 7, 2000 and incorporated  herein by reference.                       |
| [12] |   | Filed as an exhibit to  Report on Form 10-K for the year ended December 31, 1996 and incorporated  herein by reference.                      |
| [13] |   | Filed as an exhibit to  Report on Form 10-K for the year ended December 31, 1998 and incorporated  herein by reference.                      |
| [14] |   | Filed as an exhibit to  Report on Form 10-Q/A for the quarter ended September 30, 2001, and  incorporated herein by reference.               |
| [15] |   | Filed as an exhibit to  Report on Form 10-Q for the quarter ended March 31, 1999 and incorporated  herein by reference.                      |
| [16] |   | Filed as an exhibit to  Report on Form 10-Q/A for the quarter ended June 30, 2001, and incorporated  herein by reference.                    |
| [17] |   | Filed with 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 for the year ended December 31, 2001 and incorporated  herein by reference.                      |
| *    |   | Management contract or  compensatory plan or arrangement required to be filed as an exhibit to this  form.                                   |
| **   |   | Filed herewith.                                                                                                                              |

 

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