##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 for the
fiscal year ended December 31, 2005.
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 for
the transition period fromTO.
 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)
 o þ
 o YES            NO þ
 þ o
 o
  o þ o
 o þ
   
 Documents incorporated by reference:




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TABLE OF CONTENTS
 PagePART IITEM 1. BUSINESS
    
    3ITEM 1A. RISK FACTORS
    
    21ITEM 1B. UNRESOLVED STAFF COMMENTS
    
    33ITEM 2. PROPERTIES
    
    33ITEM 3. LEGAL PROCEEDINGS
    
    34ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    34PART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    35ITEM 6. SELECTED FINANCIAL DATA
    
    36ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    37ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    56ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    57ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
    
    57ITEM 9A. CONTROLS AND PROCEDURES
    
    57ITEM 9B. OTHER INFORMATION
    
    57PART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    58ITEM 11. EXECUTIVE COMPENSATION
    
    58ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    58ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    59ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    59PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    60SIGNATURES
    
    61Indenture dated November 7, 2005Second Amendment to Key Employee Deferred Compensation PlanKey Employee Deferred Compensation Plan IISubsidiariesConsent of Deloitte & Touche LLPConsent of Deloitte & Touche LLPSection 302 CertificationSection 302 CertificationSection 906 Certification
 2




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##### Table of Contents



ITEM 1. BUSINESS
   www.sec.gov
 Forward-Looking Information
   3




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(a) General Development of Business
    Post and Prepaid Customers (Not including paging and long distance)
 CustomersPercentage
    
    
    Service Area
    
    
    as of December 31,
    
    
    SquareOwnership
    
    
    POPS (1)
    
    
    2005
    
    
    2004
    
    
    Miles
    
    
    StatesTerritoriesCellular:Midwest
    
    
    100
    %
    
    
    741,000
    
    
    
    133,000
    
    
    
    124,000
    
    
    
    45,000
    
    
    MN, ND, SDNortheast
    
    
    100
    %
    
    
    2,174,000
    
    
    
    251,000
    
    
    
    267,000
    
    
    
    46,000
    
    
    MA, ME, NH, NY, VTSouth
    
    
    100
    %
    
    
    2,011,000
    
    
    
    97,000
    
    
    
    118,000
    
    
    
    79,000
    
    
    AL, KS, MSNorthwest
    
    
    100
    %
    
    
    825,000
    
    
    
    118,000
    
    
    
    127,000
    
    
    
    77,000
    
    
    ID, OR, WATotal
    
    
    
    
    
    
    5,651,000
    
    
    
    599,000
    
    
    
    636,000
    
    
    
    247,000PCS:Wireless Alliance
    
    
    70
    %
    
    
    754,000
    
    
    
    11,000
    
    
    
    13,000
    
    
    
    19,000
    
    
    MN, ND, SD, WIWholesale
    
    
    
    
    
    
    N/A
    
    
    
    96,000
    
    
    
    81,000
    
    
    
    N/ATotal
    
    
    
    
    
    
    6,505,000
    
    
    
    706,000
    
    
    
    730,000
    
    
    
    266,000
 
 (1)
    
    Reflects 2000 U.S. Census Bureau population data updated for December 2002.     4




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Our 2005 operating results reflect the following:
 
    
    Continued construction of our 2.5G networks and, accordingly, improved roaming
minutes over the previous year,
    
    Continued transition of our customers to 2.5G handsets,
    
    Increased service revenue, primarily reflecting higher Local Service Revenue
(LSR) and Universal Service Fund (USF) support,
    
    Increased costs required to support and market 2.5G networks, products, and
customers, and
    
    Increased customer churn and declining customers, reflecting increased
customer care needs, which we encountered during the commercial introduction of our GSM
networks and transition to a new technology billing system.
     5




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Our 2005 balance sheet reflects the following:
 
    
    Payment of four quarterly dividends.On October 10, 2005, our board declared payment
of four quarterly dividends on our outstanding senior exchangeable preferred stock
(Senior Exchangeable Preferred Stock). These dividends, which were paid on October
26, 2005, represented the quarterly dividends payable on November 15, 2004, February 14,
2005, May 15, 2005 and August 15, 2005, and totaled $118.69 per share, including accrued
interest. The aggregate total dividends of approximately $17.8 million reduced the
number of unpaid quarterly dividends on the senior exchangeable preferred stock to five,
which remedied the then existing Voting Rights Triggering Event and removed any
uncertainty regarding our ability to incur indebtedness, including under the revolving
credit facility. We did not declare or pay the quarterly dividends due in November 2005
or February 2006. Accordingly, there now exists a Voting
Rights Triggering Event.
    
    Revolving Credit Facility.Effective October 18, 2005, we received approval from a
majority of the banks who are lenders under our revolving credit facility to exclude
$17.8 million of senior exchangeable preferred dividends paid on October 26, 2005,
from the interest coverage covenant calculation. We also borrowed $58.0 million
against the revolving credit facility on November 3, 2005 and were in compliance with
all of the credit facility financial covenants as of December 31, 2005. Our failure to
pay the cash dividends on our senior exchangeable preferred stock may affect our ability
to incur additional debt under the revolving credit facility.
    
    Conversion of Class T Convertible Preferred Stock into Common Stock.On October 27,
2005, RCC converted all of its outstanding shares of Class T convertible preferred stock
into 43,000 shares of Class A and 105,940 shares of Class B common stock. This
conversion resulted in a gain of approximately $6.7 million, which partially offset
preferred stock dividends in 2005.
    
    Offering of Senior Subordinated Floating Rate Notes.On November 7, 2005, the
Company completed an offering of $175 million of Senior Subordinated Floating Rate Notes
due 2012 which were sold at an original issue discount of
$2.2 million, or 1.25%.
The effective interest rate at December 31, 2005 was 10.30%. Interest is reset quarterly. With the proceeds
of this offering, we redeemed all of our outstanding 9 5/8% senior subordinated notes.
The total amount for such repurchase was approximately $133.8 million, including $125.0
million aggregate principal, $6.8 million accrued interest to the repurchase date of
December 7, 2005, and $2 million premium for early repurchase.
    
    Exchange of Senior Exchangeable Preferred Stock for Class A Common Stock.In 2005,
we exchanged an aggregate of 10,535 shares of our senior exchangeable preferred stock
for an aggregate of 1,152,745 shares of our Class A common stock in negotiated
transactions. The shares were issued in reliance upon the exemption from registration
provided in Section 3(a)(9) of the Securities Act of 1933, as amended.
    
    Repurchase of Senior Exchangeable Preferred Stock.In 2005, we repurchased 14,932
shares of senior exchangeable preferred stock for $13.4 million.
    
    Capital Expenditures.Including the cost of our network overlays, our total capital
expenditures for 2005 were approximately $95.0 million compared to $94.4 million in
2004.
 6




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(b) Financial Information about Segments
  (c) Description of Business/Service Areas
 Marketing of Products and Services
 Local Service
  
    
    Short Message Service  allows a customer to receive and send text messages or
content messages.
    
    Voicemail  allows a customer to receive and retrieve voicemail.
    
    Wireless Imaging Service  allows customers to receive and send pictures to
another wireless handset or PC.
    
    2.5G Technology Data Services  includes picture phones, BREW and Java
service, data cards, and Internet accessibility allowing customers to download ring-tones,
games, graphics, entertainment and information.
    
    Mobile Web  allows customers to access the Internet from a laptop computer
through our wireless network.
   Roaming
  7




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
    
    Cingular, which is effective through December 2009,
    
    T-Mobile, which is effective through December 2007, and
    
    Verizon, which is effective through December 2009.
 Customer Equipment
  Distribution and Sales
   
    
    direct sales through:
 o
    
    retail stores and kiosks that we operate and staff with our
employees. As of December 31, 2005, we had 89 stores, primarily located in our
more densely populated markets. In addition, we had 9 stand-alone kiosks. Our
retail locations help us establish our local presence and promote customer sales
and service;o
    
    account executives who are our employees and focus on business and
major account sales and service;o
    
    telesales, which are conducted by customer service representatives,
internet, and toll-free phone services; and
 
    
    indirect sales through approximately 350 independent sales agents. Our
independent sales agents are established businesses in their communities and include
retail electronics stores, farm implement dealers, automobile dealers, automotive parts
suppliers, college and university bookstores, video and music stores, and local telephone
companies. Most of the agents sell our services in conjunction with their principal
business. We provide cellular equipment to the agents for sale to customers, and the
agents market our services utilizing a cooperative advertising program.
 8




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Customer Base
  Customer Service
  Service Marks
 ®
 Network Operations
  9




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Technology
  Technology
    
    Territory Deployment
    
    DescriptionCDMA2000/1XRTT
    
    Midwest deployed in 2003
and 2004 and commercially
launched in August 2004.
    
    CDMA2000/1XRTTis an
evolution of CDMA
technology and represents
a step towards 3G
technology and allows data
transmission at
approximately 50 kilobits
per second (Kbps).GSM/GPRS
    
    Northeast, Northwest and
South network deployment
is operational and
commercially launched
throughout the first half
of 2005.
    
    GSM/GPRSfacilitates
certain applications that
have not previously been
available over GSM
networks due to the
limitations in speed of
Circuit Switched Data and
message length of the
Short Message Service.
Dataspeeds of up to
approximately 35 Kbps are
expected.EDGE
    
    Northeast, Northwest, and
South substantially
overlaid in the first half
of 2005.
    
    EDGEis an evolution of
GPRS technology and is a
system designed to
increase the speed of data
transmission via cell
phone, creating broadband
capability. EDGE
technology data speeds are
expected to be
approximately 70-135 Kbps.
   
    
    Midwest territory CDMA network expansion into the adjacent markets of Hibbing
and Virginia, Minnesota and Fargo and Grand Forks, North Dakota,
    
    Northeast territory GSM network expansion into the adjacent market of
Lewiston-Auburn, Maine,
    
    Northeast territory GSM network expansion into the adjacent Lakes Area
territory in east central New Hampshire, and
    
    Northwest territory GSM network expansion into the adjacent markets of
Lewiston-Moscow, Idaho and Madras, Oregon.
  10




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Licenses
   
 Suppliers and Equipment Partners
  11




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Competition
   Sprint /
    
    
    
    USRegion
    
    Alltel
    
    Cingular
    
    Nextel
    
    T-Mobile
    
    Cellular
    
    Verizon
    
    Other (*)Midwest
    
    X
    
    X
    
    X
    
    X
    
    
    
    
    
    Dobson
Communications,
QwestNortheast
    
    
    
    X
    
    X
    
    X
    
    X
    
    XNorthwest
    
    
    
    X
    
    X
    
    X
    
    X
    
    X
    
    Qwest, Inland
Cellular, Snake
River WirelessSouth
    
    X
    
    X
    
    X
    
    X
    
    
    
    X
    
    Southern Linc, Pine
Belt Wireless,
Public Service
Telephone, Westlink
Communications,
Panhandle
Telecommunications,
Cellular Telepak,
Inc.
  (*) National Third Party Resellers.
    12




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Legislation and Regulation
 The following summary of regulatory developments and legislation does not purport to describe all
present and proposed federal, state, and local regulation and legislation affecting the
telecommunications industry. Many existing federal, state, and local laws and regulations are
currently the subject of judicial proceedings, legislative hearings, and administrative proposals
that could change, in varying degrees, the manner in which the telecommunications industry
operates. Neither the outcome of these proceedings nor their impact upon the telecommunications
industry or us can be predicted.
 Overview
  13




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Federal Licensing of Wireless Systems
 Geographic Market Area Licenses.
  Construction and Operation.
    14




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Renewal of Licenses.
  Assignment of Licenses or Transfer of Control of Licensees.
 Limitation on Foreign Ownership.
 15




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Regulatory Matters and Developments
 Enhanced
911 Services.
   Interconnection
 16




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Universal Service.
     17




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Local Number Portability.
   18




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CALEA.
 Other FCC-Mandated Payments.
 Access by the Disabled.
 Health and Safety.
 19




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Regulatory Oversight.
      20




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Employees and Sales Agents
  
 ITEM 1A. RISK FACTORS
  Our future operating results could fluctuate significantly.
  
    
    increased costs we may incur in connection with our networks and the further
development, expansion, and upgrading of our wireless systems;
    
    fluctuations in the demand for our services and equipment and wireless services in general;
    
    increased competition, including price competition;
    
    changes in our roaming revenue and expenses due to renegotiation of our
roaming agreements and the development of neighboring or competing networks;
    
    changes in the regulatory environment;
    
    changes in the level of support provided by the Universal Service Fund (USF);
    
    the cost and availability of equipment components;
    
    seasonality of roaming revenue;
    
    changes in travel trends;
    
    acts of terrorism, political tensions, unforeseen health risks, unusual
weather patterns, and other catastrophic occurrences that could affect travel and demand
for our services; and
    
    changes in general economic conditions that may affect, among other things,
demand for our services and the creditworthiness of our customers.
  21




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Our implementation of 2.5G network technology has resulted in network capacity constraints and
heightened customer churn.
  We may not be successful in reversing the six quarter trend of declining postpaid customers, which
would force us to change our business plan and financial outlook and would likely negatively affect
the price of our stock.
  As we dedicate more resources to 2.5G technology, our TDMA customers may seek other competitive
offerings, resulting in a loss of customers and reduced profitability.
   22




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We have required and will continue to require substantial
amounts of capital to maintain our upgrade to 2.5G technologies and
to meet various obligations under our financing arrangements. Our ability to generate the required
capital depends on many factors, including some that are beyond our control.
    We have committed a substantial amount of capital to upgrade our wireless networks to offer 2.5G
data services. If the demand for wireless data services does not grow, or if we fail to capitalize
on such demand, it could have an adverse effect on our growth.
  23




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Our business could be materially and adversely affected by our failure to anticipate and react to
frequent and significant technological changes.
  
    
    the introduction of 3.0G digital handsets and applications;
    
    evolving industry standards;
    
    the availability of new radio frequency spectrum allocations for wireless services;
    
    ongoing improvements in the capacity and quality of digital technology;
    
    shorter development cycles for new products and enhancements;
    
    developments in emerging wireless transmission technologies; and
    
    changes in end-user requirements and preferences.
  A significant portion of our revenue is from roaming charges. Outcollect roaming yields have been
declining over the last few years and are expected to continue to decline in the future. As a
result, our future operating results could be adversely affected if increases in roaming minutes do
not offset anticipated decreases in roaming yield.
    24




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Our roaming revenue is subject to some effects of seasonality, and as a result, our overall revenue
and operating income are also subject to seasonal fluctuations.
  We operate in a very competitive business environment, which can adversely affect our business and  operations. Competitors who offer more services than we do may attract our targeted customers.
      25




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Market prices for wireless service may decline in the future.
  Wireless number portability may continue to have a negative impact on our customer retention and
increase our marketing costs.
  If we encounter significant problems, such as delays, inaccuracies, or loss of customer information
from our database, in the process of upgrading our billing function, we could experience customer
dissatisfaction and increased churn, which could have a material adverse impact on our financial
performance.
  Regulation or potential litigation relating to the use of wireless phones while driving could
adversely affect our results of operations. Further, if wireless handsets are perceived to pose
health and safety risks, we may be subject to new regulations, and demand for our services may
decrease.
   26




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Our business is subject to extensive government regulation, which could adversely affect our
business by increasing our expenses. We also may be unable to obtain or retain regulatory
approvals necessary to operate our business, which would negatively affect our results of
operations.
     27




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Our designation or certification as an Eligible Telecommunications Carrier (ETC) in any state
where we conduct business could be refused, conditioned, or revoked due to circumstances beyond our
control, thus depriving us of financial support in that state from the Universal Service Fund
(USF). In addition, we cannot be certain that we will continue to receive payments at the
current levels.
  If we are unable to comply with obligations imposed by the Communications Assistance for Law
Enforcement Act (CALEA), our financial results could be adversely affected.
  Equipment failure and natural disasters may adversely affect our operations.
  Difficulties in the continued upgrade of our wireless systems could increase our planned capital
expenditures, delay the continued build-out of our networks, and negatively impact our roaming
arrangements .
  
    
    select appropriate equipment vendors;
    
    select and acquire appropriate sites for our transmission equipment, or cell sites;
    
    purchase and install low-power transmitters, receivers, and control equipment,
or base radio equipment;
    
    build out any required physical infrastructure;
    
    obtain interconnection services from local telephone service carriers; and
    
    test cell sites.
 28




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
    
    obtain necessary zoning and other regulatory approvals;
    
    lease or obtain rights to sites for the location of our base radio equipment;
    
    obtain any necessary capital;
    
    acquire any additional necessary spectrum from third parties; and
    
    commence and complete the construction of sites for our equipment in a timely
and satisfactory manner.
  Our future financial results could be adversely impacted by asset impairments or other charges.
 Goodwill and Other Intangible Assets
 Accounting for the Impairment or Disposal of
Long-Lived Assets
  We may not be able to successfully integrate acquired or exchanged properties, which could have an
adverse effect on our financial results.
  29




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We will continue to incur increased costs as a result of being a public company subject to the
Sarbanes-Oxley Act of 2002 (SOA), as well as new rules implemented by the Securities and Exchange
Commission and The Nasdaq Stock Market.
   If we fail to maintain an effective system of internal and disclosure
 controls, we may not be able to accurately report our financial results or prevent fraud.
   Our common stock price has been and may continue to be volatile. Litigation instituted against us
and our officers and directors as a result of changes in the price of our securities could
materially and adversely affect our business, financial condition, and operating results.
  
    
    actual or anticipated variations in operating results;
    
    our ability to finance our operations and meet obligations under our financing arrangements
    
    conditions or trends in the wireless communications industry and changes in
the economic performance and/or market valuation of other wireless communications
companies;
    
    our strategic partnerships, joint ventures, or capital commitments; and
    
    additions or departures of key personnel.
   We have a significant amount of debt and preferred stock, which may limit our ability to meet our
debt service and dividend obligations, obtain future financing, make capital expenditures in
support of our business plan, react to a downturn in our business, or otherwise conduct necessary
corporate activities.
  30




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
    
    we must use a substantial portion of our cash flows from operations to make
interest payments on our debt, thereby reducing funds that would otherwise be available to
us for working capital, capital expenditures, future business opportunities, and other
purposes;
    
    we may not be able to obtain additional financing for working capital, capital
expenditures, and other purposes on terms favorable to us or at all;
    
    borrowings under our floating rate notes and our revolving credit facility
are at variable interest rates, making us vulnerable to increases in interest rates;
    
    we may have more debt than many of our competitors, which may place us at a
competitive disadvantage;
    
    we may have limited flexibility to react to changes in our business; and
    
    we may not be able to refinance our indebtedness or preferred stock on terms
that are commercially reasonable or at all.
  The restrictive covenants in our existing debt and preferred stock instruments and agreements may
limit our ability to operate our business.
  
    
    incur additional debt;
    
    pay cash dividends on capital stock;
    
    repay junior debt and preferred stock prior to stated maturities;
    
    allow the imposition of dividend restrictions on certain subsidiaries;
    
    sell assets;
    
    make investments;
    
    engage in transactions with shareholders and affiliates;
    
    create liens; and
    
    engage in some types of mergers or acquisitions.
    31




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Our failure to pay the cash dividends on our senior exchangeable preferred stock may affect our
ability to incur additional debt or refinance our existing indebtedness.
   Our failure to pay the cash dividends on our junior exchangeable preferred stock may result in
changes in our board of directors and affect our ability to incur additional debt.
  We have shareholders who could exercise significant influence on management.
   Antitakeover provisions could adversely affect the price of our Class A common stock.
  
    
    provisions for a classified board of directors;
    
    provisions for advance notice for director nominations and shareholder proposals;
    
    provisions allowing holders of our Class B common stock ten votes per share as
compared to one vote per share for our Class A common stock;
    
    provisions for supermajority votes to approve mergers or amend specified
provisions of the Articles and Bylaws; and
    
    statutory limits regarding share acquisitions and business combinations.
  32




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ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
 Not Applicable
 
 ITEM 2.
    
    PROPERTIES
  Leased/
    
    SquareAddress
    
    Owned
    
    FeetMidwest:Principal Corporate HQ
    
    3905 Dakota Street SW
    
    Owned
    
    
    50,000Alexandria, MinnesotaNortheast:Territory Office
    
    302 Mountain View Drive
    
    Leased
    
    
    10,413Colchester, VermontTerritory Office
    
    6 Telcom Drive
    
    Owned
    
    
    36,250Bangor, MaineTerritory Office
    
    323 North Street
    
    Owned
    
    
    4,000Saco, MaineNorthwest:Territory Office
    
    300 SE Reed Market Road
    
    Leased
    
    
    9,272Bend, OregonSouth:Territory Office
    
    621 Boll Weevil Circle, Suite 2
    
    Leased
    
    
    18,000Enterprise, Alabama
  2005
    
    
    2004Midwest
    
    
    232
    
    
    
    214Northeast
    
    
    327
    
    
    
    240Northwest
    
    
    169
    
    
    
    138South
    
    
    333
    
    
    
    265Total
    
    
    1,061
    
    
    
    857
   33




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ITEM 3.
    
    LEGAL PROCEEDINGS
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    Age
    
    PositionRichard P. Ekstrand
    
    
    56
    
    
    President, Chief Executive Officer and DirectorWesley E. Schultz
    
    
    49
    
    
    Executive Vice President, Chief Financial
Officer and DirectorAnn K. Newhall
    
    
    54
    
    
    Executive Vice President, Chief Operating
Officer and DirectorDavid J. Del Zoppo
    
    
    50
    
    
    Senior Vice President, Finance and Accounting
 Richard P. Ekstrand
 Wesley E. Schultz
 Ann K. Newhall
 David J. Del Zoppo
 34




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER
REPURCHASE OF EQUITY SECURITIES
 Market
Price/Holders
  High
    
    Low2005First Quarter
    
    $
    8.85
    
    
    $
    5.10Second Quarter
    
    $
    5.77
    
    
    $
    4.20Third Quarter
    
    $
    12.92
    
    
    $
    5.19Fourth Quarter
    
    $
    17.12
    
    
    $
    11.792004First Quarter
    
    $
    14.38
    
    
    $
    8.00Second Quarter
    
    $
    10.20
    
    
    $
    6.80Third Quarter
    
    $
    9.71
    
    
    $
    6.66Fourth Quarter
    
    $
    7.18
    
    
    $
    4.70
   Dividend Policy
    Issuance
of Common Stock
  35




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ITEM 6. SELECTED FINANCIAL DATA
  Years ended December 31,(In thousands, except per share and other operating data)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Statement of Operations Data:Revenue:Service
    
    $
    387,848
    
    
    $
    377,219
    
    
    $
    355,038
    
    
    $
    319,933
    
    
    $
    310,520Roaming
    
    
    122,774
    
    
    
    105,504
    
    
    
    131,896
    
    
    
    122,703
    
    
    
    116,541Equipment
    
    
    34,313
    
    
    
    22,094
    
    
    
    20,455
    
    
    
    20,442
    
    
    
    18,627Total revenue
    
    
    544,935
    
    
    
    504,817
    
    
    
    507,389
    
    
    
    463,078
    
    
    
    445,688Operating expenses:Network
costs, excluding depreciation
    
    
    120,322
    
    
    
    104,071
    
    
    
    96,069
    
    
    
    97,200
    
    
    
    101,509Cost of equipment sales
    
    
    58,266
    
    
    
    40,372
    
    
    
    37,636
    
    
    
    29,184
    
    
    
    28,415Selling, general and administrative
    
    
    152,238
    
    
    
    135,129
    
    
    
    131,761
    
    
    
    119,185
    
    
    
    122,387Stock based
compensation  SG&A
    
    
    680
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    100,463
    
    
    
    76,355
    
    
    
    76,429
    
    
    
    82,497
    
    
    
    112,577Impairment of assets
    
    
    7,020
    
    
    
    47,136
    
    
    
    42,244
    
    
    
    
    
    
    
    Total operating expenses
    
    
    438,989
    
    
    
    403,104
    
    
    
    384,139
    
    
    
    328,066
    
    
    
    364,888Operating income
    
    
    105,946
    
    
    
    101,713
    
    
    
    123,250
    
    
    
    135,012
    
    
    
    80,800Other income (expense):Interest expense
    
    
    (171,831
    )
    
    
    (163,977
    )
    
    
    (136,262
    )
    
    
    (114,478
    )
    
    
    (130,432
    )Interest and dividend income
    
    
    2,221
    
    
    
    1,727
    
    
    
    916
    
    
    
    562
    
    
    
    1,172Other
    
    
    (876
    )
    
    
    (76
    )
    
    
    891
    
    
    
    66
    
    
    
    (752
    )Other expense, net
    
    
    (170,486
    )
    
    
    (162,326
    )
    
    
    (134,455
    )
    
    
    (113,850
    )
    
    
    (130,012
    )Income (loss) before income taxes and
cumulative change in accounting
principle
    
    
    (64,540
    )
    
    
    (60,613
    )
    
    
    (11,205
    )
    
    
    21,162
    
    
    
    (49,212
    )Income tax benefit
    
    
    (418
    )
    
    
    (1,672
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss) before cumulative change
in accounting principle
    
    
    (64,122
    )
    
    
    (58,941
    )
    
    
    (11,205
    )
    
    
    21,162
    
    
    
    (49,212
    )Cumulative change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (417,064
    )
    
    
    1,621Net loss
    
    
    (64,122
    )
    
    
    (58,941
    )
    
    
    (11,205
    )
    
    
    (395,902
    )
    
    
    (47,591
    )Preferred stock dividend
    
    
    (7,174
    )
    
    
    (12,915
    )
    
    
    (38,877
    )
    
    
    (60,556
    )
    
    
    (54,545
    )Net loss applicable to common shares
    
    $
    (71,296
    )
    
    $
    (71,856
    )
    
    $
    (50,082
    )
    
    $
    (456,458
    )
    
    $
    (102,136
    )Weighted average common shares
outstanding
    
    
    12,695
    
    
    
    12,239
    
    
    
    12,060
    
    
    
    11,920
    
    
    
    11,865Net loss applicable to common shares
before cumulative change in accounting
principle
    
    $
    (5.62
    )
    
    $
    (5.87
    )
    
    $
    (4.15
    )
    
    $
    (3.30
    )
    
    $
    (8.74
    )Cumulative change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34.99
    )
    
    
    .13Net loss per basic and diluted share
    
    $
    (5.62
    )
    
    $
    (5.87
    )
    
    $
    (4.15
    )
    
    $
    (38.29
    )
    
    $
    (8.61
    )
 36




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##### Table of Contents



As of December 31,(In thousands, except other operating data)
    
    2005
    
    2004
    
    2003
    
    2002
    
    2001Balance Sheet Data:Working capital (deficit)
    
    $
    129,922
    
    
    $
    45,308
    
    
    $
    86,135
    
    
    $
    (55,496
    )
    
    $
    (18,273
    )Net property and equipment
    
    
    277,408
    
    
    
    276,133
    
    
    
    226,202
    
    
    
    240,536
    
    
    
    244,980Total assets
    
    
    1,480,682
    
    
    
    1,417,450
    
    
    
    1,521,058
    
    
    
    1,462,978
    
    
    
    1,836,779Total long-term liabilities
    
    
    1,847,994
    
    
    
    1,733,079
    
    
    
    1,764,867
    
    
    
    1,211,026
    
    
    
    1,286,301Redeemable
preferred stock
    
    
    170,976
    
    
    
    166,296
    
    
    
    153,381
    
    
    
    569,500
    
    
    
    508,836Total shareholders deficit
    
    $
    (651,982
    )
    
    $
    (596,338
    )
    
    $
    (526,830
    )
    
    $
    (483,115
    )
    
    $
    (33,830
    )Other Operating Data:Customers (not including long distance and
paging):Postpaid
    
    
    597,769
    
    
    
    628,614
    
    
    
    656,110
    
    
    
    639,221
    
    
    
    599,514Prepaid
    
    
    11,663
    
    
    
    20,391
    
    
    
    22,302
    
    
    
    27,452
    
    
    
    33,255Wholesale
    
    
    96,170
    
    
    
    80,806
    
    
    
    67,104
    
    
    
    55,700
    
    
    
    29,139Total customers
    
    
    705,602
    
    
    
    729,811
    
    
    
    745,516
    
    
    
    722,373
    
    
    
    661,908Marketed POPs (1)
    
    
    6,405,000
    
    
    
    6,279,000
    
    
    
    5,962,000
    
    
    
    5,893,000
    
    
    
    5,893,000Penetration (2)
    
    
    9.5
    %
    
    
    10.3
    %
    
    
    11.4
    %
    
    
    11.3
    %
    
    
    10.7
    %Retention (3)
    
    
    97.3
    %
    
    
    97.9
    %
    
    
    98.1
    %
    
    
    98.2
    %
    
    
    97.8
    %Local monthly service revenue per customer (4)
    
    $
    50
    
    
    $
    46
    
    
    $
    43
    
    
    $
    41
    
    
    $
    42Average monthly revenue per customer (5)
    
    $
    67
    
    
    $
    60
    
    
    $
    59
    
    
    $
    57
    
    
    $
    59Acquisition cost per customer (6)
    
    $
    497
    
    
    $
    444
    
    
    $
    422
    
    
    $
    377
    
    
    $
    290Cell sites / Base stations:
    
    
    1,061
    
    
    
    857
    
    
    
    754
    
    
    
    732
    
    
    
    684
 
 1)
    
    Updated to reflect 2000 U.S. Census Bureau Official Statistics.2)
    
    Represents the ratio of wireless voice customers, excluding wholesale customers, at
the end of the period to population served.3)
    
    Determined for each period by dividing total postpaid wireless voice customers
discontinuing service during such period by the average postpaid wireless voice customers
for such period (customers at the beginning of the period plus customers at the end of the
period, divided by two), dividing that result by the number of months in the period, and
subtracting such result from one.4)
    
    Determined for each period by dividing service revenue (not including pass-through
regulatory fees by the monthly average postpaid customers for such period.5)
    
    Determined for each period by dividing service revenue (not including pass-through
regulatory fees) and roaming revenue by the monthly average postpaid customers for such
period.6)
    
    Determined for each period by dividing selling and marketing expenses, net costs of
equipment sales, and depreciation of rental telephone equipment by the gross postpaid and
prepaid wireless voice customers added during such period. 37




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##### Table of Contents



Reconciliations of Non-GAAP Financial Measures
  Years Ended December 31,Retention
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Postpaid wireless voice customers
discontinuing service (1)
    
    
    197,471
    
    
    
    161,222
    
    
    
    150,745
    
    
    
    136,237
    
    
    
    153,078Weighted average 12 month aggregate
postpaid wireless voice customers
(2)
    
    
    7,362,780
    
    
    
    7,667,797
    
    
    
    7,780,921
    
    
    
    7,409,873
    
    
    
    6,954,051Churn (1)
÷ (2)
    
    
    2.7
    %
    
    
    2.1
    %
    
    
    1.9
    %
    
    
    1.8
    %
    
    
    2.2
    %Retention (1 minus churn)
    
    
    97.3
    %
    
    
    97.9
    %
    
    
    98.1
    %
    
    
    98.2
    %
    
    
    97.8
    %(in thousands, except customer gross additions and
acquisition cost per customer )Selling and marketing expense
    
    $
    59,201
    
    
    $
    54,077
    
    
    $
    52,150
    
    
    $
    50,563
    
    
    $
    49,808Net cost of equipment
    
    
    23,953
    
    
    
    18,278
    
    
    
    17,181
    
    
    
    8,742
    
    
    
    9,788Adjustments to cost of equipment
    
    
    3,990
    
    
    
    2,399
    
    
    
    8,549
    
    
    
    15,647
    
    
    
    7,373Total costs used in the calculation of Acquisition cost per
customer (3)
    
    $
    87,144
    
    
    $
    74,754
    
    
    $
    77,880
    
    
    $
    74,952
    
    
    $
    66,969Customer gross additions (4)
    
    
    175,324
    
    
    
    168,330
    
    
    
    184,522
    
    
    
    198,923
    
    
    
    230,895Acquisition
cost per customer (3) ÷ (4)
    
    $
    497
    
    
    $
    444
    
    
    $
    422
    
    
    $
    377
    
    
    $
    290Local Service Revenue Per Customer (LSR)(in thousands, except weighted
average 12 month aggregate postpaid
wireless voice customers and LSR)Revenues (as reported on Consolidated
Statements of Operations)Service revenues
    
    $
    387,848
    
    
    $
    377,219
    
    
    $
    355,038
    
    
    $
    319,933
    
    
    $
    310,520Non postpaid revenue adjustments
    
    
    (20,253
    )
    
    
    (20,743
    )
    
    
    (24,016
    )
    
    
    (18,395
    )
    
    
    (16,814
    )Service revenues for LSR (5)
    
    $
    367,595
    
    
    $
    356,476
    
    
    $
    331,022
    
    
    $
    301,538
    
    
    $
    293,706Weighted average 12 month aggregate
postpaid wireless voice customers
(6)
    
    
    7,362,780
    
    
    
    7,667,797
    
    
    
    7,780,921
    
    
    
    7,409,873
    
    
    
    6,954,051LSR (5)
÷ (6)
    
    $
    50
    
    
    $
    46
    
    
    $
    43
    
    
    $
    41
    
    
    $
    42Average Revenue Per Customer (ARPU)(in thousands, except weighted
average 12 month aggregate postpaid
wireless voice customers and ARPU)Revenues (as reported on Consolidated
Statements of Operations)Service revenues
    
    $
    387,848
    
    
    $
    377,219
    
    
    $
    355,038
    
    
    $
    319,933
    
    
    $
    310,520Roaming revenues
    
    
    122,774
    
    
    
    105,504
    
    
    
    131,896
    
    
    
    122,703
    
    
    
    116,541Total
    
    
    510,622
    
    
    
    482,723
    
    
    
    486,934
    
    
    
    442,636
    
    
    
    427,061Non postpaid revenue adjustments:
    
    
    (20,253
    )
    
    
    (20,743
    )
    
    
    (24,016
    )
    
    
    (18,395
    )
    
    
    (16,814
    )Service revenues for ARPU (7)
    
    $
    490,369
    
    
    $
    461,980
    
    
    $
    462,918
    
    
    $
    424,241
    
    
    $
    410,247Weighted average 12 month aggregate
postpaid wireless voice customers
(8)
    
    
    7,362,780
    
    
    
    7,667,797
    
    
    
    7,780,921
    
    
    
    7,409,873
    
    
    
    6,954,051ARPU (7) ÷ (8)
    
    $
    67
    
    
    $
    60
    
    
    $
    59
    
    
    $
    57
    
    
    $
    59
 38




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Business Overview
    Operating Revenue
  Service revenue
  Roaming
 Equipment
 39




---



##### Table of Contents



Operating Expenses
  Network costs
 Cost of equipment sales
 Selling, general and administrative
 Depreciation and amortization
 Other Expenses
  Interest expense
  o
    
    Interest expense on our credit facility , senior secured
notes, senior notes, and senior subordinated notes,o
    
    Amortization of debt issuance costs,o
    
    Early extinguishment of debt issuance costs,o
    
    Dividends on senior and junior exchangeable preferred stock,o
    
    Amortization of preferred stock issuance costs,o
    
    Gain (loss) on derivative instruments, ando
    
    Gains on repurchase and exchange of preferred stock.
 Preferred stock
 40




---



##### Table of Contents



Critical Accounting Policies and Estimates
  Goodwill and Other Indefinite-Lived Intangible Assets
  Unit of Accounting for Testing of Impairment of
Indefinite-Lived Intangible Assets
  41




---



##### Table of Contents



Revenue Recognition  Service
    Revenue Recognition  Roaming Revenue and Incollect Cost
  Allowance for Doubtful Accounts
  Depreciation of Property and Equipment
   42




---



##### Table of Contents



Impairment of Long-Lived Assets
   Income Taxes
 Accounting for Income Taxes
  43




---



##### Table of Contents



Litigation and Other Loss Contingencies
  Recently Issued Accounting Pronouncements
 Accounting for Share-Based Compensation
 Share-Based Payment,
    44




---



##### Table of Contents



Results of Operations
 Years ended December 31, 2005 and 2004
 Revenue
 Operating Revenue:
 Years ended December 31,(In thousands)
    
    2005
    
    
    2004
    
    
    
    $ Increase
    
    
    % IncreaseService
    
    $
    387,848
    
    
    $
    377,219
    
    
    
    $
    10,629
    
    
    
    2.8
    %Roaming
    
    
    122,774
    
    
    
    105,504
    
    
    
    
    17,270
    
    
    
    16.4
    %Equipment
    
    
    34,313
    
    
    
    22,094
    
    
    
    
    12,219
    
    
    
    55.3
    %Total operating revenue
    
    $
    544,935
    
    
    $
    504,817
    
    
    
    $
    40,118
    
    
    
    7.9
    %
 Service Revenue.
  Service Revenue
    
    Years ended December 31,$ Increase
    
    
    % Increase(In thousands)
    
    2005
    
    
    2004
    
    
    
    (Decrease)
    
    
    (Decrease)Local service
    
    $
    332,310
    
    
    $
    337,361
    
    
    
    $
    (5,051
    )
    
    
    (1.5
    )%USF support
    
    
    40,792
    
    
    
    28,154
    
    
    
    
    12,638
    
    
    
    44.9
    %Regulatory pass-through
    
    
    13,891
    
    
    
    11,204
    
    
    
    
    2,687
    
    
    
    24.0
    %Other
    
    
    855
    
    
    
    500
    
    
    
    
    355
    
    
    
    71.0
    %Total service revenue
    
    $
    387,848
    
    
    $
    377,219
    
    
    
    $
    10,629
    
    
    
    2.8
    %
  Customers
  45




---



##### Table of Contents



Roaming Revenue.
    Equipment Revenue.
 Operating Expenses
 Years ended December 31,$ Increase
    
    
    % Increase(In thousands)
    
    2005
    
    
    2004
    
    
    
    (decrease)
    
    
    (decrease)Network costIncollect cost
    
    $
    46,880
    
    
    $
    45,745
    
    
    
    $
    1,135
    
    
    
    2.5
    %Other network cost
    
    
    73,442
    
    
    
    58,326
    
    
    
    
    15,116
    
    
    
    25.9
    %120,322
    
    
    
    104,071
    
    
    
    
    16,251
    
    
    
    15.6
    %Cost of equipment sales
    
    
    58,266
    
    
    
    40,372
    
    
    
    
    17,894
    
    
    
    44.3
    %Selling, general and administrative
    
    
    152,238
    
    
    
    135,129
    
    
    
    
    17,109
    
    
    
    12.7
    %Stock-based compensation  SG&A
    
    
    680
    
    
    
    41
    
    
    
    
    639
    
    
    
    1,558.5
    %Depreciation and amortization
    
    
    100,463
    
    
    
    76,355
    
    
    
    
    24,108
    
    
    
    31.6
    %Impairment of assets
    
    
    7,020
    
    
    
    47,136
    
    
    
    
    (40,116
    )
    
    
    (85.1
    )%Total operating expenses
    
    $
    438,989
    
    
    $
    403,104
    
    
    
    $
    35,885
    
    
    
    8.9
    %
 Network Cost.
 46




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##### Table of Contents



Cost of Equipment Sales .
  Selling, General and Administrative.
  Components of SG&A are as follows:
 Years ended December 31,(in thousands)
    
    2005
    
    
    2004
    
    
    
    $ Increase
    
    
    % IncreaseGeneral and administrative
    
    $
    64,887
    
    
    $
    59,853
    
    
    
    $
    5,034
    
    
    
    8.4
    %Sales and marketing
    
    
    59,376
    
    
    
    54,077
    
    
    
    
    5,299
    
    
    
    9.8
    %Bad debt
    
    
    13,769
    
    
    
    9,762
    
    
    
    
    4,007
    
    
    
    41.0
    %Regulatory pass-through fees
    
    
    14,206
    
    
    
    11,478
    
    
    
    
    2,728
    
    
    
    23.8
    %$
    152,238
    
    
    $
    135,170
    
    
    
    $
    17,068
    
    
    
    12.6
    %
 Stock-based compensation  SG&A.
  Depreciation and Amortization.
 47




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##### Table of Contents



Impairment of Assets.
 Other Income (Expense)
 Interest Expense.
   Years endedComponents of Interest Expense
    
    December 31,(in thousands)
    
    2005
    
    
    2004Interest expense on credit facility
    
    $
    691
    
    
    $
    5,135Interest expense on senior secured notes
    
    
    41,517
    
    
    
    29,753Interest expense on senior notes
    
    
    32,095
    
    
    
    32,094Interest expense on senior subordinated notes
    
    
    45,252
    
    
    
    41,281Amortization of debt issuance costs
    
    
    4,692
    
    
    
    4,674Write-off of debt issuance costs
    
    
    1,533
    
    
    
    12,605Senior and junior preferred stock dividends
    
    
    54,778
    
    
    
    55,373Effect of derivative instruments
    
    
    (1,997
    )
    
    
    5,208Gain on repurchase and exchange of senior
exchangeable preferred stock
    
    
    (5,722
    )
    
    
    (22,572
    )Other
    
    
    (1,008
    )
    
    
    426$
    171,831
    
    
    $
    163,977
 Gain on repurchase of Senior Exchangeable Preferred Stock.
 Gain on exchange of Senior Exchangeable Preferred Stock for Class A Common Stock.
 Preferred Stock Dividends
  48




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##### Table of Contents



Years ended December 31, 2004 and 2003
 Revenue
 Operating Revenue:
 Years Ended December 31,$ Increase
    
    
    % Increase(In thousands)
    
    2004
    
    
    2003
    
    
    (Decrease)
    
    
    (Decrease)Service
    
    $
    377,219
    
    
    $
    355,038
    

    
    $
    22,181
    
    
    
    6.2
    %Roaming
    
    
    105,504
    
    
    
    131,896

    

    
    
    (26,392
    )
    
    
    (20.0
    )%Equipment
    
    
    22,094
    
    
    
    20,455
    
    
    
    1,639
    
    
    
    8.0
    %Total revenue
    
    $
    504,817
    
    
    $
    507,389
    
    
    $
    (2,572
    )
    
    
    (0.5
    )%
 Service Revenue.
   Customers .
 Customer reconciliation giving effect to the AWE property exchange:
 Postpaid
    
    
    Prepaid
    
    
    Wholesale
    
    
    
    TotalCustomers at December 31, 2003
    
    
    656,110
    
    
    
    22,302
    
    
    
    67,104
    
    
    
    
    745,516Net customer adds (loss)
    
    
    (5,487
    )
    
    
    (2,710
    )
    
    
    13,746
    
    
    
    
    5,549AWE Property Exchange:South territory customers acquired
    
    
    12,858
    
    
    
    979
    
    
    
    
    
    
    
    
    13,837Oregon RSA 4 customers transferred
    
    
    (34,867
    )
    
    
    (180
    )
    
    
    (44
    )
    
    
    
    (35,091
    )Net customer change
    
    
    (22,009
    )
    
    
    799
    
    
    
    (44
    )
    
    
    
    (21,254
    )Customers at December 31, 2004
    
    
    628,614
    
    
    
    20,391
    
    
    
    80,806
    
    
    
    
    729,811
 49




---



##### Table of Contents



Roaming Revenue.
   Equipment Revenue.
 Operating Expenses
 Years Ended December 31,$ Increase
    
    
    % Increase(In thousands)
    
    2004
    
    
    2003
    
    
    
    (Decrease)
    
    
    (Decrease)Network costIncollect cost
    
    $
    45,745
    
    
    $
    44,055
    
    
    
    $
    1,690
    
    
    
    3.8
    %Other network cost
    
    
    58,326
    
    
    
    52,014
    
    
    
    
    6,312
    
    
    
    12.1
    %104,071
    
    
    
    96,069
    
    
    
    
    8,002
    
    
    
    8.3
    %Cost of equipment sales
    
    
    40,372
    
    
    
    37,636
    
    
    
    
    2,736
    
    
    
    7.3
    %Selling, general and administrative
    
    
    135,170
    
    
    
    131,761
    
    
    
    
    3,409
    
    
    
    2.6
    %Depreciation and amortization
    
    
    76,355
    
    
    
    76,429
    
    
    
    
    (74
    )
    
    
    (0.1
    )%Loss on impairment of assets
    
    
    47,136
    
    
    
    42,244
    
    
    
    
    4,892
    
    
    
    11.6
    %Total operating expenses
    
    $
    403,104
    
    
    $
    384,139
    
    
    
    $
    18,965
    
    
    
    4.9
    %
 Network Cost.
 50




---



##### Table of Contents



Cost of Equipment Sales.
 Selling, General and Administrative.
 Components of SG&A are as follows:
 (in thousands)
    
    Years Ended December 31,$ Increase
    
    
    % Increase2004
    
    
    2003
    
    
    
    (Decrease)
    
    
    (Decrease)General and administrative
    
    $
    59,853
    
    
    $
    60,860
    
    
    
    $
    (1,007
    )
    
    
    (1.7
    %)Sales and marketing
    
    
    54,077
    
    
    
    52,150
    
    
    
    
    1,927
    
    
    
    3.7
    %Bad debt
    
    
    9,762
    
    
    
    9,412
    
    
    
    
    350
    
    
    
    3.7
    %Regulatory pass-through fees
    
    
    11,478
    
    
    
    9,339
    
    
    
    
    2,139
    
    
    
    22.9
    %$
    135,170
    
    
    $
    131,761
    
    
    
    $
    3,409
    
    
    
    2.6
    %
 Depreciation and Amortization.
 Loss on Impairment of Assets
   Other Income (Expense)
 Interest Expense. Accounting for Derivative Instruments and Hedging Activities Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity 1 4 1 4
 51




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##### Table of Contents



Years Ended December 31,(in thousands)
    
    2004
    
    
    2003Interest expense on credit facility
    
    $
    5,135
    
    
    $
    44,574Interest expense on senior secured notes
    
    
    29,753
    
    
    
    Interest expense on senior notes
    
    
    32,094
    
    
    
    13,372Interest expense on senior subordinated notes
    
    
    41,281
    
    
    
    41,281Amortization of debt issuance costs
    
    
    4,674
    
    
    
    4,773Write-off of debt issuance costs
    
    
    12,605
    
    
    
    6,134Senior and junior preferred stock dividends
    
    
    55,373
    
    
    
    27,973Effect of derivative instruments
    
    
    5,208
    
    
    
    (3,502
    )Gain on repurchase of senior exchangeable
preferred stock
    
    
    (22,572
    )
    
    
    Other
    
    
    426
    
    
    
    1,657$
    163,977
    
    
    $
    136,262
 Gain on repurchase of senior exchangeable preferred stock.
 Preferred Stock Dividends
  Liquidity and Capital Resources
    52




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##### Table of Contents



Senior and Junior Exchangeable Preferred Stock
    Senior Subordinated Floating Rate Notes.
 Credit Facility.
  53




---



##### Table of Contents



Liquidity.
 Cash flows for the year ended December 31, 2005, compared with the year ended December 31, 2004
 December 31,
    
    
    December 31,2005
    
    
    2004
    
    
    
    ChangeNet cash provided by operating activities
    
    $
    72,937
    
    
    $
    130,277
    
    
    
    $
    (57,340
    )Net cash used in investing activities
    
    
    (161,585
    )
    
    
    (81,459
    )
    
    
    
    (80,126
    )Net cash provided by (used in) financing activities
    
    
    90,131
    
    
    
    (106,026
    )
    
    
    
    196,157Net decrease in cash and cash equivalents
    
    
    1,483
    
    
    
    (57,208
    )
    
    
    
    58,691Cash and cash equivalents, at beginning of year
    
    
    85,339
    
    
    
    142,547
    
    
    
    
    (57,208
    )Cash and cash equivalents, at end of year
    
    $
    86,822
    
    
    $
    85,339
    
    
    
    $
    1,483
      54




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##### Table of Contents



Contractual Obligations Summary
  SeniorSubordinated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Senior andFloating Rate
    
    
    93/4% Senior
    
    
    
    
    
    
    
    
    
    
    JuniorLine of Credit
    
    
    Notes
    
    
    Subordinated
    
    
    9 7/8% Senior
    
    
    Senior
    
    
    Exchangeable
    
    
    Class MOperating
    
    
    Purchase
    
    
    (due 3/25/2010)
    
    
    (due 11/1/2012)
    
    
    Notes
    
    
    Notes
    
    
    Secured
    
    
    Preferred
    
    
    PreferredLeases
    
    
    Commitments (1)
    
    
    (2)
    
    
    (3)
    
    
    (due 1/15/2010)
    
    
    (due 2/1/2010)
    
    
    Notes (4)
    
    
    Securities (5)
    
    
    Securities (6)
    
    
    Total2006
    
    $
    17,140
    
    
    $
    7,200
    
    
    $
    4,217
    
    
    $
    17,571
    
    
    $
    29,250
    
    
    $
    32,094
    
    
    $
    43,261
    
    
    $
    55,411
    
    
    $
    
    
    
    $
    206,1442007
    
    
    15,065
    
    
    
    
    
    
    
    4,217
    
    
    
    17,571
    
    
    
    29,250
    
    
    
    32,094
    
    
    
    43,261
    
    
    
    55,411
    
    
    
    
    
    
    
    196,8692008
    
    
    12,746
    
    
    
    
    
    
    
    4,217
    
    
    
    17,571
    
    
    
    29,250
    
    
    
    32,094
    
    
    
    43,261
    
    
    
    55,411
    
    
    
    
    
    
    
    194,5502009
    
    
    10,242
    
    
    
    
    
    
    
    4,217
    
    
    
    17,571
    
    
    
    29,250
    
    
    
    32,094
    
    
    
    43,261
    
    
    
    55,411
    
    
    
    
    
    
    
    192,0462010
    
    
    5,172
    
    
    
    
    
    
    
    58,970
    
    
    
    17,571
    
    
    
    301,219
    
    
    
    327,674
    
    
    
    191,792
    
    
    
    226,331
    
    
    
    
    
    
    
    1,128,729Thereafter
    
    
    4,551
    
    
    
    
    
    
    
    
    
    
    
    207,254
    
    
    
    
    
    
    
    
    
    
    
    384,729
    
    
    
    292,747
    
    
    
    284,487
    
    
    
    1,173,768Total
    
    $
    64,916
    
    
    $
    7,200
    
    
    $
    75,838
    
    
    $
    295,109
    
    
    $
    418,219
    
    
    $
    456,050
    
    
    $
    749,565
    
    
    $
    740,722
    
    
    $
    284,487
    
    
    $
    3,092,106
 
 (1)
    
    In 2003, we entered into a five-year $56.6 million purchase commitment with a vendor to
install 2.5G network equipment. Through December 31, 2005, we have incurred $49.4 million
in equipment purchases related to this agreement.(2)
    
    The Line of Credit matures March 25, 2010. The Line of Credit interest rate
obligations are reflected at December 31, 2005 rate level of 7.3%. Increases or decreases
in LIBOR will impact interest expense in future years.(3)
    
    The floating rate notes mature November 1, 2012. Floating interest rate obligations
are reflected at December 31, 2005 rate level of 10.2%. Increases or decreases in LIBOR
will impact interest expense in future years.(4)
    
    The senior secured notes consist of two notes, one fixed rate 8 1/4% and one floating
rate. The floating rate notes mature March 15, 2010 and the 8 1/4% notes mature March 15,
2012. Floating interest rate obligations are reflected at December 31, 2005 rate level of
9.0%. Increases or decreases in LIBOR will impact interest expense in future years.(5)
    
    This table assumes cash dividends are paid each year. If dividends are not paid in
cash, they accrue and compound until paid. If senior exchangeable preferred cash dividends
are not declared and paid at any time prior to the mandatory redemption date of May 15,
2010, and the junior exchangeable preferred cash dividends are not declared and paid at
any time prior to the mandatory redemption date of February 15, 2011, the total
liquidation preference plus accumulated and unpaid dividends will be $829.7 million.(6)
    
    Dividends on the Class M convertible preferred stock are compounded quarterly, accrue
at 8% per annum and are payable upon redemption. The scheduled redemption date for Class
M preferred stock is April 3, 2012. Dividends are not payable if the preferred stock is
converted into equity. Off-Balance
Sheet Financings and Liabilities.
 Other Matters
 Inflation
  55




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##### Table of Contents



Seasonality
   2005 Quarter Ended
    
    
    
    2004 Quarter EndedMar
    
    
    Jun
    
    
    Sep
    
    
    Dec
    
    
    
    Mar
    
    
    Jun
    
    
    Sep
    
    
    DecRevenue:Service
    
    $
    94,695
    
    
    $
    98,865
    
    
    $
    98,287
    
    
    $
    96,001
    
    
    
    $
    88,585
    
    
    $
    94,979
    
    
    $
    97,093
    
    
    $
    96,562Roaming
    
    
    19,622
    
    
    
    25,112
    
    
    
    41,785
    
    
    
    36,255
    
    
    
    
    25,740
    
    
    
    26,266
    
    
    
    29,739
    
    
    
    23,759Equipment
    
    
    9,054
    
    
    
    9,420
    
    
    
    8,220
    
    
    
    7,619
    
    
    
    
    5,523
    
    
    
    5,338
    
    
    
    5,589
    
    
    
    5,644Total Revenue
    
    $
    123,371
    
    
    $
    133,397
    
    
    $
    148,292
    
    
    $
    139,875
    
    
    
    $
    119,848
    
    
    $
    126,583
    
    
    $
    132,421
    
    
    $
    125,965Operating income (loss)
    
    $
    23,814
    
    
    $
    21,033
    
    
    $
    35,931
    
    
    
    25,168
    
    
    
    $
    38,831
    
    
    $
    38,291
    
    
    $
    40,156
    
    
    $
    (15,565
    )Net income (loss)
before income tax
benefit
    
    $
    (18,574
    )
    
    $
    (16,269
    )
    
    $
    (7,721
    )
    
    $
    (21,976
    )
    
    
    $
    (15,348
    )
    
    $
    6,597
    
    
    $
    5,437
    
    
    $
    (57,299
    )Net income (loss)
applicable to common
shares
    
    $
    (21,804
    )
    
    $
    (19,597
    )
    
    $
    (11,151
    )
    
    $
    (18,744
    )
    
    
    $
    (18,482
    )
    
    $
    3,403
    
    
    $
    2,184
    
    
    $
    (58,961
    )Net income (loss) per
basic share
    
    $
    (1.77
    )
    
    $
    (1.59
    )
    
    $
    (0.89
    )
    
    $
    (1.38
    )
    
    
    $
    (1.51
    )
    
    $
    0.28
    
    
    $
    0.18
    
    
    $
    (4.81
    )Net income (loss) per
diluted
share
    
    $
    (1.77
    )
    
    $
    (1.59
    )
    
    $
    (0.89
    )
    
    $
    (1.38
    )
    
    
    $
    (1.51
    )
    
    $
    0.27
    
    
    $
    0.17
    
    
    $
    (4.81
    )
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  Financial Instruments
    56




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
   Internal Control 
Integrated Framework.
  
 Changes
to Internal Control over Financial Reporting
  ITEM 9B. OTHER INFORMATION
  57




---



##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS EQUITY COMPENSATION PLAN INFORMATION
  Number of securitiesremaining available for futureNumber of Securities to
    
    
    Weighted-average
    
    
    issuance under equitybe issued upon exercise
    
    
    exercise price of
    
    
    compensation plans (excludingof outstanding options,
    
    
    outstanding options,
    
    
    securities reflected in the firstPlan Category
    
    warrants,and rights
    
    
    warrants,and rights
    
    
    column)Equity compensation
plans approved by
security holders (1)
    
    
    1,863,029
    
    
    $
    15.09
    
    
    
    379,605Equity compensation
plans not approved by
security holders (2)
    
    
    
    
    
    
    
    
    
    
    TOTAL
    
    
    1,863,029
    
    
    $
    15.09
    
    
    
    379,605
 
 (1)
    
    Includes stock subject to outstanding options and stock available for
issuance under our 1995 Stock Compensation Plan, Stock Option Plan for Nonemployee
Directors, and Employee Stock Purchase Plan.(2)
    
    We have not adopted any equity compensation plans that have not been approved
by our shareholders.  58




---



##### Table of Contents



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  59




---



##### Table of Contents



PART IV
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 Page NumberIn thisForm 10-K(a
    )
    
    
    (1
    )
    
    Financial StatementsRural Cellular CorporationREPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    63Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    
    65Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004, and 2003
    
    
    67Consolidated Statements of Shareholders Deficit for the Years Ended December 31, 2005, 2004, and 2003
    
    
    68Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004, and 2003
    
    
    70Notes to Consolidated Financial Statements
    
    
    71RCC Minnesota, Inc,REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    103Balance Sheets as of December 31, 2005 and 2004
    
    
    104Statements of Operations for the Years Ended December 31, 2005, 2004, and 2003
    
    
    105Statements of Shareholders Equity (Deficit) for the Years Ended December 31, 2005, 2004, and 2003
    
    
    106Statements of Cash Flows for the Years Ended December 31, 2005, 2004, and 2003
    
    
    107Notes to Financial Statements
    
    
    108(2
    )
    
    Financial Statement SchedulesThe following financial statement schedule is filed as part of
this Form 10-K:Schedule II  Valuation and Qualifying Accounts
    
    
    101All schedules not included are omitted either because they are
not applicable or because the information required therein is
included in Notes to Consolidated Financial Statements.(3
    )
    
    ExhibitsSee Exhibit Index on page 113.(b
    )
    
    ExhibitsSee Exhibit Index.(c
    )
    
    Financial Statement SchedulesSee Item 15 (a) (2), above.
 60




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##### Table of Contents



SIGNATURES
  Rural Cellular CorporationDated: March 14, 2006
    
    By:                /s/ Richard P. EkstrandRichard P. EkstrandPresident and Chief Executive Officer
  Signature
    
    Title
    
    Date/s/ Richard P. Ekstrand

   Richard P. Ekstrand
    
    President and
Chief Executive Officer(Principal
Executive Officer) and Director
    
    March 14, 2006/s/ Wesley E. Schultz

   Wesley E. Schultz
    
    Executive Vice President,
Chief Financial Officer and Director
    
    March 14, 2006/s/ David J. Del Zoppo

   David J. Del Zoppo
    
    Senior Vice President, Finance and
Accounting
(Principal Accounting Officer)
    
    March 14, 2006/s/ Ann K. Newhall
    
    Executive Vice President,
Chief Operating Officer and Director
    
    March 14, 2006Ann K. Newhall/s/ George W. Wikstrom
    
    Director
    
    March 14, 2006George W. Wikstrom/s/
Don C. Swenson
    
    Director
    
    March 14, 2006Don C. Swenson/s/ George M. Revering
    
    Director
    
    March 14, 2006George M. Revering/s/ Anthony J. Bolland
    
    Director
    
    March 14, 2006Anthony J. Bolland/s/
Paul J. Finnegan
    
    Director
    
    March 14, 2006Paul J. Finnegan/s/ Jacques Leduc
    
    Director
    
    March 14, 2006Jacques Leduc/s/ James V. Continenza
    
    Director
    
    March 14, 2006James V. Continenza
 61




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 62




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       
 63




---



##### Table of Contents



RURAL CELLULAR CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE
SHEETS

(In thousands)
 ASSETS
 December 31,2005
    
    
    2004CURRENT ASSETS:Cash and cash equivalents
    
    $
    86,822
    
    
    $
    85,339Short-term investments
    
    
    66,778
    
    
    
    Accounts receivable, less allowance for doubtful accounts of $3,567 and $2,456
    
    
    72,887
    
    
    
    62,549Inventories
    
    
    12,849
    
    
    
    7,658Other current assets
    
    
    4,280
    
    
    
    4,175Total current assets
    
    
    243,616
    
    
    
    159,721PROPERTY AND EQUIPMENT, net
    
    
    277,408
    
    
    
    276,133LICENSES AND OTHER ASSETS:Licenses, net
    
    
    548,513
    
    
    
    548,513Goodwill, net
    
    
    348,684
    
    
    
    348,682Customer lists, net
    
    
    29,301
    
    
    
    47,868Deferred debt issuance costs, net
    
    
    27,022
    
    
    
    30,228Other assets, net
    
    
    6,138
    
    
    
    6,305Total licenses and other assets
    
    
    959,658
    
    
    
    981,596$
    1,480,682
    
    
    $
    1,417,450
  64




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##### Table of Contents



RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
 LIABILITIES AND SHAREHOLDERS DEFICIT
 December 31,2005
    
    
    2004CURRENT LIABILITIES:Accounts payable
    
    $
    53,492
    
    
    $
    52,465Current portion of long-term debt
    
    
    
    
    
    
    81Advance billings and customer deposits
    
    
    11,885
    
    
    
    11,076Accrued interest
    
    
    39,336
    
    
    
    41,112Other accrued expenses
    
    
    8,981
    
    
    
    9,679Total current liabilities
    
    
    113,694
    
    
    
    114,413LONG-TERM LIABILITIES
    
    
    1,847,994
    
    
    
    1,733,079Total liabilities
    
    
    1,961,688
    
    
    
    1,847,492COMMITMENTS
AND CONTINGENCIES (Note 9)REDEEMABLE PREFERRED STOCK
    
    
    170,976
    
    
    
    166,296SHAREHOLDERS DEFICIT:Class A common stock; $.01 par value;
200,000 shares authorized, 13,530 and
11,836 outstanding
    
    
    135
    
    
    
    118Class B common stock; $.01 par value;
10,000 shares authorized, 427 and 540
outstanding
    
    
    4
    
    
    
    5Additional paid-in capital
    
    
    212,420
    
    
    
    193,347Accumulated deficit
    
    
    (862,742
    )
    
    
    (791,446
    )Unearned compensation
    
    
    (1,799
    )
    
    
    (698
    )Accumulated other comprehensive income
    
    
    
    
    
    
    2,336Total shareholders deficit
    
    
    (651,982
    )
    
    
    (596,338
    )$
    1,480,682
    
    
    $
    1,417,450
  65




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##### Table of Contents



RURAL CELLULAR CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 For the Years EndedDecember 31,2005
    
    
    2004
    
    
    2003REVENUE:Service
    
    $
    387,848
    
    
    $
    377,219
    
    
    $
    355,038Roaming
    
    
    122,774
    
    
    
    105,504
    
    
    
    131,896Equipment
    
    
    34,313
    
    
    
    22,094
    
    
    
    20,455Total revenue
    
    
    544,935
    
    
    
    504,817
    
    
    
    507,389OPERATING EXPENSES:Network costs, excluding depreciation
    
    
    120,322
    
    
    
    104,071
    
    
    
    96,069Cost of equipment sales
    
    
    58,266
    
    
    
    40,372
    
    
    
    37,636Selling, general and administrative
    
    
    152,238
    
    
    
    135,129
    
    
    
    131,761Stock based compensation  SG&A
    
    
    680
    
    
    
    41
    
    
    
    Depreciation and amortization
    
    
    100,463
    
    
    
    76,355
    
    
    
    76,429Impairment of assets
    
    
    7,020
    
    
    
    47,136
    
    
    
    42,244Total operating expenses
    
    
    438,989
    
    
    
    403,104
    
    
    
    384,139OPERATING INCOME
    
    
    105,946
    
    
    
    101,713
    
    
    
    123,250OTHER INCOME (EXPENSE):Interest expense
    
    
    (171,831
    )
    
    
    (163,977
    )
    
    
    (136,262
    )Interest and dividend income
    
    
    2,221
    
    
    
    1,727
    
    
    
    916Other
    
    
    (876
    )
    
    
    (76
    )
    
    
    891Other expense, net
    
    
    (170,486
    )
    
    
    (162,326
    )
    
    
    (134,455
    )LOSS BEFORE INCOME TAX BENEFIT
    
    
    (64,540
    )
    
    
    (60,613
    )
    
    
    (11,205
    )INCOME TAX BENEFIT
    
    
    (418
    )
    
    
    (1,672
    )
    
    
    NET LOSS
    
    
    (64,122
    )
    
    
    (58,941
    )
    
    
    (11,205
    )PREFERRED STOCK DIVIDEND
    
    
    (7,174
    )
    
    
    (12,915
    )
    
    
    (38,877
    )LOSS APPLICABLE TO COMMON SHARES
    
    $
    (71,296
    )
    
    $
    (71,856
    )
    
    $
    (50,082
    )BASIC AND DILUTED WEIGHTED AVERAGE
SHARES USED TO COMPUTE LOSS PER SHARE:
    
    
    12,695
    
    
    
    12,239
    
    
    
    12,060NET LOSS PER
BASIC AND DILUTED SHARE
    
    $
    (5.62
    )
    
    $
    (5.87
    )
    
    $
    (4.15
    )
  66




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##### Table of Contents



RURAL CELLULAR CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS DEFICIT
AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(In thousands)
 Class A
    
    
    Class A
    
    
    Class B
    
    
    Class B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedCommon
    
    
    Common
    
    
    Common
    
    
    Common
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalStock
    
    
    Stock
    
    
    Stock
    
    
    Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Unearned
    
    
    Comprehensive
    
    
    Shareholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Compensation
    
    
    Income (Loss)
    
    
    Deficit
    
    
    LossBALANCE,December 31, 2002
    
    
    11,229
    
    
    $
    112
    
    
    
    693
    
    
    $
    7
    
    
    $
    192,294
    
    
    $
    (669,508
    )
    
    $
    
    
    
    $
    (6,020
    )
    
    $
    (483,115
    )Conversion of Class B common stock to Class A common stock
    
    
    141
    
    
    
    1
    
    
    
    (141
    )
    
    
    (1
    )
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock issued through employee stock purchase plan
    
    
    147
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114
    
    
    
    Stock options exercised
    
    
    5
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    COMPONENTS OF COMPREHENSIVE LOSSNet loss applicable to common shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,082
    )
    
    
    
    
    
    
    
    
    
    
    (50,082
    )
    
    $
    (50,082
    )Current year effect of SFAS No. 133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,236
    
    
    
    6,236
    
    
    
    6,236Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (43,846
    )BALANCE,December 31, 2003
    
    
    11,522
    
    
    
    115
    
    
    
    552
    
    
    
    6
    
    
    
    192,423
    
    
    
    (719,590
    )
    
    
    
    
    
    
    216
    
    
    
    (526,830
    )Conversion of Class B common stock to Class A common stock
    
    
    12
    
    
    
    1
    
    
    
    (12
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock issued through employee stock purchase plan
    
    
    166
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    145
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146
    
    
    
    Stock options exercised
    
    
    15
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    Restricted Stock Issuances
    
    
    121
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    738
    
    
    
    
    
    
    
    (739
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of unearned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    41
    
    
    
    COMPONENTS OF COMPREHENSIVE LOSSNet loss applicable to common shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71,856
    )
    
    
    
    
    
    
    
    
    
    
    (71,856
    )
    
    $
    (71,856
    )Current year effect of SFAS No. 133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,120
    
    
    
    2,120
    
    
    
    2,120Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (69,736
    )BALANCE,December 31, 2004
    
    
    11,836
    
    
    
    118
    
    
    
    540
    
    
    
    5
    
    
    
    193,347
    
    
    
    (791,446
    )
    
    
    (698
    )
    
    
    2,336
    
    
    
    (596,338
    )
 67




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##### Table of Contents



Class A
    
    
    Class A
    
    
    Class B
    
    
    Class B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedCommon
    
    
    Common
    
    
    Common
    
    
    Common
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalStock
    
    
    Stock
    
    
    Stock
    
    
    Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Unearned
    
    
    Comprehensive
    
    
    Shareholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Compensation
    
    
    Income (Loss)
    
    
    Deficit
    
    
    LossBALANCE,December 31, 2004
    
    
    11,836
    
    
    
    118
    
    
    
    540
    
    
    
    5
    
    
    
    193,347
    
    
    
    (791,446
    )
    
    
    (698
    )
    
    
    2,336
    
    
    
    (596,338
    )Stock issued through employee stock purchase plan
    
    
    71
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    378
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    379
    
    
    
    Stock options exercised
    
    
    169
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1,189
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,191
    
    
    
    Class A common issued in exchange for senior exchangeable preferred stock
    
    
    1,153
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    13,423
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,435
    
    
    
    Conversion of Class B common stock to Class A common stock
    
    
    218
    
    
    
    2
    
    
    
    (218
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conversion of Class T preferred Stock to Class A and Class B common stock
    
    
    43
    
    
    
    
    
    
    
    105
    
    
    
    1
    
    
    
    2,476
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,477
    
    
    
    Restricted stock activity
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,607
    
    
    
    
    
    
    
    (1,599
    )
    
    
    
    
    
    
    8
    
    
    
    Amortization of unearned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    498
    
    
    
    
    
    
    
    498
    
    
    
    COMPONENTS OF COMPREHENSIVE LOSSNet loss applicable to common shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71,296
    )
    
    
    
    
    
    
    
    
    
    
    (71,296
    )
    
    $
    (71,296
    )Current year effect of derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,336
    )
    
    
    (2,336
    )
    
    
    (2,336
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (73,632
    )BALANCE,December 31, 2005
    
    
    13,530
    
    
    $
    135
    
    
    
    427
    
    
    $
    4
    
    
    $
    212,420
    
    
    $
    (862,742
    )
    
    $
    (1,799
    )
    
    $
    
    
    
    $
    (651,982
    )
  68




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##### Table of Contents



RURAL
CELLULAR CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 Years EndedDecember 31,2005
    
    
    2004
    
    
    2003OPERATING ACTIVITIES:Net loss
    
    $
    (64,122
    )
    
    $
    (58,941
    )
    
    $
    (11,205
    )Adjustments to reconcile to net cash provided by operating activities:Depreciation and customer list amortization
    
    
    100,463
    
    
    
    76,355
    
    
    
    76,429Loss on write-off of debt and preferred stock issuance costs
    
    
    1,533
    
    
    
    12,605
    
    
    
    6,134Mark-to-market adjustments  financial instruments
    
    
    339
    
    
    
    4,339
    
    
    
    (2,225
    )Gain on
repurchase and exchange of senior exchangeable preferred stock
    
    
    (5,722
    )
    
    
    (22,573
    )
    
    
    Noncash
senior and junior exchangeable preferred stock dividends
    
    
    3,797
    
    
    
    28,626
    
    
    
    13,074Impairment of assets
    
    
    7,020
    
    
    
    47,136
    
    
    
    42,244Stock based compensation
    
    
    680
    
    
    
    41
    
    
    
    Deferred income taxes
    
    
    (418
    )
    
    
    (1,672
    )
    
    
    Other
    
    
    6,825
    
    
    
    7,693
    
    
    
    4,013Change in other operating elements:Accounts receivable
    
    
    (14,262
    )
    
    
    (1,821
    )
    
    
    (14,286
    )Inventories
    
    
    (5,191
    )
    
    
    547
    
    
    
    (1,581
    )Other current assets
    
    
    (105
    )
    
    
    89
    
    
    
    (1,076
    )Accounts payable
    
    
    6,757
    
    
    
    6,153
    
    
    
    4,678Advance billings and customer deposits
    
    
    809
    
    
    
    482
    
    
    
    146Accrued
senior and junior exchangeable preferred stock dividends
    
    
    33,211
    
    
    
    26,747
    
    
    
    14,899Accrued interest
    
    
    2,021
    
    
    
    6,598
    
    
    
    12,188Other accrued expenses
    
    
    (698
    )
    
    
    (2,127
    )
    
    
    1,089Net cash provided by operating activities
    
    
    72,937
    
    
    
    130,277
    
    
    
    144,521INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (94,951
    )
    
    
    (94,417
    )
    
    
    (53,704
    )Purchases of short-term investments
    
    
    (66,778
    )
    
    
    
    
    
    
    Purchases of wireless properties
    
    
    
    
    
    
    (725
    )
    
    
    (7,200
    )Net proceeds from property exchange
    
    
    
    
    
    
    13,567
    
    
    
    Proceeds from sale of property and equipment
    
    
    247
    
    
    
    92
    
    
    
    624Other
    
    
    (103
    )
    
    
    24
    
    
    
    (174
    )Net cash used in investing activities
    
    
    (161,585
    )
    
    
    (81,459
    )
    
    
    (60,454
    )FINANCING ACTIVITIES:Proceeds from issuance of common stock related to employee stock
purchase plan and stock options
    
    
    1,570
    
    
    
    188
    
    
    
    131Proceeds from issuance of long-term debt under the credit facility
    
    
    58,000
    
    
    
    
    
    
    
    120,000Repayments of long-term debt under the credit facility
    
    
    
    
    
    
    (525,724
    )
    
    
    (394,628
    )Proceeds from issuance of senior subordinated floating rate notes
    
    
    172,816
    
    
    
    
    
    
    
    Proceeds from issuance of 9 7/8% senior notes
    
    
    
    
    
    
    
    
    
    
    325,000Proceeds from issuance of 8 1/4% senior secured notes
    
    
    
    
    
    
    350,000
    
    
    
    Proceeds from issuance of senior secured floating rate notes
    
    
    
    
    
    
    160,000
    
    
    
    Redemption of 9 5/8% senior subordinated notes
    
    
    (125,000
    )
    
    
    Repurchases
of senior exchangeable preferred stock
    
    
    (13,355
    )
    
    
    (68,351
    )
    
    
    Payments to settle interest rate swaps
    
    
    
    
    
    
    (7,645
    )
    
    
    Payments of debt issuance costs
    
    
    (3,798
    )
    
    
    (14,293
    )
    
    
    (13,374
    )Repayment of swaption
    
    
    
    
    
    
    
    
    
    
    (34,184
    )Proceeds from unwinding hedge agreements
    
    
    
    
    
    
    
    
    
    
    2,632Other
    
    
    (102
    )
    
    
    (201
    )
    
    
    (885
    )Net cash provided by (used in) financing activities
    
    
    90,131
    
    
    
    (106,026
    )
    
    
    4,692NET (DECREASE) INCREASE IN CASH
    
    
    1,483
    
    
    
    (57,208
    )
    
    
    88,759CASH AND CASH EQUIVALENTS, at beginning of year
    
    
    85,339
    
    
    
    142,547
    
    
    
    53,788CASH AND CASH EQUIVALENTS, at end of year
    
    $
    86,822
    
    
    $
    85,339
    
    
    $
    142,547
  69




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##### Table of Contents



RURAL CELLULAR CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004, and 2003
 1. Organization and Nature of Business:
     2. Summary of Significant Accounting Policies:
 Principles of Consolidation
  Revenue Recognition  Service
 Accounting for Revenue Arrangements with Multiple Deliverables
  70




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##### Table of Contents



Revenue Recognition  Roaming Revenue and Incollect Cost
  Revenue Recognition  Equipment
  Allowance for Doubtful Accounts
  Cash Equivalents
  Short-term Investments
  Inventories
  71




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##### Table of Contents



Property and Equipment
   2005
    
    2004
    
    Useful LivesLand
    
    $
    7,214
    
    
    $
    7,200
    
    
    
    N/ABuilding and towers
    
    
    101,110
    
    
    
    98,367
    
    
    15-39 YearsEquipment (1)
    
    
    443,406
    
    
    
    350,385
    
    
    2-7 YearsPhone service equipment
    
    
    1,217
    
    
    
    2,938
    
    
    19 MonthsFurniture and fixtures (2)
    
    
    28,928
    
    
    
    29,759
    
    
    3-7 YearsAssets under construction
    
    
    15,449
    
    
    
    37,232
    
    
    
    N/A597,324
    
    
    
    525,881Lessaccumulated depreciation
    
    
    (319,916
    )
    
    
    (249,748
    )Property and equipment  net
    
    $
    277,408
    
    
    $
    276,133
 
 (1)
    
    Includes the cost of cell site radio equipment, switch equipment, billing hardware and
related software.(2)
    
    Includes the cost of furniture, in-house computer hardware/software, and phone system
equipment.     72




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##### Table of Contents



Licenses and Other Intangible Assets
   Year EndedAs of
    
    
    
    December 31, 2005
    
    
    
    As ofDecember 31,
    
    
    
    
    
    
    
    Impairment
    
    
    Amortization
    
    
    
    December 31,(in thousands)
    
    2004
    
    
    
    Acquisition
    
    
    of Assets
    
    
    Expense
    
    
    
    2005Licenses, net
    
    $
    548,513
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    $
    548,513Goodwill, net
    
    
    348,682
    
    
    
    

2
    
    
    
    
    
    
    
    
    
    
    
    
    348,684Customer lists
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gross Valuation
    
    
    144,415
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144,415Accumulated amortization
    
    
    (96,547
    )
    
    
    
    
    
    
    
    
    
    
    
    (18,567
    )
    
    
    
    (115,114
    )47,868
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,301Total
    
    $
    945,063
    
    
    
    $
    2
    
    
    $
    
    
    
    $
    (18,567
    )
    
    
    $
    926,498Year EndedAs of
    
    
    
    December 31, 2004
    
    
    
    As ofDecember 31,
    
    
    
    
    
    
    
    Impairment
    
    
    Amortization
    
    
    
    December 31,(in thousands)
    
    2003
    
    
    
    Acquisition
    
    
    of Assets
    
    
    Expense
    
    
    
    2004Licenses, net
    
    $
    563,283
    
    
    
    $
    16,582
    
    
    $
    (31,352
    )
    
    $
    
    
    
    
    $
    548,513Goodwill, net
    
    
    360,796
    
    
    
    
    3,670
    
    
    
    (15,784
    )
    
    
    
    
    
    
    
    348,682Customer lists
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gross Valuation
    
    
    142,616
    
    
    
    
    1,799
    
    
    
    
    
    
    
    
    
    
    
    
    144,415Accumulated amortization
    
    
    (78,041
    )
    
    
    
    
    
    
    
    
    
    
    
    (18,506
    )
    
    
    
    (96,547
    )64,575
    
    
    
    
    1,799
    
    
    
    
    
    
    
    (18,506
    )
    
    
    
    47,868Total
    
    $
    988,654
    
    
    
    $
    22,051
    
    
    $
    (47,136
    )
    
    $
    (18,506
    )
    
    
    $
    945,063
  Goodwill and
Other Intangible Assets
 73




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##### Table of Contents



Unit of Accounting for Testing of Impairment of Indefinite-Lived Intangible
Assets,
  Deferred Debt Issuance Costs
  Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections
  As of December 31,(in thousands)
    
    2005
    
    
    2004Gross valuation
    
    $
    39,005
    
    
    $
    40,331Accumulated amortization
    
    
    (11,983
    )
    
    
    (10,103
    )$
    27,022
    
    
    $
    30,228
 Other Assets
  74




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##### Table of Contents



As of December 31,(in thousands)
    
    2005
    
    
    2004Gross valuation
    
    $
    8,561
    
    
    $
    8,375Accumulated Amortization
    
    
    (2,423
    )
    
    
    (2,070
    )$
    6,138
    
    
    $
    6,305
 Income Taxes
   Net Loss Per Common Share
  Comprehensive Loss
 Reporting Comprehensive Income
 Business and Credit Concentrations
   75




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##### Table of Contents



Impairment of Long-lived Assets
 Accounting
for the Impairment or Disposal of Long-Lived Assets
   Derivative
Financial Instruments
   Use of Estimates
  Recently Issued Accounting Pronouncements
 Accounting for Share-Based Compensation
      76




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##### Table of Contents



3. Stock Compensation Plans:
  Nonemployee
    
    Stock
    
    Employee StockDirectors Plan
    
    Compensation Plan
    
    Purchase Plan (1)Available for issuance
at December 31, 2004
    
    
    174,250
    
    
    
    61,844
    
    
    
    262,312Options granted
    
    
    (36,750
    )
    
    
    (20,000
    )
    
    
    (88,116
    )Restricted stock awarded
    
    
    
    
    
    
    (47,500
    )
    
    
    Options cancelled
    
    
    26,250
    
    
    
    47,315
    
    
    
    Available for issuance
at December 31, 2005
    
    
    163,750
    
    
    
    41,659
    
    
    
    174,196
 
 (1)
    
    Employee Stock Purchase Plan options granted of 88,116 shares reflect contributions
made in 2005 with corresponding shares being awarded in January 2006. Nonemployee Directors Plan.
 Stock Compensation Plan.
   2005
    
    2004Shares
    
    SharesRestricted Stock Awards, beginning of year
    
    
    118,667
    
    
    
    Issued
    
    
    47,500
    
    
    
    120,667Released to employee
    
    
    (676
    )
    
    
    Cancelled
    
    
    (5,324
    )
    
    
    (2,000
    )Restricted Stock Awards, outstanding, end of year
    
    
    160,167
    
    
    
    118,667
 77




---



##### Table of Contents



Employee Stock Purchase Plan.
  2005
    
    
    
    2004
    
    
    
    2003Weighted
    
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    AverageShares
    
    
    Exercise Price
    
    
    
    Shares
    
    
    Exercise Price
    
    
    
    Shares
    
    
    Exercise PriceOutstanding, beginning of
period
    
    
    2,044,037
    
    
    $
    14.61
    
    
    
    
    2,084,770
    
    
    $
    14.64
    
    
    
    
    1,908,084
    
    
    $
    17.40Granted
    
    
    56,750
    
    
    $
    6.30
    
    
    
    
    31,500
    
    
    $
    7.62
    
    
    
    
    369,500
    
    
    
    1.23Exercised
    
    
    (169,517
    )
    
    $
    7.02
    
    
    
    
    (14,760
    )
    
    $
    2.80
    
    
    
    
    (5,120
    )
    
    
    3.37Cancelled
    
    
    (68,241
    )
    
    $
    13.30
    
    
    
    
    (57,473
    )
    
    $
    15.17
    
    
    
    
    (187,694
    )
    
    
    16.72Outstanding, end of period
    
    
    1,863,029
    
    
    $
    15.09
    
    
    
    
    2,044,037
    
    
    $
    14.61
    
    
    
    
    2,084,770
    
    
    $
    14.64Exercisable, end of period
    
    
    1,409,119
    
    
    $
    17.91
    
    
    
    
    1,392,617
    
    
    $
    17.46
    
    
    
    
    1,143,970
    
    
    $
    18.92Weighted average fair
value of options granted
    
    
    
    
    
    $
    5.18
    
    
    
    
    
    
    
    $
    5.82
    
    
    
    
    
    
    
    $
    1.09
  Weighted AverageNumber
    
    Remaining
    
    Weighted Average
    
    
    Number
    
    Weighted AverageExercise Price Range
    
    Outstanding
    
    Contractual Life
    
    Exercise Price
    
    
    Exercisable
    
    Exercise Price$00.00    $9.99
    
    
    957,515
    
    
    
    5
    
    
    $
    4.00
    
    
    
    
    567,825
    
    
    $
    4.85$10.00  $19.99
    
    
    382,325
    
    
    
    3
    
    
    $
    13.40
    
    
    
    
    382,325
    
    
    $
    13.40$20.00  $29.99
    
    
    274,100
    
    
    
    5
    
    
    $
    27.12
    
    
    
    
    216,460
    
    
    $
    27.18$30.00 - $39.99
    
    
    153,939
    
    
    
    4
    
    
    $
    35.00
    
    
    
    
    147,359
    
    
    $
    34.88$40.00  $49.99
    
    
    14,500
    
    
    
    4
    
    
    $
    43.25
    
    
    
    
    14,500
    
    
    $
    43.25$50.00 - $59.99
    
    
    8,500
    
    
    
    4
    
    
    $
    56.59
    
    
    
    
    8,500
    
    
    $
    56.59$60.00 - $69.99
    
    
    36,750
    
    
    
    0
    
    
    $
    68.25
    
    
    
    
    36,750
    
    
    $
    68.25$70.00 - $79.25
    
    
    35,400
    
    
    
    4
    
    
    $
    76.91
    
    
    
    
    35,400
    
    
    $
    76.91$00.00 - $79.25
    
    
    1,863,029
    
    
    
    5
    
    
    $
    15.09
    
    
    
    
    1,409,119
    
    
    $
    17.91
 Accounting for Stock Issued
to Employees Accounting for Stock-Based Compensation  Transition
and Disclosure, Accounting for Stock-Based Compensation
 78




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##### Table of Contents



Years Ended December 31,(in thousands, except for per share data)
    
    2005
    
    
    2004
    
    
    2003Net loss applicable to common shares:As reported
    
    $
    (71,296
    )
    
    $
    (71,856
    )
    
    $
    (50,082
    )Fair value compensation expense
    
    
    (2,921
    )
    
    
    (2,909
    )
    
    
    (4,304
    )Pro forma
    
    $
    (74,217
    )
    
    $
    (74,765
    )
    
    $
    (54,386
    )Net loss per basic and diluted share:As reported
    
    $
    (5.62
    )
    
    $
    (5.87
    )
    
    $
    (4.15
    )Fair value compensation expense
    
    
    (0.23
    )
    
    
    (0.24
    )
    
    
    (0.36
    )Pro forma
    
    $
    (5.85
    )
    
    $
    (6.11
    )
    
    $
    (4.51
    )
   4. Long-term Liabilities:
  December 31,
    
    
    December 31,2005
    
    
    2004Line of Credit
    
    $
    58,000
    
    
    $
    Senior subordinated floating rate notes (1)
    
    
    175,000
    
    
    
    8 1/4% senior secured notes
    
    
    350,000
    
    
    
    350,000Senior secured floating rate notes
    
    
    160,000
    
    
    
    160,0009 7/8% senior notes
    
    
    325,000
    
    
    
    325,0009 3/4% senior subordinated notes
    
    
    300,000
    
    
    
    300,0009 5/8% senior subordinated notes (1)
    
    
    
    
    
    
    125,00011 3/8% senior exchangeable preferred stock
    
    
    148,708
    
    
    
    174,176Accrued dividends on 11 3/8% senior
exchangeable preferred stock
    
    
    32,520
    
    
    
    34,84412 1/4% junior exchangeable preferred stock
    
    
    255,558
    
    
    
    247,984Accrued dividends on 12 1/4% junior
exchangeable preferred stock
    
    
    28,490
    
    
    
    Deferred tax liability
    
    
    13,561
    
    
    
    13,979Discount on senior subordinated floating
rate notes
    
    
    (2,132
    )
    
    
    Other
    
    
    3,289
    
    
    
    2,096Long-term liabilities
    
    $
    1,847,994
    
    
    $
    1,733,079
 
 (1)
    
    Net proceeds from the Senior Subordinated Floating Rate Notes offering of $172.8
million were used to redeem the 9 5/8% Senior Subordinated Notes due 2008, to pay fees
and expenses associated with the offering and repayment, and for general corporate
purposes. 79




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##### Table of Contents



Credit
Facility 
  
    
    to exclude those dividends from the calculation of cash interest expense, which is used
in various financial ratio tests in its revolving credit facility and
    
    to permit the incurrence of up to $50.0 million of senior indebtedness that matures on
the same date as our senior notes (out of a total of $200.0 million of additional senior
indebtedness that is permitted).
  Offering of Senior Subordinated Floating
Rate Notes .
  Senior Secured Notes 
 80




---



##### Table of Contents



9 7/8 % Senior Notes .
 9 3/4 % Senior Subordinated Notes 3 4 3 4 3 4
 11 3/8% Senior Exchangeable Preferred Stock  .
   81




---



##### Table of Contents



Gain on repurchase of Senior Exchangeable Preferred Stock.
 Gain on exchange of Senior Exchangeable Preferred Stock for Class A Common Stock .
 12 1/4% Junior Exchangeable Preferred Stock  .
   82




---



##### Table of Contents



Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. 1 4
  Current portion of long-term debt
 5. Financial Instruments:
     83




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##### Table of Contents



Carrying Value
    
    
    Estimated Fair Market ValueDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,(Dollars in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Financial liabilitiesCredit facility
    
    $
    58,000
    
    
    $
    
    
    
    $
    57,130
    
    
    $
    8 1/4% senior secured notes
    
    
    350,000
    
    
    
    350,000
    
    
    
    370,125
    
    
    
    370,125Senior secured floating rate notes
    
    
    160,000
    
    
    
    160,000
    
    
    
    164,400
    
    
    
    165,6009 7/8 % senior notes
    
    
    325,000
    
    
    
    325,000
    
    
    
    342,875
    
    
    
    330,6889 5/8 % senior subordinated notes
    
    
    
    
    
    
    125,000
    
    
    
    
    
    
    
    118,7509 3/4 % senior subordinated notes
    
    
    300,000
    
    
    
    300,000
    
    
    
    303,000
    
    
    
    271,500Senior subordinated floating rate notes
    
    
    172,868
    
    
    
    
    
    
    
    176,313
    
    
    
    11 3/8% senior exchangeable preferred stock
    
    
    148,708
    
    
    
    174,176
    
    
    
    138,495
    
    
    
    140,21212 1/4% junior exchangeable preferred stock
    
    
    255,558
    
    
    
    247,984
    
    
    
    223,235
    
    
    
    131,432Class M convertible preferred stock (1)
    
    
    173,403
    
    
    
    160,198
    
    
    
    173,403
    
    
    
    160,198Class T convertible preferred stock (1)
    
    
    
    
    
    
    8,973
    
    
    
    
    
    
    
    8,9731,943,537
    
    
    
    1,851,331
    
    
    
    1,948,976
    
    
    
    1,697,478Derivative financial instrumentInterest rate collar agreement
    
    
    339
    
    
    
    
    
    
    
    339
    
    
    
    Morgan Stanley (terminates November 1, 2008)OtherAccrued 11 3/8% senior exchangeable preferred stock dividends
    
    
    32,520
    
    
    
    34,844
    
    
    
    32,520
    
    
    
    34,844Accrued 12 1/4% junior exchangeable preferred stock dividends
    
    
    28,490
    
    
    
    
    
    
    
    28,490
    
    
    
    Other long-term liabilities
    
    
    2,950
    
    
    
    2,096
    
    
    
    2,950
    
    
    
    2,096Total financial liabilities
    
    $
    2,007,836
    
    
    $
    1,888,271
    
    
    $
    2,013,275
    
    
    $
    1,734,418
 
 (1)
    
    These financial instruments are not actively traded and, therefore, the estimated
fair market value is stated at the carrying value. 6. Redeemable Convertible Preferred Stock:
   As ofDecember 31, 2005Preferred securities originally issued
    
    $
    110,000Accrued dividends
    
    
    63,403Unamortized issuance costs
    
    
    (2,427
    )$
    170,976
   84




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##### Table of Contents



7. Shareholders Deficit:
 Authorized Shares
  Common Stock Rights
  th th
  85




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##### Table of Contents



8. Income Taxes:
   Years Ended December 31,2005
    
    
    2004
    
    
    2003Tax at statutory rate
    
    
    (35.0
    )%
    
    
    (35.0
    )%
    
    
    (35.0
    )%State taxes
    
    
    (3.0
    )
    
    
    (3.0
    )
    
    
    (3.0
    )Nondeductible item  amortization
    
    
    (0.6
    )
    
    
    (2.8
    )
    
    
    2.0Adjustment for valuation allowance
    
    
    38.0
    
    
    
    38.0
    
    
    
    36.0(0.6
    )%
    
    
    (2.8
    )%
    
    
    0.0
    %
  Years Ended December 31,2005
    
    
    2004
    
    
    2003CurrentFederal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DeferredFederal
    
    
    (385
    )
    
    
    (1,540
    )
    
    
    State
    
    
    (33
    )
    
    
    (132
    )
    
    
    (418
    )
    
    
    (1,672
    )
    
    
    Total
    
    $
    (418
    )
    
    $
    (1,672
    )
    
    $
    0
 86




---



##### Table of Contents



December 31,2005
    
    
    2004Deferred income tax assets:Operating loss carryforwards
    
    $
    167,191
    
    
    $
    159,954Temporary differences:Allowance for doubtful accounts
    
    
    1,358
    
    
    
    925Intangible assets
    
    
    
    
    
    
    27,654Other
    
    
    2,885
    
    
    
    2,440Valuation allowance
    
    
    (160,513
    )
    
    
    (178,819
    )Total deferred income tax assets
    
    
    10,921
    
    
    
    12,154Deferred income tax liabilities:Depreciation
    
    
    (21,111
    )
    
    
    (24,950
    )Intangible assets
    
    
    (2,158
    )
    
    
    Other
    
    
    (1,213
    )
    
    
    (1,183
    )Net deferred income tax liability
    
    $
    (13,561
    )
    
    $
    (13,979
    )
   9. Commitments and Contingencies:
 Employment Agreements
  Related Party Transactions
  87




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##### Table of Contents



Agreements with Affiliates
 Roaming Arrangements
 Legal and Regulatory Matters
  Regulatory Matters
 Leases
  Year
    
    Amount2006
    
    $
    17,1402007
    
    
    15,0652008
    
    
    12,7462009
    
    
    10,2422010
    
    
    5,172Thereafter
    
    
    4,551Total
    
    $
    64,916
 88




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##### Table of Contents



Accounting for Operating Leases with Scheduled Rent Increases
 Accounting for Asset Retirement Obligations
 Purchase Commitments
   Off-Balance Sheet Financings and Liabilities
  10. Defined Contribution Plan:
  89




---



##### Table of Contents



11. Supplemental Cash Flow Information (in thousands)
 Years ended December 31,2005
    
    
    2004
    
    
    2003Cash paid for:Interest, net of amounts capitalized (1)
    
    $
    132,966
    
    
    $
    101,405
    
    
    $
    86,801Noncash financing transactions:Class M and
T preferred stock dividends
    
    $
    13,865
    
    
    $
    12,915
    
    
    $
    38,877Conversion of Class T preferred stock
into common stock
    
    $
    7,540
    
    
    
    
    
    
    
    Reversal of Class T preferred stock
accrued dividends
    
    $
    1,681
    
    
    
    
    
    
    
    Exchange of Senior Exchangeable
Preferred Stock for Class A Common
Stock
    
    $
    13,435
    
    
    
    
    
    
    
    
  (1)
    
    Includes four Senior Exchangeable Preferred Stock quarterly dividends totaling approximately
$17.8 million paid in cash.
 12. Quarterly Results of Operations (Unaudited):
   2005 Quarter Ended
    
    
    
    2004 Quarter EndedMar
    
    
    Jun
    
    
    Sep
    
    
    Dec
    
    
    
    Mar
    
    
    Jun
    
    
    Sep
    
    
    DecRevenue:Service
    
    $
    94,695
    
    
    $
    98,865
    
    
    $
    98,287
    
    
    $
    96,001
    
    
    
    $
    88,585
    
    
    $
    94,979
    
    
    $
    97,093
    
    
    $
    96,562Roaming
    
    
    19,622
    
    
    
    25,112
    
    
    
    41,785
    
    
    
    36,255
    
    
    
    
    25,740
    
    
    
    26,266
    
    
    
    29,739
    
    
    
    23,759Equipment
    
    
    9,054
    
    
    
    9,420
    
    
    
    8,220
    
    
    
    7,619
    
    
    
    
    5,523
    
    
    
    5,338
    
    
    
    5,589
    
    
    
    5,644Total Revenue
    
    
    123,371
    
    
    
    133,397
    
    
    
    148,292
    
    
    
    139,875
    
    
    
    $
    119,848
    
    
    $
    126,583
    
    
    $
    132,421
    
    
    $
    125,965Operating income (loss)
    
    
    23,814
    
    
    
    21,033
    
    
    
    35,931
    
    
    
    25,168
    
    
    
    $
    38,831
    
    
    $
    38,291
    
    
    $
    40,156
    
    
    $
    (15,565
    )Income (loss) before
income tax benefit
    
    
    (18,574
    )
    
    
    (16,269
    )
    
    
    (7,721
    )
    
    
    (21,976
    )
    
    
    $
    (15,348
    )
    
    $
    6,597
    
    
    $
    5,437
    
    
    $
    (57,299
    )Net income (loss)
applicable to common
shares
    
    $
    (21,804
    )
    
    $
    (19,597
    )
    
    $
    (11,151
    )
    
    $
    (18,744
    )
    
    
    $
    (18,482
    )
    
    $
    3,403
    
    
    $
    2,184
    
    
    $
    (58,961
    )Net income (loss) per
basic share
    
    $
    (1.77
    )
    
    $
    (1.59
    )
    
    $
    (0.89
    )
    
    $
    (1.38
    )
    
    
    $
    (1.51
    )
    
    $
    0.28
    
    
    $
    0.18
    
    
    $
    (4.81
    )Net income (loss) per
diluted
share
    
    $
    (1.77
    )
    
    $
    (1.59
    )
    
    $
    (0.89
    )
    
    $
    (1.38
    )
    
    
    $
    (1.51
    )
    
    $
    0.27
    
    
    $
    0.17
    
    
    $
    (4.81
    )
 90




---



##### Table of Contents



13. Guarantor/Non-Guarantor Condensed Consolidating Financial Information
     91




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##### Table of Contents



Balance Sheet Information as of December 31, 2005 (in thousands, except per share data):
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCURRENT ASSETS:Cash and cash equivalents
    
    $
    84,136
    
    
    $
    2,639
    
    
    $
    47
    
    
    $
    
    
    
    $
    86,822Short-term investments
    
    
    66,778
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66,778Accounts receivable, less allowance
for doubtful accounts
    
    
    25,166
    
    
    
    45,486
    
    
    
    2,235
    
    
    
    
    
    
    
    72,887Inventories
    
    
    3,721
    
    
    
    8,945
    
    
    
    183
    
    
    
    
    
    
    
    12,849Other current assets
    
    
    1,590
    
    
    
    2,606
    
    
    
    84
    
    
    
    
    
    
    
    4,280Current intercompany receivable
    
    
    40,778
    
    
    
    11,460
    
    
    
    
    
    
    
    (52,238
    )
    
    
    Total current assets
    
    
    222,169
    
    
    
    71,136
    
    
    
    2,549
    
    
    
    (52,238
    )
    
    
    243,616PROPERTY AND EQUIPMENT, net
    
    
    53,423
    
    
    
    214,960
    
    
    
    9,025
    
    
    
    
    
    
    
    277,408LICENSES AND OTHER ASSETS:Licenses, net
    
    
    
    
    
    
    539,834
    
    
    
    8,679
    
    
    
    
    
    
    
    548,513Goodwill, net
    
    
    3,151
    
    
    
    345,533
    
    
    
    
    
    
    
    
    
    
    
    348,684Customer lists, net
    
    
    956
    
    
    
    28,345
    
    
    
    
    
    
    
    
    
    
    
    29,301Deferred debt issuance costs, net
    
    
    27,022
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,022Investment in consolidated subsidiaries
    
    
    1,145,748
    
    
    
    
    
    
    
    
    
    
    
    (1,145,748
    )
    
    
    Other assets, net
    
    
    3,569
    
    
    
    5,624
    
    
    
    2,218
    
    
    
    (5,273
    )
    
    
    6,138Total licenses and other assets
    
    
    1,180,446
    
    
    
    919,336
    
    
    
    10,897
    
    
    
    (1,151,021
    )
    
    
    959,658$
    1,456,038
    
    
    $
    1,205,432
    
    
    $
    22,471
    
    
    $
    (1,203,259
    )
    
    $
    1,480,682CURRENT LIABILITIES:Accounts payable
    
    $
    26,894
    
    
    $
    25,989
    
    
    $
    609
    
    
    $
    
    
    
    $
    53,492Advance billings and customer deposits
    
    
    2,395
    
    
    
    9,239
    
    
    
    251
    
    
    
    
    
    
    
    11,885Accrued interest
    
    
    39,336
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,336Other accrued expenses
    
    
    34,936
    
    
    
    49,676
    
    
    
    39
    
    
    
    (75,670
    )
    
    
    8,981Current intercompany payable
    
    
    
    
    
    
    105,672
    
    
    
    (4,435
    )
    
    
    (101,237
    )
    
    
    Total current liabilities
    
    
    103,561
    
    
    
    190,576
    
    
    
    (3,536
    )
    
    
    (176,907
    )
    
    
    113,694LONG-TERM LIABILITIES
    
    
    1,833,483
    
    
    
    1,037,347
    
    
    
    41,027
    
    
    
    (1,063,863
    )
    
    
    1,847,994Total liabilities
    
    
    1,937,044
    
    
    
    1,227,923
    
    
    
    37,491
    
    
    
    (1,240,770
    )
    
    
    1,961,688REDEEMABLE PREFERRED STOCK
    
    
    170,976
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170,976SHAREHOLDERS EQUITY (DEFICIT):Class A
common stock; $.01 par value; 200,000 shares authorized, 13,530
outstanding
    
    
    135
    
    
    
    918
    
    
    
    
    
    
    
    (918
    )
    
    
    135Class B common stock; $.01 par value;
10,000 shares authorized, 427
outstanding
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Additional paid-in capital
    
    
    212,420
    
    
    
    760,152
    
    
    
    31,679
    
    
    
    (791,831
    )
    
    
    212,420Accumulated earnings (deficit)
    
    
    (862,742
    )
    
    
    (783,561
    )
    
    
    (46,699
    )
    
    
    830,260
    
    
    
    (862,742
    )Unearned compensation
    
    
    (1,799
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,799
    )Total shareholders equity (deficit)
    
    
    (651,982
    )
    
    
    (22,491
    )
    
    
    (15,020
    )
    
    
    37,511
    
    
    
    (651,982
    )$
    1,456,038
    
    
    $
    1,205,432
    
    
    $
    22,471
    
    
    $
    (1,203,259
    )
    
    $
    1,480,682
 92




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##### Table of Contents



Statement of Operations Information for the year ended December 31, 2005 (in thousands):
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedREVENUE:Service
    
    $
    95,620
    
    
    $
    285,681
    
    
    $
    7,555
    
    
    $
    (1,008
    )
    
    $
    387,848Roaming
    
    
    25,061
    
    
    
    88,877
    
    
    
    8,839
    
    
    
    (3
    )
    
    
    122,774Equipment
    
    
    6,733
    
    
    
    26,914
    
    
    
    666
    
    
    
    
    
    
    
    34,313Total revenue
    
    
    127,414
    
    
    
    401,472
    
    
    
    17,060
    
    
    
    (1,011
    )
    
    
    544,935OPERATING EXPENSES:Network costs, excluding depreciation
    
    
    23,270
    
    
    
    94,688
    
    
    
    3,117
    
    
    
    (753
    )
    
    
    120,322Cost of equipment sales
    
    
    11,744
    
    
    
    45,472
    
    
    
    1,050
    
    
    
    
    
    
    
    58,266Selling, general and administrative
    
    
    39,021
    
    
    
    108,517
    
    
    
    4,958
    
    
    
    (258
    )
    
    
    152,238Stock based
compensation  SG&A
    
    
    680
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    680Depreciation and amortization
    
    
    18,128
    
    
    
    78,779
    
    
    
    3,556
    
    
    
    
    
    
    
    100,463Impairment of assets
    
    
    7,020
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,020Total operating expenses
    
    
    99,863
    
    
    
    327,456
    
    
    
    12,681
    
    
    
    (1,011
    )
    
    
    438,989OPERATING INCOME
    
    
    27,551
    
    
    
    74,016
    
    
    
    4,379
    
    
    
    
    
    
    
    105,946OTHER INCOME (EXPENSE):Interest expense
    
    
    (171,745
    )
    
    
    (105,133
    )
    
    
    (2,990
    )
    
    
    108,037
    
    
    
    (171,831
    )Interest and dividend income
    
    
    110,222
    
    
    
    34
    
    
    
    2
    
    
    
    (108,037
    )
    
    
    2,221Inter-company charges
    
    
    10,140
    
    
    
    (10,140
    )
    
    
    
    
    
    
    
    
    
    
    Equity in subsidiaries
    
    
    (39,134
    )
    
    
    
    
    
    
    
    
    
    
    39,126
    
    
    
    (8
    )Other
    
    
    18
    
    
    
    (884
    )
    
    
    (2
    )
    
    
    
    
    
    
    (868
    )Other expense, net
    
    
    (90,499
    )
    
    
    (116,123
    )
    
    
    (2,990
    )
    
    
    39,126
    
    
    
    (170,486
    )INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (62,948
    )
    
    
    (42,107
    )
    
    
    1,389
    
    
    
    39,126
    
    
    
    (64,540
    )INCOME TAX PROVISION (BENEFIT)
    
    
    1,174
    
    
    
    (1,649
    )
    
    
    
    
    
    
    57
    
    
    
    (418
    )NET INCOME (LOSS)
    
    
    (64,122
    )
    
    
    (40,458
    )
    
    
    1,389
    
    
    
    39,069
    
    
    
    (64,122
    )PREFERRED STOCK DIVIDEND
    
    
    (7,174
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,174
    )NET INCOME (LOSS) APPLICABLE TO COMMON
SHARES
    
    $
    (71,296
    )
    
    $
    (40,458
    )
    
    $
    1,389
    
    
    $
    39,069
    
    
    $
    (71,296
    )
 93




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##### Table of Contents



Statement of Cash Flows Information for the year ended December 31, 2005 (in thousands):
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOPERATING ACTIVITIES:Net income (loss)
    
    $
    (64,122
    )
    
    $
    (40,458
    )
    
    $
    1,389
    
    
    $
    39,069
    
    
    $
    (64,122
    )Adjustments to reconcile to net cash provided
by operating activities:Depreciation and customer list amortization
    
    
    18,128
    
    
    
    78,779
    
    
    
    3,556
    
    
    
    
    
    
    
    100,463Loss on write-off of debt and preferred
stock issuance costs
    
    
    1,533
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,533Mark-to-market adjustments  financial
instruments
    
    
    339
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    339Gain on repurchase of preferred stock
    
    
    (5,722
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,722
    )Non-cash preferred stock dividends
    
    
    3,797
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,797Impairment of assets
    
    
    7,020
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,020Stock-based compensation
    
    
    680
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    680Deferred income taxes
    
    
    1,174
    
    
    
    (1,649
    )
    
    
    
    
    
    
    57
    
    
    
    (418
    )Other
    
    
    5,627
    
    
    
    1,196
    
    
    
    2
    
    
    
    
    
    
    
    6,825Change in other operating elements:Accounts receivable
    
    
    (9,175
    )
    
    
    (5,241
    )
    
    
    154
    
    
    
    
    
    
    
    (14,262
    )Inventories
    
    
    (1,817
    )
    
    
    (3,510
    )
    
    
    136
    
    
    
    
    
    
    
    (5,191
    )Other current assets
    
    
    78
    
    
    
    (180
    )
    
    
    (3
    )
    
    
    
    
    
    
    (105
    )Accounts payable
    
    
    5,086
    
    
    
    1,952
    
    
    
    (281
    )
    
    
    
    
    
    
    6,757Advance billings and customer deposits
    
    
    248
    
    
    
    620
    
    
    
    (59
    )
    
    
    
    
    
    
    809Accrued preferred stock dividends
    
    
    33,211
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,211Accrued interest
    
    
    2,021
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,021Other accrued expenses
    
    
    (681
    )
    
    
    (14
    )
    
    
    (3
    )
    
    
    
    
    
    
    (698
    )Net cash provided by (used in)
operating activities
    
    
    (2,575
    )
    
    
    31,495
    
    
    
    4,891
    
    
    
    39,126
    
    
    
    72,937INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (18,920
    )
    
    
    (75,604
    )
    
    
    (427
    )
    
    
    
    
    
    
    (94,951
    )Purchases of short-term investments
    
    
    (66,778
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66,778
    )Proceeds from sale of property and equipment
    
    
    34
    
    
    
    213
    
    
    
    
    
    
    
    
    
    
    
    247Other
    
    
    (103
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (103
    )Net cash used in investing activities
    
    
    (85,767
    )
    
    
    (75,391
    )
    
    
    (427
    )
    
    
    
    
    
    
    (161,585
    )FINANCING ACTIVITIES:Change in parent company receivable and payable
    
    
    (1,721
    )
    
    
    45,282
    
    
    
    (4,435
    )
    
    
    (39,126
    )
    
    
    Proceeds from issuance of common stock related
to employee stock purchase plan and stock
options
    
    
    1,570
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,570Proceeds from issuance of long-term debt under
the credit facility
    
    
    58,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,000Proceeds from issuance of senior subordinated
floating rate notes
    
    
    172,816
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    172,816Redemption of 9 5/8% senior subordinated notes
    
    
    (125,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (125,000
    )Repurchases of preferred stock
    
    
    (13,355
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,355
    )Payments of debt issuance costs
    
    
    (3,798
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,798
    )Other
    
    
    (102
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (102
    )Net cash (used in) provided by financing
activities
    
    
    88,410
    
    
    
    45,282
    
    
    
    (4,435
    )
    
    
    (39,126
    )
    
    
    90,131NET INCREASE IN CASH
    
    
    68
    
    
    
    1,386
    
    
    
    29
    
    
    
    
    
    
    
    1,483CASH AND CASH EQUIVALENTS, at beginning of year
    
    
    84,068
    
    
    
    1,253
    
    
    
    18
    
    
    
    
    
    
    
    85,339CASH AND CASH EQUIVALENTS, at end of year
    
    $
    84,136
    
    
    $
    2,639
    
    
    $
    47
    
    
    
    
    
    
    $
    86,822
 94




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##### Table of Contents



Balance Sheet Information as of December 31, 2004 (in thousands, except per share data):
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCURRENT ASSETS:Cash and cash equivalents
    
    $
    84,068
    
    
    $
    1,253
    
    
    $
    18
    
    
    $
    
    
    
    $
    85,339Accounts receivable, less allowance
for doubtful accounts
    
    
    17,047
    
    
    
    43,252
    
    
    
    2,250
    
    
    
    
    
    
    
    62,549Inventories
    
    
    1,905
    
    
    
    5,435
    
    
    
    318
    
    
    
    
    
    
    
    7,658Other current assets
    
    
    1,669
    
    
    
    2,425
    
    
    
    81
    
    
    
    
    
    
    
    4,175Total current assets
    
    
    104,689
    
    
    
    52,365
    
    
    
    2,667
    
    
    
    
    
    
    
    159,721PROPERTY AND EQUIPMENT, net
    
    
    61,016
    
    
    
    203,148
    
    
    
    11,969
    
    
    
    
    
    
    
    276,133LICENSES AND OTHER ASSETS:Licenses, net
    
    
    
    
    
    
    539,834
    
    
    
    8,679
    
    
    
    
    
    
    
    548,513Goodwill, net
    
    
    3,149
    
    
    
    345,533
    
    
    
    
    
    
    
    
    
    
    
    348,682Customer lists, net
    
    
    1,268
    
    
    
    46,600
    
    
    
    
    
    
    
    
    
    
    
    47,868Deferred debt issuance costs, net
    
    
    30,228
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,228Investment in consolidated subsidiaries
    
    
    1,184,801
    
    
    
    
    
    
    
    
    
    
    
    (1,184,801
    )
    
    
    Other assets, net
    
    
    3,453
    
    
    
    10,245
    
    
    
    2,518
    
    
    
    (9,911
    )
    
    
    6,305Total licenses and other assets
    
    
    1,222,899
    
    
    
    942,212
    
    
    
    11,197
    
    
    
    (1,194,712
    )
    
    
    981,596$
    1,388,604
    
    
    $
    1,197,725
    
    
    $
    25,833
    
    
    $
    (1,194,712
    )
    
    $
    1,417,450CURRENT LIABILITIES:Accounts payable
    
    $
    22,609
    
    
    $
    28,991
    
    
    $
    865
    
    
    $
    
    
    
    $
    52,465Current portion of long-term debt
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81Advance billings and customer deposits
    
    
    2,147
    
    
    
    8,619
    
    
    
    310
    
    
    
    
    
    
    
    11,076Accrued interest
    
    
    41,112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,112Other accrued expenses
    
    
    34,442
    
    
    
    49,248
    
    
    
    42
    
    
    
    (74,053
    )
    
    
    9,679Total current liabilities
    
    
    100,391
    
    
    
    86,858
    
    
    
    1,217
    
    
    
    (74,053
    )
    
    
    114,413LONG-TERM LIABILITIES
    
    
    1,718,255
    
    
    
    1,852,703
    
    
    
    41,025
    
    
    
    (1,878,904
    )
    
    
    1,733,079Total liabilities
    
    
    1,818,646
    
    
    
    1,939,561
    
    
    
    42,242
    
    
    
    (1,952,957
    )
    
    
    1,847,492REDEEMABLE PREFERRED STOCK
    
    
    166,296
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166,296SHAREHOLDERS EQUITY (DEFICIT):Class A common stock; $.01 par value;
200,000 shares authorized, 11,836
outstanding
    
    
    118
    
    
    
    918
    
    
    
    
    
    
    
    (918
    )
    
    
    118Class B common stock; $.01 par value;
10,000 shares authorized, 540
outstanding
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Additional paid-in capital
    
    
    193,347
    
    
    
    349
    
    
    
    31,679
    
    
    
    (32,028
    )
    
    
    193,347Accumulated earnings (deficit)
    
    
    (791,446
    )
    
    
    (743,103
    )
    
    
    (48,088
    )
    
    
    791,191
    
    
    
    (791,446
    )Unearned compensation
    
    
    (698
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (698
    )Accumulated other comprehensive income
    
    
    2,336
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,336Total shareholders equity (deficit)
    
    
    (596,338
    )
    
    
    (741,836
    )
    
    
    (16,409
    )
    
    
    758,245
    
    
    
    (596,338
    )$
    1,388,604
    
    
    $
    1,197,725
    
    
    $
    25,833
    
    
    $
    (1,194,712
    )
    
    $
    1,417,450
 95




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##### Table of Contents



Statement of Operations Information for the year ended December 31, 2004 (in thousands):
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedREVENUE:Service
    
    $
    86,138
    
    
    $
    282,453
    
    
    $
    8,944
    
    
    $
    (316
    )
    
    $
    377,219Roaming
    
    
    15,555
    
    
    
    82,727
    
    
    
    7,230
    
    
    
    (8
    )
    
    
    105,504Equipment
    
    
    5,667
    
    
    
    15,652
    
    
    
    775
    
    
    
    
    
    
    
    22,094Total revenue
    
    
    107,360
    
    
    
    380,832
    
    
    
    16,949
    
    
    
    (324
    )
    
    
    504,817OPERATING EXPENSES:Network costs, excluding depreciation
    
    
    18,298
    
    
    
    82,602
    
    
    
    3,435
    
    
    
    (264
    )
    
    
    104,071Cost of equipment sales
    
    
    8,671
    
    
    
    30,627
    
    
    
    1,074
    
    
    
    
    
    
    
    40,372Selling, general and administrative
    
    
    33,657
    
    
    
    96,341
    
    
    
    5,232
    
    
    
    (60
    )
    
    
    135,170Depreciation and amortization
    
    
    15,630
    
    
    
    57,188
    
    
    
    3,537
    
    
    
    
    
    
    
    76,355Impairment of assets
    
    
    
    
    
    
    47,136
    
    
    
    
    
    
    
    
    
    
    
    47,136Total operating expenses
    
    
    76,256
    
    
    
    313,894
    
    
    
    13,278
    
    
    
    (324
    )
    
    
    403,104OPERATING INCOME
    
    
    31,104
    
    
    
    66,938
    
    
    
    3,671
    
    
    
    
    
    
    
    101,713OTHER INCOME (EXPENSE):Interest expense
    
    
    (163,870
    )
    
    
    (166,004
    )
    
    
    (2,438
    )
    
    
    168,335
    
    
    
    (163,977
    )Interest and dividend income
    
    
    170,044
    
    
    
    18
    
    
    
    
    
    
    
    (168,335
    )
    
    
    1,727Inter-company charges
    
    
    (26,971
    )
    
    
    26,971
    
    
    
    
    
    
    
    
    
    
    
    Equity in subsidiaries
    
    
    (69,242
    )
    
    
    
    
    
    
    
    
    
    
    69,239
    
    
    
    (3
    )Other
    
    
    (6
    )
    
    
    (67
    )
    
    
    
    
    
    
    
    
    
    
    (73
    )Other expense, net
    
    
    (90,045
    )
    
    
    (139,082
    )
    
    
    (2,438
    )
    
    
    69,239
    
    
    
    (162,326
    )INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (58,941
    )
    
    
    (72,144
    )
    
    
    1,233
    
    
    
    69,239
    
    
    
    (60,613
    )INCOME TAX PROVISION (BENEFIT)
    
    
    
    
    
    
    13,742
    
    
    
    
    
    
    
    (15,414
    )
    
    
    (1,672
    )NET INCOME (LOSS)
    
    
    (58,941
    )
    
    
    (85,886
    )
    
    
    1,233
    
    
    
    84,653
    
    
    
    (58,941
    )PREFERRED STOCK DIVIDEND
    
    
    (12,915
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,915
    )NET INCOME (LOSS) APPLICABLE TO COMMON
SHARES
    
    $
    (71,856
    )
    
    $
    (85,886
    )
    
    $
    1,233
    
    
    $
    84,653
    
    
    $
    (71,856
    )
 96




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##### Table of Contents



Statements of Cash Flows Information for the year ended December 31, 2004 (in thousands):
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOPERATING ACTIVITIES:Net income (loss)
    
    $
    (58,941
    )
    
    $
    (85,886
    )
    
    $
    1,233
    
    
    $
    84,653
    
    
    $
    (58,941
    )Adjustments to reconcile to net cash provided
by (used in) operating activities:Depreciation and customer list amortization
    
    
    15,630
    
    
    
    57,188
    
    
    
    3,537
    
    
    
    
    
    
    
    76,355Loss on write-off of debt and preferred
stock issuance costs
    
    
    12,605
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,605Mark-to-market adjustments  financial
instruments
    
    
    4,339
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,339Gain on repurchase of preferred stock
    
    
    (22,573
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,573
    )Non-cash preferred stock dividends
    
    
    28,626
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,626Impairment of assets
    
    
    
    
    
    
    47,136
    
    
    
    
    
    
    
    
    
    
    
    47,136Stock based compensation
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41Deferred income taxes
    
    
    
    
    
    
    13,741
    
    
    
    
    
    
    
    (15,413
    )
    
    
    (1,672
    )Other
    
    
    5,594
    
    
    
    2,143
    
    
    
    (44
    )
    
    
    
    
    
    
    7,693Change in other operating elements:Accounts receivable
    
    
    2,425
    
    
    
    (3,690
    )
    
    
    (556
    )
    
    
    
    
    
    
    (1,821
    )Inventories
    
    
    (131
    )
    
    
    704
    
    
    
    (26
    )
    
    
    
    
    
    
    547Other current assets
    
    
    600
    
    
    
    (511
    )
    
    
    
    
    
    
    
    
    
    
    89Accounts payable
    
    
    (4,877
    )
    
    
    11,276
    
    
    
    (246
    )
    
    
    
    
    
    
    6,153Advance billings and customer deposits
    
    
    (115
    )
    
    
    558
    
    
    
    39
    
    
    
    
    
    
    
    482Accrued preferred stock dividends
    
    
    26,747
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,747Accrued interest
    
    
    6,598
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,598Other accrued expenses
    
    
    (1,376
    )
    
    
    (680
    )
    
    
    (71
    )
    
    
    
    
    
    
    (2,127
    )Net cash provided by (used in)
operating activities
    
    
    15,192
    
    
    
    41,979
    
    
    
    3,866
    
    
    
    69,240
    
    
    
    130,277INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (24,768
    )
    
    
    (66,956
    )
    
    
    (2,693
    )
    
    
    
    
    
    
    (94,417
    )Purchases of wireless properties, net
    
    
    
    
    
    
    (725
    )
    
    
    
    
    
    
    
    
    
    
    (725
    )Net proceeds from property exchange
    
    
    
    
    
    
    13,567
    
    
    
    
    
    
    
    
    
    
    
    13,567Proceeds from sale of property and equipment
    
    
    25
    
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    92Other
    
    
    231
    
    
    
    (207
    )
    
    
    
    
    
    
    
    
    
    
    24Net cash used in investing activities
    
    
    (24,512
    )
    
    
    (54,254
    )
    
    
    (2,693
    )
    
    
    
    
    
    
    (81,459
    )FINANCING ACTIVITIES:Change in parent company receivable and payable
    
    
    58,151
    
    
    
    12,262
    
    
    
    (1,173
    )
    
    
    (69,240
    )
    
    
    Proceeds from issuance of common stock related
to employee stock purchase plan and stock
options
    
    
    188
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    188Repayments of long-term debt under the credit
facility
    
    
    (525,724
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (525,724
    )Proceeds from issuance of 8 1/4% senior
secured notes
    
    
    350,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    350,000Proceeds from issuance of senior secured
floating rate notes
    
    
    160,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160,000Repurchase of preferred stock
    
    
    (68,351
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (68,351
    )Payments to settle interest rate swaps
    
    
    (7,645
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,645
    )Payments of debt issuance costs
    
    
    (14,293
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,293
    )Other
    
    
    (201
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (201
    )Net cash (used in) provided by financing
activities
    
    
    (48,875
    )
    
    
    12,262
    
    
    
    (1,173
    )
    
    
    (69,240
    )
    
    
    (106,026
    )NET DECREASE IN CASH
    
    
    (57,195
    )
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    (57,208
    )CASH AND CASH EQUIVALENTS, at beginning of year
    
    
    141,263
    
    
    
    1,266
    
    
    
    18
    
    
    
    
    
    
    
    142,547CASH AND CASH EQUIVALENTS, at end of year
    
    $
    84,068
    
    
    $
    1,253
    
    
    $
    18
    
    
    $
    
    
    
    $
    85,339
 97




---



##### Table of Contents



Statement of Operations information for the year ended December 31, 2003 (in thousands):
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedREVENUE:Service
    
    $
    71,073
    
    
    $
    275,224
    
    
    $
    8,893
    
    
    $
    (152
    )
    
    $
    355,038Roaming
    
    
    15,410
    
    
    
    112,300
    
    
    
    4,199
    
    
    
    (13
    )
    
    
    131,896Equipment
    
    
    4,433
    
    
    
    15,101
    
    
    
    921
    
    
    
    
    
    
    
    20,455Total revenue
    
    
    90,916
    
    
    
    404,625
    
    
    
    14,013
    
    
    
    (165
    )
    
    
    507,389OPERATING EXPENSES:Network costs, excluding depreciation
    
    
    16,922
    
    
    
    76,037
    
    
    
    3,275
    
    
    
    (165
    )
    
    
    96,069Cost of equipment sales
    
    
    6,661
    
    
    
    29,548
    
    
    
    1,427
    
    
    
    
    
    
    
    37,636Selling, general and administrative
    
    
    30,670
    
    
    
    95,564
    
    
    
    5,527
    
    
    
    
    
    
    
    131,761Depreciation and amortization
    
    
    15,290
    
    
    
    57,868
    
    
    
    3,271
    
    
    
    
    
    
    
    76,429Loss on assets held for sale
    
    
    
    
    
    
    42,244
    
    
    
    
    
    
    
    
    
    
    
    42,244Total operating expenses
    
    
    69,543
    
    
    
    301,261
    
    
    
    13,500
    
    
    
    (165
    )
    
    
    384,139OPERATING INCOME
    
    
    21,373
    
    
    
    101,364
    
    
    
    513
    
    
    
    
    
    
    
    123,250OTHER INCOME (EXPENSE):Interest expense
    
    
    (135,590
    )
    
    
    (143,975
    )
    
    
    (2,330
    )
    
    
    145,633
    
    
    
    (136,262
    )Interest and dividend income
    
    
    146,522
    
    
    
    25
    
    
    
    2
    
    
    
    (145,633
    )
    
    
    916Inter-company charges
    
    
    (15,815
    )
    
    
    16,297
    
    
    
    (482
    )
    
    
    
    
    
    
    Equity in subsidiaries
    
    
    (14,388
    )
    
    
    
    
    
    
    
    
    
    
    14,385
    
    
    
    (3
    )Other
    
    
    1,001
    
    
    
    (107
    )
    
    
    
    
    
    
    
    
    
    
    894Other expense, net
    
    
    (18,270
    )
    
    
    (127,760
    )
    
    
    (2,810
    )
    
    
    14,385
    
    
    
    (134,455
    )NET INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (3,103
    )
    
    
    (26,396
    )
    
    
    (2,297
    )
    
    
    14,385
    
    
    
    (11,205
    )INCOME TAX PROVISION (BENEFIT)
    
    
    14,308
    
    
    
    22,279
    
    
    
    
    
    
    
    (36,587
    )
    
    
    NET INCOME (LOSS)
    
    
    (11,205
    )
    
    
    (48,675
    )
    
    
    (2,297
    )
    
    
    50,972
    
    
    
    (11,205
    )PREFERRED STOCK DIVIDEND
    
    
    (38,877
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,877
    )NET INCOME (LOSS) APPLICABLE TO COMMON
SHARES
    
    $
    (50,082
    )
    
    $
    (48,675
    )
    
    $
    (2,297
    )
    
    $
    50,972
    
    
    $
    (50,082
    )
 98




---



##### Table of Contents



Statements of cash flows information for the year ended December 31, 2003 (in thousands):
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOPERATING ACTIVITIES:Net income (loss)
    
    $
    (11,205
    )
    
    $
    (48,675
    )
    
    $
    (2,297
    )
    
    $
    50,972
    
    
    $
    (11,205
    )Adjustments to reconcile to net cash provided by
operating activities:Depreciation and amortization
    
    
    15,290
    
    
    
    57,868
    
    
    
    3,271
    
    
    
    
    
    
    
    76,429Loss on write-off of debt and preferred stock
issuance costs
    
    
    6,134
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,134Adjustments of interest rate derivatives to fair
market value
    
    
    (2,225
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,225
    )Non-cash preferred stock dividends
    
    
    13,074
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,074Tax adjustments
    
    
    14,308
    
    
    
    22,279
    
    
    
    
    
    
    
    (36,587
    )
    
    
    Loss on assets held for sale
    
    
    
    
    
    
    42,244
    
    
    
    
    
    
    
    
    
    
    
    42,244Other
    
    
    3,596
    
    
    
    401
    
    
    
    16
    
    
    
    
    
    
    
    4,013Change in other operating elements:Accounts receivable
    
    
    (6,483
    )
    
    
    (7,597
    )
    
    
    (206
    )
    
    
    
    
    
    
    (14,286
    )Inventories
    
    
    (889
    )
    
    
    (704
    )
    
    
    12
    
    
    
    
    
    
    
    (1,581
    )Other current assets
    
    
    (1,249
    )
    
    
    174
    
    
    
    (1
    )
    
    
    
    
    
    
    (1,076
    )Accounts payable
    
    
    4,428
    
    
    
    248
    
    
    
    2
    
    
    
    
    
    
    
    4,678Advance billings and customer deposits
    
    
    (219
    )
    
    
    729
    
    
    
    (364
    )
    
    
    
    
    
    
    146Accrued preferred stock dividends
    
    
    14,899
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,899Accrued interest
    
    
    12,188
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,188Other accrued liabilities
    
    
    1,578
    
    
    
    (338
    )
    
    
    (151
    )
    
    
    
    
    
    
    1,089Net cash provided by operating activities
    
    
    63,225
    
    
    
    66,629
    
    
    
    282
    
    
    
    14,385
    
    
    
    144,521INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (17,496
    )
    
    
    (33,625
    )
    
    
    (2,583
    )
    
    
    
    
    
    
    (53,704
    )Proceeds from property exchange, net
    
    
    121
    
    
    
    503
    
    
    
    
    
    
    
    
    
    
    
    624Proceeds from sale of property and equipment
    
    
    
    
    
    
    (7,200
    )
    
    
    
    
    
    
    
    
    
    
    (7,200
    )Other
    
    
    (176
    )
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    (174
    )Net cash used in investing activities
    
    
    (17,551
    )
    
    
    (40,320
    )
    
    
    (2,583
    )
    
    
    
    
    
    
    (60,454
    )FINANCING ACTIVITIES:Change in parent company receivable and payable
    
    
    32,135
    
    
    
    (20,035
    )
    
    
    2,285
    
    
    
    (14,385
    )
    
    
    Proceeds from issuance of common stock related to
employee stock purchase plan and stock options
    
    
    131
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    131Proceeds from issuance of long-term debt under the
credit agreement
    
    
    120,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,000Repayments of long-term debt under the credit agreement
    
    
    (388,128
    )
    
    
    (6,500
    )
    
    
    
    
    
    
    
    
    
    
    (394,628
    )Proceeds from issuance of 8 1/4% senior secured notes
    
    
    325,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    325,000Proceeds from issuance of variable rate notesRepayment of swaption
    
    
    (34,184
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,184
    )Proceeds from unwinding derivative hedge agreements
    
    
    2,632
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,632Payments of debt issuance costs
    
    
    (13,374
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,374
    )Other
    
    
    (885
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (885
    )Net cash provided by (used in) financing activities
    
    
    43,327
    
    
    
    (26,535
    )
    
    
    2,285
    
    
    
    (14,385
    )
    
    
    4,692NET (DECREASE) INCREASE IN CASH
    
    
    89,001
    
    
    
    (226
    )
    
    
    (16
    )
    
    
    
    
    
    
    88,759CASH AND CASH EQUIVALENTS, at beginning of year
    
    
    52,262
    
    
    
    1,492
    
    
    
    34
    
    
    
    
    
    
    
    53,788CASH AND CASH EQUIVALENTS, at end of year
    
    $
    141,263
    
    
    $
    1,266
    
    
    $
    18
    
    
    $
    
    
    
    $
    142,547
 99




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##### Table of Contents



RURAL CELLULAR CORPORATION AND SUBSIDIARIES
Schedule II  Valuation and Qualifying Accounts
 
 Allowance for Doubtful Accounts:
 Years Ended December 31,(in thousands)
    
    2005
    
    
    2004
    
    
    2003Balance, at beginning of year
    
    $
    2,456
    
    
    $
    3,333
    
    
    $
    3,096Additions charged to income
    
    
    20,112
    
    
    
    12,584
    
    
    
    12,784Write-offs
    
    
    (19,001
    )
    
    
    (13,461
    )
    
    
    (12,547
    )Balance, at end of year
    
    $
    3,567
    
    
    $
    2,456
    
    
    $
    3,333
 100




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##### Table of Contents



1 4
 101




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 102




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##### Table of Contents



RCC MINNESOTA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RURAL CELLULAR CORPORATION)
 
 BALANCE SHEETS
 As of December 31,2005
    
    
    2004(In thousands,except shares and per share data)ASSETSINTERCOMPANY RECEIVABLE
    
    $
    11,460
    
    
    $
    LICENSES AND OTHER ASSETS:Licenses, net
    
    
    445,098
    
    
    
    445,098Deferred tax asset
    
    
    5,266
    
    
    
    9,905Total assets
    
    $
    461,824
    
    
    $
    455,003LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current
portion of inter-company long-term debt
    
    $
    49,000
    
    
    $
    Inter-company taxes payable
    
    
    20,940
    
    
    
    20,940Total current liabilities
    
    
    69,940
    
    
    
    20,940LONG-TERM LIABILITIES:Inter-company long-term debt
    
    
    301,000
    
    
    
    418,529Total liabilities
    
    
    370,940
    
    
    
    439,469SHAREHOLDERS EQUITY:Common stock; $0.01 par value;
200,000 shares authorized; 1,000
issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    68,530
    
    
    
    1Accumulated equity
    
    
    22,354
    
    
    
    15,533Total shareholders equity
    
    
    90,884
    
    
    
    15,534$
    461,824
    
    
    $
    455,003
  103




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##### Table of Contents



RCC MINNESOTA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RURAL CELLULAR CORPORATION)
 
 STATEMENTS OF OPERATIONS
 Years Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)REVENUE:License management revenue
    
    $
    49,797
    
    
    $
    99,058
    
    
    $
    108,349Total revenue
    
    
    49,797
    
    
    
    99,058
    
    
    
    108,349OPERATING EXPENSES:Corporate management expense
    
    
    2,939
    
    
    
    3,775
    
    
    
    3,714Other operating
    
    
    693
    
    
    
    407
    
    
    
    280Impairment of assets
    
    
    
    
    
    
    24,307
    
    
    
    28,318Total operating expenses
    
    
    3,632
    
    
    
    28,489
    
    
    
    32,312OPERATING INCOME
    
    
    46,165
    
    
    
    70,569
    
    
    
    76,037OTHER EXPENSE:Inter-company interest
    
    
    34,705
    
    
    
    37,942
    
    
    
    34,206INCOME BEFORE INCOME TAX
PROVISION
    
    
    11,460
    
    
    
    32,627
    
    
    
    41,831INCOME TAX PROVISION
    
    
    4,639
    
    
    
    13,051
    
    
    
    16,732NET INCOME
    
    $
    6,821
    
    
    $
    19,576
    
    
    $
    25,099
  104




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##### Table of Contents



RCC MINNESOTA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RURAL CELLULAR CORPORATION)
 
 STATEMENTS
OF SHAREHOLDERS EQUITY (DEFICIT)
 Additional
    
    
    Accumulated
    
    
    TotalPaid-In
    
    
    Earnings
    
    
    ShareholdersCapital
    
    
    (Deficit)
    
    

Equity
(Deficit)(In thousands)BALANCE, December 31, 2002

    
    $
    1
    
    
    $
    (29,142
    )
    
    $
    (29,141
    )Net income
    
    
    
    
    
    
    25,099
    
    
    
    25,099BALANCE, December 31, 2003
    
    
    1
    
    
    
    (4,043
    )
    
    
    (4,042
    )Net income
    
    
    
    
    
    
    19,576
    
    
    
    19,576BALANCE, December 31, 2004
    
    
    1
    
    
    
    15,533
    
    
    
    15,534Net income
    
    
    
    
    
    
    6,821
    
    
    
    6,821Parent company
capital
contribution
    
    
    68,529
    
    
    
    
    
    
    
    68,529BALANCE, December 31, 2005
    
    $
    68,530
    
    
    $
    22,354
    
    
    $
    90,884
  105




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##### Table of Contents



RCC MINNESOTA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RURAL CELLULAR CORPORATION)
 
 STATEMENTS OF CASH FLOWS
 Years ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)OPERATING ACTIVITIES:Net income
    
    $
    6,821
    
    
    $
    19,576
    
    
    $
    25,099Adjustments to reconcile to net cash provided by
operating activities:Impairment of assets
    
    
    
    
    
    
    24,307
    
    
    
    28,318Income taxes
    
    
    4,639
    
    
    
    13,051
    
    
    
    16,732Net cash provided by operating activities
    
    
    11,460
    
    
    
    56,934
    
    
    
    70,149INVESTING ACTIVITIES:Assignment of licenses from wholly-owned
subsidiaries of RCC
    
    
    
    
    
    
    (98,804
    )
    
    
    Acquisition of licenses
    
    
    
    
    
    
    (14,526
    )
    
    
    (7,200
    )Disposition of licenses
    
    
    
    
    
    
    34,175
    
    
    
    Net cash used in investing activities
    
    
    
    
    
    
    (79,155
    )
    
    
    (7,200
    )FINANCING ACTIVITIES:Net change
in inter-company (receivable)/long-term debt
    
    
    (11,460
    )
    
    
    22,221
    
    
    
    (62,949
    )Net cash provided by (used in) financing
activities
    
    
    (11,460
    )
    
    
    22,221
    
    
    
    (62,949
    )NET CHANGE IN CASH
    
    
    
    
    
    
    
    
    
    
    CASH AND CASH EQUIVALENTS, at beginning of year
    
    
    
    
    
    
    
    
    
    
    CASH AND CASH EQUIVALENTS, at end of year
    
    $
    
    
    
    $
    
    
    
    $
    
  106




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##### Table of Contents



RCC MINNESOTA, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RURAL CELLULAR CORPORATION)
 
 NOTES TO FINANCIAL STATEMENTS
 Background and Basis of Presentation:
   History of RCC Minnesota, Inc.
  
    
    October 1997, RCC assigned its cellular licenses in its Midwest
territory to RCC Licenses, Inc.
    
    July 1998, RCC Licenses, Inc. changed its name to RCC Minnesota,
Inc.
    
    December 2000, RGI Group, Inc., Western Maine Cellular, Inc., RCC
Holdings, Inc., and MRCC, Inc., wholly-owned subsidiaries of RCC, assigned
certain licenses to RCCM. Management agreements between RCCM and RCC operating
subsidiaries commenced on December 1, 2000.
    
    January 2001, Star Cellular, a wholly-owned subsidiary of RCC, was
acquired by RCC and assigned certain licenses to RCCM.
    
    February 2001, RCCM entered into an agreement to sell its 10MHz PCS
licenses in its Northwest territory.
    
    October 2003, RCCM acquired 1900 MHz spectrum from AT&T Wireless
Services, Inc. (AWE) and one of its affiliates.
    
    March 2004, RCCM exchanged certain wireless properties with AWE.
Under the agreement, RCCM sold to AWE its Oregon RSA 4 license. RCCM received
from AWE licenses in Alabama and Mississippi. In addition, RCCM received from
AWE unbuilt PCS licenses covering portions of RCCs South, Midwest, and
Northwest territories.
    
    May 2004, RCC Holdings, a wholly-owned subsidiary of RCC, assigned
licenses in its Alabama and Mississippi markets to RCCM.
    
    November 2004, RCCM acquired additional 1900 MHz PCS licenses, which
cover selected areas in its Midwest and Northwest territories.
 107




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##### Table of Contents



Principles of Presentation
   Use of Estimates
  2) Summary of Significant Accounting Policies:
 Revenue Recognition  License management revenue
   Expense Recognition
 Corporate management expense.
 Other operating expenses.
 Interest expense.
 108




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##### Table of Contents



Income Tax Provision
   Licenses
 Business
Combinations, Goodwill and Other Intangible Assets
  Years Ended December 31,2005
    
    
    2004Beginning of year
    
    $
    445,098
    
    
    $
    356,075Acquisitions
    
    
    
    
    
    
    14,526Impairment of assets
    
    
    
    
    
    
    (24,307
    )License held for sale
    
    
    
    
    
    
    Assigned from RCC wholly-owned subsidiary
    
    
    
    
    
    
    98,804End of year
    
    $
    445,098
    
    
    $
    445,098
 Unit of Accounting for Testing of Impairment of
Indefinite-Lived Intangible Assets,
 109




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##### Table of Contents



Inter-company receivable:
  Inter-company long term debt:
   3) Income Taxes:
  Year Ended December 31,2005
    
    2004
    
    2003Tax at statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State taxes
    
    
    5.0
    
    
    
    5.0
    
    
    
    5.040.0
    %
    
    
    40.0
    %
    
    
    40.0
    %
  Year Ended December 31,(in thousands)
    
    2005
    
    
    2004
    
    
    2003CurrentFederal
    
    $
    
    
    
    $
    1,919
    
    
    $
    13,703State
    
    
    
    
    
    
    281
    
    
    
    1,958
    
    
    
    2,200
    
    
    
    15,661DeferredFederal
    
    
    4,059
    
    
    
    9,495
    
    
    
    986State
    
    
    580
    
    
    
    1,356
    
    
    
    854,639
    
    
    
    10,851
    
    
    
    1,071Total
    
    $
    4,639
    
    
    $
    13,051
    
    
    $
    16,732
  110




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##### Table of Contents



As of December 31,2005
    
    
    2004Deferred income tax assets:Operating loss carryforwards
    
    $
    14,304
    
    
    $
    Temporary differences:Intangible assets
    
    
    
    
    
    
    9,905Total deferred income tax assets
    
    
    14,304
    
    
    
    Deferred income tax liabilities:Intangible assets
    
    
    (9,038
    )
    
    
    Net deferred income tax asset
    
    $
    5,266
    
    
    $
    9,905
  111




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Document3.1(a)
    
    Articles of Incorporation
    
    [1]3.1(b)
    
    Amendment to Articles of Incorporation effective March 24, 2000
    
    [1]3.2(a)
    
    Amended and Restated Bylaws
    
    [1]3.2(b)
    
    Amendment to Amended and Restated Bylaws effective March 22, 2000
    
    [1]4.1(a)
    
    Indenture dated March 25, 2004, between Rural Cellular Corporation, as Issuer, and U.S. Bank National
Association, as trustee, with respect to the senior secured notes, including the forms of Senior Secured
Notes.
    
    [2]4.1(b)
    
    Collateral Agreement dated as of March 25, 2004, made by Rural Cellular Corporation and each of its
subsidiaries that are signatories in favor of U.S. Bank National Association, as Collateral Trustee.
    
    [2]4.2
    
    Indenture dated August 1, 2003 between Rural Cellular Corporation, as Issuer, and U.S. Bank National
Association, as Trustee, with respect to the 9 7/8% Senior Notes Due 2010, including the form of 9 7/8%
Senior Notes Due 2010
    
    [3]4.3
    
    Indenture dated January 16, 2002 between Rural Cellular Corporation, as Issuer, and Wells Fargo Bank, N.A., as Trustee, with respect to the 9 3/4% Senior Subordinated Notes Due 2010, including
form of 9 3/4% Senior Subordinated Notes Due 2010
    
    [4]4.4
    
    Indenture dated November 7, 2005 between Rural Cellular Corporation, as Issuer, and Wells Fargo Bank
National Association, as Trustee, with respect to the Senior Subordinated Floating Rate Notes Due 2012,
including form of Senior Subordinated Notes Due 2012
    
    ***4.5
    
    Certificate of Designation of 11 3/8% Senior Exchangeable Preferred Stock
    
    [5]4.6
    
    Certificate of Designation of 12 1/4% Junior Exchangeable Preferred Stock
    
    [1]4.7(a)
    
    Class A Share Rights Agreement dated April 30, 1999
    
    [6]4.7(b)
    
    Amendment to the Class A Share Rights Agreement dated March 31, 2000
    
    [7]4.8(a)
    
    Registration Rights Agreement dated March 31, 2000 by and between Rural Cellular Corporation and
Telephone and Data Systems, Inc.
    
    [8]4.8(b)
    
    Certificate of Designation of Voting Power, Preferences and Relative Participating, Optional and Other
Special Rights, Qualifications and Restrictions of Class T Convertible Preferred Stock of Rural Cellular
Corporation
    
    [8]4.9(a)
    
    Preferred Stock Purchase Agreement dated April 3, 2000 among Rural Cellular Corporation, Madison Dearborn
Capital Partners III, L.P., Madison Dearborn Special Equity III, L.P., Special Advisors Fund I, LLC,
Boston Ventures Limited Partnership V and Toronto Dominion Investment, Inc. (collectively Class M
Investors)
    
    [8]4.9(b)
    
    Certificate of Designation of Voting Power, Preferences and Relative Participating, Optional and Other
Special Rights, Qualifications and Restrictions of Class M Redeemable Voting Convertible Preferred Stock
of Rural Cellular Corporation
    
    [8]4.9(c)
    
    Registration Rights Agreement dated April 3, 2000 among Rural Cellular Corporation and Class M Investors
    
    [8]10.1(a)
    
    Credit facility dated as of March 25, 2004 among Rural Cellular Corporation, Lehman Commercial Paper,
Inc., as Administrative Agent, and Bank of America, N.A., as Documentation Agent.
    
    [2]10.1(b)
    
    Guarantee and Collateral Agreement dated as of March 25, 2004 among Rural Cellular Corporation, Lehman
Commercial Paper Inc., as Administrative Agent, and Bank of America, N.A., as Documentation Agent.
    
    [2]10.1(c)
    
    Intercreditor Agreement, dated as of March 25, 2004, among Lehman Commercial Paper Inc., as Senior Agent
and Account Agent, U.S. Bank National Association, as Indenture Trustee and Collateral Trustee, Rural
Cellular Corporation, a Minnesota corporation, and the Guarantors.
    
    [2]*10.2
    
    1995 Stock Compensation Plan, as amended to date
    
    [9]*10.2(a)
    
    Form of Restricted Stock Award Agreement pursuant to 1995 Stock Compensation Plan.
    
    [2]*10.3
    
    Stock Option Plan for Nonemployee Directors, as amended to date
    
    [10]*10.4(a)
    
    Employment Agreement with Richard P. Ekstrand effective January 22, 1999
    
    [11]*10.4(b)
    
    Amendment to Employment Agreement with Richard P. Ekstrand effective January 1, 2001
    
    [12]*10.4(c)
    
    Second Amendment to Employment Agreement with Richard P. Ekstrand effective July 24, 2001
    
    [13]*10.4(d)
    
    Third Amendment to Employment Agreement with Richard P. Ekstrand effective August 23, 2001
    
    [13]*10.4(e)
    
    Fourth Amendment to Employment with Richard P. Ekstrand effective February 27, 2003
    
    [19]*10.4(f)
    
    Fifth Amendment to Employment with Richard P. Ekstrand effective February 17, 2005
    
    [20]*10.5(a)
    
    Employment Agreement with Wesley E. Schultz effective January 22, 1999
    
    [11]*10.5(b)
    
    Amendment to Employment Agreement with Wesley E. Schultz effective January 1, 2001
    
    [12]*10.5(c)
    
    Second Amendment to Employment Agreement with Wesley E. Schultz effective July 24, 2001
    
    [13]*10.5(d)
    
    Third Amendment to Employment Agreement with Wesley E. Schultz effective August 23, 2001
    
    [13]*10.5(e)
    
    Fourth Amendment to Employment Agreement with Wesley E. Schultz effective February 17, 2005
    
    [20]*10.6(a)
    
    Employment Agreement with Ann K. Newhall effective February 6, 1999
    
    [14]*10.6(b)
    
    Amendment to Employment Agreement with Ann K. Newhall effective January 1, 2001
    
    [12]*10.6(c)
    
    Second Amendment to Employment Agreement with Ann K. Newhall effective July 24, 2001
    
    [13]*10.6(d)
    
    Third Amendment to Employment Agreement with Ann K. Newhall effective August 23, 2001
    
    [13]*10.6(e)
    
    Fourth Amendment to Employment Agreement with Ann K. Newhall effective February 17, 2005
    
    [20]*10.7(a)
    
    Change of Control Agreement with David Del Zoppo effective January 2, 2001
    
    [12]*10.7(b)
    
    Amendment to Change of Control Agreement with David Del Zoppo effective July 24, 2001
    
    [13]*10.8(a)
    
    Key Employee Deferred Compensation Plan
    
    [15]*10.8(b)
    
    Amendment to Key Employee Deferred Compensation Plan
    
    [16]*10.8(c)
    
    Second Amendment to Key Employee Deferred Compensation Plan
    
    ****10.9
    
    Key Employee Deferred Compensation Plan II
    
    ****10.10
    
    Management Incentive Plan
    
    [17]**10.11(a)
    
    Master Purchase Agreement dated March 14, 2002 by and between Rural Cellular Corporation and Ericsson Inc.
    
    [18]**10.11(b)
    
    Addendum dated August 4, 2003 to Master Purchase Agreement
    
    [18]
 112




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##### Table of Contents



Exhibit No.
    
    Document**10.12(a)
    
    Intercarrier Multi-Standard Roaming and Colocation Agreement by and between Cingular Wireless LLC and
Rural Cellular Corporation effective June 6, 2003 (Roaming Agreement)
    
    [19]**10.12(b)
    
    Amendment No. 1 to Roaming Agreement
    
    [19]**10.13
    
    Billing Services and License Agreement between VeriSign, Inc and Rural Cellular Corporation.
    
    [21]21
    
    Subsidiaries of Registrant
    
    ***23.1
    
    Consent of Deloitte & Touche LLP regarding financial statements of Rural Cellular Corporation
    
    ***23.2
    
    Consent of Deloitte & Touche LLP regarding financial statements of RCC Minnesota, Inc.
    
    ***31.1
    
    Section 302 Certification Sarbanes-Oxley Act of 2002
    
    ***31.2
    
    Section 302 Certification Sarbanes-Oxley Act of 2002
    
    ***32.1
    
    Certification of principal executive officer and principal financial officer pursuant to Section 906 of
Sarbanes Oxley Act
    
    ***
 
 [1]
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference.[2]
    
    Filed as an exhibit to Report on Form 10-Q for the quarter ended March 31, 2004 and incorporated herein by reference.[3]
    
    Filed with Report on Form 10-Q for quarter ended June 30, 2003, and incorporated herein by reference[4]
    
    Filed as an Exhibit to Report on Form 10-K for year ended December 31, 2001, and incorporated herein by reference[5]
    
    Filed as an exhibit to Registration Statement on Form S-4 (SEC No. 333-57677), filed June 25, 1998, and incorporated herein
by reference.[6]
    
    Filed as an exhibit to Registration Statement on Form 8-A filed May 19, 1999 and incorporated herein by reference.[7]
    
    Filed as an exhibit to Registration Statement on Form 8-A/A-1 filed April 18, 2000 and incorporated herein by reference.[8]
    
    Filed as an exhibit to Report on Form 8-K dated April 1, 2000 and incorporated herein by reference.[9]
    
    Filed with definitive Proxy Statement for 2000 Annual Meeting on April 7, 2000 and incorporated herein by reference.[10]
    
    Filed with definitive Proxy Statement for 2002 Annual Meeting on April 8, 2002 and incorporated herein by reference.[11]
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference.[12]
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 2000, and incorporated herein by reference.[13]
    
    Filed as an exhibit to Report on Form 10-Q/A for the quarter ended September 30, 2001, and incorporated herein by reference.[14]
    
    Filed as an exhibit to Report on Form 10-Q for the quarter ended March 31, 1999 and incorporated herein by reference.[15]
    
    Filed as an exhibit to Report on Form 10-Q/A for the quarter ended June 30, 2001, and incorporated herein by reference.[16]
    
    Filed as an exhibit to Report on Form 10-K for year ended December 31, 2002, and incorporated herein by reference[17]
    
    Filed with definitive Proxy Statement for 2001 Annual Meeting on April 9, 2001, and incorporated herein by reference.[18]
    
    Filed as an exhibit to Report on Form 10-K/A for the year ended December 31, 2003, and incorporated herein by reference.[19]
    
    Filed as an exhibit to Report on Form 10-K for the year ended December 31, 2004, and incorporated herein by reference.[20]
    
    Filed as an exhibit to Report on Form 10-Q for the quarter ended March 31, 2005, and incorporated herein by reference.[21]
    
    Filed as an exhibit to Report on Form 10-Q for the quarter ended September 30, 2005, and incorporated herein by reference.*
    
    Management contract or compensation plan or arrangement required to be filed as an exhibit to this Form.**
    
    Portions of this exhibit have been omitted and filed separately with the Secretary of the Securities and Exchange
Commission pursuant to Registrants request for confidential treatment of such information under Rule 24b-2 of the
Securities Exchange Act of 1934.***
    
    Filed herewith. 113