RURAL CELLULAR CORP - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended September 30, 2002.

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from to .

Commission File Number 0-27416

RURAL CELLULAR CORPORATION

(Exact name of registrant as specified in its charter)

Minnesota		41-1693295
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

PO Box 2000 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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YESý NOo

Number of shares of common stock outstanding as of the close of business on November 1, 2002:

Class A		11,193,622
Class B		727,416

TABLE OF CONTENTS

Part I. Financial Information

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets-
As of September 30, 2002 and December 31, 2001 (as restated)

Condensed Consolidated Statements of Operations-
Three and nine months ended September 30, 2002 and 2001 (as restated)

Condensed Consolidated Statements of Cash Flows-
Nine months ended September 30, 2002 and 2001 (as restated)

Notes to Condensed Consolidated Financial Statements

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Item 4. Controls and Procedures

Part II. Other Information

Item 1. Legal Proceedings

Item 2. Changes in Securities

Item 3. Defaults upon Senior Securities

Item 4. Submission of Matters to a Vote of Security Holders

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K

Signatures

Section 302 Certifications

Exhibits

Part I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

(Unaudited)

ASSETS

	As of
	September 30, 2002		December 31, 2001 (As restated – see Note 6)
CURRENT ASSETS:

Cash	$	32,562	$	1,995

Accounts receivable, less allowance of $2,861 and $4,016	50,849		45,279

Inventories	4,986		6,617

Other current assets	2,958		2,408

Total current assets	91,355		56,299

PROPERTY AND EQUIPMENT, less accumulated depreciation of $170,834 and $137,776	238,561		244,980

LICENSES AND OTHER ASSETS:

Licenses, less accumulated amortization of $50,409 and $50,409	618,577		1,030,624

Goodwill, less accumulated amortization of $32,408 and $32,493	355,008		361,184

Customer lists, less accumulated amortization of $61,145 and $45,730	97,885		113,299

Deferred debt issuance costs, less accumulated amortization of $10,347 and $8,306	26,257		22,549

Other assets, less accumulated amortization of $1,457 and $1,230	6,293		7,844

Total licenses and other assets	1,104,020		1,535,500

	$	1,433,936	$	1,836,779

The accompanying notes are an integral part of these condensed consolidated financial statements.

LIABILITIES AND SHAREHOLDERS’ DEFICIT

	As of
	September 30, 2002			December 31, 2001 (As restated – see Note 6)
CURRENT LIABILITIES:

Accounts payable	$	29,856		$	35,356

Advance billings and customer deposits	12,374			9,315

Accrued interest	16,121			13,033

Dividends payable	6,229			5,710

Other accrued expenses	10,392			11,158

Total current liabilities	74,972			74,572

LONG-TERM LIABILITIES	1,275,544			1,286,301

Total liabilities	1,350,516			1,360,873

REDEEMABLE PREFERRED STOCK	553,958			509,736

SHAREHOLDERS’ DEFICIT:

Class A common stock; $.01 par value; 200,000 shares authorized, 11,194 and 11,176 issued	112			112

Class B common stock; $.01 par value; 10,000 shares authorized, 728 and 728 issued	7			7

Additional paid-in capital	192,294			191,964

Accumulated deficit	(654,089		)	(213,050		)

Accumulated other comprehensive loss	(8,862		)	(12,863		)

Total shareholders’ deficit	(470,538		)	(33,830		)

	$	1,433,936		$	1,836,779

The accompanying notes are an integral part of these condensed consolidated financial statements.

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2002			2001 (As restated – see Note 6)			2002 (As restated - see Note 6)			2001 (As restated – see Note 6)
REVENUES:

Service	$	81,828		$	80,234		$	235,414		$	230,421

Roaming	35,400			38,106			95,417			89,671

Equipment	7,098			4,842			14,941			14,520

Total revenues	124,326			123,182			345,772			334,612

OPERATING EXPENSES:

Network costs, excluding depreciation and amortization	24,684			26,492			73,582			75,753

Cost of equipment sales	10,344			9,168			18,315			21,520

Selling, general and administrative	28,569			30,708			84,034			86,571

Depreciation and amortization	22,102			28,843			61,611			83,430

Total operating expenses	85,699			95,211			237,542			267,274

OPERATING INCOME	38,627			27,971			108,230			67,338

OTHER INCOME (EXPENSE):

Interest expense, net	(28,384		)	(40,285		)	(84,150		)	(108,003		)

Other	(7		)	4			71			9

Other expense, net	(28,391		)	(40,281		)	(84,079		)	(107,994		)

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT ADJUSTMENT	10,236			(12,310		)	24,151			(40,656		)

EXTRAORDINARY ITEM - early extinguishment of debt	—			—			(3,319		)	—

INCOME (LOSS) BEFORE CUMULATIVE EFFECT ADJUSTMENT	10,236			(12,310		)	20,832			(40,656		)

CUMULATIVE EFFECT ADJUSTMENT	—			—			(417,064		)	1,621

NET INCOME (LOSS)	10,236			(12,310		)	(396,232		)	(39,035		)

PREFERRED STOCK DIVIDEND	(15,334		)	(13,791		)	(44,807		)	(40,384		)

NET LOSS APPLICABLE TO COMMON SHARES	$	(5,098	)	$	(26,101	)	$	(441,039	)	$	(79,419	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC AND DILUTED	11,921			11,871			11,920			11,857

NET LOSS PER BASIC AND DILUTED SHARE:

Net loss per share applicable to common shares before extraordinary item and cumulative effect adjustment	$	(0.43	)	$	(2.20	)	$	(1.73	)	$	(6.83	)

Extraordinary item - early extinguishment of debt	—			—			(0.28		)	—
Cumulative effect adjustment	—			—			(34.99		)	0.13

Net loss per basic and diluted share	$	(0.43	)	$	(2.20	)	$	(37.00	)	$	(6.70	)

COMPREHENSIVE LOSS:

NET LOSS APPLICABLE TO COMMON SHARES	$	(5,098	)	$	(26,101	)	$	(441,039	)	$	(79,419	)

Cumulative effect of SFAS No. 133	—			—			—			(5,526		)
Mark to market adjustments - financial instruments	1,484			(8,587		)	4,001			(12,343		)

TOTAL COMPREHENSIVE LOSS	$	(3,614	)	$	(34,688	)	$	(437,038	)	$	(97,288	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

	Nine months ended September 30,
	2002 (As restated – see Note 6)			2001 (As restated – see Note 6)
OPERATING ACTIVITIES:

Net loss	$	(396,232	)	$	(39,035	)

Adjustments to reconcile to net cash provided by operating activities:

Depreciation and amortization	61,611			83,430

Extraordinary item – early extinguishment of debt	3,319			—

Mark-to-market adjustments – financial instruments	13,023			20,410

Cumulative effect adjustment	417,064			(1,621		)

Other	2,441			(784		)

Change in other operating elements:

Accounts receivable	(5,007		)	(7,631		)

Inventories	1,631			1,219

Other current assets	(550		)	394

Accounts payable	(5,500		)	(12,754		)

Advance billings and customer deposits	3,059			994

Other accrued expenses	4,335			(6,501		)

Net cash provided by operating activities	99,194			38,121

INVESTING ACTIVITIES:

Purchases of property and equipment, net	(41,517		)	(30,244		)

Purchases of wireless properties, net of cash acquired	—			(143,064		)

Proceeds from sale of RTB stock	650

Assets held for sale	—			(34,344		)

Other	37			(551		)

Net cash used in investing activities	(40,830		)	(208,203		)

FINANCING ACTIVITIES:

Proceeds from issuance of common stock related to employee stock purchase plan and stock options	330			983

Proceeds from issuance of long-term debt	342,550			332,100

Repayments of long-term debt	(360,208		)	(181,210		)

Proceeds from sale of PCS licenses	—			13,200

Proceeds from swaption	—			8,720

Payments of debt issuance costs	(10,322		)	(4,365		)

Other	(147		)	112

Net cash (used in) provided by financing activities	(27,797		)	169,540

NET INCREASE (DECREASE) IN CASH	30,567			(542		)

CASH, at beginning of period	1,995			2,205

CASH, at end of period	$	32,562		$	1,663

The accompanying notes are an integral part of these condensed consolidated financial statements.

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1) BASIS OF PRESENTATION:

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

The accompanying condensed consolidated financial statements for the three and nine months ended September 30, 2002 and 2001 have been prepared by RCC without audit. In the opinion of management, only normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for all periods presented have been made. The results of operations for the three and nine months ended September 30, 2002 are not necessarily indicative of the operating results for the full fiscal year or for any other interim periods.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in our Report on Form 10-K for the year ended December 31, 2001.

2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Recently Issued Accounting Pronouncements

In July 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS") No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS No. 146 replaces Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by SFAS No. 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. SFAS No. 145 requires that gains and losses from the extinguishments of debt be classified as extraordinary items only if they meet the criteria in Accounting Principles Board Opinion No. 30 (“Opinion No. 30”). Applying the provisions of Opinion No. 30 will distinguish transactions that are part of an entity’s recurring operations from those that are unusual and infrequent and meet the criteria for classification as an extraordinary item. SFAS No. 145 is effective for RCC beginning January 1, 2003, but may be adopted prior to this date. Upon the adoption of SFAS No. 145, RCC will reclassify prior period statements of operations to conform to the presentation required by SFAS No. 145. Under SFAS No. 145, we will report gains and losses on extinguishments of debt in interest expense.

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

In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 provides accounting and reporting standards for costs associated with the retirement of long-lived assets. It requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred.

When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. We have not yet determined the effect that this new accounting standard may have on our results of operations, financial position and cash flows. We will be required to implement this standard effective January 1, 2003.

In July 2001, the FASB issued SFAS No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. SFAS No. 141 also sets forth recognition criteria for intangible assets other than goodwill as well as disclosure requirements for business combinations. RCC has adopted SFAS No. 141.

Effective January 1, 2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 142 established new standards related to how acquired goodwill and other intangible assets are to be recorded upon their acquisition as well as how they are to be accounted for after they have been initially recognized in the financial statements. Effective with the adoption of this standard, RCC is no longer amortizing goodwill. Additionally, we have reassessed the useful lives of previously recognized intangible assets. A significant portion of our intangible assets are licenses that provide our wireless operations with the exclusive right to utilize certain radio frequency spectrum to provide cellular communication services. While licenses are issued for only a fixed time, generally ten years, such licenses are subject to renewal by the FCC. Renewals of licenses have occurred routinely and at nominal cost. Moreover, we have determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of our wireless licenses. As a result, licenses will be treated as an indefinite-lived intangible asset under the provisions of SFAS No. 142 and will not be amortized but rather will be tested for impairment. We will reevaluate the useful life determination for licenses each reporting period to determine whether events and circumstances continue to support an indefinite useful life.

Rural Cellular has completed a transitional impairment test for both its consolidated goodwill and licensing costs and determined that there was impairments of $5.0 million and $412.0 million, respectively, RCC used a fair value approach, using primarily discounted cash flows, to complete the transitional impairment tests. RCC plans to amend its Form 10-Qs for the first two quarters of 2002 to reflect the effect of the SFAS No. 142 impairment charge.

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

The effect of the adoption of SFAS No. 142 on the reported net loss and basic and diluted loss per share for all periods presented in the accompanying statements of operations is as follows:

(As reported)
	Three months ended September 30,						Nine months ended September 30,
(in thousands, except per share amounts)	2002			2001			2002			2001

Net loss applicable to common shares (as reported)	$	(5,098	)	$	(26,101	)	$	(441,039	)	$	(79,419	)
Add back: goodwill amortization	—			4,630			—			13,636
Add back: license amortization	—			6,628			—			19,884
Adjusted net loss applicable to common shares	$	(5,098	)	$	(14,843	)	$	(441,039	)	$	(45,899	)

Weighted average common shares outstanding, basic and diluted	11,921			11,871			11,920			11,857

Basic and diluted loss per share:
Net loss per basic and diluted share (as reported)	$	(0.43	)	$	(2.20	)	$	(37.00	)	$	(6.70	)
Add back: goodwill amortization	—			0.39			—			1.15
Add back: license amortization	—			0.56			—			1.68
Adjusted loss per share (basic and diluted)	$	(0.43	)	$	(1.25	)	$	(37.00	)	$	(3.87	)

(Before extraordinary item and cumulative affect adjustment and including the effect of preferred stock dividends)
	Three months ended September 30,						Nine months ended September 30,
(in thousands, except per share amounts)	2002			2001			2002			2001
Net loss applicable to common shares (before extraordinary item and cumulative effect adjustment)	$	(5,098	)	$	(26,101	)	$	(20,656	)	$	(81,040	)
Add back: goodwill amortization	—			4,630			—			13,636
Add back: license amortization	—			6,628			—			19,884
Adjusted net loss applicable to common shares	$	(5,098	)	$	(14,843	)	$	(20,656	)	$	(47,520	)

Weighted average common shares outstanding, basic and diluted	11,921			11,871			11,920			11,857

Basic and diluted loss per share:
Net loss per basic and diluted share (as reported)	$	(0.43	)	$	(2.20	)	$	(1.73	)	$	(6.83	)
Add back: goodwill amortization	—			0.39			—			1.15
Add back: license amortization	—			0.56			—			1.68
Adjusted loss per share (basic and diluted)	$	(0.43	)	$	(1.25	)	$	(1.73	)	$	(4.00	)

The major components and average useful lives of our acquired intangible assets are as follows:

(in thousands)	As of September 30, 2002				As of December 31, 2001
	Gross carrying Value		Accumulated amortization		Gross carrying Value		Accumulated amortization
Unamortized intangible assets:
Licenses	$	668,986	$	50,409	$	1,081,033	$	50,409
Goodwill	387,416		32,408		393,677		32,493
	1,056,402		82,817		1,474,710		82,902

Amortized intangible assets:
Customer lists (7-10 years)	$	159,030	$	61,145	$	159,029	$	45,730

Intangible assets amortization expense was approximately $5.1 million and $15.4 million for the three and nine months ended September 30, 2002, respectively. It is estimated to be approximately $5.1 million for the remainder of 2002, $20.6 million in each of 2003 through 2006, and $10.4 million in 2007.

The change in carrying amount of goodwill and licenses for the nine months ended September 30, 2002 are as follows (in thousands):

	Goowill			Licenses			Total
Balance as of December 31, 2001	$	361,184		$	1,030,624		$	1,391,808
Goodwill reclassification	(1,159		)	—			(1,159		)
Impairment changes under SFAS No. 142	(5,017		)	(412,047		)	(417,064		)
Balance as of September 30, 2002	$	355,008		$	618,577		$	973,585

Supplemental Disclosure of Condensed Consolidated Cash Flow Information

(in thousands)	Three months ended September 30,				Nine months ended September 30,
	2002		2001		2002		2001
Cash paid for:

Interest	$	25,856	$	28,071	$	65,763	$	96,235
Income taxes	—		—		—		—

Noncash financing transactions:
Preferred stock dividends paid in kind	$	11,399	$	10,153	$	35,209	$	31,360

3) LONG-TERM LIABILITIES:

RCC had the following long-term liabilities outstanding (in thousands):

	As of
	September 30, 2002		December 31, 2001

Credit facility:
Revolver	$	16,142	$	159,800
Term Loan A (terminates 04/03/2008)	349,286		426,508
Term Loan B (terminates 04/03/2008)	186,623		225,101
Term Loan C (terminates 04/03/2009)	186,623		225,101
Term Loan D (terminates 10/03/2009)	55,179		75,000
Total credit facility	793,853		1,111,510

9 5/8% Senior Subordinated Notes	125,000		125,000
9 3/4% Senior Subordinated Notes	300,000		—
Derivative financial instruments	49,863		42,949
Other	6,828		6,842
Long-term liabilities	$	1,275,544	$	1,286,301

Credit facility — Advances under the credit facility bear interest at the London Interbank Offering Rate (“LIBOR”) plus an applicable margin based on RCC’s ratio of indebtedness to annualized operating cash flow as of the end of the most recently completed fiscal quarter. As of September 30, 2002, the effective rate of interest on the credit facility, excluding the impact of hedge agreements, was 4.46%. A commitment fee not to exceed 0.375% on the unused portion of the credit facility is payable quarterly. Borrowings under the credit facility are secured by a pledge of all the assets of RCC, excluding our ownership in the stock of Cellular 2000, Inc. and our 70% ownership in Wireless Alliance, LLC. The credit facility is subject to various covenants, including the ratio of indebtedness to annualized operating cash flow and the ratio of annualized operating cash flow to interest expense. Mandatory commitment reductions are required upon any material sale of assets.

On January 16, 2002, in connection with the completion of the offering and sale of the 9 ¾% senior subordinated notes, we amended the terms of our credit facility. The amendments:

• Permitted us to issue the 9 ¾% senior subordinated notes,

• Allowed us to repay a portion of the term loans and revolving loan without reducing borrowing availability under the revolver,

• Changed covenants including the total leverage ratio, the senior leverage ratio, the ratio of annualized operating cash flow to interest expense, and pro forma debt ratio to reflect the offering of 9 ¾% senior subordinated notes and to provide us with greater flexibility,

• Made some technical changes to the restricted payment covenant and the description of permitted indebtedness,

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

• Removed a requirement to sell some of our assets.

As of September 30, 2002, we were in compliance with all covenants and had $258.9 million available under the revolver.

9 5/8 % Senior Subordinated Notes - - On May 14, 1998, RCC issued $125 million principal amount of 9 5/8 % senior subordinated notes due 2008. Interest on the 9 5/8% senior subordinated notes is payable semi-annually on May 15 and November 15 of each year. The 9 5/8% senior subordinated notes will mature on May 15, 2008, and are redeemable, in whole or in part, at the option of RCC, at any time on or after May 15, 2003.

9 3/4 % Senior Subordinated Notes - - On January 16, 2002, RCC issued $300 million principal amount of 9 3/4 % senior subordinated notes due 2010. Interest on the 9 ¾% senior subordinated notes is payable semi-annually on January 15 and July 15 of each year. The 9 ¾% senior subordinated notes will mature on January 15, 2010, and are redeemable, in whole or in part, at the option of RCC, at any time on or after January 16, 2006.

Derivative Financial Instruments — see Note 4 of the Notes to Condensed Consolidated Financial Statements.

Other — In conjunction with the acquisition of Triton Cellular in April 2000, we became party to a purchase option agreement whereby we may acquire certain cell sites in the future for $6.5 million. The option expires February 28, 2003. Since we expect to exercise the option, the unpaid portion of the total cost has been included as long-term debt. We assumed an agreement to utilize the assets covered by the option for the period prior to exercising the option. The ongoing payments pursuant to this agreement have been reflected as interest expense in the accompanying condensed consolidated statements of operations.

4) DERIVATIVE FINANCIAL INSTRUMENTS

RCC is required by the terms of the credit facility to maintain interest rate swaps on at least 50% of the principal amount of the loans outstanding for an average period of three years from the date of the hedge agreements. The intent of these derivative financial instruments is to manage interest expense. SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of fair value information about financial instruments for which it is practicable to estimate that value, whether or not recognized in the balance sheet. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. SFAS No. 107 excludes certain financial instruments and all non-financial instruments from our disclosure requirements.

RCC’s financial instruments are as follows:

			Carrying value				Estimated fair market value
(Dollars in thousands)	Notional amount		September 30, 2002		December 31, 2001		September 30, 2002		December 31, 2001

Financial assets

Cash	$	—	$	32,562	$	1,995	$	32,562	$	1,995
(*) Interest rate flooridors :
Fleet Bank (terminates May 12, 2003)	252,000		780		1,699		780		1,699
Accounts receivable, net	—		50,849		45,279		50,849		45,279
Total financial assets	252,000		$	84,191	$	48,973	$	84,191	$	48,973

Financial liabilities

Credit facility	—		$	793,853	$	1,111,510	$	619,205	$	987,145
9 5/8% senior subordinated notes	—		125,000		125,000		65,937		127,031
9 3/4% senior subordinated notes	—		300,000		—		157,875		—
11 3/8% senior exchangeable preferred stock	—		237,565		215,373		40,386		187,375
12 ¼% junior exchangeable preferred stock	—		192,147		172,901		30,743		145,237
	—		1,648,565		1,624,784		914,146		1,446,788

Derivative financial instruments
Interest rate swap agreements:
TD Securities (terminates May 16, 2005)	84,000		9,239		5,854		9,239		5,854
PNC Bank (terminates May 16, 2003)	42,000		1,540		2,703		1,540		2,703
Union Bank (unwound January 17, 2002)	—		—		5,387		—		5,387
Fleet Bank (unwound January 14, 2002)	—		—		2,791		—		2,791
Reverse swap agreements:
Fleet Bank (terminates January 15, 2010)	75,000		2,659		—		2,659		—
Dresdner Bank (terminates January 15, 2010)	60,390		2,026		—		2,026		—
Interest rate collar agreements:
PNC Bank (terminates May 25, 2003)	47,000		1,142		2,025		1,142		2,025
Fleet Bank (unwound January 14, 2002)	—		—		3,553		—		3,553
Union Bank (terminates June 5, 2003)	96,000		1,852		2,961		1,852		2,961
PNC Bank (terminates June 6, 2003)	94,000		1,993		3,301		1,993		3,301
Union Bank (terminates June 5, 2003)	46,000		1,031		1,746		1,031		1,746
(**) Swaption:
TD Securities (terminates March 15, 2008)	131,016		28,381		12,628		28,381		12,628


	675,406		49,863		42,949		49,863		42,949
Other long-term liabilities	—		6,828		6,842		6,828		6,842
Total financial liabilities	$	927,406	$	1,705,256	$	1,674,575	$	970,837	$	1,496,579

(*) During 2000, RCC entered into an interest rate instrument (“Flooridor”). The Flooridor does not qualify for hedge accounting treatment under SFAS No. 133 and as such is recorded in the balance sheet at fair value with related changes in fair value included in the statement of operations.

(**) Rural Cellular Corporation has $125 million in subordinated debt that was issued in May 1998 and matures in May 2008. The $8.7 million value of an embedded call option within the subordinated debt was monetized in March 2001 resulting in a swaption. The swaption does not qualify for hedge accounting treatment under SFAS No. 133 and as such is recorded in the balance sheet at fair value with related changes in fair value included in the statement of operations.

At September 30, 2002, we had debt totaling $793.9 million under our credit facility. RCC has interest rate swap, swaption, collar and reverse swap agreements covering debt with a notional amount of $675.4 million to effectively hedge the interest on the underlying debt. For fixed rate debt, interest rate changes impact the fair market value of the instrument but do not impact our earnings or cash flows. Conversely, for variable rate debt, interest rate changes generally do not impact the fair market value of the instrument but do impact RCC’s future earnings and cash flows, assuming other factors are held constant.

RCC has entered into two “flooridors” with a total notional amount of $252.0 million in order to further manage interest expense. We paid the counterparty $1.2 million to enter into the flooridors. Under the flooridors, if, as of a quarterly reference date, LIBOR is less than 7.35% but greater than 6.85%, the counterparty is required to make a quarterly payment to RCC equal to the difference between LIBOR and 7.35% on the notional amount of $252.0 million. If, as of a quarterly reference date, LIBOR is less than 6.85%, the counterparty is required to make a quarterly payment to RCC equal to 0.50% on the total notional amount. If LIBOR is equal to or greater than 7.35%, neither party is required to make a payment. The flooridors terminate on May 12, 2003. As of September 30, 2002, we recorded the flooridors at their fair market value as a $780,000 asset.

The 9 5/8% senior subordinated notes mature in 2008. They are redeemable at RCC’s option for a premium after May 15, 2003. Under certain conditions, it could become economically desirable for RCC to redeem the notes. In order to monetize the value of the option to redeem those notes, RCC entered into a “swaption” with respect to the notes. The counterparty purchased the swaption from RCC on March 1, 2001 for $8.7 million. Under the swaption, the counterparty has the right, but not the obligation, to receive a quarterly payment based on a rate of 9.625% per annum on the $131.0 million notional amount of the swaption in return for a quarterly payment based on LIBOR plus 1.50% per annum on that notional amount. This right is only exercisable on March 13, 2003 and if exercised, the swaption terminates on March 15, 2008. As a result of declining interest rates since the inception of the swaption, the swaption has a negative fair market value of $28.4 million that is recorded on the balance sheet as of September 30, 2002 pursuant to SFAS No. 133.

In January 2002, in conjunction with the issuance of the 9.75% senior subordinated outstanding notes and the resulting higher proportion of fixed rate debt as compared to floating rate debt, we reviewed our derivatives portfolio. After this review, RCC entered into, at market, two reverse swap hedging transactions with a combined notional value of $135.0 million, effectively increasing the proportion of our floating rate debt. In the reverse swaps, we agreed to receive a fixed rate of 9.75% in exchange for paying a floating rate plus a spread over LIBOR. If LIBOR plus the applicable spread is less than 9.75%, we will receive a payment from the counterparty for the difference between the two rates on the notional amount. If LIBOR plus the applicable spread is more than 9.75%, we will make a payment to the counterparty based on the difference in rates on the notional amount.

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

After giving effect to these financial instruments and the sale of the 9.75% notes, 57% of our debt is essentially fixed rate debt at September 30, 2002 as compared to approximately 61% at December 31, 2001.

As required by SFAS No. 133 (as amended by SFAS No. 137 and No. 138), we must record in our balance sheet, either as an asset or a liability, each financial instrument’s fair market value. In addition, SFAS No. 133 requires that changes in the fair value of derivatives that qualify for hedge accounting will either be offset against the change in the fair value of the hedged assets or liabilities or recognized in accumulated other comprehensive loss until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value will be immediately recognized in earnings. SFAS No. 133, as amended, was effective January 1, 2001 for the year ended December 31, 2001. The adoption of SFAS No. 133 has not significantly altered our hedging strategies; however, its application has increased the volatility of our interest expense and other comprehensive income (loss).

The following table sets forth the SFAS No. 133 adjustments for the three and nine months ended September 30, 2002:

	Three months ended September 30, 2002					Nine months ended September 30, 2002
(In thousands)	Prior to SFAS No. 133 Adjustment		SFAS No. 133 Adjustment	As Reported		Prior to SFAS No. 133 Adjustment		SFAS No. 133 Adjustment	As Reported
Statement of Operations Data:

Interest expense, net	$	24,478	3,906	$	28,384	$	71,127	13,023	$	84,150

5) REDEEMABLE PREFERRED STOCK:

RCC has issued the following preferred stock with liquidation preferences of $1,000 per share:

	Mandatory Redemption Date	Dividend rate per annum		Conversion price to common stock		Other features, rights, preferences and powers	Number of shares originally issued	Shares distributed as dividends through September 30, 2002	Accrued dividends at September 30, 2002
									(In Thousands)
Senior Exchangeable Preferred Stock	May 2010	11.375	%	—		Non-Voting	150,000	84,234	$	3,331
Junior Exchangeable Preferred Stock	February 2011	12.250	%	—		Non-Voting	140,000	49,249	2,898
Class M Voting Convertible Preferred Stock	April 2012	8.000	%	$	53.000	Voting	110,000	—	24,031
Class T Convertible Preferred Stock	April 2020	4.000	%	$	50.631	Non-Voting	7,541	—	754

Total							407,541	133,483	$	31,014

Preferred security balance sheet reconciliation:

	As of September 30, 2002
	(In Thousands)
Preferred securities originally issued	$	407,541
Preferred dividends issued (Junior and Senior)	133,483
Accrued long-term preferred security dividends (Class M and Class T)	24,785
Unamortized issuance costs	(11,851		)
Net preferred securities	$	553,958

Dividends on the Senior Exchangeable Preferred Stock are cumulative, payable quarterly, and may be paid, at RCC’s option, on any dividend payment date occurring on or before May 15, 2003, either in cash or by the issuance of additional shares of Senior Exchangeable Preferred Stock having an aggregate liquidation preference equal to the amount of such dividends.

Dividends on the Junior Exchangeable Preferred Stock are cumulative, are payable quarterly, and may be paid, at our option, on any dividend payment date occurring on or before February 15, 2005, either in cash or by the issuance of additional shares of Junior Exchangeable Preferred Stock having an aggregate liquidation preference equal to the amount of such dividends.

Dividends on the Class M Convertible Preferred Stock are compounded and accrue at 8% per annum and are payable upon redemption or upon liquidation of RCC. The Class M preferred stock is convertible into our Class A common stock at $53.00 per share subject to certain adjustments. Dividends are not payable if the shares are converted. The

holders of the Class M preferred stock are entitled to vote on all matters submitted to the holders of the common stock on an as-converted basis.

In order to comply with the FCC rules regarding cross-ownership of cellular licensees within a given market, RCC issued 7,541 shares of Class T Convertible Preferred Stock to Telephone & Data Systems, Inc. (“TDS”) with a par value of $1,000 per share on March 31, 2000 in exchange for 43,000 shares of Class A Common Stock and 105,940 shares of Class B Common Stock owned by TDS. TDS or RCC can convert the Class T preferred stock into the original number of shares of RCC’s Class A or Class B Common Stock in the future if ownership by TDS of RCC’s Common Stock would then be permissible under FCC rules. Dividends on the Class T preferred stock are cumulative and have a fixed coupon rate of 4% per annum and are payable in April 2020. Dividends are not payable if the shares are converted.

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

We are required to redeem the Senior Exchangeable Stock, Junior Exchangeable Preferred Stock, Class M Convertible Preferred Stock, and Class T Convertible Preferred Stock at 100% of their total liquidation preference plus accumulated and unpaid dividends at their respective mandatory redemption dates.

6) RESTATEMENT

Subsequent to the issuance of RCC’s 2001 financial statements, it was determined that the original treatment of certain derivatives and hedge instruments was not in accordance with SFAS No.133, as amended. In addition, a correction was made to the calculation for noncash dividends on our Class M preferred stock. These financial statements reflect all adjustments necessary for the SFAS No. 133 and preferred stock dividend corrections.

We have also completed the second phase of an evaluation to determine the amount of impairment according to SFAS No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”) and have recorded a noncash charge to goodwill of $5 million as the cumulative effect of a change in accounting principle retroactive to the first quarter of 2002. In conjunction with the completion of the second phase of the goodwill impairment test, we completed our transitional impairment test on licenses. We have recorded a noncash impairment charge of approximately $412 million as a correction, retroactively, to the first quarter of 2002 within the cummulative effect of a change in accounting principle.

Accordingly, we plan to amend our 2001 Annual Report on Form 10-K and our Form 10-Qs for the first two quarters of 2002 to reflect adjustments to interest expense and preferred stock dividends and the SFAS 142 impairment charges. We anticipate that the amended reports will be filed by December 15, 2002.

These restatements will not result in any default under any debt-related covenants contained in our credit agreements. There will be no change in the cash and cash equivalents previously reported by RCC. The restatements have no impact on operating income and cash flows.

The following table summarizes the changes to RCC’s financial statements for each quarter ended in 2001 and the year ended December 31, 2001 and the first two quarters in fiscal 2002 resulting from the restatement.

Effects of Restatement on Financial Statements in 2001

								*(In thousands, except per share data)*
	Three months ended March 31, 2001							Three months ended June 30, 2001						Three months ended September, 2001						Three months ended December 31, 2001
	As originally reported				As restated			As originally reported			As restated			As originally reported			As restated			As originally reported			As restated

Interest expense, net	$		(31,280	)	$	(37,104	)	$	(31,919	)	$	(30,614	)	$	(29,242	)	$	(40,285	)	$	(21,659	)	$	(21,257	)
Net loss before cumulative effect adjustment and extraordinary item	(15,447			)	(21,271		)	(8,380		)	(7,075		)	(1,267		)	(12,310		)	(8,958		)	(8,556		)
Cumulative effect adjustment	137				1,621			—			—			—			—			—			—
Net loss	(15,310			)	(19,650		)	(8,380		)	(7,075		)	(1,267		)	(12,310		)	(8,958		)	(8,556		)
Preferred stock dividend	(12,947			)	(13,163		)	(13,250		)	(13,430		)	(13,563		)	(13,791		)	(13,884		)	(14,161		)
Net loss applicable to common shares	(28,257			)	(32,813		)	(21,630		)	(20,505		)	(14,830		)	(26,101		)	(22,842		)	(22,717		)
Net loss per basic and diluted share	$	(2.39		)	$	(2.77	)	$	(1.82	)	$	(1.73	)	$	(1.25	)	$	(2.20	)	$	(1.92	)	$	(1.91	)

	Six months ended June 30, 2001						Nine months ended September 30, 2001						Year ended December 31, 2001
	As originally reported			As restated			As originally reported			As restated			As originally reported			As restated
Interest expense, net	$	(63,199	)	$	(67,718	)	$	(92,441	)	$	(108,003	)	$	(114,100	)	$	(129,260	)
Net loss before cumulative effect adjustment and extraordinary item	(23,827		)	(28,346		)	(25,094		)	(40,656		)	(34,052		)	(49,212		)
Cumulative effect adjustment	137			1,621			137			1,621			137			1,621
Net loss	(23,690		)	(26,725		)	(24,957		)	(39,035		)	(33,915		)	(47,591		)
Preferred stock dividend	(26,197		)	(26,593		)	(39,760		)	(40,384		)	(53,644		)	(54,545		)
Net loss applicable to common shares	(49,887		)	(53,318		)	(64,717		)	(79,419		)	(87,559		)	(102,136		)
Net loss per basic and diluted share	$	(4.21	)	$	(4.50	)	$	(5.46	)	$	(6.70	)	$	(7.38	)	$	(8.61	)

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

Effects of Restatement on Financial Statements in 2002

*(In thousands, except per share data)*
	Three months ended March 31, 2002						Three months ended June 30, 2002
	As reported			As restated			As originally reported			As restated

Interest expense, net	$	(27,009	)	$	(28,948	)	$	(29,644	)	$	(26,818	)
Net income before cumulative effect adjustment and extraordinary item	4,175			2,612			8,477			11,303
Cumulative effect adjustment	—			(417,064		)	—			—
Net income (loss)	856			(417,771		)	8,477			11,303
Preferred stock dividend	(14,215		)	(14,541		)	(14,556		)	(14,932		)
Net loss applicable to common shares	(13,359		)	(432,312		)	(6,079		)	(3,629		)
Net loss per basic and diluted share	$	(1.12	)	$	(36.27	)	$	(0.51	)	$	(0.30	)

	Six months ended June 30, 2002
	As originally reported			As restated
Interest expense, net	$	(57,029	)	$	(55,766	)
Net income before cumulative effect adjustment and extraordinary item	12,652			13,915
Cumulative effect adjustment	—			(417,064		)
Net income (loss)	9,333			(406,468		)
Preferred stock dividend	(28,771		)	(29,473		)
Net loss applicable to common shares	(19,438		)	(435,941		)
Net loss per basic and diluted share	$	(1.63	)	$	(36.58	)

	As of March 31, 2002						As of June 30, 2002
	As reported			As restated			As originally reported			As restated
Licenses, less accumulated amortization	$	1,030,623		$	618,577		$	1,030,623		$	618,577
Goodwill, less accumulated amortization	$	360,420		$	355,403		$	359,993		$	354,975
Long-term liabilities	$	1,273,450		$	1,273,296		$	1,279,916		$	1,273,874
Preferred securities	522,862			524,088			537,222			538,824
Accumulated deficit	(211,456		)	(645,362		)	(219,289		)	(648,991		)
Accumulated other comprehensive loss	$	(26,189	)	$	(10,419	)	$	(27,424	)	$	(10,346	)

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

As discussed in Note 6 to the Notes to Condensed Consolidated Financial Statements in Item 1, the financial statements for the nine months ended September 30, 2002 and the three and nine months ended September 30, 2001, have been restated. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects these restatements.

BUSINESS OVERVIEW

Rural Cellular Corporation currently markets services to 5.9 million potential users, covering the Midwest, Northeast, South, and Northwest regions. As of September 30, 2002, we provided wireless voice services to approximately 703,000 customers.

RCC’s principal operating objective is to increase revenues and achieve profitability through the development of new markets and increased penetration in existing markets. We believe that RCC can achieve this objective because our rural markets provide growth opportunities due to their lower current penetration rates and reduced competition for customers as compared to wireless systems located in larger metropolitan areas.

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

• Service revenues include monthly access charges, charges for airtime used in excess of the time included in the service package purchased, activation fees, long distance charges derived from calls placed by customers as well as wireless and paging equipment lease revenues. Also included are activation fees and charges for such features as voicemail, call waiting, and call forwarding. Service revenues also include incollect revenues, which are the charges to our customers when they use their wireless phones in other wireless markets. RCC does not charge installation or connection fees.

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

• Equipment revenues include sales of wireless and paging equipment and network equipment reselling.

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

• Network costs include switching and transport expenses and expenses associated with the maintenance and operation of RCC’s wireless network facilities as well as charges incurred by our customers through off network roaming activity, (incollect expense).

• Cost of equipment sales includes costs associated with telephone equipment and accessories sold to customers and network equipment reselling. In recent years, RCC and other wireless providers have increased the use of discounts on phone equipment as competition between service providers has intensified. As a result, RCC has incurred, and expects to continue to incur, losses on equipment sales and increased marketing and selling costs per gross additional customer. RCC expects to continue these discounts and promotions because we believe they will result in increases in the number of wireless customers and, consequently, increased service revenues. Cost of equipment sales does not include depreciation and amortization or the cost of handsets leased to customers, which is capitalized and depreciated over a 19-24 month period.

• Selling, general and administrative expenses include salaries, benefits, and operating expenses such as marketing, commissions, customer support, accounting, administration, and billing.

• Depreciation and amortization represents the costs associated with the depreciation of fixed assets and the amortization of subscriber lists. Under the rules of SFAS No. 142, RCC believes licensing and goodwill costs qualify as having indefinite useful lives and, therefore, as of January 1, 2002, are no longer being amortized. Depreciation and amortization also includes the depreciation of the capitalized cost of handsets leased to customers over a 19-24 month period. Our depreciation and amortization expense reflects acquisition activities and the buildout and upgrade of our network.

In addition to the operating expenses discussed above, RCC also incurs other expenses, primarily interest expense related to financing.

• Interest expense primarily results from borrowings under the credit facility and the senior subordinated notes, the proceeds of which were used to finance acquisitions, repay other borrowings and further develop RCC’s wireless network. Also contributing to interest expense are adjustments reflecting the ineffective portion of a derivative’s change in fair value, the change in fair market value of derivatives not qualifying for hedge accounting under SFAS No. 133, and the noncash amortization of costs incurred from unwinding certain financial instruments.

Preferred stock dividends are related to our issuances of preferred securities in 1998 and 2000 in conjunction with our acquisition activity.

RESULTS OF OPERATIONS

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

	Three months ended September 30,										Nine months ended September 30,
	2002					2001					2002					2001
	Actual			% of Revenue		Actual			% of Revenue		Actual			% of Revenue		Actual			% of Revenue
	(Unaudited)
REVENUES:

Service	$	81,828		65.8	%	$	80,234		65.1	%	$	235,414		68.1	%	$	230,421		68.9	%

Roaming	35,400			28.5		38,106			31.0		95,417			27.6		89,671			26.8

Equipment	7,098			5.7		4,842			3.9		14,941			4.3		14,520			4.3

Total revenues	124,326			100.0		123,182			100.0		345,772			100.0		334,612			100.0

OPERATING EXPENSES:

Network costs	24,684			19.9		26,492			21.5		73,582			21.3		75,753			22.6

Cost of equipment sales	10,344			8.3		9,168			7.5		18,315			5.3		21,520			6.4

Selling, general and administrative	28,569			23.0		30,708			24.9		84,034			24.3		86,571			25.9

Depreciation and amortization	22,102			17.8		28,843			23.4		61,611			17.8		83,430			24.9

Total operating expenses	85,699			69.0		95,211			77.3		237,542			68.7		267,274			79.8

OPERATING INCOME	38,627			31.0		27,971			22.7		108,230			31.3		67,338			20.2

OTHER INCOME (EXPENSE):

Interest expense, net	(28,384		)	(22.8	)	(40,285		)	(32.7	)	(84,150		)	(24.3	)	(108,003		)	(32.3	)

Other	(7		)	0.0		4			0.0		71			0.0		9			0.0

Other expense, net	(28,391		)	(22.8	)	(40,281		)	(32.7	)	(84,079		)	(24.3	)	(107,994		)	(32.3	)

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT ADJUSTMENT	10,236			8.2		(12,310		)	(10.0	)	24,151			7.0		(40,656		)	(12.1	)

EXTRAORDINARY ITEM	—			—		—			—		(3,319		)	(1.0	)	—			—
INCOME (LOSS) BEFORE CUMULATIVE EFFECT ADJUSTMENT	10,236			8.2		(12,310		)	(10.0	)	20,832			6.0		(40,656		)	(12.1	)

CUMULATIVE EFFECT ADJUSTMENT	—			—		—			—		(417,064		)	(120.6	)	1,621			0.5

NET INCOME (LOSS)	10,236			8.2		(12,310		)	(10.0	)	(396,232		)	(114.6	)	(39,035		)	(11.6	)

PREFERRED STOCK DIVIDEND	(15,334		)	(12.3	)	(13,791		)	(11.2	)	(44,807		)	(13.0	)	(40,384		)	(12.1	)

NET LOSS APPLICABLE TO COMMON SHARES	$	(5,098	)	(4.1	)%	$	(26,101	)	(21.2	)%	$	(441,039	)	(127.6	)%	$	(79,419	)	(23.7	)%

The following table presents RCC’s operating data for the periods indicated.

	Three months ended September 30,						Nine months ended September 30,
Consolidated Operating Data:	2002			2001			2002			2001
(in thousands, except customer data)	(Unaudited)
EBITDA (1)	$	60,729		$	56,814		$	169,841		$	150,768
Cash interest expense	(25,856		)	(28,071		)	(65,763		)	(96,235		)
Capital expenditures	(15,887		)	(12,009		)	(41,517		)	(30,244		)
Free cash flow (2)	$	18,986		$	16,734		$	62,561		$	24,289

Penetration (3) (4)	11.1		%	10.6		%	11.1		%	10.6		%
Retention (5)	98.1		%	97.2		%	98.2		%	97.8		%

Average monthly revenue per customer (6)	$	61		$	65		$	58		$	60
Net average monthly revenue per customer, including incollect cost (6)	$	54		$	58		$	51		$	53
Acquisition cost per customer (7)	$	411		$	308		$	357		$	275
Acquisition cost per customer, excluding phone service depreciation (7)	$	323		$	282		$	280		$	250

Customers at period end
Voice:
Postpaid cellular	610,064	573,992
Prepaid cellular	28,017	34,353
Wireless Alliance	16,965	13,778
Wholesale	47,751	25,450
Total customers	702,797	647,573

POPs(3)
RCC Cellular	5,161,000	5,161,000
Wireless Alliance	732,000	732,000
Total POPs	5,893,000	5,893,000

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

(2) Free cash flow is defined as EBITDA less cash interest expense and capital expenditures.

(3) Reflects 2000 U.S. Census Bureau data.

(4) Represents the ratio of wireless voice customers, excluding wholesale customers, at the end of the period to population served “POPs.”

(5) 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.

(6) Determined for each period by dividing the sum of access, airtime, roaming, long distance, features, connection, disconnection, and other revenues for such period by the monthly 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), and dividing that result by the number of months in such period.

(7) Determined for each period by dividing selling and marketing expenses, net costs of equipment sales, and depreciation of rental telephone equipment by the gross postpaid wireless voice customers added during such period.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2001

Revenues

Service Revenues. Service revenues for 2002 increased 2.0% to $81.8 million from $80.2 million in 2001. The revenue growth reflects additional customers added through increased penetration in existing markets. We expect service revenues to increase in the future primarily as a result of further anticipated industry-wide growth in customers and expansion of coverage.

Roaming Revenues. Reflecting decreased roaming yield resulting from recently signed roaming agreements with AT&T Wireless and Cingular partially offset by increases in outcollect roaming minutes, roaming revenues for 2002 decreased 7.1% to $35.4 million from $38.1 million in 2001. RCC’s newly signed amendment with AT&T Wireless is effective through December 2004 and covers our Northeast and Midwest regions. RCC’s new roaming agreement with Cingular is effective through January 2008 and covers all regions. Roaming minutes have increased in part due to the activation of additional cell sites and increased industry-wide wireless usage. Including toll and excluding the effect from a retroactive settlement with a roaming partner, outcollect roaming yield decreased to $0.27 in 2002 as compared to $0.36 in 2001. AT&T Wireless, Verizon and Cingular account for approximately 84% of our outcollect minutes.

We expect roaming revenue in the fourth quarter of 2002 to be moderately higher than in the fourth quarter of 2001. The anticipated increase in roaming revenue is a result of increased roaming outcollect minutes partially offset by lower outcollect yield.

Equipment Revenues. Equipment revenues for 2002 increased 46.6% to $7.1 million as compared to $4.8 million in 2001. This increase reflects a greater emphasis on handset sales as compared to phone leasing programs, which were utilized in 2001.

Operating Expenses

Network Costs. Network costs in 2002 declined 6.8% to $24.7 million as compared to $26.5 million in 2001. Incollect cost, a material component of network cost, declined 2.1% to $12.7 million as compared to $12.9 million in 2001. Per minute incollect cost in the third quarter of 2002 declined to $0.17 from $0.24 in the comparable period of 2001. We expect network costs for all of 2002 to be comparable to network costs incurred in 2001.

Cost of Equipment Sales. Cost of equipment sales for 2002 increased 12.8% to $10.3 million as compared to $9.2 million in 2001. As a percentage of revenues, cost of equipment sales for 2002 increased to 8.3% as compared to 7.4% in 2001. The increase in cost of equipment sales reflects the increase in equipment revenue.

RCC did not initiate any new phone service leasing plans during the third quarter of 2002 but did capitalize approximately $3.3 million in phone service handsets in 2001. Under phone service plans, the cost of handsets is capitalized rather than expensed as cost of equipment sales and is not included in acquisition cost per customer (“ACPC”). The capitalized cost of the handset is depreciated over a period of 19-24 months. We do not expect any new phone service leasing to occur in the fourth quarter of 2002.

Selling, General and Administrative. Selling, general and administrative (“SG&A”) expenses for 2002 decreased 7.0% as compared to 2001 to $28.6 million from $30.7 million. As a percentage of revenues, SG&A decreased to 23.0% in 2002 from 24.9% in 2001. The decrease in SG&A expenses primarily reflects a 57.2% decrease in bad debt expense in 2002 to $2.0 million as compared to $4.6 million in 2001 due to higher overall customer credit quality.

Depreciation and Amortization. Depreciation and amortization expense for 2002 decreased 23.4% to $22.1 million from $28.8 million in 2001. The decrease primarily reflects the January 1, 2002 adoption of SFAS No. 142 and the corresponding discontinuance of amortization of goodwill and licenses.

Other Income (Expense)

Interest Expense. Interest expense for 2002, including the effects of SFAS No. 133, decreased 29.5% to $28.4 million as compared to $40.3 million in 2001. The decline in interest expense primarily reflects noncash adjustments related to the accounting for derivative instruments pursuant to SFAS No. 133. See Note 6 for additional information relating to cash and noncash interest.

Preferred Stock Dividends

Preferred stock dividends in 2002 increased 11.2% to $15.3 million as compared to $13.8 million in 2001. The increase primarily resulted from our practice of paying dividends by issuing additional shares of exchangeable preferred stock rather than in cash, thereby increasing the basis for subsequent dividend distributions. To holders of record on November 1, 2002, RCC will distribute 6,661 and 5,795 shares of senior and junior exchangeable preferred stock, respectively, in payment of dividends on November 15, 2002.

Cumulative Effect Adjustment

We have completed the second phase of an evaluation to determine the amount of impairment according to SFAS No. 142 and have recorded a noncash charge of $417 million as the cumulative effect of a change in accounting principle retroactive to the first quarter of 2002.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2001

Service Revenues. Service revenues for 2002 increased 2.2% to $235.4 million from $230.4 million in 2001. The revenue growth reflects the additional customers added through increased penetration in existing markets. We expect service revenues to increase in the future primarily as a result of further anticipated industry-wide growth in customers and expansion of coverage.

Roaming Revenues. Reflecting increases in outcollect roaming minutes and the retroactive review and net settlement of roaming activity with one of our roaming partners, roaming revenues for 2002 increased 6.4% to $95.4 million from $89.7 million in 2001. The retroactive review and settlement of roaming activity resulted in a $2.0 million net benefit to RCC. Roaming minutes have increased in part due to the activation of additional cell sites and increased industry-wide wireless usage. Partially offsetting the increase in minutes of use during 2002 was the decrease in outcollect roaming yield per minute. Including toll and excluding the effect from the retroactive net settlement with a roaming partner, outcollect roaming yield decreased to $0.28 in 2002 as compared to $0.36 in 2001. AT&T Wireless, Verizon and Cingular account for approximately 83% of our outcollect minutes.

We expect roaming revenues in the fourth quarter of 2002 to be moderately higher than in the fourth quarter of 2001. This increase is a result of roaming outcollect minute increases together with volume related adjustments to outcollect yield. RCC’s newly signed amendment with AT&T Wireless is effective through December 2004 and covers our Northeast and Midwest regions. RCC’s new roaming agreement with Cingular is effective through January 2008 and covers all regions.

Equipment Revenues. Equipment revenues for 2002 remained relatively unchanged at $14.9 million as compared to $14.5 million in 2001. This increase reflects a greater emphasis on handset sales as compared to phone leasing programs, which were utilized in 2001.

Operating Expenses

Network Costs. Network costs in 2002 as compared to 2001 declined 2.9% to $73.6 million as compared to $75.8 million in 2001. Incollect cost, a material component of network cost, declined 4.3% to $36.4 million as compared to $38.1 million in 2001. Per minute incollect cost in the first half of 2002 declined to $0.19 from $0.27 in the comparable period of 2001. We expect network costs for all of 2002 to be comparable to network costs incurred in 2001.

Cost of Equipment Sales. Cost of equipment sales for 2002 decreased 14.9% to $18.3 million as compared to $21.5 million in 2001. As a percentage of revenues, cost of equipment sales for 2002 decreased to 5.3% as compared to 6.4% in 2001. Contributing to the decreases in cost of equipment sales were our lower gross customer adds in 2002 of approximately 145,000 as compared to approximately 175,000 in 2001.

RCC capitalized approximately $13.1 million in phone service handsets in 2002 as compared to $15.8 million in 2001. We do not expect phone service leasing in the fourth quarter of 2002.

Selling, General and Administrative. Selling, general and administrative (“SG&A”) expenses for 2002 decreased 2.9% over 2001 to $84.0 million from $86.6 million. As a percentage of revenues, SG&A decreased to 24.3% in 2002 as compared to 25.9% in 2001. The decrease in SG&A expenses primarily reflects a 39.7% decrease in bad debt expense in 2002 to $5.7 million as compared to $9.4 million in 2001 due to higher overall customer credit quality.

Depreciation and Amortization. Depreciation and amortization expense for 2002 decreased 26.2% to $61.6 million from $83.4 million in 2001. The decrease primarily reflects the January 1, 2002 adoption of SFAS No. 142 and the corresponding discontinuance of amortization of goodwill and licenses.

Other Income (Expense)

Interest Expense. Interest expense for 2002, including the effects of SFAS No. 133, decreased 22.1% to $84.2 million as compared to $108.0 million in 2001. The decline in interest expense primarily reflects noncash adjustments related to the accounting for derivative instruments pursuant to SFAS No. 133. See Note 6 for additional information relating to cash and noncash interest.

Preferred Stock Dividends

Preferred stock dividends in 2002 increased 11.0% to $44.8 million as compared to $40.4 million in 2001. The increase primarily resulted from our practice of paying dividends by issuing additional shares of exchangeable preferred stock rather than in cash, thereby increasing the basis for subsequent dividend distributions. To holders of record on November 1, 2002, RCC will distribute 6,661 and 5,795 shares of senior and junior exchangeable preferred stock, respectively, in payment of dividends on November 15, 2002.

Seasonality

RCC experiences seasonal fluctuations in revenues and operating income. RCC’s average monthly roaming revenue per cellular customer increases during the second and third calendar quarters. This increase reflects greater usage by roaming customers who travel in RCC’s cellular service area for weekend and vacation recreation or work in seasonal industries. Because our cellular service area includes many seasonal recreational areas, we expect that roaming revenues will continue to fluctuate seasonally more than service revenues.

LIQUIDITY AND CAPITAL RESOURCES

Rural Cellular Corporation’s primary liquidity requirements are for working capital, capital expenditures, debt service, acquisitions, and customer growth. In past years, RCC has met these requirements through cash flow from operations, borrowings under our credit facility, issuance of our senior subordinated notes and sales of our common and preferred stock.

We have a credit facility with a consortium of lenders, which, as of September 30, 2002, provided up to $275 million in revolving loans and $777.7 million in term loans. During the nine months ended September 30, 2002, we reduced borrowings under our credit facility by $317.7 million, which included $289.7 million in net proceeds from the issuance of the 9 ¾% senior subordinated notes and $28.0 million in cash flow from operations. The $28.0 million reduction in debt through cash flow from operations resulted in a $24.0 million permanent reduction under the credit facility. As of September 30, 2002, $793.9 million was outstanding under the credit facility and approximately $258.9 million available for future borrowings.

Our credit facility contains certain financial covenants that, among other things, limit our ability to incur indebtedness, make investments, create or permit liens, make capital expenditures, make guarantees and pay dividends. RCC’s credit facility also requires that RCC use derivatives to manage interest rate risk. See “Item 3. Quantitative and Qualitative Disclosures about Market Risk.” On December 14, 2000, March 31, 2001 and January 16, 2002, we obtained amendments of the financial covenants in the credit facility. As of September 30, 2002, RCC was in compliance with all financial covenants in the credit facility.

Over the next twelve months, we expect to be able to meet our working capital, capital expenditure and debt service requirements and achieve customer growth using cash flow from operations and borrowings under our credit facility. Over the longer term, our ability to meet our liquidity requirements will depend on future operating performance and other factors, many of which are outside of our control.

We currently are required to pay interest on our 9 5/8% and 9 ¾% notes and our credit facility. For the nine months ended September 30, 2002, we paid $65.8 million in interest on the 9 5/8% notes, the 9 ¾% notes and the credit facility. For the remainder of 2002, we expect to fund all cash interest payments with cash flow from operations.

We currently pay dividends on our senior and junior exchangeable preferred stock by issuing additional shares. Beginning in May 2003, we will be required to pay cash dividends on our senior exchangeable preferred stock, and beginning in February 2005, we will be required to pay cash dividends on our junior exchangeable preferred stock.

The following table presents RCC’s contractual obligations for the years ended December 31:

	Total		2002		2003		2004		2005		2006		Thereafter
(in thousands)
Debt service
Credit facility	$	793,853	$	—	$	37,001	$	62,808	$	74,036	$	89,755	$	530,253

9 3/4% Senior subordinated notes (due 1/15/2010)	300,000		—		—		—		—		—		300,000
9 5/8% Senior subordinated notes (due 5/15/2008)	125,000		—		—		—		—		—		125,000

*Senior exchangeable preferred stock (due 5/15/2010)	254,804		—		—		—		—		—		254,804
*Senior exchangeable preferred stock cash dividends beginning May 15, 2003	209,832		—		14,492		30,244		30,244		30,244		104,608

**Junior exchangeable preferred stock (due 2/15/2011)	252,273		—		—		—		—		—		252,273
** Junior exchangeable preferred stock cash dividends beginning February 15, 2005	195,854		—		—		—		27,852		32,352		135,650

Other long-term obligations	6,500		—		6,500		—		—		—		—
	2,138,116		—		57,993		93,052		132,132		152,351		1,702,588

Operating lease obligations	24,390		7,142		5,410		4,023		2,716		1,476		3,623

Total contractual cash obligations	$	2,162,506	$	7,142	$	63,403	$	97,075	$	134,848	$	153,827	$	1,706,211

*assumes anticipated senior exchangeable preferred stock dividends will be paid in kind through May 15, 2003.

**assumes anticipated junior exchangeable preferred stock dividends will be paid in kind through February 15, 2005.

Net cash provided by operating activities was $99.2 million for the nine months ended September 30, 2002. Adjustments to reconcile net loss of $396.2 million to net cash provided by operating activities included $61.6 million in depreciation and amortization, a cumulative effect adjustment of $417.1 million, a $13.0 million change in financial instrument valuation, a $5.0 million increase in accounts receivable, a $5.5 million decrease in accounts payable, a $4.3 million increase in other accrued expenses and a $3.1 million increase in advance billings and customer deposits.

Net cash used in investing activities for the nine months ended September 30, 2002 was $40.8 million. The principal use of cash was $41.5 million in purchases of property, plant and equipment, which included $13.1 million in purchases of handset equipment under our phone leasing program.

Driven by expectations regarding industry growth, we are expanding our network this year. We expect, however, capital expenditures for the year ended December 31, 2002 to be approximately $70 million.

Net cash used in financing activities was $27.8 million for the nine months ended September 30, 2002, consisting primarily of $360.2 million in repayments of long-term debt and $10.3 million in debt issuance costs partially offset by the issuance of long-term debt of $342.6 million.

Recently Issued Accounting Pronouncements

See Note 2 to Notes to Condensed Consolidated Financial Statements in Item 1.

Forward Looking Statements

Forward-looking statements herein are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although RCC believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. A number of factors could cause actual results, performance, achievements of RCC, or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors include but are not limited to competitive considerations, success of customer enrollment initiatives, the ability to increase wireless usage and reduce customer acquisition costs, the successful integration of newly acquired operations with RCC’s existing operations, the ability to negotiate favorable roaming agreements, the ability to service debt incurred in connection with expansion, the resolution of certain network technology issues and other factors discussed in RCC’s Report on Form 10-K for the year ended December 31, 2001 and in other filings with the Securities and Exchange Commission. Investors are cautioned that all forward-looking statements involve risks and uncertainties.

In addition, such forward-looking statements are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise and involve known and unknown risks, uncertainties and other factors. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be realized. All subsequent written and oral forward-looking statements attributable to RCC or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. RCC disclaims any obligation to update any such statements or to announce publicly the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

RCC has used senior subordinated notes and bank credit facilities to finance, in part, our acquisition activities, capital requirements, and operations. These on-balance sheet financial instruments, to the extent they provide for variable rates of interest, expose RCC to interest rate risk, with the primary interest rate risk exposure resulting from changes in the London Interbank Offering Rate (“LIBOR”), or the prime rate, which we use to determine the interest rates that are applicable to borrowings under our bank credit facilities. RCC uses derivative financial instruments to manage interest expense. For more information regarding financial instruments, see Note 4 of Notes to Condensed Consolidated Financial Statements.

At September 30, 2002, we had debt totaling $793.9 million under our credit facility. RCC has interest rate swap, swaption, collar and reverse swap agreements covering debt with a notional amount of $675.4 million to effectively change the interest on the underlying debt. For fixed rate debt, interest rate changes impact the fair market value of the instrument but do not impact our earnings or cash flows. Conversely, for variable rate debt, interest rate changes generally do not impact the fair market value of the instrument but do impact our future earnings and cash flows, assuming other factors are held constant.

RCC’s 9 5/8% senior subordinated notes mature in 2008. They are redeemable at RCC’s option for a premium after May 15, 2003. Under some conditions, it could become economically desirable for us to redeem the notes. In order to monetize the value of the option to redeem those notes, RCC entered into a “swaption” with respect to the notes. The counterparty purchased the swaption from RCC on March 1, 2001 for $8.7 million. Under the swaption, the counterparty has the right, but not the obligation, to receive a quarterly payment based on a rate of 9.625% per annum on the $131.0 million notional amount of the swaption in return for a quarterly payment based on LIBOR plus 1.50% per annum on that notional amount. This right is only exercisable on March 13, 2003 and if exercised, the swaption terminates on March 15, 2008. As a result of declining interest rates, as of September 30, 2002, we recorded the swaption as a liability on the balance sheet at its negative fair market value of $28.4 million.

In January 2002, in conjunction with the issuance of the 9.75% senior subordinated outstanding notes and the resulting higher proportion of fixed rate debt as compared to floating rate debt, we reviewed our derivatives portfolio. After this review, RCC entered into, at market, two reverse swap hedging transactions with combined notional value of $135.0 million, effectively increasing the proportion of our floating rate debt. In the reverse swaps, we agreed to receive a fixed rate of 9.75% in exchange for paying a floating rate plus a spread over LIBOR. If LIBOR plus the applicable spread is less than 9.75%, we will receive a payment from the counterparty for the difference between the two rates on the notional amount. If LIBOR plus the applicable spread is more than 9.75%, we will make a payment to the counterparty based on the difference in rates on the notional amount.

After giving effect to these financial instruments and the sale of the 9 ¾% senior subordinated notes, approximately 57% of RCC’s debt is essentially fixed rate debt as of September 30, 2002 as compared to approximately 61% at December 31, 2001. See Note 4 of the Notes to Condensed Consolidated Financial Statements for additional information regarding financial instrument activity.

Item 4. CONTROLS AND PROCEDURES

a) Within the 90-day period prior to the date of this report, RCC carried out an evaluation, under the supervision and with the participation of the RCC’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (the “Exchange Act”).

Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to RCC (including our consolidated subsidiaries) required to be included in our Exchange Act filings.

b) There have been no significant changes in our internal controls or in other factors which could significantly affect internal controls subsequent to the date we carried out this evaluation.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no material, pending legal proceedings to which RCC or any of our subsidiaries or affiliates is a party or of which any of their property is subject which, if adversely decided, would have a material adverse effect on us.

ITEM 2. CHANGES IN SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

DEFICIENCY NOTICE FROM NASDAQ STAFF

We received a Nasdaq Staff Determination on October 9, 2002 indicating that RCC has failed to comply with the minimum bid price requirements for continued listing set forth in Marketplace Rule 4450(b)(4) and, therefore, our common shares are subject to delisting from the Nasdaq National Market. RCC has been granted a hearing before a Nasdaq Listing Qualifications Panel to review the Nasdaq Staff Determination on November 22, 2002. Until the review is completed, RCC’s common shares will continue to trade on the Nasdaq National Market. Delisting from the Nasdaq National Market would not trigger any debt covenant violations.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

99.1 Certification of Richard P. Ekstrand, Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002

99.2 Certification of Wesley E. Schultz, Chief Financial Officer, pursuant to Section 906 of Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

The following Reports on Form 8-K were filed during the three months ended September 30, 2002:

• Report on Form 8-K dated August 6, 2002 reporting under Items 7 and 9 financial results for the quarter ended June 30, 2002.

• Report on Form 8-K dated August 19, 2002 reporting under Items 7 and 9 restated financial results for the quarter ended June 30, 2002.

SIGNATURES

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

		RURAL CELLULAR CORPORATION
		(Registrant)



Dated: November 13, 2002		/s/ Richard P. Ekstrand
		Richard P. Ekstrand
		President and Chief Executive Officer


Dated: November 13, 2002		/s/ Wesley E. Schultz
		Wesley E. Schultz
		Executive Vice President and Chief Financial Officer

SECTION 302 CERTIFICATION

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Richard P. Ekstrand, certify that:

(1) I have reviewed this Quarterly Report on Form 10-Q of Rural Cellular Corporation., a Minnesota corporation (the “registrant”);

(2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

(3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

(4) The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

(5) The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent

function):

(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

(6) The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002	By: /s/ Richard P. Ekstrand
	Richard P. Ekstrand

SECTION 302 CERTIFICATION

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Wesley E. Schultz, certify that:

(1) I have reviewed this Quarterly Report on Form 10-Q of Rural Cellular Corporation., a Minnesota corporation (the “registrant”);

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

function):

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: November 13, 2002	By: /s/ Wesley E. Schultz
	Wesley E. Schultz

BUSINESS OVERVIEW

LIQUIDITY AND CAPITAL RESOURCES

Total

2002

2003

2004

2005

2006

Thereafter