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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission file no. 333-59322 and 333-63454

American Cellular Corporation

(405) 529-8500

     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.     Yes o          No þ

      The registrant is not subject to filing requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, but files reports required by those sections pursuant to contractual obligations.

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No þ

      As of August 8, 2003, there were 100 shares of registrant’s $.01 par value Class A common stock outstanding, which are owned of record by ACC Acquisition LLC, which is equally and beneficially owned by Dobson Communications Corporation and AT&T Wireless Services, Inc.

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AMERICAN CELLULAR CORPORATION

INDEX TO FORM 10-Q

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PART I.

FINANCIAL INFORMATION

AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES

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

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AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES

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

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AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES

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

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AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES

      The condensed consolidated balance sheets of American Cellular Corporation, or ACC, and subsidiaries (collectively with ACC, the “Company”) as of June 30, 2003, the condensed consolidated statement of operations for the three and six months ended June 30, 2003 and 2002, and the condensed consolidated statements of cash flows for the six months ended June 30, 2003 and 2002 are unaudited. In the opinion of management, such financial statements include all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of financial position, results of operations, and cash flows for the periods presented.

      The condensed consolidated balance sheet data at December 31, 2002 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The financial statements presented herein should be read in connection with the Company’s December 31, 2002 consolidated financial statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2002.

      American Cellular Corporation was originally formed on February 26, 1998, to acquire the operations of PriCellular Corporation. On February 25, 2000, the Company was acquired by ACC Acquisition LLC (“the Joint Venture”), an equally owned joint venture between Dobson Communications and AT&T Wireless. The acquisition costs as of February 25, 2000 were pushed down to the Company, thus creating a new basis in the assets and liabilities of the Company. The Company is a provider of rural and suburban wireless telephone services in portions of Illinois, Kansas, Kentucky, Michigan, Minnesota, New York, Ohio, Oklahoma, Pennsylvania, West Virginia and Wisconsin.

      On July 14, 2003, the Company and Dobson Communications initiated a plan to restructure the Company’s indebtedness and equity ownership. Pursuant to this plan, the Company and Dobson Communications commenced simultaneous exchange offers for the Company’s existing 9.5% senior subordinated notes due 2009 (the “existing notes”) and solicitation of consents and votes for a pre-packaged bankruptcy plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code (the “Pre-Packaged Plan”) in the event the requirements of the restructuring plan are not satisfied. In connection with the restructuring plan, holders of the existing notes who tender their notes will receive an aggregate of up to 45.1 million shares of Dobson Communications’ class A common stock, 700,000 shares of Dobson Communications’ convertible preferred stock with a maximum aggregate liquidation preference of $125 million, convertible into a maximum of 14.3 million shares of Dobson Communications’ class A common stock, and up to $50.0 million in cash in exchange for their existing notes. Under the terms of the restructuring plan, if the requisite holders of the existing notes did not agree to the restructuring plan, the Company would proceed to the Pre-Packaged Plan if the Company had the approval of holders of existing notes representing at least 66.67% of the outstanding aggregate principle amount of the existing notes that actually vote on the Pre-Packaged Plan and the approval of holders representing at least a majority in number of the holders of the existing notes who actually vote on the Pre-Packaged Plan. Pursuant to the Pre-Packaged Plan, holders of the Company’s existing notes would receive the same consideration as they would have received in the restructuring plan. Upon consummation of the restructuring plan, the Company would become a wholly-owned, indirect subsidiary of Dobson Communications.

      On August 13, 2003, the Company and Dobson Communications jointly announced that they have accepted all of the existing notes that were tendered in connection with the proposed restructuring plan. As a condition of the restructuring plan, holders of at least 99.5% of the aggregate principal amount of the Company’s outstanding notes were required to accept the exchange offer and tender their notes, unless the Company and Dobson Communications agreed to a lesser participation. As of August 13, 2003, Dobson Communications stated that 97.4% of the outstanding principal amount of the Company’s notes had been tendered, thus, the Company and Dobson Communications determined to waive the 99.5% acceptance

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

requirement, and accept all notes tendered, and to proceed with the consummation of the restructuring plan. Even though the Company also received substantially more than the required vote for its prepackaged plan of reorganization, the Company and Dobson Communications do not intend to pursue the restructuring through the Pre-Packaged Plan of reorganization for the Company. The Company expects to close the exchange transaction on August 18, 2003, or as soon thereafter as is practicable.

      Dobson Communications has agreed to file a re-sale shelf registration statement for the new class A common and preferred stock within 20 days of the closing of the exchange.

      Also related to the restructuring, on August 8, 2003, the Company and ACC Escrow Corp., a recently formed, wholly-owned, indirect subsidiary of Dobson Communications, completed the private offering of $900 million aggregate principal amount of 10% senior notes due 2011. The senior notes were issued at par on August 8, 2003, by ACC Escrow Corp. ACC Escrow was organized to merge into the Company as part of the restructuring plan. The net proceeds of the note offering were placed in escrow. Upon consummation of the restructuring plan, including the merger, the net proceeds from the offering will be used to fully repay the Company’s existing bank credit facility and to pay expenses of the restructuring.

      The Company operates in one business segment pursuant to Statement of Financial Accounting Standards, or SFAS, No. 131, “Disclosures about Segments of an Enterprise and Related Information.”

      On February 8, 2002, the Company sold Tennessee 4 RSA to Verizon Wireless for a total purchase price of $202.0 million. Proceeds from this transaction were primarily used to pay down bank debt. Tennessee 4 RSA covered a total population of approximately 290,800 and had a subscriber base of approximately 24,900. As a result of this sale, the results of operations for Tennessee 4 RSA during the periods presented are included in the Company’s consolidated financial statements as discontinued operations.

      Pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which replaced APB Opinion No. 30 for the disposal of segments of a business, the condensed consolidated financial statements have been reclassified for all periods presented to reflect the Tennessee 4 RSA operations, assets and liabilities as discontinued operations.

      The net loss from discontinued operations was classified on the condensed consolidated statement of operations as “Loss from discontinued operations.” Summarized results of discontinued operations are as follows:

      The long-term debt of the Company is at the consolidated level, and is not reflected by each individual market. Thus, the Company has allocated a portion of interest expense to the discontinued operations based on Tennessee 4 RSA’s pro rata population coverage, to properly reflect the interest that was incurred to finance the Tennessee 4 RSA operations. The interest expense allocated to these operations was $1.0 million for the period from January 1, 2002 through February 8, 2002, the date of disposition.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company completed the sale of Tennessee 4 RSA on February 8, 2002, and recorded operating losses totaling $0.7 million incurred through February 8, 2002, and the related gain on the sale totaling $13.5 million, net of tax expense.

      The Company’s long-term debt consists of the following:

      On February 25, 2000, the Company obtained a $1.75 billion credit facility to retire existing debt and complete the acquisition of the Company by the Joint Venture. This credit facility included a $300.0 million revolving credit facility and $1.45 billion of term loan facilities. On March 2, 2001, the Company and its lenders agreed to an amendment to the credit facility. This amendment became effective on March 14, 2001, when the Company permanently repaid $200.0 million of the term loans. The Company used proceeds from the issuance of its $450.0 million senior subordinated notes due 2009, to reduce the credit facility to $1.55 billion. On May 31, 2001, the Company and its lenders agreed to a second amendment to the credit facility. This amendment became effective on June 4, 2001, when the Company permanently repaid $201.3 million of the term notes under the credit facility with proceeds from the issuance of an additional $250.0 million senior subordinated notes due 2009, which reduced the credit facility to $1.34 billion. On September 27, 2001, the Company and its lenders agreed to a third amendment of the credit facility, which modified certain financial covenants (as described below). In addition to the Company’s financial covenants, the Company is required to make prepayments of proceeds received from significant asset sales, new borrowings and a portion of excess cash flow. Therefore, when the Company completed the sale of Tennessee 4 RSA to Verizon Wireless for a total purchase price of $202.0 million during February 2002, the Company permanently prepaid approximately $190.0 million of its credit facility. The maximum availability of the credit facility is limited by restrictions, such as certain financial ratios. As of June 30, 2003, the Company had outstanding borrowings under the credit facility of $864.3 million, with no additional amounts available for future borrowings.

      The Company’s credit facility imposes a number of restrictive covenants that, among other things, limit the Company’s ability to incur additional indebtedness, create liens and pay dividends. In addition, the Company is required to maintain certain financial ratios, including, but not limited to:

	•	a ratio of senior indebtedness to operating cash flow of 5.75 to 1 at June 30, 2003, decreasing over time to 2.50 to 1;
	•	a ratio of total indebtedness to operating cash flow of 7.50 to 1 at June 30, 2003, decreasing over time to 4.00 to 1;
	•	a ratio of operating cash flow to debt service requirements of 1.20 to 1 at June 30, 2003, and thereafter;

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	•	a ratio of operating cash flow to interest expense requirement of 1.80 to 1 at June 30, 2003, increasing over time to 2.50 to 1; and
	•	a ratio of operating cash flow minus capital expenditures to the sum of debt service requirements and cash distributions of 1.00 to 1.

      Through September 2002, interest on the revolving credit facility and the term loans was variable and was based on a prime rate or a LIBOR formula. As a result of the Company’s non-compliance with a financial covenant contained in the credit facility, beginning in October 2002, all borrowings under the credit facility are only available based on prime rate. The weighted average interest rate for the six months ended June 30, 2003 was 5.8%, and interest rates have ranged in total between 4.4% and 10.0% since inception. This credit facility is collateralized by substantially all of the assets of the Company.

      The Company’s credit facility includes a financial covenant requiring the Company to not exceed a total debt leverage ratio of 7.50 to 1.00 in the second quarter of 2003. At June 30, 2002 and continuing through June 30, 2003, the Company has failed to comply with this covenant. The lenders presently have the right, but not the obligation, to accelerate the repayment of the entire amount outstanding under the credit facility. Acceleration under the credit facility would allow the holders of the Senior Subordinated Notes to declare the principal and interest of the Senior Subordinated Notes immediately due and payable. The Company would then be required to either refinance the debt or repay the amounts due. To date, no such acceleration has occurred. On June 30, 2002 and continuing through June 30, 2003, the Company has classified all of its long-term debt as current. Unless such non-compliance is resolved, there continues to be substantial doubt about the Company’s ability to continue as a going concern, as expressed in the independent auditors report on the Company’s 2002 and 2001 financial statements. Also as a result of the Company’s non-compliance, beginning in October 2002, all borrowings under its credit facility are only available based on prime rate, which has increased the Company’s borrowing rate. As previously discussed, upon consummation of the restructuring plan, the Company will repay the amount outstanding under this credit facility.

      The Company expects to enter into a new senior credit facility, to be secured by certain of the Company’s assets, with availability up to $30 million. However, the Company does not currently have commitments for any such facility.

      On March 14, 2001, the Company completed the sale of $450.0 million senior subordinated notes due 2009. These notes were sold at a discount of $3.3 million. These notes bear interest at an annual rate of 9.5%. The discount will be amortized over the life of the notes. On June 4, 2001, the Company completed the sale of $250.0 million of senior subordinated notes due 2009. These notes were sold at a discount of $3.6 million and also bear interest at an annual rate of 9.5%. The discount will be amortized over the life of the notes.

      At December 31, 2002, restricted cash and investments included $34.1 million, which represented the remaining balance of interest pledge deposits to secure payment of the first four semi-annual interest payments for the senior subordinated notes. The interest pledge deposits include the initial deposit of $85.2 million for the $450.0 million senior subordinated notes, net of interest earned and payments issued to bondholders, and the additional deposit of $48.0 million for the $250.0 million senior subordinated notes, net of interest earned and payments issued to bondholders. The last interest payment made from these reserved funds was during May 2003.

      The Company pays interest on its bank credit facility based on a variable factor, such as LIBOR or prime rate. The Company will from time-to-time enter into derivative contracts to reduce exposure against rising interest rates.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      During 2001, the Company entered into a $1.03 billion derivative contract on its credit facility, in order to hedge its interest rate exposure, whereby the interest rate on the facility was effectively fixed at a rate of 6.7%. This derivative contract expired in June 2002.

      In accordance with SFAS No. 133, the Company periodically assessed the effectiveness of its hedge transactions. During February 2002, the Company used a portion of the proceeds from the sale of the Tennessee 4 RSA to pay down bank debt. As a result, the Company determined that one of its hedge transactions, totaling $125.0 million was ineffective, thus, reducing the total derivative contracts to $900.0 million. The Company recorded a loss of approximately $1.1 million representing the fair value of this transaction as of June 30, 2002, which is reflected in other (expense) income in the accompanying statement of operations.

      Effective November 16, 2001, the Company entered into an equipment supply agreement with Nortel Networks Inc., in which the Company agreed to purchase approximately $49.5 million of cell site and switching equipment between November 16, 2001 and July 15, 2005. Of the commitment, approximately $10.2 million remained outstanding at June 30, 2003.

      The Company is party to various other legal actions arising in the normal course of business. None of the actions are believed by management to involve amounts that would be material to the Company’s consolidated financial position, results of operation, or liquidity.

      In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets.” These standards prohibit the application of the pooling-of-interests method of accounting for business combinations effective June 30, 2001 and require companies to cease the amortization of existing goodwill and intangible assets with indefinite lives effective January 1, 2002. Under the new rules, the Company is treating its wireless license acquisition costs as indefinite life intangible assets. As a result, effective January 1, 2002, the Company ceased the amortization of goodwill and wireless license acquisition costs. Instead, the Company now tests for impairment of goodwill or indefinite life intangible assets at least annually and will only adjust the carrying amount of these intangible assets upon an impairment of the goodwill or indefinite life intangible assets. Through December 31, 2001, the Company’s accounting policy was to evaluate the carrying value of its intangible assets based on its undiscounted cash flows. However, as a result of implementing SFAS No. 142, the Company is now required to evaluate the carrying value of its indefinite life intangible assets using their fair values. Upon implementation of SFAS No. 142 on January 1, 2002, the Company recorded charges, net of income tax benefit, of approximately $281.6 million to reflect the write-down of its wireless license acquisition costs to their fair value.

      Certain reclassifications have been made to the previously presented 2002 balances to conform them to the current presentation.

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      The following discussion and analysis presents factors, which we believe are relevant to an assessment and understanding of our condensed consolidated financial position and results of operations. This financial and business analysis should be read in conjunction with our condensed consolidated financial statements and the related notes.

Overview

      We provide rural and suburban wireless telephone services in portions of Illinois, Kansas, Kentucky, Michigan, Minnesota, New York, Ohio, Oklahoma, Pennsylvania, West Virginia and Wisconsin. At June 30, 2003, our wireless systems covered a population of 5.0 million and we had approximately 697,500 subscribers. We are equally owned by AT&T Wireless and Dobson Communications.

      Beginning on June 30, 2002 and continuing through June 30, 2003, we have failed to comply with a financial covenant in our senior credit facility, which requires that we not exceed a certain total debt leverage ratio. Our lenders presently have the right, but not the obligation, to accelerate the repayment of the entire amount outstanding under the credit facility. Acceleration under the credit facility would allow the holders of our senior subordinated notes to declare the principal and interest of the senior subordinated notes immediately due and payable. We would then be required to either refinance the debt or repay the amounts due. To date, no such acceleration has occurred. Absent a debt acceleration, we anticipate that our cash flow from operations, along with cash on hand, will be sufficient to meet our capital requirements through October 2003, at which time we will be required to make additional cash interest payments on our senior subordinated notes. If the cash interest payments on our senior subordinated notes are not made, the senior subordinated noteholders could declare the principal and interest of the notes immediately due and payable. Therefore, at June 30, 2003, all of our long-term debt is classified as current. Unless such non-compliance is resolved, there continues to be substantial doubt about our ability to continue as a going concern, as expressed in the independent auditors report on our 2002 and 2001 consolidated financial statements.

      On July 14, 2003, we and Dobson Communications initiated a plan to restructure our indebtedness and equity ownership. Pursuant to this plan, we and Dobson Communications commenced simultaneous exchange offers for our existing 9.5% senior subordinated notes due 2009 (the “existing notes”) and solicitation of consents and votes for a pre-packaged bankruptcy plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code (the “Pre-Packaged Plan”) in the event the requirements of the restructuring plan are not satisfied. In connection with the restructuring plan, holders of the existing notes who tender their notes will receive an aggregate of up to 45.1 million shares of Dobson Communications’ class A common stock, 700,000 shares of Dobson Communications’ convertible preferred stock with a maximum aggregate liquidation preference of $125 million, convertible into a maximum of 14.3 million shares of Dobson Communications’ class A common stock, and up to $50.0 million in cash in exchange for their existing notes. Under the terms of the restructuring plan, if the requisite holders of the existing notes did not agree to the restructuring plan, we would proceed to the Pre-Packaged Plan if we had the approval of holders of existing notes representing at least 66.67% of the outstanding aggregate principle amount of the existing notes that actually vote on the Pre-Packaged Plan and the approval of holders representing at least a majority in number of the holders of the existing notes who actually vote on the Pre-Packaged Plan. Pursuant to the Pre-Packaged Plan, holders of our existing notes would receive the same consideration as they would have received in the restructuring plan. Upon consummation of the restructuring plan, we would become a wholly-owned, indirect subsidiary of Dobson Communications.

      On August 13, 2003, we and Dobson Communications jointly announced that we have accepted all of the existing notes that were tendered in connection with the proposed restructuring plan. As a condition of the restructuring plan, holders of at least 99.5% of the aggregate principal amount of our outstanding notes were required to accept the exchange offer and tender their notes, unless we and Dobson Communications agreed to a lesser participation. As of August 13, 2003, Dobson Communications stated that 97.4% of the outstanding principal amount of our notes had been tendered, thus, we and Dobson Communications determined to waive the 99.5% acceptance requirement, and accept all notes tendered, and to proceed with the consummation of

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      Dobson Communications has agreed to file a re-sale shelf registration statement for the new class A common and preferred stock within 20 days of the closing of the exchange.

      Also related to the restructuring, on August 8, 2003, we and ACC Escrow Corp., a recently formed, wholly-owned, indirect subsidiary of Dobson Communications, completed the private offering of $900 million aggregate principal amount of 10% senior notes due 2011. The senior notes were issued at par on August 8, 2003, by ACC Escrow Corp. ACC Escrow was organized to merge with us as part of the restructuring plan. The net proceeds of the note offering were placed in escrow. Upon consummation of the restructuring plan, including the merger, the net proceeds from the offering will be used to fully repay our existing bank credit facility and to pay expenses of the restructuring.

      We expect to enter into a new senior credit facility, to be secured by certain of our assets, with availability up to $30 million. However, we do not currently have commitments for any such facility.

Discontinued Operations

      On February 8, 2002, we sold Tennessee 4 RSA to Verizon Wireless for a total purchase price of $202.0 million. The Tennessee 4 RSA covered a population of approximately 290,800 and had a subscriber base of approximately 24,900. As a result of this sale, the results of operations for Tennessee 4 RSA during the periods presented are included as discontinued operations in our consolidated financial statements. We used the proceeds primarily to pay down our bank debt.

Subscribers

      Our subscriber base contains three types of subscribers; post-paid, reseller and pre-paid. At June 30, 2003 post-paid subscribers accounted for the largest portion of our subscriber base, at 94.8%. These subscribers pay a monthly access fee for a wireless service plan that generally includes a fixed amount of minutes and certain service features. In addition to the monthly access fee, these subscribers are typically billed in arrears for long-distance charges, roaming charges and rate plan overages. Our reseller subscribers are similar to our post-paid subscribers in that they pay monthly fees to utilize our network and services; however, these subscribers are billed by a third party (reseller), who has effectively resold our service to the end user (subscriber). We in turn bill the third party for the monthly usage of the end user. At June 30, 2003, the reseller base accounted for 4.1% of our total subscriber base. Our pre-paid subscribers, which at June 30, 2003 accounted for 1.1% of our subscriber base, are subscribers that pre-pay for an agreed upon amount of usage.

      Our average monthly revenue per subscriber and total gross additions are calculated and reported based only on post-paid subscriber information.

Revenue

      Our operating revenue consists of service revenue, roaming revenue, and equipment and other revenue.

      We derive service revenue primarily by providing wireless services to our subscribers. The wireless industry has experienced declining average revenue per minute as competition among wireless service providers has led to reductions in rates for airtime. The per minute yield on our service revenue (service revenue divided by subscriber minutes-of-use) was $0.16 for the three months ended June 30, 2003, $0.18 for the three months ended June 30, 2002, $0.17 for the six months ended June 30, 2003, and $0.18 for the six months ended June 30, 2002. These declines have generally been offset by significant increases in average minutes-of-use per subscriber. The average minute-of-use per subscriber increased 3.7% and 6.8% for the three and six months ended June 30, 2003 compared to 2002. We believe that the industry trend toward

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      We derive roaming revenue by providing service to subscribers of other wireless providers when those subscribers “roam” into our markets and use our systems to carry their calls. Roaming accounted for 29.7% of our operating revenue for the three months ended June 30, 2003, 30.7% for the three months ended June 30, 2002, 27.9% for the six months ended June 30, 2003 and 28.8% for the six months ended June 30, 2002. Roaming revenue typically yields higher margins than revenue from our subscribers. We achieve these higher margins because we incur relatively lower incremental costs related to network operations, billing, customer service and collections in servicing roaming customers as compared to our home subscribers. However, even though roaming revenue yields have offered higher margins than revenue from our subscribers, the yields are declining and are becoming more comparable to yields from our subscribers due to increased market pressures and competition among wireless providers. Our roaming yield (roaming revenue, which includes airtime, toll charges and surcharges, divided by roaming minutes-of-use) was $0.23 for the three months ended June 30, 2003, $0.29 for the three months ended June 30, 2002, $0.23 for the six months ended June 30, 2003, and $0.29 for the six months ended June 30, 2002. We believe that the trend of increasing roaming minutes will continue to partially offset declining roaming yields. Roaming minutes increased 22.0% and 28.6% for the three and six months ended June 30, 2003 compared to 2002. Roaming yields are decreasing as a result of new contracts and scheduled rate reductions in existing contracts. We believe these roaming contracts are beneficial because they secure existing traffic and provide opportunity for a continuing increase in the volume of traffic. Roaming revenue tends to be impacted by seasonality. We typically have higher roaming revenue during the second and third quarters of each year, as users tend to travel more and, therefore, use their wireless phones more during the spring and summer months.

      We include long-distance revenue in service and roaming revenue. Equipment revenue is revenue from selling wireless equipment to our subscribers. Equipment revenue is recognized when the equipment is delivered to the customer. Our ability to sell wireless equipment is independent of our ability to offer wireless services to our customers; therefore, we consider equipment sales to be a separate earnings process and account for it accordingly.

Costs and Expenses

      Our primary operating expense categories include cost of service, cost of equipment, marketing and selling costs, general and administrative costs and depreciation and amortization.

      Our cost of service consists primarily of costs to operate and maintain our facilities utilized in providing service to customers and amounts paid to third-party wireless providers for providing service to our subscribers when our subscribers roam into their markets, referred to as “roaming” costs. Consistent with the trend of declining roaming revenue per minute, our roaming expense per minute has declined as well. This decline in expense per minute has contributed significantly to the recent trend of declining cost of service.

      Our cost of equipment represents the costs associated with telephone equipment and accessories sold. We, like other wireless providers, have continued the use of discounts on phone equipment and free phone promotions for phones sold to our customers, as competition between service providers continues to intensify. As a result, we have incurred, and expect to continue to incur, losses on equipment sales. While we expect to continue these discounts and promotions, we believe that these promotions will result in increased revenue from increases in our number of wireless subscribers.

      Our marketing and selling costs include advertising, compensation paid to sales personnel and independent dealers and all other costs to market and sell wireless products and services, and certain costs related to customer retention. We pay commissions to direct sales personnel and independent dealers for new business generated.

      Our general and administrative costs include all infrastructure costs, including costs for customer support, billing, collections, and corporate administration. One of our principal owners, Dobson Communications,

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      Our depreciation and amortization expense represents the costs associated with the depreciation of our fixed assets and the amortization of certain intangible assets.

Critical Accounting Policies and Practices

      It is necessary that we use estimates in the presentation of our financial statements with respect to the effect of matters that are inherently uncertain. Our use of estimates and assumptions affects the reported amounts of assets, liabilities, and the amount of revenue and expenses we recognize for and during the reporting period.

      Our general and administrative expenses and certain other operating expenses include all infrastructure costs, including costs for customer support, billing, collections and corporate administration. One of our principal owners, Dobson Communications, provides management and certain other services to us in accordance with a management agreement. We share corporate and shared call center costs with Dobson Communications based primarily on the estimated subscribers and populations in our respective licensed areas. If there were a change in the method used to allocate shared costs among Dobson Communications and us, the change could have a significant impact on our results of operations.

      We depreciate our property, plant and equipment and amortize our customer lists and certain other definite life intangible assets over their useful lives. These useful lives are based on our estimates of the period that the assets will generate revenue. Our policy was to review the carrying value of our long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. With the implementation of SFAS No. 142, “Goodwill and Other Intangible Assets,” which requires companies to cease the amortization of existing goodwill and intangible assets with indefinite lives, we reassessed the useful lives of our intangible assets. A significant portion of our intangible assets is classified as “Wireless license acquisition costs,” which represents our costs associated with acquiring our FCC licenses. These licenses allow us to provide wireless services by giving us the exclusive right to utilize certain radio frequency spectrum. Although the FCC licenses are issued for only a fixed time, generally ten years, these licenses are renewed by the FCC on a routine basis and for a nominal fee. In addition, we have determined that there are no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of these FCC licenses. As a result, our wireless license acquisition costs are treated as indefinite life intangible assets. Therefore, upon implementing SFAS No. 142 in its entirety on January 1, 2002, we ceased the amortization of both goodwill and wireless license acquisition costs and now test for impairment of goodwill and wireless license acquisition costs at least annually and only adjust the carrying amount of these intangible assets upon an impairment of the goodwill or wireless license acquisition costs. We also determine on an annual basis whether facts and circumstances continue to support an indefinite useful life.

      This change in policy has and may continue to have a significant impact to our results of operations and financial position. Through December 31, 2001, as stated above, our accounting policy for impairment of long-lived assets was to review the carrying value of our long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If such circumstances were deemed to exist, the carrying value of the asset would be compared to the estimated undiscounted future cash flows generated by the asset. Our definite life assets will continue to be amortized over their estimated useful lives and are subject to the same impairment criteria. As a result of fully implementing SFAS No. 142 on January 1, 2002, we are now required to evaluate the carrying value of our indefinite life intangible assets using their fair values, at least annually. To complete this evaluation, we first performed a comparison of the carrying amount of our wireless license acquisition costs to the fair value of those assets. For purposes of this comparison, it is our policy to aggregate our wireless license acquisition costs. We determined the fair value of our wireless license acquisition costs based on their estimated future discounted cash flows. Based on the comparison we performed upon implementation, we determined that the carrying amount of our wireless license acquisition costs exceeded their estimated fair value. Therefore, upon

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      Based on factors and circumstances impacting us and the business climate in which we operated as of June 30, 2002, we determined that it was necessary to re-evaluate the carrying value of our goodwill and indefinite life intangible assets in accordance with SFAS No. 142. The legal factors include the non-compliance with our total leverage ratio covenant on our senior credit facility, which gave our lenders the right to accelerate the repayment of the entire amount outstanding under our senior credit facility. In addition, our business climate was impacted due to the fact that the rural wireless industry had continued to experience a significant deterioration in public equity valuations during the second quarter of 2002. As a result of the re-evaluation of our wireless license acquisition costs and goodwill, we concluded that the fair value of our wireless license acquisition costs, as determined upon implementation of SFAS No. 142, had not changed and deemed that there was no further impairment of these assets. In performing the impairment test on our goodwill, we concluded that the overall assumptions used in first quarter 2002 were still valid with the exception of the risk-based discount factor and enterprise valuations. With the revised assumptions at June 30, 2002, we determined that our goodwill was impaired and as a result, we recorded an impairment loss totaling $377.0 million.

      In addition, during fourth quarter 2002, we continued to have factors impacting our business for which a re-evaluation was necessary. We continue to not be in-compliance with our total leverage ratio covenant of our senior credit facility, which has given our lenders the right to accelerate the repayment of the entire amount outstanding under our senior credit facility. To date, no such acceleration has occurred and we continue to hold discussions with our bank lenders and with representatives of certain of our bondholders concerning a potential reorganization. Based on these discussions and other factors, including an increase in a risk-based discount factor, we determined that our goodwill continued to be impaired based on current enterprise valuations. Therefore, we recorded an additional impairment loss of $423.9 million at December 31, 2002, bringing our total impairment loss on goodwill to $800.9 million for the year ended December 31, 2002.

Results of Operations

      In the text below, financial statement numbers have been rounded; however, the percentage changes are based on the actual financial statement numbers.

      Operating revenue. For the three months ended June 30, 2003, our total operating revenue increased $1.1 million, or 1.0%, to $116.9 million from $115.8 million for the comparable period in 2002. The following table sets forth the components of our operating revenue for the periods indicated:

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      For the three months ended June 30, 2003, our service revenue increased $1.8 million, or 2.4%, to $78.1 million from $76.3 million for the three months ended June 30, 2002. The increase was primarily attributable to increased penetration and usage. Our average subscriber base increased 5.7% to 659,400 at June 30, 2003 from 623,600 at June 30, 2002. However, our average monthly service revenue per subscriber decreased to $39 for the three months ended June 30, 2003 compared to $40 for the three months ended June 30, 2002.

      For the three months ended June 30, 2003, our roaming revenue decreased $0.9 million, or 2.5%, to $34.7 million from $35.6 million for the three months ended June 30, 2002. We experienced a 22.0% increase in roaming minutes in our markets due to expanded coverage areas and increased usage, however it was offset by a 20.1% decline in our roaming revenue per minute-of-use.

      For the three months ended June 30, 2003, our equipment and other revenue increased $0.1 million, or 3.6%, to $4.1 million from $4.0 million for the three months ended June 30, 2002. This increase primarily resulted from an increased amount of wireless equipment upgrades during the three months ended June 30, 2003 compared to the same period in 2002.

      Cost of Service. For the three months ended June 30, 2003, our total cost of service decreased $4.4 million, or 15.1%, to $24.9 million from $29.3 million for the comparable period in 2002. The following table sets forth the components of our cost of service for the periods indicated:

      For the three months ended June 30, 2003, our network costs, which are the costs incurred from operating our wireless network and providing service to our customers, increased $0.6 million, or 4.8%, to $13.7 million from $13.1 million for the comparable period in 2002. This increase primarily resulted from the increase in our network capacity necessary to handle minute-of-use growth.

      For the three months ended June 30, 2003, roaming costs decreased by $5.0 million, or 31.2%, to $11.2 million from $16.2 million for the same period in 2002. This decrease was the result of a 28.7% decline in rates charged by third-party providers resulting from new lower rate agreements and a 3.5% decrease in the minutes used by our customers on those providers’ networks.

      Cost of equipment. For the three months ended June 30, 2003, our cost of equipment increased $1.5 million, or 19.2%, to $9.2 million during 2003 from $7.7 million in 2002. This increase resulted from an increase in the equipment upgrades during the three months ended June 30, 2003 compared to the same period in 2002.

      Marketing and selling costs. For the three months ended June 30, 2003, our marketing and selling costs decreased $2.4 million, or 16.0%, to $12.4 million from $14.8 million for the three months ended June 30, 2002 due to efficiencies gained from centralized marketing functions with one of our principal owners, Dobson Communications, and a decrease in gross subscriber additions. Gross subscriber additions were 37,900 for the three months ended June 30, 2003 compared to 48,700 for the three months ended June 30, 2002.

      General and administrative costs. For the three months ended June 30, 2003, our general and administrative costs increased $0.3 million, or 1.8%, to $17.3 million from $17.0 million for the three months ended June 30, 2002. This increase is a result of increased infrastructure costs such as customer service, billing, collections and administrative costs as a result of the overall growth of our business. Our overall monthly general and administrative costs per subscriber decrease 4.6% to approximately $8 for the three months ended June 30, 2003 compared to approximately $9 for the six months ended June 30, 2002.

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      Depreciation and amortization expense. For the three months ended June 30, 2003, our depreciation and amortization expense increased $0.8 million, or 4.8%, to $17.6 million from $16.8 million for 2002. The increase was the result of additional depreciation on fixed assets acquired in 2002 and the first six months of 2003.

      Interest expense. For the three months ended June 30, 2003, our interest expense decreased $7.6 million, or 19.5%, to $31.2 million from $38.8 million for the three months ended June 30, 2002. The decrease resulted primarily from the reduction of our outstanding balance on our credit facility and decreased variable interest rates as a result of lower interest rates and the expiration of our hedges.

      Impairment on Goodwill. For the three months ended June 30, 2002, we recognized am impairment of our goodwill totaling $377.0 million. This impairment was a result of our periodic re-evaluation of our carrying values of goodwill and indefinite life intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.”

      Net loss. For the three months ended June 30, 2003, our net income was $2.1 million. Our net income increased $383.7 million from a net loss of $381.6 million for the three months ended June 30, 2002. The increase in our net income was primarily attributable to our loss recognized from the $377.0 million impairment of a portion of our goodwill during 2002, as described above, and an increase in our operating income during the three months ended June 30, 2003 compared to 2002.

      Operating revenue. For the six months ended June 30, 2003, our total operating revenue increased $7.7 million, or 3.6%, to $223.4 million from $215.7 million for the comparable period in 2002. The following table sets forth the components of our operating revenue for the periods indicated:

      For the six months ended June 30, 2003, our service revenue increased $6.9 million, or 4.7%, to $153.3 million from $146.4 million for the six months ended June 30, 2002. The increase was primarily attributable to increased penetration and usage. Our average subscriber base increased 6.7% to 658,800 at June 30, 2003 from 617,500 at June 30, 2002. Our average monthly service revenue per subscriber remained constant at $39 for the six months ended June 30, 2003 and 2002.

      For the six months ended June 30, 2003, our roaming revenue increased $0.2 million, or 0.3%, to $62.4 million from $62.2 million for the six months ended June 30, 2002. This slight increase was primarily attributable to a 28.6% increase in roaming minutes in our markets due to expanded coverage areas and increased usage offset by a 22.0% decline in our roaming revenue per minute-of-use.

      For the six months ended June 30, 2003, our equipment and other revenue increased $0.6 million, or 9.5%, to $7.7 million from $7.1 million for the six months ended June 30, 2002. This increase primarily resulted from an increased amount of wireless equipment upgrades during the six months ended June 30, 2003 compared to the same period in 2002.

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      Cost of Service. For the six months ended June 30, 2003, our total cost of service decreased $8.3 million, or 14.5%, to $48.4 million from $56.7 million for the comparable period in 2002. The following table sets forth the components of our cost of service for the periods indicated:

      For the six months ended June 30, 2003, our network costs, which are the costs incurred from operating our wireless network and providing service to our customers, increased $2.0 million, or 7.8%, to $26.6 million from $24.6 million for the comparable period in 2002. This increase primarily resulted from the increase in our network capacity necessary to handle minute-of-use growth.

      For the six months ended June 30, 2003, roaming costs decreased by $10.2 million, or 31.7      %, to $21.8 million from $32.0 million for the same period in 2002. This decrease was the result of a 30.6% decline in rates charged by third-party wireless providers resulting from new lower rate agreements and a 1.6% decrease in the minutes used by our customers on those providers’ networks.

      Cost of equipment. For the six months ended June 30, 2003, our cost of equipment increased $3.0 million, or 19.4%, to $18.1 million during 2003 from $15.1 million in 2002. This increase resulted from an increase in the equipment upgrades during the six months ended June 30, 2003 compared to the same period in 2002.

      Marketing and selling costs. For the six months ended June 30, 2003, our marketing and selling costs decreased $3.6 million, or 12.5%, to $24.8 million from $28.4 million for the six months ended June 30, 2002 due to efficiencies gained from centralized marketing functions with one of our principal owners, Dobson Communications, and a decrease in gross subscriber additions. Gross subscriber additions were 76,400 for the six months ended June 30, 2003 compared to 95,500 for the six months ended June 30, 2002.

      General and administrative costs. For the six months ended June 30, 2003, our general and administrative costs increased $1.3 million, or 3.9%, to $34.9 million from $33.6 million for the six months ended June 30, 2002. This increase is a result of increased infrastructure costs such as customer service, billing, collections and administrative costs as a result of the overall growth of our business. Our overall monthly general and administrative costs per subscriber decreased 3.3% to approximately $8 for the six months ended June 30, 2003 compared to approximately $9 for the six-month periods ended June 30, 2002.

      Depreciation and amortization expense. For the six months ended June 30, 2003, our depreciation and amortization expense increased $1.9 million, or 5.6%, to $34.6 million from $32.7 million for 2002. The increase was the result of additional depreciation on fixed assets acquired in 2002 and the first six months of 2003.

      Interest expense. For the six months ended June 30, 2003, our interest expense decreased $16.8 million, or 21.2%, to $62.5 million from $79.3 million for the six months ended June 30, 2002. The decrease resulted primarily from the reduction of our outstanding balance on our credit facility and decreased variable interest rates as a result of lower interest rates and the expiration of our hedges.

      Impairment on Goodwill. For the six months ended June 30, 2002, we recognized an impairment of our goodwill totaling $377.0 million. This impairment was a result of our periodic re-evaluation of our carrying values of goodwill and indefinite life intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.”

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      Loss from discontinued operations. For the six months ended June 30, 2002, we had a net loss from discontinued operations of $0.7 million. This loss from discontinued operations reflects our 2002 operating losses from Tennessee 4 RSA, which we sold to Verizon Wireless on February 8, 2002.

      Gain from sale of discontinued operations. For the six months ended June 30, 2002, we had a gain from sale of discontinued operations of $13.5 million, net of tax. This gain reflects our sale of our Tennessee 4 RSA market, which we sold to Verizon Wireless on February 8, 2002.

      Cumulative effect of change in accounting principle. For the six months ended June 30, 2002, we recognized an impairment on our wireless license acquisition costs of approximately $281.6 million, net of tax benefit, as a result of implementing SFAS No. 142 “Goodwill and Other Intangible Assets.”

      Net loss. For the six months ended June 30, 2003, our net loss was $0.3 million. Our net loss decreased $663.5 million, or 100.0%, from $663.8 million for the six months ended June 30, 2002. The decrease in our net loss was primarily attributable to our cumulative effect of change in accounting principle related to the implementation of SFAS No. 142 and our impairment of goodwill in 2002, as described above.

Liquidity and Capital Resources

      We have required, and will likely continue to require, substantial capital to further develop, expand and upgrade our wireless systems and those we may acquire. We have financed our operations through cash flows from operating activities, bank debt, which may not be available to us in the future, the sale of debt securities and infusions of equity capital from one of our parents and its affiliates.

      At June 30, 2003, we had $23.1 million of unrestricted cash and $4.1 million in restricted cash. Upon consummation of the proposed restructuring and the execution of a new secured credit facility, we expect to have sufficient resources to satisfy our expected capital expenditures, working capital and debt service obligations for the foreseeable future.

      At June 30, 2003, we had a working capital deficit of $1.5 billion, a ratio of current assets to current liabilities of 0.05:1 and an unrestricted cash balance of $23.1 million, which compares to a working capital deficit of $1.6 billion, a ratio of current assets to current liabilities of 0.06:1, and an unrestricted cash balance of $15.9 million at December 31, 2002. Our callable long-term debt of $1.56 billion at June 30, 2003 and $1.59 billion at December 31, 2002, is included in our current liabilities. Without consideration of our long-term debt, we would have had working capital of $12.4 million at June 30, 2003 and $31.2 million at December 31, 2002.

      Our net cash provided by operating activities totaled $23.5 million for the six months ended June 30, 2003 compared to net cash used in operating activities of $0.9 million for the six months ended June 30, 2002. The increase is primarily due to increases from operating income in 2003 and additional cash used in 2002 for our discontinued operations.

      Our net cash used in investing activities totaled $19.5 million for the six months ended June 30, 2003 compared to net cash provided by investing activities of $165.4 million for the six months ended June 30, 2002. This decrease is related primarily to the net proceeds from the sale of Tennessee 4 RSA to Verizon Wireless for a total of approximately $202.6 million, less approximately $8.1 million reserved in escrow received in 2002. Capital expenditures were $28.3 million for the six months ended June 30, 2003 and $30.0 million for the six months ended June 30, 2002.

      Net cash provided by financing activities was $3.2 million for the six months ended June 30, 2003 compared to net cash used in financing activities of $165.7 million for the six months ended June 30, 2002. This increase compared to 2002 is primarily due to repayments of long-term debt totaling $325.8 million during 2002, including using the proceeds from the sale of Tennessee 4 RSA.

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      On February 25, 2000, we obtained a $1.75 billion bank credit facility that included a $300.0 million revolving credit facility and $1.45 billion of term loans. Our credit facility was amended on March 14, 2001, when we permanently repaid $200.0 million of the term loans. We used proceeds from the March 2001 issuance of our $450.0 million senior subordinated notes due 2009, to reduce our credit facility to $1.55 billion. We further amended our credit facility on June 4, 2001, when we permanently repaid $201.3 million of the term loan with proceeds from our issuance of an additional $250.0 million senior subordinated notes due 2009, which reduced our credit facility to $1.34 billion. On September 27, 2001, our lenders and we agreed to a third amendment of the credit facility, which modified certain financial covenants (as described below). In addition to our financial covenants, we are required to make prepayments of proceeds received from significant asset sales, new borrowings and a portion of excess cash flow. Therefore, when we completed the sale of Tennessee 4 RSA to Verizon Wireless for a total purchase price of $202.0 million during February 2002, we permanently prepaid $190.0 million of this credit facility. The maximum availability of the credit facility is limited by restrictions, such as certain financial ratios. As of June 30, 2003, we had outstanding borrowings under our credit facility of $864.3 million, with no additional amounts available for future borrowings.

      Our credit facility imposes a number of restrictive covenants that, among other things, limit our ability to incur additional indebtedness, create liens and pay dividends. In addition, we are required to maintain certain financial ratios, including, but not limited to:

	•	a ratio of senior indebtedness to operating cash flow of 5.75 to 1 at June 30, 2003, decreasing over time to 2.50 to 1;
	•	a ratio of total indebtedness to operating cash flow of 7.50 to 1 at June 30, 2003, decreasing over time to 4.00 to 1;
	•	a ratio of operating cash flow to debt service requirements of 1.20 to 1 at June 30, 2003 and thereafter;
	•	a ratio of operating cash flow to interest expense requirement of 1.80 to 1 at June 30, 2003, increasing over time to 2.50 to 1; and
	•	a ratio of operating cash flow minus capital expenditures to the sum of debt service requirements and cash distributions of 1.00 to 1.

      Through September 2002, interest on the revolving credit facility and the term loan facilities was variable and was based on a prime rate or a LIBOR formula. As a result of our non-compliance with a financial covenant contained in the credit facility, beginning in October 2002, all borrowings under our credit facility are only available based on prime rate. The weighted average interest rate for the three months ended June 30, 2003 was 5.8% and interest rates have ranged in total between 4.4% and 10.0% since inception.

      Our credit facility includes a financial covenant requiring that we not exceed a total debt leverage ratio of 7.50 to 1.00 in the second quarter of 2003. At June 30, 2002 and continuing through June 30, 2003, we have failed to comply with this covenant. Our lenders presently have the right, but not the obligation, to accelerate the repayment of the entire amount outstanding under the credit facility. Acceleration under the credit facility would allow the holders of our senior subordinated notes to declare the principal and interest of the senior subordinated notes immediately due and payable. We would then be required to either refinance the debt or repay the amounts due. To date, no such acceleration has occurred. On June 30, 2002 and continuing through June 30, 2003, we classified all of our long-term debt as current. Unless such non-compliance is resolved, there continues to be substantial doubt about our ability to continue as a going concern, as expressed in the independent auditors reports on our 2002 and 2001 financial statements. Also as a result of our non-compliance, beginning in October 2002, all borrowings under our credit facility are only available based on prime rate, which has increased our borrowing rate. During the six months ended June 30, 2003, our total scheduled principal payments were $23.2 million under this facility. On August 8, 2003, however, we and ACC Escrow Corp., a recently formed, wholly-owned, indirect subsidiary of Dobson Communications, completed a private offering of $900 million aggregate principle amount of 10% senior notes due 2011, for

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      We expect to enter into a new senior credit facility, to be secured by certain of our assets, with availability up to $30 million. However, we do not currently have commitments for any such facility.

      On March 14, 2001, we sold $450.0 million principal amount of senior subordinated notes due 2009 at a discount of $3.3 million. These notes bear interest at an annual rate of 9.5%. The discount will be amortized over the life of the notes. On June 4, 2001, we sold $250.0 million principal amount of senior subordinated notes due 2009 at a discount of $3.6 million that also bear interest at an annual rate of 9.5%. The discount will be amortized over the life of the notes.

      On June 29, 2001, we received $35.0 million from Dobson Communications Corporation from its purchase of 35,000 shares of our 12.0% Series A preferred stock.

      We had capital expenditures of $28.3 million for the six month ended June 30, 2003. On July 18, 2003, we announced our plans to accelerate our GSM/ GPRS overlay of networks and thus, we revised our expected capital expenditures for 2003. While we originally projected 2003 capital expenditures of approximately $60 million, we now plan to accelerate construction from 2004 into the current year, thus increasing 2003’s capital expenditures to approximately $105 million. We plan on investing in our property and equipment from operating cash flows expected to be generated during 2003 and the proceeds of our new secured credit facility. The amount and timing of capital expenditures may vary depending on the rate at which we expand and develop our wireless systems, new regulatory requirements, whether we consummate additional acquisitions and whether we are successful in reorganizing.

      We are obligated under an agreement to purchase approximately $49.5 million of cell site and switching equipment from Nortel Network Corp. prior to July 15, 2005. Approximately $10.2 million of the commitment remained outstanding at June 30, 2003. If we fail to fully meet this commitment by July 15, 2005, we could be forced to pay a penalty of up to 20% of the unfulfilled commitment. We expect to substantially fulfill our purchase commitment under this agreement prior to its scheduled completion date. We have and will continue to finance our purchases under this commitment using cash flows from operations.

Effect of the Restructuring

      As a result of the consummation of the restructuring, we will become a wholly-owned subsidiary of Dobson Communications and its subsidiaries. Our existing credit facility is expected to be repaid in full and terminated, and the existing notes are exchanged for cash and Dobson Communications common and convertible preferred stock. We expect to enter into a new senior credit facility, to be secured by certain of our assets, with an availability of up to $30.0 million, subject to customary borrowing conditions. We do not currently have commitments for any such facility. There can be no assurance we will be able to obtain one on acceptable terms. We believe that cash on hand, cash generated by our operations and the proceeds available to us under the proposed new senior credit facility will be adequate to satisfy our expected capital expenditures, anticipated working capital requirements and debt service obligations for the foreseeable future.

      Because the new senior notes are not guaranteed by Dobson Communications or any of its subsidiaries other than our domestic restricted subsidiaries, and because we and our subsidiaries will not be guarantors of Dobson Communications indebtedness, there will be restrictions on the ability of Dobson Communications to contribute cash to us for working capital needs, and conversely, to obtain cash from us, either as dividends or borrowings. As a result, despite our status as a consolidated subsidiary of Dobson Communications for tax and financial reporting purposes, it is anticipated that we and our subsidiaries, on the one hand, and Dobson Communications and its subsidiaries, on the other hand, will need to have and maintain separate sources of capital.

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Effect of New Accounting Standards

      In July 2001, the FASB issued Statements of Financial Accounting Standards No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets.” These standards prohibit the application of the pooling-of-interests method of accounting for business combinations effective June 30, 2001 and require companies to stop the amortizing of existing goodwill and intangible assets with indefinite lives effective January 1, 2002. Under the new rules, we are treating our wireless license acquisition costs as indefinite life intangible assets. As a result, effective January 1,2002, we ceased the amortization of wireless license acquisition costs. Instead, we will test our indefinite life intangible assets for impairment at least annually and will only adjust the carrying amount of these intangible assets upon an impairment of the indefinite life intangible assets. Through December 31, 2001, our accounting policy was to evaluate the carrying value of our intangible assets based on our undiscounted cash flows. However, as a result of implementing SFAS No. 142, we are now required to evaluate the carrying value of our indefinite life intangible assets using their fair values. As a result of our implementation of SFAS No. 142 on January 1, 2002, we recorded a charge, net of income tax benefit, of approximately $281.6 million to reflect the write down of our wireless license acquisition costs to their fair value.

      In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement 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 a 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 adopted this standard on January 1, 2003, with no material effect on our financial condition or operations.

      The FASB’s Emerging Issues Task Force issued “EITF 00-21: Accounting for Revenue Arrangements with Multiple Deliverables,” to address certain revenue recognition issues. The guidance provided from EITF 00-21 addresses both the timing and classification in accounting for different earnings processes. We do not expect that the adoption of EITF 00-21 will have a material impact on our financial condition or operations.

      In May, 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of Liabilities and Equity.” This statement is effective for interim periods beginning after June 15, 2003 and will require that mandatorily redeemable preferred stock be classified as a liability and any related accretion of discount and accrual of dividends be charged to our statement of operations. Currently, the charges related to the mandatorily redeemable preferred stock are not reflected in net income (loss), but are reflected in determining net income (loss) applicable to common stock. At June 30, 2003, the carrying value of America Cellular’s mandatorily redeemable preferred stock that would have been reclassified as a liability was $35.0 million. The related dividends that would have been reflected as interest expense was $2.5 million for the six months ended June 30, 2003.

Forward-Looking Statements

      The description of our plans set forth herein, including planned capital expenditures and acquisitions, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These plans involve a number of risks and uncertainties. Important factors that could cause actual capital expenditures, acquisition activity or our performance to differ materially from the plans include, without limitation, our ability to satisfy the financial covenants of our outstanding debt and preferred stock instruments and to raise additional capital; our ability to manage our rapid growth successfully and to compete effectively in our wireless business against competitors with greater financial, technical, marketing and other resources; changes in end-user requirements and preferences; the development of other technologies and products that may gain more commercial acceptance than those of ours; and adverse regulatory changes. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update or revise these forward-looking statements to reflect

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      Our primary market risk relates to changes in interest rates. Market risk is the potential loss arising from adverse changes in market prices and rates, including interest rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes. The objective of our financial risk management is to minimize the negative impact of interest rate fluctuations on our earnings and equity. At June 30, 2003, we were not involved with any derivatives or other financial instruments, due to the fact that our previous interest rate swaps expired on June 4, 2002.

      At June 30, 2003, we had debt outstanding of $1.6 billion, of which $864.3 million bears interest at floating rates. These rates averaged 5.8% for the six months ended June 30, 2003. One percentage point of an interest rate adjustment would change our cash interest payments on an annual basis by approximately $8.6 million.

      As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as required by Rule 13a-15(b). Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective.

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PART II. OTHER INFORMATION

      We are not currently aware of any additional or material changes to pending or threatened litigation against us or our subsidiaries that could have a material adverse effect on our financial condition, results of operations or cash flows.

      Not applicable

      We are not in compliance with a financial covenant contained in our $1.34 billion bank credit facility. This credit facility includes a financial covenant requiring that we not exceed a total debt leverage ratio. At June 30, 2003, we were not in compliance with this covenant. Our lenders have the right, but not the obligation, to accelerate the repayment of the entire amount outstanding under the credit facility.

      Not applicable

      Not applicable

      (a) Exhibits

      The following exhibits are filed as a part of this report:

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