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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission File No: 333-110082

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 November 3, 2004, there were 50 shares of the registrant’s $0.01 par value Class A Common Stock outstanding, which are owned of record by Dobson JV Company and 300 shares of the registrant’s $0.01 par value Class B Common Stock outstanding, which are owned of record by Dobson Communications Corporation.

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 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 sheet of American Cellular, or ACC, and subsidiaries (collectively with ACC, the “Company”) as of September 30, 2004, the condensed consolidated statements of operations for the three and nine months ended September 30, 2004, the period from July 1, 2003 to August 18, 2003, the period from formation (June 23, 2003) to September 30, 2003 and the period from January 1, 2003 to August 18, 2003 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2004, the period from January 1, 2003 to August 18, 2003 and the period from formation (June 23, 2003) to September 30, 2003 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 at December 31, 2003, 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, 2003 consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

      The following Notes relate to both the Company and the predecessor company of American Cellular (“the Predecessor Company”). The Predecessor Company was owned by a 50/50 joint venture between AT&T Wireless Services, Inc. and Dobson Communications Corporation. On August 19, 2003, American Cellular was reorganized and became a wholly owned subsidiary of Dobson Communications, as described below.

      ACC Escrow Corp., a wholly owned, indirect subsidiary of Dobson Communications Corporation, or Dobson Communications, was formed on June 23, 2003, and began operations on August 8, 2003, when it completed the sale of $900.0 million 10% Senior Notes, the proceeds of which were used in the Company’s restructuring. On August 19, 2003, ACC Escrow Corp. was merged into the Company in conjunction with the Company’s exchange offer for its existing 9.5% Senior Subordinated Notes due 2009 (the “existing notes”). This exchange offer resulted in the restructuring of the Company’s indebtedness and equity ownership. As part of the restructuring, holders of $681.9 million principal amount of the $700.0 million outstanding principal amount of the Company’s existing notes tendered their notes and, in exchange for the tendered notes, received from Dobson Communications 43.9 million shares of its Class A Common Stock, 681,900 shares of its Convertible Preferred Stock with an aggregate liquidation preference of $121.8 million, convertible into a maximum of 13.9 million shares of Dobson Communications’ Class A Common Stock, and $48.7 million in cash. Dobson Communications also issued an additional 4,301 shares of its Series F Convertible Preferred Stock and 276,848 shares of its Class A Common Stock in payment of certain fees of the restructuring. Upon consummation of the restructuring, on August 19, 2003, the Company became a wholly owned subsidiary of Dobson Communications. To provide a more comparable view of the Company’s condensed consolidated financial statements, the Company has provided its condensed consolidated financial statements and notes for the nine months ended September 30, 2004, along with the condensed consolidated financial statements and notes of the Predecessor 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.

      American Cellular Corporation, the Predecessor Company, was originally formed on February 26, 1998, to acquire the operations of PriCellular Corporation. On February 25, 2000, American Cellular Corporation and its subsidiaries were acquired by ACC Acquisition LLC, an equally owned joint venture between Dobson Communications and AT&T Wireless.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Property, plant and equipment are recorded at cost. Newly constructed wireless systems are added to property, plant and equipment at cost, which includes contracted services, direct labor, materials and overhead. Existing property, plant and equipment purchased through acquisitions is recorded at its fair value at the date of the purchase. Repairs, minor replacements and maintenance are charged to operations as incurred. The provisions for depreciation are provided using the straight-line method based on the estimated useful lives of the various classes of depreciable property. Depreciation expense for the nine months ended September 30, 2004 and 2003 totaled $50.0 million and $44.4 million, respectively. Listed below are the gross property, plant and equipment amounts and the related accumulated depreciation for the periods described.

      The Company’s long-term debt as of September 30, 2004 and December 31, 2003, consisted of the following:

      On August 8, 2003, ACC Escrow Corp. completed the sale of $900.0 million aggregate principal amount of 10% Senior Notes due 2011. The notes were issued at par and bear interest at an annual rate of 10%. Interest on the notes is payable semi-annually in arrears on February 1 and August 1, commencing February 1, 2004. The Company may, at its option, redeem, with a premium that begins at 110% and declines to 100%, some or all of the notes at any time on or after August 1, 2007. Prior to August 1, 2006, the Company may, at its option, use the proceeds of certain equity offerings to redeem at a premium of 110%, a portion of the outstanding notes as long as at least $600.0 million in aggregate principal amounts of the senior notes remain outstanding immediately after the redemption. The indenture imposes a number of restrictive covenants that, among other things, limit the Company’s ability to incur additional indebtedness, make restricted payments, sell assets, create or incur liens, places restrictions on distributions and other payments, merge or consolidate with or transfer substantial assets to another entity, engage in transactions with related persons or engage in any business other than permitted businesses.

      As a result of acquiring $681.9 million of the $700.0 million of senior subordinated notes for a value totaling $470.6 million, the Predecessor Company recognized an extraordinary gain of $131.0 million, net of tax for the period from July 1, 2003 to August 18, 2003 and for the period from January 1, 2003 to August 18, 2003.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      On August 19, 2003, as described above, the Company’s indebtedness and equity ownership were restructured. Upon consummation of the restructuring, the Company became a wholly owned, subsidiary of Dobson Communications.

      The purchase price of the Company by Dobson Communications and the allocation of the acquired assets and assumed liabilities (including fees paid in the transaction) for the Company are as follows:

      As a result of Dobson Communication paying $474.5 million in common stock, preferred stock and cash, and assuming the Company’s liabilities totaling $1,156.1 million, the fair market value of the assets acquired by Dobson Communications was established at $1,630.6 million. The value of the 44.2 million shares of common stock was determined based on the average market price of Dobson’s common stock over the two-day period before and after the terms of the acquisition were agreed to and announced. The preferred stock was valued at its negotiated price.

      To determine the purchase price allocation and the resulting recognition of goodwill, Dobson Communications analyzed all of the assets acquired. They reviewed the carrying value of the current assets and the property, plant and equipment and determined that the carrying value approximated the fair market value. In their review of the Wireless licenses and Customer lists they determined that the fair values exceeded the prior

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

carrying values and adjusted them accordingly. They completed the valuation of the Wireless licenses during the fourth quarter of 2003, resulting in an increase of $100 million to the Company’s Wireless licenses. As for the Customer lists, they reviewed the Company’s customer base and considered several factors, including the cost of acquiring customers, the average length of contracts with these customers and the average revenue that they could provide, and increased the value by $65.6 million to $80.0 million for their customer base of 699,500. Finally, the Deferred financing costs represent the costs associated with financing the acquisition of the Company and issuing the Company’s new 10% senior notes.

      Dobson Communications acquired the Company’s remaining equity interest to continue the combined strategy of owning rural and suburban wireless telecommunication service areas.

      Prior to the restructuring, the Company had net operating loss, or NOL, carryforwards of approximately $320.0 million. The restructuring transactions resulted in the reduction of those NOL carryforwards by approximately $200.0 million. After the restructuring, approximately $120.0 million of NOL carryforwards remained available to the Company. However, the restructuring also resulted in an ownership change within the meaning of the Internal Revenue Code Section 382 and the regulations thereunder. This ownership change limits the amount of previously generated NOL carryforwards that the Company can utilize to offset future taxable income on an annual basis. The Company has reviewed the need for a valuation allowance against these NOL carryforwards. Based on a review of taxable income, history and trends, forecasted taxable income, expiration of carryforwards and limitations on the annual use of the carryforwards, the Company has not provided a valuation allowance for the NOL carryforwards because management believes that it is more likely than not that all of the NOL carryforwards of the Company will be realized prior to their expiration.

      The Company is obligated under a purchase and license agreement with Nortel Networks Corp. to purchase approximately $30 million of GSM/ GPRS/ EDGE related products and services prior to June 9, 2007. If the Company fails to achieve this commitment, the agreement provides for liquidated damages in an amount equal to 20% of the portion of the $30 million that remains unfulfilled. As of September 30, 2004, $10 million of this commitment has been fulfilled.

      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.

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      The following discussion and analysis presents factors that 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 notes thereto included in Item 1. Except where expressly stated otherwise, the following discussion and analysis relate to American Cellular prior to its merger with ACC Escrow Corp. on August 19, 2003, and to ACC Escrow Corp. and American Cellular following their merger. Wherever the term “predecessor” or “predecessor company” is used, it refers to American Cellular prior to its merger with ACC Escrow Corp. Unless otherwise stated, the financial and other data set forth below are provided on a combined basis, and the terms “we,” “us” and “our” refer to American Cellular prior to its merger with ACC Escrow Corp., and to ACC Escrow Corp. and American Cellular on a combined basis following their merger.

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.

      ACC Escrow Corp. was formed on June 23, 2003, as a wholly owned, indirect subsidiary of Dobson Communications and began operations on August 8, 2003, when it completed the sale of $900.0 million of 10% Senior Notes, the proceeds of which were used in our restructuring. Prior to August 19, 2003, we were owned by a joint venture, which was equally owned by Dobson Communications and AT&T Wireless. On August 19, 2003, we restructured our indebtedness and equity ownership. To effect this restructuring, ACC Escrow Corp. was merged into us, and we completed an exchange offer for our existing 9.5% Senior Subordinated Notes due 2009, which we refer to as our existing notes. In the exchange offer, the holders of $681.9 million of the $700.0 million outstanding principal amount of our existing notes exchanged those existing notes and received 43.9 million shares of Dobson Communications’ Class A Common Stock, 681,900 shares of Dobson Communications’ Series F Convertible Preferred Stock having an aggregate liquidation preference of $121.8 million and convertible into a maximum of 13.9 million shares of Dobson Communications’ Class A Common Stock, and $48.7 million in cash. In addition, Dobson Communications issued an additional 4,301 shares of its Series F Convertible Preferred Stock and 276,848 shares of its Class A Common Stock in payment of certain fees of the restructuring. We used a portion of the proceeds from the sale of ACC Escrow Corp’s 10% Senior Notes to fully repay our existing credit facility. Upon consummation of the restructuring on August 19, 2003, we became a wholly owned subsidiary of Dobson Communications. To provide a more comparable basis for our Management Discussion and Analysis, we have combined the actual results for the period from formation (June 23, 2003) to September 30, 2003 together with the Predecessor Company’s results of operation for the period from January 1, 2003 to August 18, 2003, for comparison with our results of operation for the three and nine months ended September 30, 2004. We believe that the operating presentation is not materially impacted by the change in basis as a result of the August 19, 2003 acquisition. The primary changes are reflected in intangible assets, goodwill, and stockholder’s equity.

CRITICAL ACCOUNTING POLICIES AND PRACTICES

      We prepare our consolidated financial statements in accordance with general accepted accounting principles (“GAAP”). Our significant accounting polices are discussed in detail in our Management’s Discussion and Analysis and in Note 2 to the consolidated financial statements, both included in our Annual Report on Form 10-K for the year ended December 31, 2003.

      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. We base our estimates on historical experiences and reasonable assumptions. 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. Actual results may differ from estimates.

      Our general and administrative expenses and certain other operating expenses include all infrastructure costs, including costs for customer support, billing, collections and corporate administration, all of which are

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RESULTS OF OPERATIONS

      For comparison purposes, any reference in this “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” to the period ended September 30, 2003, refers to the combined period ended September 30, 2003. The following table summarizes our key operating data for the periods indicated:

(1)	Represents the population in our licensed areas, or POPs, for the period indicated and is based upon the Claritas 2000 Bureau of Census results, adjusted to exclude those portions of our rural service areas, or RSAs, and metropolitan service areas, or MSAs, not covered by our licenses.
(2)	Market penetration is calculated by dividing ending subscribers by market population.
(3)	Average monthly service revenue per subscriber is calculated by dividing service revenue by average subscribers and dividing by the number of months in the period. We exclude roaming revenue from this calculation, since roaming revenue is not derived from our subscribers.
(4)	Average monthly post-paid churn represents the percentage of the post-paid subscribers, which deactivate service each month. The calculation divides the total post-paid deactivations during the period by the average post-paid subscribers for the period.

Subscribers

      Our subscriber base comprises three types of subscribers; post-paid, reseller and pre-paid. At September 30, 2004, post-paid subscribers accounted for 92.8% of our subscriber base. 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, which we refer to as reseller, who has effectively resold our service to the end user, which we refer to as a subscriber. We in turn bill the reseller for the monthly usage of the subscriber. At September 30, 2004, the reseller base accounted for 5.5% of our total subscriber base. Our pre-paid subscribers, which at September 30, 2004 accounted for 1.7% of our subscriber base, are subscribers that pre-pay for an agreed upon amount of usage.

      We have experienced a decline in the growth of our subscriber base as a result of increased competition attributable to an accelerating pace of improvements in the quality of digital technology, and increased products offered to the consumer. Many of our competitors already provide market enhanced data services, such as single carrier radio transmission technology, or 1XRTT. We recently deployed Global System for Mobile Communication, or GSM, and General Packet Radio Service, or GPRS, with an Enhanced Data for GSM Evolution, or EDGE on our networks and have begun to experience improvement in our gross subscriber additions. We expect to see our gross subscribers additions continue to increase during the remainder of 2004 as a result of new services that are available with GSM/ GPRS/ EDGE.

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Revenue

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

      We derive service revenue 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. These declines have generally been offset by significant increases in average minutes-of-use per subscriber. As a result, our average monthly service revenue per subscriber has remained fairly constant. We believe there is an opportunity in the remainder of 2004 for our average monthly service revenue per subscriber to increase from current levels primarily due to additional voice and data services available through our GSM/ GPRS/ EDGE network.

      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 revenue has traditionally had 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, our roaming margins have been declining due to increased market pressures and competition among wireless providers, resulting in reduced rates in our new roaming contracts and scheduled rate reductions in our existing roaming contracts. Our roaming yield (roaming service revenue, which includes airtime, toll charges and surcharges, divided by roaming minutes-of-use) was $0.14 for the three months ended September 30, 2004, $0.20 for the three months ended September 30, 2003, $0.15 for the nine months ended September 30, 2004 and $0.22 for the nine months ended September 30, 2003. Even though these roaming contracts provide for decreasing rates over time, we believe these roaming contracts are beneficial because they secure existing traffic and provide opportunity for a continuing increase in traffic volumes. Roaming revenue tends to be impacted by seasonality. Historically, we have experienced higher roaming minutes-of-use and related 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.

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.

      Our cost of equipment represents the costs associated with wireless equipment and accessories sold to customers. We and other wireless providers continue to use discounts on phone equipment and free phone promotions. 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 an increase in the 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 our 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.

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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. However, we do not amortize our wireless license acquisition costs or goodwill. Rather these assets are subject to periodic evaluation.

Results of Operations for the Three Months Ended September 30, 2004 Compared to the Three Months Ended September 30, 2003

      The combined period ended September 30, 2003 results of operations, combine the results of operations for the period from July 1, 2003 to August 18, 2003 (the period prior to our acquisition by Dobson Communications) and the results of operations for the period from formation (June 23, 2003) to September 30, 2003 (the period subsequent to our acquisition by Dobson Communications). For comparison purposes, any reference in this “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” to the period ended September 30, 2003, refers to the combined period ended September 30, 2003. The following table sets forth the components of our results of operations for the periods indicated: