SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission File Number 0-27416

RURAL CELLULAR CORPORATION

PO Box 2000
3905 Dakota Street SW
Alexandria, Minnesota 56308
(320) 762-2000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ  NO o

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). YES þ  NO o

     Number of shares of common stock outstanding as of the close of business on April 28, 2005.

TABLE OF CONTENTS

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Part I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

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

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RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS’ DEFICIT
(Unaudited)

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

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RURAL CELLULAR CORPORATION AND SUBSIDIARIES

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

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RURAL CELLULAR CORPORATION AND SUBSIDIARIES

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

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RURAL CELLULAR CORPORATION AND SUBSIDIARIES

1) BASIS OF PRESENTATION:

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

The accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2005 and 2004 have been prepared by management. In the opinion of management, only normal recurring adjustments necessary to fairly present the financial position, results of operations, and cash flows for all periods presented have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2004. The results of operations for the three months ended March 31, 2005 are not necessarily indicative of the operating results for the full fiscal year or for any other interim periods.

2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

For a detailed discussion of our significant accounting policies and estimates, please refer to our Annual Report on Form 10-K for the year ended December 31, 2004. There have been no material changes in the application of our significant accounting policies. Applications of these policies in preparing the first quarter 10-Q require that estimates be made by management to fairly present the financial position of RCC.

3) ACCOUNTING FOR STOCK OPTIONS:

We account for stock option plans under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” under which no compensation expense is recognized. The following schedule shows our net loss and net loss per share for the three months ended March 31, 2005 and 2004, had compensation expense been determined consistent with the SFAS No. 123, “Accounting for Stock-Based Compensation.” The pro forma information presented below is based on several assumptions and should not be viewed as indicative of future periods.

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4) LICENSES AND OTHER INTANGIBLE ASSETS:

Licenses consist of the value assigned to our personal communications services (“PCS”) licenses and cellular licenses. Other intangibles, resulting primarily from acquisitions, include the value assigned to customer lists and goodwill. Amortization is computed using the straight-line method based on the estimated useful life of the asset. Customer lists are the only intangible asset with a definitive useful life; all others are considered to have indefinite useful lives.

Customer list amortization expense for the three months ended March 31, 2005 and 2004 was approximately $4.6 million. Annual customer list amortization expense is estimated to be approximately $18.5 million for the years ending December 31, 2005 and 2006, $8.4 million in 2007 and $2.5 million in 2008.

We review goodwill and other indefinite-lived intangible assets for impairment based on the requirements of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). In accordance with this statement, goodwill is tested for impairment at the reporting unit level on an annual basis as of October 1st or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. These events or circumstances would include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. In analyzing goodwill for potential impairment, we use projections of future cash flows from the reporting units. These projections are based on our view of growth rates, anticipated future economic conditions, the appropriate discount rates relative to risk, and estimates of residual values. We believe that our estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. If changes in growth rates, future economic conditions, discount rates, or estimates of residual values were to occur, goodwill may become impaired.

In accordance with Emerging Issues Task Force (“EITF”) No. 02-7 (“EITF 02-7”), Unit of Accounting for Testing of Impairment of Indefinite-Lived Intangible Assets, impairment tests for indefinite-lived intangible assets, including FCC licenses, are required to be performed on an annual basis or on an interim basis if an event occurs or circumstances change that would indicate the asset might be impaired. We utilize a fair value approach, incorporating discounted cash flows, to complete the test. This approach determines the fair value of the FCC licenses, using start-up model assumptions and, accordingly, incorporates cash flow assumptions regarding the investment in a network, the development of distribution channels, and other inputs for making the business operational. These inputs are included in determining free cash flows of the reporting unit, using assumptions of weighted average costs of capital and the long-term rate of growth for each reporting unit. We believe that our estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. If any of the assumptions were to change, FCC licenses may become impaired. There was no impairment charge in the three months ended March 31, 2005 or 2004 related to our assessment under SFAS No. 142.

Deferred Debt Issuance Costs

Deferred debt issuance costs relate to the credit agreement, senior secured notes, senior notes, senior subordinated notes and certain preferred stock issuances. These costs are being amortized over the respective instruments’ terms. If the related debt issuance is extinguished prior to maturity, the debt issuance costs are immediately expensed. We recorded within interest expense $11.8 million of deferred debt issuance costs related to debt extinguishment in the three months ended March 31, 2004. We did not incur costs related to debt extinguishment in the three months ended March 31, 2005.

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5) LONG-TERM LIABILITIES:

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

Credit Agreement – As of March 31, 2005, we had $60 million in undrawn availability under our revolving credit agreement at a rate of LIBOR plus 3.0%. The credit agreement is subject to various covenants, including the ratio of senior secured indebtedness to annualized operating cash flow (as defined in the credit agreement), the ratio of total indebtedness to annualized operating cash, and the ratio of annualized operating cash flow to interest expense. Although the credit agreement financial covenants are not applicable unless we draw against the credit facility, we were in compliance with all financial covenants at March 31, 2005.

Senior Secured Notes – In March 2004, we issued $160 million aggregate principal amount of senior secured floating rate notes due March 15, 2010 (“2010 notes”) and $350 million aggregate principal amount of 8 1/4% senior secured notes due March 15, 2012 (“2012 notes”). The effective interest rate on the 2010 notes was 7.51% at March 31, 2005. Interest on the 2010 notes is reset quarterly and payable on March 15, June 15, September 15, and December 15 of each year. Interest on the 2012 notes is payable on March 15 and September 15 of each year.

After March 15, 2006, we may redeem the 2010 notes, in whole or in part, at prices starting at 102.000% of the principal amount at March 15, 2006, and declining to 101.000% at March 15, 2007 and to 100.000% at March 15, 2008, plus accrued and unpaid interest to but excluding the date fixed for redemption. At any time, which may be more than once, before March 15, 2006, we can choose to redeem up to 35% of the 2010 notes with proceeds from certain equity offerings for 100% of the aggregate principal amount of the 2010 notes redeemed plus a premium equal to the interest rate per annum on the 2010 notes applicable on the date on which notice of redemption is given, plus accrued and unpaid interest to, but excluding, the date of redemption. At least 65% of the aggregate principal amount of the 2010 notes issued under the indenture must remain outstanding after the redemption.

After March 15, 2008, we may redeem the 2012 notes, in whole or in part, at prices starting at 104.125% of the principal amount at March 15, 2008, and declining to 102.063% at March 15, 2009 and 100.000% at March 15, 2010, plus accrued and unpaid interest to but excluding the date fixed for redemption. At any time, which may be more than once, before March 15, 2007, we can choose to redeem up to 35% of the 2012 notes with proceeds from certain equity offerings for 108.250% of the aggregate principal amount of the 2012 notes redeemed, plus accrued and unpaid interest to, but excluding, the date of redemption. At least 65% of the aggregate principal amount of the 2012 notes issued under the indenture must remain outstanding after the redemption.

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9 7/8 % Senior Notes - In 2003, RCC issued $325 million principal amount of 9 7/8% senior notes due 2010. Interest is payable on February 1 and August 1 of each year. The notes will mature on February 1, 2010. After August 1, 2007, at our option, we may redeem the 9 7/8% notes at prices starting at 104.938% of the principal amount at August 1, 2007, declining to 102.469% at August 1, 2008 and 100% at August 1, 2009, plus accrued and unpaid interest to but excluding the date fixed for redemption. Prior to August 1, 2006, we may redeem up to 35% of the outstanding principal amount of the 9 7/8% notes at 109.875% of the principal amount plus accrued and unpaid interest to but excluding the date fixed for redemption with the net cash proceeds of certain equity offerings.

9 3/4 % Senior Subordinated Notes - In 2002, we issued $300 million principal amount of 9 3/4% senior subordinated notes due 2010. Interest on the 9 3/4% senior subordinated notes is payable semi-annually on January 15 and July 15. The 9 3/4% senior subordinated notes will mature on January 15, 2010. After January 15, 2006, at our option, we may redeem the 9 3/4% notes at prices starting at 104.875% of the principal amount at January 15, 2006, declining to 103.250%, 101.625%, and 100.000% at January 15, 2007, 2008, and 2009, respectively, plus accrued and unpaid interest to but excluding the date fixed for redemption.

9 5/8 % Senior Subordinated Notes - In 1998, RCC issued $125 million principal amount of 9 5/8% senior subordinated notes due 2008. Interest on the senior subordinated notes is payable semi-annually on May 15 and November 15. The senior subordinated notes will mature on May 15, 2008, and are redeemable, in whole or in part, at our option. We may redeem these notes at a rate of 101.604% of the principal amount at May 15, 2005, declining to 100.000% at May 15, 2006, plus accrued and unpaid interest to but excluding the date fixed for redemption.

11 3/8% Senior Exchangeable Preferred Stock – Due May 15, 2010. Dividends on the senior exchangeable preferred stock are cumulative, are payable quarterly, and were payable, until May 15, 2003, at our option either in cash or by the issuance of additional shares of senior exchangeable preferred stock having an aggregate liquidation preference equal to the amount of such dividends. We have not declared or paid the cash dividends due since August 2003.

We may redeem the senior exchangeable preferred stock, in whole or in part, at any time at a redemption price equal to 104.266% of the liquidation preference at May 15, 2004, declining to 102.844% at May 15, 2005, 101.422% at May 15, 2006, and 100.000% at May 15, 2007, plus accumulated and unpaid dividends, if any, to but excluding the redemption date. We have accrued the undeclared dividends by increasing the carrying amount of the senior exchangeable preferred stock. At March 31, 2005, RCC had accrued $40.8 million in undeclared dividends with respect to our senior exchangeable preferred stock, which will be payable at the senior preferred mandatory redemption date, if not sooner declared and paid.

Because we have failed to pay at least six quarterly dividends on our senior exchangeable preferred stock, the holders of senior exchangeable preferred stock have the right to elect the lesser of two directors or the number of directors constituting 25% of the members of our board, if they so choose, by following the procedures set forth in the certificate of designation. We anticipate that two directors will be elected by the holders of the senior exchangeable preferred stock at the upcoming annual meeting on May 24, 2005.

Gain on redemption of preferred stock. During the three months ended March 31, 2005, we did not repurchase any of our senior exchangeable preferred stock. During the three months ended March 31, 2004, we repurchased 15,000 shares of 11 3/8% senior exchangeable preferred stock for $13.4 million. These shares had accrued $1.5 million in unpaid dividends. This repurchase resulted in a gain on redemption of $3.2 million.

12 1/4% Junior Exchangeable Preferred Stock – Due February 15, 2011. Dividends on the junior exchangeable preferred stock are cumulative, are payable quarterly, and may be paid, at our option, on any dividend payment date occurring on or before February 15, 2005, either in cash or by the issuance of additional shares of junior exchangeable preferred stock having an aggregate liquidation preference equal to the amount of such dividends.

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We may redeem the junior exchangeable preferred stock, in whole or in part, at any time, at a redemption price equal to 106.125% of the liquidation preference at February 15, 2005, declining to 104.594% at February 15, 2006, 103.063% at February 15, 2007, 101.531% at February 15, 2008, and 100.000% at February 15, 2009, plus accumulated and unpaid dividends, if any, to but excluding the redemption date.

The shares of senior and junior exchangeable preferred stock are non-voting, except as otherwise required by law and as provided in their respective Certificates of Designation. Each Certificate of Designation provides that at any time dividends on the outstanding exchangeable preferred stock are in arrears and unpaid for six or more quarterly dividend periods (whether or not consecutive), the holders of a majority of the outstanding shares of the affected exchangeable preferred stock, voting as a class, will be entitled to elect the lesser of two directors or that number of directors constituting 25% of the members of our Board of Directors. The voting rights continue until such time as all dividends in arrears on the affected class of exchangeable preferred stock are paid in full (and, in the case of the senior exchangeable preferred stock after May 15, 2003, or in the case of the junior exchangeable preferred stock after February 15, 2005, are paid in cash), at which time the terms of any directors elected pursuant to such voting rights will terminate. Voting rights may also be triggered by other events described in the Certificates of Designation.

SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. Our 11 3/8% Senior Exchangeable and 12 1/4% Junior Exchangeable Preferred securities, as a result of adopting SFAS No. 150 effective July 1, 2003, have been reclassified into Long-Term Liabilities. The dividend expense related to these instruments, which was previously reported as a component of “Preferred Stock Dividend” in our consolidated statements of operations, is now classified as interest expense.

6) PREFERRED SECURITIES:

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

Preferred security balance sheet reconciliation (in thousands):

Dividends on the Class M convertible preferred stock are compounded quarterly, accrue at 8% per annum, and are payable upon redemption or upon liquidation of RCC. The Class M convertible preferred stock is convertible into our Class A common stock at $53.00 per share subject to certain adjustments. Dividends are not payable if the shares are converted. The holders of the Class M convertible preferred stock are entitled to vote on all matters submitted to the holders of the common stock on an as-converted basis.

In order to comply with the FCC rules regarding cross-ownership of cellular licensees within a given market, we issued 7,541 shares of Class T convertible preferred stock with a liquidation preference of $1,000 per share to Telephone and Data Systems, Inc. (“TDS”) on March 31, 2000 in exchange for 43,000 shares of Class A common stock and 105,940 shares of Class B common stock owned by TDS or its affiliates. TDS or RCC can convert the convertible preferred stock into the original number of shares of Class A or Class B common stock in the future if ownership by TDS or its affiliates of the common stock

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would then be permissible under FCC rules. Dividends on the Class T convertible preferred stock are cumulative, have a fixed coupon rate of 4% per annum, and are payable in April 2020. Dividends are not payable if the shares are converted. Shares of Class T convertible preferred stock are non-voting, except as otherwise required by law and as provided in the Certificate of Designation.

The Class T convertible preferred stock is senior to the junior exchangeable preferred stock, Class M convertible preferred stock and common stock of RCC with respect to dividend rights and rights on liquidation, winding-up and dissolution of RCC. The Class M convertible preferred stock is senior to our common stock with respect to dividend rights and rights on liquidation, winding-up and dissolution of RCC.

The senior exchangeable preferred stock, junior exchangeable preferred stock, Class M convertible preferred stock, and Class T convertible preferred stock are redeemable at 100% of their total liquidation preference plus accumulated and unpaid dividends at their respective redemption dates.

7) NET INTEREST EXPENSE

Components of interest expense are as follows:

Gain on redemption of preferred stock. During the three months ended March 31, 2005, we did not repurchase 11 3/8% senior exchangeable preferred stock. During the three months ended March 31, 2004, we repurchased 15,000 shares of 11 3/8% senior exchangeable preferred stock, for $13.4 million. These shares had accrued $1.5 million in unpaid dividends. The corresponding $3.2 million gain on the redemption of preferred shares, not including transaction commissions and other related fees, was recorded as a reduction of interest expense within the condensed statement of operations.

9) GUARANTOR/NON-GUARANTOR CONDENSED CONSOLIDATING FINANCIAL INFORMATION

RCC’s obligations under the Senior Secured Floating Rate Notes due 2010 and 8 1/4% Senior Secured Notes due 2012 are senior secured obligations and are fully and unconditionally guaranteed on a senior, secured, second-priority basis by certain of RCC’s subsidiaries. Wireless Alliance, LLC is not a guarantor of the notes.

We account for our investment in subsidiaries using the equity method for purposes of the supplemental consolidating presentation. The principal eliminating entries eliminate investments in subsidiaries and inter-company balances and transactions. For financial reporting purposes, each subsidiary computes income tax expense (benefit), income taxes payable, and deferred income taxes on a separate company basis as if they filed separate federal and state income tax returns. The differences between the separate company basis and consolidated income taxes is then adjusted in the elimination column of the condensed consolidating financial information.

The financial accounting records of RGI Group, Inc. (“RGI”), a guarantor subsidiary, are not maintained on a stand-alone basis and, accordingly, are included in the parent company financial presentation. RGI’s assets were approximately $6 million as of March 31, 2005 and December 31, 2004.

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THE FOLLOWING CONSOLIDATING FINANCIAL INFORMATION AS OF THE DATES AND FOR THE PERIODS INDICATED OF RURAL CELLULAR CORPORATION (THE PARENT), ITS GUARANTOR SUBSIDIARIES, AND ITS NON-GUARANTOR SUBSIDIARY REFLECTS ALL INTER-COMPANY REVENUE AND EXPENSE.

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Balance Sheet Information as of March 31, 2005 (unaudited)
(In thousands, except per share data):

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Balance Sheet Information as of December 31, 2004 (in thousands, except per share data):

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Statement of Operations Information for the Three Months Ended March 31, 2005
(unaudited) (in thousands):

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Statement of Operations Information for the Three Months Ended March 31, 2004
(unaudited) (in thousands):

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Statement of Cash Flows Information for Three Months Ended March 31, 2005
(unaudited) (in thousands):