DOBSON COMMUNICATIONS CORP - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

		For the Quarterly Period Ended March 31, 2005

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

		For the transition period from to

Commission file number. 000-29225

Dobson Communications Corporation

(Exact name of registrant as specified in its charter)


Oklahoma		73-1513309
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

14201 Wireless Way Oklahoma City, Oklahoma (Address of principal executive offices)		73134 (Zip Code)

(405) 529-8500

(Registrant’s telephone number, including area code)

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 Exchange Act). Yes þ No o

As of May 6, 2005, there were 114,585,646 shares of registrant’s $.001 par value Class A common stock outstanding and 19,418,021 shares of the registrant’s $.001 par value Class B common stock outstanding.

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

INDEX TO FORM 10-Q


Item
Number		Page

PART I. FINANCIAL INFORMATION
1	Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004		2
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2005 and 2004		3
	Condensed Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2005		4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004		5
	Notes to Condensed Consolidated Financial Statements		6
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
3	Quantitative and Qualitative Disclosure about Market Risk		30
4	Controls and Procedures		30

PART II. OTHER INFORMATION
1	Legal Proceedings		31
2	Unregistered Sales of Equity Securities and Use of Proceeds		31
3	Defaults Upon Senior Securities		31
4	Submission of Matters to a Vote of Security Holders		31
5	Other Information		32
6	Exhibits		32
Equity Interest Purchase Agreement
Equity Interest Purchase Agreement
Rule 13a-14(a) Certification by our Principal Executive Officer
Rule 13a-14(a) Certification by our Principal Financial Officer
Section 1350 Certification by our Principal Executive Officer
Section 1350 Certification by our Principal Financial Officer

PART I. FINANCIAL INFORMATION


Item 1.	*Financial Statements*

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


				March 31, 2005			December 31, 2004

				(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents				$	190,237,529		$	139,884,107
Marketable securities					—			39,000,000
Accounts receivable					92,371,171			99,941,071
Inventory					13,996,667			15,610,745
Prepaid expenses					13,369,973			8,509,486
Deferred tax assets					8,759,000			9,202,000

		Total current assets			318,734,340			312,147,409

PROPERTY, PLANT AND EQUIPMENT, net (Note 6)					522,360,269			533,744,179

OTHER ASSETS:
Restricted assets					10,426,890			10,349,626
Wireless license acquisition costs					1,786,610,363			1,786,610,363
Goodwill					618,647,824			620,031,217
Deferred financing costs, net					41,837,784			43,025,883
Customer list, net					81,230,999			87,693,583
Other non-current assets					4,178,282			4,149,608

		Total other assets			2,542,932,142			2,551,860,280

			Total assets	$	3,384,026,751		$	3,397,751,868

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable				$	98,671,753		$	80,085,348
Accrued expenses					29,294,248			31,438,255
Accrued interest payable					67,799,188			74,471,790
Deferred revenue and customer deposits					29,531,694			28,881,603
Accrued dividends payable					29,232,631			19,404,780
Current portion of obligations under capital leases					127,129			305,449

		Total current liabilities			254,656,643			234,587,225

OTHER LIABILITIES:
Notes payable and credit facility (Note 7)					2,456,452,696			2,456,137,897
Deferred tax liabilities					273,541,241			283,744,665
Mandatorily redeemable preferred stock, net (Note 8)					237,063,165			236,094,326
Minority interest					5,907,356			5,422,043
Other non-current liabilities					4,161,627			4,161,627
COMMITMENTS (Note 10)
SERIES F CONVERTIBLE PREFERRED STOCK (Note 8)					122,535,599			122,535,599
STOCKHOLDERS’ EQUITY:
	Class A common stock, $.001 par value, 175,000,000 shares authorized and 120,081,762 shares issued at March 31, 2005 and December 31, 2004				120,082			120,082
	Convertible Class B common stock, $.001 par value, 70,000,000 shares authorized and 19,418,021 shares issued at March 31, 2005 and December 31, 2004				19,418			19,418
	Convertible Class C common stock, $.001 par value, 4,226 shares authorized and zero shares issued at March 31, 2005 and December 31, 2004				—			—
	Convertible Class D common stock, $.001 par value, 33,000 shares authorized and zero shares issued at March 31, 2005 and December 31, 2004				—			—
Paid-in capital					1,206,362,528			1,206,362,528
Accumulated deficit					(1,143,480,366	)		(1,118,001,904	)
Less Class A common shares held in treasury, at cost, of 5,602,599 shares at March 31, 2005 and 5,622,599 shares at December 31, 2004					(33,313,238	)		(33,431,638	)

		Total stockholders’ equity			29,708,424			55,068,486

			Total liabilities and stockholders’ equity	$	3,384,026,751		$	3,397,751,868

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

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


			Three Months			Three Months
			Ended			Ended
			March 31, 2005			March 31, 2004

			(Unaudited)
OPERATING REVENUE:
	Service revenue		$	206,081,986		$	181,699,363
	Roaming revenue			53,430,702			42,075,341
	Equipment and other revenue			12,245,795			10,016,615

		Total operating revenue		271,758,483			233,791,319

OPERATING EXPENSES:
	Cost of service (exclusive of depreciation and amortization items shown separately below)			72,298,971			54,185,765
	Cost of equipment			30,365,742			23,534,577
	Marketing and selling			34,093,918			29,161,801
	General and administrative			44,811,476			43,776,071
	Depreciation and amortization			51,570,480			45,447,896

		Total operating expenses		233,140,587			196,106,110

OPERATING INCOME				38,617,896			37,685,209

OTHER (EXPENSE) INCOME:
	Interest expense			(60,741,939	)		(54,238,035	)
	Gain from extinguishment of debt (Note 7)			—			5,738,861
	Dividends on mandatorily redeemable preferred stock (Note 8)			(7,931,067	)		(8,618,010	)
	Other (expense) income, net			(765,996	)		1,277,425

LOSS BEFORE MINORITY INTERESTS IN INCOME OF SUBSIDIARIES AND INCOME TAXES				(30,821,106	)		(18,154,550	)
MINORITY INTERESTS IN INCOME OF SUBSIDIARIES				(1,829,998	)		(944,007	)

LOSS BEFORE INCOME TAXES				(32,651,104	)		(19,098,557	)
	Income tax benefit			9,393,615			3,973,814

LOSS FROM CONTINUING OPERATIONS				(23,257,489	)		(15,124,743	)
DISCONTINUED OPERATIONS: (Note 4)
	Income from discontinued operations, net of income tax expense of $271,327			—			442,692

NET LOSS				(23,257,489	)		(14,682,051	)
	Dividends on preferred stock			(2,144,373	)		(1,858,457	)

NET LOSS APPLICABLE TO COMMON STOCKHOLDERS			$	(25,401,862	)	$	(16,540,508	)

BASIC AND DILUTED NET LOSS APPLICABLE TO COMMON STOCKHOLDERS PER COMMON SHARE			$	(0.19	)	$	(0.12	)

BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING				133,884,962			133,727,123

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

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Three Months Ended March 31, 2005


	Stockholders’ Equity

	Class A				Class B
	Common Stock				Common Stock									Treasury			Total
											Accumulated			Stock, at			Stockholders’
	Shares		Amount		Shares		Amount		Paid-in Capital		Deficit			Cost			Equity

	(Unaudited)
DECEMBER 31, 2004		120,081,762	$	120,082		19,418,021	$	19,418	$	1,206,362,528	$	(1,118,001,904	)	$	(33,431,638	)	$	55,068,486
Net loss		—		—		—		—		—		(23,257,489	)		—			(23,257,489	)
Preferred stock dividends		—		—		—		—		—		(2,144,373	)		—			(2,144,373	)
Issuance of treasury stock		—		—		—		—		—		(76,600	)		118,400			41,800

March 31, 2005		120,081,762	$	120,082		19,418,021	$	19,418	$	1,206,362,528	$	(1,143,480,366	)	$	(33,313,238	)	$	29,708,424

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

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


			Three Months Ended March 31,

			2005			2004

			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations			$	(23,257,489	)	$	(15,124,743	)
Adjustments to reconcile loss to net cash provided by operating activities, net of effects of acquisitions —
	Depreciation and amortization			51,570,480			45,447,896
	Amortization of bond premium and deferred financing costs			1,815,601			1,997,148
	Deferred income taxes			(9,760,424	)		(4,101,266	)
	Non-cash mandatorily redeemable preferred stock dividends			7,931,067			197,245
	Other operating activities			1,864,302			1,409,205
Changes in current assets and liabilities —
	Accounts receivable			7,569,900			18,271,148
	Inventory			1,614,078			(301,325	)
	Prepaid expenses and other			(4,937,751	)		(1,832,833	)
	Accounts payable			18,586,405			(20,763,619	)
	Accrued expenses			(8,816,609	)		(19,338,565	)
	Deferred revenue and customer deposits			650,091			159,373

		Net cash provided by operating activities		44,829,651			6,019,664

CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures			(32,558,089	)		(40,604,018	)
	Receipt of funds held in escrow for contingencies on sold assets			—			11,354,020
	Cash received from exchange of assets			—			21,978,720
	Purchases of marketable securities			—			(25,000,000	)
	Sales of marketable securities			39,000,000			45,000,000
	Other investing activities			(23,802	)		(1,050,773	)

		Net cash provided by investing activities		6,418,109			11,677,949

CASH FLOWS FROM FINANCING ACTIVITIES:
	Repayments and purchases of long-term debt			—			(62,120,000	)
	Distributions to minority interest holders			(1,344,685	)		(1,629,400	)
	Other financing activities			450,347			(211,170	)

		Net cash used in financing activities		(894,338	)		(63,960,570	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS				50,353,422			(46,262,957	)
CASH AND CASH EQUIVALENTS, beginning of period				139,884,107			151,539,339

CASH AND CASH EQUIVALENTS, end of period			$	190,237,529		$	105,276,382

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for —
	Interest		$	65,439,283		$	67,130,788
	Income taxes		$	19,050		$	1,526,514
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
	Net property and equipment disposed through exchange of assets		$	—		$	(11,793,362	)
	Net wireless license acquisition costs disposed through exchange of assets		$	—		$	(41,143,732	)

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

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The condensed consolidated balance sheet of Dobson Communications Corporation (“DCC”) and subsidiaries (collectively with DCC, the “Company”) as of March 31, 2005, the condensed consolidated statements of operations for the three months ended March 31, 2005 and 2004, the condensed consolidated statement of stockholders’ equity for the three months ended March 31, 2005 and the condensed consolidated statements of cash flows for the three months ended March 31, 2005 and 2004 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, 2004 was derived from audited financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles. The financial statements presented herein should be read in connection with the Company’s December 31, 2004 consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004.


1.	Organization

The Company, through its predecessors, was organized in 1936 as Dobson Telephone Company and adopted its current organizational structure in 2000. The Company is a provider of rural and suburban wireless telephone services in portions of Alaska, Arizona, Illinois, Kansas, Kentucky, Maryland, Michigan, Minnesota, Missouri, New York, Ohio, Oklahoma, Pennsylvania, Texas, West Virginia and Wisconsin.

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


2.	Marketable Securities

The Company invests in certain marketable securities and classifies these securities as available-for-sale under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” In accordance with SFAS No. 115, available-for-sale marketable securities are accounted for at fair value, with the unrealized gain or loss, if any, less applicable deferred income taxes, shown as a separate component of stockholders’ equity.

The Company began classifying its investment in auction-rate securities as short-term marketable securities at December 31, 2004. Prior to this, the Company included these securities as cash and cash equivalents. Therefore, certain prior period amounts have been reclassified to conform to the current-year presentation. This change in classification has no effect on the amounts of total current assets, total assets, net loss or cash flow from operations of the Company.

At March 31, 2005, the Company had no marketable securities. At December 31, 2004, the Company’s marketable securities consisted entirely of auction-rate securities totaling $39.0 million. The gross realized gains and losses were insignificant in the three months ended March 31, 2005 and March 31, 2004. At December 31, 2004, the carrying value and fair value of these securities were the same.


3.	Stock-Based Compensation

The Company accounts for its stock option plans under APB Opinion 25, “Accounting for Stock Issued to Employees,” under which no compensation expense is recognized. The following schedule shows the Company’s net loss applicable to common stockholders and net loss applicable to common stockholders per common share for the three months ended March 31, 2005 and March 31, 2004, had compensation expense been determined consistent with SFAS No. 123, “Accounting for Stock-Based Compensation.”

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


		Three Months Ended
		March 31,

		2005			2004

		($ in thousands, except
		for per share amounts)
Net loss applicable to common stockholders:
	As reported	$	(25,402	)	$	(16,541	)
	Pro forma stock-based compensation, net of tax		(1,060	)		(3,756	)

	Pro forma	$	(26,462	)	$	(20,297	)

Basic and diluted net loss applicable to common stockholders per common share:
	As reported	$	(0.19	)	$	(0.12	)
	Pro forma	$	(0.20	)	$	(0.15	)


4.	Discontinued Operations

On February 17, 2004, the Company transferred its ownership in Maryland 2 rural service area, or RSA, wireless property in exchange for Cingular Wireless’ ownership in Michigan 5 RSA wireless property, $22.0 million in cash and its one-percent ownership interest in Texas 2 RSA and Oklahoma 5 and 7 RSAs. The Company is the majority owner of these three markets. The Company accounted for the exchange as a sale of Maryland 2 RSA and a purchase of Michigan 5 RSA. Therefore, the Michigan 5 RSA assets, liabilities and results of operations have only been included in the accompanying condensed consolidated financials from the date of acquisition, February 17, 2004.

The net income from the Maryland 2 RSA property is classified on the condensed consolidated statement of operations as “Income from discontinued operations.” Summarized results of discontinued operations are as follows:


	Three Months
	Ended
	March 31, 2004

	($ in thousands)
Operating revenue	$	3,556
Income before income taxes		714
Income tax expense		(271	)
Income from discontinued operations		443


5.	Business Combinations

On February 17, 2004, the Company transferred its ownership in Maryland 2 RSA wireless property in exchange for Cingular Wireless’ ownership in Michigan 5 RSA and certain other assets, as described above in Note 4.

On June 15, 2004, the Company acquired certain assets, principally PCS licenses and an existing Global System for Mobile Communications, or GSM, General Packet Radio Service, or GPRS, and Enhanced Data for GSM Evolution, or EDGE, or GSM/GPRS/EDGE, network of NPI-Omnipoint Wireless, LLC, or NPI, for approximately $29.5 million.

On December 29, 2004, the Company completed the acquisition of the Michigan wireless assets of RFB Cellular, Inc., or RFB, and certain affiliates for $29.3 million. The Company purchased these assets in an auction conducted under Sections 363 and 365 of the U.S. bankruptcy code. Upon closing, the Company obtained control over most of these assets and began operation of them; however, assignment of certain

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

spectrum licenses requires Federal Communications Commission, or FCC, approval, for which the Company has applied. Therefore, the Company has entered into a long-term spectrum management lease that allows it to lease the RFB spectrum pending the FCC’s decision.

The above business combinations are accounted for as purchases. Accordingly, the related statements of financial position and results of operations have been included in the accompanying condensed consolidated statements of operations from the date of acquisition. The unaudited pro forma financial information related to the Company’s 2004 acquisitions has not been presented because these acquisitions, individually or in the aggregate, were not significant to the Company’s consolidated results of operations.

6. Property, Plant and Equipment

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 was $45.1 million for the three months ended March 31, 2005 and $39.4 million for the three months ended March 31, 2004. Listed below are the gross property, plant and equipment amounts and the related accumulated depreciation for the periods described.


	March 31,			December 31,
	2005			2004

	($ in thousands)
Gross property, plant and equipment	$	1,018,599		$	985,005
Accumulated depreciation		(496,239	)		(451,261	)

Property, plant and equipment, net	$	522,360		$	533,744


7.	Notes Payable and Credit Facility

The Company’s notes payable as of March 31, 2005 and December 31, 2004 consisted of the following:


		March 31,		December 31,
		2005		2004

		($ in thousands)
8.875% DCC senior notes		$	419,681	$	419,681
10.875% DCC senior notes, net of discount of $1.3 million			297,743		297,683
8.375% Dobson Cellular senior notes			250,000		250,000
Dobson Cellular floating rate senior notes			250,000		250,000
9.875% Dobson Cellular senior notes			325,000		325,000
10% American Cellular senior notes			900,000		900,000
Other notes payable, net			14,029		13,774

	Total notes payable and credit facility	$	2,456,453	$	2,456,138

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	*Notes Payable*

The indentures related to all of the Company’s senior notes contains certain covenants including, but not limited to, covenants that limit the Company’s ability and that of its restricted subsidiaries to:


	•	incur indebtedness;

	•	incur or assume liens;

	•	pay dividends or make other restricted payments;

	•	impose dividend or other payment restrictions affecting the Company’s restricted subsidiaries;

	•	issue and sell capital stock of the Company’s restricted subsidiaries;

	•	issue certain capital stock;

	•	issue guarantees of indebtedness;

	•	enter into transactions with affiliates;

	•	sell assets;

	•	engage in unpermitted lines of business;

	•	enter into sale and leaseback transactions; and

	•	merge or consolidate with or transfer substantial assets to another entity.

During the first quarter of 2004, the Company purchased $55.5 million principal amount of its 8.875% senior notes for the purchase price of $48.3 million, excluding accrued interest. The Company’s first quarter 2004 gain from extinguishment of debt related to these senior notes. This gain was $6.1 million, net of related deferred financing costs.


	*Credit Facility*

Dobson Cellular Systems Inc.’s, or Dobson Cellular’s, senior secured credit facility currently consists of a $75.0 million senior secured revolving credit facility.

The Dobson Cellular credit facility is guaranteed by the Company, Dobson Operating Co., LLC, or DOC, and DOC Lease Co LLC, and is secured by a first priority security interest in all of the tangible and intangible assets of Dobson Cellular. The Dobson Cellular credit facility is not guaranteed by American Cellular or any of its subsidiaries. In connection with the offering by Dobson Cellular of its $825.0 million of senior secured notes in November 2004, Dobson Cellular repaid all outstanding borrowings under the Dobson Cellular credit facility totaling $599.5 million and amended it to, among other things, permit additional leverage under certain of the leverage ratios, eliminate the term loan portion of the facility, amend the revolving portion of the facility to provide for maximum borrowing of $75.0 million and shorten the maturity of the credit facility to October 23, 2008. As of March 31, 2005 and December 31, 2004, the Company had no borrowings under this amended credit facility.

Under specified terms and conditions, including covenant compliance, the amount available under the Dobson Cellular credit facility may be increased by an incremental facility of up to $200.0 million. The Company has the right to make no more than four requests to increase the amount of the credit facility; such request must be made at least 12 months prior to the credit termination date. Any incremental facility will have a maturity greater than the weighted average life of the existing debt under the Dobson Cellular credit facility.

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Dobson Cellular also is required to make mandatory reductions of the credit facility with the net cash proceeds received from certain issuances of debt and equity securities and upon certain asset sales by Dobson Cellular and its subsidiaries.

The Dobson Cellular credit facility agreement contains covenants that, subject to specified exceptions, limit the Company’s ability to:


	•	make capital expenditures;

	•	sell or dispose of assets;

	•	incur additional debt;

	•	create liens;

	•	merge with or acquire other companies;

	•	engage in transactions with affiliates, including dividend restrictions; and

	•	make loans, advances or stock repurchases.


8.	Redeemable Preferred Stock

As of March 31, 2005 and December 31, 2004, the Company’s authorized and outstanding preferred stock was as follows:


			Number of		Number of							Other
			Shares		Shares							Features,
	Number of		Outstanding at		Outstanding at					Liquidation	Mandatory	Rights,
	Shares		March 31,		December 31,		Par Value			Preference	Redemption	Preferences
Class	Authorized		2005		2004		Per Share		Dividends	Per Share	Date	and Powers

Senior Exchangeable		46,181		46,181		46,181	$	1.00	12.25% Cumulative	$1,000	Jan. 15, 2008	Non-voting
Senior Exchangeable		394,297		192,898		192,898	$	1.00	13% Cumulative	$1,000	May 1, 2009	Non-voting
Class E		40,000		—		—	$	1.00	15% Cumulative	$1,131.92	Dec. 23, 2010	Non-voting
Series F		1,900,000		686,201		686,201	$	1.00	6% Cumulative	$178.571	Aug. 18, 2016	Non-voting
Other		3,619,522		—		—	$	1.00	—	—	—	—

		6,000,000		925,280		925,280


	*Dividends on Preferred Stock*

The Company recorded dividends on its mandatorily redeemable preferred stock of $7.9 million for the three months ended March 31, 2005, which are included in determining the Company’s net loss. These dividends consist of $1.5 million of unpaid accrued dividends on its 12.25% preferred stock and $6.4 million of unpaid accrued dividends on its 13% preferred stock. The Company recorded dividends on its conditionally redeemable preferred stock of $2.1 million for the three months ended March 31, 2005, which consisted of unpaid accrued dividends on its Series F preferred stock and are included in determining the Company’s net loss applicable to common stockholders.

The Company recorded dividends on its mandatorily redeemable preferred stock of $8.6 million for the three months ended March 31, 2004, which are included in determining the Company’s net loss. These dividends consist of $1.9 million of cash dividends paid on its 12.25% preferred stock, $0.2 million of unpaid accrued dividends on its 12.25% preferred stock and $6.5 million of cash dividends paid on its 13% preferred stock. The Company recorded dividends on its conditionally redeemable preferred stock of $1.9 million for the three months ended March 31, 2004, which consisted of unpaid accrued dividends on its Series F preferred stock and are included in determining the Company’s net loss applicable to common stockholders.

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On September 29, 2004, December 20, 2004 and March 24, 2005, the Company announced that it would not declare or pay the cash dividend due in the fourth quarter of 2004, the first quarter of 2005 and the second quarter of 2005, respectively, on its outstanding 12.25% preferred stock or its outstanding 13% preferred stock. Unpaid dividends will accrue interest at the stated dividend rates, compounded quarterly. To the extent dividends are not paid prior to the mandatory redemption dates or prior to the Company’s repurchase of the preferred shares, the Company will be required to pay such dividends on the redemption dates to the extent it is permitted under applicable law to redeem the preferred stock on such dates. If the Company defers dividends on its outstanding 12.25% preferred stock and 13% preferred stock, it is not permitted to pay dividends on the Series F preferred stock. Therefore, the Series F preferred stock dividends due on October 15, 2004 and April 15, 2005 with respect to this preferred stock were not paid, and will accrue interest at 7%, compounded semi-annually. The April 15, 2005 deferral is the second semi-annual deferral of dividends for the Series F preferred stock. Effective April 16, 2005, holders of the Series F preferred stock had the right to elect two new directors to the Company’s board of directors, but have not done so at this time. As of March 31, 2005, accrued dividends payable was $4.1 million for the Company’s 12.25% preferred stock, $16.9 million for the Company’s 13% preferred stock and $8.2 million for the Company’s Series F preferred stock, as a result of these unpaid dividends on the Company’s preferred stock.

If the Company does not make four quarterly dividend payments (whether consecutive or not) on either its 12.25% preferred stock or its 13% preferred stock, a majority of the holders of the respective series of preferred stock would each have the right to elect two new directors each to the Company’s board of directors. Under these circumstances, the expansion of the Company’s board of directors by six new members would not constitute a change of control under the indentures governing its outstanding notes or Dobson Cellular’s senior secured credit facility.


9.	Earnings Per Share

SFAS No. 128, “Earnings Per Share,” requires two presentations of earnings per share — “basic” and “diluted.” Basic net loss applicable to common stockholders per common share is computed by dividing net loss available to common stockholders (the numerator) by the weighted-average number of shares (the denominator) for the period. The computation of diluted net loss applicable to common stockholders per common share is similar to basic net loss applicable to common stockholders per common share, except that the denominator, unless the effect of the additional shares is antidilutive, is increased to include the number of additional shares that would have been outstanding if the dilutive shares had been issued. Dilutive shares represent the amount of additional shares that would be required to be issued if all the options and convertible preferred stock that are “in the money” were exercised or converted. At March 31, 2005, shares that are potentially dilutive are Company granted stock options, totaling 10.7 million shares, and shares of the Company’s Series F preferred stock, which are convertible into 14.0 million shares of the Company’s Class A common stock. However, for the three months ended March 31, 2005 and March 31, 2004, the Company had a net loss applicable to common stockholders, thus, these potential common shares were antidilutive. The

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

table below sets forth the detailed computation of the Company’s basic and diluted earnings per common share.


			Three Months Ended March 31,

			2005			2004

			($ in thousands, except
			per share data)
Net loss applicable to common stockholder			$	(25,402	)	$	(16,541	)
	Basic and diluted net loss applicable to common stockholders per common share:
		Continuing operations:
		Loss from continuing operations	$	(0.17	)	$	(0.11	)
		Dividends on preferred stock		(0.02	)		(0.01	)

	Basic and diluted net loss applicable to common stockholders per common share		$	(0.19	)	$	(0.12	)

	Basic and diluted weighted average common shares outstanding			133,884,962			133,727,123


10.	Commitments and Contingencies


	*Commitments*

The Company is obligated under a purchase and license agreement with Nortel Networks Corp. to purchase approximately $90 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 $90 million commitment that remains unfulfilled. As of March 31, 2005, $38.4 million of this commitment has been fulfilled.


	*Contingencies*

Beginning on October 22, 2004, securities class action lawsuits were filed against the Company and certain of its officers and/or directors in the United States District Court for the Western District of Oklahoma, alleging violations of the federal securities laws and seeking unspecified damages, purportedly on behalf of a class of purchasers of the Company’s publicly traded securities in the period between May 19, 2003 and August 9, 2004. In particular, the lawsuits allege among other things that the Company concealed significant decreases in revenues and failed to disclose certain facts about its business, including that the Company’s rate of growth in roaming minutes was substantially declining, and that it had experienced negative growth in October 2003; that AT&T, the Company’s largest roaming customer, had notified the Company that it wanted to dispose of its equity interest in the Company that it had held since the Company’s initial public offering, significantly decreasing their interest in purchasing roaming capacity from the Company; that Bank of America intended to dispose of its substantial equity interest in the Company as soon as AT&T disposed of its equity interest in the Company; that the Company had been missing sales quotas and losing market share throughout the relevant period; and that the Company lacked the internal controls required to report meaningful financial results. In addition, the lawsuits allege that the Company issued various positive statements concerning the Company’s financial prospects and the continued growth in its roaming minutes, and that those statements were false and misleading. The court has consolidated these actions into No. CIV-04-1394-C and the consolidated action is pending and is in the preliminary pleading phase. The Company intends to vigorously defend itself against these claims and management does not believe that the litigation will have an adverse effect in any material respect on the Company.

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company has been in continuing discussions with the SEC regarding an informal inquiry regarding the timing of its disclosure that a controlling interest in the Company was pledged to secure a loan to DCCLP. The Company initially disclosed the pledge in September 2001, which it believes was timely, although the SEC disagrees with the Company’s position. The loan and pledge that are the subject of this inquiry no longer exist. As a result of the Company’s continuing discussions with the staff of the SEC, the Company has made, and there is pending, an offer of settlement to the SEC. Assuming the offer is accepted, there will be no fine or monetary penalty imposed on the Company or any other party, nor will such settlement otherwise have an adverse effect in any material respect on the Company.

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


11.	Recently Issued Accounting Pronouncements

In December 2004, the FASB published FASB Statement No. 123 (revised 2004), “Share-Based Payment.” Statement 123(R) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued.

As a larger public entity, the Company will be required to apply Statement 123(R) as of the first annual reporting period that begins after June 15, 2005, which is the first quarter of 2006.

Statement 123(R) covers a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans.

Statement 123(R) replaces FASB Statement No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” Statement 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that Statement permitted entities the option of continuing to apply the guidance in Opinion 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used. As allowed, the Company has historically accounted for stock options using the accounting principles of Opinion 25. The impact of adopting the provisions of Statement 123(R) will be to increase the Company’s non-cash compensation expense in future periods. The Company has not determined the method that it will use to estimate the fair value of stock options as part of its adoption of Statement 123(R). As disclosed in the Note 3, using the Black-Scholes method of determining fair value in the past would have increased its non-cash compensation expense, net of tax, by approximately $1.1 million for the three months ended March 31, 2005 and $3.8 million for the three months ended March 31, 2004. The provisions of the Company’s credit facility, outstanding notes and preferred stock do not include non-cash compensation expenses in the determination of financial covenants.

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


12.	Supplemental Condensed Consolidating Financial Information

Set forth below is supplemental condensed consolidating financial information as required by DCC’s indenture for its 8.875% senior notes due 2013, and by the Dobson Cellular credit facility. The operations information is presented without parent recognition of subsidiary results. Included are the condensed consolidating Balance Sheet, Statement of Operations and Statement of Cash Flows of Dobson Communications Corporation as of March 31, 2005 and December 31, 2004, and for the three months ended March 31, 2005 and 2004. Neither Dobson Cellular, American Cellular, the Non-guarantor subsidiaries, nor any of their subsidiaries guarantee any of DCC’s notes payable. DCC, Dobson Cellular and its subsidiaries do not guarantee any of American Cellular’s outstanding debt. Neither DCC, the Non-guarantor subsidiaries, nor American Cellular and its subsidiaries guarantee any of Dobson Cellular’s outstanding notes payable. However, Dobson Cellular’s subsidiaries do guarantee Dobson Cellular’s notes payable. See Note 7 for a description of the Company’s notes payable and credit facility.

CONDENSED CONSOLIDATING BALANCE SHEET

As of March 31, 2005


				Dobson			American			Non-Guarantor
				Cellular			Cellular			Subsidiaries			Parent			Eliminations			Consolidated

				($ in thousands)
				(Unaudited)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents			$	80,067		$	34,944		$	72,553		$	2,674		$	—		$	190,238
	Accounts receivable				56,109			36,262			—			—			—			92,371
	Inventory				10,512			3,485			—			—			—			13,997
	Prepaid expenses and other				14,769			7,355			5			—			—			22,129

		Total current assets			161,457			82,046			72,558			2,674			—			318,735

PROPERTY, PLANT AND EQUIPMENT, net					353,897			168,463			—			—			—			522,360

OTHER ASSETS:
	Net intercompany (payable) receivable				(1,960	)		(9,132	)		3,423			774,862			(767,193	)		—
	Restricted assets				10,427			—			—			—			—			10,427
	Wireless license acquisition costs				1,103,353			669,169			9,676			4,412			—			1,786,610
	Goodwill				45,392			572,113			—			1,143			—			618,648
	Deferred financing costs, net				14,585			15,194			—			12,059			—			41,838
	Customer list, net				25,978			55,253			—			—			—			81,231
	Other non-current assets				27,438			730			10			1,624,373			(1,648,373	)		4,178

		Total other assets			1,225,213			1,303,327			13,109			2,416,849			(2,415,566	)		2,542,932

			Total assets	$	1,740,567		$	1,553,836		$	85,667		$	2,419,523		$	(2,415,566	)	$	3,384,027


LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
CURRENT LIABILITIES:
	Accounts payable			$	80,615		$	18,057		$	—		$	—		$	—		$	98,672
	Accrued expenses				21,500			7,838			(68	)		24			—			29,294
	Accrued interest payable				24,505			15,798			—			27,496			—			67,799
	Deferred revenue and customer deposits				16,566			12,966			—			—			—			29,532
	Accrued dividends payable				—			—			—			29,233			—			29,233
	Current portion of obligations under capital leases				127			—			—			—			—			127

		Total current liabilities			143,313			54,659			(68	)		56,753			—			254,657

OTHER LIABILITIES:
	Notes payable				1,592,166			914,029			—			717,424			(767,166	)		2,456,453
	Deferred tax liabilities				188,648			156,657			597			(72,351	)		(10	)		273,541
	Mandatorily redeemable preferred stock, net				—			—			—			237,063			—			237,063
	Other non-current liabilities				5,907			4,162			—			—			—			10,069
SERIES F CONVERTIBLE PREFERRED STOCK					—			—			—			122,536			—			122,536
STOCKHOLDERS’ (DEFICIT) EQUITY:
		Total stockholders’ (deficit) equity			(189,467	)		424,329			85,138			1,358,098			(1,648,390	)		29,708

			Total liabilities and stockholders’ (deficit) equity	$	1,740,567		$	1,553,836		$	85,667		$	2,419,523		$	(2,415,566	)	$	3,384,027

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2004


				Dobson			American			Non-Guarantor
				Cellular			Cellular			Subsidiaries		Parent			Eliminations			Consolidated

				($ in thousands)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents			$	47,427		$	41,489		$	48,303	$	2,665		$	—		$	139,884
	Marketable securities				39,000			—			—		—			—			39,000
	Accounts receivable				59,528			40,413			—		—			—			99,941
	Inventory				10,458			5,153			—		—			—			15,611
	Prepaid expenses and other				10,636			7,065			10		—			—			17,711

		Total current assets			167,049			94,120			48,313		2,665			—			312,147

PROPERTY, PLANT AND EQUIPMENT, net					356,602			177,142			—		—			—			533,744

OTHER ASSETS:
	Net intercompany (payable) receivable				(3,975	)		(6,183	)		3,113		774,211			(767,166	)		—
	Restricted assets				10,350			—			—		—			—			10,350
	Wireless license acquisition costs				1,103,353			669,169			9,676		4,412			—			1,786,610
	Goodwill				46,776			572,113			—		1,142			—			620,031
	Deferred financing costs, net				14,762			15,785			—		12,479			—			43,026
	Customer list, net				28,441			59,253			—		—			—			87,694
	Other non-current assets				3,443			697			—		1,624,383			(1,624,373	)		4,150

		Total other assets			1,203,150			1,310,834			12,789		2,416,627			(2,391,539	)		2,551,861

			Total assets	$	1,726,801		$	1,582,096		$	61,102	$	2,419,292		$	(2,391,539	)	$	3,397,752


LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
CURRENT LIABILITIES:
	Accounts payable			$	69,787		$	10,298		$	—	$	—		$	—		$	80,085
	Accrued expenses				18,380			13,141			—		(83	)		—			31,438
	Accrued interest payable				10,793			37,867			—		25,812			—			74,472
	Deferred revenue and customer deposits				15,856			13,026			—		—			—			28,882
	Accrued dividends payable				—			—			—		19,405			—			19,405
	Current portion of obligations under capital leases				305			—			—		—			—			305

		Total current liabilities			115,121			74,332			—		45,134			—			234,587

OTHER LIABILITIES:
	Notes payable				1,592,166			913,774			—		717,364			(767,166	)		2,456,138
	Deferred tax liabilities				194,602			160,231			667		(71,755	)		—			283,745
	Mandatorily redeemable preferred stock, net				—			—			—		236,094			—			236,094
	Other non-current liabilities				5,423			4,161			—		—			—			9,584
SERIES F CONVERTIBLE PREFERRED STOCK					—			—			—		122,536			—			122,536
STOCKHOLDERS’ (DEFICIT) EQUITY:
		Total stockholders’ (deficit) equity			(180,511	)		429,598			60,435		1,369,919			(1,624,373	)		55,068

			Total liabilities and stockholders’ (deficit) equity	$	1,726,801		$	1,582,096		$	61,102	$	2,419,292		$	(2,391,539	)	$	3,397,752

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2005


			Dobson			American			Non-Guarantor
			Cellular			Cellular			Subsidiaries			Parent			Eliminations			Consolidated

			($ in thousands)
			(Unaudited)
OPERATING REVENUE:
	Service revenue		$	119,524		$	86,558		$	—		$	—		$	—		$	206,082
	Roaming revenue			30,911			22,519			—			—			—			53,430
	Equipment and other revenue			10,250			5,008			—			—			(3,012	)		12,246

		Total operating revenue		160,685			114,085			—			—			(3,012	)		271,758

OPERATING EXPENSES:
		Cost of service (exclusive of depreciation and amortization shown separately below)		43,978			29,619			—			—			(1,298	)		72,299
	Cost of equipment			18,708			11,658			—			—			—			30,366
	Marketing and selling			19,721			14,373			—			—			—			34,094
	General and administrative			25,279			21,241			5			—			(1,714	)		44,811
	Depreciation and amortization			30,315			21,255			—			—			—			51,570

		Total operating expenses		138,001			98,146			5			—			(3,012	)		233,140

OPERATING INCOME (LOSS)				22,684			15,939			(5	)		—			—			38,618

OTHER (EXPENSE) INCOME:
	Interest (expense) income			(37,025	)		(23,784	)		—			(18,443	)		18,510			(60,742	)
	Dividends on mandatorily redeemable preferred stock			—			—			—			(7,931	)		—			(7,931	)
	Other income (expense), net			1,726			(652	)		237			16,460			(18,537	)		(766	)

(LOSS) INCOME BEFORE MINORITY INTERESTS IN INCOME OF SUBSIDIARIES AND INCOME TAXES				(12,615	)		(8,497	)		232			(9,914	)		(27	)		(30,821	)
MINORITY INTERESTS IN INCOME OF SUBSIDIARIES				(1,830	)		—			—			—			—			(1,830	)

(LOSS) INCOME BEFORE INCOME TAXES				(14,445	)		(8,497	)		232			(9,914	)		(27	)		(32,651	)
	Income tax benefit (expense)			5,489			3,229			(88	)		754			10			9,394

NET (LOSS) INCOME				(8,956	)		(5,268	)		144			(9,160	)		(17	)		(23,257	)
	Dividends on preferred stock			—			—			—			(2,145	)		—			(2,145	)

NET (LOSS) INCOME APPLICABLE TO COMMON STOCKHOLDERS			$	(8,956	)	$	(5,268	)	$	144		$	(11,305	)	$	(17	)	$	(25,402	)

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2004


			Dobson			American			Non-Guarantor
			Cellular			Cellular			Subsidiaries			Parent			Eliminations			Consolidated

			($ in thousands)
			(Unaudited)
OPERATING REVENUE:
	Service revenue		$	104,327		$	77,372		$	—		$	—		$	—		$	181,699
	Roaming revenue			23,962			18,113			—			—			—			42,075
	Equipment and other revenue			7,330			4,424			—			—			(1,737	)		10,017

		Total operating revenue		135,619			99,909			—			—			(1,737	)		233,791

OPERATING EXPENSES:
	Cost of service (exclusive of items shown separately below)			32,218			22,148			—			—			(180	)		54,186
	Cost of equipment			13,410			10,124			—			—			—			23,534
	Marketing and selling			15,947			13,215			—			—			—			29,162
	General and administrative			23,284			22,044			5			—			(1,557	)		43,776
	Depreciation and amortization			25,217			20,231			—			—			—			45,448

		Total operating expenses		110,076			87,762			5			—			(1,737	)		196,106

OPERATING INCOME (LOSS)				25,543			12,147			(5	)		—			—			37,685

OTHER (EXPENSE) INCOME:
	Interest (expense) income			(9,216	)		(23,675	)		(1,138	)		(22,823	)		2,614			(54,238	)
	(Loss) gain from extinguishment of debt			(349	)		—			—			6,088			—			5,739
	Dividends on mandatory redeemable preferred stock			—			—			—			(8,618	)		—			(8,618	)
	Other income (expense), net			2,444			(350	)		217			1,580			(2,614	)		1,277

INCOME (LOSS) BEFORE MINORITY INTERESTS IN INCOME OF SUBSIDIARIES AND INCOME TAXES				18,422			(11,878	)		(926	)		(23,773	)		—			(18,155	)
MINORITY INTERESTS IN INCOME OF SUBSIDIARIES				(944	)		—			—			—			—			(944	)

INCOME (LOSS) BEFORE INCOME TAXES				17,478			(11,878	)		(926	)		(23,773	)		—			(19,099	)
	Income tax (expense) benefit			(6,642	)		4,513			352			5,751			—			3,974

INCOME (LOSS) FROM CONTINUING OPERATIONS				10,836			(7,365	)		(574	)		(18,022	)		—			(15,125	)
	Income from discontinued operations, net of income tax expense			443			—			—			—			—			443

NET INCOME (LOSS)				11,279			(7,365	)		(574	)		(18,022	)		—			(14,682	)
	Dividends on preferred stock			—			—			—			(1,859	)		—			(1,859	)

NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS			$	11,279		$	(7,365	)	$	(574	)	$	(19,881	)	$	—		$	(16,541	)

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2005


				Dobson			American			Non-Guarantor
				Cellular			Cellular			Subsidiaries			Parent			Eliminations			Consolidated

				($ in thousands)
				(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
	(Loss) income from continuing operations			$	(8,956	)	$	(5,268	)	$	144		$	(9,160	)	$	(17	)	$	(23,257	)
	Adjustments to reconcile (loss) income from continuing operations to net cash provided by (used in) operating activities, net of effects of acquisitions —
		Depreciation and amortization			30,315			21,255			—			—			—			51,570
		Amortization of bond discounts and financing costs			470			846			—			500			—			1,816
		Deferred income tax (expense) benefit			(5,750	)		(3,335	)		69			(754	)		10			(9,760	)
		Non-cash mandatorily redeemable preferred stock dividends			—			—			—			7,931			—			7,931
		Other operating activities			1,858			6			—			—			—			1,864
	Changes in current assets and liabilities —
		Accounts receivable			3,419			4,151			—			—			—			7,570
		Inventory			(54	)		1,668			—			—			—			1,614
		Prepaid expenses and other			(4,414	)		(529	)		5			—			—			(4,938	)
		Accounts payable			10,828			7,759			—			—			—			18,587
		Accrued expenses			16,832			(27,372	)		39			1,684			—			(8,817	)
		Deferred revenue and customer deposits			710			(60	)		—			—			—			650

			Net cash provided by (used in) operating activities		45,258			(879	)		257			201			(7	)		44,830

CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures				(23,970	)		(8,588	)		—			—			—			(32,558	)
	(Increase) decrease in receivable-affiliates				(2,017	)		2,952			(7	)		(935	)		7			—
	Investment in Wireless Investment Inc.				(24,000	)		—			24,000			—			—			—
	Sales of marketable securities				39,000			—			—			—			—			39,000
	Other investing activities				6			(30	)		—			—			—			(24	)

			Net cash (used in) provided by investing activities		(10,981	)		(5,666	)		23,993			(935	)		7			6,418

CASH FLOWS FROM FINANCING ACTIVITIES:
	Distributions to minority interest holders				(1,344	)		—			—			—			—			(1,344	)
	Other financing activities				(293	)		—			—			743			—			450

			Net cash (used in) provided by financing activities		(1,637	)		—			—			743			—			(894	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS					32,640			(6,545	)		24,250			9			—			50,354
CASH AND CASH EQUIVALENTS, beginning of period					47,427			41,489			48,303			2,665			—			139,884

CASH AND CASH EQUIVALENTS, end of period				$	80,067		$	34,944		$	72,553		$	2,674		$	—		$	190,238

DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2004


				Dobson			American			Non-Guarantor
				Cellular			Cellular			Subsidiaries			Parent			Eliminations		Consolidated

				($ in thousands)
				(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Income (loss) from continuing operations			$	10,836		$	(7,365	)	$	(574	)	$	(18,022	)	$	—	$	(15,125	)
	Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities, net of effects of acquisitions —
		Depreciation and amortization			25,217			20,231			—			—			—		45,448
		Amortization of bond premium and financing costs			576			804			—			617			—		1,997
		Deferred income tax benefit (expense)			6,680			(4,678	)		(352	)		(5,751	)		—		(4,101	)
		Non-cash mandatorily redeemable preferred stock dividends			—			—			—			197			—		197
		Other operating activities			322			(6	)		—			1,093			—		1,409
	Changes in current assets and liabilities —
		Accounts receivable			12,942			5,329			—			—			—		18,271
		Inventory			86			(387	)		—			—			—		(301	)
		Prepaid expenses and other			(1,264	)		(574	)		5			—			—		(1,833	)
		Accounts payable			(24,398	)		3,634			—			—			—		(20,764	)
		Accrued expenses			(4,219	)		(19,927	)		(14,162	)		18,970			—		(19,338	)
		Deferred revenue and customer deposits			474			(309	)		—			(6	)		—		159

			Net cash provided by (used in) operating activities		27,252			(3,248	)		(15,083	)		(2,902	)		—		6,019

CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures				(25,350	)		(15,254	)		—			—			—		(40,604	)
	Refund of funds held in escrow for contingencies on sold assets				7,185			4,169			—			—			—		11,354
	Cash received from exchange of assets				21,978			—			—			—			—		21,978
	Purchases of marketable securities				—			—			(25,000	)		—			—		(25,000	)
	Sales of marketable securities				—			—			45,000			—			—		45,000
	(Increase) decrease in receivable-affiliates				(22,181	)		6,659			(50,008	)		65,530			—		—
	Other investing activities				(1,043	)		(7	)		—			—			—		(1,050	)

			Net cash (used in) provided by investing activities		(19,411	)		(4,433	)		(30,008	)		65,530			—		11,678

CASH FLOWS FROM FINANCING ACTIVITIES:
	Repayments of long-term debt				(6,620	)		—			—			(55,500	)		—		(62,120	)
	Distributions to minority interest holders				(1,629	)		—			—			—			—		(1,629	)
	Investment in subsidiary				(2,300	)		—			—			2,300			—		—
	Capital contribution from parent				—			—			65,300			(65,300	)		—		—
	Other financing costs				(14	)		(50	)		—			(147	)		—		(211	)

			Net cash (used in) provided by financing activities		(10,563	)		(50	)		65,300			(118,647	)		—		(63,960	)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS					(2,722	)		(7,731	)		20,209			(56,019	)		—		(46,263	)
CASH AND CASH EQUIVALENTS, beginning of period					59,387			27,505			3,801			60,846			—		151,539

CASH AND CASH EQUIVALENTS, end of period				$	56,665		$	19,774		$	24,010		$	4,827		$	—	$	105,276


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

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 December 31, 2004 consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2004 and our condensed consolidated financial statements and the related notes included in Item 1.

OVERVIEW

We are one of the largest providers of rural and suburban wireless communications systems in the United States. We began providing wireless telephone services in 1990 in Oklahoma and the Texas Panhandle. We have expanded our wireless operations with an acquisition strategy targeting underserved rural and suburban areas, which we believe have a significant number of potential customers with substantial needs for wireless communications.

Our operations are encompassed in our two primary subsidiaries, Dobson Cellular and American Cellular. American Cellular does not guarantee any debt or other obligations of Dobson Cellular or us, and Dobson Cellular and we do not guarantee any debt or other obligations of American Cellular.

American Cellular is required to file with the Securities and Exchange Commission a Quarterly Report on Form 10-Q for the three months ended March 31, 2005. While we provide you with much of American Cellular’s financial and operational information, we refer you to American Cellular’s Quarterly Report for American Cellular’s financial and operational results.

CRITICAL ACCOUNTING POLICIES AND PRACTICES

We prepare our condensed consolidated financial statements in accordance with U.S. general accepted accounting principles, or 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 fiscal year ended December 31, 2004.

In preparing our consolidated financial statements, it is necessary that we use estimates and assumptions for 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 and timing of revenues and expenses we recognize for and during the reporting period. Actual results may differ from estimates.

ACQUISITIONS AND DISCONTINUED OPERATIONS

We continually seek opportunities to acquire attractive wireless markets as part of our overall business strategy. The following are the most recent transactions.

Acquisition of Michigan 2 and 4 RSAs. On December 29, 2004, we completed the acquisition of the Michigan wireless assets of RFB and certain affiliates for $29.3 million. We purchased these assets in an auction conducted under Sections 363 and 365 of the U.S. bankruptcy code. Upon closing, we obtained control over most of these assets and began operation of them; however, assignment of certain spectrum licenses requires FCC approval, for which we have applied. Therefore, we have entered into a long-term spectrum management lease that allows us to lease the RFB spectrum pending the FCC’s decision.

We provide service in most of the northern part of Michigan, including the Upper Peninsula. The RFB acquisition allows us to expand our service area to cover the entire northern part of the state, and allows us to market our service under the CELLULARONE® brand throughout that market. RFB operates both Code Division Multiple Access, or CDMA, and analog technologies on 850 MHz cellular licenses in these markets. We have deployed GSM/GPRS/EDGE technology over half of RFB’s existing footprint, and intend to have it fully completed by June 2005.

As a result of the completion of this transaction, our condensed consolidated financial statements only include the operating results from RFB beginning December 29, 2004.

Acquisition of NPI. On June 15, 2004, we acquired certain assets of NPI for approximately $29.5 million. These assets include PCS licenses and a GSM/GPRS/EDGE network covering areas in northern Michigan.

As a result of the completion of this transaction, our condensed consolidated financial statements only include the operating results from NPI beginning June 15, 2004.

Maryland/Michigan Swap. On February 17, 2004, we transferred our Maryland 2 RSA wireless property in exchange for Cingular Wireless’ Michigan 5 RSA wireless property, $22.0 million in cash and its one-percent ownership interests in Texas 2 RSA and Oklahoma 5 and 7 RSAs. We are the majority owner of these three markets.

As a result of the completion of this transaction, our condensed consolidated financial statements only include the operating results from Michigan 5 RSA beginning February 17, 2004.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

The following table summarizes our key operating data for the periods indicated:


	Three Months Ended March 31,

	2005			2004

Market population(1)		11,757,400			10,790,300
Ending subscribers		1,590,500			1,567,200
Market penetration(2)		13.5	%		14.5	%
Gross subscriber additions		122,000			99,600
Average subscribers		1,599,900			1,559,700
Average monthly service revenue per subscriber(3)	$	43		$	39
Average monthly post-paid churn(4)		2.4	%		1.9	%


(1)	Represents the population in our licensed areas for the period indicated. The results are based upon the 2003 population estimates provided by MapInfo Corporation, a location software company, adjusted to exclude those portions of our RSAs and metropolitan statistical 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 that deactivate service each month. The calculation divides the total post-paid deactivations during the period by the average post-paid subscribers for the period.

Basis of Presentation

To provide a more comparable basis of our Management’s Discussion and Analysis, we have presented our historical results of operations from continuing operations for the periods indicated, along with our results from newly acquired markets. For the purpose of this Management’s Discussion and Analysis, results from newly acquired markets refer to our results of operations of our recent acquisitions. Our recent acquisitions include the Michigan 5 RSA property from February 17, 2004, the NPI markets from June 15, 2004 and the

RFB markets from December 29, 2004. The following table sets forth the components of our results of operations for the three months ended March 31, 2005 and 2004:


		Three Months Ended March 31, 2005									Three Months Ended March 31, 2004
																				Percentage Change
					Results			Results						Results			Results			in Non-Acquisition
					from Newly			from Non-						from Newly			from Non-			Markets
					Acquired			Acquisition						Acquired			Acquisition
		Historical			Markets			Markets			Historical			Markets			Markets			’05 vs. ’04

		($ in thousands)
Operating Revenue:
Service revenue		$	206,082		$	5,376		$	200,706		$	181,699		$	1,065		$	180,634			11.1	%
Roaming revenue			53,430			2,202			51,228			42,075			112			41,963			22.1	%
	Equipment and other revenue		12,246			690			11,556			10,017			39			9,978			15.8	%

Total operating revenue			271,758			8,268			263,490			233,791			1,216			232,575			13.3	%

Operating Expenses:
Cost of service (exclusive of depreciation and amortization shown separately below)			72,299			3,186			69,113			54,186			269			53,917			28.2	%
Cost of equipment			30,366			751			29,615			23,534			106			23,428			26.4	%
Marketing and selling			34,094			1,672			32,422			29,162			149			29,013			11.7	%
General and administrative			44,811			2,387			42,424			43,776			371			43,405			(2.3	)%
Depreciation and amortization			51,570			2,293			49,277			45,448			384			45,064			9.3	%

	Total operating expenses		233,140			10,289			222,851			196,106			1,279			194,827			14.4	%

Operating income (loss)			38,618			(2,021	)		40,639			37,685			(63	)		37,748			7.7	%

Interest expense			(60,742	)		—			(60,742	)		(54,238	)		—			(54,238	)		12.0	%
Gain from extinguishment of debt			—			—			—			5,739			—			5,739			*
Dividends on mandatorily redeemable preferred stock			(7,931	)		—			(7,931	)		(8,618	)		—			(8,618	)		*
Other (expense) income, net			(766	)		51			(817	)		1,277			—			1,277			*
Minority interest in incom of subsidiaries			e (1,830	)		—			(1,830	)		(944	)		—			(944	)		93.9	%
Income tax benefit			9,394			749			8,645			3,974			24			3,950			*

Loss from continuing operations		$	(23,257	)	$	(1,221	)	$	(22,036	)	$	(15,125	)	$	(39	)	$	(15,086	)		*


*	Calculation is not meaningful.

Subscribers

Our subscriber base comprises three types of subscribers: post-paid, reseller and pre-paid. At March 31, 2005, post-paid subscribers accounted for 90.3% 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 a 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 March 31, 2005, the reseller base accounted for 6.6% of our total subscriber base. Our pre-paid subscribers, which at March 31, 2005, accounted for 3.1% of our subscriber base, are subscribers that pre-pay for an agreed upon amount of usage.

During the three months ended March 31, 2005, we experienced an increase in our gross subscriber additions. Although our gross subscriber additions had been decreasing 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, our deployment of GSM/GPRS/EDGE in our networks during 2004 has helped this decline to level off and result in growth in our gross subscriber additions in the first quarter of 2005 compared to the first quarter of 2004. For the three months ended March 31, 2005, GSM subscribers accounted for 35.4% of our subscriber base, compared to 0.8% for the three months ended March 31, 2004. Total gross subscriber additions included 2,700 from our newly acquired markets for the three months ended March 31, 2005, and 500 from our newly acquired markets for the three months ended March 31, 2004. Therefore, total gross subscriber additions from our non-acquisition markets were 119,300 for the three months ended March 31, 2005, compared to 99,100 for the three months ended March 31, 2004.

Since the middle of 2004, we have experienced churn rates above our historical levels. This increase in churn is primarily the result of two factors impacting our business. First, we have experienced challenges operating both a TDMA and GSM/GPRS/EDGE network. This has impacted the level of customer satisfaction with our service in certain of our markets. We have implemented several initiatives that have and should continue to improve, the quality of our networks. Secondly, Wireless Local Number Portability, or WLNP, which allows customers to keep their wireless phone number in their local area when switching to a different service provider was implemented in all of our markets by May 24, 2004. Although we expect churn to improve as we continue our initiatives to improve customer satisfaction, churn could continue to be adversely affected by continued network issues and WLNP.

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

Service 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. During the three months ended March 31, 2004, this decline in revenue per minute had not been completely offset by increases in average minutes-of-use and our average monthly service revenue per subscriber decreased as a result. However, for the past year, we have experienced growth in our average monthly service revenue per subscriber. Also, we believe there is a continued opportunity throughout 2005 for our average monthly service revenue per subscriber to continue to increase from current levels, primarily due to additional voice and data services available as a result of our GSM/GPRS/EDGE technology.

For the three months ended March 31, 2005, our historical service revenue increased compared to the three months ended March 31, 2004. This increase in our service revenue was primarily attributable to an increase in average monthly service revenue per subscriber, as our subscribers continue to migrate to our GSM/GPRS/EDGE offerings.

Roaming revenue. 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 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 roaming rates. Our roaming yield (roaming revenue, which includes airtime, toll charges and surcharges, divided by roaming minutes-of-use) was $0.135 for the three months ended March 31, 2005 compared to $0.139 for the three months ended March 31, 2004. We expect our roaming yield to continue to decline throughout 2005. Even though our significant roaming contracts have provided 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.

For the three months ended March 31, 2005, our historical roaming revenue increased compared to the three months ended March 31, 2004. When comparing the three months ended March 31, 2005 to the three months ended March 31, 2004, this increase was a result of a 30.6% increase in roaming minutes, offset by a 2.8% decline in our roaming revenue per minute-of-use as contractual rates were lower in the first quarter of 2005 compared to the same period in 2004.

Equipment and other revenue. Equipment revenue is revenue from selling wireless equipment to our subscribers. Equipment revenue is recognized when the equipment is delivered to the customer. Other revenue is primarily rental income from the lease of space on company-owned towers.

For the three months ended March 31, 2005, our historical equipment and other revenue increased compared to the three months ended March 31, 2004. This increase in our equipment and other revenue was due to an increase in activation fees charged to customers, an increase in gross subscriber additions and an increase in the number of customers upgrading to new rate plans and purchasing new handsets.

Operating 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.

Cost of service. 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 as a result of a decrease in rates charged by third-party providers. While future rates charged by third party providers may continue to decrease, we expect growth in our minutes-of-use to grow at a faster rate, due to more usage and the continued build-out of our wireless network. Therefore, we expect our roaming costs to continue to increase in future periods. In addition, as a result of the sale and leaseback of certain of our towers announced in March 2005, we expect our total cost of service to increase in future periods.

The following table sets forth the historical results of the components of our cost of service for the periods indicated:


	Three Months Ended March 31,

	2005				2004

	Amount		Percentage		Amount		Percentage

	($ in thousands)
Network costs	$	49,638		68.7%	$	34,586		63.8%
Roaming costs		22,661		31.3%		19,600		36.2%

Total cost of service	$	72,299		100.0%	$	54,186		100.0%

For the three months ended March 31, 2005, our historical network costs, which are the costs we incur in operating our wireless network and providing service to our customers, increased compared to the three months ended March 31, 2004. This increase is a result of adding new circuits and cell sites related to our new GSM/GPRS/EDGE network, as well as increasing costs as a result of providing a higher level of service features, such as handset insurance and ring tones.

For the three months ended March 31, 2005, our historical roaming costs increased compared to the three months ended March 31, 2004. This increased is primarily a result of a 30.4% increase in the minutes used by our customers on third-party wireless providers’ networks, offset by an 11.3% decrease in roaming

costs per minute-of-use as contractual rates were lower in the first quarter of 2005 compared to the same period in 2004.

Cost of equipment. Our cost of equipment represents the costs associated with wireless equipment and accessories sold to customers. Cost of equipment is impacted by the volume of equipment transactions. The volume of equipment transactions is impacted by gross subscriber additions and customer upgrades. We, like other wireless providers, have continued to use discounts on phone equipment and have continued to offer 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 service revenue from an increase in the number of wireless subscribers and from higher-priced rate plans. With the continued migration of our customer base to GSM/GPRS/EDGE rate plans and the continued increases in the cost of handsets, we expect our cost of equipment to continue to increase during the remainder of 2005.

For the three months ended March 31, 2005, our historical cost of equipment increased compared to the three months ended March 31, 2004. The increase in cost of equipment is due to an increase in the average cost of handsets sold to customers, an increase in the number of customers upgrading to new rate plans and purchasing new handsets and an increase in gross subscriber additions. As previously noted, many of these customers are upgrading to our new GSM/GPRS/EDGE rate plans.

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

For the three months ended March 31, 2005, our historical marketing and selling costs increased compared to the three months ended March 31, 2004. The increase was due to an increase in advertising costs spent to promote our GSM/GPRS/EDGE rate plans along with an increase in commissions paid as a result of an increase in gross subscriber additions.

General and administrative costs. Our general and administrative costs include all infrastructure costs, including costs for customer support, billing, collections and corporate administration.

For the three months ended March 31, 2005, our historical general and administrative costs increased compared to the three months ended March 31, 2004. This increase in our general and administrative costs was primarily attributable to our newly acquired markets. Before giving effect to the newly acquired markets, our historical general and administrative costs decreased slightly due to efficiencies gained from centralized administrative functions. Our average monthly general and administrative costs per average subscriber has remained fairly constant in our historical markets for the three months ended March 31, 2005 and 2004, although general and administrative costs have increased, our subscriber base has increased as well.

Depreciation and amortization expense. Our depreciation and amortization expense represents the costs associated with the depreciation of our fixed assets and the amortization of certain identifiable intangible assets. However, we do not amortize our wireless license acquisition costs or goodwill. Rather, these assets are subject to periodic evaluations for impairment. During 2005, we expect increases in depreciation and amortization as a result of newly acquired or constructed assets will mostly be offset as older assets become fully depreciated.

For the three months ended March 31, 2005, our historical depreciation and amortization expense increased compared to the three months ended March 31, 2004. This increase in depreciation and amortization expense is a result of additional depreciation on fixed assets acquired or constructed, primarily from our GSM/GPRS/EDGE network buildout.

Non-Operating Results

Interest expense. For the three months ended March 31, 2005, our interest expense increased compared to the three months ended March 31, 2004. This is due to an increase in our notes payable and the average

interest rate of our notes payable, partially offset by a decrease in outstanding borrowings under our credit facility.

Gain from extinguishment of debt. For the three months ended March 31, 2004, our gain from extinguishment of debt was $5.7 million. The gain from extinguishment of debt for the three months ended March 31, 2004 was due to a partial purchase of our 8.875% senior notes, offset by a loss on redemption of the remaining Dobson/Sygnet senior notes. We redeemed the remaining $5.2 million of Dobson/Sygnet senior notes and recognized a loss from extinguishment of debt of $0.4 million, due to the premium paid and the write off of related deferred financing costs.

Dividends on mandatorily redeemable preferred stock. For the three months ended March 31, 2005, our dividends on mandatorily redeemable preferred stock decreased compared to the three months ended March 31, 2004. The decrease in mandatorily redeemable preferred stock dividends is the result of the reduction in the number of shares of our mandatorily redeemable preferred stock outstanding due to redemption and repurchases of our mandatorily redeemable preferred stock during 2004.

Other (expense) income, net. For the three months ended March 31, 2005, our historical other (expense) income decreased compared to the three months ended March 31, 2004. This decrease was a result of expensing of the cost of our preferred stock exchange offer, which expired in March 2005 without the minimum tender condition being satisfied.

Discontinued operations. For the three months ended March 31, 2004, we had income from discontinued operations of $0.4 million. Our discontinued operations during 2004 relate to the Maryland properties included in the swap with Cingular Wireless.

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, and when necessary, bank debt and the sale of debt and equity securities. Although we cannot provide assurance, assuming successful implementation of our strategy, including the continuing development of our wireless systems and significant and sustained growth in our cash flows, we believe that availability under our Dobson Cellular revolving line of credit, our cash and cash equivalents on hand and cash flows from operations will be sufficient to satisfy our currently expected capital expenditures, working capital and debt service obligations over the next year. The actual amount and timing of our future capital requirements may differ materially from our estimates as a result of, among other things, the demand for our services and the regulatory, technological and competitive developments that may arise.

We currently expect that we may have to refinance our notes at their final maturities, which begin in 2010. Sources of additional financing may include commercial bank borrowings, vendor financing and the issuance of equity or debt securities. Some or all of these financing options may not be available to us in the future, since these resources are dependent upon our financial performance and condition, along with certain other factors that are beyond our control, such as economic events, technological changes and business trends and developments. Thus, if at any time financing is not available on acceptable terms, it could have a material adverse effect on our business and financial condition.

Working Capital and Net Cash Flow

At March 31, 2005, we had working capital of $64.2 million, a ratio of current assets to current liabilities of 1.3:1 and an unrestricted cash balance of $190.2 million, which compares to working capital of $77.6 million, a ratio of current assets to current liabilities of 1.3:1, an unrestricted cash balance of $139.9 million and marketable securities of $39.0 million at December 31, 2004.

Our net cash provided by operating activities totaled $44.8 million for the three months ended March 31, 2005 compared to $6.0 million for the three months ended March 31, 2004. The increase was primarily due to changes in our current assets and liabilities, which required less net cash payments in 2005 than in 2004. For additional analysis of the changes impacting net loss from continuing operations, see “Results of Operations

for the Three Months Ended March 31, 2005 and 2004.” We expect that any future improvements in cash provided by operating activities will primarily be driven by improvements in net income from continuing operations.

We received cash from investing activities for the three months ended March 31, 2005 and March 31, 2004. Investing activities are primarily related to capital expenditures, purchases and sales of marketable securities and acquisitions and sales of markets. We expect to use cash in investing activities for the foreseeable future. Our net cash provided by investing activities for the three months ended March 31, 2005 related to $39.0 million from sales of marketable securities, partially offset by capital expenditures of $32.6 million. Our net cash provided by investing activities for the three months ended March 31, 2004 primarily related to $45.0 million from sales of marketable securities, $22.0 million in cash received from Cingular Wireless as part of our Michigan/Maryland swap and $11.4 million from receipt of funds held in escrow for contingencies on sold assets, partially offset by capital expenditures of $40.6 million and purchases of marketable securities of $25.0 million. During 2005, we expect capital expenditures to remain fairly constant with 2004 amounts as a result of the continued development and improvements of our GSM/GPRS/EDGE wireless network.

We used cash in financing activities for the three months ended March 31, 2005 and 2004. Financing activities are primarily related to proceeds from our notes payable and credit facility and repayments of our notes payable and credit facility. Our financing activity uses for the three months ended March 31, 2005 consisted primarily of distributions to minority interest holders of $1.3 million. Our financing activity uses for the three months ended March 31, 2004 consisted of repayments and repurchases of long-term debt totaling $62.1 million and distributions to minority interest holders of $1.6 million.

Capital Resources


	Dobson Cellular Senior Secured Credit Facility

Dobson Cellular’s senior secured credit facility consists of a $75.0 million senior secured revolving credit facility.

The Dobson Cellular credit facility is guaranteed by us, DOC and DOC Lease Co LLC, and is secured by first and second priority security interests in all of the tangible and intangible assets of Dobson Cellular. The Dobson Cellular credit facility is not guaranteed by American Cellular or any of its subsidiaries. In connection with the offering by Dobson Cellular of its $825.0 million of senior secured notes in November 2004, Dobson Cellular repaid all outstanding borrowings under the Dobson Cellular credit facility totaling $599.5 million and amended it to, among other things, permit additional leverage under certain of the leverage ratios, eliminate the term loan portion of the facility, amend the revolving portion of the facility to provide for maximum borrowing of $75.0 million and shorten the maturity of the credit facility to October 23, 2008. As of March 31, 2005, we had no borrowings under this amended credit facility.

Under specified terms and conditions, including covenant compliance, the amount available under the Dobson Cellular credit facility may be increased by an incremental facility of up to $200.0 million. We have the right to make no more than four requests to increase the amount of the credit facility, such request must be made at least 12 months prior to the credit termination date. Any incremental facility will have a maturity greater than the weighted average life of the existing debt under the Dobson Cellular credit facility.

The Dobson Cellular credit facility agreement contains covenants that, subject to specified exceptions, limit our ability to:


	•	make capital expenditures;

	•	sell or dispose of assets;


	•	incur additional debt;

	•	create liens;

	•	merge with or acquire other companies;

	•	engage in transactions with affiliates, including dividend restrictions; and

	•	make loans, advances or stock repurchases.


	Notes Payable

The indentures related to all of our senior notes contains certain covenants including, but not limited to, covenants that limit our ability and that of our restricted subsidiaries to:


	•	incur indebtedness;

	•	incur or assume liens;

	•	pay dividends or make other restricted payments;

	•	impose dividend or other payment restrictions affecting our restricted subsidiaries;

	•	issue and sell capital stock of our restricted subsidiaries;

	•	issue certain capital stock;

	•	issue guarantees of indebtedness;

	•	enter into transactions with affiliates;

	•	sell assets;

	•	engage in unpermitted lines of business;

	•	enter into sale and leaseback transactions; and

	•	merge or consolidate with or transfer substantial assets to another entity.

American Cellular is an unrestricted subsidiary for purposes of the indentures, meaning that it is not subject to certain covenants.

On February 28, 2004, our board of directors authorized us to expend up to $50.0 million to repurchase some of our outstanding existing 10.875% senior notes and existing 8.875% senior notes. During the first quarter of 2004, we purchased $55.5 million principal amount of our 8.875% senior notes for the purchase price of $48.3 million, excluding accrued interest. Our first quarter 2004 gain from extinguishment of debt related to these senior notes. This gain was $6.1 million, net of related deferred financing costs.

In addition, on October 12, 2004, our board of directors authorized us to expend up to $125.0 million for acquisition of our bond debt, without regard to face amount of principal and accrued interest acquired. We purchased approximately $174.8 million principal amount of our 8.875% senior notes at an aggregate cost of approximately $122.9 million, excluding accrued interest, with a portion of the proceeds from the sale by Dobson Cellular of its senior secured notes in November 2004. We reported a gain on extinguishment of debt, net of related deferred financing costs, of approximately $48.7 million in the fourth quarter of 2004 as a result of these purchases.


	Preferred Stock

During August 2003, in conjunction with the American Cellular reorganization, we issued 686,201 shares of our Series F preferred stock having an aggregate liquidation preference of $122.5 million and convertible into a maximum of 14.0 million shares of our Class A common stock, plus $48.7 million in cash and 44.2 million shares of our Class A common stock to the former holders of $681.9 million principal amount of American Cellular’s outstanding 9.5% senior subordinated notes due 2009 and their advisors. Our outstanding

Series F preferred stock has an aggregate liquidation preference of $122.5 million, plus accrued dividends, at March 31, 2005.

As of March 31, 2005, we had outstanding 46,181 shares of our 12.25% preferred stock with an aggregate liquidation value of $45.5 million, net of related deferred financing costs and discount, plus accrued dividends, and 192,898 shares of our 13% preferred stock with an aggregate liquidation value of $191.6 million, net of related deferred financing costs, plus accrued dividends. The certificates of designation for these series of preferred stock contain restrictive covenants that require us to meet certain financial ratios in order to incur indebtedness.

On June 15, 2004, our board of directors authorized us to expend up to $50.0 million to repurchase some of our outstanding 12.25% and 13% preferred stock. Through March 31, 2005, we repurchased a total of 14,816 shares of our 12.25% preferred stock and 9,475 shares of our 13% preferred stock. The preferred stock repurchases totaled 24,291 shares for $17.4 million, of which all have been canceled.

On September 29, 2004, December 20, 2004 and March 24, 2005, we announced that we would not declare or pay the cash dividend due in the fourth quarter of 2004, the first quarter of 2005 and the second quarter of 2005, respectively, on our outstanding 12.25% preferred stock or our outstanding 13% preferred stock. Unpaid dividends will accrue interest at the stated dividend rates, compounded quarterly. To the extent dividends are not paid prior to the mandatory redemption dates or prior to our repurchase of the preferred shares, we will be required to pay such dividends on the redemption dates to the extent it is permitted under applicable law to redeem the preferred stock on such dates.

If we defer dividends on our 12.25% preferred stock and our 13% preferred stock preferred stock, we are not permitted to pay dividends on the Series F preferred stock. Therefore, the Series F dividends due on October 15, 2004 and April 15, 2005 with respect to this preferred stock were not paid, and will accrue interest at 7%, compounded semi-annually. The April 15, 2005 deferral is the second semi-annual deferral on dividends for the Series F preferred stock. Effective April 16, 2005, holders of the Series F preferred stock had the right to elect two new directors to our board of directors, but have not done so at this time.

If we do not make four quarterly dividend payments (whether consecutive or not) on either our 12.25% preferred stock or our 13% preferred stock, a majority of the holders of the respective series of preferred stock would each have the right to elect two new directors each to our board of directors. Under these circumstances, the expansion of our board of directors by six new members would not constitute a change of control under the indentures governing our outstanding notes or Dobson Cellular’s senior secured credit facility.


	Tower Sale

We have entered into agreements to sell 563 towers to Global Tower LLC for $87.5 million and then lease them back under leases with an initial ten-year term. This lease is expected to be accounted for as an operating lease. This transaction is subject to the satisfaction of customary closing conditions.


	*Capital Expenditures and Commitments*

We had capital expenditures of $32.6 million for the three months ended March 31, 2005. We plan to spend approximately $140 million for capital expenditures in 2005. The majority of these expected expenditures would expand the capacity of our GSM/ GPRS/ EDGE network, support the addition of new GSM/ GPRS/ EDGE cell sites, upgrade acquired networks, and fund certain mandates to comply with requirement of E-911 Phase II.

The amount and timing of capital expenditures may vary depending on the rate at which we expand and develop our wireless systems and whether we consummate additional acquisitions. We may require additional financing for future acquisitions, to refinance our debt at its final maturities and to meet the mandatory redemption provision on our preferred stock.


	Contractual Obligations

We are obligated under a purchase and license agreement with Nortel Networks Corp. to purchase approximately $90 million of GSM/ GPRS/ EDGE related products and services prior to June 9, 2007. If we fail to achieve this commitment, the agreement provides for liquidated damages in an amount equal to 20% of the portion of the $90 million commitment that remains unfulfilled. As of March 31, 2005, $38.4 million of this commitment has been fulfilled.

We have not had a material change in the resources required for scheduled repayments of contractual obligations from the table of Contractual Cash Obligations included in Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the year ended December 31, 2004.

Forward-Looking Statements

The description of our plans and expectations set forth herein, including expected 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 and expectations 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 and expectations 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 business 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; terms in our roaming agreements; 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 events or circumstances after the date hereof including, without limitation, changes in our business strategy or expected capital expenditures, or to reflect the occurrence of unanticipated events.


Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*

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.

We have $250.0 million senior secured notes that bear interest at a variable rate, reset quarterly, of LIBOR plus 4.75%. These notes are the only variable rate debt we have outstanding. A one-percentage point change in interest rate would change our cash interest payments on an annual basis by approximately $2.5 million.


Item 4.	*Controls and Procedures*

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the “Exchange Act”) as of March 31, 2005. On the basis of this review, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, in a manner that allows timely decisions regarding required disclosure. We did not effect any change in our internal controls over financial reporting during the quarter ended March 31, 2005 that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.	*Legal Proceedings*

Beginning on October 22, 2004, securities class action lawsuits were filed against us and certain of our officers and/or directors in the United States District Court for the Western District of Oklahoma, alleging violations of the federal securities laws and seeking unspecified damages, purportedly on behalf of a class of purchasers of our publicly traded securities in the period between May 19, 2003 and August 9, 2004. In particular, the lawsuits allege among other things that we concealed significant decreases in revenues and failed to disclose certain facts about our business, including that our rate of growth in roaming minutes was substantially declining, and that we had experienced negative growth in October 2003; that AT&T, our largest roaming customer, had notified us that it wanted to dispose of its equity interest in us that it had held since our initial public offering, significantly decreasing their interest in purchasing roaming capacity from us; that Bank of America intended to dispose of its substantial equity interest in us as soon as AT&T disposed of its equity interest in us; that we had been missing sales quotas and losing market share throughout the relevant period; and that we lacked the internal controls required to report meaningful financial results. In addition, the lawsuits allege that we issued various positive statements concerning our financial prospects and the continued growth in our roaming minutes, and that those statements were false and misleading. The court has consolidated these actions into No. CIV-04-1394-C and the consolidated action is pending and is in the preliminary pleading phase. We intend to vigorously defend ourselves against these claims and management does not believe that the litigation will have an adverse effect in any material respect on us.

We have been in continuing discussions with the SEC regarding an informal inquiry regarding the timing of our disclosure that a controlling interest in us was pledged to secure a loan to DCCLP. We initially disclosed the pledge in September 2001, which we believe was timely, although the SEC disagrees with our position. The loan and pledge that are the subject of this inquiry no longer exist. As a result of our continuing discussions with the staff of the SEC, we have made, and there is pending, an offer of settlement to the SEC. Assuming the offer is accepted, there will be no fine or monetary penalty imposed on us or any other party, nor will such settlement otherwise have an adverse effect in any material respect on us.

We are party to various other legal actions arising in the normal course of business. None of these actions are believed by management to involve amounts that will be material to our consolidated financial position, results of operation, or liquidity.

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.


Item 2.	*Unregistered Sales of Equity Securities and Use of Proceeds*

Not applicable


Item 3.	*Defaults Upon Senior Securities*

On December 20, 2004, we announced that we would not declare or pay the cash dividends due in the first quarter of 2005 on our 12.25% preferred stock or our 13% preferred stock. Unpaid dividends accrue interest at the stated dividend rates, compounded quarterly. As of the date of this report, the total amount of accrued but unpaid dividends on our outstanding preferred stock was $29.2 million.


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

Not applicable


Item 5.	*Other Information*

Not applicable


Item 6.	*Exhibits*

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


Exhibit				Method of
Numbers			Description	Filing

	10	.1	Employment Agreement, dated April 1, 2005, between Dobson Communications and Steven P. Dussek		(1)[10.1]
	10	.2†	Equity Interest Purchase Agreement, dated March 14, 2005, by and between Global Tower, LLC and Dobson Cellular Systems Inc.		(2)
	10	.3†	Equity Interests Purchase Agreement, dated March 14, 2005, by and between Global Tower, LLC and American Cellular		(2)
	31	.1	Rule 13a-14(a) Certification by our principal executive officer		(2)
	31	.2	Rule 13a-14(a) Certification by our principal financial officer		(2)
	32	.1	Section 1350 Certification by our principal executive officer		(2)
	32	.2	Section 1350 Certification by our principal financial officer		(2)


†	Confidential treatment has been requested for a portion of this document.


(1)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K on April 1, 2005 as the exhibit number indicated in brackets and incorporated by reference herein.

(2)	Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Dobson Communications Corporation

Date: May 10, 2005


	/s/ Everett R. Dobson

	Everett R. Dobson
	Chairman of the Board and
	principal executive officer

Date: May 10, 2005


	/s/ Bruce R. Knooihuizen

	Bruce R. Knooihuizen
	Executive Vice President, Chief Financial Officer
	and principal financial officer

INDEX TO EXHIBITS


Exhibit				Method of
Numbers			Description	Filing

	10	.1	Employment Agreement, dated April 1, 2005, between Dobson Communications and Steven P. Dussek		(1)[10.1]
	10	.2†	Equity Interest Purchase Agreement, dated March 14, 2005, by and between Global Tower, LLC and Dobson Cellular Systems Inc.		(2)
	10	.3†	Equity Interests Purchase Agreement, dated March 14, 2005, by and between Global Tower, LLC and American Cellular		(2)
	31	.1	Rule 13a-14(a) Certification by our principal executive officer		(2)
	31	.2	Rule 13a-14(a) Certification by our principal financial officer		(2)
	32	.1	Section 1350 Certification by our principal executive officer		(2)
	32	.2	Section 1350 Certification by our principal financial officer		(2)


†	Confidential treatment has been requested for a portion of this document.


(1)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K on April 1, 2005 as the exhibit number indicated in brackets and incorporated by reference herein.

(2)	Filed herewith.

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