EXHIBIT 99.1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors

Rural Cellular Corporation and Subsidiaries

Alexandria, Minnesota

      We have audited the accompanying consolidated balance sheets of Rural Cellular Corporation and Subsidiaries (the “Company”) as of December 31, 2003 and 2002 and the related consolidated statements of operations, shareholders’ (deficit) equity, and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2003 and 2002 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

      As discussed in Note 4 to the consolidated financial statements, on January 1, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Asset, and changed its method of accounting for goodwill and licenses.

      As discussed in Note 4, effective July 1, 2003, the Company adopted the provisions of SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.

DELOITTE & TOUCHE LLP

Minneapolis, Minnesota

March 1, 2004 (September 7, 2004 as to Note 15)

1

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

			As of
			December 31,			December 31,
			2003			2002
			(In thousands,
			except per share data)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	142,547		$	53,788
	Accounts receivable, less allowance for doubtful accounts of $3,187 and $3,096			57,743			46,442
	Inventories			8,037			6,624
	Other current assets			4,259			3,217
	Assets of operations held for sale			3,189			—
		Total current assets		215,775			110,071
PROPERTY AND EQUIPMENT, less accumulated depreciation of $198,274 and $172,629				226,202			240,536
LICENSES AND OTHER ASSETS:
	Licenses, less accumulated amortization of $46,997 and $50,409			563,283			618,576
	Goodwill, less accumulated amortization of $31,473 and $32,336			360,796			369,829
	Customer lists, less accumulated amortization of $78,041 and $66,282			64,575			92,748
	Deferred debt issuance costs, less accumulated amortization of $12,009 and $11,427			34,479			25,176
	Long-term assets of operations held for sale			50,153			—
	Other assets, less accumulated amortization of $1,736 and $1,432			5,795			6,042
		Total licenses and other assets		1,079,081			1,112,371
			$	1,521,058		$	1,462,978
LIABILITIES AND SHAREHOLDERS’ DEFICIT
CURRENT LIABILITIES:
	Accounts payable		$	45,808		$	41,633
	Current portion of long-term debt			27,262			79,047
	Advance billings and customer deposits			10,454			10,447
	Accrued interest			34,084			18,476
	Dividends payable			—			6,412
	Other accrued expenses			11,276			9,552
	Liabilities of operations held for sale			756			—
		Total current liabilities		129,640			165,567
LONG-TERM LIABILITIES				1,764,867			1,211,026
		Total liabilities		1,894,507			1,376,593
COMMITMENTS AND CONTINGENCIES (Note 10)				—			—
REDEEMABLE PREFERRED STOCK				153,381			569,500
SHAREHOLDERS’ DEFICIT:
	Class A common stock; $.01 par value; 200,000 shares authorized, 11,522 and 11,229 issued			115			112
	Class B common stock; $.01 par value; 10,000 shares authorized, 552 and 693 issued			6			7
	Additional paid-in capital			192,423			192,294
	Accumulated deficit			(719,590	)		(669,508	)
	Accumulated other comprehensive income (loss)			216			(6,020	)
		Total shareholders’ deficit		(526,830	)		(483,115	)
			$	1,521,058		$	1,462,978

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

2

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

			For the Years Ended December 31,
			2003			2002			2001
			(In thousands, except per share data)
REVENUE:
	Service		$	355,038		$	319,933		$	310,520
	Roaming			131,896			122,703			116,541
	Equipment			20,455			20,442			18,627
		Total revenue		507,389			463,078			445,688
OPERATING EXPENSES:
	Network costs, excluding depreciation			96,069			97,200			101,509
	Cost of equipment sales			37,636			29,184			28,415
	Selling, general and administrative			131,761			119,185			122,387
	Depreciation and amortization			76,429			82,497			112,577
	Loss on assets held for sale			42,244			—			—
		Total operating expenses		384,139			328,066			364,888
OPERATING INCOME				123,250			135,012			80,800
OTHER INCOME (EXPENSE):
	Interest expense			(136,262	)		(114,478	)		(130,432	)
	Interest and dividend income			916			562			1,172
	Other			891			66			(752	)
		Other expense, net		(134,455	)		(113,850	)		(130,012	)
INCOME (LOSS) BEFORE CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE				(11,205	)		21,162			(49,212	)
CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE				—			(417,064	)		1,621
NET LOSS				(11,205	)		(395,902	)		(47,591	)
PREFERRED STOCK DIVIDEND				(38,877	)		(60,556	)		(54,545	)
NET LOSS APPLICABLE TO COMMON SHARES			$	(50,082	)	$	(456,458	)	$	(102,136	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC AND DILUTED				12,060			11,920			11,865
NET LOSS APPLICABLE TO COMMON SHARES BEFORE CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE			$	(4.15	)	$	(3.30	)	$	(8.74	)
CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE				—			(34.99	)		0.13
NET LOSS PER BASIC AND DILUTED SHARE			$	(4.15	)	$	(38.29	)	$	(8.61	)

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

3

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY

For the Years Ended December 31, 2003, 2002 and 2001

			Class A		Class A		Class B			Class B								Accumulated			Total
			Common		Common		Common			Common			Additional					Other			Shareholders’
			Stock		Stock		Stock			Stock			Paid-In		Accumulated			Comprehensive			(Deficit)			Comprehensive
			Shares		Amount		Shares			Amount			Capital		Deficit			Income (Loss)			Equity			Loss
													(In thousands)
BALANCE, December 31, 2000				11,034	$	110		782		$	8		$	190,751	$	(110,914	)		—		$	79,955			—
		Conversion of Class B common stock to Class A common stock		54		1		(54	)		(1	)		—		—			—			—			—
		Stock issued through employee stock purchase plan		25		—		—			—			620		—			—			620			—
		Stock options exercised		63		1		—			—			593		—			—			594			—
COMPONENTS OF COMPREHENSIVE LOSS
		Net loss applicable to common shares		—		—		—			—			—		(102,136	)		—			(102,136	)	$	(102,136	)
		Cumulative effect of SFAS No. 133 at January 1, 2001		—		—		—			—			—		—			(5,526	)		(5,526	)		(5,526	)
		Current year effect of SFAS No. 133		—		—		—			—			—		—			(7,337	)		(7,337	)		(7,337	)
		Total comprehensive loss		—		—		—			—			—		—			—			—		$	(114,999	)
BALANCE, December 31, 2001				11,176		112		728			7			191,964		(213,050	)		(12,863	)		(33,830	)
		Conversion of Class B common stock to Class A common stock		35		0		(35	)		0			—		—			—			—			—
		Stock issued through employee stock purchase plan		17		0		—			0			317		—			—			317			—
		Stock options exercised		1		0		—			0			13		—			—			13			—
COMPONENTS OF COMPREHENSIVE LOSS
		Net loss applicable to common shares		—		—		—			—			—		(456,458	)		—			(456,458	)	$	(456,458	)
		Current year effect of SFAS No. 133		—		—		—			—			—		—			6,843			6,843			6,843
		Total comprehensive loss		—		—		—			—			—		—								$	(449,615	)
BALANCE, December 31, 2002				11,229		112		693			7			192,294		(669,508	)		(6,020	)		(483,115	)
		Conversion of Class B common stock to Class A common stock		141		1		(141	)		(1	)		0		—			—			—
		Stock issued through employee stock purchase plan		147		2		—			—			112		—			—			114
		Stock options exercised		5		0		—			—			17		—			—			17
	COMPONENTS OF COMPREHENSIVE LOSS
		Net loss applicable to common shares		—		—		—			—			—		(50,082	)		—			(50,082	)	$	(50,082	)
		Current year effect of SFAS No. 133		—		—		—			—			—		—			6,236			6,236			6,236
		Total comprehensive loss																						$	(43,846	)
BALANCE, December 31, 2003				11,522	$	115		552		$	6		$	192,423	$	(719,590	)	$	216		$	(526,830	)

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

4

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

					For the Years Ended December 31,
					2003			2002			2001
					(In thousands)
OPERATING ACTIVITIES:
	Net loss				$	(11,205	)	$	(395,902	)	$	(47,591	)
	Adjustments to reconcile to net cash provided by operating activities:
		Depreciation and amortization				76,429			82,497			112,577
		Loss on extinguishment of debt				6,134			3,319			—
		Adjustments of interest rate derivatives to fair market value				(2,225	)		15,104			16,425
		Loss on assets held for sale				42,244			—			—
		Non-cash preferred stock dividends				13,074			—			—
		Cumulative change in accounting principle				—			417,064			(1,621	)
		Other				4,013			3,209			1,964
		Change in other operating elements:
			Accounts receivable			(14,286	)		(475	)		849
			Inventories			(1,581	)		(7	)		292
			Other current assets			(1,076	)		(809	)		605
			Accounts payable			4,678			6,466			(7,786	)
			Advance billings and customer deposits			146			1,112			1,199
			Accrued preferred stock dividends			14,899			—			—
			Other accrued liabilities			13,277			6,744			(1,410	)
				Net cash provided by operating activities		144,521			138,322			75,503
INVESTING ACTIVITIES:
	Purchases of property and equipment					(53,704	)		(59,835	)		(45,979	)
	Proceeds from sale of property and equipment					624			462			—
	Purchases of wireless properties, net of cash acquired					(7,200	)		—			(178,566	)
	Proceeds from sale of other long-lived assets					—			650			48,929
	Other					(174	)		127			1,155
				Net cash used in investing activities		(60,454	)		(58,596	)		(174,461	)
FINANCING ACTIVITIES:
	Proceeds from issuance of common stock related to employee stock purchase plan and stock options					131			331			1,214
	Proceeds from issuance of long-term debt under the credit agreement					120,000			62,550			349,250
	Proceeds from issuance of 9 7/8% senior notes					325,000			—			—
	Proceeds from issuance of 9 3/4% senior subordinated notes					—			300,000			—
	Repayments of long-term debt under the credit agreement					(394,628	)		(380,208	)		(256,089	)
	Repayment of swaption					(34,184	)		—			—
	Proceeds from swaption					—			—			8,720
	Proceeds from unwinding derivative agreements					2,632			—			—
	Payments of debt issuance costs					(13,374	)		(10,322	)		(4,366	)
	Other					(885	)		(284	)		19
				Net cash provided by (used in) financing activities		4,692			(27,933	)		98,748
NET INCREASE (DECREASE) IN CASH						88,759			51,793			(210	)
CASH AND CASH EQUIVALENTS, at beginning of year						53,788			1,995			2,205
CASH AND CASH EQUIVALENTS, at end of year					$	142,547		$	53,788		$	1,995

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

5

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001

(1)     Organization and Nature of Business:

      Rural Cellular Corporation, a Minnesota corporation, and its subsidiaries (the “Company” or “RCC”), provide wireless communication services in portions of the Midwest, South, Northeast and Northwest areas of the United States. The Company operates its cellular and paging systems under licenses granted by the Federal Communications Commission (“FCC”). The Company’s operations are subject to the applicable rules and regulations of the FCC.

      At December 31, 2003, the Company had working capital of $86.1 million and a shareholders’ deficit of $(526.8) million.

      The Company’s cash requirements will increase, due to the anticipated cash resources required to upgrade its network technologies. The Company expects to meet these obligations through its existing cash, cash flow from operations, and borrowings under the Company’s credit agreement.

(2)     Strategic History:

      RCC was founded in 1991 through the combination of five partnerships holding different cellular licenses in Minnesota. Since then, it has completed the following acquisitions (the “Acquisitions”):

•  In May 1997, the Company acquired wireless operations and licenses covering portions of Maine for approximately $85.7 million.

•  In July 1998, the Company acquired wireless operations and licenses covering all of Vermont and portions of Massachusetts, New Hampshire, and New York for approximately $262.5 million.

•  In August 1998, the Company acquired wireless operations and a license in western Maine for approximately $7.5 million.

•  In February 1999, the Company acquired wireless operations and a license in South Dakota for approximately $11.9 million.

•  In April 2000, the Company acquired wireless operations and licenses covering portions of Alabama, Kansas, Mississippi, Oregon, and Washington for approximately $1.265 billion.

•  In January 2001, the Company acquired wireless operations and licenses in the Portsmouth, New Hampshire service area for approximately $194.3 million. In the acquisition, the Company also acquired an incumbent local exchange carrier (“ILEC”) business of the seller. The Company sold the ILEC business in October 2001 for approximately $35.5 million.

Accounting Treatment

      The purchase prices for the Acquisitions were allocated to the net assets based on their estimated fair values and the excess was allocated to licenses and goodwill. The Acquisitions were accounted for under the purchase method of accounting; accordingly, operating results for each acquired business have been included from the date of acquisition.

(3)     Stock Compensation Plans:

      The stock compensation plan (the “Plan”) for employees authorizes the issuance of up to 2,400,000 shares of Class A common stock in the form of stock options, stock appreciation rights, or other stock-based awards. The Plan provides that the exercise price of any option shall not be less than 85% of the fair market value of the Class A common stock as of the date of the grant (100% in the case of

6

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

incentive stock options). Options and other awards granted under the Plan vest and become exercisable as determined by the Board of Directors or a stock option committee.

      The stock option plan for nonemployee directors authorizes the issuance of up to 400,000 shares of Class A common stock. The plan provides that the option price shall not be less than the fair market value of the Class A common stock outstanding on the date of grant. The options vest and become exercisable one year following the date of grant and expire five years thereafter.

      Under the employee stock purchase plan, employees who satisfy certain length of service and other criteria are permitted to purchase shares of Class A common stock at 85% of the fair market value of the Class A common stock on January 1 or December 31 of each year, whichever is lower. The number of shares authorized to be issued under the plan is 750,000.

      The following table summarizes option and purchase plan activity through December 31, 2003:

		Nonemployee			Stock			Employee Stock
		Directors Plan			Compensation Plan			Purchase Plan
Remaining to be issued at December 31, 2002			179,500			331,094			39
	Additional options authorized through plan amendment		—			—			400,000
	Options granted		(31,500	)		(338,000	)		(166,329	)
	Options cancelled		31,500			156,194			—
Remaining to be issued at December 31, 2003			179,500			149,288			233,710

      Options outstanding for employees and nonemployees as of December 31, 2003 have exercise prices ranging between $0.76 and $79.25. Information related to stock options is as follows:

			2003					2002					2001
						Weighted					Weighted					Weighted
						Average					Average					Average
			Shares			Exercise Price		Shares			Exercise Price		Shares			Exercise Price
Outstanding beginning of period				1,908,084		$	17.40		1,588,734		$	26.78		1,266,422		$	25.80
		Granted		369,500			1.23		503,550			4.43		477,006			30.68
		Exercised		(5,120	)		3.37		(1,450	)		8.99		(70,844	)		11.05
		Cancelled		(187,694	)		16.72		(182,750	)		63.23		(83,850	)		46.90
	Outstanding end of period			2,084,770		$	14.64		1,908,084		$	17.40		1,588,734		$	26.78
Exercisable, end of period				1,143,970		$	18.92		1,015,784		$	19.12		700,781		$	18.33
Weighted average fair value of options granted						$	1.09				$	3.85				$	24.67

7

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

      The following table summarizes certain information concerning currently outstanding and exercisable options:

			Weighted
			Average		Weighted				Weighted
			Remaining		Average				Average
	Number		Contractual		Exercise		Number		Exercise
Exercise Price Range	Outstanding		Life		Price		Exercisable		Price
$00.76 - $ 9.99		1,094,773		7	$	4.19		407,353	$	7.52
$10.00 - $19.99		452,525		4	$	13.76		413,825	$	13.92
$20.00 - $29.99		276,800		7	$	27.07		107,360	$	27.22
$30.00 - $39.99		161,322		6	$	35.10		135,822	$	35.59
$40.00 - $49.99		16,500		6	$	43.25		13,200	$	43.25
$50.00 - $59.99		10,300		6	$	56.49		8,180	$	56.61
$60.00 - $69.99		36,750		2	$	68.25		36,750	$	68.25
$70.00 - $79.25		35,800		6	$	76.93		21,480	$	76.93
$00.76 - $79.25		2,084,770		6	$	14.64		1,143,970	$	18.92

      The Company accounts for stock options under Accounting Principles Board Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for the Company’s plans been determined consistent with Statement of Financial Accounting Standards (“SFAS”) No. 148 and SFAS No. 123, the Company’s results of operations and net loss per share would have been adjusted to the following pro forma amounts:

		Years Ended December 31,
		2003			2002			2001
		(In thousands, except for per share data)
Net loss applicable to common shares:
	As reported	$	(50,082	)	$	(456,458	)	$	(102,136	)
	Fair value compensation expense		(3,121	)		(5,290	)		(5,741	)
	Pro forma	$	(53,203	)	$	(461,748	)	$	(107,877	)
Net loss per basic and diluted share:
	As reported	$	(4.15	)	$	(38.29	)	$	(8.61	)
	Fair value compensation expense		(0.26	)		(0.44	)		(0.48	)
	Pro forma	$	(4.41	)	$	(38.73	)	$	(9.09	)

      The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions used for grants in 2003, 2002, and 2001: expected volatility of 94.7%, 88.0%, and 67.7%, respectively; risk-free interest rates of 4.39%, 4.25%, and 7.25%, respectively; expected life of 10 years and no expected dividend yield. The per share weighted average fair value of options granted in 2003, 2002, and 2001 was $1.09, $3.85, and $24.67, respectively.

8

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

(4)     Summary of Significant Accounting Policies:

Principles of Consolidation

      The consolidated financial statements include the accounts of RCC and its wholly-owned subsidiaries and its majority owned joint venture, Wireless Alliance, LLC (“Wireless Alliance”). All significant inter-company balances and transactions have been eliminated.

Revenue Recognition — Service

      The Company recognizes service revenue based upon minutes of use processed and contracted fees, net of credits and adjustments for service discounts. As a result of our billing cycle cut-off times, the Company is required to make estimates for service revenue earned, but not yet billed, at the end of each month. These estimates are based primarily upon historical minutes of use processed. The Company follows this method since reasonable, dependable estimates of the revenue can be made. Actual billing cycle results and related revenue may vary from the results estimated at the end of each quarter, depending on customer usage and rate plan mix. For customers who prepay their monthly access, we match the recognition of service revenue to their corresponding usage.

      The Company receives Universal Service Fund (“USF”) revenue reflecting its eligible telecommunications carrier (“ETC”) status in certain states. How the Company recognizes support revenue depends on the level of its collection experience in each ETC qualified state. Where the Company does not have adequate experience to determine the time required for reimbursement, it recognizes revenue upon cash receipt. Where the Company does have adequate experience as to the amount and timing of the receipt of these funds, it recognizes revenue on an accrual basis. Additionally, the Company includes the pass-through fees it charges its customers to support the USF as service revenue.

Revenue Recognition — Roaming Revenue and Incollect Cost

      Roaming revenue and incollect cost information is provided to us primarily through a third party centralized clearinghouse. From the clearinghouse the Company receives monthly settlement data. The Company bases its accrual of roaming revenue and incollect expense on these clearinghouse reports. The Company follows this method since reasonably dependable estimates of roaming revenue and incollect cost can be made.

Cash Equivalents

      The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Inventories

      Inventories consist of cellular telephone equipment, pagers, and accessories and are stated at the lower of cost, determined using the average cost method, or market. Market value is determined using replacement cost.

Property and Equipment

      Property and equipment are recorded at cost. Additions, improvements, or major renewals are capitalized, while expenditures that do not enhance or extend the asset’s useful life are charged to operating expenses as incurred. Depreciation is computed using the straight-line method based on the estimated useful life of the asset.

9

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

      The components of property and equipment and the useful lives of the Company’s assets are as follows as of December 31 (in thousands):

	2003			2002			Useful Lives
Land	$	7,200		$	7,204			N/A
Building and towers		87,496			93,335			15-39 Years
Equipment		275,867			255,370			2-10 Years
Phone service equipment		5,235			24,082			19-24 Months
Furniture and fixtures		25,314			22,305			3-10 Years
Assets under construction		23,364			10,869			N/A
		424,476			413,165
Less — accumulated depreciation		(198,274	)		(172,629	)
Property and equipment — net	$	226,202		$	240,536

      The Company’s network construction expenditures are recorded as assets under construction until the system or assets are placed in service and ready for their intended use, at which time the assets are transferred to the appropriate property and equipment category. During the years ended December 31, 2003, 2002 and 2001, as a component of assets under construction, the Company capitalized $1.9 million, $1.1 million, and $1.7 million, respectively, in salaries of the Company’s engineering employees. The Company capitalized interest cost in 2003 of $204,000.

      The Company determined that a reduction in the useful lives of its TDMA equipment was warranted based on the projected transition of network traffic. The following summarizes the current and expected useful lives for TDMA equipment acquired between January 1, 2002 and December 31, 2004:

Year of TDMA Equipment Acquisition	Useful Life
2002		6 years
2003		5 years
2004		4 years

      At December 31, 2003, accumulated depreciation on phone service equipment was approximately $5.2 million as compared to $15.3 million at December 31, 2002. Phone service equipment depreciation expense for the year ended December 31, 2003 was $7.5 million as compared to $15.9 million in 2002. The gross carrying value of phone service equipment disposals in 2003 was $18.8 million as compared to $21.2 million in 2002.

      Total depreciation expense for the years ended December 31, 2003, 2002, and 2001 was $56.2 million, $61.5 million, and $49.3 million, respectively.

Licenses and Other Intangible Assets

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

10

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

      The components of licenses and other intangible assets are as follows as of December 31 (in thousands):

			2003							2002
			Gross					Net		Gross					Net
			Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
			Value		Amortization			Value		Value		Amortization			Value
Licenses			$	610,280	$	(46,997	)	$	563,283	$	668,985	$	(50,409	)	$	618,576
Other intangible assets:
	Goodwill			392,269		(31,473	)		360,796		402,165		(32,336	)		369,829
	Customer lists			142,616		(78,041	)		64,575		159,030		(66,282	)		92,748
		Total	$	1,145,165	$	(156,511	)	$	988,654	$	1,230,180	$	(149,027	)	$	1,081,153

      Customer list, goodwill and license amortization expense for the years ended December 31, 2003, 2002 and 2001 was approximately $20.0 million, $20.6 million, and $62.8 million, respectively. Customer list amortization expense is estimated to be approximately $18.2 million for 2004 through 2006, $7.9 million in 2007 and $2.1 million in 2008. As of December 31, 2003, licenses, goodwill, and customer lists of $34.2 million, $4.9 million, and $4.5 million, respectively, net of accumulated amortization, were included within assets held for sale.

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

		(Before Cumulative Change
		in Accounting Principle
		and Including the Effect
		of Preferred Stock Dividends)
											(As Reported)
		For Years Ended December 31,									For Years Ended December 31,
		2003			2002			2001			2003			2002			2001
Net loss applicable to common shares		$	(50,082	)	$	(39,394	)	$	(103,757	)	$	(50,082	)	$	(456,458	)	$	(102,136	)
	Add back: goodwill amortization		—			—			16,690			—			—			16,690
	Add back: license amortization		—			—			26,512			—			—			26,512
	Adjusted net loss applicable to common shares	$	(50,082	)	$	(39,394	)	$	(60,555	)	$	(50,082	)	$	(456,458	)	$	(58,934	)
	Weighted average common shares outstanding, basic and diluted		12,060			11,920			11,865			12,060			11,920			11,865
Basic and diluted loss per share:
	Net loss per basic and diluted share	$	(4.15	)	$	(3.30	)	$	(8.74	)	$	(4.15	)	$	(38.29	)	$	(8.61	)
	Add back: goodwill amortization		—			—			1.41			—			—			1.41
	Add back: license amortization		—			—			2.23			—			—			2.23
	Adjusted loss per share (basic and diluted)	$	(4.15	)	$	(3.30	)	$	(5.10	)	$	(4.15	)	$	(38.29	)	$	(4.97	)

11

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

      The changes in carrying amount of goodwill and licenses for the year ended December 31, 2003 are as follows (in thousands):

		Licenses			Goodwill			Total
Balance as of December 31, 2002		$	618,576		$	369,829		$	988,405
	Acquisition		7,200			—			7,200
	Impairment on assets held for sale		(28,318	)		(4,093	)		(32,411	)
	Reclass to assets held for sale		(34,175	)		(4,940	)		(39,115	)
Balance as of December 31, 2003		$	563,283		$	360,796		$	924,079

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

      Additionally, impairment tests for indefinite-lived intangible assets, consisting of FCC licenses, are required to be performed on an annual basis or on an interim basis if an event occurs or circumstances change that would indicate the asset might be impaired. In accordance with Emerging Issues Task Force No. 02-07 (“EITF No. 02-07”), Unit of Accounting for Testing of Impairment of Indefinite-Lived Intangible Assets, impairment tests for FCC licenses are performed on an aggregate basis. The Company utilizes a fair value approach, incorporating discounted cash flows, to complete the test. This approach determines the fair value of the FCC licenses, using start-up model assumptions, and accordingly incorporates cash flow assumptions regarding the investment in a network, the development of distribution channels, and other inputs for making the business operational. As these inputs are included in determining free cash flows of the business, the present value of the free cash flows is attributable to the licenses using assumptions of our weighted average costs of capital and the long-term rate of growth for our business. The Company believes that its estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. If any of the cash flow assumptions were to change, FCC licenses may become impaired.

      Following adoption of SFAS No. 142 on January 1, 2002, the Company completed a transitional impairment test for both our goodwill and licenses and determined that there were impairments of $5.0 million and $412.0 million, respectively. The Company used a fair value approach, using primarily discounted cash flows, to complete the transitional impairment tests. In accordance with SFAS No. 142, the impairment charges were recorded as a cumulative change in accounting principle in our consolidated financial statements for the first quarter of 2002. No additional impairment occurred on either the October 1, 2002 or the October 1, 2003 assessment date (excluding the impairment on assets held for sale).

12

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

Deferred Debt Issuance Costs

      Deferred debt issuance costs relate to the credit agreement, senior notes, senior subordinated notes and certain preferred stock issuances (see Note 5). These costs are being amortized over the respective instruments’ terms. If the related debt issuance is extinguished prior to maturity, the debt issuance costs are immediately expensed.

Other Assets

      Other assets primarily consist of costs related to Wireless Alliance spectrum relocation, restricted investments and investments in unconsolidated affiliates. Restricted investments represent the Company’s investments in the stock of CoBank and are stated at cost, which approximates fair value. The restricted investments were purchased pursuant to the terms of a loan agreement and are restricted as to withdrawal. Investments in unconsolidated affiliates are accounted for using the equity method and represent the Company’s ownership interests in Cellular 2000, Inc. Cellular 2000, Inc. is an entity organized to own the Cellular 2000 trade name and the related trademark.

Income Tax Provision

      The income and expenses of all consolidated subsidiaries are included in the consolidated Federal income tax return of Rural Cellular Corporation and Subsidiaries. For financial reporting purposes, any tax benefit or provision generated by each consolidated subsidiary is accounted for in their separate taxes payable and deferred income tax accounts, computed as if they had filed separate Federal and State income tax returns.

      RCC uses the asset and liability approach to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in our tax provision in the period of change.

Net Loss Per Common Share

      Basic EPS is computed by dividing net loss by the weighted average number of shares outstanding during the year. Diluted EPS is computed by including dilutive common stock equivalents with the basic weighted average shares outstanding. Potential common shares of 2,084,770, 1,908,084, and 1,588,734, related to the Company’s outstanding stock options were excluded from the computation of diluted loss per share for the years ended December 31, 2003, 2002, and 2001, respectively, as inclusion of these shares would have been antidilutive.

Comprehensive Loss

      The Company follows the provisions of SFAS No. 130, Reporting Comprehensive Income, which establishes standards for reporting and display of comprehensive income and its components. Comprehensive income (loss) reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. For the Company, comprehensive loss represents net losses and the deferred gains on derivative instruments. In accordance with SFAS No. 130,

13

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

the Company has chosen to disclose comprehensive loss in the accompanying consolidated statement of shareholders’ (deficit) equity.

Business and Credit Concentrations

      RCC operates in one business segment, the operation of wireless communication systems in the United States. During 2003 and 2002, AT&T Wireless (“AWE”) accounted for 10.0% and 10.1% of our total revenue, respectively. During 2001, no single customer accounted for more than 10% of our total revenue.

Impairment of Long-Lived Assets

      The Company reviews long-lived assets, consisting primarily of property, plant and equipment and intangible assets with finite lives, for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. In analyzing potential impairment, we use projections of future cash flows from the assets. These projections are based on our views of growth rates for the related business, anticipated future economic conditions, the appropriate discount rates relative to risk, and estimates of residual values. The Company believes that its estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. If changes in growth rates, future economic conditions, discount rates, or estimates of residual values were to occur, long-lived assets may become impaired. In connection with the property exchange with AWE, the Company recorded a noncash loss on assets held for sale of $42.2 million (included in operating expenses) in 2003. This charge may require adjustment in future periods if the estimated fair value changes before the assets are transferred at closing.

Use of Estimates

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Ultimate results could differ from those estimates.

Reclassifications

      Certain reclassifications have been made to prior years’ consolidated financial statements in order to conform to the 2003 presentation. Such reclassifications had no effect on total shareholders’ deficit, net loss applicable to common shares or net loss per share as previously reported.

      The statements of operations for prior periods presented have been reclassified to reflect billings to our customers for the USF and other regulatory fees as “Service revenue” and the related payments into the associated regulatory funds as “Selling, general and administrative expense.” Operating income for all prior periods has been unaffected. The amounts reclassified for 2002 and 2001 were $4.9 million and $4.5 million, respectively.

Recently Issued Accounting Pronouncements

Asset Retirement Obligations

      The Company has adopted SFAS No. 143, Accounting for Asset Retirement Obligations (“SFAS No. 143”), effective January 1, 2003. This statement relates to the costs of closing facilities and removing assets. SFAS No. 143 requires entities to record the fair value of a legal liability for an asset

14

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

retirement obligation (“ARO”) in the period it is incurred if a reasonable estimate of fair value can be made. This cost is initially capitalized and amortized over the remaining life of the underlying asset. Once the obligation is ultimately settled, any difference between the final cost and the recorded liability is recognized as a gain or loss. For RCC, an ARO includes contractual obligations for costs associated with removing component equipment from cell sites that reside upon leased property. The adoption of SFAS No. 143 did not result in a significant impact to our operating results for the year ended December 31, 2003.

Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity

      In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument with certain defined characteristics as a liability (or an asset in some circumstances). The requirements of this statement apply to an issuer’s classification and measurement of freestanding financial instruments, including those that comprise more than one option or forward contract. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We adopted SFAS No. 150 on July 1, 2003.

      Carrying values on the 11 3/8% Senior Exchangeable and 12 1/4% Junior Exchangeable Preferred securities, as a result of adopting SFAS No. 150, were reclassified into Long-Term Liabilities (see Note 5). The dividend expense related to these instruments, which was previously reported as a component of “Preferred Stock Dividend” in our statements of operations, is now classified as interest expense. For the six months ended December 31, 2003, dividends on these instruments were $28.0 million. Accrued dividends payable of $3.4 million as of December 31, 2003 are included in “Accrued Interest.” In addition, $7.3 million of unamortized stock issuance costs related to these instruments was reclassified to “Deferred Debt Issuance Costs.” SFAS No. 150 does not permit reclassification of prior year amounts to conform to the current year presentation. Based on SFAS No. 150 guidelines, our Class M and Class T Preferred Stock do not meet the characteristics of a liability and will continue to be presented between liabilities and equity on our balance sheet.

Accounting Guidance on Derivative Instruments and Hedging Activities

      In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (“SFAS No. 149”), which amends and clarifies the accounting guidance on derivative instruments and hedging activities that fall within the scope of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149 also amends certain other existing pronouncements to provide more uniform reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that warrant separate accounting. SFAS No. 149 is effective for us on a prospective basis for contracts entered into or modified and for hedging relationships designated for fiscal periods beginning after September 30, 2003. SFAS No. 149 had no impact on our results of operations, financial position, or cash flows upon adoption.

Accounting for Stock-Based Compensation

      In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, an Amendment of FASB Statement No. 123 (“SFAS No. 123”). SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for

15

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

employee stock-based compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosure in annual and interim financial statements about the method of accounting used by an issuer for stock-based compensation and its effect on the issuer’s reported results (see Note 3).

Accounting for Extinguishment of Debt

      In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (“SFAS No. 145”), which provides for the rescission of several previously issued accounting standards, new accounting guidance for the accounting for certain lease modifications and various technical corrections that are not substantive in nature to existing pronouncements. We adopted SFAS No. 145 effective January 1, 2003. Accordingly, our financial statements have been revised to reflect the reclassification requirements of SFAS No. 145, requiring us to present losses on extinguishment of debt within interest expense. We have recorded within interest expense $6.1 and $3.4 million in debt extinguishments in 2003 and 2002, respectively.

Accounting for Revenue Arrangements with Multiple Deliverables

      In November 2002, EITF No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables (“EITF 00-21”) was issued. EITF 00-21 addresses how to account for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. Revenue arrangements with multiple deliverables are required to be divided into separate units of accounting if the deliverables in the arrangement meet certain criteria. Arrangement consideration is to be allocated among the separate units of accounting based on their relative fair values. EITF 00-21 is applicable to agreements entered into in quarters beginning after June 15, 2003. The Company has determined that the sale of wireless services through the Company’s direct sales channels with an accompanying handset constitutes a revenue arrangement with multiple deliverables. Upon adoption of EITF 00-21, direct sales channel activation fees are now included in equipment revenue rather than service revenue in the consolidated statement of operations to the extent that the aggregate activation fee and handset proceeds received from a subscriber do not exceed the fair value of the handset sold. The Company adopted this new pronouncement effective July 1, 2003 on a prospective basis, which did not have a material impact on the Company’s financial position, results of operations or cash flows.

Consolidation of Variable Interest Entities

      In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 requires an investor with a majority of the variable interests in a variable interest entity (“VIE”) to consolidate the entity and also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the equity investors do not have a controlling interest, or the equity investment at risk is insufficient to finance the entity’s activities without receiving additional subordinated financial support from the other parties. For arrangements entered into with VIEs created prior to January 31, 2003, the provisions of FIN 46 are required to be adopted at the end of the first interim or annual period ending after March 15, 2004. The provisions of FIN 46 were effective immediately for all arrangements entered into with new VIEs created after January 31, 2003. The Company has reviewed its investments and other arrangements and determined that none of its investee companies are VIEs. The Company has not invested in any new VIEs created after January 31, 2003.

16

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

(5)     Long-Term Liabilities:

      The Company had the following long-term liabilities outstanding as of December 31 (in thousands):

		2003		2002
Credit agreement:
	Revolver	$	—	$	16,142
	Term Loan A (terminates 04/03/2008)		226,583		316,540
	Term Loan B (terminates 10/03/2008)		124,656		185,223
	Term Loan C (terminates 04/03/2009)		124,656		185,223
	Term Loan D (terminates 10/03/2009)		22,634		54,766
			498,529		757,894
9 7/8% senior notes			325,000		—
9 3/4% senior subordinated notes			300,000		300,000
9 5/8% senior subordinated notes			125,000		125,000
Derivative financial instruments			6,109		12,158
11 3/8% senior exchangeable preferred stock			254,676		—
Accrued long-term dividends on 11 3/8% senior exchangeable
	preferred stock		18,521		—
12 1/4% junior exchangeable preferred stock			219,911		—
Deferred tax liability			15,651		15,651
Other			1,470		323
	Long-term liabilities	$	1,764,867	$	1,211,026

      Credit Agreement — Advances under the credit agreement bear interest at the London Interbank Offering Rate (“LIBOR”) plus an applicable margin based on our ratio of indebtedness to annualized operating cash flow as of the end of the most recently completed fiscal quarter. As of December 31, 2003, the effective rate of interest on the credit agreement, excluding the impact of hedge agreements, was 4.39%. A commitment fee not to exceed 0.50% on the unused portion of the credit agreement is payable quarterly. Borrowings under the credit agreement are secured by a pledge of substantially all the assets of RCC, excluding our 70% ownership in Wireless Alliance, LLC. At December 31, 2003, we had $60.0 million in unused capacity under the revolver. Future availability under the revolver will be determined quarterly based on our leverage ratios as described in the credit agreement, as amended.

      The credit agreement is subject to various covenants, including the ratio of senior indebtedness to annualized operating cash flow, the ratio of total indebtedness to annualized operating cash flow, and the ratio of annualized operating cash flow to interest expense. Mandatory commitment reductions are required upon any material sale of assets (see Note 14). We were in compliance with all financial covenants at December 31, 2003.

      In August 2003, January 2002, and March 2001, RCC obtained amendments of certain financial covenants in the credit agreement and waivers of certain non-financial covenants.

      9 7/8% Senior Notes — In August 2003, RCC completed the placement of $325 million principal amount of 9 7/8% senior notes due 2010. Interest is payable on February 1 and August 1 of each year, beginning on February 1, 2004. The notes will mature on February 1, 2010. RCC may redeem all or part of the notes on or after August 1, 2007. Prior to August 1, 2006, the Company may redeem up to 35% of

17

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

the aggregate principal amount of the notes issued under the indenture with the net cash proceeds of certain equity offerings.

      9 3/4% Senior Subordinated Notes — In 2002, RCC issued $300 million principal amount of 9 3/4% senior subordinated notes due 2010. Interest on the 9 3/4% senior subordinated notes is payable semi-annually on January 15 and July 15. The 9 3/4% senior subordinated notes will mature on January 15, 2010, and are redeemable, in whole or in part, at the option of RCC, at any time on or after January 16, 2006. Prior to January 15, 2005, the Company may redeem up to 35% of the aggregate principal amount of the notes issued under the indenture with the net cash proceeds of certain equity offerings.

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

      11 3/8% Senior Exchangeable Preferred Stock — Dividends on the senior exchangeable preferred stock are cumulative, are payable quarterly, and on or before May 15, 2003, were payable at our option either in cash or by the issuance of additional shares of senior exchangeable preferred stock having an aggregate liquidation preference equal to the amount of such dividends. RCC accrues the undeclared dividends by increasing the carrying amount of the preferred stock, since the dividends are payable in cash under the mandatory redemption feature. At December 31, 2003, it had accrued an $18.5 million undeclared dividend liability with respect to its senior exchangeable preferred stock, which will be payable at the senior preferred mandatory redemption date, if not sooner declared and paid. The Company did not declare or pay the cash dividends due in cash in August or November 2003 or February 2004.

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

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

18

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

      Current portion of long-term debt — The current portion of our long-term debt included the following as of December 31 (in thousands):

			As of
			2003		2002
Current portion of Credit Agreement(1)
	Term Loan A (terminates 04/03/2008)		$	12,360	$	32,745
	Term Loan B (terminates 10/03/2008)			6,800		1,400
	Term Loan C (terminates 04/03/2009)			6,800		1,400
	Term Loan D (terminates 10/03/2009)			1,234		414
				27,194		35,959
Financial Instruments Swaption(2)				—		30,072
	Other financial instruments			—		6,326
Purchase option agreement(3)				—		6,500
Other				68		190
		Total	$	27,262	$	79,047

(1)	In August 2003, the Company negotiated an amendment under its credit agreement, which included the postponement of mandatory amortization until June 2005. In addition to the scheduled mandatory amortization reductions, the Company is required to reduce the amount of commitment available under the credit agreement on each March 31, beginning on March 31, 2004, by an amount equal to 50% of its Excess Cash Flow, as defined in the credit agreement, for the immediately preceding fiscal year or portion thereof. The current portion of the amount outstanding under the credit agreement does not include the permanent reduction of $12.9 million, which was paid by RCC from cash received as part of the property exchange with AWE.
(2)	On May 15, 2003, the counterparty exercised the optional termination provision of the swaption, requiring RCC to pay the counterparty the negative fair market value of the swaption on May 15, 2003 of $34.2 million.
(3)	In conjunction with an acquisition, we entered into a purchase option to acquire certain cell sites in the future for $6.5 million. We exercised the option on February 28, 2003. At December 31, 2002, the option was included in current liabilities. We assumed an agreement to utilize the assets covered by the option for the period prior to exercising the option.

19

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

      Future maturities — The following table summarizes the Company’s future maturities of debt as of December 31, 2003 (in thousands).

					9 5/8% Senior		9 3/4% Senior
					Subordinated		Subordinated		9 7/8% Senior
		Credit			Notes(2)		Notes		Notes(3)
		Agreement			(due 5/15/2008)		(due 1/15/2010)		(due 2/1/2010)		Total
2004		$	27,194	(1)	$	—	$	—	$	—	$	27,194
2005			46,837			—		—		—		46,837
2006			82,955			—		—		—		82,955
2007			87,321			—		—		—		87,321
2008			221,260			125,000		—		—		346,260
Thereafter			60,156			—		300,000		325,000		685,156
	Total	$	525,723		$	125,000	$	300,000	$	325,000	$	1,275,723

(1)	The 2004 credit agreement amortization includes the Company’s obligation of $27.2 million under the excess cash flow requirement, but does not include the permanent reduction of $12.9 million paid in March 2004 from proceeds received as part of the property exchange with AWE.
(2)	The credit agreement requires that the 9 5/8% senior subordinated notes due 2008 must be refinanced or extended beyond January 1, 2010, on or before November 15, 2007, or an event of default will occur.
(3)	The credit agreement requires that the 9 7/8% senior notes must be refinanced or extended beyond March 31, 2010, on or before July 31, 2009, or an event of default will occur.

(6)     Financial Instruments:

      The Company recognizes all derivatives as either assets or liabilities in the consolidated balance sheets and measures those instruments at fair value. The Company currently uses interest rate swaps to manage its interest rate exposure on its credit agreement. Changes in the fair values of those derivative instruments will be recorded as “Interest Expense” or other comprehensive income depending on the use of the derivative instrument and whether it qualifies for hedge accounting.

      The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking various hedge transactions. The Company also assesses, both at inception and on an on-going basis, whether the derivatives that are used in hedging transactions are effective. Should it be determined that a derivative is not effective as a hedge, the Company would discontinue the hedge accounting prospectively. As of December 31, 2003, none of the Company’s derivatives was designated as a hedge for accounting purposes.

      For the years ended December 31, 2003, 2002 and 2001, the Company recorded a non-operating gain of $3.5 million and non-operating charges of $13.5 million and $14.8 million, respectively, related to the net impact of the change in market value of its financial instruments, the amortization of gains and losses from other comprehensive income, and proceeds received upon the termination of certain derivatives.

20

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

      RCC’s financial instruments’ notional and estimated fair market values and carrying amounts are set forth in the table below as of December 31. Fair market values are based on quoted market prices, if available.

											Estimated
							Carrying Value				Fair Market Value
					Notional		December 31,		December 31,		December 31,		December 31,
					Amount		2003		2002		2003		2002
					(Dollars in thousands)
Financial assets(1)
	Interest rate flooridors:
		Fleet Bank (terminated May 12, 2003)			$	—	$	—	$	631	$	—	$	631
				Total financial assets	$	—	$	—	$	631	$	—	$	631
Financial liabilities(1)
	Credit Agreement				$	—	$	525,723	$	793,853	$	524,201	$	689,064
	9 7/8% senior notes					—		325,000		—		344,297		—
	9 5/8% senior subordinated notes					—		125,000		125,000		121,172		81,250
	9 3/4% senior subordinated notes					—		300,000		300,000		288,938		195,000
	11 3/8% senior exchangeable preferred stock					—		254,676		240,882		210,159		57,812
	12 1/4% junior exchangeable preferred stock					—		219,911		195,035		150,639		42,908
	Class M convertible preferred stock(2)					—		147,981		136,712		147,981		136,712
	Class T convertible preferred stock(2)					—		8,671		8,370		8,671		8,370
						—		1,906,962		1,799,852		1,796,058		1,211,116
	Derivative financial instruments Interest rate swap agreements(3):
			TD Securities (terminates May 16, 2005)			84,000		5,666		9,010		5,666		9,010
			PNC Bank (terminated May 16, 2003)			—		—		975		—		975
			Fleet Bank (terminates March 7, 2006)			200,000		443		—		443		—
		Reverse swap agreements:
			Fleet Bank (terminated June 2, 2003)			—		—		1,832		—		1,832
			Dresdner Bank (terminated June 2, 2003)			—		—		1,316		—		1,316
		Interest rate collar agreements:
			PNC Bank (terminated May 25, 2003)			—		—		966		—		966
			Union Bank (terminated June 5, 2003)			—		—		1,622		—		1,622
			PNC Bank (terminated June 6, 2003)			—		—		1,827		—		1,827
			Union Bank (terminated June 5, 2003)			—		—		936		—		936
		Swaption(4):
			TD Securities (terminated May 15, 2003)			—		—		30,072		—		30,072
						284,000		6,109		48,556		6,109		48,556
		Other long-term liabilities				—		19,991		323		19,991		323
				Total financial liabilities	$	284,000	$	1,933,062	$	1,848,731	$	1,822,158	$	1,259,995

(1)  The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, advance billing and customer deposits and other current liabilities are reasonable estimates of their fair value due to the short-term nature of these instruments.

21

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

(2)	These financial instruments are not actively traded and, therefore, the estimated fair market value is stated at the carrying value.
(3)	Recorded on the Company’s balance sheet at fair value, with related changes in fair value included in the statement of operations, and not accounted for as a hedge under SFAS No. 133.
(4)	The Company issued $125 million in subordinated debt in May 1998 that matures in May 2008. The $8.7 million value of an embedded call option within the subordinated debt was monetized in March 2001, resulting in a swaption. The swaption does not qualify for hedge accounting treatment under SFAS No. 133 and, as such, is recorded in the balance sheet at fair value with related changes in fair value included in the statement of operations. On May 15, 2003, the counterparty exercised its option to terminate the swaption, and the Company paid the counterparty $34.2 million, the fair market value at May 15, 2003.

(7)     Redeemable Preferred Stock:

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

									Other
							Conversion		Features,		Number		Accrued
		Mandatory		Dividend			Price to		Rights,		of Shares		Dividends at
		Redemption		Rate Per			Common		Preferences		Originally		December 31,
		Date		Annum			Stock		and Powers		Issued		2003		Total
													(Dollars in thousands)
Class M Voting Convertible Preferred Stock			April 2012		8.000	%	$	53.000		Voting		110,000	$	37,981	$	147,981
Class T Convertible Preferred Stock			April 2020		4.000	%	$	50.631		Non-Voting		7,541		1,130		8,671
	Total											117,541	$	39,111	$	156,652

      Preferred security balance sheet reconciliation (in thousands):

	As of
	December 31, 2003
Preferred securities originally issued	$	117,541
Accrued dividends		39,111
Unamortized issuance costs		(3,271	)
	$	153,381

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

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

22

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

by TDS. TDS or RCC can convert the convertible preferred stock into the original number of shares of Class A or Class B common stock in the future if ownership by TDS of the common stock would then be permissible under FCC rules. Dividends on the Class T convertible preferred stock are cumulative, have a fixed coupon rate of 4% per annum, and are payable in April 2020. Dividends are not payable if the shares are converted. Shares of Class T convertible preferred stock are non-voting, except as otherwise required by law and as provided in the Certificate of Designation.

      The Class T convertible preferred stock is senior to the junior exchangeable preferred stock, Class M convertible preferred stock and common stock of RCC with respect to dividend rights and rights on liquidation, winding-up and dissolution of RCC. The Class M convertible preferred stock is senior to the Company’s common stock with respect to dividend rights and rights on liquidation, winding-up and dissolution of RCC.

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

(8)     Shareholders’ (Deficit) Equity:

Authorized Shares

      The Company has 300,000,000 shares of authorized capital stock consisting of 200,000,000 shares of Class A common stock, 10,000,000 shares of Class B common stock and 90,000,000 undesignated shares.

Common Stock Rights

      Holders of Class A common stock are entitled to one vote for each share owned while holders of Class B common stock are entitled to ten votes for each share owned. Each share of Class B common stock may at any time be converted into one share of Class A common stock at the option of the holder. All issued Class B common shares may also be converted into an equivalent number of Class A common shares upon the affirmative vote of not less than 66 2/3% of the then issued Class B common shares. Further, Class B common shares are automatically converted to an equal number of Class A common shares if they are transferred to anyone who is not an affiliate of the transferring shareholder.

      RCC has shareholder rights plans for its Class A common stock and Class B common stock. The rights plans give each holder of Class A common stock the right to purchase 1/100th of a newly authorized preferred share that is essentially equivalent to one share of Class A common stock and each holder of Class B common stock the right to purchase 1/100th of a newly authorized preferred share, essentially equivalent to one share of Class B common stock. The exercise price for both the Class A rights and the Class B rights is $120 per right.

      The rights become exercisable by existing shareholders only following the acquisition by a buyer, without prior approval of the Company’s board of directors, of 15% or more of the outstanding Common Stock, Class A and Class B, or following the announcement of a tender offer for 15% of the outstanding Common Stock. If a person acquires 15% or more of the Company’s Common Stock, each right (except those held by the acquiring person) will entitle the holder to purchase shares of the Company’s Class A or Class B common stock, as appropriate, having a market value of twice the right’s exercise price, or, in effect, at a 50% discount from the then current market value. If the Company were acquired in a merger or similar transaction after a person acquires 15% of the Company’s outstanding Common Stock, without prior approval of the board of directors, each right would entitle the holder (other than the acquirer) to purchase shares of the acquiring company having a market value of twice the exercise price of the right,

23

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

or, in effect, at a discount of 50%. Until the acquisition by any person of 15% or more of the Company’s Common Stock, the rights can be redeemed by the board of directors for $.001 per right.

(9)     Income Taxes:

      The Company incurred losses for the years ended December 31, 2003, 2002, and 2001, respectively, and recorded no provision for income taxes.

      The reconciliation of income tax computed at the U.S. federal statutory rate to income tax expense recorded in the consolidated financial statements was as follows:

	Year Ended December 31,
	2003			2002			2001
Tax at statutory rate		(35.0	)%		(35.0	)%		(35.0	)%
State taxes		(3.0	)		(3.0	)		(3.0	)
Nondeductible item — amortization		2.0			—			5.0
Adjustment for valuation allowance		36.0			38.0			33.0
		0.0	%		0.0	%		0.0	%

      The income tax effect of the items that create deferred income tax assets and liabilities are as follows (in thousands):

			December 31,
			2003			2002
Deferred income tax assets:
	Operating loss carryforwards		$	124,256		$	93,040
	Tax credit carryforwards						—
	Temporary differences:
		Allowance for doubtful accounts		1,267			1,036
		Derivatives		1,257			18,212
		Intangible assets		36,377			52,946
		Other		5,191			2,317
	Valuation allowance			(156,275	)		(158,245	)
		Total deferred income tax assets		12,073			9,306
Deferred income tax liabilities:
	Depreciation			(26,086	)		(23,312	)
	Intangible assets			—			—
	Other			(1,638	)		(1,645	)
		Net deferred income tax liability	$	(15,651	)	$	(15,651	)

      As of December 31, 2003, the Company had tax operating loss carryforwards of approximately $327 million available to offset future income tax liabilities. These carryforwards expire in the years 2007 through 2023. Internal Revenue Code Section 382 contains provisions that limit the availability and timing of usage of net operating loss carryforwards in the event of certain changes in the ownership of the Company’s common stock.

24

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

      In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management has considered the scheduled reversal of deferred tax liabilities, the limitations under Internal Revenue Code Section 382 following a change in ownership and tax planning strategies in making this assessment. Based upon the assessment, management has established a valuation allowance for net deferred income tax assets currently not expected to be realized.

(10)     Commitments, Contingencies, and Related Party Transactions:

Employment Agreements

      The Company has employment agreements with certain executive officers with terms of three years. These agreements provide for payment of amounts up to three times their annual compensation if there is a termination of their employment as a result of a change in control of the Company, as defined in the agreements. The maximum contingent liability under these agreements was $7.5 million at December 31, 2003.

Related Party Transactions

      During 2003, 2002, and 2001 the Company paid $723,058, $876,023, and $902,986, respectively, related to certain operating leases with an affiliate of a shareholder. In addition, during 2003, 2002, and 2001, the Company paid $492,224, $566,610, and $478,442 to affiliates of certain shareholders for services.

Legal and Regulatory Matters

      Securities Claims. The Company and certain of its officers and directors have been named as defendants in the following action:

In re Rural Cellular Corporation Securities Litigation, Civil Action No.: 02-4893 PAM/ RLE, U.S. District Court for the District of Minnesota.

      Between December 24, 2002 and February 14, 2003, four securities class actions were commenced against the Company and three of its executive officers. On April 4, 2003, the court consolidated the four actions into the single action identified above and appointed two lead plaintiffs. The lead plaintiffs originally sought to represent a class consisting of all persons (except defendants) who purchased the Company’s common stock in the market during the time period commencing in either May 2001 or on January 6, 2002, and continuing through November 12, 2002.

      The Company received a consolidated amended complaint on July 3, 2003. The consolidated amended complaint added as defendants four directors who were members of the Company’s audit committee during the class period and Arthur Andersen LLP, the Company’s former independent auditors. The lead plaintiffs sought to represent a class consisting of all persons (except defendants and members of their families and entities in which they held interests) who purchased or otherwise obligated themselves to purchase the Company’s publicly traded equity and debt securities between May 7, 2001 and November 12, 2002. The lead plaintiffs alleged that Company’s publicly-announced financial results were false and misleading and that the Company made false and misleading statements about its operating performance and financial condition. The lead plaintiffs further alleged that, as a result, the market price of the Company’s securities was artificially inflated during the class period and investors were deceived into buying the Company’s securities at artificially inflated prices. The lead plaintiffs alleged that defendants

25

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

were liable under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The lead plaintiffs sought compensatory damages in an unspecified amount, plus their attorneys’ fees and costs.

      On September 2, 2003, the Company served a motion to dismiss the consolidated amended complaint as against RCC and the defendant directors, on the grounds that it failed to plead fraud with the particularity required by Rule 9(b) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4, and failed to state a claim upon which relief may be granted. Arthur Andersen LLP also filed a motion to dismiss.

      By Memorandum and Order filed on January 12, 2004, the court dismissed the consolidated amended complaint without prejudice. The court held that the lead plaintiffs had failed to plead specific facts showing that the defendants knew facts, or had access to information, suggesting that RCC’s financial statements were materially false when they originally were issued. The court allowed the lead plaintiffs to file a further amended complaint within 30 days to attempt to correct the deficiencies in their pleading.

      On February 9, 2004, the lead plaintiffs filed a second consolidated amended complaint. The second consolidated amended complaint alleges essentially the same claims against the same defendants for the same alleged class periods, but includes some additional factual allegations. RCC and the defendant directors intend to move for dismissal of the second consolidated amended complaint with prejudice. A hearing date has been scheduled for April 22, 2004.

      The individual defendants have requested that the Company indemnify them and advance the costs of their defense in connection with this action. RCC’s board of directors authorized advancing the costs of defense to the executive officers and directors named as defendants in the initial complaints and appointed a committee of certain non-party directors, as required by Minnesota statute, to consider the request of the directors added as defendants in the consolidated amended complaint. The committee authorized advancing the costs of defense to the four directors who were added as defendants.

      The Company and the officer and director defendants are beneficiaries of liability insurance, which includes coverage for securities claims, subject to certain exclusions. RCC has tendered these claims to the carriers. The primary carrier has responded by raising certain issues with regard to coverage, which have not been resolved.

      Since this action is currently at a very early stage, the Company is unable to determine the potential effects of this action. It is possible that if this action is determined in a manner that is adverse to us, it could result in a material and adverse effect on the Company’s financial condition and results of operations, to the extent that any potential liability is not covered by the Company’s litigation insurance.

      Derivative Action. The following is a purported derivative action brought against all of the Company’s directors and against the Company, as a nominal defendant:

Hiene Junge v. Richard P. Ekstrand, Wesley E. Schultz, Ann K. Newhall, Jeffrey S. Gilbert, Marvin C. Nicolai, George M. Revering, Don C. Swenson, George W. Wikstrom, Paul J. Finnegan, and John Hunt; and Rural Cellular Corporation as nominal defendant, commenced on or about February 20, 2003 in Douglas County District Court, Alexandria, Minnesota.

      The plaintiff is one of RCC’s shareholders and claims to bring suit on behalf of RCC. No pre-lawsuit demand to investigate the allegations or bring the action was made on the board of directors. The plaintiff alleges that the directors breached their fiduciary duties to the Company’s shareholders, or abused their control, or grossly mismanaged, or wasted corporate assets, by allowing or causing RCC to improperly account for certain transactions in the Company’s financial statements during the time period from May 2001 through November 12, 2002. The plaintiff further alleges that the improper accounting eventually led to the commencement of federal securities class actions (described above) against us, which allegedly will

26

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

cause us to expend significant sums of money. The plaintiff seeks compensatory damages against the directors in an unspecified amount, plus his attorneys’ fees and costs.

      The plaintiff granted the defendants an indefinite extension of time to answer his complaint. Later in 2003, the plaintiff attempted to take discovery. On January 9, 2004, the Company and the director defendants served a motion to dismiss the complaint, and a motion to stay all discovery until the motion to dismiss has been decided. The grounds for the motion to dismiss are that the plaintiff failed to make pre-suit demand, that the complaint fails to plead fraud with sufficient particularity, that the alleged claims are not ripe for adjudication, and that RCC’s Amended Articles of Incorporation limit the personal liability of the director defendants and bar claims like those being asserted against them in this action. Both motions currently are being briefed. Both motions are scheduled to be heard on April 2, 2004.

      The defendant directors have requested that the Company indemnify them and advance the costs of defense in connection with the derivative action. The Company’s board of directors appointed a special counsel, as required by Minnesota statute, who considered this request and determined that the defendant directors are entitled to advance of costs of defense.

      The Company and the defendant directors are named or defined as insureds under insurance policies that include coverage for certain shareholders’ derivative claims, subject to certain exclusions. This matter has been tendered to the insurers. Although the response from the primary carrier regarding the class action does not specifically address coverage of this claim, the same issues could be raised to dispute coverage of this matter.

      Since this action is currently at a very early stage, the Company is unable to determine the potential effects of this action. It is possible that if this action is determined in a manner that is adverse to the Company, it could result in a material and adverse effect on the Company’s financial condition and results of operations, to the extent that any potential liability is not covered by the Company’s litigation insurance.

      Other Claims. The Company is involved from time to time in other routine legal matters and other claims incidental to its business. The Company believes that the resolution of such routine matters and other incidental claims, taking into account established reserves and insurance, will not have a material adverse impact on its consolidated financial position or results of operations.

      Regulatory Matters. The Company is subject to various regulatory requirements associated with its networks in the normal course of business related to E911, CALEA, and WNP. The Company currently does not meet all of the requirements imposed by regulatory agencies. In some cases, the Company has received a waiver from such requirements or is in the process of applying for a waiver. However, management does not believe such non-compliance will have a material adverse effect on the Company, although the ultimate outcome of these matters cannot be determined based on available information.

Leases

      The Company leases office space, cellular towers (including land leases on which the Company’s owned towers reside), and real estate under noncancelable operating leases. These leases typically include

27

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

renewal options and escalation clauses. Future minimum payments under these leases as of December 31, 2003 are as follows (in thousands):

Year		Amount
2004		$	8,957
2005			7,012
2006			5,115
2007			3,685
2008			2,063
Thereafter			3,925
	Total	$	30,757

      Under the terms of the lease agreements, the Company also is responsible for certain operating expenses and taxes. Total rent expense of $10.6 million, $9.7 million, and $8.3 million was charged to operations for the years ended December 31, 2003, 2002, and 2001, respectively.

Purchase Commitments

      The Company has made commitments to its roaming partners and to equipment vendors to substantially complete its next generation networks by the end of 2005. Including the cost of the anticipated overlays, total capital expenditures for 2004 through 2005 are expected to range from $140 million to $180 million.

      In 2003, the Company entered into a five-year $57.0 million purchase commitment with a vendor to install GSM/ GPRS network equipment and CDMA2000 network equipment, under which, through December 31, 2003, the Company had incurred $5.1 million in equipment purchases.

Off-Balance Sheet Financings and Liabilities

      The Company does not have any off-balance sheet financing arrangements or liabilities. The Company does not have any majority-owned subsidiaries or any interests in, or relationships with, any material special-purpose entities that are not included in the consolidated financial statements.

(11)     Defined Contribution Plan:

      The Company has a defined contribution savings and profit-sharing plan for employees who meet certain age and service requirements. Under the savings portion of the plan, employees may elect to contribute a percentage of their salaries to the plan, with the Company contributing a matching percentage of the employees’ contributions. Under the profit-sharing portion of the plan, the Company contributes a percentage of employees’ salaries. Contributions charged to operations for the years ended December 31, 2003, 2002 and 2001 were $599,000, $570,000, and $728,000, respectively. The percentages the Company matches under the savings portion of the plan and contributes under the profit-sharing portion of the plan are determined annually by the Company’s Board of Directors.

28

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

(12)     Supplemental Cash Flow Information (In thousands):

		Years Ended December 31,
		2003		2002		2001
Cash paid for:
	Interest, net of amounts capitalized	$	86,801	$	86,775	$	116,961
Noncash financing transactions:
	Preferred stock dividends	$	38,877	$	60,556	$	54,545

(13)     Quarterly Results of Operations (Unaudited):

      Certain unaudited quarterly results for 2003 and 2002 are set forth below (in thousands, except per share data):

		2003 Quarter Ended										2002 Quarter Ended
		March			June		September			December		March			June			September			December
Revenue:
Service		$	80,923		$	90,904	$	92,530		$	90,681	$	75,497		$	80,473		$	83,224		$	80,739
Roaming			29,062			31,789		37,598			33,447		26,162			33,855			35,400			27,286
Equipment			3,876			4,427		6,462			5,690		3,279			4,564			7,098			5,501
	Total Revenue	$	113,861		$	127,120	$	136,590		$	129,818	$	104,938		$	118,892		$	125,722		$	113,526
Operating income		$	31,101		$	41,232	$	7,005		$	43,912	$	31,425		$	38,178		$	38,627		$	26,782
Net income (loss) before cumulative change in accounting principle		$	5,708		$	16,991	$	(38,121	)	$	4,217	$	(707	)	$	11,303		$	10,236		$	330
Net income (loss)		$	5,708		$	16,991	$	(38,121	)	$	4,217	$	(417,771	)	$	11,303		$	10,236		$	330
Net income (loss) applicable to common shares		$	(10,465	)	$	382	$	(41,140	)	$	1,141	$	(432,312	)	$	(3,629	)	$	(5,098	)	$	(15,419	)
Net income (loss) per share applicable to common shares before cumulative change in accounting principle		$	(0.87	)	$	0.03	$	(3.41	)	$	0.09	$	(1.28	)	$	(0.30	)	$	(0.43	)	$	(1.29	)
Net income (loss) per basic and diluted share		$	(0.87	)	$	0.03	$	(3.41	)	$	0.09	$	(36.27	)	$	(0.30	)	$	(0.43	)	$	(1.29	)

(14)     Assets and Liabilities of Operations Held for Sale

      In October 2003, the Company entered into a definitive agreement with AWE to exchange wireless properties. This transaction closed on March 1, 2004. Under the agreement, the Company transferred to AWE its operations in Oregon RSA 4, covering 226,000 POPs and including 37 cell sites and approximately 35,000 customers as of December 31, 2003. RCC received from AWE operations in Alabama and Mississippi covering 732,000 total POPs and 545,000 incremental POPs and including 96 cell sites and approximately 16,000 customers as of December 31, 2003. In addition, RCC received from AWE unbuilt PCS licenses covering portions of RCC’s South, Midwest, and Northwest regions that incorporate 2.4 million total POPs and 1.3 million incremental POPs. RCC also received $12.9 million in cash, which will be used to pay amounts outstanding under the Company’s credit agreement.

      The acquisition of licenses in the exchange will be accounted for as a purchase by the Company and the transfer of the properties by the Company to AWE will be accounted for as a sale. The Company’s

29

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

consolidated balance sheet as of December 31, 2003 reflects the assets and liabilities to be transferred as assets and liabilities of operations held for sale in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The results of operations of the markets to be transferred are included in continuing operations. In connection with this transaction, RCC recorded a loss on assets held for sale of $42.2 million (included in operating expenses). This charge may require adjustment in future periods if the estimated fair value changes before the assets are transferred at closing. Assets and liabilities relating to operations held for sale (after giving effect to the loss on assets held for sale) are summarized as follows (in thousands):

			December 31,
			2003
CURRENT ASSETS:
	Cash and cash equivalents		$	2
	Accounts receivable, less allowance for doubtful accounts of $146			2,983
	Inventories			169
	Other current assets			35
		Total current assets held for sale	$	3,189
PROPERTY AND EQUIPMENT, less accumulated depreciation of $5,457			$	6,550
LICENSES AND OTHER ASSETS:
	Licenses, net			34,175
	Goodwill, net			4,940
	Customer lists, net			4,488
		Total licenses and other assets		43,603
		Total non current assets held for sale	$	50,153
		ASSETS OF OPERATIONS HELD FOR SALE	$	53,342
CURRENT LIABILITIES:
	Accounts payable		$	503
	Advance billings and customer deposits			139
	Property taxes			114
		LIABILITIES OF OPERATIONS HELD FOR SALE	$	756

(15) Guarantor/ Non-Guarantor Consolidating Financial Information

      Our obligations under the Senior Secured Floating Rate Notes due 2010 and 8 1/4% Senior Secured Notes due 2012 are senior secured obligations and are guaranteed by certain of our subsidiaries.

      We believe separate complete financial statements of every subsidiary guarantor would not provide additional material information that would be useful in assessing the financial condition of the subsidiary guarantor. However, RCC Minnesota, Inc. (“RCCM”), one of RCC’s subsidiaries guaranteeing the Senior Secured Floating Rate Notes due 2010 and 8 1/4% Senior Secured Notes due 2012, is required under Rule 3-16 of Regulation S-X under the Exchange Act to provide separate financial statements and, accordingly, such statements are included herein. Within RCCM’s financial statements, inter-company license management revenue and corporate management expense are reported separately as operating

30

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

revenue and expense. Wireless Alliance, LLC is not a restricted subsidiary and is not a guarantor of the notes.

      The operations of RGI Group, Inc. (“RGI”), a guarantor subsidiary, are included in the parent company financial presentation because separate financial accounting records are not maintained for this subsidiary on a stand-alone basis, but are accounted for within the operations of the parent. RGI’s assets were approximately $7 million as of December 31, 2003, 2002, and 2001, and its revenues were approximately $7 million in 2003 and 2002 and $6 million in 2001.

      We account for investment in subsidiaries using the equity method for purposes of the supplemental consolidating presentation. The principal elimination entries eliminate investments in subsidiaries and inter-company balances and transactions.

      The following consolidating financial information as of the dates and for the periods indicated of Rural Cellular Corporation (the parent), its guarantor subsidiaries, and its non-guarantor subsidiaries reflects all inter-company management revenue and corporate management expense, including RCCM’s inter-company management revenue and corporate management expense, within Other Income (Expense) as inter-company charges.

31

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

Balance Sheet Information as of December 31, 2003 (In thousands, except per share data):

						Guarantor			Non-Guarantor
			Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
CURRENT ASSETS:
	Cash and cash equivalents		$	141,263		$	1,266		$	18		$	—		$	142,547
	Accounts receivable, less allowance for doubtful accounts			19,472			36,577			1,694			—			57,743
	Inventories			1,774			5,971			292			—			8,037
	Other current assets			2,269			1,909			81			—			4,259
	Assets of operations held for sale			—			3,189			—			—			3,189
		Total current assets		164,778			48,912			2,085			—			215,775
PROPERTY AND EQUIPMENT, less accumulated depreciation				54,543			159,193			12,466			—			226,202
LICENSES AND OTHER ASSETS:
	Licenses			8,656			545,948			8,679			—			563,283
	Goodwill			3,262			357,534			—			—			360,796
	Customer lists			1,578			62,997			—			—			64,575
	Deferred debt issuance costs, less accumulated amortization			34,479			—			—			—			34,479
	Long-term assets of operations held for sale			—			50,153			—			—			50,153
	Investments in consolidated subsidiaries			1,165,135			1,354			—			(1,166,489	)		—
	Other assets, less accumulated amortization			2,864			21,063			2,819			(20,951	)		5,795
		Total licenses and other assets		1,215,974			1,039,049			11,498			(1,187,440	)		1,079,081
			$	1,435,295		$	1,247,154		$	26,049		$	(1,187,440	)	$	1,521,058
CURRENT LIABILITIES:
	Accounts payable		$	28,076		$	16,621		$	1,111		$	—		$	45,808
	Current portion of long-term debt			27,262			—			—			—			27,262
	Advance billings and customer deposits			2,262			7,921			271			—			10,454
	Accrued interest			34,084			—			—			—			34,084
	Other accrued expenses			33,607			32,872			113			(55,316	)		11,276
	Liabilities of operations held for sale			—			756			—			—			756
		Total current liabilities		125,291			58,170			1,495			(55,316	)		129,640
LONG-TERM LIABILITIES				1,750,587			1,844,934			42,196			(1,872,850	)		1,764,867
		Total liabilities		1,875,878			1,903,104			43,691			(1,928,166	)		1,894,507
REDEEMABLE PREFERRED STOCK				153,381			—			—			—			153,381
SHAREHOLDERS’ DEFICIT:
	Class A common stock; $.01 par value; 200,000 shares authorized, 11,522 issued			115			918			—			(918	)		115
	Class B common stock; $.01 par value; 10,000 shares authorized, 552 issued			6			—			—			—			6
	Additional paid-in capital			192,423			349			31,679			(32,028	)		192,423
	Accumulated earnings (deficit)			(786,724	)		(657,217	)		(49,321	)		773,672			(719,590	)
	Accumulated other comprehensive income			216			—			—			—			216
		Total shareholders’ equity (deficit)		(593,964	)		(655,950	)		(17,642	)		740,726			(526,830	)
			$	1,435,295		$	1,247,154		$	26,049		$	(1,187,440	)	$	1,521,058

32

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

Statement of Operations information for the year ended December 31, 2003 (In thousands):

						Guarantor			Non-Guarantor
			Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
REVENUE:
	Service		$	71,073		$	275,224		$	8,893		$	(152	)	$	355,038
	Roaming			15,410			112,300			4,199			(13	)		131,896
	Equipment			4,433			15,101			921			—			20,455
		Total revenue		90,916			402,625			14,013			(165	)		507,389
OPERATING EXPENSES:
	Network costs, excluding depreciation			16,922			76,037			3,275			(165	)		96,069
	Cost of equipment sales			6,661			29,548			1,427			—			37,636
	Selling, general and administrative			30,670			95,564			5,527			—			131,761
	Depreciation and amortization			15,290			57,868			3,271			—			76,429
	Loss on assets held for sale			—			42,244			—			—			42,244
		Total operating expenses		69,543			301,261			13,500			(165	)		384,139
OPERATING INCOME				21,373			101,364			513			—			123,250
OTHER INCOME (EXPENSE):
	Interest expense			(135,590	)		(143,975	)		(2,330	)		145,633			(136,262	)
	Interest and dividend income			146,522			25			2			(145,633	)		916
	Inter-company charges			(15,815	)		16,297			(482	)		—			—
	Equity in subsidiaries			(50,972	)		—			—			50,972			—
	Other			998			(107	)		—			—			891
		Other expense, net		(54,857	)		(127,760	)		(2,810	)		50,972			(134,455	)
NET INCOME (LOSS) BEFORE INCOME TAXES				(33,484	)		(26,396	)		(2,297	)		50,972			(11,205	)
INCOME TAX PROVISION (BENEFIT)				14,308			22,279			—			(36,587	)		—
NET INCOME (LOSS)				(47,792	)		(48,675	)		(2,297	)		87,559			(11,205	)
PREFERRED STOCK DIVIDEND				(38,877	)		—			—			—			(38,877	)
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES			$	(86,669	)	$	(48,675	)	$	(2,297	)	$	87,559		$	(50,082	)

33

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

Statement of Cash Flows Information for the Year Ended December 31, 2003 (In thousands):

								Guarantor			Non-Guarantor
					Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
OPERATING ACTIVITIES:
	Net income (loss)				$	(47,792	)	$	(48,675	)	$	(2,297	)	$	87,559		$	(11,205	)
	Adjustments to reconcile to net cash provided by operating activities:
		Depreciation and amortization				15,290			57,868			3,271			—			76,429
		Loss on write-off of debt and preferred stock issuance costs				6,134			—			—			—			6,134
		Adjustments of interest rate derivatives to fair market value				(2,225	)		—			—			—			(2,225	)
		Non-cash preferred stock dividends				13,074			—			—			—			13,074
		Tax adjustments				14,308			22,279			—			(36,587	)		—
		Loss on assets held for sale				—			42,244			—			—			42,244
		Other				3,596			401			16			—			4,013
		Change in other operating elements:
			Accounts receivable			(6,483	)		(7,597	)		(206	)		—			(14,286	)
			Inventories			(889	)		(704	)		12			—			(1,581	)
			Other current assets			(1,249	)		174			(1	)		—			(1,076	)
			Accounts payable			4,428			248			2			—			4,678
			Advance billings and customer deposits			(219	)		729			(364	)		—			146
			Accrued preferred stock dividends			14,899			—			—			—			14,899
			Other accrued liabilities			13,766			(338	)		(151	)		—			13,277
				Net cash provided by operating activities		26,638			66,629			282			50,972			144,521
INVESTING ACTIVITIES:
	Purchases of property and equipment					(17,496	)		(33,625	)		(2,583	)		—			(53,704	)
	Proceeds from sale of property and equipment					121			503			—			—			624
	Purchase of wireless properties					—			(7,200	)		—			—			(7,200	)
	Other					(176	)		2			—			—			(174	)
				Net cash used in investing activities		(17,551	)		(40,320	)		(2,583	)		—			(60,454	)
FINANCING ACTIVITIES:
	Change in parent company receivable and payable					68,722			(20,035	)		2,285			(50,972	)		—
	Proceeds from issuance of common stock related to employee stock purchase plan and stock options					131			—			—			—			131
	Proceeds from issuance of long-term debt under the credit agreement					120,000			—			—			—			120,000
	Repayments of long-term debt under the credit agreement					(388,128	)		(6,500	)		—			—			(394,628	)
	Proceeds from issuance of 9 7/8% senior secured notes					325,000			—			—			—			325,000
	Repayment of swaption					(34,184	)		—			—			—			(34,184	)
	Proceeds from unwinding derivative hedge agreements					2,632			—			—			—			2,632
	Payments of debt issuance costs					(13,374	)		—			—			—			(13,374	)
	Other					(885	)		—			—			—			(885	)
				Net cash provided by (used in) financing activities		79,914			(26,535	)		2,285			(50,972	)		4,692
NET (DECREASE) INCREASE IN CASH						89,001			(226	)		(16	)		—			88,759
CASH AND CASH EQUIVALENTS, at beginning of year						52,262			1,492			34			—			53,788
CASH AND CASH EQUIVALENTS, at end of year					$	141,263		$	1,266		$	18		$	—		$	142,547

34

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

Balance Sheet Information as of December 31, 2002 (In thousands, except per share data):

						Guarantor			Non-Guarantor
			Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
CURRENT ASSETS:
	Cash and cash equivalents		$	52,262		$	1,492		$	34		$	—		$	53,788
	Accounts receivable, less allowance for doubtful accounts			12,989			31,965			1,488			—			46,442
	Inventories			885			5,435			304			—			6,624
	Other current assets			1,020			2,117			80			—			3,217
		Total current assets		67,156			41,009			1,906			—			110,071
PROPERTY AND EQUIPMENT, less accumulated depreciation				51,895			175,816			12,825			—			240,536
LICENSES AND OTHER ASSETS:
	Licenses			8,656			601,241			8,679			—			618,576
	Goodwill			3,262			366,567			—			—			369,829
	Customer lists			1,888			90,860			—			—			92,748
	Deferred debt issuance costs, less accumulated amortization			25,176			—			—			—			25,176
	Investments in consolidated subsidiaries			1,233,721			917			—			(1,234,638	)		—
	Other assets, less accumulated amortization			15,052			22,125			3,118			(34,253	)		6,042
		Total licenses and other assets		1,287,755			1,081,710			11,797			(1,268,891	)		1,112,371
			$	1,406,806		$	1,298,535		$	26,528		$	(1,268,891	)	$	1,462,978
CURRENT LIABILITIES:
	Accounts payable		$	23,648		$	16,876		$	1,109		$	—		$	41,633
	Current portion of long-term debt			72,547			6,500			—			—			79,047
	Advance billings and customer deposits			2,481			7,331			635			—			10,447
	Accrued interest			18,476			—			—			—			18,476
	Dividends payable			6,412			—			—			—			6,412
	Other accrued expenses			32,030			16,836			264			(39,578	)		9,552
		Total current liabilities		155,594			47,543			2,008			(39,578	)		165,567
LONG-TERM LIABILITIES				1,195,374			1,858,267			39,865			(1,882,480	)		1,211,026
		Total liabilities		1,350,968			1,905,810			41,873			(1,922,058	)		1,376,593
REDEEMABLE PREFERRED STOCK				569,500			—			—			—			569,500
SHAREHOLDERS’ DEFICIT:
	Class A common stock; $.01 par value; 200,000 shares authorized, 11,229 issued			112			918			—			(918	)		112
	Class B common stock; $.01 par value; 10,000 shares authorized, 693 issued			7			—			—			—			7
	Additional paid-in capital			192,294			349			31,679			(32,028	)		192,294
	Accumulated earnings (deficit)			(700,055	)		(608,542	)		(47,024	)		686,113			(669,508	)
	Accumulated other comprehensive income			(6,020	)		—			—			—			(6,020	)
		Total shareholders’ equity (deficit)		(513,662	)		(607,275	)		(15,345	)		653,167			(483,115	)
			$	1,406,806		$	1,298,535		$	26,528		$	(1,268,891	)	$	1,462,978

35

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

Statement of Operations Information for the Year Ended December 31, 2002 (In thousands):

						Guarantor			Non-Guarantor
			Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
REVENUE:
	Service		$	65,518		$	245,973		$	8,618		$	(176	)	$	319,933
	Roaming			19,471			99,385			3,875			(28	)		122,703
	Equipment			9,042			10,640			760			—			20,442
		Total revenue		94,031			355,998			13,253			(204	)		463,078
OPERATING EXPENSES:
	Network costs, excluding depreciation			17,719			76,842			2,843			(204	)		97,200
	Cost of equipment sales			9,394			18,257			1,533			—			29,184
	Selling, general and administrative			26,276			87,228			5,681			—			119,185
	Depreciation and amortization			16,902			62,470			3,125			—			82,497
		Total operating expenses		70,291			244,797			13,182			(204	)		328,066
OPERATING INCOME				23,740			111,201			71			—			135,012
OTHER INCOME (EXPENSE):
	Interest expense			(114,455	)		(113,064	)		(2,420	)		115,461			(114,478	)
	Interest and dividend income			115,982			41			—			(115,461	)		562
	Inter-company charges			(18,409	)		18,409			—			—			—
	Equity in subsidiaries			(401,908	)		—			—			401,904			(4	)
	Other			6			64			—			—			70
		Other expense, net		(418,784	)		(94,550	)		(2,420	)		401,904			(113,850	)
NET INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE				(395,044	)		16,651			(2,349	)		401,904			21,162
INCOME TAX PROVISION (BENEFIT)				4,423			48,562			—			(52,985	)		—
NET INCOME (LOSS) BEFORE CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE				(399,467	)		(31,911	)		(2,349	)		454,889			21,162
CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX				—			(367,644	)		—			(49,420	)		(417,064	)
NET INCOME (LOSS)				(399,467	)		(399,555	)		(2,349	)		405,469			(395,902	)
PREFERRED STOCK DIVIDEND				(60,556	)		—			—			—			(60,556	)
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES			$	(460,023	)	$	(399,555	)	$	(2,349	)	$	405,469		$	(456,458	)

36

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

Statement of Cash Flows Information for the Year Ended December 31, 2002 (In thousands):

								Guarantor			Non-Guarantor
					Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
OPERATING ACTIVITIES:
	Net income (loss)				$	(399,467	)	$	(399,555	)	$	(2,349	)	$	405,469		$	(395,902	)
	Adjustments to reconcile to net cash provided by operating activities:
		Depreciation and amortization				16,902			62,470			3,125			—			82,497
		Loss on write-off of debt and preferred stock issuance costs				3,319			—			—			—			3,319
		Adjustments of interest rate derivatives to fair market value				15,104			—			—			—			15,104
		Cumulative change in accounting principle				—			367,644			—			49,420			417,064
		Tax adjustments				4,423			48,562						(52,985	)		—
		Other				2,327			882			—			—			3,209
		Change in other operating elements:
			Accounts receivable			826			(562	)		(739	)		—			(475	)
			Inventories			145			52			(204	)		—			(7	)
			Other current assets			(110	)		(677	)		(22	)		—			(809	)
			Accounts payable			6,859			(477	)		84			—			6,466
			Advance billings and customer deposits			405			388			319			—			1,112
			Other accrued liabilities			6,462			257			25			—			6,744
				Net cash used in (provided by) operating activities		(342,805	)		78,984			239			401,904			138,322
INVESTING ACTIVITIES:
	Purchases of property and equipment					(18,495	)		(39,983	)		(1,357	)		—			(59,835	)
	Proceeds from sale of property and equipment					94			357			11			—			462
	Proceeds from sale of other long-lived assets					650			—			—			—			650
	Other					79			48			—			—			127
				Net cash used in investing activities		(17,672	)		(39,578	)		(1,346	)		—			(58,596	)
FINANCING ACTIVITIES:
	Change in parent company receivable and payable					439,583			(38,784	)		1,105			(401,904	)		—
	Proceeds from issuance of common stock related to employee stock purchase plan and stock options					331			—			—			—			331
	Proceeds from issuance of long-term debt under the credit agreement					62,550			—			—			—			62,550
	Repayments of long-term debt under the credit agreement					(380,207	)		(1	)		—			—			(380,208	)
	Proceeds from issuance of 9 3/4 senior secured notes					300,000			—			—			—			300,000
	Payments of debt issuance costs					(10,322	)		—			—			—			(10,322	)
	Other					(283	)		(1	)		—			—			(284	)
				Net cash (used in) provided by financing activities		411,652			(38,786	)		1,105			(401,904	)		(27,933	)
NET (DECREASE) INCREASE IN CASH						51,175			620			(2	)		—			51,793
CASH AND CASH EQUIVALENTS, at beginning of year						1,087			872			36			—			1,995
CASH AND CASH EQUIVALENTS, at end of year					$	52,262		$	1,492		$	34		$	—		$	53,788

37

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

Statement of Operations Information for the Year Ended December 31, 2001 (In thousands):

						Guarantor			Non-Guarantor
			Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
REVENUE:
	Service		$	56,568		$	245,652		$	8,334		$	(34	)	$	310,520
	Roaming			20,102			96,025			531			(117	)		116,541
	Equipment			4,721			13,595			311			—			18,627
		Total revenue		81,391			355,272			9,176			(151	)		445,688
OPERATING EXPENSES:
	Network costs, excluding depreciation			15,561			83,087			3,094			(233	)		101,509
	Cost of equipment sales			5,757			21,577			1,081			—			28,415
	Selling, general and administrative			27,176			89,252			5,877			82			122,387
	Depreciation and amortization			14,959			93,625			3,993			—			112,577
		Total operating expenses		63,453			287,541			14,045			(151	)		364,888
OPERATING INCOME				17,938			67,731			(4,869	)		—			80,800
OTHER INCOME (EXPENSE):
	Interest expense			(132,737	)		(159,997	)		(3,106	)		165,408			(130,432	)
	Interest and dividend income			166,524			56			—			(165,408	)		1,172
	Inter-company charges			(13,134	)		13,134			—			—			—
	Equity in subsidiaries			(105,766	)		—			—			105,764			(2	)
	Other			(750	)		—			—			—			(750	)
		Other expense, net		(85,863	)		(146,807	)		(3,106	)		105,764			(130,012	)
NET INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE				(67,925	)		(79,076	)		(7,975	)		105,764			(49,212	)
INCOME TAX PROVISION (BENEFIT)				2,255			18,717			—			(20,972	)		—
NET INCOME (LOSS) BEFORE CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE				(70,180	)		(97,793	)		(7,975	)		126,736			(49,212	)
CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE				1,621			—			—			—			1,621
NET INCOME (LOSS)				(68,559	)		(97,793	)		(7,975	)		126,736			(47,591	)
PREFERRED STOCK DIVIDEND				(54,545	)		—			—			—			(54,545	)
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES			$	(123,104	)	$	(97,793	)	$	(7,975	)	$	126,736		$	(102,136	)

38

RURAL CELLULAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002, and 2001 — (Continued)

Statement of Cash Flows Information for the Year Ended December 31, 2001 (In thousands):

								Guarantor			Non-Guarantor
					Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
OPERATING ACTIVITIES:
	Net income (loss)				$	(68,559	)	$	(97,793	)	$	(7,975	)	$	126,736		$	(47,591	)
	Adjustments to reconcile to net cash provided by operating activities:
		Depreciation and amortization				14,959			93,625			3,993			—			112,577
		Loss on write-off of debt and preferred stock issuance costs
		Adjustments of interest rate derivatives to fair market value				16,425			—			—			—			16,425
		Cumulative change in accounting principle				(1,621	)		—			—			—			(1,621	)
		Tax adjustments				2,255			18,717			—			(20,972	)		—
		Other				2,047			(83	)		—			—			1,964
		Change in other operating elements:
			Accounts receivable			(3,069	)		3,596			322			—			849
			Inventories			(39	)		13			318			—			292
			Other current assets			(121	)		508			218			—			605
			Accounts payable			(1,065	)		(6,058	)		(663	)		—			(7,786	)
			Advance billings and customer deposits			562			565			72			—			1,199
			Other accrued liabilities			253			(1,700	)		37			—			(1,410	)
				Net cash provided by (used in) operating activities		(37,973	)		11,390			(3,678	)		105,764			75,503
INVESTING ACTIVITIES:
	Purchases of property and equipment					(9,445	)		(36,023	)		(511	)		—			(45,979	)
	Purchases of wireless properties					—			(178,566	)		—			—			(178,566	)
	Proceeds from sale of other long-lived assets					—			48,929			—			—			48,929
	Other					(823	)		1,978			—			—			1,155
				Net cash used in investing activities		(10,268	)		(163,682	)		(511	)		—			(174,461	)
FINANCING ACTIVITIES:
	Change in parent company receivable and payable					(49,655	)		151,201			4,218			(105,764	)		—
	Proceeds from issuance of common stock related to employee stock purchase plan and stock options					1,214			—			—			—			1,214
	Proceeds from issuance of long-term debt under the credit agreement					349,250			—			—			—			349,250
	Repayments of long-term debt under the credit agreement					(256,089	)		—			—			—			(256,089	)
	Proceeds from swaption					8,720			—			—			—			8,720
	Payments of debt issuance costs					(4,366	)		—			—			—			(4,366	)
	Other					19			—			—			—			19
				Net cash provided by (used in) financing activities		49,093			151,201			4,218			(105,764	)		98,748
NET (DECREASE) INCREASE IN CASH						852			(1,091	)		29			—			(210	)
CASH AND CASH EQUIVALENTS, at beginning of year						237			1,962			6			—			2,205
CASH AND CASH EQUIVALENTS, at end of year					$	1,089		$	871		$	35		$	—		$	1,995

39