e10vq

Actual Customer List Amortization

(in thousands)

Three months ended June 30,

Six months ended June 30,

$1,756

$6,009

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

for the quarterly period ended June 30, 2007.


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

for the transition period from to .

Commission File Number 0-27416

RURAL CELLULAR CORPORATION

(Exact name of registrant as specified in its charter)


Minnesota		41-1693295
*(State or other jurisdiction of incorporation or organization)*		*(I.R.S. Employer Identification No.)*

PO Box 2000
3905 Dakota Street SW
Alexandria, Minnesota 56308
(320) 762-2000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated file o Accelerated filer þ Non-accelerated filer o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO þ

Number of shares of common stock outstanding as of the close of business on August 1, 2007.


Class A			15,410,866
Class B			237,120

Part I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

(Unaudited)


	June 30,		December 31,
(In thousands)	2007		2006
CURRENT ASSETS:
Cash and cash equivalents	$	26,363	$	72,495
Short-term investments		—		110,716
Accounts receivable, less allowance for doubtful accounts of $2,999 and $2,676		69,701		62,592
Inventories		7,372		11,366
Other current assets		5,094		4,265

Total current assets		108,530		261,434


PROPERTY AND EQUIPMENT, net		219,263		211,978

LICENSES AND OTHER ASSETS:
Licenses, net		536,613		524,713
Goodwill, net		360,058		348,684
Customer lists, net		10,626		10,734
Deferred debt issuance costs, net		20,448		21,910
Other assets, net		4,681		5,195

Total licenses and other assets		932,426		911,236

	$	1,260,219	$	1,384,648

LIABILITIES AND SHAREHOLDERS’ DEFICIT
(Unaudited)


	June 30,			December 31,
(in thousands, except per share data)	2007			2006
CURRENT LIABILITIES:
Accounts payable	$	40,867		$	38,580
Advance billings and customer deposits		13,515			12,031
Accrued interest		32,116			42,784
Other accrued expenses		7,912			7,832

Total current liabilities		94,410			101,227
LONG-TERM LIABILITIES		1,767,352			1,862,919

Total liabilities		1,861,762			1,964,146


REDEEMABLE PREFERRED STOCK		193,372			185,658

SHAREHOLDERS’ DEFICIT:
Class A common stock; $.01 par value; 200,000 shares authorized, 15,238 and 15,048 outstanding		152			151
Class B common stock; $.01 par value; 10,000 shares authorized, 398 and 398 outstanding		4			4
Additional paid-in capital		230,774			228,149
Accumulated deficit		(1,025,845	)		(993,460	)

Total shareholders’ deficit		(794,915	)		(765,156	)

	$	1,260,219		$	1,384,648

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

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months June 30,						Six Months June 30,
(in thousands, except per share data)	2007			2006			2007			2006
REVENUE:
Service	$	107,445		$	96,939		$	205,319		$	192,909
Roaming		43,580			36,660			79,527			67,466
Equipment		6,659			6,599			13,068			12,955

Total revenue		157,684			140,198			297,914			273,330

OPERATING EXPENSES:
Network costs, excluding depreciation		40,203			34,862			74,725			67,169
Cost of equipment sales		14,094			13,222			26,966			26,249
Selling, general and administrative		40,229			36,707			74,023			70,957
Depreciation and amortization		20,021			30,631			42,231			60,058

Total operating expenses		114,547			115,422			217,945			224,433

OPERATING INCOME		43,137			24,776			79,969			48,897
OTHER INCOME (EXPENSE):
Interest expense		(61,723	)		(53,623	)		(109,366	)		(99,963	)
Interest and dividend income		2,531			2,250			4,772			3,750
Other		(187	)		414			(214	)		204

Other expense, net		(59,379	)		(50,959	)		(104,808	)		(96,009	)

LOSS BEFORE INCOME TAX BENEFIT		(16,242	)		(26,183	)		(24,839	)		(47,112	)

INCOME TAX BENEFIT		(89	)		(104	)		(168	)		(209	)

NET LOSS		(16,153	)		(26,079	)		(24,671	)		(46,903	)

PREFERRED STOCK DIVIDEND		(3,914	)		(3,622	)		(7,714	)		(7,136	)

LOSS APPLICABLE TO COMMON SHARES	$	(20,067	)	$	(29,701	)	$	(32,385	)	$	(54,039	)

BASIC AND DILUTED WEIGHTED AVERAGE SHARES USED TO COMPUTE LOSS PER SHARE		15,407			14,075			15,357			14,027


NET LOSS PER BASIC AND DILUTED SHARE	$	(1.30	)	$	(2.11	)	$	(2.11	)	$	(3.85	)

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

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended
	June 30,
(in thousands)	2007			2006
OPERATING ACTIVITIES:

Net loss	$	(24,671	)	$	(46,903	)
Adjustments to reconcile to net cash (used in) provided by operating activities:
Depreciation and customer list amortization		42,231			60,058
Loss on write-off of preferred exchangeable stock and debt issuance costs		3,256			2,795
Mark-to-market adjustments — financial instruments		(166	)		(726	)
Net gain on repurchase of senior exchangeable preferred stock		—			(173	)
Stock-based compensation		1,738			467
Deferred income taxes		(168	)		(209	)
Amortization of debt issuance costs		2,645			2,748
Amortization of discount on investments		(1,260	)		(1,339	)
Other		(1,294	)		33
Change in other operating elements:
Accounts receivable		(8,017	)		4,761
Inventories		4,797			6,433
Other current assets		(789	)		(393	)
Accounts payable		3,239			(10,475	)
Advance billings and customer deposits		1,341			(523	)
Accrued senior and junior exchangeable preferred stock dividends		(47,957	)		19,258
Accrued interest		(10,668	)		3,800
Other accrued expenses		(186	)		(2,394	)

Net cash (used in) provided by operating activities		(35,929	)		37,218

INVESTING ACTIVITIES:
Purchases of property and equipment		(22,662	)		(23,670	)
Acquisition of wireless properties, net of cash		(49,019	)		—
Purchases of short-term investments		(20,497	)		(78,443	)
Maturities of short-term investments		132,473			78,000
Proceeds from sale of property and equipment		24			1,587
Other		614			(45	)

Net cash provided by (used in) investing activities		40,933			(22,571	)

FINANCING ACTIVITIES:
Proceeds from issuance of common stock related to employee stock purchase plan and stock options		1,792			2,058
Repayments of long-term debt under the credit facility		(58,000	)		—
Proceeds from issuance of 8 ¹/4% senior secured notes		—			166,600
Proceeds from issuance of floating rate senior subordinated notes		425,000			—
Redemption of senior secured floating rate notes		—			(160,000	)
Redemption of senior subordinated notes		(300,000	)		—
Redemption of senior subordinated debentures		(115,488	)		—
Repurchases of senior exchangeable preferred stock		—			(5,518	)
Payments of debt issuance costs		(4,440	)		(2,828	)

Net cash (used in) provided by financing activities		(51,136	)		312

NET (DECREASE) INCREASE IN CASH		(46,132	)		14,959
CASH AND CASH EQUIVALENTS, at beginning of year		72,495			86,822

CASH AND CASH EQUIVALENTS, at end of period	$	26,363		$	101,781

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

RURAL CELLULAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1) BASIS OF PRESENTATION:

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

The accompanying unaudited condensed consolidated financial statements for the three and six months ended June 30, 2007 and 2006 have been prepared by management. In the opinion of management, only normal recurring adjustments necessary to fairly present the financial position, results of operations, and cash flows for all periods presented have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2006. The results of operations for the three and six months ended June 30, 2007 and 2006 are not necessarily indicative of the operating results for the full fiscal year or for any other interim periods.

2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

For a detailed discussion of our significant accounting policies and estimates, please refer to our Annual Report on Form 10-K for the year ended December 31, 2006. There have been no material changes in the application of our significant accounting policies except as described below. Applications of these policies in preparing the second quarter 10-Q require that estimates be made by management to fairly present the financial position of RCC.

Recently Issued Accounting Pronouncements

Measuring Fair Value. In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157 (“SFAS No. 157”), Fair Value Measurements. This statement establishes a consistent framework for measuring fair value and expands disclosures on fair value measurements. SFAS No. 157 is effective for RCC starting in fiscal 2008. We have not determined the impact, if any, the adoption of this statement will have on our consolidated financial statements.

The Fair Value Option for Financial Assets and Financial Liabilities. In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of SFAS No. 159 on our consolidated financial position and results of operations.

Recently Adopted Accounting Pronouncements

Uncertainty in Income Taxes. On January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

We file U.S. federal and state income tax returns. Due to our NOL carryforwards, we are subject to U.S. federal, state and local income tax examinations by tax authorities for years beginning 1992 and forward. There was no cumulative effect related to adopting FIN 48. However, certain amounts have been reclassified in the statement of financial position in order to comply with the requirements of the statement.

As of January 1, 2007, we have reduced our deferred tax assets and corresponding valuation allowance for $5,425,000 of unrecognized tax benefits related to various state income tax matters. None of this amount, if recognized, would impact our effective tax rate. During the six months ended June 30, 2007, our total liability for unrecognized tax benefits did not materially increase or decrease.

Our policy is to record penalties and interest related to unrecognized tax benefits in income tax expense. As of January 1, 2007, we have not recorded penalties or interest.

We do not expect that the amounts of unrecognized tax benefits will change significantly within the next 12 months.

Sales Taxes Collected From Customers and Remitted to Governmental Authorities. In March 2006, the FASB Emerging Issues Task Force issued Issue 06-03 (“EITF 06-03”), How Sales Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement. A consensus was reached that entities may adopt a policy of presenting sales taxes in the income statement on either a gross or net basis. If taxes are significant, an entity should disclose its policy of presenting taxes. The guidance is effective for periods beginning after December 15, 2006. We present sales net of sales taxes. Our adoption of EITF 06-03 on January 1, 2007 did not have an effect on our policy related to sales taxes and, therefore, did not have an effect on our consolidated financial statements.

3) ACQUISITIONS:

On April 3, 2007, we completed the $48.2 million purchase from Alltel Communications, Inc. (“Alltel”) of certain southern Minnesota wireless markets. We used our existing cash on hand to finance the purchase. These properties include the network assets and A-block cellular licenses covering Minnesota RSAs 7, 8, 9, and 10. The southern Minnesota service area is adjacent to RCC’s northern Minnesota service area and includes approximately 80 cell sites and 33 distribution points. These markets include 28 counties in southern Minnesota, and as of March 31, 2007, supported a postpaid customer base of approximately 34,000. The acquired RSAs utilize CDMA technology consistent with our northern Minnesota networks. With these new properties, the population covered by our Midwest territory marketed networks increases by approximately 621,000 to 2.1 million.

A portion of the purchase price for the southern Minnesota wireless markets was allocated to the net assets based on their estimated fair values and the excess was recorded as licenses, goodwill, and customer lists. These purchase price allocations have been completed on a preliminary basis, subject to adjustment should new or additional facts about the business become known.

4) ACCOUNTING FOR SHARE BASED PAYMENTS:

Stock-based compensation in our financial statements was recognized for all stock-based compensation expense arrangements, including employee and non-employee stock options granted after January 1, 2006 and all stock-based compensation arrangements granted prior to January 1, 2006 remaining unvested as of such date, commencing with the quarter ended March 31, 2006. Accordingly, for the three and six months ended June 30, 2007, we recognized stock-based compensation of $1.3 million and $1.7 million, respectively.

We use the Black-Scholes option pricing model as our method of valuation for stock-based awards. Our determination of the fair value of stock-based awards on the date of grant is affected by the stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected life of the award, its expected stock price volatility over the term of the award, and actual and projected exercise behaviors. Although the fair value of stock-based awards is determined in accordance with SFAS No. 123(R) and SAB 107, the Black-Scholes option pricing model requires the input of highly subjective assumptions, and other reasonable assumptions could provide differing results.

The following table summarizes plan activity under our various stock compensation plans from December 31, 2006 through June 30, 2007:


	2006 Omnibus
	Incentive and Prior			Employee Stock
	Plans			Purchase Plan
Shares available for issuance at December 31, 2006		1,111,909			138,374
Options granted		(19,634	)		—
Non-vested shares awarded		(75,802	)		—
Options forfeited		50,840			—
Non-vested shares forfeited		23,693			—


Shares available for issuance at June 30, 2007		1,091,006			138,374

Non-Vested Shares

Under the 1995 Stock Compensation Plan and the 2006 Omnibus Incentive Plan, RCC has entered into non-vested stock agreements with certain key employees, covering the issuance of Class A common stock. These awards are considered non-vested shares under SFAS No. 123(R), as defined. If the relevant performance measures are achieved, the vesting of the awards is subject only to the remaining term of the grantee’s employment. Non-vested shares awarded to nonemployee directors include service conditions. Management has accrued compensation cost based on expectations of whether the conditions as described will be met and reviews these expectations quarterly.

For the six months ended June 30, 2007, transactions in non-vested shares were as follows:


				Weighted Average
	Shares			Fair Value
Non-vested shares outstanding December 31, 2006		248,346		$	11.09

Granted		75,802			19.86
Vested		(998	)		9.51
Forfeited		(23,693	)		13.63

Non-vested shares outstanding, June 30, 2007		299,457		$	13.12

Employee Stock Purchase Plan

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 the first business day of January or the last business day of December of each year, whichever is lower. The number of shares authorized to be issued under the Employee Stock Purchase Plan is 750,000. Each year, employees participate in this plan by making contributions through payroll deduction. The shares under the Employee Stock Purchase Plan are expensed during the year the employee makes the contribution.

Stock Options

Stock options granted to employees typically vest ratably over five years and have a maximum term of ten years. Stock options granted to directors typically vest in full after one year and have a maximum term of six years. The expense related to these options is recorded on a straight-line basis over the vesting period.

We used the following assumptions to estimate the fair value of stock options granted during the six months ended June 30, 2007 and 2006:


	2006 Omnibus Incentive Plan Options
	and Prior Plans
	Six months ended June 30,
	2007			2006
Average expected term (years)		6.5			6.5
Expected volatility		80.00	%		82.00	%
Risk-free interest rate (range)		4.88	%		5.17	%
Expected dividend yield		—			—

Information related to stock options issued under various plans is as follows:


	Six Months Ended June 30, 2007
				Weighted Average
	Shares			Exercise Price
Outstanding, at December 31, 2006		1,653,004		$	14.77

Granted		19,634			30.81
Exercised		(168,302	)		8.83
Forfeited		(50,840	)		30.29

Outstanding, at June 30, 2007		1,453,496		$	15.12

Exercisable, at June 30, 2007		1,292,984		$	15.66


Weighted average fair value of options granted		—		$	12.46

5) LICENSES AND OTHER INTANGIBLE ASSETS:

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


	Projected
Year ended	Customer List Amortization
December 31,	(in thousands)
2007	$	9,521
2008	$	3,253
2009	$	1,206
2010	$	1,180
2011	$	1,180
2012	$	295

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

In accordance with Emerging Issues Task Force (“EITF”) No. 02-7 (“EITF 02-7”), Unit of Accounting for Testing of Impairment of Indefinite-Lived Intangible Assets, impairment tests for indefinite-lived intangible assets, including FCC licenses, are required to be performed on an annual basis or on an interim basis if an event occurs or circumstances change that would indicate the asset might be impaired. We utilize a fair value approach, incorporating discounted cash flows, to complete the test. This approach determines the fair value of the FCC licenses, using start-up model assumptions and, accordingly, incorporates cash flow assumptions regarding the investment in a network, the development of distribution channels, and other inputs for making the business operational. These inputs are included in determining free cash flows of the reporting unit, using assumptions of weighted average costs of capital and the long-term rate of growth for each reporting unit. We believe that our estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. If any of the assumptions were to change, FCC licenses may become impaired. There was no impairment charge in the three and six months ended June 30, 2007 and 2006.

6) LONG-TERM LIABILITIES:

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


	June 30,			December 31,
	2007			2006
Line of credit	$	—		$	58,000
8 ¹/4% senior secured notes (due 2012)		510,000			510,000
9 7/8% senior notes (due 2010)		325,000			325,000
9 ³/4% senior subordinated notes		—			300,000
Senior subordinated floating rate notes (due 2012)		175,000			175,000
Senior subordinated floating rate notes (due 2013)		425,000			—
11 3/8% senior exchangeable preferred stock		—			115,488
Accrued dividends on 11 3/8% senior exchangeable preferred stock		—			34,611
12 ¹/4% junior exchangeable preferred stock (due 2011)		255,558			255,558
Accrued dividends on 12 ¹/4% junior exchangeable preferred stock		51,571			64,917
Premium on senior secured notes offering		4,922			5,572
Discount on senior subordinated floating rate notes		(1,793	)		(1,917	)
Deferred tax liability		12,934			13,143
Asset retirement obligations and other		9,160			7,547

	$	1,767,352		$	1,862,919

Credit Facility - In April 2007, we negotiated an amendment to our revolving credit facility explicitly permitting the payment of senior and junior exchangeable preferred stock dividends and replacing all financial covenant ratios with one new senior secured first lien debt covenant. On May 15, 2007, we repaid the outstanding balance of $58.0 million on our revolving credit facility. As of June 30, 2007, we were in compliance with covenants under the credit facility and had availability of $60 million.

8 ¹/4% Senior Secured Notes Due 2012 - In March 2004 and May 2006, we issued $510 million aggregate principal amount of 8 1/4% senior secured notes due March 15, 2012 (“2012 notes”).

Interest on the 2012 notes is payable on March 15 and September 15 of each year. After March 15, 2008, we may redeem the 2012 notes, in whole or in part, at prices starting at 104.125% of the principal amount at March 15, 2008, and declining to 102.063% at March 15, 2009 and 100.000% at March 15, 2010, plus accrued and unpaid interest to but excluding the date fixed for redemption.

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

Senior Subordinated Floating Rate Notes Due 2012 - In November 2005, we issued $175 million of Senior Subordinated Floating Rate Notes due 2012, which were sold at an original issue discount of $2.2 million, or 1.25%. The effective interest rate at June 30, 2007 was 11.4%. Interest is reset quarterly.

We may redeem any of the Senior Subordinated Floating Rate Notes at any time on or after November 1, 2007, in whole or in part, at prices starting at 102.000% at November 1, 2007, and declining to 101.000% at November 1, 2008 and 100.000% at November 1, 2009, plus accrued and unpaid interest and liquidated damages, if any, up to, but excluding, the date of redemption. In addition, on or before November 1, 2007, we may redeem up to 35% of the aggregate principal amount of notes issued under the indenture at a redemption price of 100% of the principal amount plus a premium equal to the interest rate per annum on the notes applicable on the date on which notice of redemption is given, plus accrued and unpaid interest and liquidated damages, if any, up to, but excluding, the date of redemption, with the proceeds of certain equity offerings. We may make that redemption only if, after that redemption, at least 65% of the aggregate principal amount of notes issued under the indenture remain outstanding.

Senior Subordinated Floating Rate Notes Due 2013 - In May 2007 we issued $425 million aggregate principal amount of Senior Subordinated Floating Rate Notes due June 1, 2013 (“2013 notes”) and used the proceeds to redeem our 11 3/8% Senior Subordinated Debentures and our 9 3/4% Senior Subordinated Notes. The 2013 notes mature on June 1, 2013. Interest on the 2013 notes will be set at a rate equal to the three month LIBOR, which is reset quarterly, plus 3.00%, and will be payable on March 1, June 1, September 1 and December 1 of each year, commencing on September 1, 2007.

The 2013 notes are redeemable at our option beginning June 1, 2008, at 102.000% of principal, plus accrued and unpaid interest, declining to 101.000% at June 1, 2009, and 100.000% at June 1, 2010. Prior to June 1, 2008, we may, at our option, redeem up to 35% of the original aggregate principal amount of the 2013 notes with the net cash proceeds of certain sales of equity securities at 100.000% of principal, plus accrued and unpaid interest, if any and to the extent that, after such redemption, at least 65% of the aggregate principal amount of the 2013 notes remains outstanding. In addition, prior to June 1, 2008, we may, at our option, redeem some or all of the 2013 notes at an established “make whole” price. The 2013 notes rank junior in right of payment to our existing and future senior indebtedness and rank equally with all of our existing and future senior subordinated indebtedness.

11 3/8% Senior Subordinated Debentures - On May 15, 2007, we exchanged all outstanding shares of our 11 3/8% Senior Exchangeable Preferred Stock for 11 3/8% Senior Subordinated Debentures, which mature on May 15, 2010. The aggregate principal amount of the exchange debentures totaled $115,488,000. Interest on the exchange debentures is payable semi-annually on May 15 and November 15. The 11 3/8% Senior Subordinated Debentures were subsequently redeemed on June 29, 2007.

12 1/4% Junior Exchangeable Preferred Stock - Due February 15, 2011. Dividends on the junior exchangeable preferred stock are cumulative, are payable quarterly, and are to be paid on any dividend payment date occurring after February 15, 2005 in cash. We may redeem the junior exchangeable preferred stock in whole or in part, at any time, at a redemption price equal to 103.063% of the liquidation preference, declining to 101.531% at February 15, 2008, and 100.000% at February 15, 2009, plus accumulated and unpaid dividends, if any, to but excluding the redemption date.

Upon the occurrence of a Change in Control, each Holder of the 12 1/4% Junior Exchangeable Preferred Stock shall have the right to have such Security repurchased. The acquiring company shall, within 30 days following the date of the consummation of a transaction resulting in a Change of Control, will mail to each Holder of Securities an Offer to Purchase all outstanding Securities at a purchase price equal to 101.000% of the aggregate principal amount therof plus accrued and unpaid interest, if any, to but excluding the Purchase Date.

RCC’s 12 ¹/4 % Junior Exchangeable Preferred securities are classified as Long-Term Liabilities, since the securities are mandatorily redeemable and are exchangeable at our option for debentures of like terms. The dividend expense related to this instrument is classified as interest expense.

Until May 15, 2007, we had not paid any junior exchangeable preferred stock dividends in cash and have accrued the undeclared dividends by increasing the carrying amount of the junior exchangeable preferred stock. On May 15, 2007, we paid four dividends on our 12 ¹/4% Junior Exchangeable Preferred Stock, representing the quarterly dividends payable on August 15, 2006, November 15, 2006, February 15, 2007, and May 15, 2007. The dividend payments totaled approximately $128.24 per share, including accrued interest. The aggregate total dividends, which totaled approximately $32.8 million, were paid from existing cash. The payment of these dividends reduced the number of unpaid quarterly dividends to five.

At June 30, 2007, we have accrued $51.6 million in undeclared dividends with respect to our junior exchangeable preferred stock, representing five quarters in arrears, which will be payable at the mandatory redemption date, if not sooner declared and paid.

The shares of the junior exchangeable preferred stock are non-voting, except as otherwise required by law and as provided in the related Certificate of Designation. The Certificate of Designation provides that at any time dividends on the outstanding junior 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 junior 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 RCC’s Board of Directors. The voting rights continue until such time as all dividends in arrears on the affected class of exchangeable preferred stock are paid in full, 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 Certificate of Designation. While a Voting Rights Triggering Event exists, certain terms of our junior exchangeable preferred stock, if enforceable, may prohibit incurrence of additional indebtedness.

Since we have been six or more dividend payments in arrears, and, as of June 30, 2007, have not paid in full dividends in arrears, the holders continue to have the right to elect two directors to our board.

7) REDEEMABLE PREFERRED STOCK:

In April 2000, we issued 110,000 shares of Class M Voting Convertible Preferred stock. The security has a liquidation preference of $1,000 per share and is to be redeemed on April 3, 2012 at 100% of its total liquidation preference plus accumulated and unpaid dividends. Based on SFAS No. 150 guidelines, RCC’s Class M Preferred Stock does not meet the characteristics of a liability and is presented between liability and equity on the RCC’s balance sheet.

Class M Voting Convertible Preferred security balance sheet reconciliation (in thousands):


	As of
	June 30, 2007
Preferred securities originally issued	$	110,000
Accrued dividends		85,217
Unamortized issuance costs		(1,845	)

	$	193,372

Dividends on the Class M convertible preferred stock are compounded quarterly, accrue at 8% per annum, and are payable upon redemption of the stock or upon liquidation of RCC. The Class M convertible preferred stock is convertible into our Class A common stock at $46.71 per share. 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. The Class M convertible preferred stock is senior to our common stock with respect to dividend rights and rights on liquidation, winding-up and dissolution of RCC.

The Class M convertible preferred stock, is redeemable at 100% of its total liquidation preference plus accumulated and unpaid dividends at April 3, 2012. The Class M convertible preferred stock can be redeemed at our option if the closing price of the Class A common stock equals or exceeds 175% of $46.71 for a period of 30 consecutive days. The holders of the Class M convertible preferred stock also have the right to require us to buy back the Class M preferred stock under other circumstances, such as a change of control of RCC.

8) NET INTEREST EXPENSE

Components of interest expense are as follows:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands)	2007			2006			2007			2006
Interest on credit facility	$	538		$	1,169		$	1,638		$	2,262
Interest on senior secured notes		10,201			11,623			20,387			22,454
Interest on senior notes		8,024			8,024			16,047			16,047
Interest on senior subordinated notes		16,873			12,123			29,108			23,980
Amortization of debt issuance costs		1,332			1,378			2,645			2,748
Write-off of debt issuance costs		3,256			2,753			3,256			2,795
Call premium on early redemption of notes		9,750			3,200			9,750			3,200
Senior and junior preferred stock dividends		11,787			13,744			26,526			27,572
Effect of derivative instruments		(153	)		(298	)		(166	)		(726	)
Gain on repurchase of senior exchangeable preferred stock		—			—			—			(173	)
Other		115			(93	)		175			(196	)

	$	61,723		$	53,623		$	109,366		$	99,963

8) GUARANTOR/NON-GUARANTOR CONDENSED CONSOLIDATING FINANCIAL INFORMATION

RCC’s obligations under the 8 1/4% Senior Secured Notes due 2012 are senior secured obligations and are fully and unconditionally guaranteed on a senior, secured, second-priority basis by certain of RCC’s subsidiaries. Wireless Alliance, LLC (a 70% owned joint venture which is consolidated in our financial statements) is not a guarantor of the notes.

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

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

Balance Sheet Information as of June 30, 2007 (unaudited)
(In thousands, except per share data):


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
CURRENT ASSETS:
Cash and cash equivalents	$	22,569		$	3,758		$	36		$	—		$	26,363
Accounts receivable, less allowance for doubtful accounts		32,954			36,256			491			—			69,701
Inventories		3,399			3,878			95			—			7,372
Other current assets		1,876			3,112			106			—			5,094
Current inter-company receivable		4,473			10,836			—			(15,309	)		—

Total current assets		65,271			57,840			728			(15,309	)		108,530

PROPERTY AND EQUIPMENT, net		60,018			152,783			6,462			—			219,263
LICENSES AND OTHER ASSETS:
Licenses, net		—			527,934			8,679			—			536,613
Goodwill, net		14,523			345,535			—			—			360,058
Customer lists, net		6,097			4,529			—			—			10,626
Deferred debt issuance costs, net		20,448			—			—			—			20,448
Investment in consolidated subsidiaries		1,076,558			—			—			(1,076,558	)		—
Other assets, net		2,492			9,162			1,772			(8,745	)		4,681

Total licenses and other assets		1,120,118			887,160			10,451			(1,085,303	)		932,426

	$	1,245,407		$	1,097,783		$	17,641		$	(1,100,612	)	$	1,260,219


CURRENT LIABILITIES:
Accounts payable	$	26,881		$	13,790		$	196		$	—		$	40,867
Advance billings and customer deposits		2,891			10,385			239			—			13,515
Accrued interest		32,116			—			—			—			32,116
Other accrued expenses		34,838			49,490			33			(76,449	)		7,912
Current inter-company payable		—			14,762			547			(15,309	)		—

Total current liabilities		96,726			88,427			1,015			(91,758	)		94,410
LONG-TERM LIABILITIES		1,750,224			1,005,011			31,818			(1,019,701	)		1,767,352

Total liabilities		1,846,950			1,093,438			32,833			(1,111,459	)		1,861,762


REDEEMABLE PREFERRED STOCK		193,372			—			—			—			193,372

SHAREHOLDERS’ EQUITY (DEFICIT):
Class A common stock; $.01 par value; 200,000 shares authorized,15,238 outstanding		152			2			—			(2	)		152
Class B common stock; $.01 par value; 10,000 shares authorized, 398 outstanding		4			—			—			—			4
Additional paid-in capital		230,774			844,559			31,679			(876,238	)		230,774

Accumulated earnings (deficit)		(1,025,845	)		(840,216	)		(46,871	)		887,087			(1,025,845	)


Total shareholders’ equity (deficit)		(794,915	)		4,345			(15,192	)		10,847			(794,915	)

	$	1,245,407		$	1,097,783		$	17,641		$	(1,100,612	)	$	1,260,219

Balance Sheet Information as of December 31, 2006
(in thousands, except per share data):


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
CURRENT ASSETS:
Cash and cash equivalents	$	69,571		$	2,884		$	40		$	—		$	72,495
Short-term investments		110,716			—			—			—			110,716
Accounts receivable, less allowance for doubtful accounts		26,387			34,610			1,595			—			62,592
Inventories		2,739			8,452			175			—			11,366
Other current assets		1,940			2,263			87			(25	)		4,265
Current inter-company receivable		(4,160	)		18,642			—			(14,482	)		—

Total current assets		207,193			66,851			1,897			(14,507	)		261,434

PROPERTY AND EQUIPMENT, net		41,247			163,519			7,212			—			211,978
LICENSES AND OTHER ASSETS:
Licenses, net		—			516,034			8,679			—			524,713
Goodwill, net		3,151			345,533			—			—			348,684
Customer lists, net		644			10,090			—			—			10,734
Deferred debt issuance costs, net		21,910			—			—			—			21,910
Investment in consolidated subsidiaries		1,088,428			—			—			(1,088,428	)		—
Other assets, net		2,859			11,310			1,922			(10,896	)		5,195

Total licenses and other assets		1,116,992			882,967			10,601			(1,099,324	)		911,236

	$	1,365,432		$	1,113,337		$	19,710		$	(1,113,831	)	$	1,384,648


CURRENT LIABILITIES:
Accounts payable	$	19,203		$	18,880		$	497		$	—		$	38,580
Advance billings and customer deposits		2,527			9,286			218			—			12,031
Accrued interest		42,784			—			—			—			42,784
Other accrued expenses		34,771			49,218			36			(76,193	)		7,832
Current inter-company payable		—			14,481			—			(14,481	)		—

Total current liabilities		99,285			91,865			751			(90,674	)		101,227
LONG-TERM LIABILITIES		1,845,645			1,020,518			33,876			(1,037,120	)		1,862,919

Total liabilities		1,944,930			1,112,383			34,627			(1,127,794	)		1,964,146


REDEEMABLE PREFERRED STOCK		185,658			—			—			—			185,658

SHAREHOLDERS’ EQUITY (DEFICIT):
Class A common stock; $.01 par value; 200,000 shares authorized, 15,048 outstanding		151			2			—			(2	)		151
Class B common stock; $.01 par value; 10,000 shares authorized, 398 outstanding		4			—			—			—			4
Additional paid-in capital		228,149			844,559			31,679			(876,238	)		228,149
Accumulated earnings (deficit)		(993,460	)		(843,607	)		(46,596	)		890,203			(993,460	)

Total shareholders’ equity (deficit)		(765,156	)		954			(14,917	)		13,963			(765,156	)

	$	1,365,432		$	1,113,337		$	19,710		$	(1,113,831	)	$	1,384,648

Statement of Operations Information for the Three Months Ended June 30, 2007
(unaudited) (in thousands):


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
REVENUE:
Service	$	37,364		$	69,282		$	1,297		$	(498	)	$	107,445
Roaming		11,725			30,603			1,252			—			43,580
Equipment		1,775			4,777			107			—			6,659

Total revenue		50,864			104,662			2,656			(498	)		157,684

OPERATING EXPENSES:
Network costs, excluding depreciation		13,828			26,146			672			(443	)		40,203
Cost of equipment sales		4,280			9,663			151			—			14,094
Selling, general and administrative		24,333			15,053			898			(55	)		40,229
Depreciation and amortization		6,795			12,711			515			—			20,021

Total operating expenses		49,236			63,573			2,236			(498	)		114,547

OPERATING INCOME		1,628			41,089			420			—			43,137

OTHER INCOME (EXPENSE):
Interest expense		(61,687	)		(24,621	)		(792	)		25,377			(61,723	)
Interest and dividend income		27,873			35			—			(25,377	)		2,531
Inter-company charges		11,192			(11,192	)		—			—			—
Equity in subsidiaries		4,857			—			—			(4,857	)		—
Other		(15	)		(172	)		—			—			(187	)

Other expense, net		(17,780	)		(35,950	)		(792	)		(4,857	)		(59,379	)

INCOME (LOSS) BEFORE INCOME TAXES		(16,152	)		5,139			(372	)		(4,857	)		(16,242	)

INCOME TAX PROVISION (BENEFIT)		1			865			—			(955	)		(89	)

NET INCOME (LOSS)		(16,153	)		4,274			(372	)		(3,902	)		(16,153	)

PREFERRED STOCK DIVIDEND		(3,914	)		—			—			—			(3,914	)

NET INCOME (LOSS) APPLICABLE TO COMMON SHARES	$	(20,067	)	$	4,274		$	(372	)	$	(3,902	)	$	(20,067	)

Statement of Operations Information for the Six Months Ended June 30, 2007
(unaudited) (in thousands):


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
REVENUE:
Service	$	67,157		$	136,435		$	2,722		$	(995	)	$	205,319
Roaming		19,183			57,420			2,924			—			79,527
Equipment		3,121			9,699			248			—			13,068

Total revenue		89,461			203,554			5,894			(995	)		297,914

OPERATING EXPENSES:
Network costs, excluding depreciation		23,113			51,080			1,376			(844	)		74,725
Cost of equipment sales		7,449			19,122			395			—			26,966
Selling, general and administrative		42,498			29,910			1,766			(151	)		74,023
Depreciation and amortization		12,717			28,484			1,030			—			42,231

Total operating expenses		85,777			128,596			4,567			(995	)		217,945

OPERATING INCOME		3,684			74,958			1,327			—			79,969

OTHER INCOME (EXPENSE):
Interest expense		(109,295	)		(49,336	)		(1,597	)		50,862			(109,366	)
Interest and dividend income		55,574			60			—			(50,862	)		4,772
Inter-company charges		20,328			(20,328	)		—			—			—
Equity in subsidiaries		5,059			—			—			(5,059	)		—
Other		(15	)		(199	)		—			—			(214	)

Other expense, net		(28,349	)		(69,803	)		(1,597	)		(5,059	)		(104,808	)

INCOME (LOSS) BEFORE INCOME TAXES		(24,665	)		5,155			(270	)		(5,059	)		(24,839	)

INCOME TAX PROVISION (BENEFIT)		6			1,764			5			(1,943	)		(168	)

NET INCOME (LOSS)		(24,671	)		3,391			(275	)		(3,116	)		(24,671	)

PREFERRED STOCK DIVIDEND		(7,714	)		—			—			—			(7,714	)

NET INCOME (LOSS) APPLICABLE TO COMMON SHARES	$	(32,385	)	$	3,391		$	(275	)	$	(3,116	)	$	(32,385	)

Statement of Operations Information for the Three Months Ended June 30, 2006
(unaudited) (in thousands):


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
REVENUE:
Service	$	26,826		$	68,975		$	1,533		$	(395	)	$	96,939
Roaming		9,240			25,534			1,886			—			36,660
Equipment		1,427			5,052			120			—			6,599

Total revenue		37,493			99,561			3,539			(395	)		140,198


OPERATING EXPENSES:
Network costs, excluding depreciation		8,068			26,292			814			(312	)		34,862
Cost of equipment sales		3,155			9,903			164			—			13,222
Selling, general and administrative		15,551			20,282			957			(83	)		36,707
Depreciation and amortization		5,324			24,581			726			—			30,631

Total operating expenses		32,098			81,058			2,661			(395	)		115,422

OPERATING INCOME		5,395			18,503			878			—			24,776

OTHER INCOME (EXPENSE):
Interest expense		(53,607	)		(26,205	)		(818	)		27,007			(53,623	)
Interest and dividend income		29,210			47			—			(27,007	)		2,250
Inter-company charges		4,365			(4,365	)		—			—			—
Equity in subsidiaries		(11,511	)		—			—			11,511			—
Other		21			394			(1	)		—			414

Other expense, net		(31,522	)		(30,129	)		(819	)		11,511			(50,959	)

INCOME (LOSS) BEFORE INCOME TAXES		(26,127	)		(11,626	)		59			11,511			(26,183	)

INCOME TAX PROVISION (BENEFIT)		(48	)		803			—			(859	)		(104	)
NET INCOME (LOSS)		(26,079	)		(12,429	)		59			12,370			(26,079	)

PREFERRED STOCK DIVIDEND		(3,622	)		—			—			—			(3,622	)

NET INCOME (LOSS) APPLICABLE TO COMMON SHARES	$	(29,701	)	$	(12,429	)	$	59		$	12,370		$	(29,701	)

Statement of Operations Information for the Six Months Ended June 30, 2006
(unaudited) (in thousands):


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
REVENUE:
Service	$	52,499		$	138,039		$	3,165		$	(794	)	$	192,909
Roaming		15,152			48,376			3,938			—			67,466
Equipment		2,677			10,024			254			—			12,955

Total revenue		70,328			196,439			7,357			(794	)		273,330


OPERATING EXPENSES:
Network costs, excluding depreciation		14,919			51,334			1,512			(596	)		67,169
Cost of equipment sales		6,296			19,568			385			—			26,249
Selling, general and administrative		29,679			39,566			1,910			(198	)		70,957
Depreciation and amortization		10,370			48,196			1,492			—			60,058

Total operating expenses		61,264			158,664			5,299			(794	)		224,433

OPERATING INCOME		9,064			37,775			2,058			—			48,897

OTHER INCOME (EXPENSE):
Interest expense		(99,929	)		(52,126	)		(1,622	)		53,714			(99,963	)
Interest and dividend income		57,395			69			—			(53,714	)		3,750
Inter-company charges		8,742			(8,742	)		—			—			—
Equity in subsidiaries		(22,225	)		—			—			22,225			—
Other		2			215			(13	)		—			204

Other expense, net		(56,015	)		(60,584	)		(1,635	)		22,225			(96,009	)

INCOME (LOSS) BEFORE INCOME TAXES		(46,951	)		(22,809	)		423			22,225			(47,112	)

INCOME TAX PROVISION (BENEFIT)		(48	)		(13,692	)		—			13,531			(209	)
NET INCOME (LOSS)		(46,903	)		(9,117	)		423			8,694			(46,903	)

PREFERRED STOCK DIVIDEND		(7,136	)		—			—			—			(7,136	)

NET INCOME (LOSS) APPLICABLE TO COMMON SHARES	$	(54,039	)	$	(9,117	)	$	423		$	8,694		$	(54,039	)

Statement of Cash Flows Information for Six Months Ended June 30, 2007
(unaudited) (in thousands):


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
OPERATING ACTIVITIES:
Net income (loss)	$	(24,671	)	$	3,391		$	(275	)	$	(3,116	)	$	(24,671	)
Adjustments to reconcile to net cash (used in) provided by operating activities:
Depreciation and customer list amortization		12,717			28,484			1,030			—			42,231
Loss on write-off of preferred exchangeable stock and debt issuance costs		3,256			—			—			—			3,256
Mark-to-market adjustments — financial instruments		(166	)		—			—			—			(166	)
Stock-based compensation		1,738			—			—			—			1,738
Deferred income taxes		6			1,764			5			(1,943	)		(168	)
Amortization of debt issuance costs		2,645			—			—			—			2,645
Amortization of discount on investments		(1,260	)		—			—			—			(1,260	)
Other		(714	)		(583	)		3			—			(1,294	)
Change in other operating elements:
Accounts receivable		(10,141	)		1,020			1,104			—			(8,017	)
Inventories		143			4,574			80			—			4,797
Other current assets		104			(874	)		(19	)		—			(789	)
Accounts payable		5,802			(2,329	)		(234	)		—			3,239
Advance billings and customer deposits		220			1,100			21			—			1,341
Accrued senior and junior preferred stock dividends		(47,957	)		—			—			—			(47,957	)
Accrued interest		(10,668	)		—			—			—			(10,668	)
Other accrued expenses		(183	)		1			(4	)		—			(186	)

Net cash provided by (used in) operating activities		(69,129	)		36,548			1,711			(5,059	)		(35,929	)


INVESTING ACTIVITIES:
Purchases of property and equipment		(5,448	)		(17,018	)		(196	)		—			(22,662	)
Acquisition of wireless properties		(37,119	)		(11,900	)		—			—			(49,019	)
Purchases of short-term investments		(20,497	)		—			—			—			(20,497	)
Maturities of short-term investments		132,473			—			—			—			132,473
Proceeds from sale of property and equipment		14			10			—			—			24
Other		603			16			(5	)		—			614

Net cash (used in) provided by investing activities		70,026			(28,892	)		(201	)		—			40,933


FINANCING ACTIVITIES:
Change in parent company receivable and payable		3,237			(6,782	)		(1,514	)		5,059			—
Proceeds from issuance of common stock related to employee stock purchase plan and stock options		1,792			—			—			—			1,792
Repayments of long-term debt under the credit facility		(58,000	)		—			—			—			(58,000	)
Proceeds from issuance of floating rate senior subordinated notes		425,000			—			—			—			425,000
Redemption of senior secured floating rate notes		(300,000	)		—			—			—			(300,000	)
Redemption of senior debentures		(115,488	)		—			—			—			(115,488	)
Payments of debt issuance costs		(4,440	)		—			—						(4,440	)

Net cash (used in) provided by financing activities		(47,899	)		(6,782	)		(1,514	)		5,059			(51,136	)

NET (DECREASE) INCREASE IN CASH		(47,002	)		874			(4	)		—			(46,132	)
CASH AND CASH EQUIVALENTS, at beginning of year		69,571			2,884			40			—			72,495

CASH AND CASH EQUIVALENTS, at end of period	$	22,569		$	3,758		$	36		$	—		$	26,363

Statement of Cash Flows Information for Six Months Ended June 30, 2006
(unaudited) (in thousands):


				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
OPERATING ACTIVITIES:
Net income (loss)	$	(46,903	)	$	(9,117	)	$	423		$	8,694		$	(46,903	)
Adjustments to reconcile to net cash (used in) provided by operating activities:
Depreciation and customer list amortization		10,370			48,196			1,492			—			60,058
Loss on write-off senior exchangeable preferred stock issuance costs		2,795			—			—			—			2,795
Mark-to-market adjustments — financial instruments		(726	)		—			—			—			(726	)
Gain on repurchase of senior exchangeable preferred stock		(173	)		—			—			—			(173	)
Stock-based compensation		467			—			—			—			467
Deferred income taxes		(48	)		(13,692	)		—			13,531			(209	)
Amortization of debt issuance costs		2,748			—			—			—			2,748
Amortization discount on investments		(1,339	)		—			—			—			(1,339	)
Other		222			(203	)		14			—			33
Change in other operating elements:
Accounts receivable		(164	)		4,609			316			—			4,761
Inventories		2,319			4,127			(13	)		—			6,433
Other current assets		(479	)		66			20			—			(393	)
Accounts payable		(7,146	)		(3,419	)		90			—			(10,475	)
Advance billings and customer deposits		207			(725	)		(5	)		—			(523	)
Accrued senior and junior exchangeable preferred stock dividends		19,258			—			—			—			19,258
Accrued interest		3,800			—			—			—			3,800
Other accrued expenses		(2,615	)		227			(6	)		—			(2,394	)

Net cash provided by (used in) operating activities		(17,407	)		30,069			2,331			22,225			37,218

INVESTING ACTIVITIES:
Purchases of property and equipment		(6,716	)		(16,934	)		(20	)		—			(23,670	)
Purchases of short-term investments		(78,443	)		—			—			—			(78,443	)
Maturities of short-term investments		78,000			—			—			—			78,000
Proceeds from sale of property and equipment		99			1,488			—			—			1,587
Other		458			(503	)		—			—			(45	)

Net cash used in investing activities		(6,602	)		(15,949	)		(20	)		—			(22,571	)

FINANCING ACTIVITIES:
Change in parent company receivable and payable		38,175			(13,625	)		(2,325	)		(22,225	)		—
Proceeds from issuance of common stock related to employee stock purchase plan and stock options		2,058			—			—			—			2,058
Proceeds from issuance of 8 ¹/4% senior secured notes		166,600			—			—			—			166,600
Retirement of senior secured floating rate notes		(160,000	)		—			—			—			(160,000	)
Repurchase of senior exchangeable preferred stock		(5,518	)		—			—			—			(5,518	)
Other		(2,828	)		—			—			—			(2,828	)

Net cash (used in) provided by financing activities		38,487			(13,625	)		(2,325	)		(22,225	)		312

NET (DECREASE) INCREASE IN CASH		14,478			495			(14	)		—			14,959
CASH AND CASH EQUIVALENTS, at beginning of year		84,136			2,639			47			—			86,822

CASH AND CASH EQUIVALENTS, at end of period	$	98,614		$	3,134		$	33		$	—		$	101,781

9) EVENTS SUBSEQUENT TO JUNE 30, 2007

On July 29, 2007, Rural Cellular Corporation, Verizon Wireless (“Verizon”) and Airtouch Cellular entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which an indirect wholly-owned subsidiary of Verizon will merge with and into Rural Cellular Corporation (the “Merger”), with Rural Cellular Corporation continuing as the surviving corporation and becoming a subsidiary of Verizon. At the effective time of the Merger, Verizon will assume RCC’s debt. Additionally, each issued and outstanding share of RCC’s Class A and Class B common stock will be cancelled and converted into the right to receive $45.00 in cash, without interest.

The consummation of the Merger is subject to the approval of shareholders of Rural Cellular Corporation, receipt of necessary approvals under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other customary closing conditions.

The Merger Agreement contains certain termination rights for both Verizon and Rural Cellular Corporation, and further provides that, upon termination of the Merger Agreement under specified circumstances, Rural Cellular Corporation may be required to pay Verizon a termination fee of $55 million.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BUSINESS OVERVIEW

We are a wireless communications service provider focusing primarily on rural markets in the United States. Our principal operating objective is to increase revenue and achieve profitability through increased penetration in our existing wireless markets.

Our operating territories include portions of five states in the Northeast, three states in the Northwest, four states in the Midwest, two states in the South and the western half of Kansas (Central territory). Within each of our five territories, we have a strong local sales and customer service presence in the communities we serve.

On April 3, 2007, we completed the $48.2 million cash purchase of southern Minnesota wireless markets. These markets include 28 counties in southern Minnesota and, as of April 3, 2007, support a postpaid customer base of approximately 34,000 and a wholesale customer base of 16,000. RCC purchased network assets and A-block cellular licenses covering Minnesota RSAs 7, 8, 9, and 10. The southern Minnesota RSAs acquired utilize CDMA technology consistent with our northern Minnesota networks.

With the addition of the southern Minnesota properties, the population covered by RCC’s marketed networks increased by approximately 621,000 to 7.2 million. Our marketed networks served approximately 647,000 postpaid and prepaid customers as of June 30, 2007.

We have national roaming agreements in our markets with Cingular (effective through December 2009) and Verizon (effective through December 2009). Under these agreements, we are able to attain preferred roaming status by overlaying our existing TDMA networks in our Central, South, Northeast and Northwest networks with GSM/GPRS/EDGE technology and our Midwest network with CDMA technology. We also have various agreements with T-Mobile, which are effective through December 2007.

Summary of three months ended June 30, 2007

Our second quarter operating performance reflects:

	•		Increased net postpaid customers, reflecting the new customers from our recently acquired southern Minnesota properties, increased gross postpaid adds, together with improved retention,

	•		Increased roaming minutes more than offsetting a decrease in roaming yield resulting in increased roaming revenue,

	•		Increased costs related to the continued transition of our TDMA customers to 2.5G handsets, and

	•		Increased costs related to our recently acquired southern Minnesota properties.

Operating revenue

Our revenue primarily consists of service, roaming, and equipment revenue, each of which is described below:

	•		Service revenue includes monthly access charges, charges for airtime used in excess of the time included in the service package purchased, long distance charges derived from calls placed by customers, and data related services.

			Also included are charges for features such as voicemail, handset insurance, international calling, SMS and MMS messaging, and incollect revenue, which consists of charges to our customers when they use their wireless phones in other wireless markets. We do not charge installation or connection fees. We also include in service revenue the Universal Service Fund (“USF”) support

			funding that we receive as a result of our Eligible Telecommunication Carrier (“ETC”) status in certain states and the USF pass-through fees we charge our customers.

	•		Roaming revenue includes only outcollect revenue, which we receive when other wireless providers’ customers use our network.

			Our average monthly roaming revenue per cellular customer typically increases during the second and third calendar quarters. This increase reflects greater usage by our roaming customers who travel in our cellular service areas for weekend and vacation recreation or work in seasonal industries.

	•		Equipment revenue includes sales of wireless equipment and accessories to customers, network equipment reselling, and customer activation fees.

Operating expenses

Our operating expenses include network costs, cost of equipment sales, selling, general and administrative expenses, and depreciation and amortization, each of which is described below:

	•		Network costs include switching and transport expenses and expenses associated with the maintenance and operation of our wireless network facilities, including salaries for employees involved in network operations, site costs, charges from other service providers for resold minutes and services, and the service and expense associated with incollect revenue.

	•		Cost of equipment sales includes costs associated with telephone equipment and accessories sold to customers. We continue to use discounts on phone equipment to attract customers as competition between service providers has intensified. As a result, we have incurred, and expect to continue to incur, losses on equipment sales per gross additional and migrated customer. We expect to continue these discounts and promotions because we believe they will increase the number of our wireless customers and, consequently, increase service revenue.

	•		Selling, general and administrative (“SG&A”) expenses include salaries, benefits, and operating expenses such as marketing, commissions, customer support, accounting, administration, and billing. We also include in SG&A contributions payable to the USF.

	•		Depreciation and amortization represents the costs associated with the depreciation of fixed assets and the amortization of customer lists and spectrum relocation.

Other expenses

In addition to the operating expenses discussed above, RCC also incurs other expenses, primarily interest on debt and dividends on preferred stock.

•

Interest expense primarily results from the issuance of outstanding notes and exchangeable preferred stock, the proceeds of which were used to finance acquisitions, repay other borrowings, and further develop our wireless network.

Interest expense includes the following:

	o		Interest expense on our credit facility, senior secured notes, senior notes, and senior subordinated notes,

	o		Amortization of debt issuance costs,

	o		Early extinguishment of debt issuance costs,

	o		Dividends on senior and junior exchangeable preferred stock,

	o		Amortization of preferred stock issuance costs,

	o		Call premiums on early redemption of debt,

	o		Gain (loss) on derivative instruments, and

	o		Gains (losses) on repurchase and exchange of preferred stock.

•

Preferred stock dividends are accrued on our outstanding Class M convertible preferred stock.

Customer Base

Our customer base consisted of three customer categories: postpaid, wholesale, and prepaid.

	(1)		Postpaid customers accounted for the largest portion of our customer base as of June 30, 2007, at 81.9%. These customers pay a monthly access fee for a wireless service plan that generally includes a fixed number of minutes and certain service features. In addition to the monthly access fee, these customers are typically billed in arrears for data usage, roaming charges, and minutes of use exceeding the rate plans.

	(2)		Wholesale customers are similar to our postpaid customers in that they pay monthly fees to utilize our network and services; however, the customers are billed by a third party (reseller), who has effectively resold our service to the end user (customer). We in turn bill the third party for the monthly usage of the end user. Wholesale customers accounted for 16.9% of our total customer base as of June 30, 2007.

	(3)		Prepaid customers pay in advance to utilize our network and services and allow us to minimize bad debt, billing and collection costs. Typically, prepaid customers produce lower LSR and higher churn than postpaid customers. Our prepaid customers accounted for 1.2% of our customer base as of June 30, 2007.

SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

The following discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of revenue, expenses, assets, and liabilities during the periods reported. Estimates are used when accounting for certain items such as unbilled revenue, allowance for doubtful accounts, depreciation or amortization periods, income taxes, valuation of intangible assets, and litigation contingencies. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. We believe that certain significant accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

For a detailed discussion of our significant accounting policies and estimates, please refer to our Annual Report on Form 10-K for the year ended December 31, 2006. There have been no material changes in the application of our significant accounting policies subsequent to the report. Application of these policies in preparing the first quarter 10-Q requires that estimates be made by management to fairly present the financial position of RCC.

RESULTS OF OPERATIONS

The following tables present certain consolidated statement of operations data as a percentage of total revenue as well as other operating data for the periods indicated.


				Three Months Ended June 30,												Six Months Ended June 30,
	2007						2006						2007						2006
				%						%						%						%
(in thousands)	Amount			of revenue			Amount			of revenue			Amount			of revenue			Amount			of revenue
REVENUE:
Service	$	107,445			68.2	%	$	96,939			69.2	%	$	205,319			68.9	%	$	192,909			70.6	%
Roaming		43,580			27.6			36,660			26.1			79,527			26.7			67,466			24.7
Equipment		6,659			4.2			6,599			4.7			13,068			4.4			12,955			4.7

Total revenue		157,684			100.0			140,198			100.0			297,914			100.0			273,330			100.0


OPERATING EXPENSES:
Network costs, excluding depreciation		40,203			25.5			34,862			24.9			74,725			25.1			67,169			24.6
Cost of equipment sales		14,094			8.9			13,222			9.4			26,966			9.1			26,249			9.6
Selling, general and administrative		40,229			25.5			36,707			26.2			74,023			24.8			70,957			26.0
Depreciation and amortization		20,021			12.7			30,631			21.8			42,231			14.2			60,058			22.0

Total operating expenses		114,547			72.6			115,422			82.3			217,945			73.2			224,433			82.2

OPERATING INCOME		43,137			27.4			24,776			17.7			79,969			26.8			48,897			17.8


OTHER INCOME (EXPENSE):
Interest expense		(61,723	)		(39.1	)		(53,623	)		(38.2	)		(109,366	)		(36.7	)		(99,963	)		(36.6	)
Interest and dividend income		2,531			1.6			2,250			1.6			4,772			1.6			3,750			1.4
Other		(187	)		(0.1	)		414			0.3			(214	)		(0.1	)		204			0.1

Other expense, net		(59,379	)		(37.6	)		(50,959	)		(36.3	)		(104,808	)		(35.2	)		(96,009	)		(35.1	)

LOSS BEFORE INCOME TAX BENEFIT		(16,242	)		(10.2	)		(26,183	)		(18.6	)		(24,839	)		(8.4	)		(47,112	)		(17.3	)

INCOME TAX BENEFIT		(89	)		(0.0	)		(104	)		(0.1	)		(168	)		(0.1	)		(209	)		(0.1	)

NET LOSS		(16,153	)		(10.2	)		(26,079	)		(18.5	)		(24,671	)		(8.3	)		(46,903	)		(17.2	)
PREFERRED STOCK DIVIDEND		(3,914	)		(2.5	)		(3,622	)		(2.6	)		(7,714	)		(2.6	)		(7,136	)		(2.6	)

LOSS APPLICABLE TO COMMON SHARES	$	(20,067	)		(12.7	)%	$	(29,701	)		(21.1	)%	$	(32,385	)		(10.9	)%	$	(54,039	)		(19.8	)%


	Three Months Ended June 30,						Six Months Ended June 30,
Consolidated Operating Data:	2007			2006			2007			2006
Penetration (1) (2)		8.9	%		8.9	%		8.9	%		8.9	%
Retention (3)		98.3	%		97.3	%		98.2	%		97.4	%
Average monthly revenue per customer (4)	$	76		$	74		$	74		$	71
Local service revenue per customer (5)	$	53		$	53		$	52		$	52
Acquisition cost per customer (6)	$	544		$	578		$	511		$	555


	June 30,		September 30,		December 31,		March 31,		June 30,
Customer and POPs Data:	2006		2006		2006		2007		2007
Voice customers at period end
Postpaid		575,537		577,994		586,092		594,327		638,116
Prepaid		11,048		9,910		9,433		8,937		9,111
Wholesale		103,841		106,673		110,133		112,368		131,302

Total customers		690,426		694,577		705,658		715,632		778,529


Direct marketed POPs (1)
RCC Cellular		5,828,000		5,828,000		5,828,000		5,828,000		6,461,000
Wireless Alliance		776,000		776,000		776,000		776,000		781,000

Total POPs		6,604,000		6,604,000		6,604,000		6,604,000		7,242,000


(1)		Reflects 2000 U.S. Census Bureau data updated for December 2002.

(2)		Represents the ratio of wireless voice customers, excluding wholesale customers, at the end of the period to population served (“POPs”).

(3)		Determined for each period by dividing total postpaid wireless voice customers discontinuing service during such period by the average postpaid wireless voice customers for such period (customers at the beginning of the period plus customers at the end of the period, divided by two), dividing that result by the number of months in the period, and subtracting such result from one.

(4)		Determined for each period by dividing the sum of service revenue (not including pass-through regulatory fees) and roaming revenue by the monthly average postpaid customers for such period.

(5)		Determined for each period by dividing service revenue (not including pass-through regulatory fees) by the monthly average postpaid customers for such period.

(6)		Determined for each period by dividing the sum of selling and marketing expenses, net cost of equipment sales, and depreciation of rental telephone equipment by the gross postpaid and prepaid wireless voice customers added during such period.

Reconciliations of Key Financial Measures

We utilize certain financial measures that are calculated based on industry conventions. Average revenue per customer (“ARPU”) and local service revenue per customer (“LSR”) are industry terms that measure service revenue per month from our customers divided by the average number of customers in commercial service during the period. We believe that ARPU and LSR provide useful information concerning the appeal of our rate plans and service offerings and our performance in attracting high value customers.

Acquisition cost per customer is a useful measure that quantifies the costs to acquire a new customer and provides a gauge to compare our average acquisition cost per new customer to that of other wireless communication providers. Acquisition cost per customer is determined for each period by dividing the sum of selling and marketing expenses, net cost of equipment sales, and depreciation of rental telephone equipment by gross postpaid and prepaid wireless voice customers added during such period.


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Retention
Postpaid wireless voice customers discontinuing service (1)		32,059			46,231			65,355			92,973
Weighted average three month aggregate postpaid wireless voice customers (2)		1,895,886			1,739,930			3,663,846			3,515,594

Churn (1) ¸ (2)		1.7	%		2.7	%		1.8	%		2.6	%
Retention (1 minus churn)		98.3	%		97.3	%		98.2	%		97.4	%


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
Acquisition Cost Per Customer
(in thousands, except customer gross additions and acquisition cost per customer )
Selling and marketing expense	$	15,533	$	13,998	$	29,317	$	27,044
Net cost of equipment		7,435		6,623		13,898		13,294
Adjustments to cost of equipment		824		630		1,477		1,198

Total costs used in the calculation of acquisition cost per customer (3)	$	23,792	$	21,251	$	44,692	$	41,536
Customer postpaid and prepaid gross additions (4)		43,749		36,754		87,477		74,850

Acquisition cost per customer (3) ¸ (4)	$	544	$	578	$	511	$	555


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Local Service Revenue Per Customer (“LSR”)
(in thousands, except weighted average three month aggregate postpaid wireless voice customers and LSR)
Revenues (as reported in Consolidated Statements of Operations)
Service revenues	$	107,445		$	96,939		$	205,319		$	192,909
Non postpaid revenue adjustments		(7,232	)		(5,435	)		(13,024	)		(10,401	)

Service revenues for LSR (5)	$	100,213		$	91,504		$	192,295		$	182,508
Weighted average three month aggregate postpaid wireless voice customers (6)		1,895,886			1,739,930			3,663,846			3,515,594

LSR (5) ¸ (6)	$	53		$	53		$	52		$	52


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Average Revenue Per Customer (“ARPU”)
(in thousands, except weighted average three month aggregate postpaid wireless voice customers and ARPU)
Revenues (as reported in Consolidated Statements of Operations)
Service revenues	$	107,445		$	96,939		$	205,319		$	192,909
Roaming revenues		43,580			36,660			79,527			67,466

Total		151,025			133,599			284,846			260,375

Non postpaid revenue adjustments:		(7,232	)		(5,435	)		(13,024	)		(10,401	)


Service revenues for ARPU (7)	$	143,793		$	128,164		$	271,822		$	249,974
Weighted average three month aggregate postpaid wireless voice customers (8)		1,895,886			1,739,930			3,663,846			3,515,594

ARPU (7) ¸ (8)	$	76		$	74		$	74		$	71

Three months ended June 30, 2007 and 2006

Revenue

Operating Revenue:


	Three Months Ended June 30,
(In thousands)	2007		2006		$ Change		% Change
Service	$	107,445	$	96,939	$	10,506		10.8	%
Roaming		43,580		36,660		6,920		18.9	%
Equipment		6,659		6,599		60		0.9	%

Total operating revenue	$	157,684	$	140,198	$	17,486		12.5	%

Service Revenue


	Three Months Ended June 30,
(In thousands)	2007		2006		$ Change		% Change
Local service	$	91,476	$	82,450	$	9,026		10.9	%
USF support		11,189		10,972		217		2.0	%
Regulatory pass through		4,589		3,339		1,250		37.4	%
Other		191		178		13		7.3	%

Total service revenue	$	107,445	$	96,939	$	10,506		10.8	%

The increase in service revenue for the three months ended June 30, 2007 primarily reflects 62,579 additional postpaid customers as compared to June 30, 2006. The increase in regulatory pass-through fees reflects an increase in overall customers and a change in rates.

We are currently receiving USF support in the states of Alabama, Kansas, Maine, Minnesota, Mississippi, New Hampshire, Oregon, South Dakota, Vermont, and Washington. Reflecting relatively consistent customer levels, USF support payments were $11.2 million for the three months ended June 30, 2007 as compared to $11.0 million for the three months ended June 30, 2006. Reflecting the addition of our Southern Minnesota markets, we expect USF support in 2007 to be slightly higher than in 2006.

Customers. Including approximately 34,000 postpaid customers and 16,000 wholesale customers added from the April 1, 2007 southern Minnesota acquisition, total customers increased 88,103 to 778,529 at June 30, 2007 as compared to 690,426 at June 30, 2006. Postpaid customer gross additions increased 18.8% to 41,848 for the three months ended June 30, 2007 compared to 35,220 last year. Postpaid customer retention was 98.3% for the quarter compared to 97.3% in the second quarter last year. As a result of the improved gross additions and retention, postpaid customers grew by 9,789 during the quarter compared to a loss of 11,011 last year.

As of June 30, 2007, approximately 91% of our postpaid customers were using new technology devices compared to 86% at March 31, 2007. We continue to experience higher retention rates and LSR from our new technology customers and therefore will continue to migrate our legacy customer base to new technology products.

Roaming Revenue. The 18.9% increase in roaming revenue during the three months ended June 30, 2007 primarily reflects a 22% increase in outcollect minutes and a significant increase in data revenue, which together were partially offset by a decline in our roaming yield. Our outcollect yield for the three months ended June 30, 2007 was $0.10 per minute as compared to $0.11 per minute in the three months ended June 30, 2006. Data roaming revenue for the three months ended June 30, 2007 was $3.8 million as compared to $1.9 million in the comparable period of last year.

For the three months ended June 30, 2007, and 2006, Cingular, Verizon Wireless, and T-Mobile together accounted for approximately 94%, and 93%, respectively, of our total outcollect roaming minutes.

We anticipate 2007 roaming minute increases to offset anticipated roaming yield declines, which, together with the full year operation of our new technology networks, should result in 2007 roaming revenue exceeding 2006 levels.

Equipment Revenue. Equipment revenue was basically unchanged at $6.7 million and $6.6 million for the three month periods ended June 30, 2007 and 2006, respectively. Offsetting a decline in handset pricing was an 18.8% increase in gross postpaid additions to 41,848 as compared to 35,220 during the comparable period last year. Customer handset migrations for the three months ended June 30, 2007 were 53,068 as compared to 55,031 in 2006.

Operating Expenses


	Three Months Ended June 30,
(In thousands)	2007		2006		$ Change			% Change
Network cost
Incollect cost	$	16,545	$	11,047	$	5,498			49.8	%
Other network cost		23,658		23,815		(157	)		-0.7	%

		40,203		34,862		5,341			15.3	%
Cost of equipment sales		14,094		13,222		872			6.6	%
Selling, general and administrative		40,229		36,707		3,522			9.6	%
Depreciation and amortization		20,021		30,631		(10,610	)		-34.6	%

Total operating expenses	$	114,547	$	115,422	$	(875	)		-0.8	%

Network Cost. Network cost, as a percentage of total revenues, increased to 25.5% for the three months ended June 30, 2007 as compared to 24.9% for the three months ended June 30, 2006, largely reflecting an increase in incollect cost. While this increase is due to greater off-network customer call activity across all territories, our newly acquired Southern Minnesota property represents a disproportionate share of this increase. The incollect expense in these markets is expected to decrease over the next two quarters. Cell sites increased to 1,260 at June 30, 2007 (including approximately 80 cell sites acquired in southern Minnesota) as compared to 1,115 at June 30, 2006.

During the three months ended June 30, 2007 incollect minutes increased 45% compared to the prior year. Incollect cost per minute for both the three months ended June 30, 2007 and 2006 was approximately $0.08 per minute.

We anticipate network costs to be higher in 2007, reflecting an increased number of cell sites, increased network presence from our acquisition of southern Minnesota markets, overall increased network traffic including incollect minutes, and higher outsourced data service costs.

Cost of Equipment Sales. As a percentage of revenue, cost of equipment sales for the three months ended June 30, 2007 decreased to 8.9% as compared to 9.4% for the three months ended June 30, 2006. Cost of equipment sales increased 6.6% to $14.1 million for the three months ended June 30, 2007, primarily reflecting an increase in gross customer additions and a slight increase in the average cost of handsets. The average cost of a handset increased to $134 for the three months ended June 30, 2007 as compared to $132 for the three months ended June 30, 2006. Gross postpaid additions for the three months ended June 30, 2007 were 41,848 as compared to 35,220 during the comparable period of 2006. Customer handset migrations for the three months ended June 30, 2007 were 53,068 as compared to 55,031in the comparable period of the prior year.

As of June 30, 2007, approximately 91% of our postpaid customers were using new technology devices compared to 86% at March 31, 2007.

Our new technology customers provide higher retention rates and LSR; therefore, we plan to substantially complete the migration of the legacy customer base to new technology products throughout 2007.

Selling, General and Administrative.
Components of SG&A are as follows:


	Three Months Ended June 30,
(in thousands)	2007		2006		$ Change			% Change
General and administrative	$	16,258	$	14,567	$	1,691			11.6	%
Sales and marketing		15,533		13,998		1,535			11.0	%
Regulatory pass-through fees		4,762		3,607		1,155			32.0	%
Stock based compensation		1,324		404		920			227.7	%
Bad debt		2,352		4,131		(1,779	)		-43.1	%

	$	40,229	$	36,707	$	3,522			9.6	%

As a percentage of revenue, SG&A decreased to 25.5% for the three months ended June 30, 2007 as compared to 26.2% for the three months ended June 30, 2006. SG&A increased 9.6% to $40.2 million, reflecting the following:

	•		increased general and administrative expenses, primarily reflecting an increase in employee medical claims,

	•		increased regulatory pass-through fees, which were largely offset in service revenue,

	•		increased non-cash stock-based compensation expense (see Stock-based compensation), and

	•		increased sales and marketing expenses, which were primarily related to the southern Minnesota market launch.

These increases were partially offset by a 43.1% decline in bad debt expense, which was $2.4 million. The decline in bad debt expense reflects our successful collection efforts and credit policies and is another contributing factor to our improved retention.

Stock-based compensation — SG&A. In accordance with our adoption of SFAS No. 123(R), stock-based compensation in our financial statements was recognized for all stock-based compensation expense arrangements, including employee and non-employee stock options granted after January 1, 2006 and all stock-based compensation arrangements granted prior to January 1, 2006, remaining unvested as of such date, commencing with the quarter ended March 31, 2006. Accordingly, for the three months ended June 30, 2007, stock-based compensation increased to $1.3 million from $404,000 for the three months ended June 30, 2006, primarily reflecting the increase in market price of our stock and its effect on the valuation and the corresponding expense related to current and prior year stock-based awards.

Depreciation and Amortization. Depreciation and amortization expense decreased 34.6% for the three months ended June 30, 2007 to $20.0 million as compared to $30.6 million for the three months ended June 30, 2006. This decrease reflects the fully depreciated status of our TDMA cell site assets at December 31, 2006. Reflecting the fully depreciated status of these TDMA assets, we expect depreciation for 2007 to be less than in 2006.

Other Income (Expense)

Interest Expense.

Components of interest expense are as follows:


	Three Months Ended June 30,
(in thousands)	2007			2006			$ Change			% Change
Interest expense on credit facility	$	538		$	1,169		$	(631	)		-54.0	%
Interest expense on senior secured notes		10,201			11,623			(1,422	)		-12.2	%
Interest expense on senior notes		8,024			8,024			—			0.0	%
Interest expense on senior subordinated notes		16,873			12,123			4,750			39.2	%
Amortization of debt issuance costs		1,332			1,378			(46	)		-3.3	%
Write-off of debt issuance costs		3,256			2,753			503			18.3	%
Call premium on early redemption of notes		9,750			3,200			6,550			204.7	%
Senior and junior preferred stock dividends		11,787			13,744			(1,957	)		-14.2	%
Effect of derivative instruments		(153	)		(298	)		145			48.7	%
Other		115			(93	)		208			223.7	%

	$	61,723		$	53,623		$	8,100			15.1	%

Interest expense for the three months ended June 30, 2007 increased 15.1%, primarily reflecting a $9.8 million call premium related to the redemption of our 9 ³/4% senior subordinated notes.

Cash interest expense for the three months ended June 30, 2007 was $95.1 million as compared to $17.2 million in the three months ended June 30, 2006. This increase primarily reflects the cash payment of $41.7 million in dividends on our senior exchangeable preferred stock and the cash payment of $32.8 million in dividends on our junior exchangeable preferred stock during the three months ended June 30, 2007.

Senior exchangeable preferred stock dividends paid in cash during the three months ended June 30, 2006 totaled $8.3 million. We did not pay junior exchangeable preferred stock dividends in cash during the three months ended June 30, 2006.

Preferred Stock Dividends

Preferred stock dividends for the three months ended June 30, 2007 increased by 8.0% to $3.9 million as compared to $3.6 million in the three months ended June 30, 2006. The increase in preferred stock dividends reflects the compounding effect of the accrual of past dividends.

Six months ended June 30, 2007 and 2006

Revenue

Operating Revenue:


	Six Months Ended June 30,
(In thousands)	2007		2006		$ Change		% Change
Service	$	205,319	$	192,909	$	12,410		6.4	%
Roaming		79,527		67,466		12,061		17.9	%
Equipment		13,068		12,955		113		0.9	%

Total operating revenue	$	297,914	$	273,330	$	24,584		9.0	%

Service Revenue.

Service Revenue


	Six Months Ended June 30,
(In thousands)	2007		2006		$ Change			% Change
Local service	$	174,348	$	163,853	$	10,495			6.4	%
USF support		22,330		22,271		59			0.3	%
Regulatory pass through		8,277		6,411		1,866			29.1	%
Other		364		374		(10	)		-2.7	%

Total service revenue	$	205,319	$	192,909	$	12,410			6.4	%

The 6.4% increase in service revenue for the six months ended June 30, 2007 primarily reflects a 10.9% increase in postpaid customers as compared to June 30, 2006. The increase in regulatory pass-through fees reflects an increase in overall customers and a change in rates.

USF support payments were $22.3 million for both the six months ended June 30, 2007 and the six months ended June 30, 2006. Reflecting the addition of our southern Minnesota markets, we expect USF support in 2007 to be slightly higher than in 2006.

Customers. Including approximately 34,000 postpaid customers and 16,000 wholesale customers added in the April 1, 2007 southern Minnesota acquisition, total customers increased 88,103 to 778,529 at June 30, 2007 as compared to 690,426 at June 30, 2006. Postpaid customer gross additions increased 17.9% to 83,379 for the six months ended June 30, 2007 compared to 70,741 last year. Postpaid customer retention was 98.2% for the six months ended June 30, 2007 compared to 97.4% for the six months ended June 30, 2006. As a result of the improved gross additions and retention, postpaid customers grew by 18,024 during the six months ended June 30, 2007 compared to a loss of 22,232 last year.

As of June 30, 2007, approximately 91% of our postpaid customers were using new technology devices compared to 82% at December 31, 2006. We continue to experience higher retention rates and LSR from our new technology customers and therefore will continue to migrate our legacy customer base to new technology products.

Roaming Revenue. The 17.9% increase in roaming revenue during the six months ended June 30, 2007 primarily reflects a 21% increase in outcollect minutes and a significant increase in data revenue, which together were partially offset by a decline in our roaming yield. Our outcollect yield for the six months ended June 30, 2007 was $0.10 per minute as compared to $0.11 per minute last year at this time. Data roaming revenue for the six months ended June 30, 2007 was $6.6 million as compared to $2.4 million in the comparable period of last year.

For the six months ended June 30, 2007, and 2006, Cingular, Verizon Wireless, and T-Mobile together accounted for approximately 94% and 93%, respectively, of our total outcollect roaming minutes.

Equipment Revenue. Equipment revenue was mostly unchanged at $13.1 million for the six month period ended June 30, 2007 and $13.0 million for the six month period ended June 30, 2006. Offsetting a decline in handset pricing was a 17.9% increase in gross postpaid additions to 83,379 as compared to 70,741 during the comparable period of the prior year. Customer handset migrations for the six months ended June 30, 2007 were 99,137 as compared to 100,080 in 2006.

Operating Expenses


	Six Months Ended June 30,
(In thousands)	2007		2006		$ Change			% Change
Network cost
Incollect cost	$	29,378	$	21,824	$	7,554			34.6	%
Other network cost		45,347		45,345		2			0.0	%

		74,725		67,169		7,556			11.2	%

Cost of equipment sales		26,966		26,249		717			2.7	%
Selling, general and administrative		74,023		70,957		3,066			4.3	%
Depreciation and amortization		42,231		60,058		(17,827	)		-29.7	%

Total operating expenses	$	217,945	$	224,433	$	(6,488	)		-2.9	%

Network Cost. Network cost, as a percentage of total revenues, increased to 25.1% for the six months ended June 30, 2007 as compared to 24.6% for the six months ended June 30, 2006 largely reflecting an increase in incollect cost. While this increase is due to greater off-network customer call activity across all territories, our newly acquired Southern Minnesota property represents a disproportionate share of this increase. The incollect expense in these markets is expected to decrease over the next two quarters. Cell sites increased to 1,260 at June 30, 2007 as compared to 1,115 at June 30, 2006, including approximately 80 cell sites acquired in southern Minnesota.

During the six months ended June 30, 2007 incollect minutes increased 39% compared to the prior year. Partially offsetting the effect of increased incollect minutes was a decline in incollect cost per minute for the six months ended June 30, 2007 to approximately $0.08 per minute as compared to $0.09 for the six months ended June 30, 2006.

We anticipate network costs to be higher in 2007, reflecting an increased number of cell sites, increased network presence from our acquisition of southern Minnesota markets, overall increased network traffic, including incollect minutes, and higher outsourced data service costs.

Cost of Equipment Sales. As a percentage of revenue, cost of equipment sales for six months ended June 30, 2007 decreased to 9.1% as compared to 9.6% for the six months ended June 30, 2006. Cost of equipment sales increased 2.7% to $27.0 million for the six months ended June 30, 2007, primarily reflecting an increase in gross customer additions partially offset by lower handset pricing. The average cost of a handset decreased to $133 for the six months ended June 30, 2007 as compared to $138 for the six months ended June 30, 2006. Gross postpaid additions for the six months ended June 30, 2007 were 83,379 as compared to 70,741 during the comparable period of 2006. Customer handset migrations for the six months ended June 30, 2007 were 99,137 as compared to 100,080 in the comparable period of the prior year.

As of June 30, 2007, approximately 91% of our postpaid customers were using new technology devices as compared to 82% at December 31, 2006. Our new technology customers provide higher retention rates and LSR; therefore, we plan to substantially complete the migration of the legacy customer base to new technology products throughout 2007.

Selling, General and Administrative.

Components of SG&A are as follows:


	Six Months Ended June 30,
(in thousands)	2007		2006		$ Change			% Change
General and administrative	$	30,579	$	28,567	$	2,012			7.0	%
Sales and marketing		29,317		27,044		2,273			8.4	%
Regulatory pass-through fees		8,680		6,844		1,836			26.8	%
Stock based compensation		1,738		467		1,271			272.2	%
Bad debt		3,709		8,035		(4,326	)		-53.8	%

	$	74,023	$	70,957	$	3,066			4.3	%

As a percentage of revenue, SG&A decreased to 24.8% for the six months ended June 30, 2007 as compared to 26.0% for the six months ended June 30, 2006. SG&A for the six months ended June 30, 2007 increased 4.3% to $74.0 million, reflecting:

	•		increased general and administrative expenses, primarily reflecting an increase in employee medical claims,

	•		increased regulatory pass-through fees, which were largely offset in service revenue,

	•		increased non-cash stock-based compensation expense (see Stock-based compensation), and

	•		increased sales and marketing expenses, which were primarily related to the southern Minnesota market launch.

These increases were partially offset by a 53.8% decline in bad debt expense, which was $3.7 million for the six months ended June 30, 2007. The decline in bad debt expense reflects our successful collection efforts and credit policies and is another contributing factor to our improved retention

Stock-based compensation — SG&A. In accordance with our adoption of SFAS No. 123(R), stock-based compensation in our financial statements was recognized for all stock-based compensation expense arrangements, including employee and non-employee stock options granted after January 1, 2006 and all stock-based compensation arrangements granted prior to January 1, 2006, remaining unvested as of such date, commencing with the quarter ended June 30, 2006. Accordingly, for the six months ended June 30, 2007, stock-based compensation increased to $1.7 million from $467,000 for the six months ended June 30, 2006, primarily reflecting the increase in market price of our stock and its effect on the valuation and the corresponding expense related to current and prior year stock-based awards.

Depreciation and Amortization. Depreciation and amortization expense decreased 29.7% for the six months ended June 30, 2007 to $42.2 million as compared to $60.1 million for the six months ended June 30, 2006. This decrease reflects the fully depreciated status of our TDMA cell site assets at December 31, 2006. Reflecting the fully depreciated status of these TDMA assets, we expect depreciation for 2007 to be less than in 2006.

Other Income (Expense)

Interest Expense.

Components of interest expense are as follows:


	Six Months Ended June 30,
(in thousands)	2007			2006			$ Change			% Change
Interest expense on credit facility	$	1,638		$	2,262		$	(624	)		-27.6	%
Interest expense on senior secured notes		20,387			22,454			(2,067	)		-9.2	%
Interest expense on senior notes		16,047			16,047			—			0.0	%
Interest expense on senior subordinated notes		29,108			23,980			5,128			21.4	%
Amortization of debt issuance costs		2,645			2,748			(103	)		-3.7	%
Write-off of debt issuance costs		3,256			2,795			461			16.5	%
Call premium on early redemption of notes		9,750			3,200			6,550			204.7	%
Senior and junior preferred stock dividends		26,526			27,572			(1,046	)		-3.8	%
Effect of derivative instruments		(166	)		(726	)		560			77.1	%
Gain on repurchase of senior exchangeable preferred stock		—			(173	)		173			-100.0	%
Other		175			(196	)		371			189.3	%

	$	109,366		$	99,963		$	9,403			9.4	%

Interest expense for the six months ended June 30, 2007 increased 9.4%, primarily reflecting a $9.8 million call premium related to the redemption of our 9 ³/4% senior subordinated notes.

Gain on repurchase of Senior Exchangeable Preferred Stock. We did not repurchase any of our senior exchangeable preferred stock during the six months ended June 30, 2007. During the six months ended June 30, 2006, we repurchased an aggregate of 4,560 shares of our senior exchangeable stock. The corresponding gain of $173,000, not including transaction commissions and other related fees, is recorded as a reduction of interest.

Cash interest expense for the six months ended June 30, 2007 increased to $152.9 million as compared to $71.1 million in the six months ended June 30, 2006. This increase primarily reflects the cash payment of $41.7 million in dividends on our senior exchangeable preferred stock and the cash payment of $32.8 million in dividends on our junior exchangeable preferred stock during the six months ended June 30, 2007. Senior exchangeable preferred stock dividends paid in cash during the six months ended June 30, 2006 totaled $8.3 million. We did not pay junior exchangeable preferred stock dividends during the six months ended June 30, 2006.

Preferred Stock Dividends

Preferred stock dividends for six months ended June 30, 2007 increased by 8.1% to $7.7 million as compared to $7.1 million in the six months ended June 30, 2006. The increase in preferred stock dividends reflects the compounding effect of the accrual of past dividends.

LIQUIDITY AND CAPITAL RESOURCES

We need cash primarily for working capital, capital expenditures related to our network construction efforts, debt service, customer growth initiatives, and purchases of additional spectrum. In past years, we have met these requirements through cash flow from operations, borrowings under our credit facility, sales of common stock, and issuance of long-term debt and preferred stock.

We believe our networks continue to perform well as shown by increasing customers and roaming MOUs as we continue to manage the process of transferring our networks from TDMA/analog to new technologies. Our cell site count has increased from 1,158 sites at December 31, 2006 to 1,260 sites at June 30, 2007, including 80 sites acquired in southern Minnesota. We expect to add approximately 100 cell sites in 2007(in addition to the 80 southern Minnesota acquired sites), which will add capacity within our networks, allowing them to carry increased roaming traffic and to accommodate new technology customers. We anticipate our total capital expenditures for 2007 will be funded primarily from cash on hand and operating cash flow. Primarily reflecting our efforts to provide additional network capacity, capital expenditures for the six months ended June 30, 2007 were $22.6 million. During the six months ended June 30, 2006, capital expenditures were $23.7 million.

Junior Exchangeable Preferred Stock. As of August 15, 2006, we had failed to pay six quarterly dividends on the Junior Exchangeable Preferred Stock and, accordingly, a “Voting Rights Triggering Event,” as defined in its Certificate of Designation occurred. As a result, the holders of junior exchangeable preferred stock have the right to elect two directors. While a “Voting Rights Triggering Event” exists, certain terms of our junior exchangeable preferred stock, if enforceable, may prohibit incurrence of additional indebtedness, including borrowings under our revolving credit facility. The five accrued dividends in arrears for the junior exchangeable preferred securities, through June 30, 2007, totaled approximately $51.6 million. Although a portion of the accrued dividends were paid in May 2007, the right to elect directors continues until all past due dividends are paid in full.

Credit Facility. In April 2007, we negotiated an amendment to our revolving credit facility explicitly permitting the payment of senior and junior exchangeable preferred stock dividend payments and replacing all financial covenant ratios with one new senior secured first lien debt covenant. On May 15, 2007, we repaid the outstanding balance of $58.0 million on our revolving credit facility. As of June 30, 2007, we were in compliance with the covenants under the credit facility and had availability of $60 million.

Our borrowings under the revolving credit facility bear interest at rates based on, at our option, on either (i) the one, two, three, six, or, if made available by the lender, nine or twelve month Eurodollar rate, which is determined by reference to the Adjusted LIBOR rate, or (ii) the Alternate Base Rate, which is the higher of the prime lending rate on page 5 of the Telerate Service and the Federal Funds Effective Rate plus 1/2 of 1 percent. In each case, we are required to pay an additional margin of interest above the Eurodollar rate or the Alternate Base Rate. The margin is based on the ratio of our senior secured debt to our adjusted cash flow. The margin above the Alternate Base Rate ranges from 0.75% to 1.00%. The margin above the Eurodollar rate fluctuates from 1.75% to 2.00%.

Cash flows for the six months ended June 30, 2007, compared with the six months ended June 30, 2006.


	Six Months Ended June 30,
(in thousands)	2007			2006			Change
Net cash (used in) provided by operating activities	$	(35,929	)	$	37,218		$	(73,147	)
Net cash provided by (used in) investing activities		40,933			(22,571	)		63,504
Net cash (used in) provided by financing activities		(51,136	)		312			(51,448	)

Net (decrease) increase in cash and cash equivalents		(46,132	)		14,959			(61,091	)

Cash and cash equivalents, at beginning of year		72,495			86,822			(14,327	)

Cash and cash equivalents, at end of period	$	26,363		$	101,781		$	(75,418	)

Net cash and cash equivalents used in operating activities was $35.9 million for the six months ended June 30, 2007. Adjustments to the $24.7 million net loss to reconcile to net cash used in operating activities primarily included $48.0 million in senior and junior exchangeable preferred stock dividends and $10.7 million in accrued interest. Partially offsetting these items was $42.2 million in depreciation and amortization.

Net cash provided by investing activities for the six months ended June 30, 2007 was $40.9 million. This amount included $132.5 million in maturities of short-term investments, which were partially offset by $49.0 million for acquisition of wireless properties, $22.7 million for purchases of property and equipment and $20.5 million in short-term investment purchases. The majority of property and equipment purchases were related to maintenance related to our networks in addition to adding to our southern Minnesota network.

Net cash used in financing activities for the six months ended June 30, 2007 was $51.1 million, reflecting the following:

	•		Proceeds from the issuance of common stock pursuant to our employee stock purchase plan and upon exercise of stock options for $1.8 million,

	•		$58.0 million pay off of the outstanding balance under our credit facility,

	•		Issuance of $425.0 million aggregate principal amount of Senior Subordinated Floating Rate Notes,

	•		Redemption of 9 3/4% Senior Subordinated Notes for $300.0 million, and

	•		Redemption of senior subordinated debentures for $115.5 million.

Liquidity. Primarily reflecting the $58.0 million repayment of the outstanding balance under our credit facility together with the cash payment of $41.7 million in dividends on our senior exchangeable preferred stock and the cash payment of $32.8 million in dividends on our junior exchangeable preferred stock, our cash and cash equivalents and short-term investments decreased to $26.4 million as compared to $183.2 million at December 31, 2006. Cash interest payments during the six months ended June 30, 2007 were $152.9 million as compared to $71.1 million during the six months ended June 30, 2006.

Under the documents governing our indebtedness, we are able to make limited restricted payments, including the repurchase of senior subordinated notes or preferred stock and the payment of dividends to holders of our equity securities.

We believe that our cash and cash equivalents on hand and our cash flows from operations will be sufficient to enable us to meet required cash commitments through the next twelve-month period, and we anticipate we will be in compliance with our covenants under the credit facility.

Supplemental Disclosure of Condensed Consolidated Cash Flow Information


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2007		2006		2007		2006
Cash paid for:
Interest	$	95,092	$	17,230	$	152,879	$	71,050

Forward-Looking Statements

Forward-looking statements herein are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although RCC believes that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. A number of factors could cause actual results, performance, achievements of RCC, or industry results to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to, competitive considerations, success of customer enrollment initiatives, the ability to increase wireless usage and reduce customer acquisition costs, the ability to improve customer retention, the successful integration of any acquired operations with RCC’s existing operations, the ability to negotiate favorable roaming agreements, the ability to service debt, and other factors discussed in RCC’s Report on Form 10-K for the year ended December 31, 2006 and in other filings with the Securities and Exchange Commission. Investors are cautioned that all forward-looking statements involve risks and uncertainties.

In addition, such forward-looking statements are necessarily dependent upon assumptions, estimates, and data that may be incorrect or imprecise and involve known and unknown risks, uncertainties, and other factors. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be realized. All subsequent written and oral forward-looking statements attributable to RCC or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. RCC disclaims any obligation to update any such statements or to announce publicly the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We have issued debt and preferred securities and used bank credit facilities as well as cash from operations to finance our capital requirements and operations. These financial instruments, to the extent they provide for variable rates of interest, expose us to interest rate risk. One percentage point of an interest rate adjustment would have changed our cash interest payments on an annual basis by approximately $6.0 million as of June 30, 2007.

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. As of June 30, 2007, based on an evaluation carried out under the supervision and with the participation of RCC’s management, including the chief executive officer (CEO) and the chief financial officer (CFO), of the effectiveness of our disclosure controls and procedures, the CEO and CFO have concluded that RCC’s disclosure controls and procedures are effective.

There was no change in our internal control over financial reporting during the three months ended June 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A. RISK FACTORS

See “Risk Factors” in Part I — Item 1A. in our Annual Report on Form 10-K for the year ended December 31, 2006 for information on risk factors. There were no material changes in the nature or status of our risk factors as described in our Annual Report on Form 10-K for the year ended December 31, 2006.

Item 3. DEFAULTS UPON SENIOR SECURITIES

(b) Preferred Stock Dividends

12¹/4% Junior Exchangeable Preferred Stock. Although we paid four quarterly dividends on the junior exchangeable preferred stock in May 2007, at June 30, 2007 we were five dividend payments in arrears, creating a “Voting Rights Triggering Event.” Accrued dividends in arrearage, through August 7, 2007, were approximately $55 million. We have not declared and likely will not pay, the dividend due on August 15, 2007.

The shares of the junior exchangeable preferred stock are non-voting, except as otherwise required by law and as provided in their Certificate of Designation. The Certificate of Designation provides that at any time dividends on the outstanding junior 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 junior 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 RCC’s Board of Directors. The voting rights continue until such time as all dividends in arrears on the junior exchangeable preferred stock are paid in full, 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 Certificate of Designation.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

	(a)		We held an Annual Meeting of Shareholders on May 25, 2007.

	(c)		The following matters were considered:

Election of three Class I directors, each for a three-year term expiring in 2010:


Name	Affirmative		Authority Withheld
James V. Continenza		19,733,918		132,137
Jacques Leduc		19,827,768		38,287
Wesley E. Schultz		18,607,001		1,259,054

There were 8,810 abstentions and no broker non-votes.

	•		Paul J. Finnegan and Anthony J. Bolland were elected unanimously by the holders of the Class M preferred stock to one-year terms.

	•		Continuing as Class II directors are Ann K. Newhall, George Revering, and Don C. Swenson.

	•		Continuing as Class III directors are Richard P. Ekstrand and George W. Wikstrom.

Appointment of Deloitte & Touche LLP as independent auditors for 2007 fiscal year. Voting on ratification were 19,848,347 votes in favor, 6,988 opposed, 10,720 abstentions, and 0 broker non-votes.

As discussed in our proxy statement dated April 23, 2007, the holders of our 12 ¹/4% Junior Exchangeable Preferred Stock have the right to elect two members of our Board of Directors, and accordingly made arrangements for this election to take place at our Annual Meeting on May 25, 2007. Because a quorum of the 12 ¹/4% Junior Exchangeable Preferred Stock holders was not present at our Annual Meeting, the election did not take place. The holders of our 12 ¹/4% Junior Exchangeable Preferred Stock continue to have the right to elect two members to our Board of Directors.

Item 6. EXHIBITS

The following exhibits are filed with this report.

3.2		Amended and Restated Bylaws, as amended effective May 3, 2007

4.1		Indenture dated as of May 30, 2007 by and between Rural Cellular Corporation and Wells Fargo Bank, N.A., Trustee, related to Floating Rate Senior Subordinated Notes Due 2013

4.2		Registration Rights Agreement dated as of May 30, 2007 by and between Rural Cellular Corporation and Bear Stearns & Co. Inc.

10.1		Third Amendment to Credit Agreement dated April 13, 2007

10.2		Amended and Restated Employment Agreement with Richard P. Ekstrand dated June 21, 2007

10.3		Amended and Restated Employment Agreement with Wesley E. Schultz dated June 21, 2007

10.4		Amended and Restated Employment Agreement with Ann K. Newhall dated June 21, 2007

10.5		Amended and Restated Change in Control Agreement with David J. Del Zoppo dated June 21, 2007

10.6(a)		Master Hosted Services Agreement by and between Rural Cellular Corporation and Ericsson Inc. effective April 25, 2007

*10.6(b)		Schedule No. 1 to the Master Hosted Services Agreement

*10.6(c)		Schedule No. 2 to the Master Hosted Services Agreement

*10.7		Amendment Three, dated May 12, 2007 to Billing Services and License Agreement with VeriSign, Inc.

31.1		Certification of Rural Cellular Corporation’s Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended

31.2		Certification of Rural Cellular Corporation’s Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002

* Portions of this exhibit have been omitted and filed separately with the Secretary of the Securities and Exchange Commission pursuant to Registrant’s request for confidential treatment of such information under Rule 24b-2 of the Securities Exchange Act of 1934.


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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006		3
Condensed Consolidated Statements of Operations — Three and Six months ended June 30, 2007 and 2006		4
Condensed Consolidated Statements of Cash Flows — Three and Six months ended June 30, 2007 and 2006		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3. Quantitative and Qualitative Disclosures about Market Risk		41
Item 4. Controls and Procedures		42
Part II. Other Information
Item 1A. Risk Factors		42
Item 3. Defaults upon Senior Securities		42
Item 4. Submission of Matters to a Vote of Security Holders		42
Item 5. Other Information		43
Item 6. Exhibits		43
Signatures		44
Amended and Restated Bylaws
Indenture
Registration Rights Agreement
Third Amendment to Credit Agreement
Amended and Restated Employment Agreement
Amended and Restated Employment Agreement
Amended and Restated Employment Agreement
Amended and Restated Employment Agreement
Master Hosted Services Agreement
Schedule No. 1 to the Master Hosted Services Agreement
Schedule No. 2 to the Master Hosted Services Agreement
Amendment Three, 2007 Billing Services and License Agreement
Certification of CEO
Certification of CFO
Section 906 Certifications


	RURAL CELLULAR CORPORATION (Registrant)
Date: August 8, 2007	/s/ Richard P. Ekstrand
	Richard P. Ekstrand
	President and Chief Executive Officer


Date: August 8, 2007	/s/ Wesley E. Schultz
	Wesley E. Schultz
	Executive Vice President and Chief Financial Officer (Principal Financial Officer)