SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2002
or
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 no. 333-59322 and 333-63454

American Cellular Corporation

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		22-3043811 (I.R.S. Employer Identification No.)
14201 Wireless Way Oklahoma City, Oklahoma (Address of principal executive offices)		73134 (Zip Code)

(405) 529-8500

(Registrant’s telephone number, including area code)

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

The registrant is not subject to the filing requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, but files reports required by those sections pursuant to contractual obligations.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of November 1, 2002, there were 100 shares of registrant’s $.01 par value Class A Common Stock outstanding, which are owned of record by ACC Acquisition LLC, which is equally and beneficially owned by Dobson Communications Corporation and AT&T Wireless, Inc.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II.
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS FOR FORM 10-Q
CERTIFICATIONS FOR FORM 10-Q
INDEX TO EXHIBITS
EX-10.6.1 Amendment to Purchase/License Agreement

AMERICAN CELLULAR CORPORATION

INDEX TO FORM 10-Q


Item No.			Page

PART I. FINANCIAL INFORMATION
	1	Condensed Consolidated Financial Statements (Unaudited):
		Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001		2
		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001		3
		Condensed Consolidated Statement of Stockholders’ (Deficit) Equity for the Nine Months Ended September 30, 2002		4
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001		5
		Notes to Condensed Consolidated Financial Statements		6
	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
	3	Quantitative and Qualitative Disclosures about Market Risk		24
	4	Controls and Procedures		24
PART II. OTHER INFORMATION
	1	Legal Proceedings		25
	2	Changes in Securities and Use of Proceeds		25
	3	Defaults Upon Senior Securities		25
	4	Submission of Matters to a Vote of Security Holders		25
	5	Other Information		25
	6	Exhibits and Reports on Form 8-K		25

PART I.

FINANCIAL INFORMATION


Item 1.	*Financial Statements*

AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


				September 30,			December 31,
				2002			2001

				(Unaudited)
ASSETS
Current Assets:
	Cash and cash equivalents			$	6,018,875		$	5,962,148
	Accounts receivable, net				46,703,585			43,548,758
	Restricted cash and investments				66,950,365			65,678,101
	Inventory				3,907,767			8,013,595
	Prepaid expenses and other				8,117,925			7,983,596

		Total current assets			131,698,517			131,186,198

Property, Plant and Equipment, net					199,516,809			203,168,050

Other Assets:
	Restricted investments				8,213,484			32,184,495
	Wireless license acquisition costs, net				569,168,796			1,039,523,681
	Goodwill, net				700,106,989			1,077,123,680
	Deferred financing costs, net				42,676,381			45,166,918
	Customer list, net				22,995,628			30,318,297
	Other non-current assets				536,788			504,391
	Assets of discontinued operations				—			139,854,463

		Total other assets			1,343,698,066			2,364,675,925

			Total assets	$	1,674,913,392		$	2,699,030,173

LIABILITIES AND STOCKHOLDER’S (DEFICIT) EQUITY
Current Liabilities:
	Accounts payable			$	23,860,832		$	21,375,257
	Accounts payable — affiliates				—			17,729,679
	Accrued expenses				10,774,198			10,475,570
	Accrued interest payable				40,143,088			31,308,522
	Accrued dividends payable				5,582,471			2,138,711
	Deferred revenue and customer deposits				10,796,560			11,745,161
	Current portion of long-term debt				1,598,980,876			46,909,091

		Total current liabilities			1,690,138,025			141,681,991

Other Liabilities:
	Long-term debt, net of current portion				—			1,760,208,032
	Deferred tax liabilities				53,925,422			186,382,124
	Liabilities of discontinued operations				—			7,495,882
	Other non-current liabilities				—			23,698,750
	Commitments (Note 7)
	Series A preferred stock (Note 5)				35,000,000			35,000,000
Stockholder’s (Deficit) Equity:
	Class A common stock, $.01 par value, 3,000 shares authorized and 100 issued				1			1
	Paid-in capital				797,827,564			797,827,564
	Retained deficit				(901,977,620	)		(239,044,921	)
	Accumulated other comprehensive loss, net of income tax benefit of $9,479,500 at December 31, 2001.				—			(14,219,250	)

		Total stockholder’s (deficit) equity			(104,150,055	)		544,563,394

			Total liabilities and stockholder’s (deficit) equity	$	1,674,913,392		$	2,699,030,173

The accompanying notes are an integral part of these condensed consolidated balance sheets.

AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



			Three Months Ended						Nine Months Ended
			September 30,						September 30,

			2002			2001			2002			2001


			(Unaudited)						(Unaudited)
Operating Revenue:
	Service revenue		$	79,430,083		$	71,812,475		$	225,877,101		$	198,118,311
	Roaming revenue			40,237,474			40,154,259			102,422,849			101,201,303
	Equipment and other revenue			4,534,483			4,582,823			11,594,931			13,626,294

		Total operating revenue		124,202,040			116,549,557			339,894,881			312,945,908

Operating Expenses:
	Cost of service (exclusive of items shown separately below)			28,392,059			28,375,126			85,039,681			77,899,125
	Cost of equipment			9,053,094			8,762,195			24,202,783			29,630,173
	Marketing and selling			15,031,214			14,618,758			43,418,395			42,417,518
	General and administrative			18,395,427			15,993,130			52,033,296			44,990,483
	Depreciation and amortization			16,951,001			46,461,049			49,695,596			134,923,710

		Total operating expenses		87,822,795			114,210,258			254,389,751			329,861,009

Operating income (loss)				36,379,245			2,339,299			85,505,130			(16,915,101	)
Other (expense) income:
	Interest expense			(29,925,510	)		(42,855,027	)		(109,247,715	)		(123,800,194	)
	Impairment of goodwill			—			—			(377,000,000	)		—
	Other income, net			679,678			672,890			964,027			2,478,095

Income (loss) before income taxes and discontinued operations				7,133,413			(39,842,838	)		(399,778,558	)		(138,237,200	)
	Income tax (expense) benefit			(2,853,369	)		10,013,267			9,111,420			37,729,540

Income (loss) from continuing operations				4,280,044			(29,829,571	)		(390,667,138	)		(100,507,660	)
Discontinued operations: (Note 2)
	Loss from discontinued operations, net of income tax (expense) benefit of $(244,485) for the three months ended September 30, 2001 and $435,838 and $(762,625) for the nine months ended September 30, 2002 and 2001, respectively			—			(445,666	)		(653,909	)		(1,289,406	)
	Gain from sale of discontinued operations, net of income tax expense of $50,282,976 for the nine months ended September 30, 2002			—			—			13,472,110			—

Income (loss) before cumulative effect of change in accounting principle				4,280,044			(30,275,237	)		(377,848,937	)		(101,797,066	)
	Cumulative effect of change in accounting principle, net of income tax benefit of $187,760,000 (Note 8)			—			—			(281,640,000	)		—

Net income (loss)				4,280,044			(30,275,237	)		(659,488,937	)		(101,797,066	)
Dividends on preferred stock				(1,182,015	)		(875,000	)		(3,443,762	)		(875,000	)

Earnings applicable to common stockholder			$	3,098,029		$	(31,150,237	)	$	(662,932,699	)	$	(102,672,066	)

Basic earnings applicable to common stockholder per common share:
	Continuing operations			42,800			(298,296	)		(3,906,671	)		(1,005,077	)
	Discontinued operations			—			(4,456	)		128,182			(12,894	)
	Cumulative effect of change in accounting principle			—			—			(2,816,400	)		—
	Dividends on preferred stock			(11,820	)		(8,750	)		(34,438	)		(8,750	)

Total basic and diluted earnings applicable to common stockholder per common share			$	30,980		$	(311,502	)	$	(6,629,327	)	$	(1,026,721	)

Basic and diluted weighted average common shares outstanding				100			100			100			100

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

AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

For the nine months ended September 30, 2002



					Stockholder’s (Deficit) Equity

																	Total
					Class A									Accumulated			Stockholder’s
		Comprehensive			Common				Paid-in		Retained			Other			(Deficit)
		Loss			Stock				Capital		Deficit			Comprehensive			Equity



		(Unaudited)
DECEMBER 31, 2001						100	$	1	$	797,827,564	$	(239,044,921	)	$	(14,219,250	)	$	544,563,394
Net loss		$	(659,488,937	)		—		—		—		(659,488,937	)		—			(659,488,937	)
	Amounts related to hedge transactions reclassified into earnings, net of tax		12,595,376			—		—		—		—			12,595,376			12,595,376
	Ineffective hedge transaction reclassified into earnings, net of tax		643,751			—		—		—		—			643,751			643,751
	Changes in fair value of hedge transactions, net of tax		980,123			—		—		—		—			980,123			980,123

Total comprehensive loss		$	(645,269,687	)

Preferred stock dividends						—		—		—		(3,443,762	)		—			(3,443,762	)

SEPTEMBER 30, 2002						100	$	1	$	797,827,564	$	(901,977,620	)	$	—		$	(104,150,055	)

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

AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



				For the Nine Months Ended
				September 30,

				2002			2001


				(Unaudited)
Cash Flows from Operating Activities:
	Net loss from continuing operations			$	(390,667,138	)	$	(100,507,660	)
	Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities —
		Depreciation and amortization			49,695,596			134,923,710
		Amortization of bond premium and financing costs			4,707,810			4,064,725
		Deferred income taxes and investment tax credits, net			(5,532,097	)		(38,934,031	)
		Cash used in operating activities of discontinued operations			(7,175,022	)		—
		Loss on ineffective hedge transaction			1,072,919			—
		Impairment of goodwill			377,000,000			—
		Gain on sale of assets			14,845			456,996
Changes in current assets and liabilities —
		Accounts receivable			(3,154,827	)		(9,633,868	)
		Inventory			4,105,828			(22,201	)
		Prepaid expenses and other			(2,462,069	)		(3,077,015	)
		Accounts payable			(15,231,910	)		1,140,169
		Accrued expenses			9,133,194			23,157,123
		Deferred revenue and customer deposits			(948,601	)		1,439,294

			Net cash provided by operating activities		20,558,528			13,007,242

Cash Flows from Investing Activities:
	Capital expenditures				(38,779,344	)		(63,378,700	)
	Decrease in payable affiliates				—			(9,193,025	)
	Net proceeds from sale of discontinued operations				194,427,958			—
	Change in receivable from discontinued operations				—			9,131,349
	Other investing activities				953,105			(1,337,504	)

			Net cash provided by (used in) investing activities		156,601,719			(64,777,880	)

Cash Flows from Financing Activities:
	Proceeds from long-term debt				127,800,000			163,000,000
	Repayments of long-term debt				(336,486,718	)		(709,074,169	)
	Proceeds from senior subordinated notes				—			693,020,500
	Deferred financing costs				(1,666,802	)		(18,178,943	)
	Capital cash contribution				—			16,413,783
	Purchase of restricted investments				—			(133,191,937	)
	Maturities of restricted investments				33,250,000			—
	Other financing activities				—			—
	Investment from Dobson Communications				—			35,000,000

			Net cash (used in) provided by financing activities		(177,103,520	)		46,989,234

Net increase (decrease) in cash and cash equivalents					56,727			(4,781,404	)
Cash and cash equivalents, beginning of period					5,962,148			14,880,667

Cash and cash equivalents, end of period				$	6,018,875		$	10,099,263

Supplemental Disclosures of Cash Flow Information:
	Cash paid for —
		Interest, net of amounts capitalized		$	97,073,008		$	100,246,161
		Income taxes		$	3,871,125		$	559,000
Supplemental Disclosures of Noncash Investing and Financing Activities:
	Capital contribution of PCS licenses and certain other assets			$	—		$	16,413,783

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

AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The condensed consolidated balance sheets of American Cellular Corporation (“ACC”) and subsidiaries (collectively with ACC, the “Company”) as of September 30, 2002, the condensed consolidated statement of operations for the three and nine months ended September 30, 2002 and 2001, the condensed consolidated statement of stockholder’s (deficit) equity for the nine months ended September 30, 2002 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2002 and 2001 are unaudited. In the opinion of management, such financial statements include all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of financial position, results of operations, and cash flows for the periods presented, except for those related to the adoption of new accounting principles as described below.

The condensed consolidated balance sheet at December 31, 2001 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The financial statements presented herein should be read in connection with the Company’s December 31, 2001 consolidated financial statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2001.

1. Organization

American Cellular Corporation was originally formed on February 26, 1998, to acquire the operations of PriCellular Corporation. On February 25, 2000, the Company was acquired by ACC Acquisition LLC (“the Joint Venture”), an equally owned joint venture between Dobson Communications Corporation (“Dobson Communications”) and AT&T Wireless Services, Inc. (“AT&T Wireless”). The acquisition costs as of February 25, 2000 were pushed down to the Company, thus creating a new basis in the assets and liabilities of the Company. The Company is a provider of rural and suburban wireless telephone services in portions of Illinois, Kansas, Kentucky, Michigan, Minnesota, New York, Ohio, Oklahoma, Pennsylvania, West Virginia and Wisconsin.

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

2. Discontinued Operations

On February 8, 2002, two of the Company’s wholly-owned, indirect subsidiaries completed the sale of Tennessee 4 RSA for a total purchase price of $202.0 million to Verizon Wireless. Proceeds from this transaction were primarily used to pay down bank debt. The Tennessee 4 RSA covered a total population of approximately 290,800 and had a subscriber base of approximately 24,900. As a result of this sale, the results of operations for Tennessee 4 RSA during the periods presented are included in the Company’s condensed consolidated financial statements as discontinued operations.

Pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which replaced Accounting Principles Board (“APB”) Opinion No. 30 for the disposal of segments of a business, the condensed consolidated financial statements have been restated for all periods presented to reflect the Tennessee 4 RSA operations, assets and liabilities as discontinued operations. The assets and liabilities of such operations have been classified as “Assets of discontinued operations” and “Liabilities of discontinued

AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

operations,” respectively, on the December 31, 2001 condensed consolidated balance sheets and consist of the following:


		December 31,
		2001

		($ in thousands)
Cash and cash equivalents		$	85
Other current assets			4,442
Property, plant and equipment, net			9,647
Goodwill, net			63,044
Wireless license acquisition costs, net			61,303
Other assets			1,333

	Total assets of discontinued operations	$	139,854

Current liabilities		$	1,744
Other liabilities			5,752

	Total liabilities of discontinued operations	$	7,496

The net loss from discontinued operations was classified on the condensed consolidated statement of operations as “Loss from discontinued operations.” Summarized results of discontinued operations are as follows:


	2002
				2001
	Period from
	January 1,			Three Months			Nine Months
	2002 through			Ended			Ended
	disposition			September 30,			September 30,


	($ in thousands)			($ in thousands)
Operating revenue	$	2,319		$	8,403		$	23,685
Loss before income taxes		(1,090	)		(201	)		(527	)
Income tax benefit (provision)		436			(245	)		(762	)
Loss from discontinued operations		(654	)		(446	)		(1,289	)

The long-term debt of the Company is recorded at the consolidated level, and is not reflected by each individual market. Thus, the Company has allocated a portion of interest expense to the discontinued operations to properly reflect the interest that was incurred to finance the Tennessee 4 RSA operations. The interest expense allocated to this market was $1.0 million for the period from January 1, 2002 through disposition (February 8, 2002), $2.5 million for the three months ended September 30, 2001 and $7.2 million for the nine months ended September 30, 2001.

The Company completed the sale of Tennessee 4 RSA on February 8, 2002, and recorded operating losses totaling approximately $0.7 million incurred through February 8, 2002, and the related gain on the sale totaling approximately $13.5 million, net of tax expense.


3.	Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Newly constructed wireless systems are added to property, plant and equipment at cost, which includes contracted services, direct labor, materials and overhead. Existing property, plant and equipment purchased through acquisitions is recorded at its fair value at the date of the purchase. Repairs, minor replacements and maintenance are charged to operations as incurred. The provisions for depreciation are provided using the straight-line method based on the estimated useful lives

AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of the various classes of depreciable property. Depreciation expense for the nine months ended September 30, 2002 and 2001 totaled $42.4 million and $40.8 million. Listed below are the gross property, plant and equipment amounts and the related accumulated depreciation for the periods described.



	September 30,

	2002			2001

Gross property, plant and equipment	$	337,174,835		$	287,341,636
Accumulated depreciation		(137,658,026	)		(79,175,315	)

Property, plant and equipment, net	$	199,516,809		$	208,166,321

4. Long-Term Debt

The Company’s long-term debt consists of the following:


		September 30, 2002		December 31, 2001

Credit facility		$	904,917,738	$	1,113,604,456
Senior Subordinated Notes, net of discount			694,063,138		693,512,667

	Total debt		1,598,980,876		1,807,117,123
Less — Current amounts payable on demand			1,598,980,876		46,909,091

	Total long-term debt	$	—	$	1,760,208,032

Credit Facility

On February 25, 2000, the Company obtained a $1.75 billion credit facility to retire existing debt and complete the acquisition of the Company by the Joint Venture. This credit facility included a $300.0 million revolving credit facility and $1.45 billion of term loan facilities. On March 2, 2001, the Company and its lenders agreed to an amendment to the credit facility. This amendment became effective on March 14, 2001, when the Company permanently repaid $200.0 million of the term notes under the credit facility. The Company used proceeds from the issuance of $450.0 million Senior Subordinated Notes due 2009, to reduce the credit facility to $1.55 billion. On May 31, 2001, the Company and its lenders agreed to a second amendment to the credit facility. This amendment became effective on June 4, 2001, when the Company permanently repaid $201.3 million of the term notes under the credit facility with proceeds from the issuance of $250.0 million Senior Subordinated Notes due 2009, which reduced the credit facility to $1.34 billion. On September 27, 2001, the Company and its lenders agreed to a third amendment of the credit facility, which modified certain financial covenants (as described below). The maximum availability of the credit facility is limited by restrictions, such as certain financial ratios. As of September 30, 2002, the Company had outstanding borrowings under the credit facility of $904.9 million, with no additional amounts available for future borrowings.

The Company’s amended credit facility imposes a number of restrictive covenants that, among other things, limit the Company’s ability to incur additional indebtedness, create liens and pay dividends. In addition, the Company is required to maintain certain financial ratios, including, but not limited to:


	•	a ratio of senior indebtedness to operating cash flow of 7.00 to 1 at December 31, 2001, decreasing to 5.75 to 1 at December 31, 2002 and decreasing over time to 2.50 to 1;

	•	a ratio of total indebtedness to operating cash flow of 10.10 to 1 at December 31, 2001, decreasing to 7.75 to 1 at December 31, 2002 and decreasing over time to 4.00 to 1;

AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	•	a ratio of operating cash flow to debt service requirements of 1.20 to 1 at December 31, 2001, increasing to 1.35 to 1 at December 31, 2002 and decreasing over time to 1.20 to 1;

	•	a ratio of operating cash flow to interest expense requirement of 1.45 to 1 at December 31, 2001, increasing to 1.80 to 1 at December 31, 2002 and increasing over time to 2.50 to 1;

	•	beginning on December 31, 2002, a ratio of operating cash flow minus capital expenditures to the sum of debt service requirements and cash distributions of 1.00 to 1 and continuing over time at 1.00 to 1; and

	•	a limitation on capital expenditures.

Interest on the revolving credit facility and the term loan facilities is variable and is based on a prime rate or a LIBOR formula. The weighted average interest rate for the nine months ended September 30, 2002 was 4.8%, and interest rates have ranged in total between 4.4% and 10.1% since inception. This credit facility is collateralized by substantially all of the assets of the Company.

The Company’s credit facility includes a financial covenant requiring the Company to not exceed a total debt leverage ratio ranging from 9.25 to 1.00 in the first quarter to 7.75 to 1.00 in the fourth quarter 2002. At June 30, 2002 and September 30, 2002, the Company failed to comply with this covenant. Management has had and will continue to have discussions with the lenders regarding the credit facility. The lenders presently have the right, but not the obligation, to accelerate the repayment of the entire amount outstanding under the credit facility. Acceleration under the credit facility would allow the holders of the Senior Subordinated Notes to declare the principal and interest of the Senior Subordinated Notes immediately due and payable. The Company would then be required to either refinance the debt or repay the amounts due. If this were to occur, management would attempt to renegotiate the debt with the holders to provide, among other things, for an extended repayment term. There is no assurance that management would be able to renegotiate the debt under these conditions or meet its obligation under the accelerated repayment terms. Therefore, as of June 30, 2002 and as of September 30, 2002, the Company has classified all of its long-term debt as current. Unless such non-compliance is resolved, there continues to be substantial doubt about the Company’s ability to continue as a going concern, as expressed in the independent auditors report on the Company’s 2001 financial statements. Also as a result of the Company’s non-compliance, subsequent to September 30, 2002, all borrowings under its credit facility are only available based on prime rate, which will increase the Company’s borrowing rate in the future.

Senior Subordinated Notes

On March 14, 2001, the Company completed the sale of $450.0 million Senior Subordinated Notes due 2009. These notes were sold at a discount of $3.3 million and carry an interest rate of 9.5%. The discount will be amortized over the life of the notes. On June 4, 2001, the Company completed the sale of $250.0 million of Senior Subordinated Notes due 2009. These notes were sold at a discount of $3.6 million and carry an interest rate of 9.5%. The discount will be amortized over the life of the notes.

Restricted cash and investments totaling $67.0 million as of September 30, 2002, consist of the remaining balance of interest pledge deposits for the Senior Subordinated Notes. The interest pledge deposits include the initial deposit of $85.2 million for the $450.0 million Senior Subordinated Notes, net of interest earned and interest payments issued to bondholders and the additional deposit of $48.0 million for the $250.0 million Senior Subordinated Notes, net of interest earned and interest payments issued to bondholders.

Interest Rate Hedges

The Company pays interest on its bank credit facility at a variable factor, based on LIBOR or prime rate. The Company will from time-to-time enter into derivative contracts to reduce exposure against rising interest rates.

AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During 2000, the Company entered into a $1.03 billion derivative contract on its credit facility, in order to hedge its interest rate exposure, whereby the interest rate on the facility was effectively fixed at a rate of 7.3%. This derivative contract expired in June 2001 and was replaced with another derivative contract that expired June 4, 2002, which set the interest rate on $1.03 billion of debt at a rate of 6.7%. As of September 30, 2002 the Company does not have any derivative contracts related to its credit facility.

On January 1, 2001, the Company implemented SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activity”. With this implementation, the Company began recording a liability and a transition adjustment, net of income tax benefit, to other comprehensive loss during 2001 in connection with these derivative contracts. The Company’s accumulated other comprehensive loss, net of income tax benefit, was $14.2 million as of December 31, 2001 and decreased to $0 at June 4, 2002, as a result of the expiration of the Company’s interest rate swap agreement.

In accordance with SFAS No. 133, the Company periodically assesses the effectiveness of its hedge transactions. During February 2002, the Company used a portion of the proceeds from the sale of the Tennessee 4 RSA to pay down bank debt. As a result, the Company determined that one of its hedge transactions totaling $125.0 million was ineffective, thus, reducing the total derivative contracts to $900.0 million. The Company recorded a loss of approximately $1.1 million representing the fair value of this transaction for the nine months ended September 30, 2002, which is reflected in other income in the accompanying statement of operations.

5. Redeemable Preferred Stock

On June 29, 2001, the Company received $35.0 million from one of its principal owners, Dobson Communications, from its purchase of 35,000 shares of the Company’s Series A Preferred Stock. The Company has 350,000 authorized shares of its Series A Preferred Stock, which has a par value of $0.01 per share and is mandatorily redeemable on June 29, 2011 for $1,000 per share, plus accrued and unpaid dividends. Each share of Series A Preferred Stock is entitled to 12% cumulative annual dividends on the liquidation preference of $1,000 per share, subject to certain adjustments. Dividends will accrue but will not be payable until the fifth anniversary of the issuance. At September 30, 2002, the Company had approximately $5.6 million in accrued dividends relating to its Series A Preferred Stock. Shareholders of the Series A Preferred Stock have no voting rights.

6. Stockholder’s (Deficit) Equity

On January 18, 2001, the Company received a $32.8 million capital contribution from its shareholders. This contribution consisted of cash, PCS licenses relating to areas in northeast Oklahoma and southeast Kansas, and certain other assets.

7. Commitments

Effective November 16, 2001 (as amended through August 5, 2002), the Company became a party to an equipment supply agreement with Nortel Networks Inc., in which the Company agreed to purchase approximately $49.5 million of cell site and switching equipment between November 16, 2001 and July 15, 2005. Of the commitment, approximately $25.7 million remained at September 30, 2002. If the Company fails to fully meet this commitment by July 15, 2005, it could be forced to pay a penalty of up to 20% of the unfulfilled commitment. The Company expects to fulfill its purchase commitment under this agreement prior to its completion date.

AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8. Change in Accounting Principles and Practices

In July 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets.” These standards prohibit the application of the pooling-of-interests method of accounting for business combinations effective June 30, 2001 and require companies to cease the amortization of existing goodwill and intangible assets with indefinite lives effective January 1, 2002. As a result of the adoption of SFAS No. 142, the Company reassessed the useful lives of it intangible assets. A significant portion of its intangible assets are classified as “Wireless license acquisition costs,” which represents the costs associated with acquiring its FCC licenses. These licenses allow the Company to provide wireless services by giving the Company the exclusive right to utilize certain radio frequency spectrum. Although the FCC licenses are issued for only a fixed time, generally ten years, these licenses are renewed by the FCC on a routine basis and for a nominal fee. In addition, the Company has determined that there are no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of these FCC licenses. As a result, the Company’s wireless license acquisition costs are treated as indefinite life intangible assets. Therefore, upon implementing SFAS No. 142 in its entirety on January 1, 2002, the Company ceased the amortization of both goodwill and wireless license acquisition costs and now tests for impairment of goodwill and wireless license acquisition costs at least annually and only adjusts the carrying amount of these intangible assets upon an impairment of the goodwill or wireless license acquisition costs. The Company also determines on an annual basis whether facts and circumstances continue to support an indefinite useful life. For the three and nine months ended September 30, 2001, the Company recorded approximately $14.8 million and $43.8 million of amortization expense related to its goodwill and approximately $8.9 million and $25.9 million of amortization expense, net of income tax benefit, related to its wireless license acquisition costs. Without this amortization, the Company’s earnings applicable to common stockholder would have been $7.5 million and $33.0 million for the three and nine months ended September 30, 2001.

Through December 31, 2001, the Company’s accounting policy for impairment of long-lived assets was based on the provisions of SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” In accordance with SFAS No. 121, the Company’s policy was to review the carrying value of long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If such circumstances were deemed to exist, the carrying value of the asset would be compared to the estimated undiscounted future cash flows generated by the asset. In accordance with SFAS No. 121, the Company’s definite life assets will continue to be amortized over their estimated useful lives and are subject to SFAS No. 121 impairment criteria. As a result of fully implementing SFAS No. 142 on January 1, 2002, the Company is now required to evaluate the carrying value of its indefinite life intangible assets using their fair values, at least annually. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess.

Upon implementation of SFAS No. 142 on January 1, 2002, the Company first performed a comparison of the carrying amount of its wireless license acquisition costs to the fair value of those assets. For purposes of this comparison, it is the Company’s policy to aggregate its wireless license acquisition costs. The Company determined the fair value of its wireless license acquisition costs based on their estimated future discounted cash flows. Based on the comparison, the Company determined that the carrying amount of its wireless license acquisition costs exceeded their estimated fair value. As a result, the Company recorded a charge in the first quarter of 2002, net of income tax benefit, of approximately $281.6 million to reflect the write-down of its wireless license acquisition costs to their fair value. The Company then assessed the carrying amount of its goodwill for possible impairment. For goodwill, there is a two-step approach for assessing impairment. The first step requires a comparison of the fair value of the Company to its carrying amount, including goodwill. The Company’s fair value was determined based on estimated future discounted cash flows. It was determined that the estimated fair value of the Company exceeded its carrying amount and thus, its goodwill was not

AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

deemed to be impaired. Since the Company’s goodwill was not deemed to be impaired, the second step of the impairment test, which is used to measure the amount of impairment loss was not required to be completed upon implementation of SFAS No. 142. See Note 9.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” However, it maintains the fundamental provisions of SFAS No. 121 for recognition and measurement of the impairment of long-lived assets to be held and used and for measurement of long-lived assets to be disposed of by sale. This statement applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business,” for the disposal of segments of a business. This statement requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell. During the fourth quarter 2001, two of the Company’s wholly-owned, indirect subsidiaries, entered into a definitive agreement to sell Tennessee 4 RSA. With this sale, the Company decided to early adopt this standard during the fourth quarter 2001, effective January 1, 2001, to properly reflect the results of operations, assets and liabilities of Tennessee 4 RSA as discontinued operations. See Note 2 above.

9. Goodwill Impairment

Based on factors and circumstances impacting the Company and the business climate in which it operates, as of June 30, 2002, the Company determined that it was necessary to re-evaluate the carrying value of its goodwill and indefinite life intangible assets in accordance with SFAS No. 142. The legal factors include the non-compliance with the Company’s total leverage ratio covenant in its senior credit facility, which gave the Company’s lenders the right to accelerate the repayment of the entire amount outstanding under the credit facility. In addition, the Company’s business climate was impacted due to the fact that the rural wireless industry had continued to experience a significant deterioration in public equity valuations during the second quarter of 2002. As a result of the re-evaluation of the Company’s wireless license acquisition costs and goodwill, the Company concluded that the fair value of its wireless license acquisition costs, as determined upon implementation of SFAS No. 142, had not changed and deemed that there was no further impairment of these assets. In performing the impairment test on its goodwill, the Company concluded that the overall assumptions used in first quarter 2002 were still valid with the exception of the risk-based discount factor and enterprise valuations. With the revised assumptions at June 30, 2002, the Company determined that its carrying value of its goodwill exceeded its fair value. In accordance with SFAS 142, the Company proceeded with determining the implied fair value of its goodwill and based on a comparison of the implied fair value of its goodwill to its carrying amount, the Company recorded an impairment loss totaling $377.0 million.

10. Reclassifications

Certain items have been reclassified in the 2001 and 2002 condensed consolidated financials to conform to the current presentation.


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

The following discussion and analysis presents factors, which we believe are relevant to an assessment and understanding of our condensed consolidated financial position and results of operations. This financial and business analysis should be read in conjunction with our condensed consolidated financial statements and the related notes.

Overview

We provide rural and suburban wireless telephone services in portions of Illinois, Kansas, Kentucky, Michigan, Minnesota, New York, Ohio, Oklahoma, Pennsylvania, West Virginia and Wisconsin. At September 30, 2002, our wireless systems covered a population of approximately 5.0 million and we had approximately 673,100 subscribers. We are owned by a joint venture, which is equally owned by AT&T Wireless and Dobson Communications.

Discontinued Operations

On February 8, 2002, we sold Tennessee 4 RSA to Verizon Wireless for a total purchase price of $202.0 million. The Tennessee 4 RSA covered a population of approximately 290,800 and had a subscriber base of approximately 24,900. As a result of this sale, the results of operations for Tennessee 4 RSA during the periods presented are included as discontinued operations in our condensed consolidated financial statements. We used the proceeds primarily to pay down our bank debt.

Subscribers

Our subscriber base contains three types of subscribers; post-paid, reseller and pre-paid. Post-paid subscribers account for the largest portion of our subscriber base, at 95.5%. These subscribers pay a monthly access fee for a wireless service plan that generally includes a fixed amount of minutes and certain service features. In addition to the monthly access fee, these subscribers are typically billed in arrears for long-distance charges, roaming charges and rate plan overages. Our reseller subscribers are similar to our post-paid subscribers in that they pay monthly fees to utilize our network and services, however, these subscribers are billed by a third party (reseller), who has effectively resold our service to the end user (subscriber). We in turn bill the third party for the monthly usage of the end user. The reseller base accounts for 3.9% of our total subscriber base. Our pre-paid subscribers, which account for less than 1% of our subscriber base, are subscribers that pre-pay for an agreed upon amount of minutes.

Our average monthly revenue per subscriber and total gross additions are calculated and reported based only on post-paid subscriber information.

Revenue

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

We derive service revenue primarily by providing wireless services to our subscribers. The industry has experienced declining average revenue per minute as competition among wireless service providers has led to reductions in rates for airtime. The per minute yield on our service revenue (service revenue divided by subscriber minutes of use) was $0.18 and $0.22 per minute for the three months ended September 30, 2002 and 2001, and $0.18 and $0.23 per minute for the nine months ended September 30, 2002 and 2001. These declines have generally been offset by significant increases in average minutes-of-use per subscriber. The average minute-of-use per subscriber increased 23.2% and 27.4% for the three and nine months ended September 30, 2002, compared to the same periods in 2001. We believe that the industry trend toward increasing minutes of use per subscriber will continue to offset declining revenues per minute of use due to the continued popularity of single rate calling plans and the enhanced service capacity of recently developed digital networks.

We derive roaming revenue by providing service to subscribers of other wireless providers when those subscribers “roam” into our markets and use our systems to carry their calls. Roaming revenue accounted for

32.4% and 34.5% of our operating revenue for the three months ended September 30, 2002 and 2001, and 30.1% and 32.3% of our operating revenue for the nine months ended September 30, 2002 and 2001. Roaming revenue typically yields slightly higher average per minute rates and higher margins than revenues from our subscribers. We achieve these higher margins because we incur relatively lower incremental costs related to network operations, billing, customer service and collections in servicing roaming customers as compared to our home subscribers. However, even though roaming revenue yields have offered higher margins than revenue from our subscribers, the yields are declining and are becoming more comparable to yields from our subscribers due to increased market pressures and competition between wireless providers. Our roaming yield (roaming revenue, which includes airtime, toll charges and surcharges, divided by roaming minutes of use) was $0.26 and $0.38 per minute for the three months ended September 30, 2002 and 2001, and $0.28 and $0.39 per minute for the nine months ended September 30, 2002 and 2001. We believe that the trend of increasing roaming minutes will continue to at least partially offset declining roaming yields. Roaming minutes increased 45.8% and 43.3% for the three and nine months ended September 30, 2002, compared to the same periods in 2001. Roaming yields are decreasing as a result of new contracts and scheduled rate reductions in existing contracts. We believe these roaming contracts are beneficial because they secure existing traffic and provide opportunity for a continuing increase in the volume of traffic. Roaming revenue tends to be impacted by seasonality. We typically have higher roaming revenue during the second and third quarters of each year, as users tend to travel more and, therefore, use their wireless phones more during the spring and summer months.

We include long-distance revenue in service and roaming revenue. Equipment revenue is revenue from selling wireless equipment to our subscribers. Equipment revenue is recognized when the equipment is delivered to the customer. Our ability to sell wireless equipment is independent of our ability to offer wireless services to our customer; therefore, we consider equipment sales a separate earnings process and account for it accordingly.

Costs and Expenses

Our primary operating expense categories include cost of service, cost of equipment, marketing and selling costs, general and administrative costs and depreciation and amortization.

Our cost of service consists primarily of costs to operate and maintain our facilities utilized in providing service to customers and amounts paid to third-party wireless providers for providing service to our subscribers when our subscribers roam into their markets referred to as “roaming” costs. As discussed above with regard to service revenue, there is a continuing trend toward increasing minutes-of-use per subscriber. This includes minutes used by our subscribers when they roam into other providers’ markets. Consistent with this trend, our roaming expense per minute has declined. This decline in expense per minute has helped offset the increased expense from growth in minutes-of-use per subscriber.

Our cost of equipment represents the costs associated with telephone equipment and accessories sold. In recent years, we, like other wireless providers, have increased the use of discounts on phone equipment and free phone promotions for phones sold to our customers, as competition between service providers has intensified. As a result, we have incurred, and expect to continue to incur, losses on equipment sales. While we expect to continue these discounts and promotions, we believe that these promotions will result in increased revenue from increases in the number of wireless subscribers.

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

Our general and administrative costs include all infrastructure costs, including costs for customer support, billing, collections, and corporate administration. One of our principal owners, Dobson Communications, provides management and certain other services to us in accordance with a management agreement. We share corporate and shared call center costs incurred by Dobson Communications and us primarily based on the estimated subscribers and populations in our respective licensed areas.

Our depreciation and amortization expense represents the costs associated with the depreciation of our fixed assets and the amortization of certain intangible assets. Through December 31, 2001, these intangible assets primarily consisted of wireless license acquisition costs, goodwill and customer lists. However, with the implementation of SFAS No. 142, “Goodwill and Other Intangible Assets,” we have ceased the amortization of wireless license acquisition costs and goodwill effective January 1, 2002. See “Critical Accounting Policies and Practices” below for further details.

Critical Accounting Policies and Practices

We must necessarily use estimates in the presentation of our financial statements with respect to the effect of matters that are inherently uncertain. Our use of estimates and assumptions affects the reported amounts of assets, liabilities, and the amount of revenues and expenses we recognize for and during the reporting period.

Our general and administrative expenses and certain other operating expenses include all infrastructure costs, including costs for customer support, billing, collections and corporate administration. One of our principal owners, Dobson Communications, provides management and certain other services to us in accordance with a management agreement. We share corporate and shared call center costs with Dobson Communications based primarily on the estimated subscribers and populations in our respective licensed areas. If there were a change in the method used to allocate shared costs among Dobson Communications and us, the change could have a significant impact on our results of operations.

We depreciate our property, plant and equipment, and amortize our customer lists and other definite life intangible assets over their useful lives. These useful lives are based on our estimates of the period that the assets will generate revenue. In accordance with SFAS No. 121, our policy was to review the carrying value of our long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. With the implementation of SFAS No. 142, “Goodwill and Other Intangible Assets,” which requires companies to cease the amortization of existing goodwill and intangible assets with indefinite lives, we treat our wireless license acquisition costs as indefinite life intangible assets. Therefore, upon implementing SFAS No. 142 in its entirety on January 1, 2002, we ceased the amortization of both goodwill and wireless license acquisition costs and now test for impairment of the goodwill and wireless license acquisition costs at least annually and only adjust the carrying amount of these intangible assets upon an impairment of the goodwill or wireless license acquisition costs. We also determine on an annual basis whether facts and circumstances continue to support an indefinite useful life. This change in policy has and may continue to have a significant impact on our results of operations and financial position. For the three and nine months ended September 30, 2001, the aggregate amount of amortization expense attributable to our goodwill, was approximately $14.8 million and $43.8 million and the aggregate amount of amortization expense, net of income tax benefit, attributable to our wireless license acquisition costs was approximately $8.9 million and $25.9 million. Without this amortization, our earnings applicable to common stockholder would have been $7.5 million and $33.0 million for the three and nine months ended September 30, 2001.

Through December 31, 2001, our accounting policy for impairment of long-lived assets was based on the provisions of SFAS No. 121. In accordance with SFAS No. 121, our policy was to review the carrying value of our long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If such circumstances were deemed to exist, the carrying value of the asset would be compared to the estimated undiscounted future cash flows generated by the asset. In accordance with SFAS No. 121, our definite life assets will continue to be amortized over their estimated useful lives and are subject to SFAS No. 121 impairment criteria. As a result of fully implementing SFAS No. 142 on January 1, 2002, we are now required to evaluate the carrying value of our indefinite life intangible assets using their fair values, at least annually. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess. Upon implementation of this new pronouncement in its entirety, we recorded charges during the first quarter 2002, net of income tax benefit of approximately $281.6 million to reflect the write-down of our wireless license acquisition costs to their fair value.

Based on factors and circumstances impacting us and the business climate in which we operate as of June 30, 2002, we determined that it was necessary to re-evaluate the carrying value of our goodwill and indefinite life intangible assets in accordance with SFAS No. 142. The legal factors include the non-compliance with the our total leverage ratio covenant in our senior credit facility, which gave our lender’s the right to accelerate the repayment of the entire amount outstanding under our credit facility. In addition, our business climate was impacted due to the fact that the rural wireless industry had continued to experience a significant deterioration in public equity valuations during the second quarter of 2002. As a result of the re-evaluation of our wireless license acquisition costs and goodwill, we concluded that the fair value of our wireless license acquisition costs, as determined upon implementation of SFAS No. 142, had not changed and deemed that there was no further impairment of these assets. In performing the impairment test on our goodwill, we concluded that the overall assumptions used in first quarter 2002 were still valid with the exception of the risk-based discount factor and enterprise valuations. With the revised assumptions at June 30, 2002, we determined that our goodwill was impaired and as a result, we recorded an impairment loss totaling $377.0 million.

Results of Operations

In the text below, financial statement numbers have been rounded; however, the percentage changes are based on the actual financial statement numbers.


	*Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001*

Operating revenue. For the three months ended September 30, 2002, our total operating revenue increased $7.6 million, or 6.6%, to $124.2 million from $116.6 million for the comparable period in 2001.

The following table sets forth the components of our operating revenue for the three months ended September 30, 2002 and 2001.



			Three Months Ended September 30,


			2002					2001

			Amount		Percentage			Amount		Percentage


			($ in thousands)
Operating revenue:
	Service revenue		$	79,430		63.9	%	$	71,813		61.6	%
	Roaming revenue			40,237		32.4	%		40,154		34.5	%
	Equipment and other revenue			4,535		3.7	%		4,583		3.9	%

		Total	$	124,202		100.0	%	$	116,550		100.0	%

For the three months ended September 30, 2002, our service revenue increased $7.6 million, or 10.6%, to $79.4 million from $71.8 million for the three months ended September 30, 2001. The increase was primarily attributable to increased market penetration and subscriber usage. Our subscriber base increased 10% to 673,100 at September 30, 2002 from 610,400 at September 30, 2001. Even though we have experienced increased competition and market pressure, our average monthly service revenue per subscriber remained constant at $41 for the three months ended September 30, 2002 and 2001, because our service revenue has been positively impacted by changes in the mix of digital and analog subscribers in our subscriber base. On September 30, 2002, 84.1% of our subscriber base was on digital rate plans compared to 67.7% at September 30, 2001. Our digital subscribers tend to use more minutes in a larger home area than our analog subscribers.

For the three months ended September 30, 2002 and 2001, our roaming revenue remained constant at $40.2 million. Roaming minutes have increased by 45.8% from September 30, 2001 to September 30, 2002, however, our roaming revenue per minute-of-use has decreased by 31.3%.

For the three months ended September 30, 2002, our equipment and other revenue decreased $0.1 million, or 1.1%, to $4.5 million from $4.6 million for the three months ended September 30, 2001,

primarily due to the fact that our total gross subscriber additions have decreased. Gross subscriber additions were 49,900 for the three months ended September 30, 2002, compared to 54,300 for the same period in 2001.

Cost of service. For the three months ended September 30, 2002 and 2001, our total cost of service remained constant at $28.4 million. During the third quarter 2002, roaming costs accounted for 48% of our total cost of service. These roaming costs decreased by $3.8 million for the three months ended September 30, 2002, compared to the same period in 2001. This resulted from a 35% decline in rates charged by third-party wireless providers, resulting from new lower rate agreements, offset by a 21% increase in the minutes used by our subscribers on those providers’ networks. In addition to roaming costs, the remaining portions of our total cost of service are the costs related to operating our wireless network. These costs increased in total by $3.8 million, as a result of an increase of approximately $3.2 million in network costs such as leased circuits, interconnection charges and wholesale toll charges and an approximate $0.6 million increase in rent related to our cell sites. Network costs have increased due to increased minutes-of-use on our networks.

Cost of equipment. For the three months ended September 30, 2002, our cost of equipment increased $0.3 million, or 3.3%, to $9.1 million during 2002 from $8.8 million in 2001. This increase is primarily a result of writing-off approximately $0.6 million in obsolete inventory.

Marketing and selling costs. For the three months ended September 30, 2002, our marketing and selling costs increased $0.4 million, or 2.8%, to $15.0 million from $14.6 million for the three months ended September 30, 2001, due to increases in selling costs primarily as a result of increased advertising related to the introduction of a new line of rate plans earlier this year.

General and administrative costs. For the three months ended September 30, 2002, our general and administrative costs increased $2.4 million, or 15.0%, to $18.4 million from $16.0 million for the three months ended September 30, 2001. This increase is a result of increased infrastructure costs such as customer service, billing, collections and administrative costs as a result of the overall growth of our business. Our overall monthly general and administrative costs per subscriber remained constant at $9 for the three months ended September 30, 2002 and 2001.

Depreciation and amortization expense. For the three months ended September 30, 2002, our depreciation and amortization expense decreased $29.5 million, or 63.5%, to $17.0 million from $46.5 million for 2001. The decrease is a result of the implementation of SFAS No. 142, “Goodwill and other Intangible Assets”, which required companies to stop amortizing existing goodwill and intangible assets with indefinite lives effective January 1, 2002. Under this new rule we treat our wireless license acquisition costs as indefinite life intangible assets. For the three months ended September 30, 2001, the aggregate amount of amortization expense attributable to our goodwill was approximately $14.8 million and the aggregate amount of amortization expense attributable to wireless license acquisition costs was approximately $14.9 million.

Interest expense. For the three months ended September 30, 2002, our interest expense decreased $13.0 million, or 30.2%, to $29.9 million from $42.9 for the three months ended September 30, 2001. Of this decrease, $7.5 million resulted from the expiration of our interest rate swap agreement in June 2002. The remaining decrease primarily resulted from an overall decrease in our variable interest rates and the reduction of the outstanding balance on our credit facility.

Net income (loss). For the three months ended September 30, 2002, our net income was $4.3 million. Our net income increased $34.6 million from a net loss of $30.3 million for the three months ended September 30, 2001. The increase in our net income was primarily attributable to our increase in operating income, which resulted from decreases in interest expense and depreciation and amortization expense, as described above.

Dividends on preferred stock. For the three months ended September 30, 2002, our dividends on preferred stock were $1.2 million compared to $0.9 million for the three months ended September 30, 2001. This resulted from the issuance of 35,000 shares of our preferred stock to one of our principal owners, Dobson Communications, on June 29, 2001.


	*Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001*

Operating revenue. For the nine months ended September 30, 2002, our total operating revenue increased $27.0 million, or 8.6%, to $339.9 million from $312.9 million for the comparable period in 2001.

The following table sets forth the components of our operating revenue for the nine months ended September 30, 2002 and 2001.



			Nine Months Ended September 30,


			2002					2001

			Amount		Percentage			Amount		Percentage


			($ in thousands)
Operating revenue:
	Service revenue		$	225,877		66.5	%	$	198,119		63.3	%
	Roaming revenue			102,423		30.1	%		101,201		32.3	%
	Equipment and other revenue			11,595		3.4	%		13,626		4.4	%

		Total	$	339,895		100.0	%	$	312,946		100.0	%

For the nine months ended September 30, 2002, our service revenue increased $27.8 million, or 14.0%, to $225.9 million from $198.1 million for the nine months ended September 30, 2001. The increase was primarily attributable to increased market penetration and subscriber usage. Our subscriber base increased 10% to 673,100 at September 30, 2002 from 610,400 at September 30, 2001. Even though we have experienced increased competition and market pressure, our average monthly service revenue per subscriber increased to $40 for the nine months ended September 30, 2002, compared to $39 for the nine months ended September 30, 2001, because our average monthly service revenue per subscriber has been positively impacted by changes in the mix of digital and analog subscribers in our subscriber base. On September 30, 2002, 84.1% of our subscriber base was on digital rate plans compared to 67.7% at September 30, 2001. Our digital subscribers tend to use more minutes in a larger home area than our analog rate subscribers.

For the nine months ended September 30, 2002, our roaming revenue increased $1.2 million, or 1.2%, to $102.4 million from $101.2 million for the nine months ended September 30, 2001. Roaming minutes have increased by 43.3% from September 30, 2001 to September 30, 2002, however, our roaming revenue per minute-of-use has decreased by 29.4%.

For the nine months ended September 30, 2002, our equipment and other revenue decreased $2.0 million, or 14.9%, to $11.6 million from $13.6 million for the nine months ended September 30, 2001. This decrease primarily resulted from a slow-down in the migration of existing subscribers from analog to digital service, along with a decrease in gross subscriber additions. Gross subscriber additions were 145,400 for the nine months ended September 30, 2002 compared to 146,900 for the nine months ended September 30, 2001.

Cost of service. For the nine months ended September 30, 2002, our total cost of service increased $7.1 million, or 9.2%, to $85.0 million from $77.9 million for the comparable period in 2001. During the nine months ended September 30, 2002, roaming costs accounted for 54% of our total cost of service. These roaming costs decreased by $0.9 million for the nine months ended September 30, 2002, compared to the same period in 2001. This resulted from a 26% decline in rates charged by third-party wireless providers, resulting from new lower rate agreements, offset by a 32% increase in the minutes used by our subscribers on those providers’ networks. In addition to roaming costs, the remaining portions of our total cost of service are the costs related to operating our wireless network. These costs increased in total by $8.0 million, as a result of an approximate $4.5 million increase in network costs such as leased circuits, interconnection charges and wholesale toll charges, approximately $2.3 million increase in cost of service features and an approximate $2.5 million increase in rent related to our cell site, offset by an approximate $1.3 million decrease in repairs and utilities related to our cell site. Network costs have increased due to increased minutes-of-use on our networks.

Cost of equipment. For the nine months ended September 30, 2002, our cost of equipment decreased $5.4 million, or 18.3%, to $24.2 million during 2002 from $29.6 million in 2001. This decrease primarily

resulted from a slow-down in the migration of existing subscribers from analog to digital service, along with a decrease in gross subscriber additions. We migrated 43,200 subscribers from analog to digital service during the nine months ended September 30, 2002, compared to 58,400 for the nine months ended September 30, 2001.

Marketing and selling costs. For the nine months ended September 30, 2002, our marketing and selling costs increased slightly by $1.0 million, or 2.4%, to $43.4 million from $42.4 million for the nine months ended September 30, 2001 due to a slight increase in selling costs primarily as a result of increased advertising related to the introduction of a new line of rate plans in the second quarter of 2002.

General and administrative costs. For the nine months ended September 30, 2002, our general and administrative costs increased $7.0 million, or 15.7%, to $52.0 million from $45.0 million for the nine months ended September 30, 2001. This increase is a result of increased infrastructure costs such as customer service, billing, collections and administrative costs as a result of the overall growth of our business. Our overall monthly general and administrative costs per subscriber remained constant at $9 for the nine-month periods ended September 30, 2002 and 2001.

Depreciation and amortization expense. For the nine months ended September 30, 2002, our depreciation and amortization expense decreased $85.2 million, or 63.2%, to $49.7 million from $134.9 million for 2001. The decrease is a result of the implementation of SFAS No. 142, “Goodwill and other Intangible Assets”, which required companies to stop amortizing existing goodwill and intangible assets with indefinite lives effective January 1, 2002. Under this new rule we treat our wireless license acquisition costs as indefinite life intangible assets. For the nine months ended September 30, 2001, the aggregate amount of amortization expense attributable to our goodwill was approximately $43.8 million and the aggregate amount of amortization expense attributable to our wireless license acquisition costs was approximately $43.2 million.

Interest expense. For the nine months ended September 30, 2002, our interest expense decreased $14.6 million, or 11.8%, to $109.2 million from $123.8 for the nine months ended September 30, 2001. The entire decrease resulted from an overall decrease in our variable interest rates and the reduction of the outstanding balance on our credit facility.

Impairment on Goodwill. For the nine months ended September 30, 2002, we recognized an impairment of our goodwill totaling $377.0 million. This impairment was a result of our June 30, 2002 re-evaluation of our carrying values of goodwill and indefinite life intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.”

Loss from discontinued operations. For the nine months ended September 30, 2002, we had a net loss from discontinued operations of $0.7 million, compared to $1.3 million for the nine months ended September 30, 2001. These losses from discontinued operations reflect our losses from Tennessee 4 RSA, which we sold to Verizon Wireless on February 8, 2002.

Gain from sale of discontinued operations. For the nine months ended September 30, 2002, we had a gain from sale of discontinued operations of $13.5 million, net of tax. This gain reflects our sale of our Tennessee 4 RSA market, which we sold to Verizon Wireless on February 8, 2002.

Cumulative effect of change in accounting principle. For the nine months ended September 30, 2002 we recognized an impairment on our wireless license acquisition costs of approximately $281.6 million, net of tax benefit, as a result of implementing SFAS No. 142 “Goodwill and Other Intangible Assets”.

Net loss. For the nine months ended September 30, 2002, our net loss was $659.5 million. Our net loss increased $557.7 million from $101.8 million for the nine months ended September 30, 2001. The increase in our net loss was primarily attributable to our impairment of goodwill and the cumulative effect of change in accounting principle related to the implementation of SFAS No. 142, both described above.

Dividends on preferred stock. For the nine months ended September 30, 2002, our dividends on preferred stock were $3.4 million compared to $0.9 million for the nine months ended September 30, 2001. This resulted from the issuance of 35,000 shares of our preferred stock to one of our principal owners, Dobson Communications, on June 29, 2001.

Liquidity and Capital Resources

We have required, and will likely continue to require, substantial capital to further develop, expand and upgrade our wireless systems and those we may acquire. We have financed our operations through cash flows from operating activities, bank debt, which may not be available to us in the future, the sale of debt securities and infusions of equity capital from one of our parents and its affiliates. Neither Dobson Communications nor AT&T Wireless is obligated to contribute equity capital or other financing to our subsidiaries or us.


	*Net Cash Flow*

At September 30, 2002, we had a working capital deficit of $1.6 billion, a ratio of current assets to current liabilities of 0.08:1 and an unrestricted cash balance of $6.0 million, which compares to a working capital deficit of $10.5 million, a ratio of current assets to current liabilities of 0.9:1 and an unrestricted cash balance of $6.0 million at December 31, 2001. Our working capital deficit and ratio of current assets to current liabilities have both been negatively impacted as a result of our reclassification of our long-term debt to current.

Our net cash provided by operating activities totaled $20.6 million for the nine months ended September 30, 2002 compared to $13.0 million for the nine months ended September 30, 2001. The increase in our cash provided is primarily a result of our increased operating income and reductions in interest expense, offset by changes in current assets and liabilities.

Our net cash provided by investing activities totaled $156.6 million for the nine months ended September 30, 2002 compared to net cash used in investing activities of $64.8 million for the nine months ended September 30, 2001. This increase is related primarily to the net proceeds from the sale of Tennessee 4 RSA to Verizon Wireless for a total of approximately $202.6 million, less approximately $8.2 million reserved in escrow and a decrease in capital expenditures. Capital expenditures were $38.8 million for the nine months ended September 30, 2002 and $63.4 million for the nine months ended September 30, 2001.

Net cash used in financing activities was $177.1 million for the nine months ended September 30, 2002 compared to net cash provided by financing activities of $47.0 million for the nine months ended September 30, 2001. This decrease is primarily due to proceeds from senior subordinated notes of $693.0 million, proceeds from long term debt of $163.0 million and investment from Dobson Communications of $35.0 million, offset by repayment of long term debt of $709.1 million and purchase of restricted investment of $133.2 million for the nine months ended September 30, 2001. Financing activity sources for the nine months ended September 30, 2002 consisted of proceeds from long-term debt of $127.8 million and maturities of restricted investments of $33.3 million, which were offset by repayments of long-term debt totaling $336.5 million.


	*Capital Resources*

On February 25, 2000, we obtained a $1.75 billion bank credit facility that included a $300.0 million revolving credit facility and $1.45 billion of term loan facilities. Our credit facility was amended on March 14, 2001, when we permanently repaid $200.0 million of the term loan. We used proceeds from the issuance of our $450.0 million Senior Subordinated Notes due 2009, to reduce our credit facility to $1.55 billion. We further amended our credit facility on June 4, 2001, when we permanently repaid $201.3 million of the term loan with proceeds from our issuance of $250.0 million Senior Subordinated Notes due 2009, which reduced our credit facility to $1.34 billion. On September 27, 2001, our lenders and we agreed to a third amendment of the credit facility, which modified certain financial covenants (as described below). In addition to our financial covenants, we are required to make prepayments of proceeds received from significant asset sales, new borrowings and a portion of excess cash flow. Therefore, when we completed the sale of Tennessee 4 RSA to Verizon Wireless for a total purchase price of $202.0 million during February 2002, we permanently prepaid approximately $190.0 million of this credit facility. The maximum availability of the credit facility is limited by restrictions, such as certain financial ratios. As of September 30, 2002, we had outstanding borrowings under our credit facility of $904.9 million, with no additional amounts available for future borrowings.

Our amended credit facility imposes a number of restrictive covenants that, among other things, limit our ability to incur additional indebtedness, create liens and pay dividends. In addition, we are required to maintain certain financial ratios, including, but not limited to:


	•	a ratio of senior indebtedness to operating cash flow of 7.00 to 1 at December 31, 2001, decreasing to 5.75 to 1 at December 31, 2002 and decreasing over time to 2.50 to 1;

	•	a ratio of total indebtedness to operating cash flow of 10.10 to 1 at December 31, 2001, decreasing to 7.75 to 1 at December 31, 2002 and decreasing over time to 4.00 to 1;

	•	a ratio of operating cash flow to debt service requirements of 1.20 to 1 at December 31, 2001, increasing to 1.35 to 1 at December 31, 2002 and decreasing over time to 1.20 to 1;

	•	a ratio of operating cash flow to interest expense requirement of 1.45 to 1 at December 31, 2001, increasing to 1.80 to 1 at December 31, 2002 and increasing over time to 2.50 to 1;

	•	beginning on December 31, 2002, a ratio of operating cash flow minus capital expenditures to the sum of debt service requirements and cash distributions of 1.00 to 1 and continuing over time at 1.00 to 1; and

	•	a limitation on capital expenditures.

Interest on the revolving credit facility and the term loan facilities is variable and is based on a prime rate or a LIBOR formula. The weighted average interest rate for the nine months ended September 30, 2002 was 4.8% and interest rates have ranged in total between 4.4% and 10.1% since inception.

Our credit facility includes a financial covenant requiring that we not exceed a total debt leverage ratio ranging from 9.25 to 1.00 in the first quarter to 7.75 to 1.00 in the fourth quarter 2002. At June 30, 2002 and September 30, 2002, we failed to comply with this covenant. We have had and will continue to have discussions with our lenders regarding our credit facility. Our lenders presently have the right, but not the obligation, to accelerate the repayment of the entire amount outstanding under the credit facility. Acceleration under the credit facility would allow the holders of our Senior Subordinated Notes to declare the principal and interest of the Senior Subordinated Notes immediately due and payable. We would then be required to either refinance the debt or repay the amounts due. If this were to occur, we would attempt to renegotiate the debt with the holders to provide, among other things, for an extended repayment term. We can provide no assurance that we would be able to renegotiate the debt under these conditions or meet our obligation under the accelerated repayment terms. Therefore, as of June 30, 2002 and as of September 30, 2002, we classified all of our long-term debt as current. Unless such non-compliance is resolved, there continues to be substantial doubt about our ability to continue as a going concern, as expressed in the independent auditors report on our 2001 financial statements. Also as a result of our non-compliance, subsequent to September 30, 2002, all borrowings under our credit facility are only available based on prime rate, which will increase our borrowing rate in the future.

During the nine months ended September 30, 2002, our total scheduled principal payments were approximately $27.2 million under this facility. During the remainder of 2002, we will be required to make additional scheduled principal payments totaling $10.6 million. In addition, during 2003, we will be required to make scheduled principal payments totaling $56.8 million.

On March 14, 2001, we sold $450.0 million Senior Subordinated Notes due 2009 at a discount of $3.3 million that carry an interest rate of 9.5%. The discount will be amortized over the life of the notes. On June 4, 2001, we sold $250.0 million of Senior Subordinated Notes due 2009 at a discount of $3.6 million that carry an interest rate of 9.5%. The discount will be amortized over the life of the notes.

On June 29, 2001, we received $35.0 million from Dobson Communications Corporation from its purchase of 35,000 shares of our 12.0% Series A Preferred Stock.


	*Capital Commitments*

We had capital expenditures of $38.8 million for the nine months ended September 30, 2002. We have budgeted approximately $55.0 million for capital expenditures in 2002, of which, approximately $5.0 million to $10.0 million will be used to begin our GSM/GPRS overlay. We plan on investing in our property and equipment from operating cash flows expected to be generated during the remainder of 2002. The amount and timing of capital expenditures may vary depending on the rate at which we expand and develop our wireless systems, whether we consummate additional acquisitions and whether we renegotiate our credit facility, as described above.

On November 16, 2001, (as amended through August 5, 2002), we became a party to an agreement to purchase approximately $49.5 million of cell site and switching equipment from Nortel Network Corp. prior to July 15, 2005. Approximately $25.7 million of the commitment remained outstanding at September 30, 2002. If we fail to fully meet this commitment by July 15, 2005, we could be forced to pay a penalty of up to 20% of the unfulfilled commitment. We expect to substantially fulfill our purchase commitment under this agreement prior to its scheduled completion date. We have and will continue to finance our purchases under this commitment using cash flows from operations or funds available under our credit facility.

At September 30, 2002, we had $6.0 million of unrestricted cash and $75.2 million in restricted cash, of which $67.0 million of the restricted cash was in escrow to pay interest. We anticipate that our cash flow from operations, along with this cash, will be sufficient to meet our short-term cash needs. If we are successful in renegotiating our debt as described above, we would expect to have sufficient resources to satisfy our expected capital expenditures, working capital and debt service obligations over the next year. However, we cannot provide any assurance that we will be successful in renegotiating our debt or that any such financing will be available on acceptable terms or at all.

Effect of New Accounting Standards

In July 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets.” These standards prohibit the application of the pooling-of-interests method of accounting for business combinations effective June 30, 2001 and require companies to cease the amortization of existing goodwill and intangible assets with indefinite lives effective January 1, 2002. As a result of the adoption of SFAS No. 142, we reassessed the useful lives of our intangible assets. A significant portion of our intangible assets are classified as “Wireless license acquisition costs,” which represents the costs associated with acquiring our FCC licenses. These licenses allow us to provide wireless services by giving us the exclusive right to utilize certain radio frequency spectrum. Although the FCC licenses are issued for only a fixed time, generally ten years, these licenses are renewed by the FCC on a routine basis and for a nominal fee. In addition, we have determined that there are no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of these FCC licenses. As a result, our wireless license acquisition costs are treated as indefinite life intangible assets. Therefore, upon implementing SFAS No. 142 in its entirety on January 1, 2002, we ceased the amortization of both goodwill and wireless license acquisition costs and now test for impairment of goodwill and wireless license acquisition costs at least annually and only adjust the carrying amount of these intangible assets upon an impairment of the goodwill or wireless license acquisition costs. We also determine on an annual basis whether facts and circumstances continue to support an indefinite useful life. For the three and nine months ended September 30, 2001, we recorded approximately $14.8 million and $43.8 million of amortization expense related to our goodwill and approximately $8.9 million and $25.9 million of amortization expense, net of income tax benefit, related to our wireless license acquisition costs. Without this amortization, our earnings applicable to common stockholder would have been $7.5 million and $33.0 million for the three and nine months ended September 30, 2001.

Through December 31, 2001, our accounting policy for impairment of long-lived assets was based on the provisions of SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of.” In accordance with SFAS No. 121, our policy was to review the carrying value of long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that

the carrying value may not be recoverable. If such circumstances were deemed to exist, the carrying value of the asset would be compared to the estimated undiscounted future cash flows generated by the asset. In accordance with SFAS No. 121, our definite life assets will continue to be amortized over their estimated useful lives and are subject to SFAS No. 121 impairment criteria. As a result of fully implementing SFAS No. 142 on January 1, 2002, we are now required to evaluate the carrying value of our indefinite life intangible assets using their fair values, at least annually. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess.

Upon implementation of SFAS No. 142 on January 1, 2002, we first performed a comparison of the carrying amount of our wireless license acquisition costs to the fair value of those assets. For purposes of this comparison, it is our policy to aggregate our wireless license acquisition costs. We determined the fair value of our wireless license acquisition costs based on their estimated future discounted cash flows. Based on the comparison, we determined that the carrying amount of our wireless license acquisition costs exceeded their estimated fair value. As a result, we recorded a charge in the first quarter of 2002, net of income tax benefit, of approximately $281.6 million to reflect the write-down of our wireless license acquisition costs to their fair value. We then assessed the carrying amount of our goodwill for possible impairment. For goodwill, there is a two-step approach for assessing impairment. The first step requires an evaluation of our fair value as a company to our carrying amount, including goodwill. Our fair value was determined based on estimated future discounted cash flows. It was determined that our estimated fair value as a company exceeded our carrying amount and thus, our goodwill was not deemed to be impaired. Since our goodwill was not deemed to be impaired, the second step of the impairment test, which is used to measure the amount of impairment loss was not required to be completed.

In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement provides accounting and reporting standards for costs associated with the retirement of long-lived assets. It requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. We have not yet determined the effect that this new accounting standard may have on our results of operations, financial position and cash flows. We will be required to implement this standard effective January 1, 2003.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” However, it maintains the fundamental provisions of SFAS No. 121 for recognition and measurement of the impairment of long-lived assets to be held and used and for measurement of long-lived assets to be disposed of by sale. This statement applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business,” for the disposal of segments of a business. This statement requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell. During the fourth quarter 2001, two of our wholly-owned, indirect subsidiaries, entered into a definitive agreement to sell Tennessee 4 RSA. As a result of this sale, we elected to early adopt this standard during the fourth quarter 2001, effective January 1, 2001 to properly reflect the operations, assets and liabilities of Tennessee 4 RSA as discontinued operations in our condensed consolidated financial statements. Tennessee 4 RSA was sold to Verizon Wireless on February 8, 2002 and proceeds were used to pay down long-term debt.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 will be effective for fiscal years beginning after May 15, 2002, and upon adoption, we must reclassify extraordinary losses on extinguishment of debt as interest expense in the prior periods that have had extraordinary losses on debt extinguishments.

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. We do not expect the adoption of SFAS No. 146 to have a material effect on our financial condition or operations.

Forward-Looking Statements

The description of our plans set forth herein, including planned capital expenditures and acquisitions, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These plans involve a number of risks and uncertainties. Important factors that could cause actual capital expenditures, acquisition activity or our performance to differ materially from the plans include, without limitation, our ability to satisfy the financial covenants of our outstanding debt and preferred stock instruments and to raise additional capital; our ability to manage our rapid growth successfully and to compete effectively in our wireless business against competitors with greater financial, technical, marketing and other resources; changes in end-user requirements and preferences; the development of other technologies and products that may gain more commercial acceptance than those of ours; and adverse regulatory changes. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update or revise these forward-looking statements to reflect events or circumstances after the date hereof including, without limitation, changes in our business strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events.


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

Our primary market risk relates to changes in interest rates. Market risk is the potential loss arising from adverse changes in market prices and rates, including interest rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes. The objective of our financial risk management is to minimize the negative impact of interest rate fluctuations on our earnings and equity. At September 30, 2002, we were not involved with any derivatives or other financial instruments, due to the fact that our previous interest rate swaps expired on June 4, 2002.

At September 30, 2002, we had long-term debt outstanding of $1.6 billion, of which, $904.9 million bears interest at floating rates. These rates averaged 4.8% for the nine months ended September 30, 2002. One percentage point of an interest rate adjustment would change our interest expense on an annual basis by approximately $9.0 million.


Item 4.	*Controls and Procedures*

Within the 90-day period prior to the filing of this report, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934). Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective.

There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

PART II.

OTHER INFORMATION


Item 1.	*Legal Proceedings*

Not applicable


Item 2.	*Changes in Securities and Use of Proceeds*

Not applicable


Item 3.	*Defaults Upon Senior Securities*

We are not in compliance with a financial covenant contained in our $1.75 billion bank credit facility. This credit facility includes a financial covenant requiring that we not exceed a total debt leverage ratio ranging from 9.25 to 1.00 in the first quarter to 7.75 to 1.00 in the fourth quarter 2002. At September 30, 2002, we were not in compliance with this covenant. Our lenders have the right, but not the obligation, to accelerate the repayment of the entire amount outstanding under the credit facility.


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

Not applicable


Item 5.	*Other Information*

Not applicable


Item 6.	*Exhibits and Reports on Form 8-K*


*(a)*	*Exhibits*

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


Exhibit			Method of
Numbers		Description	Filing

	3.1	Fourth Restated Certificate of Incorporation of American Cellular Corporation		(1)[3.1]
	3.1.1	Amendment to Fourth Restated Certificate of Incorporation of American Cellular Corporation		(5)[3.1.1]
	3.1.2	Certificate of Designation for the Series A Preferred Stock of American Cellular Corporation		(5)[3.1.2]
	3.2	Amended and Restated Bylaws of Registrant		(1)[3.2]
	4.1	Second Amended and Restated Limited Liability Company Agreement of ACC Acquisition LLC, dated February 25, 2000, between AT&T Wireless Services JV Co. and Dobson JV Company		(1)[4.1]
	4.2	Indenture dated March 14, 2001 between American Cellular Corporation and United States Trust Company of New York		(1)[4.2]
	4.3	Escrow and Security Agreement dated March 14, 2001 between American Cellular Corporation and United States Trust Company of New York		(1)[4.3]
	4.4	Registration Rights Agreement dated March 14, 2001 between American Cellular Corporation, Lehman Brothers, Inc. and Banc of America Securities LLC		(1)[4.4]
	4.5	Escrow and Security Agreement dated June 4, 2001 between American Cellular Corporation and United States Trust Company of New York		(4)[4.5]
	4.6	Registration Rights Agreement dated June 4, 2001 between American Cellular Corporation, Banc of America Securities LLC and Lehman Brothers, Inc.		(4)[4.6]
	4.7	First Amendment to Credit Agreement dated March 2, 2001		(1)[10.4.1]
	4.8	Second Amendment to Credit Agreement dated May 31, 2001		(2)[10.4.2]
	4.9	Third Amendment to Credit Agreement dated September 27, 2001		(5)[10.4.3]


Exhibit			Method of
Numbers		Description	Filing

	4.9.9	Limited Waiver to Credit Agreement dated April 10, 2002		(6)[10.4.4]
	10.1	Amended and Restated Management Agreement, dated February 25, 2000, between Dobson Cellular Systems, Inc. and of ACC Acquisition LLC		(1)[10.1]
	10.2	Amended and Restated Operating Agreement, dated February 25, 2000, between Dobson Cellular Systems, Inc. (and its affiliates) and ACC Acquisition LLC (and its affiliates)		(1)[10.2]
	10.3	Amended and Restated Operating Agreement, dated February 25, 2000, between AT&T Wireless Services, Inc. (and its affiliates) and ACC Acquisition LLC (and its affiliates)		(1)[10.3]
	10.3.1	Addendum to Amended and Restated Operating Agreement between AT&T Wireless Services, Inc. (and its affiliates) and ACC Acquisition, LLC (and its affiliates) dated May 8, 2002		(7)[10.3.1]
	10.4	Credit Agreement, dated February 25, 2000, among American Cellular Corporation, Bank of America, N.A., CIBC World Market Corp., Barclays Bank PLC, Lehman Commercial Paper Inc., TD Securities Inc. and others		(1)[10.4]
	10.5*	License Agreement, dated October 8, 2001, by and between H.O. Systems, Inc. and American Cellular Corporation		(5)[10.5]
	10.6*	Purchase and License Agreement between Nortel Networks, Inc. and Dobson Communications Corporation, dated November 16, 2001		(5)[10.6]
	10.6.1*	Amendment No. 1 to the Purchase and License Agreement between Nortel Networks, Inc. and Dobson Communications Corporation, dated August 5, 2002		(8)
	10.7	Form of License Agreement among Cellular One Group and various subsidiaries of American Cellular Corporation		(1)[10.7]
	10.8	Intercarrier Roamer Service Agreement, dated January 23, 1997, between American Cellular Corporation, as successor to PriCellular Corporation and United States Cellular Corporation		(1)[10.8]
	10.9.1	Letter Agreement dated July 5, 2000 accepting American Cellular Corporation as an affiliate of Dobson Cellular Systems, Inc.		(1)[10.9.1]
	10.11	Intercarrier Roamer Service Agreement, dated January 16, 1997, between Licensees and Permittees (as defined in the Agreement) and American Cellular Corporation, successor to PriCellular Corporation		(1)[10.16]
	10.12	Asset Purchase Agreement dated October 30, 2001 by and between ACC of Tennessee LLC, and Cellco Partnership, a Delaware general partnership, d/b/a Verizon Wireless		(3)[10.17]
	10.13*	InterCarrier Multi-Standard Roaming Agreement effective as of January 25, 2002, between Cingular Wireless, LLC and Dobson Cellular Systems, Inc. and its Affiliates, including American Cellular Corporation		(5)[10.13]


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


(1)	Filed as an exhibit to the Registrant’s Registration Statement on Form S-4 (registration No. 333-59322), as the exhibit number indicated in brackets and incorporated by reference herein.

(2)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, as the exhibit number indicated in brackets and incorporated by reference herein.

(3)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 31, 2001, as the exhibit number indicated in brackets and incorporated by reference herein.

(4)	Filed as an exhibit to the Registrant’s Registration Statement on Form S-4 (no. 333-63454) as the exhibit number indicated in brackets and incorporated by reference herein.

(5)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001, as the exhibit number indicated in brackets and incorporated by reference herein.


(6)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, as the exhibit number indicated in brackets and incorporated by reference herein.

(7)	Filed as an exhibit to the Registrant’s current report on Form 8-K on May 17, 2002 as the exhibit number indicated in brackets and incorporated by reference herein.

(8)	Filed herewith.


*(b)*	*Reports on Form 8-K*

Not Applicable

SIGNATURES

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


	AMERICAN CELLULAR CORPORATION

Date: November 14, 2002


	/s/ EVERETT R. DOBSON

	Everett R. Dobson
	President and Director

Date: November 14, 2002


	/s/ BRUCE R. KNOOIHUIZEN

	Bruce R. Knooihuizen
	Treasurer and Director
	(Principal Financial Officer)

CERTIFICATIONS FOR FORM 10-Q

I, Everett R. Dobson, President and Director, certify that:


	1. I have reviewed this quarterly report on Form 10-Q of American Cellular Corporation (the “registrant”);

	2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

	3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

	4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


	(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):


	(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


	6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses


	AMERICAN CELLULAR CORPORATION


November 14, 2002		By: /s/ EVERETT R. DOBSON Everett R. Dobson President and Director

CERTIFICATIONS FOR FORM 10-Q

I, Bruce R. Knooihuizen, Treasurer and Director, certify that:


	1. I have reviewed this quarterly report on Form 10-Q of American Cellular Corporation (the “registrant”);

	2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

	3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

	4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


	a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):


	a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


	6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses


	AMERICAN CELLULAR CORPORATION


November 14, 2002		By: /s/ BRUCE R. KNOOIHUIZEN Bruce R. Knooihuizen Treasurer and Director

INDEX TO EXHIBITS


Exhibit				Method of
Numbers			Description	Filing

	3.1		Fourth Restated Certificate of Incorporation of American Cellular Corporation	(1)[3.1]
	3.1.1		Amendment to Fourth Restated Certificate of Incorporation of American Cellular Corporation	(5)[3.1.1]
	3.1.2		Certificate of Designation for the Series A Preferred Stock of American Cellular Corporation	(5)[3.1.2]
	3.2		Amended and Restated Bylaws of Registrant	(1)[3.2]
	4.1		Second Amended and Restated Limited Liability Company Agreement of ACC Acquisition LLC, dated February 25, 2000, between AT&T Wireless Services JV Co. and Dobson JV Company	(1)[4.1]
	4.2		Indenture dated March 14, 2001 between American Cellular Corporation and United States Trust Company of New York	(1)[4.2]
	4.3		Escrow and Security Agreement dated March 14, 2001 between American Cellular Corporation and United States Trust Company of New York	(1)[4.3]
	4.4		Registration Rights Agreement dated March 14, 2001 between American Cellular Corporation, Lehman Brothers, Inc. and Banc of America Securities LLC	(1)[4.4]
	4.5		Escrow and Security Agreement dated June 4, 2001 between American Cellular Corporation and United States Trust Company of New York	(4)[4.5]
	4.6		Registration Rights Agreement dated June 4, 2001 between American Cellular Corporation, Banc of America Securities LLC and Lehman Brothers, Inc.	(4)[4.6]
	4.7		First Amendment to Credit Agreement dated March 2, 2001	(1)[10.4.1]
	4.8		Second Amendment to Credit Agreement dated May 31, 2001	(2)[10.4.2]
	4.9		Third Amendment to Credit Agreement dated September 27, 2001	(5)[10.4.3]
	4.9.9		Limited Waiver to Credit Agreement dated April 10, 2002	(6)[10.4.4]
	10.1		Amended and Restated Management Agreement, dated February 25, 2000, between Dobson Cellular Systems, Inc. and of ACC Acquisition LLC	(1)[10.1]
	10.2		Amended and Restated Operating Agreement, dated February 25, 2000, between Dobson Cellular Systems, Inc. (and its affiliates) and ACC Acquisition LLC (and its affiliates)	(1)[10.2]
	10.3		Amended and Restated Operating Agreement, dated February 25, 2000, between AT&T Wireless Services, Inc. (and its affiliates) and ACC Acquisition LLC (and its affiliates)	(1)[10.3]
	10.3.1		Addendum to Amended and Restated Operating Agreement between AT&T Wireless Services, Inc. (and its affiliates) and ACC Acquisition, LLC (and its affiliates) dated May 8, 2002	(7)[10.3.1]
	10.4		Credit Agreement, dated February 25, 2000, among American Cellular Corporation, Bank of America, N.A., CIBC World Market Corp., Barclays Bank PLC, Lehman Commercial Paper Inc., TD Securities Inc. and others	(1)[10.4]
	10.5*		License Agreement, dated October 8, 2001, by and between H.O. Systems, Inc. and American Cellular Corporation	(5)[10.5]
	10.6*		Purchase and License Agreement between Nortel Networks, Inc. and Dobson Communications Corporation, dated November 16, 2001	(5)[10.6]
	10.6.1	*	Amendment No. 1 to the Purchase and License Agreement between Nortel Networks, Inc. and Dobson Communications Corporation, dated August 5, 2002	(8)
	10.7		Form of License Agreement among Cellular One Group and various subsidiaries of American Cellular Corporation	(1)[10.7]


Exhibit			Method of
Numbers		Description	Filing

	10.8	Intercarrier Roamer Service Agreement, dated January 23, 1997, between American Cellular Corporation, as successor to PriCellular Corporation and United States Cellular Corporation	(1)[10.8]
	10.9.1	Letter Agreement dated July 5, 2000 accepting American Cellular Corporation as an affiliate of Dobson Cellular Systems, Inc.	(1)[10.9.1]
	10.11	Intercarrier Roamer Service Agreement, dated January 16, 1997, between Licensees and Permittees (as defined in the Agreement) and American Cellular Corporation, successor to PriCellular Corporation	(1)[10.16]
	10.12	Asset Purchase Agreement dated October 30, 2001 by and between ACC of Tennessee LLC, and Cellco Partnership, a Delaware general partnership, d/b/a Verizon Wireless	(3)[10.17]
	10.13*	InterCarrier Multi-Standard Roaming Agreement effective as of January 25, 2002, between Cingular Wireless, LLC and Dobson Cellular Systems, Inc. and its Affiliates, including American Cellular Corporation	(5)[10.13]


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

(1)	Filed as an exhibit to the Registrant’s Registration Statement on Form S-4 (registration No. 333-59322), as the exhibit number indicated in brackets and incorporated by reference herein.

(2)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, as the exhibit number indicated in brackets and incorporated by reference herein.

(3)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 31, 2001, as the exhibit number indicated in brackets and incorporated by reference herein.

(4)	Filed as an exhibit to the Registrant’s Registration Statement on Form S-4 (no. 333-63454) as the exhibit number indicated in brackets and incorporated by reference herein.

(5)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001, as the exhibit number indicated in brackets and incorporated by reference herein.

(6)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, as the exhibit number indicated in brackets and incorporated by reference herein.

(7)	Filed as an exhibit to the Registrant’s current report on Form 8-K on May 17, 2002 as the exhibit number indicated in brackets and incorporated by reference herein.

(8)	Filed herewith.

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AMERICAN CELLULAR CORP /DE/ 10-Q