** **

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

** **

**FORM 10-Q**

 

**QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended September 30, 2005**

 

**CommissionFile Number**

**000-30761**

 

**UbiquiTelInc.**

(Exact name ofCo-Registrant as specified in its charter)

 
| **Delaware**                                               | ** ** | **23-3017909**                        |
|------------------------------------------------------------|------------|---------------------------------------|
| (State of  incorporation)                                  |       | (I.R.S. Employer  Identification No.) |
|                                                       |       |                                  |
| **One  West Elm Street, Suite 400, Conshohocken, PA** | ** ** | **19428**                             |
| (Address of  principal executive office)                   |       | (Zip code)                            |

 

Co-Registrant’stelephone number:  **(610) 832-3300**

 

**CommissionFile Number**

**333-39950**

 

**UbiquiTelOperating Company**

(Exact name of Co-Registrant as specified in its charter)

 
| **Delaware**                                              | ** ** | **23-3024747**                       |
|-----------------------------------------------------------|------------|--------------------------------------|
| (State of incorporation)                                  |       | (I.R.S. Employer Identification No.) |
|                                                      |       |                                 |
| **One West Elm Street, Suite 400, Conshohocken, PA** | ** ** | **19428**                            |
| (Address of principal executive office)                   |       | (Zip code)                           |

 

Co-Registrant’s telephone number: **(610) 832-3300**

 

Indicate by check markwhether each of the co-registrants(1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that each co-registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

Yes ý        No o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).

Yes ý        No o

 

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

Yes o        No ý

 

There were 94,050,115shares of common stock, $0.0005 par value, of UbiquiTel Inc. outstanding at October 31, 2005.

 

There were 1,000 sharesof common stock, $0.01 par value, of UbiquiTel Operating Company outstanding atOctober 31, 2005, all of which were owned by UbiquiTel Inc.

 

 

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**UbiquiTelInc. and Subsidiaries**

 

**Form 10-Qfor the Quarter Ended September 30, 2005**

 

**INDEX**

 
| PART I.  | FINANCIAL INFORMATION                                                                                                   | 4      |
|---------------|-------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                    |   |
| Item 1.       | Financial Statements                                                                                                    | 4      |
|          | Consolidated  Balance Sheets as of September 30, 2005 and December 31, 2004                                   | 4      |
|          | Consolidated  Statements of Operations for the three and nine months ended  September 30, 2005 and 2004 (restated) | 5      |
|          | Consolidated  Statements of Cash Flows for the nine months ended September 30, 2005  and 2004 (restated)           | 6      |
|          | Notes  to Consolidated Financial Statements                                                                             | 7      |
|          |                                                                                                                    |   |
| Item 2.       | Management’s Discussion and  Analysis of Financial Condition and Results of Operations                             | 16     |
|          |                                                                                                                    |   |
| Item 3.       | Quantitative  and Qualitative Disclosures About Market Risk                                                             | 32     |
|          |                                                                                                                    |   |
| Item 4.       | Controls and  Procedures                                                                                                | 32     |
|          |                                                                                                                    |   |
| PART II. | OTHER INFORMATION                                                                                                       | 34     |
|          |                                                                                                                    |   |
| Item 1.       | Legal Proceedings                                                                                                       | 34     |
|          |                                                                                                                    |   |
| Item 2.       | Unregistered  Sales of Equity Securities and Use of Proceeds                                                            | 34     |
|          |                                                                                                                    |   |
| Item 3.       | Defaults  Upon Senior Securities                                                                                        | 34     |
|          |                                                                                                                    |   |
| Item 4.       | Submission  of Matters to a Vote of Security Holders                                                                    | 34     |
|          |                                                                                                                    |   |
| Item 5.       | Other Information                                                                                                       | 34     |
|          |                                                                                                                    |   |
| Item 6.       | Exhibits                                                                                                                | 35     |
|          |                                                                                                                    |   |
| Signatures    | 36                                                                                                                      |

 

2

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**Explanatory Note:**

 

The ConsolidatedFinancial Statements included herein are those of UbiquiTel Inc. (“UbiquiTel”).  The Co-Registrants are UbiquiTel andUbiquiTel Operating Company (“Operating Company”), which is a wholly-ownedsubsidiary of UbiquiTel and the issuer of 9.875% senior notes due 2011.  UbiquiTel has provided a full, unconditional,joint and several guaranty of Operating Company’s obligations under the 9.875%senior notes due 2011.  UbiquiTel has nooperations separate from its investment in Operating Company.  Pursuant to Rule 12h-5 of the SecuritiesExchange Act, no separate financial statements and other disclosures concerningOperating Company other than narrative disclosures set forth in Notes 5 and 6to the Consolidated Financial Statements have been presented herein.  As used herein and except as the contextotherwise may require, the “Company,” “we,” “us,” “our” or “UbiquiTel” means,collectively UbiquiTel, Operating Company and their consolidated subsidiary,UbiquiTel Leasing Company.

 

3

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**PART I.FINANCIAL INFORMATION**

 

**Item1.  Financial Statements**

 

# **UbiquiTel Inc. and Subsidiaries**

# **Consolidated Balance Sheets**

# **(Unaudited)**

# **(In Thousands, Except PerShare Data)**

 
| ** **                                                                                                                                                                                   | ** ** | **September 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| **ASSETS**                                                                                                                                                                                   |       |                        |       |                       |       |
| CURRENT ASSETS:                                                                                                                                                                              |       |                        |       |                       |       |
| Cash and cash  equivalents                                                                                                                                                                   |       | $                           | 96,420     |                       | $          | 91,781 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $3,300 at  September 30, 2005 and $3,358 at December 31, 2004                                                      |       | 24,695                      |       | 22,609                     |       |
| Inventory, net                                                                                                                                                                               |       | 3,068                       |       | 4,025                      |       |
| Prepaid expenses  and other assets                                                                                                                                                           |       | 18,862                      |       | 17,680                     |       |
| Total current  assets                                                                                                                                                                        |       | 143,045                     |       | 136,095                    |       |
| PROPERTY AND  EQUIPMENT, NET                                                                                                                                                                 |       | 247,944                     |       | 243,679                    |       |
| CONSTRUCTION IN  PROGRESS                                                                                                                                                                    |       | 5,280                       |       | 1,867                      |       |
| DEFERRED  FINANCING COSTS, NET                                                                                                                                                               |       | 9,627                       |       | 10,868                     |       |
| GOODWILL                                                                                                                                                                                     |       | 38,138                      |       | 38,138                     |       |
| INTANGIBLES, NET                                                                                                                                                                             |       | 61,337                      |       | 64,565                     |       |
| OTHER LONG-TERM  ASSETS                                                                                                                                                                      |       | 2,189                       |       | 2,595                      |       |
| Total assets                                                                                                                                                                                 |       | $                           | 507,560    |                       | $          | 497,807 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                |       |                        |       |                       |       |
| CURRENT  LIABILITIES:                                                                                                                                                                        |       |                        |       |                       |       |
| Current  maturities of long-term debt                                                                                                                                                        |       | $                           | 235        |                       | $          | 223 |   |
| Accounts payable                                                                                                                                                                             |       | 6,641                       |       | 3,124                      |       |
| Accrued expenses                                                                                                                                                                             |       | 15,447                      |       | 18,824                     |       |
| Accrued  compensation and benefits                                                                                                                                                           |       | 4,054                       |       | 4,591                      |       |
| Interest payable                                                                                                                                                                             |       | 3,456                       |       | 13,825                     |       |
| Taxes payable                                                                                                                                                                                |       | 3,016                       |       | 2,672                      |       |
| Deferred revenue                                                                                                                                                                             |       | 12,509                      |       | 12,274                     |       |
| Other                                                                                                                                                                                        |       | 2,258                       |       | 1,501                      |       |
| Total current  liabilities                                                                                                                                                                   |       | 47,616                      |       | 57,034                     |       |
| LONG-TERM DEBT,  EXCLUDING CURRENT MATURITIES                                                                                                                                                |       | 423,568                     |       | 423,893                    |       |
| OTHER LONG-TERM  LIABILITIES                                                                                                                                                                 |       | 13,838                      |       | 11,462                     |       |
| Total long-term  liabilities                                                                                                                                                                 |       | 437,406                     |       | 435,355                    |       |
| Total  liabilities                                                                                                                                                                           |       | 485,022                     |       | 492,389                    |       |
| COMMITMENTS AND  CONTINGENCIES                                                                                                                                                               |       | —                      |       | —                     |       |
| STOCKHOLDERS’  EQUITY:                                                                                                                                                                  |       |                        |       |                       |       |
| Preferred stock,  par value $0.001 per share; 10,000 shares authorized; 0 shares issued and  outstanding at September 30, 2005 and December 31, 2004                               |       | —                      |       | —                     |       |
| Common stock,  par value $0.0005 per share; 240,000 shares authorized; 94,047 and 93,016  shares issued and outstanding at September 30, 2005 and  December 31, 2004, respectively |       | 47                          |       | 46                         |       |
| Additional  paid-in-capital                                                                                                                                                                  |       | 307,879                     |       | 303,830                    |       |
| Accumulated  deficit                                                                                                                                                                         |       | (285,388                    | )          | (298,458                   | )          |
| Total  stockholders’ equity                                                                                                                                                             |       | 22,538                      |       | 5,418                      |       |
| Total  liabilities and stockholders’ equity                                                                                                                                             |       | $                           | 507,560    |                       | $          | 497,807 |   |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements.*

 

4

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**UbiquiTelInc. and Subsidiaries**

# **Consolidated Statements of Operations**

**(Unaudited)**

**(InThousands, Except Per Share Data)**

 
| ** **                                                                                                         | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                                         | ** ** | **2005**                                  | ** ** | **2004**                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                         | ** ** | ** **                                | ** ** | **(Restated)**                           | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| REVENUES:                                                                                                          |       |                                      |       |                                     |       |   |   |   |   |
| Subscriber  revenue                                                                                                |       | $                                         | 71,645     |                                     | $          | 65,334 |   | $ | 208,432 |   | $ | 183,880 |   |
| Roaming and  wholesale revenue                                                                                     |       | 33,338                                    |       | 29,094                                   |       | 94,557 |   | 73,475 |   |
| Service revenue                                                                                                    |       | 104,983                                   |       | 94,428                                   |       | 302,989 |   | 257,355 |   |
| Equipment  revenue                                                                                                 |       | 3,780                                     |       | 3,320                                    |       | 11,898 |   | 10,384 |   |
| Total revenues                                                                                                     |       | 108,763                                   |       | 97,748                                   |       | 314,887 |   | 267,739 |   |
| COSTS AND  EXPENSES:                                                                                               |       |                                      |       |                                     |       |   |   |   |   |
| Cost of service  and operations (exclusive of depreciation, amortization and accretion as  shown separately below) |       | 47,536                                    |       | 43,346                                   |       | 136,781 |   | 124,515 |   |
| Cost of products  sold                                                                                             |       | 7,752                                     |       | 10,340                                   |       | 28,059 |   | 28,473 |   |
| Selling and  marketing                                                                                             |       | 17,442                                    |       | 17,132                                   |       | 50,253 |   | 49,961 |   |
| General and  administrative                                                                                        |       | 6,163                                     |       | 3,697                                    |       | 16,104 |   | 12,591 |   |
| Non-cash  compensation                                                                                             |       | 310                                       |       | (226                                     | )          | 1,392 |   | — |   |
| Depreciation,  amortization and accretion                                                                          |       | 13,140                                    |       | 11,369                                   |       | 38,175 |   | 38,004 |   |
| Total costs and  expenses                                                                                          |       | 92,343                                    |       | 85,658                                   |       | 270,764 |   | 253,544 |   |
| OPERATING INCOME                                                                                                   |       | 16,420                                    |       | 12,090                                   |       | 44,123 |   | 14,195 |   |
| INTEREST INCOME                                                                                                    |       | 847                                       |       | 207                                      |       | 1,992 |   | 482 |   |
| INTEREST EXPENSE                                                                                                   |       | (10,845                                   | )          | (10,453                                  | )          | (32,644 | ) | (29,253 | ) |
| GAIN ON DEBT  RETIREMENT                                                                                           |       | —                                    |       | —                                   |       | 40 |   | 1,109 |   |
| INCOME (LOSS)  BEFORE INCOME TAXES                                                                                 |       | 6,422                                     |       | 1,844                                    |       | 13,511 |   | (13,467 | ) |
| INCOME TAX  EXPENSE                                                                                                |       | (188                                      | )          | (325                                     | )          | (441 | ) | (477 | ) |
| NET INCOME  (LOSS)                                                                                                 |       | $                                         | 6,234      |                                     | $          | 1,519 |   | $ | 13,070 |   | $ | (13,944 | ) |
|                                                                                                               |       |                                      |       |                                     |       |   |   |   |   |
| NET INCOME  (LOSS) PER SHARE:                                                                                      |       |                                      |       |                                     |       |   |   |   |   |
| BASIC                                                                                                              |       | $                                         | 0.07       |                                     | $          | 0.02 |   | $ | 0.14 |   | $ | (0.15 | ) |
| DILUTED                                                                                                            |       | $                                         | 0.06       |                                     | $          | 0.02 |   | $ | 0.13 |   | $ | (0.15 | ) |
|                                                                                                               |       |                                      |       |                                     |       |   |   |   |   |
| WEIGHTED AVERAGE  SHARES OUTSTANDING:                                                                              |       |                                      |       |                                     |       |   |   |   |   |
| BASIC                                                                                                              |       | 93,759                                    |       | 92,812                                   |       | 93,396 |   | 92,703 |   |
| DILUTED                                                                                                            |       | 99,374                                    |       | 96,825                                   |       | 98,935 |   | 92,703 |   |

 

*The accompanying notes are anintegral part of these consolidated financial statements*.

 

5

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# **UbiquiTel Inc. andSubsidiaries**

# **Consolidated Statements of Cash Flows**

**(Unaudited)**

**(InThousands)**

 
| ** **                                                                                | ** ** | **Nine Months Ended  September 30, 2005** | ** ** | **Nine Months Ended  September 30, 2004** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                | ** ** | ** **                                | ** ** | **(Restated)**                            | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                    |       |                                      |       |                                      |       |
| Net income  (loss)                                                                        |       | $                                         | 13,070     |                                      | $          | (13,944 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |                                      |       |                                      |       |
| Amortization of  deferred financing costs                                                 |       | 1,333                                     |       | 1,073                                     |       |
| Amortization of  debt (premium) discount                                                  |       | (93                                       | )          | 811                                       |       |
| Amortization of  intangible assets                                                        |       | 3,228                                     |       | 3,228                                     |       |
| Depreciation and  accretion                                                               |       | 34,947                                    |       | 34,776                                    |       |
| Interest accrued  on discount notes                                                       |       | —                                    |       | 9,253                                     |       |
| Non-cash  compensation from stock options granted to employees                            |       | 1,392                                     |       | —                                    |       |
| Deferred income  taxes                                                                    |       | 197                                       |       | 231                                       |       |
| (Gain) loss on  disposal of equipment                                                     |       | (286                                      | )          | 119                                       |       |
| Gain on debt  retirement                                                                  |       | (40                                       | )          | (1,109                                    | )          |
| Changes in  operating assets and liabilities exclusive of capital expenditures:           |       |                                      |       |                                      |       |
| Accounts  receivable                                                                      |       | (2,086                                    | )          | (2,977                                    | )          |
| Inventory                                                                                 |       | 957                                       |       | 267                                       |       |
| Prepaid expenses  and other assets                                                        |       | (776                                      | )          | (3,678                                    | )          |
| Accounts payable  and accrued expenses                                                    |       | (11,786                                   | )          | 7,225                                     |       |
| Net cash  provided by operating activities                                                |       | 40,057                                    |       | 35,275                                    |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                    |       |                                      |       |                                      |       |
| Capital  expenditures                                                                     |       | (37,809                                   | )          | (18,522                                   | )          |
| Proceeds from  disposal of equipment                                                      |       | 5                                         |       | —                                    |       |
| Net cash used in  investing activities                                                    |       | (37,804                                   | )          | (18,522                                   | )          |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                    |       |                                      |       |                                      |       |
| Proceeds from  issuance of 9.875% senior notes                                            |       | —                                    |       | 265,302                                   |       |
| Repayments under  senior secured credit facility                                          |       | —                                    |       | (230,000                                  | )          |
| Repayment of 14%  Series B senior discount notes                                     |       | —                                    |       | (12,478                                   | )          |
| Purchase of 14%  senior discount notes                                                    |       | (14                                       | )          | (15,872                                   | )          |
| Financing costs                                                                           |       | (92                                       | )          | (8,296                                    | )          |
| Change in book  cash overdraft                                                            |       | —                                    |       | (5,671                                    | )          |
| Proceeds from  issuance of common stock                                                   |       | 323                                       |       | 176                                       |       |
| Proceeds from  exercise of stock options and warrants                                     |       | 2,384                                     |       | 133                                       |       |
| Repayment of  other long-term debt                                                        |       | (166                                      | )          | (234                                      | )          |
| Repurchase of  common stock                                                               |       | (49                                       | )          | —                                    |       |
| Net cash  provided by (used in) financing activities                                      |       | 2,386                                     |       | (6,940                                    | )          |
| NET INCREASE IN  CASH AND CASH EQUIVALENTS                                                |       | 4,639                                     |       | 9,813                                     |       |
| CASH AND CASH  EQUIVALENTS, beginning of period                                           |       | 91,781                                    |       | 57,225                                    |       |
| CASH AND CASH  EQUIVALENTS, end of period                                                 |       | $                                         | 96,420     |                                      | $          | 67,038 |   |
| SUPPLEMENTAL  DISCLOSURE OF CASH FLOW INFORMATION:                                        |       |                                      |       |                                      |       |
| Cash paid for  interest                                                                   |       | $                                         | 41,757     |                                      | $          | 17,553 |   |
| Cash paid for  taxes                                                                      |       | 257                                       |       | 27                                        |       |
| SUPPLEMENTAL  DISCLOSURE OF NON-CASH INVESTING ACTIVITY:                                  |       |                                      |       |                                      |       |
| Network  equipment acquired but not yet paid                                              |       | $                                         | 4,866      |                                      | $          | — |   |

 

*The accompanying notes are an integral part ofthese consolidated financial statements.*

 

6

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**UbiquiTel Inc. and Subsidiaries**

# **Notes to Consolidated Financial Statements**

**(Unaudited)**

 

**1.****     SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

**Basis of Presentation ofUnaudited Interim Financial Information**

 

The consolidatedfinancial information as of September 30, 2005 and for the three and ninemonths ended September 30, 2005 and 2004 is unaudited, but has beenprepared in accordance with generally accepted accounting principles forinterim financial information and Article 10 of Regulation S-X.  Accordingly, it does not include all theinformation and footnotes required annually by generally accepted accountingprinciples.  In the opinion ofmanagement, the interim data reflects all adjustments necessary for a fairstatement of the Company’s results for the periods presented.  Operating results for the three and ninemonths ended September 30, 2005 are not necessarily indicative of resultsthat may be expected for the entire year. This financial information should be read in conjunction with theaudited consolidated financial statements and notes thereto for the year ended December 31,2004 of UbiquiTel which are included in its and Operating Company’s JointAnnual Report on Form 10-K for the year ended December 31, 2004.

 

**Principles of Consolidation andUse of Estimates**

 

Theaccompanying financial statements include the accounts of UbiquiTel Inc. andits subsidiaries (see Note 2).  Allsignificant intercompany balances and transactions have been eliminated.

 

The preparation offinancial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions.  These estimates and assumptions affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statements.  These assumptions also affect the reportedamounts of revenues and expenses during the reporting periods.  Actual results could differ from thoseestimates and assumptions.

 

**Restatementsof Prior Years’ Financial Statements**

 

As previously reported inUbiquiTel’s and Operating Company’s Joint Annual Report on Form 10-K forthe year ended December 31, 2004, the Company reviewed its accountingpractices with respect to lease transactions. As a result of this review and inconsultation with the audit committee of UbiquiTel’s board of directors,UbiquiTel determined that it was appropriate to restate its consolidatedfinancial statements for the years ended December 31, 2000 through December 31,2003 and the nine months ended September 30, 2004.  The Company did not amend its previouslyfiled Annual Reports on Form 10-K or Quarterly Reports on Form 10-Qfor the restatement, and the financial statements and related financialinformation contained in such reports should no longer be relied upon.  Historically, when accounting for towerleases with renewal options, the Company recorded rent expense on astraight-line basis over the initial non-cancelable lease term, excluding anypotential renewal periods. The restatements recognized rent expense on astraight-line basis over the lease term (as defined in Statement of FinancialAccounting Standards No. 13, “Accounting for Leases,” as amended) of theCompany’s tower leases. Cell site assets associated with such leased towers aredepreciated over the shorter of the assets’ useful lives or the leaseterm.  These restatements resulted fromthe correction of accounting errors and were not attributable to any materialnon-compliance by the Company with any financial reporting requirements underthe federal securities laws. Amounts for prior periods presented in thesefinancial statements and the notes thereto reflect applicable balances andamounts on a restated basis.

 

As a result of these restatements, certain previouslyreported amounts in the consolidated statements of

 

7

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operations for the three and nine months ended September 30, 2004and consolidated balance sheet as of September 30, 2004 have been restatedin the following tables:

 
| ** **                                             | ** ** | **Three Months  Ended September 30, 2004** | ** ** |
|--------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                             | ** ** | **(In thousands, except per share data)**       | ** ** |
| ** **                                             | ** ** | **As Originally  Reported**                     | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| Cost of service and operations                         |       | $                                               | 43,309     |   | $ | 37 |   | $ | 43,346 |   |
| Total costs and expenses                               |       | 85,621                                          |       | 37 |   | 85,658 |   |
| Operating income                                       |       | 12,127                                          |       | (37 | ) | 12,090 |   |
| Income before income taxes                             |       | 1,881                                           |       | (37 | ) | 1,844 |   |
| Net income                                             |       | 1,556                                           |       | (37 | ) | 1,519 |   |
| Basic and diluted net income per share of common stock |       | $                                               | 0.02       |   | $ | (0.00 | ) | $ | 0.02 |   |

 
| ** **                                           | ** ** | **Nine Months  Ended September 30, 2004** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                           | ** ** | **(In thousands, except per share data)**      | ** ** |
| ** **                                           | ** ** | **As Originally  Reported**                    | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| Cost of service and operations                       |       | $                                              | 124,410    |   | $ | 105 |   | $ | 124,515 |   |
| Total costs and expenses                             |       | 253,439                                        |       | 105 |   | 253,544 |   |
| Operating income                                     |       | 14,300                                         |       | (105 | ) | 14,195 |   |
| Loss before income taxes                             |       | (13,362                                        | )          | (105 | ) | (13,467 | ) |
| Net loss                                             |       | (13,839                                        | )          | (105 | ) | (13,944 | ) |
| Basic and diluted net loss per share of common stock |       | $                                              | (0.15      | ) | $ | (0.00 | ) | $ | (0.15 | ) |

 
| ** **                      | ** ** | **As of  September 30, 2004** | ** ** |
|---------------------------------|------------|------------------------------------|------------|
| ** **                      | ** ** | **(In  thousands)**                | ** ** |
| ** **                      | ** ** | **As Originally  Reported**        | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| Other long-term liabilities     |       | $                                  | 9,429      |   | $ | 1,484 |   | $ | 10,913 |   |
| Total liabilities               |       | 472,175                            |       | 1,484 |   | 473,659 |   |
| Accumulated deficit             |       | (295,620                           | )          | (1,484 | ) | (297,105 | ) |
| Total stockholders’ equity |       | 4,690                              |       | (1,484 | ) | 3,206 |   |
|                                 |            |                                    |            |  |  |  |  |  |  |  |

 

The amounts reflected incost of service and operations, as originally reported, included Sprint PCSmanagement fee expense reclassified from general and administrative expensestotaling approximately $5.4 and $15.4 million for the three and nine monthsended September 30, 2004, respectively.

 

# **Recent AccountingPronouncements**

 

In March 2005, theFinancial Accounting Standards Board (“FASB”) issued Interpretation Number 47, “Accountingfor Conditional Asset Retirement Obligations, an interpretation of FASBStatement No. 143” (“FIN 47”).  FIN47 clarifies the term “conditional asset retirement obligation”**as used in Statement of FinancialAccounting Standards (“SFAS”) No. 143, “Accounting for Asset RetirementObligations,” and also clarifies when an entity would have sufficientinformation to reasonably estimate the fair value of an asset retirement.  FIN 47 is effective no later than the end offiscal years ending after December 15, 2005.  The Company does not anticipate that theimplementation of FIN 47 will have a material impact on its consolidatedfinancial position, results of operations or cash flows.

 

In December 2004,the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payments” (“SFASNo. 123R”). SFAS No. 123R requires the recognition of the cost ofemployee services received in exchange for an award of equity instruments inthe financial statements and measurement based on the grant-date fair value ofthe award. It requires the cost to be recognized over the period during whichan employee is required to provide service in

 

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exchange for theaward.  Additionally, compensationexpense will be recognized over the remaining employee service period for theoutstanding portion of any awards for which compensation expense had not beenpreviously recognized or disclosed under SFAS No. 123, “Accounting forStock-Based Compensation” (“SFAS No. 123”).  SFAS No. 123R replaces SFAS No. 123and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accountingfor Stock Issued to Employees” (“APB No. 25”), and its relatedinterpretations.

 

SFAS No. 123R wasoriginally required to be adopted by the Company beginning no later than thethird quarter of 2005.  However, in April2005, the Securities and Exchange Commission announced the adoption of a new rulethat amends the compliance dates for SFAS No. 123R.  Accordingly, the Company is required to adoptSFAS No. 123R no later than January 1, 2006. The Company expects to adopt SFAS No. 123R as of January 1, 2006.  The Company is currently assessing the impactof SFAS No. 123R and has not determined whether the adoption of this standardwill result in the recognition of expense materially different from thestock-based employee compensation expense reflected in its pro formadisclosures under SFAS No. 123.  The stock-basedemployee compensation expense currently recognized under variable accountingwould no longer be recognized upon the adoption of SFAS No. 123R.

 

In May 2005,the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFASNo. 154”), which replaces APB Opinion No. 20, “Accounting Changes,”and SFAS No. 3, “Reporting Accounting Changes in Interim FinancialStatements-An Amendment of APB Opinion No. 28.” SFAS No. 154 providesguidance on the accounting for and reporting of accounting changes and errorcorrections. It establishes retrospective application, or the latestpracticable date, as the required method for accounting for and reporting achange in accounting principle and a correction of an error. SFAS No. 154is effective for accounting changes and corrections of errors made in fiscalyears beginning after December 15, 2005 and is required to be adopted bythe Company no later than January 1, 2006. The Company is currently evaluating the effect that the adoption of SFASNo. 154 will have on its consolidated financial position, results ofoperations or cash flows but does not expect it to have a material impact.

 

# **Stock-BasedCompensation**

 

As of September 30, 2005, UbiquiTel had twostock-based employee compensation plans, an employee stock purchase plan and anequity incentive plan.  The Companyaccounts for the plans in accordance with APB No. 25 and relatedinterpretations.

 

In May 2002, 1,220,800 options previously issuedto employees and board members under the Company’s equity incentive plan weremodified to reduce the exercise price to $4.00, which was approximately $2.14per share above the fair market value on the date of modification.  The modification reducing the exercise priceresulted in variable accounting for these options from the date of modificationto the date the options are exercised, forfeited or expire unexercised.  Under variable accounting, non-cashcompensation expense is recognized for increases or decreases in the amount bywhich the fair market value of UbiquiTel’s common stock exceeds the exerciseprice of the modified options.  Non-cashcompensation expense totaled approximately $0.3 million and $1.4 million forthe three and nine months ended September 30, 2005, respectively.  As of September 30, 2004, the marketprice per share of common stock was $4.00, resulting in a reduction in non-cashcompensation expense of approximately $0.2 million for the three months ended September 30,2004.

 

The following table illustrates the effect on netincome (loss) and net income (loss) per share if the Company had applied thefair value recognition provisions of SFAS No. 123.

 

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| ** **                                                                                                             | ** ** | **Three Months Ended September 30,**    | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                                             | ** ** | **2005**                                     | ** ** | **2004**                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                             | ** ** | ** **                                   | ** ** | **(Restated)**                           | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| ** **                                                                                                             | ** ** | **(In Thousands, Except Per Share Amounts)** | ** ** |
| Net income  (loss), as reported                                                                                        |       | $                                            | 6,234      |                                     | $          | 1,519 |   | $ | 13,070 |   | $ | (13,944 | ) |
| Add: stock-based  employee compensation included in reported net income (loss), net of related  tax                    |       | 310                                          |       | (226                                     | )          | 1,392 |   | — |   |
| Deduct: total  stock-based employee compensation expense determined under fair value-based  method, net of related tax |       | (369                                         | )          | (328                                     | )          | (1,266 | ) | (1,447 | ) |
| Pro forma net  income (loss)                                                                                           |       | $                                            | 6,175      |                                     | $          | 965 |   | $ | 13,196 |   | $ | (15,391 | ) |
|                                                                                                                   |       |                                         |       |                                     |       |   |   |   |   |
| Basic net income  (loss) per share:                                                                                    |       |                                         |       |                                     |       |   |   |   |   |
| As reported                                                                                                            |       | $                                            | 0.07       |                                     | $          | 0.02 |   | $ | 0.14 |   | $ | (0.15 | ) |
| Pro forma                                                                                                              |       | $                                            | 0.07       |                                     | $          | 0.01 |   | $ | 0.14 |   | $ | (0.17 | ) |
|                                                                                                                   |       |                                         |       |                                     |       |   |   |   |   |
| Diluted net  income (loss) per share:                                                                                  |       |                                         |       |                                     |       |   |   |   |   |
| As reported                                                                                                            |       | $                                            | 0.06       |                                     | $          | 0.02 |   | $ | 0.13 |   | $ | (0.15 | ) |
| Pro forma                                                                                                              |       | $                                            | 0.06       |                                     | $          | 0.01 |   | $ | 0.13 |   | $ | (0.17 | ) |

 

**2. ORGANIZATION AND NATURE OFBUSINESS**

 

**Organization and Nature ofBusiness**

 

UbiquiTel Inc. andits subsidiaries (“UbiquiTel” or the “Company”) was formed for the purpose ofbecoming the exclusive provider of Sprint personal communications services (“PCS”)in certain defined midsize markets in the western and midwestern United States.

 

In October 1998,UbiquiTel L.L.C. (a Washington state limited liability company) entered into amanagement agreement with Sprint PCS for the exclusive rights to market Sprint’s100% digital, 100% PCS products and services to the residents in theReno/Tahoe, Nevada market. UbiquiTel L.L.C. had no financial transactions fromits inception (August 24, 1998) to September 29, 1999.  On September 29, 1999,UbiquiTel Inc. (formerly, UbiquiTel Holdings, Inc.) was incorporatedin Delaware. In November 1999, UbiquiTel L.L.C. assigned all of itsmaterial contracts including the rights to the Sprint PCS agreements to UbiquiTel Inc.  On November 9, 1999, UbiquiTel OperatingCompany (a Delaware corporation, formerly a Delaware limited liability company)(“Operating Company”), was formed to serve as the operating company forUbiquiTel Inc.  Also, on March 17,2000, UbiquiTel Leasing Company (a Delaware corporation) was formed to serve asthe leasing company for UbiquiTel Inc. UbiquiTel Inc. assigned theSprint PCS agreements to Operating Company following its formation. On December 28,1999, UbiquiTel amended its management agreement with Sprint PCS to expand itsmarkets to include northern California, Spokane/Montana, southernIdaho/Utah/Nevada and southern Indiana/Kentucky/Tennessee. On February 21,2001, in connection with UbiquiTel’s acquisition of VIA Wireless LLC, UbiquiTelamended its management agreement with Sprint PCS to expand its marketseffective at the closing in August 2001 to include the six VIA Wireless Basic Trading Areas coveringthe central valley of California market. On August 13, 2001, upon the closing of the merger agreement, VIAWireless became a wholly owned subsidiary of Operating Company and was latermerged into Operating Company in June 2003.  On July 31, 2003, Operating Companyamended its management agreement with Sprint PCS to eliminate the obligation tobuild out the state of Montana, thereby reducing its licensed residentpopulation in its markets to approximately 10.8 million.

 

The consolidatedfinancial statements contain the financial information of UbiquiTel Inc.and its subsidiaries, UbiquiTel Operating Company and UbiquiTel LeasingCompany.  The Company operates under onesegment.

 

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**3. BASICAND DILUTED NET INCOME (LOSS) PER SHARE**

 

The Company computes net income (loss) per commonshare in accordance with SFAS No. 128, “Earnings per Share” (“SFAS No. 128”).  In accordance with SFAS No. 128,incremental potential common shares from stock options and warrants areexcluded in the calculation of diluted net income (loss) per share when theeffect would be antidilutive.

 

The calculations forbasic and diluted net income (loss) per share were as follows:

 
| ** **                                                    | ** ** | **Three Months Ended September 30,**    | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                    | ** ** | **2005**                                     | ** ** | **2004**                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                    | ** ** | ** **                                   | ** ** | **(Restated)**                           | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| ** **                                                    | ** ** | **(In Thousands, Except Per Share Amounts)** | ** ** |
| Basic                                                         |       |                                         |       |                                     |       |   |   |   |   |
| Net income  (loss)                                            |       | $                                            | 6,234      |                                     | $          | 1,519 |   | $ | 13,070 |   | $ | (13,944 | ) |
| Weighted average  common shares outstanding                   |       | 93,759                                       |       | 92,812                                   |       | 93,396 |   | 92,703 |   |
| Net income  (loss) per share                                  |       | $                                            | 0.07       |                                     | $          | 0.02 |   | $ | 0.14 |   | $ | (0.15 | ) |
|                                                          |       |                                         |       |                                     |       |   |   |   |   |
| Diluted                                                       |       |                                         |       |                                     |       |   |   |   |   |
| Net income  (loss)                                            |       | $                                            | 6,234      |                                     | $          | 1,519 |   | $ | 13,070 |   | $ | (13,944 | ) |
|                                                          |       |                                         |       |                                     |       |   |   |   |   |
| Weighted average  common shares outstanding                   |       | 93,759                                       |       | 92,812                                   |       | 93,396 |   | 92,703 |   |
| Effect of:                                                    |       |                                         |       |                                     |       |   |   |   |   |
| Dilutive options                                              |       | 5,615                                        |       | 4,013                                    |       | 5,539 |   | — |   |
| Weighted average  common shares outstanding assuming dilution |       | 99,374                                       |       | 96,825                                   |       | 98,935 |   | 92,703 |   |
| Net income  (loss) per share                                  |       | $                                            | 0.06       |                                     | $          | 0.02 |   | $ | 0.13 |   | $ | (0.15 | ) |

 

The following tablesummarizes the securities that are excluded from the net income (loss) pershare calculation, as amounts would have an antidilutive effect.

 
| ** **    | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **    | ** ** | **2005**                                  | ** ** | **2004**                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
| Stock options |       | —                                    |       | 6,000                                    |       | — |   | 7,994,550 |   |
| Warrants      |       | 3,579,000                                 |       | 3,665,183                                |       | 3,579,000 |   | 3,665,183 |   |
| Total         |       | 3,579,000                                 |       | 3,671,183                                |       | 3,579,000 |   | 11,659,733 |   |

 

**4. PROPERTY AND EQUIPMENT**

 

Property and equipmentconsisted of the following:

 
| ** **                       | ** ** | **September 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|----------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                       | ** ** | **(In Thousands)**          | ** ** |
| Network  equipment               |       | $                           | 375,711    |                       | $          | 347,746 |   |
| Vehicles                         |       | 1,594                       |       | 1,508                      |       |
| Furniture and  office equipment  |       | 5,423                       |       | 5,211                      |       |
| Computer  equipment and software |       | 10,292                      |       | 8,548                      |       |
| Leasehold  improvements          |       | 5,168                       |       | 4,403                      |       |
| Land                             |       | 130                         |       | 130                        |       |
| Buildings                        |       | 4,670                       |       | 4,670                      |       |
|                             |       | 402,988                     |       | 372,216                    |       |
| Accumulated  depreciation        |       | (155,044                    | )          | (128,537                   | )          |
| Property and  equipment, net     |       | $                           | 247,944    |                       | $          | 243,679 |   |

 

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Depreciation expense wasapproximately $12.1 million and $10.2 million for the three months ended September 30,2005 and 2004, respectively, and approximately $34.9 million and $34.7 millionfor the nine months ended September 30, 2005 and 2004, respectively.

 

**5. LONG-TERM DEBT AND DEBTRETIREMENTS**

 

Long-term debtoutstanding was as follows:

 
| ** **                                                                          | ** ** | **September 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|-------------------------------------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                                                                          | ** ** | **(In Thousands)**          | ** ** |
| 9.875% senior  notes                                                                |       | $                           | 420,000    |                       | $          | 420,000 |   |
| Plus: premium                                                                       |       | 741                         |       | 834                        |       |
| 14% senior  discount notes                                                          |       | —                      |       | 32                         |       |
| Less: discount                                                                      |       | —                      |       | (2                         | )          |
| Building  mortgage                                                                  |       | 3,062                       |       | 3,228                      |       |
| Subtotal                                                                            |       | 423,803                     |       | 424,092                    |       |
| Future cash  flows associated with 14% senior discount notes for interest and other |       | —                      |       | 24                         |       |
| Total long-term  debt                                                               |       | 423,803                     |       | 424,116                    |       |
| Less: current  maturities                                                           |       | 235                         |       | 223                        |       |
| Total long-term  debt, excluding current maturities                                 |       | $                           | 423,568    |                       | $          | 423,893 |   |

 

# **Notes**

 

In April 2000,Operating Company issued in a private placement $300.0 million aggregateprincipal amount of 14% senior subordinated discount notes due April 15,2010 (the “14% Subordinated Notes”) that were accreting in value until April 15,2005 with interest payable semiannually beginning on October 15,2005.  The 14% Subordinated Notes weresubsequently registered under the Securities Act of 1933, as amended. Alloutstanding 14% Subordinated Notes were purchased by the Company in a series oftransactions in 2003 and 2004.

 

In February 2003,Operating Company consummated certain private placement transactions to reduceits long-term debt outstanding, including an exchange of $48.2 millionaggregate principal amount of 14% senior discount notes due May 15, 2010 (“14%Senior Notes”) and $9.6 million in cash for $192.7 million aggregateprincipal amount of its outstanding 14% Subordinated Notes, and a relatedfinancing of $12.8 million aggregate principal amount of 14% Series Bsenior discount notes due 2008 (“14% Series B Senior Notes”) anddetachable warrants for UbiquiTel’s common stock in which Operating Companyreceived cash proceeds of $9.6 million to fund the cash portion of theexchange.  The 14% Senior Notes wereaccreting in value until April 15, 2005 with interest payable semiannuallybeginning on October 15, 2005. The 14% Senior Notes were subsequentlyregistered under the Securities Act.  The14% Series B Senior Notes were accreting in value until April 15,2005 with interest payable semiannually beginning on October 15, 2005.Operating Company issued an additional approximately $1.7 million aggregateprincipal amount of 14% Series B Senior Notes in a series of financings in2003.  All outstanding 14% Senior Noteswere purchased by the Company and all outstanding 14% Series B SeniorNotes were redeemed by the Company from the proceeds of a series of refinancingtransactions in 2004.

 

The Company followed theprovisions of SFAS No. 15, “Accounting by Debtors and Creditors forTroubled Debt Restructurings,” and Emerging Issues Task Force Issue No. 02-04,“Determining Whether a Debtor’s Modification or Exchange of Debt Instruments IsWithin the Scope of FASB Statement No. 15,” in recording the 2003 privateplacement exchange transaction.  Theseprovisions required that the carrying value of the 14% Senior Notes be recordedat the total future cash payments (principal and interest) specified by the 14%Senior Notes; therefore, the 14% Senior Notes were classified on the Company’sbalance sheet as long-term liabilities. As a result, no interest expenserelated to the 14% Senior Notes was recognized in future periods.

 

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In February 2004,Operating Company issued in a private placement $270.0 million in aggregateprincipal amount of 9.875% senior notes due March 1, 2011 (“9.875% SeniorNotes”).  The 9.875% Senior Notes wereissued at a discount and generated approximately $265.3 million inproceeds.  The 9.875% Senior Notes weresubsequently registered under the Securities Act. Interest on the 9.875% SeniorNotes became payable semiannually beginning on September 1, 2004.  The 9.875% Senior Notes are redeemable inwhole or in part on or after March 1, 2007. Prior to March 1, 2007,Operating Company may redeem up to 35% of the aggregate principal amount of the9.875% Senior Notes with net cash proceeds of a sale of its equity or acontribution to its common equity capital, provided that at least 65% of theprincipal amount of 9.875% Senior Notes originally issued under the indentureremains outstanding after giving effect to such redemption and such redemptionoccurs within 45 days of the date of such sale of equity interests orcontribution.  The indenture governingthe 9.875% Senior Notes contains customary covenants, including covenantslimiting indebtedness, dividends and distributions on, and redemptions andrepurchases of, capital stock and other similar payments, the acquisition anddisposition of assets, and transactions with affiliates or related persons.  The indenture governing the 9.875% SeniorNotes provides for customary events of default, including cross defaults,judgment defaults and events of bankruptcy. Operating Company is permitted toissue additional 9.875% Senior Notes under the indenture from time to time.

 

The proceeds from thesale of the 9.875% Senior Notes were used to repay and terminate OperatingCompany’s senior secured credit facility, including the repayment of$230.0 million in outstanding borrowings plus accrued interest andtermination of its unused $47.7 million revolving line of credit, toredeem all of Operating Company’s outstanding 14% Series B Senior Notes($14.5 million outstanding principal amount) for approximately$12.5 million, to purchase $16.7 million principal amount of OperatingCompany’s outstanding 14% Senior Notes for approximately $15.9 million andto pay financing costs for the issuance of the 9.875% Senior Notes ofapproximately $7.8 million.  Therepayments of the senior secured credit facility and the 14% Series B SeniorNotes and the purchase of the 14% Senior Notes resulted in a net gain on debtretirements of approximately $1.1 million, consisting of a loss on the purchaseof the 14% Senior Notes of approximately $1.6 million, the write-off ofdeferred financing fees related to the senior secured credit facility and the14% Series B Senior Notes of approximately $7.7 million, the write-off ofunamortized debt discount for detachable warrants associated with the 14% Series BSenior Notes of approximately $3.6 million and costs of approximately $0.1million related to the termination of the senior secured credit facility, netof a gain of approximately $14.1 million recognized on the reduction incarrying value of the future cash payments associated with the purchased 14%Senior Notes.

 

In October 2004,Operating Company completed a financing of an additional $150.0 millionaggregate principal amount of 9.875% Senior Notes in a private placement at aprice of 103.5% generating cash proceeds of approximately $155.3 million.  These 9.875% Senior Notes are of the sameclass as the previously outstanding $270.0 million aggregate principal amountof 9.875% Senior Notes and were subsequently registered under the SecuritiesAct. Operating Company used approximately $139.3 million of these cash proceedsto fund a cash tender offer and consent solicitation for its outstanding 14%Subordinated Notes and 14% Senior Notes. Approximately $100.4 million aggregate principal amount of 14% SubordinatedNotes, representing all of the then outstanding 14% Subordinated Notes, andapproximately $31.4 million aggregate principal amount of 14% Senior Notes werevalidly tendered and accepted.  At December 31,2004, there were approximately $32,000 aggregate principal amount of 14% SeniorNotes that remained outstanding, which were redeemed in full by OperatingCompany in April 2005.

 

The $420.0 millionaggregate principal amount of 9.875% Senior Notes outstanding as of September 30,2005 will require cash payments of interest of $41.5 million in each of theyears 2006 through 2011.

 

The Company presently isin compliance with all covenants associated with the 9.875% Senior Notes.UbiquiTel has fully and unconditionally guaranteed Operating Company’sobligations under the 9.875% Senior Notes.

 

The Company may from timeto time purchase outstanding 9.875% Senior Notes in the open market, in

 

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privately negotiatedtransactions or otherwise in accordance with its debt instruments andapplicable law.

 

**Building Mortgage**

 

The Company has amortgage on an owned building and land with a balance of approximately $3.1million at September 30, 2005.  Themortgage carries a fixed interest rate of 6.99% and is payable in monthlyinstallments of approximately $37,000. The mortgage is due to be repaid in full by April 2015.

 

**6.**** WHOLLY-OWNEDOPERATING SUBSIDIARY**

 

UbiquiTel has fully andunconditionally guaranteed Operating Company’s obligations under the 9.875%Senior Notes (see Note 5). UbiquiTel has no independent assets or operations separate from itsinvestment in Operating Company. UbiquiTel Leasing Company is a minorsubsidiary.

 

**7.  SPRINT DEVELOPMENTS**

 

On August 12, 2005,Sprint Corporation and Nextel Communications, Inc. (“Nextel”) completed amerger of equals.  The merged company wasrenamed Sprint Nextel Corporation. Sprint Nextel Corporation currently operates Nextel’s wireless mobilitycommunications network in certain territories in which the Company alsoprovides digital wireless mobility communications network services under theSprint brand.

 

The Company believesSprint Nextel is in violation of the exclusivity and confidentiality provisionsof the parties’ management agreement due to the overlap between certain of theCompany’s and Sprint Nextel’s territories and other operational aspects ofSprint Nextel’s wireless business. The management agreement provides that theCompany may seek specific performance from Sprint Nextel to prevent breaches ofthe agreement.  The management agreementalso provides the Company with the option of electing alternative remedies inthe event of a material breach by Sprint Nextel of such agreement.

 

The Company has hadnumerous discussions with Sprint regarding the impact on the Company of theSprint-Nextel merger, but to date has been unable to reach terms with SprintNextel with respect to modified or new agreements that encompass thepost-merger operations of Sprint Nextel in the Company’s territories.

 

On July 12, 2005,UbiquiTel Inc. and UbiquiTel Operating Company filed a Complaint (the “Complaint”)against Sprint Corporation, Sprint Spectrum L.P., Wirelessco, L.P., SprintCommunications Company L.P., Sprint Telephony PCS, L.P., Sprint PCS License,L.L.C. (collectively, “Sprint”), and Nextel in the Delaware ChanceryCourt.  The Complaint alleges that,following the consummation of the merger between Sprint Corporation and Nextel,Sprint would breach the exclusivity provisions of the management agreement andthat Nextel improperly interfered with the Company’s exclusive rights under themanagement agreement.  The Complaintfurther alleges that Sprint and Nextel conspired to deprive the Company of theexclusivity commitments in the management agreement and to use the Company’sconfidential business information to advantage Nextel’s business, which isdirectly competitive with UbiquiTel.  TheComplaint seeks, among other things, a court order requiring Sprint and Nextelto comply with the exclusivity provisions of the management agreement and prohibitingSprint and Nextel from violating those provisions.  A copy of the Complaint was filed as Exhibit 99.1to UbiquiTel Inc.’s Current Report on Form 8-K dated July 12, 2005filed with the Securities and Exchange Commission.  The parties are proceeding with discovery,and a trial on the Company’s claims is scheduled to begin on December 19,2005.

 

On July 29, 2005,the Company entered into a forbearance agreement with Sprint relating to theongoing litigation.  The forbearanceagreement sets forth the Company’s agreement not to seek certain injunctive orequitable relief in the ongoing litigation under certain circumstances andcontemplates the parties proceeding directly to the trial.  The agreement also sets forth Sprint’sagreement as to certain parameters for the operations of Nextel’s

 

14

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wireless business in theterritories operated by the Company following the Sprint-Nextel merger, in eachcase during the period of time that the agreement remains in effect.  A copy of the forbearance agreement was filedas Exhibit 99.1 to UbiquiTel Inc.’s Current Report on Form 8-K dated July 29,2005 filed with the Securities and Exchange Commission.

 

The Company expects tocontinue discussions with Sprint Nextel to reach mutually agreeablearrangements with respect to these matters. However, there can be no assurancesthat the Company and Sprint Nextel will be able to reach mutually beneficialarrangements or as to the terms of any such arrangements or the potentialimpact on the Company’s operations or the value of the Company’s business ofany such arrangements. There can be no assurance that if the Company and SprintNextel fail to reach mutually beneficial arrangements, the Company will succeedin the pending litigation to enforce specific contractual rights and its claimsagainst Sprint and Nextel seeking damages for specified injuries.

 

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

 

**Forward-LookingStatements**

 

This Joint QuarterlyReport on Form 10-Q includes forward-looking statements that involve knownand unknown risks, uncertainties and other factors.  Our actual results could differ materiallyfrom the results anticipated in these forward-looking statements.  Risk factors that could cause actual resultsto differ from those contained in the forward-looking statements include, butare not limited to:

 

•              UbiquiTel’sdependence on its affiliation with Sprint;

 

•                                          theimpact of the Sprint-Nextel merger on UbiquiTel’s affiliation with Sprint aswell as Sprint’s competitiveness in the wireless industry;

 

•                                          theoutcome of UbiquiTel’s, and any other PCS affiliate of Sprint’s, litigationwith Sprint concerning the Sprint-Nextel merger;

 

•                                          changesin Sprint’s affiliation strategy as a result of the Sprint-Nextel merger or anyother merger involving Sprint Nextel;

 

•                                          thecompetitiveness of and changes in Sprint’s pricing plans, products andservices;

 

•                                          increasedcompetition in UbiquiTel’s markets;

 

•                                          ratesof penetration in the wireless communications industry;

 

•                                          thepotential to experience a high rate of customer turnover;

 

•                                          customerquality;

 

•                                          potentialdeclines in roaming and wholesale revenue;

 

•                                          UbiquiTel’sreliance on the timeliness, accuracy and sufficiency of financial and otherdata and information received from Sprint;

 

•                                          theability of Sprint to provide back office, customer care and other services;

 

•                                          UbiquiTel’sdebt level;

 

•                                          adequacyof bad debt and other reserves;

 

•                                          themarketability, liquidity and price volatility of UbiquiTel’s common stock;

 

•                                          UbiquiTel’sability to manage anticipated growth and rapid expansion;

 

•                                          changesin population;

 

•                                          changesor advances in technology;

 

•                                          effectsof mergers and consolidations within the wireless communications industry andunexpected

 

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announcements ordevelopments from others in the wireless communications industry; and

 

•                                          generaleconomic and business conditions.

 

These and other applicable risks are described underthe caption “Business3⁄4Risk Factors” andelsewhere in UbiquiTel’s and Operating Company’s Joint Annual Report on Form 10-Kfor the fiscal year ended December 31, 2004 filed with the Securities andExchange Commission, and under the caption “Liquidity and Capital Resources” inthis Item 2 and elsewhere in this Joint Quarterly Report on Form 10-Q,including in Note 7 (Sprint Developments) to the Notes to ConsolidatedFinancial Statements in Part 1, Item 1, of this report. Investors arereferred to UbiquiTel’s and Operating Company’s subsequent filings with theSecurities and Exchange Commission for other risk factors.  We assume no obligation to publicly update orrevise any forward-looking statement made in this report, whether as a resultof new information, future events, changes in assumptions or otherwise, afterthe date of this report.  All written ororal forward-looking statements attributable to us are expressly qualified intheir entirety by these cautionary statements.

 

**Use of Certain Terms**

 

In 2003, we initiated a reseller program under whichmobile virtual network operators (MVNOs) use our network and resell wirelessservice under a private label.  In this “Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations,” unless the context indicatesotherwise, all references to “subscribers” or “customers” and other operatingmetrics mean subscribers or customers excluding reseller subscribers.

 

### **Overview**

### ** **

UbiquiTel Inc. and its subsidiaries (“UbiquiTel”or the “Company”) was formed for the purpose of becoming the exclusive providerof Sprint personal communications services (“PCS”) in certain defined midsizemarkets in the western and midwestern United States.

 

In October 1998, UbiquiTel L.L.C. entered into amanagement agreement with Sprint PCS for the exclusive rights to market Sprint’s100% digital, 100% PCS products and services to the residents in theReno/Tahoe, Nevada market. UbiquiTel L.L.C. had no financial transactions fromits inception (August 24, 1998) to September 29, 1999. On September 29,1999, UbiquiTel Inc. (formerly, UbiquiTel Holdings, Inc.) wasincorporated in Delaware. In November 1999, UbiquiTel L.L.C. assigned allof its material contracts including the rights to the Sprint PCS agreements toUbiquiTel Inc.  On November 9,1999, UbiquiTel Operating Company (“Operating Company”) was formed to serve asthe operating company for UbiquiTel Inc. Also, on March 17, 2000,UbiquiTel Leasing Company was formed to serve as the leasing company forUbiquiTel Inc. UbiquiTel Inc. assigned the Sprint PCS agreements toOperating Company following its formation. On December 28, 1999, we amended our management agreement withSprint PCS to expand our markets to include northern California, Spokane/Montana,southern Idaho/Utah/Nevada and southern Indiana/Kentucky/Tennessee.  On February 21, 2001, in connection withour acquisition of VIA Wireless LLC, we amended our management agreement withSprint PCS to expand our markets effective at the closing in August 2001to include the six VIA Wireless Basic Trading Areas covering the central valleyof California market.  On August 13,2001, upon the closing of the merger agreement, VIA Wireless became a whollyowned subsidiary of Operating Company and was later merged into OperatingCompany in June 2003. On July 31, 2003, we amended our managementagreement with Sprint PCS to eliminate the obligation to build out the state ofMontana, thereby reducing our licensed resident population in our markets to approximately10.8 million.  See Note 7 (SprintDevelopments) to the unaudited consolidated financial statements included inthis report with respect to Sprint’s merger with Nextel Communications, Inc.and our litigation with Sprint and Nextel related to the merger.

 

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As of September 30,2005, we had approximately 434,300 subscribers excluding resellers andapproximately 127,100 reseller subscribers, for a total subscriber base ofapproximately 561,400.  As of September 30,2005, our network covered approximately 8.3 million residents, whichrepresented approximately 77% of the licensed population in our markets.

 

As a PCS affiliate ofSprint, we do not own the licenses to operate our network and instead paySprint for, among other things, the use of its licenses.  Under our management agreement with Sprint,Sprint is entitled to receive 8.0% of billed revenue from Sprint PCSsubscribers based in our markets less current period bad debts, net of bad debtrecoveries, from Sprint PCS subscribers based in our markets and fees fromwireless service providers other than Sprint PCS when their subscribers roaminto our network.  We are entitled to100% of revenues collected from the sale of handsets and accessories from ourstores and on roaming revenues received when Sprint PCS customers from adifferent territory make a wireless call on our PCS network and outboundnon-Sprint PCS roaming billed to subscribers based in our markets.  We are responsible for building, owning andmanaging the portion of the PCS network located in our markets under the Sprintbrand name.  Our results of operationsare dependent on Sprint PCS’ network and, to a lesser extent, on the networksof other PCS affiliates of Sprint.

 

As a PCS affiliate of Sprint, we purchase a full suiteof support services from Sprint including billing, customer care, collectionsand national platform services.  We pay amonthly per subscriber rate for these services which is reset every threeyears.  The current period for theservice rates ends December 31, 2006. We have access to these services during the term of our managementagreement unless Sprint provides us at least nine months’ advance notice of itsintention to terminate any particular significant service.  If Sprint terminates service, our operationsmay be interrupted or restricted.

 

**CriticalAccounting Policies and Estimates**

 

The preparation of ourconsolidated financial statements requires us to make estimates and judgmentsthat affect the reported amounts of assets, liabilities, revenues and expenses,and related disclosures of contingent liabilities.  The methods, estimates and judgments we usein applying our accounting policies have a significant impact on the results wereport in our consolidated financial statements. Some of our accountingpolicies require us to make subjective judgments, often as a result of the needto make estimates of matters that are inherently uncertain. On an ongoingbasis, we evaluate our estimates, including, but not limited to, those relatedto long-lived assets, goodwill, lease transactions, property and equipment, baddebt, inventory valuation, income taxes, deferred revenue andcontingencies.  We base our estimates onhistorical experience and on various other assumptions we believe to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from these estimates under differentassumptions or conditions.  Some of themost critical accounting policies, including those that require a significantamount of estimation or judgment in their application, include:

 

***Revenue Recognition:***

 

We recognize revenueswhen services have been rendered or products have been delivered, the price tothe buyer is fixed and determinable, and collectibility is reasonablyassured.  We account for rebates,discounts and other sales incentives as a reduction to revenue.  Subscriber revenue consists of monthlyrecurring service charges for voice and data services and monthly non-recurringcharges for local, long distance, travel and roaming airtime usage and datausage in excess of the pre-subscribed usage plan received from our subscribers,cancellation and late fee revenues and surcharges, less reductions for billingadjustments and credits. Equipment revenue includes sales of handsets andaccessories. Our revenue recognition policies are consistent with the guidancein Emerging Issues Task Force Issue No. 00-21, “Accounting for RevenueArrangements with Multiple Deliverables,” and Staff Accounting Bulletin No. 104,“Revenue Recognition.”

 

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We recognize revenue from our subscribers asthey use the service.  We pro-rate accessrevenue over the billing period and record airtime usage in excess of thepre-subscribed usage plan.  Oursubscribers pay an activation fee to us when they initiate service.  Non-refundable, up-front activation feesbilled in our direct sales channel are included in equipment revenue in theconsolidated statement of operations to the extent that the aggregateactivation fee and handset proceeds received from a subscriber do not exceedthe fair value of the handset sold.

 

Roaming and wholesale revenue includesreseller revenue, Sprint PCS travel revenue and non-Sprint PCS roamingrevenue.  We record Sprint PCS travelrevenue on a per minute rate for voice services and on a per kilobit rate fordata services when Sprint PCS subscribers based outside our markets use ournetwork.  We record non-Sprint PCSroaming revenue when non-Sprint PCS subscribers use our network.  We record reseller revenue when resellersubscribers use our network.  Minutes andkilobytes are sold at wholesale rates.

 

Equipment revenue consists of proceeds fromsales of handsets and accessories, which are recorded at the time of sale.  Revenues from sales of handsets andaccessories represent a separate earnings process from service revenues becausesales of handsets and accessories do not require customers to subscribe towireless services. Equipment revenue also includes an allocation of thearrangement consideration from activation revenue received as part of revenuearrangements with multiple deliverables.

 

We participate in the Sprint national andregional distribution programs in which national retailers such as RadioShack,Best Buy and Costco sell Sprint PCS products and services.  In order to facilitate the sale of Sprint PCSproducts and services, national retailers purchase wireless handsets fromSprint for resale and receive compensation from Sprint for Sprint PCS productsand services sold.  For industry competitivereasons, Sprint subsidizes the price of these handsets by selling the handsetsat a price below cost. Under our Sprint PCS agreements, when a nationalretailer sells a handset purchased from Sprint to a subscriber in our markets,we are obligated to reimburse Sprint for the handset subsidy.  We do not receive any revenues from sales ofhandsets and accessories by national retailers. For a new subscriber activationand a handset upgrade to an existing subscriber, we include these handsetsubsidy charges in cost of products sold in the consolidated statements ofoperations.

 

***Valuationof Accounts Receivable and Inventories:***

 

**Reserve for DoubtfulAccounts**—Estimates are used in determining ourallowance for bad debt and are based both on our historical collectionexperience, current trends and credit policy and on a percentage of ouraccounts receivables by aging category. In determining these percentages, welook at historical write-offs of our receivables.  We also look at current trends in the creditquality of our customer base and changes in the credit policies.  Sub-prime credit class customers are requiredto make a deposit ranging from $125 to $250 that can be credited against futurebillings.  Under Sprint PCS serviceplans, sub-prime credit class customers also are subject to account spendinglimits, ranging from $125 to $250 depending on the credit quality of thecustomer, to control credit exposure.  Ifour estimates of bad debt are insufficient for any reason, our operating incomeand available cash would be reduced.

 

**Reserve for Obsolete/ExcessInventory**—We record a reserve for obsolete or excesshandset and accessories inventory for models and accessories that are no longermanufactured and defective models and accessories that have been returned bycustomers.  If the estimate of obsoleteinventory is understated, our operating income would be reduced.

 

***Long-LivedAssets and Goodwill:***

 

Statement of Financial Accounting Standards (“SFAS”)No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,”requires that long-lived assets be reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of an asset may notbe recoverable.  Recoverability is

 

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assessed based on the future cash flows expected to result from the useof the asset and its eventual disposition. If the sum of the undiscounted cash flows is less than the carryingvalue of the asset, an impairment loss is recognized. Any impairment loss, ifindicated, is measured as the amount by which the carrying amount of the assetexceeds the fair value of the asset. SFAS No. 142, “Goodwill and OtherIntangible Assets,” requires that goodwill and certain intangible assetsresulting from business combinations be reviewed for recoverability, and thatannual tests for impairment of goodwill and intangible assets that haveindefinite useful lives be performed. Any write-offs would result in a chargeto earnings and a reduction in equity in the period taken. As of October 31,2004, we completed our annual impairment review and determined that noimpairment charge was required.

 

Intangible assets consist of the unamortizedcost of a Sprint management agreement acquired in a business combination.  Intangible assets are amortized over theirestimated useful life.  As of December 31,2004, the remaining useful life of the acquired Sprint management agreement wasapproximately 15 years. If there was a reduction in the useful life of thisasset, our operating income would be reduced.

 

***LeaseTransactions:***

 

We lease office space, retail stores, landfor radio communications sites, leased space on radio communications sites andoffice equipment under operating leases. Our accounting for an operating lease transaction as of the lease’sinception involves judgments in determining the number of lease renewal periodsto be included in the lease term, in addition to the initial non-cancelableterm, used in recognizing rent expense on a straight-line basis.  This judgment considers various factors thatwe would consider at the time of opting to renew such leases, particularlywhether any nonrenewal could result in an economic detriment to us or theforgoing of an economic benefit available to us.  Additionally, the lease term can impact thedetermination of the period over which depreciable assets associated withoperating leases are depreciated.

 

If a lease with a lease term containing oneor more renewal periods is not renewed after the initial term has expired, thenthe carrying values of the deferred rent liability resulting from straight-linerecognition of rent expense and any lease-related assets reflected in theconsolidated balance sheet would be written off and reflected in our results ofoperations in the period such nonrenewal occurred.

 

***IncomeTaxes:***

 

As part of the process of preparing ourconsolidated financial statements, we are required to estimate our income taxesin each of the jurisdictions in which we operate.  This process involves management estimating theactual current income tax expense together with assessing temporary differencesresulting from differing treatment of items for tax and accounting purposes inaccordance with the provisions of SFAS No. 109, “Accounting for IncomeTaxes.”  These differences result indeferred tax assets and liabilities, which are included in the consolidatedbalance sheets.  It is expected that ourdeferred income tax assets will either expire unused or give rise to future taxdeductions that will be available to offset the future taxable income arisingfrom the reversal of the deferred income tax liabilities, except for theliability arising from goodwill amortization. As a result, a full valuation allowance was recorded against alldeferred income tax assets that are not offset by anticipated reversals ofdeferred income tax liabilities.  Indetermining the likelihood and value of the realization of deferred tax assets,we consider forecasts of our taxable income, available tax planning strategiesand the future reversal of existing temporary differences. Changes incircumstances may cause changes in our judgments about the realizability of ourdeferred tax assets in future periods and may result in reductions of ourvaluation allowance and income tax expense.

 

***SprintCharges and Payments:***

 

We review all charges andpayments from Sprint and dispute items if appropriate based upon ourinterpretation of our agreements with Sprint and we record estimates primarilybased on our historical trends and our

 

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estimate of the amount which we believe we will remitto or receive from Sprint after the disputed item or items have been settled.

 

# **Recent AccountingPronouncements**

 

In March 2005, the Financial AccountingStandards Board (“FASB”) issued Interpretation Number 47, “Accounting forConditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143”(“FIN 47”).  FIN 47 clarifies the term “conditionalasset retirement obligation”**asused in SFAS No. 143, “Accounting for Asset Retirement Obligations,” andalso clarifies when an entity would have sufficient information to reasonablyestimate the fair value of an asset retirement. FIN 47 is effective no later than the end of fiscal years ending after December 15,2005.  We do not anticipate that theimplementation of FIN 47 will have a material impact on our consolidatedfinancial position, results of operations or cash flows.

 

In December 2004,the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payments” (“SFASNo. 123R”).  SFAS No. 123Rrequires the recognition of the cost of employee services received in exchangefor an award of equity instruments in the financial statements and measurementbased on the grant-date fair value of the award. It requires the cost to berecognized over the period during which an employee is required to provideservice in exchange for the award. Additionally, compensation expense will be recognized over the remainingemployee service period for the outstanding portion of any awards for whichcompensation expense had not been previously recognized or disclosed under SFASNo. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”).  SFAS No. 123R replaces SFAS No. 123and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accountingfor Stock Issued to Employees” (“APB No. 25”), and its relatedinterpretations.

 

SFAS No. 123R wasoriginally required to be adopted by us beginning no later than the thirdquarter of 2005. However, in April 2005, the Securities and ExchangeCommission announced the adoption of a new rule that amends the compliancedates for SFAS No. 123R. Accordingly, we are required to adopt SFAS No. 123R no later than January 1,2006.  We expect to adopt SFAS No. 123Ras of January 1, 2006.  We arecurrently assessing the impact of SFAS No. 123R and have not determinedwhether the adoption of this standard will result in the recognition of expensematerially different from the stock-based employee compensation expensereflected in our pro forma disclosures under SFAS No. 123.  The stock-based employee compensation expensecurrently recognized under variable accounting would no longer be recognizedupon the adoption of SFAS No. 123R.

 

In May 2005,the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFASNo. 154”), which replaces APB Opinion No. 20, “Accounting Changes,”and SFAS No. 3, “Reporting Accounting Changes in Interim FinancialStatements-An Amendment of APB Opinion No. 28.” SFAS No. 154 providesguidance on the accounting for and reporting of accounting changes and errorcorrections. It establishes retrospective application, or the latestpracticable date, as the required method for accounting for and reporting achange in accounting principle and a correction of an error. SFAS No. 154is effective for accounting changes and corrections of errors made in fiscalyears beginning after December 15, 2005, and we are required to adopt SFASNo. 154 no later than January 1, 2006.  We are currently evaluating the effect thatthe adoption of SFAS No. 154 will have on our consolidated financialposition, results of operations or cash flows but do not expect it to have amaterial impact.

 

**Results of Operations**

 

We provide certainfinancial measures that are calculated in accordance with accounting principlesgenerally accepted in the United States (GAAP) and adjustments to GAAP(non-GAAP) to assess our financial performance. In addition, we use certain non-financial terms that are not measures offinancial performance under GAAP.  Termssuch as customer additions and churn are terms used in the wirelesscommunications industry.  The non-GAAPfinancial measures of average revenue per user and cost per gross additionreflect standard measures of liquidity, profitability or performance.  The non-financial terms and the non-GAAPmeasures reflect wireless communications

 

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industry conventions and are commonly used by theinvestment community for comparability purposes.  The non-GAAP measures included in this reportare reconciled below in “—Liquidity and Capital Resources—Reconciliation ofnon-GAAP financial measures.”

 

### ***Analysis of the three monthsended September 30, 2005 compared to the three months ended September 30,2004***

### ** **

***CustomerNet Additions***

 

As of September 30, 2005, we providedpersonal communications services to approximately 434,300 customers compared toapproximately 383,400 customers as of September 30, 2004.  During the three months ended September 30,2005, we added 10,700 net new subscribers compared to 17,500 net newsubscribers for the three months ended September 30, 2004.  The decrease was primarily attributable tolower gross customer additions due to intense competition.

 

# ***Churn***

# ** **

Churn is the monthly rate of customer turnoverexpressed as the percentage of customers of the beginning customer base thatboth voluntarily and involuntarily discontinued service during the period.  Churn is computed by dividing the number ofcustomers that discontinued service during the month, net of 30 day returns, bythe beginning customer base for the period. Churn for the three months ended September 30, 2005 wasapproximately 2.6% compared to approximately 2.9% for the three months ended September 30,2004.  Involuntary churn declined 0.2%due to the effect of changes in credit policies.  Voluntary churn declined 0.1% due to anincreased percentage of our customer base on two-year contracts and serviceplans with lower overage charges.  We expectchurn in the fourth quarter of 2005 to be comparable to churn computed for thethree months ended September 30, 2005.

 

***AverageRevenue Per User (ARPU)***

 

Average revenue per user (ARPU) summarizesthe average monthly subscriber revenue per customer.  ARPU is computed by dividing subscriberrevenue by the average subscribers for the period. During the three monthsended September 30, 2005 and 2004, our ARPU was approximately $56 and $58,respectively.  Voice ARPU declined $5primarily as a result of increased penetration of customers on fair andflexible and family plans and promotional credits, partially offset by anincrease in data ARPU of $3.  We expectARPU to trend between $55 and $56 throughout 2005.

 

***CostPer Gross Addition (CPGA)***

 

Cost per gross addition (CPGA) summarizes theaverage cost to acquire new customers during the period. CPGA is computed byadding the statement of operations components of selling and marketing expenseand the cost of products sold, and reducing that amount by the equipmentrevenue recorded.  The net result ofthese components is then divided by the gross customers acquired during theperiod. CPGA was approximately $493 for the three months ended September 30,2005 compared to CPGA of approximately $488 for the three months ended September 30,2004.  CPGA increased as a result of theeffects of expenses incurred in connection with the restructuring of our salesand marketing functions in the third quarter 2005 of approximately $19 pergross addition and higher fixed costs spread over lower gross additions ofapproximately $27 per gross addition. These increases in CPGA were offset by the effect of lower handsetpromotion and subsidy costs of approximately $45 per gross addition.

 

***Revenues***

 

•                  *Subscriber Revenue*. Subscriber revenue during the three months ended September 30, 2005and 2004 was

 

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approximately $71.6 million and $65.3 million, respectively.  Subscriber revenue consists of monthlyrecurring service charges for voice and data usage and monthly non-recurringcharges for local, long distance, travel and roaming airtime usage and datausage in excess of the pre-subscribed usage plan amount received from oursubscribers, cancellation and late fee revenues and surcharges, less reductionsfor billing adjustments and billing corrections.  Our customers’ charges are dependent on theirrate plans, based on the number of minutes and data usage included in theirplans.  The increase in subscriberrevenue was attributable to the effect of the increase in our subscriber baseof approximately $9.0 million offset by the effect of the decrease in ouraverage revenue per user (ARPU) of approximately $2.7 million.

 

•                  *Roaming and Wholesale Revenue.* Roaming andwholesale revenue consists of Sprint PCS travel revenue, non-Sprint PCS roamingrevenue and reseller revenue.  Travelrevenue is generated on a per minute rate for voice services or on a perkilobit rate for data services when a Sprint PCS subscriber based outside ourmarkets uses our network.  An additionallong distance rate per minute is generated when that customer initiates a callfrom our network to call outside the local calling area.  Non-Sprint PCS roaming revenue is generatedwhen a non-Sprint PCS subscriber uses our network.  Reseller revenue is generated when a resellersubscriber uses our PCS network.  We havereseller programs with several companies, including Virgin Mobile USA and QwestCommunications.

 

Roaming and wholesale revenue during thethree months ended September 30, 2005 and 2004 was approximately $33.3million and $29.1 million, respectively. The increase in roaming and wholesale revenue was due to increases inSprint PCS travel revenues for voice and data services of approximately $3.6million and $1.4 million, respectively, and an increase in reseller revenue ofapproximately $1.6 million offset by a decrease in non-Sprint PCS roamingrevenue of approximately $2.4 million. The increase in Sprint PCS travel revenue was primarily due to increasesin travel minutes of use and data usage of approximately 21% and 62%,respectively.  The increase in resellerrevenue was due to an increase in reseller minutes of use of approximately38%.  The decrease in non-Sprint PCSroaming revenue was primarily due to reductions in roaming minutes of userelated to roaming activity with a significant roaming partner.

 

We expect the rate of growth for Sprint PCStravel minutes and kilobytes to remain stable relative to the growth rateduring the third quarter of 2005. Reseller revenue is also expected to continue to be comparable in amountto the revenues recorded for the three months ended September 30, 2005.

 

•                  *Equipment Revenue*. Equipment revenue is generated from the sale of handsets and accessoriesand is recorded at the time of sale.  Werecord and retain 100% of the revenue from the sale of handsets andaccessories, net of rebates, discounts and other sales incentives, as equipmentrevenue.  The amounts recorded during thethree months ended September 30, 2005 and 2004 from equipment revenuetotaled approximately $3.8 million and $3.3 million, respectively.  The increase in equipment revenue wasprimarily due to lower discounts and sales incentives on sales in our directsales channels.

 

***Costof Service and Operations***

 

•*                  NetworkOperations Expenses*.  Networkoperations expenses include radio communications site lease costs, utilities,network control maintenance, network control site leases, engineeringpersonnel, transport facilities and interconnection charges, and totaledapproximately $16.5 million during the three months ended September 30,2005 compared to approximately $14.6 million during the three months ended September 30,2004.  For the three months ended September 30,2004, network operations expenses included a credit adjustment of approximately$1.0 million related to a favorable property tax appeal settlement.  The remaining increase was primarily due tothe effect of an increase in interconnection charges resulting from increasedminutes of use of approximately $0.7 million and an increase in radiocommunications site lease expense of approximately $0.4 million resulting fromadditional radio communications sites.

 

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•                  *Travel and Roaming Expenses*.  We pay Sprint PCS travel fees on a per minuterate for voice services or on a per kilobit rate for data services when ourcustomers use the Sprint PCS network outside our markets and we incuradditional long distance fees when our customers call long distance originatingin a Sprint PCS or PCS affiliate of Sprint territory.  We also pay roaming fees to other wirelessproviders when our customers use their network. Travel and roaming expense totaled approximately $14.7 million and $12.9million for the three months ended September 30, 2005 and 2004,respectively.  The increase in travel androaming expenses was primarily due to an increase in our subscriber base.

 

•                  *Bad Debt Expense.*  Bad debt expense during the three monthsended September 30, 2005 and 2004 was approximately $1.2 million and $1.7million, respectively.  The decrease inbad debt expense was primarily attributable to the improvement in the creditquality of our customer base and the improvement in involuntary churn.

 

•                  *Sprint Operating Expenses. *Sprintoperating expenses during the three months ended September 30, 2005 and2004 were approximately $15.1 million and $14.1 million, respectively. Sprintoperating expenses included Sprint PCS management fee expense and other fees wepaid to Sprint PCS for the use of its support services, including billing andcollections services and customer care. For the three months ended September 30, 2004, Sprint PCSmanagement fee expense of approximately $5.4 million was reclassified fromgeneral and administrative expenses to cost of service and operations in theconsolidated statements of operations to conform with current yearpresentation.  The increase in Sprintoperating expenses was primarily attributable to the effect of the increase inour subscriber base of approximately $1.9 million, offset by savings ofapproximately $0.9 million from service fee reductions related to 2004amendments to our Sprint agreements.

 

***Costof Products Sold***

 

The cost of products sold includes the costsof handsets and accessories and totaled approximately $7.8 million and $10.3million during the three months ended September 30, 2005 and 2004,respectively.  The cost of handsetsgenerally exceeds the sales price because we subsidize the cost of handsets tosubscribers, consistent with industry practice. Handset subsidies on units sold by third parties totaled approximately$1.5 million and $3.5 million for the three months ended September 30,2005 and 2004, respectively.  Thedecrease in cost of products sold was primarily due to the effects of sales ofless expensive handset models of approximately $1.5 million and the decrease incustomer gross additions of approximately $1.0 million.

 

***Sellingand Marketing***

 

Selling and marketing expenses relate to ourdistribution channels, sales representatives, sales support personnel, retailstores, advertising programs and commissions. We incurred selling and marketing expenses of approximately $17.4million and $17.1 million during the three months ended September 30, 2005and 2004, respectively. The increase in selling and marketing expenses wasprimarily attributable to expenses incurred in connection with therestructuring of our sales and marketing functions totaling approximately $0.8million.

 

***General and Administrative***

 

We incurredgeneral and administrative expenses totaling approximately $6.2 million and$3.7 million during the three months ended September 30, 2005 and 2004,respectively.  For thethree months ended September 30, 2004, Sprint PCS management fee expenseof approximately $5.4 million was reclassified from general and administrativeexpenses to cost of service and operations in the consolidated statements ofoperations to conform with current year presentation.  The increase in general and administrativeexpenses was primarily due to costs incurred in connection with our litigationagainst Sprint Nextel of approximately $1.7 million.  We expect to

 

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continue to incur Sprint Nextel litigation costs in the fourth quarterof 2005.

 

***Non-Cash Compensation***

 

During the three months ended September 30, 2005and 2004, non-cash compensation expense totaled approximately $0.3 million and$(0.2) million, respectively.

 

We apply the provisions of APB No. 25 and relatedinterpretations in accounting for our equity incentive plan.  In May 2002, we modified 1,220,800 optionspreviously issued to employees and board members under our equity incentiveplan to reduce the exercise price to $4.00, which was approximately $2.14 pershare above the fair market value on the date of modification.  The modification reducing the exercise priceresulted in variable accounting for these options from the date of modificationto the date the options are exercised, forfeited or expire unexercised.  For the three months ended September 30,2005, non-cash compensation expense increased primarily as a result of theincrease in the fair market value of our common stock, whereas non-cashcompensation expense decreased as a result of the decrease in the fair marketvalue of our common stock during the three months ended September 30,2004.

 

***Depreciation,Amortization and Accretion***

 

Depreciation, amortization and accretion expense forthe three months ended September 30, 2005 and 2004 totaled approximately$13.1 million and $11.4 million, respectively. We depreciate our property and equipment using the straight-line methodover two to 10 years.  A building ownedby us is being depreciated using the straight-line method over 30 years.  Amortization of intangible assets with finiteuseful lives is over 18 years.  Accretionexpense increases the asset retirement obligation associated with our towerleases, switch site and retail and administrative locations to its presentvalue.  The increase in depreciation,amortization and accretion expense was primarily due to increases indepreciation expense resulting primarily from network equipment additions.

 

***InterestIncome***

 

For the three months ended September 30,2005 and 2004, interest income was approximately $0.8 million and $0.2 million,respectively.  Interest income wasgenerated from cash and cash equivalents and increased as a result ofmaintaining higher average cash balances and earning more interest due tohigher interest rates as compared to the same period in 2004.

 

***InterestExpense***

 

Interest expense totaled approximately $10.8million and $10.5 million during the three months ended September 30, 2005and 2004, respectively.  Interest isaccrued on our notes on a per annum basis at the stated interest rate.  The increase in interest expense resultedprimarily from the effect of higher average debt levels of approximately $1.5million partially offset by the effect of the interest rate reduction throughrefinancing of our senior notes during 2004 of approximately $1.0 million.

 

Interest expense also included the amortizedamount of deferred financing fees relating to various note offerings and ourformer senior secured credit facility prior to any retirements of such debt.

 

***IncomeTaxes***

 

For the three monthsended September 30, 2005 and 2004, we recognized income tax expense ofapproximately $0.2 million and $0.3 million, respectively.  Income tax expense included deferred incometaxes that resulted from an expected income tax deduction for amortization ofgoodwill, which is not amortizable to expense

 

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for financial reporting purposes.

 

***NetIncome***

 

For the three months ended September 30, 2005 and2004, our net income was approximately $6.2 million and $1.5 million,respectively.

 

### ***Analysisof the nine months ended September 30, 2005 compared to the nine monthsended September 30, 2004***

 

***CustomerNet Additions***

 

During the nine months ended September 30,2005, we added 39,700 net new subscribers compared to 55,700 net newsubscribers for the nine months ended September 30, 2004.  The decrease was primarily attributable tolower gross customer additions.  As of April 1,2005, we reclassified approximately 3,900 customers to reseller subscribers.

 

# ***Churn***

 

Churn for the nine months ended September 30,2005 was approximately 2.5% compared to approximately 2.9% for the nine monthsended September 30, 2004. Involuntary churn declined 0.2% due to the effect of changes in creditpolicies.  Voluntary churn declined 0.2%due to an increased percentage of our customer base on two-year contracts andservice plans with lower overage charges.

 

***AverageRevenue Per User (ARPU)***

 

During the nine months ended September 30,2005 and 2004, our ARPU was approximately $56 and $57, respectively.  Voice ARPU declined $4 primarily as a resultof increased penetration of customers on fair and flexible and family plans andpromotional credits, partially offset by an increase in data ARPU of $3.

 

***CostPer Gross Addition (CPGA)***

 

CPGA was approximately $502 for the ninemonths ended September 30, 2005 compared to CPGA of approximately $460 forthe nine months ended September 30, 2004. The increase in CPGA was primarily due to the effects of higher fixedcosts spread over lower gross additions of approximately $36 per gross additionand expenses incurred in connection with the restructuring of our sales andmarketing functions in the third quarter 2005 of approximately $6 per grossaddition.

 

***Revenues***

 

•                  *Subscriber Revenue*. Subscriber revenue during the nine months ended September 30, 2005and 2004 was approximately $208.4 million and $183.9 million,respectively.  The increase in subscriberrevenue was primarily attributable to the effect of the increase in oursubscriber base of approximately $29.8 million offset by the effect of thedecrease in our average revenue per user (ARPU) of approximately $5.3 million.

 

•                       *Roaming and Wholesale Revenue*.  Roaming and wholesale revenue during the ninemonths ended September 30, 2005 and 2004 was approximately $94.6 millionand $73.5 million, respectively.  Theincrease in roaming and wholesale revenue was due to increases in Sprint PCStravel revenues for voice and data services of approximately $11.7 million and$3.6 million, respectively, and an increase in reseller revenue ofapproximately $10.0 million offset by a decrease in non-Sprint PCS roamingrevenue

 

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of approximately $4.2 million.  The increase in Sprint PCS travel revenue wasprimarily due to increases in travel minutes of use and data usage of 26% and63%, respectively.  The increase in resellerrevenue was due to a full nine months of Qwest reseller revenue in 2005 ascompared to approximately four months of such revenue in 2004.  The decrease in non-Sprint PCS roamingrevenue was primarily due to reductions in roaming minutes of use and theroaming rates we receive of approximately $3.3 million and $0.9 million,respectively, both of which were primarily related to roaming activity with asignificant roaming partner.

 

•                  *Equipment Revenue*. Equipment revenue recorded during the nine months ended September 30,2005 and 2004 totaled approximately $11.9 million and $10.4 million,respectively.  The increase was primarilydue to sales of certain promotional products to a third party totalingapproximately $1.5 million.

 

***Cost of Service andOperations***

 

•                  *Network Operations Expenses*. Network operations expenses totaled approximately $49.0 millionduring the nine months ended September 30, 2005 compared to approximately$45.7 million during the nine months ended September 30, 2004.  For the nine months ended September 30,2004, network operations expenses included a credit adjustment of approximately$1.0 million related to a favorable property tax appeal settlement. Theremaining increase was primarily due to the effect of an increase in interconnectioncharges resulting from increased minutes of use of approximately $1.2 millionand an increase in radio communications site lease expense of approximately$1.0 million resulting from additional radio communications sites.

 

•                  *Travel and Roaming Expenses*.  Travel and roaming expense totaledapproximately $41.2 million and $35.3 million for the nine months ended September 30,2005 and 2004, respectively.  Theincrease in travel and roaming expenses was primarily due to an increase inSprint PCS travel expense for voice and data services resulting primarily froman increase in our subscriber base.

 

•                  *Bad Debt Expense.*  Bad debt expense during the nine months endedSeptember 30, 2005 and 2004 was approximately $2.8 million and $3.8million, respectively.  The decrease inbad debt expense was primarily attributable to the improvement in the creditquality of our customer base and lower customer write-offs.

 

•                  *Sprint Operating Expenses*.  Sprint operatingexpenses during the nine months ended September 30, 2005 and 2004 wereapproximately $43.8 million and $39.7 million, respectively.  For the nine months ended September 30,2004, Sprint PCS management fee expense of approximately $15.4 million wasreclassified from general and administrative expenses to cost of service andoperations in the consolidated statements of operations to conform with currentyear presentation.  The increase inSprint operating expenses was primarily attributable to the effect of theincrease in our subscriber base of approximately $6.3 million, offset bysavings of approximately $2.2 million from service fee reductions related to2004 amendments to our Sprint agreements.

 

***Costof Products Sold***

 

Cost of products sold totaled approximately$28.1 million and $28.5 million during the nine months ended September 30,2005 and 2004, respectively.  Handsetsubsidies on units sold by third parties totaled approximately $6.1 million and$9.2 million for the nine months ended September 30, 2005 and 2004,respectively.  The decrease in cost ofproducts sold was primarily due to the effect of the decrease in customer grossadditions of approximately $2.3 million, partially offset by the cost ofcertain promotional products sold to a third party totaling approximately $1.7million.

 

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***Sellingand Marketing***

 

We incurred selling andmarketing expenses of approximately $50.3 million and $50.0 million during thenine months ended September 30, 2005 and 2004, respectively.  The increase in selling and marketingexpenses was primarily due to expenses incurred in connection with therestructuring of our sales and marketing functions totaling approximately $0.8million.

 

***General and Administrative***

 

We incurred general and administrativeexpenses totaling approximately $16.1 million and $12.6 million during the ninemonths ended September 30, 2005 and 2004, respectively.  For the nine months ended September 30,2004, Sprint PCS management fee expense of approximately $15.4 million wasreclassified from general and administrative expenses to cost of service andoperations in the consolidated statements of operations to conform with currentyear presentation.  For the nine monthsended September 30, 2005, general and administrative expenses includedcosts incurred in connection with our litigation against Sprint Nextel ofapproximately $1.7 million.  Theremaining increase was primarily due to increases in expenses for employeesalaries, payroll taxes and benefits, investor relations and charitablecontributions.

 

***Non-Cash Compensation***

 

During the nine months ended September 30,2005 and 2004, non-cash compensation expense totaled approximately $1.4 millionand $0, respectively.  Non-cashcompensation expense increased primarily as a result of the increase in thefair market value of our common stock.

 

***Depreciation,Amortization and Accretion***

 

Depreciation, amortization and accretion expense forthe nine months ended September 30, 2005 and 2004 totaled approximately$38.2 million and $38.0 million, respectively. The increase in depreciation, amortization and accretion expense wasprimarily due to higher depreciation expense resulting from net additions toour network equipment during the previous twelve months, offset by the impactof accelerated depreciation of our minicell base stations totalingapproximately $4.8 million for the nine months ended September 30, 2004 ascompared to approximately $0.5 million for the nine months ended September 30,2005.

 

***InterestIncome***

 

For the nine months ended September 30,2005 and 2004, interest income was approximately $2.0 million and $0.5 million,respectively.  Interest income increasedas a result of maintaining higher average cash balances and earning moreinterest due to higher interest rates as compared to the same period in 2004.

 

***InterestExpense***

 

Interest expense totaled approximately $32.6million and $29.3 million during the nine months ended September 30, 2005and 2004, respectively.  The increase ininterest expense resulted primarily from the effect of higher average debtlevels during the first nine months of 2005 as compared to the same period in2004.

 

Interest expense also included the amortizedamount of deferred financing fees relating to our senior secured creditfacility and various note offerings, prior to any retirements of such debt.

 

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***Gainon Debt Retirement***

 

During the first quarter of 2004, OperatingCompany issued $270.0 million aggregate principal amount of 9.875% senior notesdue March 1, 2011 (the “9.875% Senior Notes”), in a transaction exemptfrom the registration requirements of the Securities Act of 1933, asamended.  The 9.875% Senior Notes wereissued at a discount and generated approximately $265.3 million inproceeds.  The proceeds were used to repayand terminate Operating Company’s senior secured credit facility, including therepayment of $230.0 million in outstanding borrowings plus accruedinterest and termination of its unused $47.7 million revolving line ofcredit, to redeem all of its outstanding 14% Series B senior discountnotes due 2008 (“14% Series B Senior Notes”) ($14.5 millionoutstanding principal amount) for approximately $12.5 million, and topurchase $16.7 million principal amount of its outstanding 14% seniordiscount notes due May 15, 2010 (“14% Senior Notes”) for approximately$15.9 million.  The repayments ofthe senior secured credit facility and the 14% Series B Senior Notes andthe purchase of the 14% Senior Notes resulted in a net gain on debt retirementsof approximately $1.1 million, consisting of a loss on the purchase of the 14%Senior Notes of approximately $1.6 million, the write-off of deferred financingfees related to the senior secured credit facility and the 14% Series BSenior Notes of approximately $7.7 million, the write-off of unamortized debtdiscount for detachable warrants associated with the 14% Series B SeniorNotes of approximately $3.6 million and costs of approximately $0.1 millionrelated to the termination of the senior secured credit facility, net of a gainof approximately $14.1 million recognized on the reduction in carrying value ofthe future cash payments associated with the purchased 14% Senior Notes.

 

During the nine monthsended September 30, 2005, we redeemed the remaining $32,000 aggregate principalamount of 14% Senior Notes, thereby reducing the carrying value of the futurecash payments associated with the 14% Senior Notes to zero.  A gain on debt retirement of approximately$40,000 was recognized.

 

***IncomeTaxes***

 

For the nine months endedSeptember 30, 2005 and 2004, we recognized income tax expense ofapproximately $0.4 million and $0.5 million, respectively.  Income tax expense included deferred incometaxes that resulted from an expected income tax deduction for amortization ofgoodwill, which is not amortizable to expense for financial reporting purposes.

 

***NetIncome (Loss)***

 

For the nine months ended September 30, 2005, ournet income was approximately $13.1 million and for the nine months ended September 30,2004, our net loss was approximately $(13.9) million.  We recognized a gain on debt retirement ofapproximately $1.1 million for the nine months ended September 30, 2004.

 

**Liquidity and Capital Resources**

 

From inception through December 31,2002, we principally relied on the proceeds from equity and debt financings,and to a lesser extent revenues, as our primary sources of capital. In 2003 and2004, we generated cash flow from operating activities of approximately $14.5million and $55.4 million, respectively. For the nine months ended September 30, 2005, we generated cashflow from operating activities of approximately $40.1 million.

 

Although we substantially completed ourcontractually required network coverage build-out in 2002, our business couldrequire additional capital expenditures for capacity enhancements and coverageimprovements.  Capital expenditures forthe years ended December 31, 2003 and 2004 and for the nine months ended September 30,2005 totaled approximately $25.9 million, $27.0 million and $37.8 million,respectively.  Since 2003, we have fundedand expect to fund all of our future capital expenditures through cash flowsfrom operating activities, cash and cash equivalent balances.

 

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In February 2005, we announced a networkcoverage expansion, which is expected to cost approximately $13 million and isexpected to be completed in 2006.  Aspart of this expansion, we entered into an agreement with an equipment vendorto acquire network equipment.  Theagreement provides for a minimum purchase commitment of $18 million in each ofthe years 2005 through 2008 for all network equipment and performance servicesthat we purchase.

 

In mid-2004, Sprint announced its intentionto deploy the next generation of CDMA technology known as EV-DO in asubstantial portion of its network. EV-DO technology is expected to generate higher network data speeds andallow the introduction of new data products and features.  While Sprint has not required theimplementation of EV-DO by us or its other PCS affiliates, we began deployingEV-DO in selected markets in the third quarter of 2005 and expect to upgradeapproximately half of our covered population to EV-DO by the end of 2006 at anestimated cost of $20 million.

 

On February 23,2004, Operating Company issued $270.0 million aggregate principal amount of the9.875% Senior Notes at a discount generating approximately $265.3 millionin proceeds, and on October 14, 2004, Operating Company issued anadditional $150.0 million aggregate principal amount of 9.875% Senior Notes ofthe same class at a price of 103.5% generating cash proceeds of approximately$155.3 million, in transactions exempt from the registration requirements ofthe Securities Act.  The 9.875% SeniorNotes were subsequently registered under the Securities Act. UbiquiTel hasfully and unconditionally guaranteed Operating Company’s obligations under the9.875% Senior Notes.  The proceeds fromthese offerings in 2004 were used to repay and terminate Operating Company’ssenior secured credit facility, to redeem all of its outstanding 14% Series BSenior Notes and to repurchase all of its outstanding 14% senior subordinateddiscount notes due 2010 and 14% Senior Notes.

 

Under the indenture governing the 9.875%Senior Notes, Operating Company is permitted to issue additional notes fromtime to time. Prior to March 1, 2007, Operating Company may redeem up to35% of the aggregate principal amount of the 9.875% Senior Notes with net cashproceeds of a sale of its equity or a contribution to its common equitycapital, provided that at least 65% of the principal amount of 9.875% SeniorNotes originally issued under the indenture remains outstanding after givingeffect to such redemption and such redemption occurs within 45 days of the dateof such sale of equity interests or contribution.  We do not have any current plans to sellequity interests of Operating Company or make any capital contributions to itscommon equity capital and, as such, do not currently anticipate exercising thisoptional redemption right.

 

The $420.0 million aggregate principal amountof 9.875% Senior Notes outstanding as of September 30, 2005 will requirecash payments of interest of $41.5 million in each of the years 2006 through2011.  We presently are in compliance withall covenants in the indenture associated with the 9.875% Senior Notes.  We may from time to time purchase outstanding9.875% Senior Notes and/or shares of UbiquiTel common stock in the open market,in privately negotiated transactions or otherwise in accordance with our debtagreements and applicable law.

 

As of September 30, 2005, we hadapproximately $95.4 million of working capital, including $96.4 million in cashand cash equivalents.  Management expectscash and cash equivalents, combined with cash flow from operating activities,to be sufficient to meet capital expenditures needs and service debtrequirements through September 30, 2006 and into the foreseeable future.

 

While management does notanticipate the need to raise additional capital to meet our operating orcapital expenditure requirements in the foreseeable future, our funding statusis dependent on a number of factors influencing projections of operating cashflows, including those related to gross new customer additions, customer turnover,revenues, marketing costs, bad debt expense and roaming and resellerrevenue.  Management believes ourfinancial position will be sufficient to meet the cash requirements of thebusiness including capital expenditures, cash interest and working capitalneeds.  We from time to time evaluateoptions for additional financings to supplement our liquidity position andmaintain maximum financial flexibility. However, if actual results differ

 

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significantly from these assumptions, our liquidityposition could be adversely affected and we could be in a position that wouldrequire us to raise additional capital, which may not be available or may notbe available on acceptable terms.

 

***Analysisof Cash Flows***

 

A significant portion of our revenues isgenerated from customers who subscribe to PCS service from us or Sprint oncontracts that range from one to two years. Our cash flow from operating activities will fluctuate with the size ofour subscriber base and indirectly from the size of Sprint’s subscriber baseand the recurring subscriber and roaming revenue streams generated from thesecustomers.  We expect cash flow fromoperating activities will continue to grow for the remainder of 2005 and infuture periods as our subscriber base continues to grow.

 

Net cash provided by operating activities wasapproximately $40.1 million and $35.3 million for the nine months ended September 30,2005 and 2004, respectively.  Theincrease in cash provided by operating activities was primarily due to theincrease in operating income of approximately $29.9 million partially offset bythe increase in cash paid for interest of approximately $24.2 million.

 

Net cash used in investing activities wasapproximately $37.8 million and $18.5 million for the nine months ended September 30,2005 and 2004, respectively.  Theincrease resulted primarily from higher capital expenditures for base stationsfor network coverage expansion and EVDO deployment.

 

Net cash provided by financing activities forthe nine months ended September 30, 2005 was approximately $2.4 million,consisting primarily of proceeds from the exercise of stock options andwarrants.  Net cash used in financingactivities for the nine months ended September 30, 2004 was approximately$6.9 million, consisting primarily of the reduction in a book cash overdraft ofapproximately $5.7 million and $1.0 million in net payments relating torefinancing transactions that were completed in 2004.

 

***Reconciliationof non-GAAP financial measures***

 

We utilize certain financial measures thatare not calculated in accordance with accounting principles generally acceptedin the United States, or GAAP, to assess our financial performance.  A non-GAAP financial measure is defined as anumerical measure of a company’s financial performance that (a) excludesamounts, or is subject to adjustments that have the effect of excludingamounts, that are included in the comparable measure calculated and presentedin accordance with GAAP in the statement of income or statement of cash flows;or (b) includes amounts, or is subject to adjustments that have the effectof including amounts, that are excluded from the comparable GAAP measure socalculated and presented.  The non-GAAPfinancial measures discussed in ”—Results of Operations” are averagerevenue per user (ARPU) and cost per gross addition (CPGA).  Descriptions of these non-GAAP financialmeasures are provided where the particular measures are discussed in “—Resultsof Operations—Analysis of the three months ended September 30, 2005compared to the three months ended September 30, 2004,” and the followingtables reconcile the non-GAAP financial measures with our unauditedconsolidated financial statements presented in accordance with GAAP (excludingsubscriber data).

 
| ** **                          | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| **Average revenue per user (ARPU)** | ** ** | **2005**                                  | ** ** | **2004**                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                |       |                                      |       |                                     |       |   |   |   |   |
| Subscriber  revenue                 |       | $                                         | 71,645,000 |                                     | $          | 65,334,000 |   | $ | 208,432,000 |   | $ | 183,880,000 |   |
|                                |       |                                      |       |                                     |       |   |   |   |   |
| Average  subscribers                |       | 429,000                                   |       | 374,900                                  |       | 416,500 |   | 357,000 |   |
|                                |       |                                      |       |                                     |       |   |   |   |   |
| ARPU                                |       | $                                         | 56         |                                     | $          | 58 |   | $ | 56 |   | $ | 57 |   |

 

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We believe ARPU, which calculates the average monthlyservice revenue per customer, is a useful measure to assist in evaluating ourpast and forecasting our future subscriber revenue.  In addition, it provides a gauge to compareour subscriber revenue to that of other wireless communications providers, althoughother wireless communications providers may include or exclude certain itemsfrom their calculations which may make the comparison less meaningful.

 
| ** **                         | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| **Cost per gross addition (CPGA)** | ** ** | **2005**                                  | ** ** | **2004**                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
|                               |       |                                      |       |                                     |       |   |   |   |   |
| Selling and  marketing             |       | $                                         | 17,442,000 |                                     | $          | 17,132,000 |   | $ | 50,253,000 |   | $ | 49,961,000 |   |
| Add: Cost of  products sold        |       | 7,752,000                                 |       | 10,340,000                               |       | 28,059,000 |   | 28,473,000 |   |
| Less:  Equipment revenue           |       | (3,780,000                                | )          | (3,320,000                               | )          | (11,898,000 | ) | (10,384,000 | ) |
| CPGA costs                         |       | $                                         | 21,414,000 |                                     | $          | 24,152,000 |   | $ | 66,414,000 |   | $ | 68,050,000 |   |
|                               |       |                                      |       |                                     |       |   |   |   |   |
| Gross  additions                   |       | 43,500                                    |       | 49,500                                   |       | 132,300 |   | 147,800 |   |
|                               |       |                                      |       |                                     |       |   |   |   |   |
| CPGA                               |       | $                                         | 493        |                                     | $          | 488 |   | $ | 502 |   | $ | 460 |   |

 

We believe CPGA, which measures the averagecost to acquire new customers during the period, is a useful measure used tocompare our average cost to acquire a new subscriber to that of other wirelesscommunication providers, although other wireless communications providers mayinclude or exclude certain items from their calculations which may make thecomparison less meaningful.  Theinclusion of cost of products sold net of the equipment revenues earned iscritical to our understanding of how much it costs us to acquire a new customer.

 

***Inflation***

 

We believe that inflation has not had, andwill not have, a material adverse effect on our results of operations.

 

***Seasonality***

 

Our business is seasonal because the wirelessindustry is dependent on fourth quarter results.  Among other things, the industry relies onhigher customer additions and handset sales in the fourth quarter as comparedto the other three fiscal quarters.  Thefactors contributing to this trend include the increasing use of retaildistribution, which is dependent on year-end holiday shopping, the timing of newproduct and service offerings, competitive pricing pressures and aggressivemarketing and promotions during the holiday season.  The increased level of activity requires agreater use of our available financial resources during this period.

 

**Item 3. Quantitative and QualitativeDisclosures About Market Risk**

 

Market risk is the potential loss arisingfrom adverse changes in market prices and rates, including interest rates.  The interest rate on our notes is fixed at9.875%.  We have not entered into derivativesor other financial instruments for trading, speculative or hedging purposes,though we may do so from time to time if such instruments are available to uson acceptable terms and prevailing market conditions are accommodating.  No principal repayments on our notes are dueuntil March 2011.

 

**Item 4. Controls and Procedures**

 

**Evaluation of Disclosure Controls andProcedures**

 

Our management, under the supervision and with theparticipation of our Chief Executive Officer and Chief Financial Officer (who servesas our principal financial and accounting officer), conducted an evaluation ofour

 

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“disclosurecontrols and procedures” (as defined in the Securities Exchange Act of 1934 (“ExchangeAct”) Rules 13a-15(e) or 15d-15(e)) as of September 30,2005.  Based on that evaluation, ourChief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective as of September 30,2005.

 

**Changes in InternalControl Over Financial Reporting**

 

There were no changes in our internal control overfinancial reporting identified in connection with the evaluation required byparagraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurredduring the three months ended September 30, 2005 that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

Managementis responsible for all of our disclosure controls and procedures and internalcontrol over financial reporting including those relating to functionsoutsourced to a third party, Sprint, and including controls over theinformation flow to and from the third party service organization.  We also are responsible for assessing theidentified controls over financial reporting over the outsourcedoperations.  We place reliance on Sprint to adequatelydesign its internal controls with respect to the processes established toprovide financial information and other information to us and the other PCSaffiliates of Sprint.  To address thisissue, Sprint engages its independent auditors to perform a periodic evaluationof these controls and to provide a “Report on Controls Placed in Operation andTests of Operating Effectiveness for Affiliates” under guidance provided in Statementof Auditing Standards No. 70 (“SAS 70”). This report is provided semi-annually to us and we have placed relianceon this SAS 70 report for assessing the identified controls over financialreporting over the outsourced operations.

 

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**PART II. OTHER INFORMATION**

 

# **Item 1. Legal Proceedings**

 

On July 12, 2005, UbiquiTel filed aComplaint (the “Complaint”) against Sprint Corporation, Sprint Spectrum L.P.,Wirelessco, L.P., Sprint Communications Company L.P., Sprint Telephony PCS,L.P., Sprint PCS License, L.L.C. (collectively, “Sprint”), and NextelCommunications, Inc. (“Nextel”) in the Delaware Chancery Court.  The Complaint alleges that, following theconsummation of the merger between Sprint Corporation and Nextel, Sprint wouldbreach the exclusivity provisions of the Management Agreement dated October 15,1998 between UbiquiTel and Sprint (as amended, the “Management Agreement”), andthat Nextel improperly interfered with UbiquiTel’s exclusive rights under theManagement Agreement.  The Complaintfurther alleges that Sprint and Nextel conspired to deprive UbiquiTel of theexclusivity commitments in the Management Agreement and to use UbiquiTel’sconfidential business information to advantage Nextel’s business, which isdirectly competitive with UbiquiTel.  TheComplaint seeks, among other things, a court order requiring Sprint Nextel tocomply with the exclusivity provisions of the Management Agreement andprohibiting Sprint Nextel from violating those provisions.  A copy of the Complaint was filed as Exhibit 99.1to UbiquiTel’s Current Report on Form 8-K dated July 12, 2005 filedwith the Securities and Exchange Commission. The parties are proceeding with discovery.  On July 29, 2005, UbiquiTel entered intoa forbearance agreement with Sprint relating to the ongoing litigation.  The forbearance agreement sets forthUbiquiTel’s agreement not to seek certain injunctive or equitable relief in theongoing litigation under certain circumstances and contemplates the partiesproceeding directly to a trial relating to UbiquiTel’s request for a permanentinjunction and other relief.  The trialon UbiquiTel’s claims is scheduled to begin on December 19, 2005.  The forbearance agreement also sets forthSprint’s agreement as to certain parameters for the operations of Nextel’swireless business in the territories operated by UbiquiTel following theSprint-Nextel merger, in each case during the period of time that the agreementremains in effect.  A copy of theforbearance agreement was filed as Exhibit 99.1 to UbiquiTel’s CurrentReport on Form 8-K dated July 29, 2005 filed with the Securities andExchange Commission.  See Note 7 (SprintDevelopments) to the Notes to Consolidated Financial Statements in Part 1,Item 1, of this Joint Quarterly Report on Form 10-Q with respect to thelitigation and related matters between UbiquiTel and Sprint regarding theSprint-Nextel merger.

 

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

 

None.

 

**Item 3.Defaults Upon Senior Securities**

 

None.

 

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

 

None.

 

**Item 5.Other Information**

 

None.

 

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**Item 6.****    Exhibits**

 

**Exhibits:**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                 |
|----------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **           | ** ** | ** **                                                                                                                                                                                      |
| 31.1                 |       | Certification Pursuant  to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302  of the Sarbanes-Oxley Act of 2002.                                                       |
|                 |       |                                                                                                                                                                                            |
| 31.2                 |       | Certification Pursuant  to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302  of the Sarbanes-Oxley Act of 2002.                                                       |
|                 |       |                                                                                                                                                                                            |
| 32.1                 |       | Certification Pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 9.06 of  the Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601(b)(32) of  Regulation S-K). |
|                 |       |                                                                                                                                                                                            |
| 32.2                 |       | Certification Pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 9.06 of  the Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601(b)(32) of  Regulation S-K). |

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                  | CO-REGISTRANTS:              |
|-----------------------|------------------------------|
|                  |                         |
|                  | UBIQUITEL INC.               |
|                  | UBIQUITEL OPERATING  COMPANY |
|                  |                         |
|                  |                         |
|                  | By:                          | /s/ DONALD A. HARRIS |   |
|                  |                         | Donald A. Harris |
|                  |                         | Chairman of the Board,  President |
|                  |                         | and Chief Executive  Officer |
|                  |                         | (Principal Executive  Officer) |
|                  |                         |   |
|                  |                         |   |
|                  | By:                          | /s/ JAMES J. VOLK |   |
|                  |                         | James J. Volk |
|                  |                         | Chief Financial Officer |
|                  |                         | (Principal Financial and Accounting Officer) |
|                  |                         |
|                  |                         |
| November 8, 2005 |                         |
|                       |                              |  |  |  |

 

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