**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-Q**
| **(Mark One)**                                                                                                                                                                                                                                                                                                                                                                                                                                                             | ** **                                                                                           | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------|------------|
| **x**                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15 OF THE SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | ** **                                                                                           | ** ** |
| **For the  quarterly period ended September 30, 2006**                                                                                                                                                                                                                                                                                                                                                                                                                     |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | ** **                                                                                           | ** ** |
| **Or**                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | ** **                                                                                           | ** ** |
| o                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15 OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | ** **                                                                                           | ** ** |
| **For the  transition period  from                                   to                                   ** |

 

**Commission File Number 000-51844**

----

**iPCS,INC.**

(Exact name of registrantas specified in its charter)

| **Delaware**                                      |   | **36-4350876**                        |
|---------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of incorporation or |   | (I.R.S. Employer  Identification No.) |
| organization)                                     |   |                                  |
|                                              |   |                                  |
| **1901 N.  Roselle Road, Schaumburg, Illinois**   |   | **60195**                             |
| (Address of  principal executive offices)         |   | (Zip code)                            |

 

**(847)885-2833**

(Registrant’stelephone number, including zip code)

----

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.
|  | Yes x  No o |
|--|---------------------------------|

 

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

| Large accelerated filer o | Accelerated  filer o | Non-accelerated  filer x |
|---------------------------|----------------------|--------------------------|

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).
|  | Yes o  No x |
|--|---------------------------------|

 

Indicate by check mark whether the registrant hasfiled all documents and reports required to be filed by Section 12, 13 or 15(d) ofthe Securities Exchange Act of 1934 subsequent to the distribution ofsecurities under a plan confirmed by a court.
|  | Yes x  No o |
|--|---------------------------------|

 

Asof November 10, 2006, there were 16,700,154 shares of common stock, $0.01 parvalue per share, outstanding.

 

----

**TABLE OF CONTENTS**
| PART I    |   |                                                                                                                       |   | 3      |
|----------------|--------|----------------------------------------------------------------------------------------------------------------------------|--------|--------|
|           |   |                                                                                                                       |   |   |
| ITEM 1.        |   | FINANCIAL  INFORMATION                                                                                                     |   | 3      |
|           |   | FINANCIAL STATEMENTS                                                                                                       |   | 3      |
|           |   | CONSOLIDATED  BALANCE SHEETS AS OF SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)                                                 |   | 3      |
|           |   | CONSOLIDATED  STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER  30, 2006 AND 2005 (UNAUDITED) |   | 4      |
|           |   | CONSOLIDATED  STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND  2005 (UNAUDITED)                  |   | 5      |
|           |   | NOTES  TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS                                                                      |   | 6      |
| ITEM  2.       |   | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                |   | 18     |
| ITEM  3.       |   | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                |   | 38     |
| ITEM  4.       |   | CONTROLS  AND PROCEDURES                                                                                                   |   | 38     |
|           |   |                                                                                                                       |   |   |
| PART II   |   | OTHER  INFORMATION                                                                                                         |   | 39     |
|           |   |                                                                                                                       |   |   |
| ITEM 1.        |   | LEGAL  PROCEEDINGS                                                                                                         |   | 39     |
| ITEM 1A.       |   | RISK FACTORS                                                                                                               |   | 39     |
| ITEM  2.       |   | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                               |   | 40     |
| ITEM  3.       |   | DEFAULTS  UPON SENIOR SECURITIES                                                                                           |   | 40     |
| ITEM  4.       |   | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                       |   | 40     |
| ITEM 5.        |   | OTHER  INFORMATION                                                                                                         |   | 40     |
| ITEM 6.        |   | EXHIBITS                                                                                                                   |   | 41     |
|           |   |                                                                                                                       |   |   |
| SIGNATURES     |   | 43                                                                                                                         |
|           |   |                                                                                                                       |   |   |
| CERTIFICATIONS |   |                                                                                                                       |

 

 

2

----

**PART I.FINANCIAL INFORMATION**

**ITEM 1.FINANCIAL STATEMENTS**

**iPCS, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCESHEETS**

**(UNAUDITED)**

(Dollars in thousands, except share and per shareamounts)
| ** **                                                                                                                                    | ** ** | **September 30,  2006** | ** ** | **September 30,  2005 (a)** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------------|------------|
|                                                                                                                                          |       |                         |       |                                  |       |
| **Assets**                                                                                                                                    | ** ** | ** **                   | ** ** | ** **                            | ** ** |
| Current Assets:                                                                                                                               |       |                         |       |                                  |       |
| Cash and cash  equivalents                                                                                                                    |       | $                            | 103,158    |                                  | $          | 98,107 |   |
| Investments                                                                                                                                   |       | 11,578                       |       | 16,700                                |       |
| Accounts receivable,  net of allowance for doubtful accounts of $4,657 and $3,653, respectively                                               |       | 29,317                       |       | 25,601                                |       |
| Receivable from Sprint  (Note 4)                                                                                                              |       | 38,694                       |       | 30,837                                |       |
| Inventories, net of  reserves for excess/obsolescence of $359 and $338, respectively (Note 4)                                                 |       | 3,905                        |       | 3,179                                 |       |
| Prepaid expenses                                                                                                                              |       | 6,105                        |       | 5,717                                 |       |
| Other current assets                                                                                                                          |       | 444                          |       | 4,092                                 |       |
| Total current  assets                                                                                                                         |       | 193,201                      |       | 184,233                               |       |
| Property and equipment,  net (Note 5)                                                                                                         |       | 137,958                      |       | 153,504                               |       |
| Financing costs                                                                                                                               |       | 8,079                        |       | 9,590                                 |       |
| Customer activation  costs                                                                                                                    |       | 2,698                        |       | 1,003                                 |       |
| Intangible assets, net  (Note 6)                                                                                                         |       | 140,843                      |       | 178,800                               |       |
| Goodwill (Note 6)                                                                                                                             |       | 141,783                      |       | 146,391                               |       |
| Other assets                                                                                                                                  |       | 370                          |       | 469                                   |       |
| Total assets                                                                                                                                  |       | $                            | 624,932    |                                  | $          | 673,990 |   |
|                                                                                                                                          |       |                         |       |                                  |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                | ** ** | ** **                   | ** ** | ** **                            | ** ** |
| Current Liabilities:                                                                                                                          |       |                         |       |                                  |       |
| Accounts payable                                                                                                                              |       | $                            | 5,976      |                                  | $          | 4,322 |   |
| Accrued expenses                                                                                                                              |       | 27,542                       |       | 33,275                                |       |
| Payable to Sprint (Note  4)                                                                                                                   |       | 45,684                       |       | 41,135                                |       |
| Deferred revenue                                                                                                                              |       | 10,710                       |       | 10,486                                |       |
| Current maturities of  long-term debt and capital lease obligations (Note 7)                                                                  |       | 14                           |       | 17                                    |       |
| Total current  liabilities                                                                                                                    |       | 89,926                       |       | 89,235                                |       |
| Customer activation fee  revenue                                                                                                              |       | 2,698                        |       | 1,003                                 |       |
| Other long-term  liabilities                                                                                                                  |       | 6,039                        |       | 9,112                                 |       |
| Long-term debt and  capital lease obligations, excluding current maturities (Note 7)                                                          |       | 302,471                      |       | 304,558                               |       |
| Total  liabilities                                                                                                                            |       | 401,134                      |       | 403,908                               |       |
| Commitments and  contingencies (Note 10)                                                                                                      |       |                         |       |                                  |       |
|                                                                                                                                          |       |                         |       |                                  |       |
| Stockholders’ Equity:                                                                                                                    |       |                         |       |                                  |       |
|                                                                                                                                          |       |                         |       |                                  |       |
| Preferred stock, par  value $.01 per share; 25,000,000 shares authorized; none issued                                                         |       | —                       |       | —                                |       |
| Common stock, par value  $.01 per share; 75,000,000 shares authorized, 16,704,851 and 16,635,482  shares issued and outstanding, respectively |       | 167                          |       | 166                                   |       |
| Additional  paid-in-capital                                                                                                                   |       | 331,789                      |       | 328,202                               |       |
| Unearned compensation                                                                                                                         |       | —                       |       | (1,372                                | )          |
| Accumulated deficiency                                                                                                                        |       | (108,158                     | )          | (56,914                               | )          |
| Total stockholders’  equity                                                                                                              |       | 223,798                      |       | 270,082                               |       |
| Total liabilities and stockholders’ equity                                                                                               |       | $                            | 624,932    |                                  | $          | 673,990 |   |

 

----

(a)             Derivedfrom the Company’s audited financial statements as of September 30, 2005.

See Notes to unaudited consolidated financialstatements.

3

----

**iPCS,INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(UNAUDITED)**

**(Dollars inthousands, except per share data)**
| ** **                                                                          | ** ** | **For the Three Months Ended** | ** ** | **For the Nine Months Ended** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                          | ** ** | **September  30, 2006**                       | ** ** | **September  30, 2005**                      | ** ** | **September  30, 2006** | ** ** | **September  30, 2005** | ** ** |
| ** **                                                                          | ** ** | ** **                                         | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenues:**                                                                       | ** ** | ** **                                         | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service revenue                                                                     |       | $                                                  | 79,300     |                                              | $          | 70,191 |   | $ | 232,021 |   | $ | 150,592 |   |
| Roaming revenue                                                                     |       | 43,728                                             |       | 36,169                                            |       | 116,888 |   | 67,211 |   |
| Equipment and other                                                                 |       | 3,578                                              |       | 2,723                                             |       | 10,556 |   | 6,247 |   |
| Total revenues                                                                      |       | 126,606                                            |       | 109,083                                           |       | 359,465 |   | 224,050 |   |
| **Operating  Expenses:**                                                            | ** ** | ** **                                         | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost of service and roaming (exclusive of  depreciation, as shown separately below) |       | (72,916                                            | )          | (61,194                                           | )          | (206,567 | ) | (123,359 | ) |
| Cost of equipment                                                                   |       | (10,893                                            | )          | (9,318                                            | )          | (30,290 | ) | (21,540 | ) |
| Selling and marketing                                                               |       | (17,262                                            | )          | (17,267                                           | )          | (51,366 | ) | (34,570 | ) |
| General and administrative                                                          |       | (4,352                                             | )          | (6,454                                            | )          | (17,220 | ) | (11,098 | ) |
| Depreciation (Note 5)                                                               |       | (11,705                                            | )          | (14,549                                           | )          | (39,032 | ) | (45,241 | ) |
| Amortization of intangible assets (Note 6)                                          |       | (9,490                                             | )          | (9,423                                            | )          | (28,468 | ) | (15,078 | ) |
| Loss on disposal of property and equipment                                          |       | (97                                                | )          | (55                                               | )          | (510 | ) | (128 | ) |
| Total operating expenses                                                            |       | (126,715                                           | )          | (118,260                                          | )          | (373,453 | ) | (251,014 | ) |
| **Operating  loss**                                                                 |       | (109                                               | )          | (9,177                                            | )          | (13,988 | ) | (26,964 | ) |
| Interest income                                                                     |       | 1,415                                              |       | 868                                               |       | 3,883 |   | 1,645 |   |
| Interest expense                                                                    |       | (8,026                                             | )          | (7,991                                            | )          | (24,043 | ) | (17,952 | ) |
| Other income                                                                        |       | 37                                                 |       | 39                                                |       | 91 |   | 49 |   |
| **Loss  before benefit from income taxes**                                          |       | (6,683                                             | )          | (16,261                                           | )          | (34,057 | ) | (43,222 | ) |
| Benefit from  income taxes                                                          |       | —                                             |       | —                                            |       | — |   | — |   |
| **Net  loss**                                                                       |       | $                                                  | (6,683     | )                                                 | $          | (16,261 | ) | $ | (34,057 | ) | $ | (43,222 | ) |
|                                                                                |       |                                               |       |                                              |       |   |   |   |   |
| Basic and diluted loss per share of common stock                                    |       | $                                                  | (0.40      | )                                                 | $          | (0.99 | ) | $ | (2.04 | ) | $ | (3.70 | ) |
| Weighted average  common shares outstanding                                         |       | 16,704,673                                         |       | 16,434,938                                        |       | 16,697,860 |   | 11,681,468 |   |

 

See Notes tounaudited consolidated financial statements.

4

----

**iPCS, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTSOF CASH FLOWS**

**(UNAUDITED)**

**(Dollars inthousands)**
| ** **                                                                                                               | ** ** | **For the Nine Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **September  30, 2006**                      | ** ** | **September  30, 2005** | ** ** |
| **Cash  Flows from Operating Activities:**                                                                               | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net loss                                                                                                                 |       | $                                                 | (34,057    | ) | $ | (43,222 | ) |
| Adjustments to  reconcile net loss to net cash flows from operating activities:                                          |       |                                              |       |   |   |
| Loss on disposal of property and equipment                                                                               |       | 510                                               |       | 128 |   |
| Depreciation and amortization                                                                                            |       | 67,500                                            |       | 60,319 |   |
| Non-cash interest expense net of amortization of  debt fair value adjustment                                             |       | (488                                              | )          | 287 |   |
| Stock-based compensation expense                                                                                         |       | 1,712                                             |       | 1,178 |   |
| Provision for doubtful accounts                                                                                          |       | 6,522                                             |       | 1,319 |   |
| Purchases of investments                                                                                                 |       | (11,578                                           | )          | (2,650 | ) |
| Sales of investments                                                                                                     |       | —                                            |       | 2,750 |   |
| Changes in assets and liabilities:                                                                                       |       |                                              |       |   |   |
| Accounts receivable                                                                                                      |       | (4,810                                            | )          | (1,141 | ) |
| Receivable from Sprint                                                                                                   |       | 5,500                                             |       | (10,559 | ) |
| Inventories, net                                                                                                         |       | (322                                              | )          | (967 | ) |
| Prepaid expenses, other current and long term assets                                                                     |       | (744                                              | )          | 319 |   |
| Accounts payable, accrued expenses and other long  term liabilities                                                      |       | (643                                              | )          | 1,159 |   |
| Payable to Sprint                                                                                                        |       | (14,520                                           | )          | 7,154 |   |
| Deferred revenue                                                                                                         |       | 1,416                                             |       | 740 |   |
| Net cash flows from operating activities                                                                                 |       | 15,998                                            |       | 16,814 |   |
| **Cash  Flows from Investing Activities:**                                                                               | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Cash acquired in acquisition                                                                                             |       | —                                            |       | 19,935 |   |
| Purchases of property and equipment                                                                                      |       | (28,723                                           | )          | (11,669 | ) |
| Proceeds from disposition of property and equipment                                                                      |       | 3,917                                             |       | 5,231 |   |
| Net cash flows from investing activities                                                                                 |       | (24,806                                           | )          | 13,497 |   |
| **Cash  Flows from Financing Activities:**                                                                               | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Proceeds from the exercise of stock options                                                                              |       | 1,137                                             |       | 9,536 |   |
| Stock purchased and retirements                                                                                          |       | —                                            |       | (1,626 | ) |
| Payments on capital lease obligations                                                                                    |       | (8                                                | )          | (20 | ) |
| Debt financing costs                                                                                                     |       | —                                            |       | (52 | ) |
| Net cash flows from financing activities                                                                                 |       | 1,129                                             |       | 7,838 |   |
| Net increase/(decrease) in cash and cash equivalents                                                                     |       | (7,679                                            | )          | 38,149 |   |
| **Cash  and cash equivalents at beginning of period**                                                                    |       | 110,837                                           |       | 59,958 |   |
| **Cash  and cash equivalents at end of period**                                                                          |       | $                                                 | 103,158    |   | $ | 98,107 |   |
|                                                                                                                     |       |                                              |       |   |   |
| **Supplemental  disclosure of cash flow information- cash paid for interest**                                            |       | $                                                 | 23,706     |   | $ | 16,597 |   |
| **Supplemental  disclosure for non-cash investing activities:**                                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Capitalized interest                                                                                                     |       | $                                                 | 456        |   | $ | 191 |   |
| Accounts payable  and accrued expenses incurred for the acquisition of property, equipment and  construction in progress |       | 4,674                                             |       | 5,301 |   |

 

See Notes to unaudited consolidated financial statements.

5

----

**iPCS, INC. AND SUBSIDIARIES**

**NOTESTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**(1)  Business and Basis of Presentation**

iPCS, Inc.(the “Company” or “iPCS”) is a holding company that operates as a PCS Affiliateof Sprint through three wholly owned subsidiaries: iPCS Wireless, Inc.,Horizon Personal Communications, Inc. and Bright Personal CommunicationsServices, LLC. Each of these subsidiaries is a party to a separate affiliationagreement with Sprint PCS, the operator of a 100% digital personal communicationsservice (“PCS”) wireless network with licenses to provide voice and dataservice to the entire United States population using a single frequency bandand a single technology.

iPCS, Inc.was formed in March 2000 as a holding company for iPCS Wireless. iPCSWireless, as the successor to Illinois PCS, LLC, became a PCS affiliate ofSprint in 1999. Through this affiliation agreement, as amended, iPCS has theexclusive right to market and provide Sprint PCS products and services in 40markets in Illinois, Michigan, Iowa, and eastern Nebraska. On November 30,2001, the Company was acquired by AirGate PCS, Inc. (“AirGate”), anotherPCS Affiliate of Sprint. iPCS was designated as an unrestricted subsidiary ofAirGate and both companies operated as separate business entities. OnFebruary 23, 2003, the Company and its subsidiaries filed for Chapter 11bankruptcy protection. On October 17, 2003, AirGate irrevocablytransferred its ownership of iPCS to a trust, the beneficial owners of whichtrust were AirGate’s stockholders at the date of transfer. AirGate retained noownership interest in the trust or the Company. Upon the Company’s emergencefrom bankruptcy on July 20, 2004, iPCS’s common stock held by the trustwas cancelled and the trust terminated by its terms.

On July 1,2005, iPCS completed a merger with Horizon PCS, Inc. (“Horizon PCS”),another PCS Affiliate of Sprint, in which Horizon PCS merged with and intoiPCS, Inc., with iPCS, Inc. as the surviving corporation (see Note3). Through its two affiliation agreements with Sprint PCS, two wholly ownedsubsidiaries of Horizon PCS have the exclusive right to market and provideSprint PCS products and services in 40 markets in Ohio, Indiana, Tennessee,Michigan, New York, New Jersey, Maryland, Pennsylvania, and West Virginia.

In February 2006,the Company changed its fiscal year-end from September 30 to December 31commencing in 2006. The Company’s 2005 fiscal year ended on September 30, 2005.

The unauditedconsolidated balance sheet as of September 30, 2006 and 2005, the unauditedconsolidated statements of operations for the three months and nine monthsended September 30, 2006 and 2005, the unaudited consolidated statements ofcash flows for the nine months ended September 30, 2006 and 2005 and relatedfootnotes have been prepared in accordance with accounting principles generallyaccepted in the United States of America for interim financial information andRule 10-01 of Regulation S-X. Accordingly, they do not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States for complete financial statements. The financialinformation presented herein should be read in conjunction with the Company’s2005 Annual Report on Form 10-K which includes information and disclosuresnot presented herein. All significant intercompany accounts and transactionshave been eliminated in consolidation. In the opinion of management, theunaudited consolidated financial statements contain all of the adjustments,consisting only of normal recurring adjustments, necessary to present fairly,in summarized form, the consolidated financial position, results of operationsand cash flows of the Company. The results of operations for the three or ninemonths ended September 30, 2006, are not indicative of the results that may beexpected for the full year 2006.

The PCS market ischaracterized by significant risks as a result of rapid changes in technologyand increasing competition. The Company’s continuing operations are dependentupon Sprint’s ability to perform its obligations under the affiliationagreements. In addition, the Company must be able to attract and maintain asufficient customer base and achieve satisfactory growth while successfullymanaging operations to generate enough cash from operations to meet futureobligations. Changes in technology, increased competition, or the inability toobtain required financing or achieve and maintain break-even operating cashflow, among other factors, could have an adverse effect on the Company’sfinancial position and results of operations.

**(2) Summary of Significant Accounting Policies**

*LossPer Share:*

Basic and diluted lossper share for the Company are calculated by dividing the net loss by theweighted average number of shares of

6

----

common stock of theCompany. The calculation was made in accordance with SFAS No. 128, “EarningsPer Share.” The basic and diluted loss per share are the same because theinclusion of the incremental potential common shares from any assumed exerciseof stock options is antidilutive. Potential common shares excluded from theloss per share computations for each of the three months and nine months endedSeptember 30, 2006 and 2005 were 719,812 and 837,784, respectively.

*New Accounting Pronouncements*

In September 2006,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”) whichdefines fair value, establishes a framework for measuring fair value under generallyaccepted accounting principles, and expands disclosures about fair valuemeasurements.  SFAS No. 157 applies tofair-value measurements that are already required or permitted by existingstandards except for measurements of share-based payments and measurements thatare similar to, but not intended to be, fair value and nullifies the EmergingIssues Task Force guidance that prohibited recognition of gains or losses atthe inception of derivative transactions whose fair value is estimated byapplying a model.  SFAS No. 157 clarifiesthat fair value is the amount that would be exchanged to sell an asset ortransfer a liability in an orderly transaction between marketparticipants.  SFAS No. 157 is effectivefor fiscal years beginning after November 15, 2007.  The Company does not anticipate that theimplementation of SFAS No. 157 will have a material impact on its financialposition, results of operations and cash flows.

On**July 13, 2006, FASB issued Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes” (“FIN 48”), which is effective for fiscalyears beginning after December 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxesrecognized in the financial statements in accordance with SFAS No. 109,“Accounting for Income Taxes”. FIN 48 prescribes a comprehensive model forhow a company should recognize, measure, present, and disclose in its financialstatements uncertain tax positions that the company has taken or expects to takeon a tax return.  The Company does notanticipate that the implementation of FIN 48 will have a material impact on itsfinancial position, results of operations and cash flows.

**(3) Merger with Horizon PCS**

On July 1,2005, the Company completed its tax-free stock for stock merger transactionwith Horizon PCS in which Horizon PCS merged with and into iPCS, Inc. withiPCS, Inc. as the surviving corporation. Horizon PCS was a PCS Affiliateof Sprint whose territory included 40 markets in nine contiguous states. Thetransaction was accounted for under the purchase method and the results ofHorizon PCS have been included in the Company’s consolidated financialstatements since the acquisition date.

The unaudited proforma condensed consolidated statement of operations for the nine months endedSeptember 30, 2005, set forth below, presents the results of operations as ifthe merger had occurred at the beginning of the period and are not necessarilyindicative of future results or actual results that would have been achievedhad the acquisition occurred as of the beginning of such period.
|                                                   | ** ** | **For the Nine Months  Ended  September 30, 2005** | ** ** |
|---------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|
| ** **                                        | ** ** | ** **                                                                  | ** ** |
| Total revenues (in thousands)      |       | $                                                                           | 313,021    |   |
| Net loss (in  thousands)                          |       | (72,811                                                                     | )          |
| Basic and  diluted loss per share of common stock |       | $                                                                           | (4.47      | ) |
| Weighted average shares  outstanding              |       | 16,297,794                                                                  |       |

 

**(4) Sprint Agreements**

Under the Sprintagreements, Sprint provides the Company significant support services such ascustomer service, billing, long distance transport services, national networkoperations support, inventory logistics support, use of the Sprint and SprintPCS brand name, national advertising, national distribution and productdevelopment. Additionally, the Company derives substantial roaming revenue whenwireless customers of Sprint and other PCS Affiliates of Sprint incur minutesof use in the Company’s territories and incurs expense to Sprint and to otherPCS Affiliates of Sprint when the Company’s customers incur minutes of use inthe territories of Sprint and other PCS Affiliates of Sprint. Cost of serviceand roaming transactions with Sprint include the 8% affiliation fee, longdistance, roaming expenses, billing support and customer care support. Cost ofequipment relates to inventory sold

7

----

by the Company that waspurchased from Sprint under the Sprint agreements. Selling and marketingtransactions relate to subsidized costs on wireless handsets and commissionsunder Sprint’s national distribution program.

For the threemonths ended September 30, 2006, and for the nine months ended September 30,2006 and 2005, approximately 97% of the Company’s revenue was derived from dataprovided by Sprint. For the three months ended September 30, 2005,approximately 98% of the Company’s revenue was derived from data provided bySprint.  For the three months endedSeptember 30, 2006 and 2005, approximately 67% of the Company’s cost of serviceand roaming was derived from data provided by Sprint. For the nine months endedSeptember 30, 2006 and 2005, approximately 68% and 69%, respectively, of theCompany’s cost of service and roaming was derived from data provided by Sprint.The Company reviews all charges from Sprint and disputes certain of thesecharges in cases where the Company does not receive enough supporting detail tovalidate the charges or it does not believe Sprint can charge the Company forcertain expenses under the terms of the Sprint agreements. At September 30,2006 and 2005, the Company had approximately $0.1 million and$0.2 million, respectively, in disputed charges.

Amounts relatingto the Sprint agreements for the three months and nine months ended September 30, 2006 and 2005are as follows (in thousands):
|                                                                     | ** ** | **For the Three Months Ended** | ** ** | **For the Nine Months Ended** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                          | ** ** | **September  30, 2006**                       | ** ** | **September  30, 2005**                      | ** ** | **September  30, 2006** | ** ** | **September 30,  2005** | ** ** |
| **Amounts  included in the Consolidated Statements of Operations:** | ** ** | ** **                                         | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service revenue                                                     |       | $                                                  | 79,300     |                                              | $          | 70,191 |   | $ | 232,021 |   | $ | 150,592 |   |
| Roaming revenue                                                     |       | $                                                  | 43,728     |                                              | $          | 36,169 |   | $ | 116,888 |   | $ | 67,211 |   |
| Cost of service  and roaming:                                       |       |                                               |       |                                              |       |   |   |   |   |
| Roaming                                                             |       | $                                                  | 28,177     |                                              | $          | 20,923 |   | $ | 76,698 |   | $ | 42,180 |   |
| Customer service                                                    |       | 11,224                                             |       | 10,367                                            |       | 32,843 |   | 21,599 |   |
| Affiliation fees                                                    |       | 6,054                                              |       | 5,704                                             |       | 18,183 |   | 12,082 |   |
| Long distance                                                       |       | 3,206                                              |       | 3,075                                             |       | 9,272 |   | 6,333 |   |
| Other                                                               |       | 408                                                |       | 1,230                                             |       | 3,373 |   | 2,921 |   |
| Total cost of  service and roaming                                  |       | $                                                  | 49,069     |                                              | $          | 41,299 |   | $ | 140,369 |   | $ | 85,115 |   |
| Cost of  equipment                                                  |       | $                                                  | 10,893     |                                              | $          | 9,318 |   | $ | 30,290 |   | $ | 21,540 |   |
| Selling and marketing                                               |       | $                                                  | 3,646      |                                              | $          | 5,351 |   | 13,153 |   | $ | 9,207 |   |

 
|                                                           | ** ** | **September 30, 2006** | ** ** | **September 30, 2005** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| **Amounts  included in the Consolidated Balance Sheets:** | ** ** | ** **                       | ** ** | ** **                       | ** ** |
| Receivable from Sprint                                    |       | $                                | 38,694     |                             | $          | 30,837 |   |
| Inventories, net                                          |       | 3,905                            |       | 3,179                            |       |
| Payable to  Sprint                                        |       | 45,684                           |       | 41,135                           |       |
|                                                           |            |                                  |            |                                  |            |  |  |

 

**(5) Property and Equipment**

Property andequipment consists of the following at September 30, 2006 and 2005 (inthousands):
|                                                 | ** ** | **September 30, 2006** | ** ** | **September 30, 2005** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| Network assets                                  |       | $                                | 206,135    |                             | $          | 177,200 |   |
| Computer  equipment                             |       | 4,089                            |       | 1,603                            |       |
| Furniture,  fixtures, and office equipment      |       | 6,861                            |       | 5,105                            |       |
| Vehicles                                        |       | 316                              |       | 396                              |       |
| Construction in  progress                       |       | 11,703                           |       | 10,105                           |       |
| Total property  and equipment                   |       | 229,104                          |       | 194,409                          |       |
| Less accumulated  depreciation and amortization |       | (91,146                          | )          | (40,905                          | )          |
| Total property and  equipment, net              |       | $                                | 137,958    |                             | $          | 153,504 |   |

 

On March 21, 2006,the Company amended the payment terms of the letter of agreement with NortelNetworks to replace the Motorola equipment currently deployed in the Company’sPennsylvania, New York, New Jersey and Maryland markets with Nortel equipment(see Note 10). This amendment accelerated payments for equipment totaling $4.0million from 2007 to 2006;

8

----

thereby,reducing the original timeline to complete this project. Because of thisamendment, the estimated remaining useful life of the Motorola equipment wasshortened by approximately nine months, resulting in additional depreciationexpense of approximately $2.4 million for the nine months ended September 30,2006.

As a result of theCompany’s decision to replace the Lucent equipment in its Michigan markets withNortel equipment, the estimated remaining useful life of the Lucent equipmentwas shortened by approximately 3 years.  In addition, on April 5, 2005, the Company signed an agreement withTeltech Communications, L.L.C (“Teltech”) to sell the Company’s Lucentequipment for approximately $4.3 million, which adjusted the salvage value ofthe equipment.  The assets were fullydepreciated at June 30, 2005; however, the effect of both of these changesresulted in additional depreciation expense of approximately $13.6 million inthe nine months ended September 30, 2005. As of September 30, 2006, the Company had received the $4.3 million fromTeltech.

**(6) Intangible Assets and Goodwill**

As a result of theCompany’s reorganization in 2004 and in accordance with fresh-start accountingunder SOP 90-7, “Financial Reporting by Entities in Reorganization under theBankruptcy Code”, the Company revalued its assets to their estimated fairvalues and the Company recorded intangible assets of $19.0 millionrelating to the fair value of the customer base and $59.5 million relatingto the fair value of the right to provide service under the Sprint affiliationagreements.

In connection withthe merger with Horizon PCS (see Note 3), the Company allocated portions of thepurchase price to identifiable intangible assets consisting of the right toprovide service under the Sprint affiliation agreements, the acquired customerbase, and an FCC license for a small market in Ohio. The amount allocated tothe right to provide service under the Sprint affiliation agreements, thecustomer base and the FCC license was $67.0 million, $53.0 million, and$1.5 million, respectively. In addition, the excess of the purchase priceover the fair value of the net assets acquired, including these identifiableintangible assets, which totaled $141.8 million was recorded as goodwill. Thegoodwill is not deductible for income taxes.

Changes in thecarrying amount of goodwill are as follows (in thousands):
|                                   | ** ** | **September 30, 2006** | ** ** | **September 30, 2005** | ** ** |
|-----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| Goodwill,  beginning of period    |       | $                                | 146,391    |                             | $          | — |   |
| Goodwill related  to acquisitions |       | (4,608                           | )          | 146,391                          |       |
| Goodwill, end of period           |       | $                                | 141,783    |                             | $          | 146,391 |   |

 

The intangibleassets relating to the customer base are being amortized over the estimatedaverage life of a customer of 30 months. The intangible assets for theright to provide service under the Sprint affiliation agreements are beingamortized over the remaining term of the respective agreements. The FCC licensewas determined to have an indefinite life as it is expected to be renewed withminimal effort and cost.

Theweighted average amortization period, gross carrying amount, accumulatedamortization and net carrying amount of intangible assets at September 30, 2006and 2005 are as follows (in thousands):
|                                                                   | ** ** | **September 30, 2006**                | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                        | ** ** | **Weighted Average  Amortization  Period** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Value** | ** ** |
| **Non-amortized  intangible asset:**                              | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| FCC license                                                       |       |                                            |       | $ | 1,500 |   | $ | — |   | $ | 1,500 |   |
| **Amortized  intangible assets:**                                 | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Right to provide  service under the Sprint affiliation agreements |       | 167 months                                      |       | 126,521 |   | (15,574 | ) | 110,947 |   |
| Customer base                                                     |       | 30 months                                       |       | 71,956 |   | (43,560 | ) | 28,396 |   |
|                                                              |       | 117 months                                      |       | $ | 199,977 |   | $ | (59,134 | ) | $ | 140,843 |   |

 

9

----

 
|                                                                   | ** ** | **September 30, 2005**                | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                        | ** ** | **Weighted Average  Amortization  Period** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Value** | ** ** |
| **Non-amortized  intangible asset:**                              | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| FCC license                                                       |       |                                            |       | $ | 1,500 |   | $ | — |   | $ | 1,500 |   |
| **Amortized  intangible assets:**                                 | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Right to provide  service under the Sprint affiliation agreements |       | 167 months                                      |       | 126,521 |   | (6,399 | ) | 120,122 |   |
| Customer base                                                     |       | 30 months                                       |       | 71,956 |   | (14,778 | ) | 57,178 |   |
|                                                              |       | 117 months                                      |       | $ | 199,977 |   | $ | (21,177 | ) | $ | 178,800 |   |

 

The amortization expense for the three months endedSeptember 30, 2006 and 2005 was $9.5 million and $9.4 million, respectively.The amortization expense for the nine months ended September 30, 2006 and 2005was $28.5 million and $15.1 million, respectively. Aggregateamortization expense relative to intangible assets for the periods shown willbe as follows:
| Year Ended December 31 | ** ** | ** ** | ** ** |
|---------------------------------------|------------|------------|------------|
| 2006                                  |       | $          | 37,958     |   |
| 2007                                  |       | 30,376     |       |
| 2008                                  |       | 9,176      |       |
| 2009                                  |       | 9,176      |       |
| 2010                                  |       | 9,176      |       |
| Thereafter                            |       | 71,949     |       |
| Total                                 |       | $          | 167,811    |   |

 

**(7) Long-TermDebt**

Long-termdebt consists of the following at September 30, 2006 and September 30,2005 (in thousands):
|                                                                             | ** ** | **September 30, 2006** | ** ** | **September 30, 2005** | ** ** |
|-----------------------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| Senior notes  11-1/2% $165 million due 2012                                 |       | $                                | 165,000    |                             | $          | 165,000 |   |
| Senior notes  11-3/8% $125 million due 2012                                 |       | 125,000                          |       | 125,000                          |       |
| Unamortized fair  value adjustment for 11-3/8% senior notes                 |       | 12,096                           |       | 14,169                           |       |
| Capital lease  obligations                                                  |       | 389                              |       | 406                              |       |
| Total long-term  debt and capital lease obligations                         |       | 302,485                          |       | 304,575                          |       |
| Less: current maturities                                                    |       | (14                              | )          | (17                              | )          |
| Long-term debt and  capital lease obligations, excluding current maturities |       | $                                | 302,471    |                             | $          | 304,558 |   |

 

In connection withthe merger of Horizon PCS (see Note 3), the allocation of the purchase priceresulted in an increase of the value of the 11-3/8% senior notes ofapproximately $14.7 million, which is recorded as long-term debt in theConsolidated Balance Sheets. This amount will be amortized over the remaininglife of the 11-3/8% senior notes as a reduction to interest expense. For thethree months and nine months ended September 30, 2006, the reduction tointerest expense was approximately $0.5 million and $1.6 million,respectively. This amortization will not increase the principal amount due tothe 11-3/8% senior note holders or reduce the amount of interest owed to the11-3/8% senior note holders.

The indenturesgoverning the $165.0 million in aggregate principal amount of 11-1/2%senior notes and the $125.0 million in aggregate principal amount of11-3/8% senior notes contain covenants which restrict the Company’s ability toincur additional indebtedness, merge, pay dividends, dispose of its assets, andcertain other matters as defined in the indentures. However, the senior notesare subordinated to all secured indebtedness of the Company to the extent ofthe assets securing such indebtedness, and to any indebtedness of subsidiariesof the Company that do not guarantee the senior notes. For the 11-3/8% seniornotes, interest is payable semi-annually in arrears on May 1 and November 1to the holders of record on the immediately preceding April 15 andOctober 15. For the 11-3/8% senior notes, interest is payablesemi-annually in arrears on July 15 and January 15, to the holders ofrecord on the immediately preceding July 1 and January 1.

**(8) Income Taxes**

The Company’seffective income tax rate for the interim periods presented is based onmanagement’s estimate of the Company’s effective tax rate for the applicableyear and differs from the federal statutory income tax rate primarily due tonondeductible permanent differences, state income taxes and changes in thevaluation allowance for deferred income taxes. In

10

----

assessing therealizability of deferred tax assets, management considers whether it is morelikely than not that some portion or all of the deferred tax assets will not berealized. The ultimate realization of deferred tax assets is dependent upon thegeneration of future taxable income during the periods in which those temporarydifferences become deductible. No benefit for federal income taxes has beenrecorded for the three months or nine months ended September 30, 2006 and 2005as the net deferred tax asset generated, primarily from temporary differencesrelated to the net operating loss, was offset by a full valuation allowancebecause it is not considered more likely than not that these benefits will berealized due to the Company’s losses since inception.

**(9) Stock-Based Compensation**

The Company hastwo long-term incentive plans currently in place.  The iPCS 2004 long-term incentive plan, asamended (the “iPCS Plan”), was approved by the Company’s board of directors asprovided by the Company’s plan of reorganization. The Horizon PCS 2004 stockincentive plan, as amended (the “Horizon Plan”), was assumed by the Company inits merger with Horizon PCS, Inc. effective July 1, 2005 (see Note 3).

**iPCSPlan. **Under the iPCSPlan, the Company may grant to employees, directors and consultants of theCompany or its subsidiaries incentive and non-qualified stock options, stockappreciation rights, restricted and unrestricted stock awards and cashincentive awards. All of the stock options and restricted stock awarded to dateunder the iPCS Plan have a ten-year life with vesting on a quarterly basis overfour years for employees, and over one year for directors. The iPCS Plan hasbeen amended twice to increase the number of shares available for issuancethereunder.  On May 5, 2005, the iPCSPlan was amended to increase the number of shares available for issuance by250,000 shares, and on September 28, 2006, the iPCS Plan was amended toincrease the number of shares available for issuance by 500,000 shares.  In connection with the second amendment tothe iPCS Plan, the Horizon Plan (discussed below) was amended to decrease thenumber of shares available for issuance thereunder by 211,227.  Each of these amendments was approved by theCompany’s stockholders.  Giving effect tothese amendments, the total number of shares that may be awarded under the iPCSPlan is 1.75 million shares of common stock, of which amount, 838,698 sharesremain available for awards as of September 30, 2006.

**HorizonPlan. **Under theHorizon Plan, the Company may grant to employees, directors and consultants ofthe Company or its subsidiaries incentive or non-qualified stock options orstock appreciation rights. All of the stock options issued to date under theHorizon Plan have a ten-year life and vest equally in six-month increments overthree years from the date of grant. As discussed above, in connection with themost recent amendment to the iPCS Plan, the Horizon Plan was amended todecrease the number of shares available for issuance thereunder by211,227.  This amendment was approved bythe Company’s stockholders.  Givingeffect to this amendment, the total number of shares that may be granted underthe Horizon Plan is 551,000 shares of common stock, which equals the number ofshares underlying awards previously made under the Horizon Plan.

EffectiveOctober 1, 2005, the Company adopted Statement of Financial AccountingStandards (“SFAS”) No. 123R, “Share-Based Payment” utilizing the modifiedprospective method. Under SFAS No. 123R companies are required to recordcompensation expense for all share based payment award transactions measured atfair value. Under the modified prospective method SFAS No. 123R requirescompensation cost to be recognized for 1) all share-based compensation expensearrangements granted after the adoption date and 2) all remaining unvestedshare-based compensation arrangements granted prior to the adoption date. Priorperiods have not been restated. The Company uses the Black-Scholes model tovalue its stock option grants; however, there have been no stock option grantssince the Company adopted SFAS No. 123R.

Thefollowing table shows stock-based compensation expense by type of share-basedaward for the three months and nine months ended September 30, 2006 and 2005included in the consolidated statements of operations (in thousands):
|                                                               | ** ** | **For the Three Months Ended** | ** ** | **For the Nine Months Ended** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                    | ** ** | **September  30, 2006**                       | ** ** | **September  30, 2005**                      | ** ** | **September  30, 2006** | ** ** | **September  30, 2005** | ** ** |
| Restricted stock                                              |       | $                                                  | 25         |                                              | $          | 25 |   | $ | 75 |   | $ | 72 |   |
| Amortization of  unearned compensation of stock option awards |       | 89                                                 |       | 528                                               |       | 270 |   | 528 |   |
| Fair value  expense of stock option awards                    |       | 280                                                |       | 223                                               |       | 1,367 |   | 578 |   |
| Total stock-based  compensation                               |       | $                                                  | 394        |                                              | $          | 776 |   | $ | 1,712 |   | $ | 1,178 |   |

 

11

----

 

Thefollowing table shows the total remaining unrecognized compensation costrelated to: restricted stock grants, unearned compensation of stock optionawards, and fair value expense of stock option awards; as well as the weightedaverage remaining required service period over which such costs will berecognized:
|                                               | ** ** | **Total Remaining  Unrecognized  Compensation Cost** | ** ** | **Weighted Average  Remaining Required  Service Period (in  years)** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **(in millions)**                                         | ** ** | ** **                                                                               | ** ** |
| Restricted stock                              |       | $                                                              | 0.2        |                                                                                     | 1.9        |   |
| Unearned  compensation of stock option awards |       | 0.4                                                            |       | 1.0                                                                                      |       |
| Fair value expense of  stock option awards    |       | 3.4                                                            |       | 1.7                                                                                      |       |
|                                               |            |                                                                |            |                                                                                          |            |  |

 

Stock-basedcompensation expense is included in the consolidated statements of operationsas follows (in thousands):
|                                 | ** ** | **For the Three Months Ended** | ** ** | **For the Nine Months Ended** | ** ** |
|---------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                      | ** ** | **September 30,  2006**                       | ** ** | **September 30,  2005**                      | ** ** | **September 30,  2006** | ** ** | **September 30,  2005** | ** ** |
| Cost of service  and roaming    |       | $                                                  | 24         |                                              | $          | 41 |   | $ | 86 |   | $ | 56 |   |
| Sales and  marketing            |       | 71                                                 |       | 65                                                |       | 339 |   | 78 |   |
| General and  administrative     |       | 299                                                |       | 670                                               |       | 1,287 |   | 1,044 |   |
| Total stock-based  compensation |       | $                                                  | 394        |                                              | $          | 776 |   | $ | 1,712 |   | $ | 1,178 |   |

 

The following is a summary of optionsactivity under the Company’s long-term incentive plans for the nine monthsended September 30, 2006:
|                                               | ** ** | **Number of Options** | ** ** | **Weighted-Average  Exercise Price** | ** ** |
|-----------------------------------------------|------------|---------------------------------|------------|-------------------------------------------|------------|
| Options  outstanding as of December 31, 2005  |       | 773,086                         |       | $                                         | 16.73      |   |
| Exercised                                     |       | (49,541                         | )          | 23.00                                     |       |
| Forfeited                                     |       | (3,733                          | )          | 23.00                                     |       |
| Options outstanding as  of September 30, 2006 |       | 719,812                         |       | $                                         | 16.27      |   |

 

Thefollowing is a summary of options outstanding and exercisable at September 30,2006:
| ** **                              | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**                                         | ** ** |
|-----------------------------------------|------------|------------------------------|------------|----------------------------------------------------------------------|------------|
| **Range of  Exercise Prices** | ** ** | **Number  Outstanding**      | ** ** | **Weighted  Average  Remaining  Contractual  Life  (in years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Aggregate  Intrinsic  Value** | ** ** | **Number  Exercisable** | ** ** | **Weighted  Average  Remaining  Contractual  Life   (in years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
| ** **                              | ** ** | ** **                   | ** ** | ** **                                                           | ** ** | ** ** | ** ** | ** ** | ** ** | **(in  thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **(in  thousands)** | ** ** |
| $10.27                                  |       | 446,875                      |       | 7.80                                                                 |       | $ | 10.27 |   |   |   | 242,342 |   | 7.80 |   | $ | 10.27 |   |   |   |
| $19.00                                  |       | 47,000                       |       | 7.90                                                                 |       | 19.00 |   |   |   | 25,125 |   | 7.90 |   | 19.00 |   |   |   |
| $23.00-$25.60                           |       | 158,187                      |       | 8.08                                                                 |       | 23.60 |   |   |   | 74,101 |   | 8.08 |   | 23.49 |   |   |   |
| $35.00-$40.50                           |       | 67,750                       |       | 8.81                                                                 |       | 36.85 |   |   |   | 52,109 |   | 8.79 |   | 35.75 |   |   |   |
|                                    |       | 719,812                      |       | 7.97                                                                 |       | $ | 16.27 |   | $ | 26,834 |   | 393,677 |   | 7.99 |   | $ | 16.69 |   | $ | 14,511 |   |
|                                         |            |                              |            |                                                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Prior toOctober 1, 2005, the Company applied APB Opinion No. 25, “Accountingfor Stock Issued to Employees,” and related interpretations to account for itsemployee and director stock options. The Company did not record any stock-basedcompensation expense for stock option awards prior to October 1, 2005because all stock option awards were granted at fair market value; however,there were no stock option grants in the nine months ended September 30, 2005.

In connection withthe Company’s merger with Horizon PCS (see Note 3), four former directorsresigned from the Company’s board of directors. Effective with their resignation, the Company amended each of thesedirector’s stock option award agreements to extend the termination date ofthese director’s options from 90 days to 210 days post-resignation.  As a result of these amendments, the Companyrecorded additional stock-based compensation expense of approximately $0.2million and $0.6 million for the three months and nine months ended September30, 2005, respectively. The amount of stock-based compensation expense wascalculated using the intrinsic value method.

As part of theCompany’s reorganization, the Company awarded Mr. Timothy M. Yager, the Company’sformer chief restructuring officer and current chief executive officer, 250,000stock and stock unit awards as consideration for facilitating the Company’semergence from bankruptcy.  Per the termsof this award agreement Mr. Yager was allowed to surrender shares to the

12

----

Company as repayment forhis withholding obligations.  During thenine months ended September 30, 2005, Mr. Yager surrendered approximately46,000 shares as payment for his tax withholding obligations of approximately$1.6 million related to the delivery of the remaining 125,000 shares to Mr.Yager pursuant to the stock unit award.

Priorto the adoption ofSFAS No. 123R, the Company provided the disclosures required under SFASNo. 123 “Accounting for Stock-Based Compensation.”  For the ninemonths ended September 30, 2005, if compensation expense for the stock optiongrants had been determined on fair value at the grant date consistent with therequirements of SFAS No. 123, the Company’s net loss and net loss percommon share would have been the pro forma amounts below:
| ** **                                                             | ** ** | **For the Three  Months Ended  September 30,   2005** | ** ** | **For the Nine  Months Ended  September 30,   2005** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| **Net loss (in thousands):**                                           | ** ** | ** **                                                                     | ** ** | ** **                                                                    | ** ** |
| As reported                                                            |       | $                                                                              | (16,261    | )                                                                             | $          | (43,222 | ) |
| Plus non-cash  stock compensation in accordance with SFAS No. 123 |       | (411                                                                           | )          | (1,113                                                                        | )          |
| Pro forma                                                              |       | $                                                                              | (16,672    | )                                                                             | $          | (44,335 | ) |
| **Basic and diluted loss per  common share:**                          | ** ** | ** **                                                                     | ** ** | ** **                                                                    | ** ** |
| As reported                                                            |       | $                                                                              | (0.99      | )                                                                             | $          | (3.70 | ) |
| Pro forma                                                              |       | $                                                                              | (1.01      | )                                                                             | $          | (3.80 | ) |

 

**(10) Commitments and Contingencies**

*Commitments*

OnDecember 31, 2005, the Company signed a letter of agreement with NortelNetworks to replace the Company’s Motorola equipment currently deployed in itsPennsylvania, New York, New Jersey and Maryland markets with Nortel equipment.Under the terms of the agreement, the Company is required to purchase equipmentnecessary to replace 425 existing base stations and related networkinfrastructure, plus various additional equipment to support future networkfootprint and capacity expansion, totaling approximately $16.5 million, with anoption to purchase additional equipment totaling $0.5 million. On March 21,2006, the Company amended the terms of this agreement accelerating payments forequipment totaling $4.0 million from 2007 to 2006. As of September 30, 2006,the Company had purchased $15.5 million of the required $16.5 million ofequipment under this agreement. Accordingly, the Company is required topurchase an additional $1.0 million of equipment under this agreement.

On July 15, 2005,iPCS Wireless, Inc., a wholly owned subsidiary of iPCS, Inc., filed a complaintagainst Sprint and Sprint PCS in the Circuit Court of Cook County, Illinois. OnJuly 22, 2005, Horizon Personal Communications, Inc. and Bright PersonalCommunications Services, LLC, wholly owned subsidiaries of iPCS, Inc., filed acomplaint against Sprint and Sprint PCS and Nextel Communications, Inc. in theCourt of Chancery of the State of Delaware, New Castle County. The complaintsallege, among other things, that following the consummation of the mergerbetween Sprint and Nextel, Sprint will breach its exclusivity obligations underour affiliation agreements, as amended. The Company sought, among other things,a temporary restraining order (a TRO), a preliminary injunction and a permanentinjunction enjoining Sprint and those acting in concert with it from engagingin certain conduct post-closing that would violate our affiliation agreementswith Sprint PCS.

On July 28, 2005,iPCS, Inc. and certain of its wholly owned subsidiaries entered into aForbearance Agreement with Sprint relating to the complaints filed againstSprint. The Forbearance Agreement sets forth the Company’s agreement that itwould not seek a TRO or a preliminary injunction against Sprint so long asSprint operates the Nextel business subject to the limitations set forth in theForbearance Agreement.  Although theForbearance Agreement expired on January 1, 2006 in the territory managed byiPCS Wireless and on August 4, 2006 in the territory managed by HorizonPersonal Communications and Bright Personal Communications Services, Sprintcommitted to continue to abide by the terms of the Forbearance Agreement in theterritory managed iPCS Wireless during the pendency of Sprint’s appeal of theIllinois court (discussed below).

The trial in theDelaware court occurred in January 2006. On August 4, 2006, the Delaware court issued its decision and, onSeptember 7, 2006 issued a final order and judgment effecting its decision.  The final order and judgment provides that:

·                  Sprint will violate the implied dutyof good faith and fair dealing if it offers iDEN products and services usingthe same Sprint brand and marks that plaintiffs (Horizon PersonalCommunications and Bright Personal Communications Services) have used or areusing in connection with their sale of Sprint PCS Products and Services (the “Sprintpcs brand and/or marks”) or a brand or mark confusingly similar to the Sprintpcs brand or marks in plaintiffs’ Service Areas.  Sprint may re-brand the legacy Nextel storesin plaintiffs’ Service Areas, but it must do so in a way that does not create a

13

----

 

likelihood of confusion in the minds of consumers as to the sponsor ofthe store or which products and services are available in it, and it may notuse the new Sprint logo.

·                  Within plaintiffs’ Service Areas,Sprint and those acting in concert with it are enjoined from:

·                  offeringiDEN products and services that use the same or confusingly similar brands ormarks as the Sprint pcs brand or marks; provided that Sprint is not enjoined orotherwise prohibited from conducting national advertising offering iDENproducts and services that use the same or similar brands and marks as theSprint pcs brands or marks, subject to appropriate disclaimers regardingavailability in certain markets; and

·                  re-brandingthe legacy Nextel stores with the new Sprint logo or the same or confusinglysimilar brands or marks as the Sprint pcs brand and marks.

·                  In light ofcertain operational and confidentiality representations made by Sprint,plaintiffs’ claims and requests for relief against such future Sprint behaviorwere deemed not ripe for adjudication and therefore denied.  If, however, Sprint in the future breachesthese representations, the court will promptly entertain a request forappropriate relief.

·                  Plaintiffs’ claimsfor tortious interference and civil conspiracy against Nextel were dismissedwith prejudice.

The trial in theIllinois court occurred intermittently from early March to early July2006.  On August 14, 2006, the Illinois courtissued its decision and on September 20, 2006 issued a final order effecting itsdecision.  The final order provides that:

·                  Within 180 days of the date of thefinal order, Sprint and those acting in concert with it must cease owning,operating, and managing the Nextel wireless network in iPCS Wireless’sterritory.

·                  Sprint shall continue to comply withall terms and conditions of the Forbearance Agreement.

On September 28,2006, Sprint appealed the ruling of the Illinois trial court to the AppellateCourt of Illinois, First Judicial District. In early October 2006, Sprint requested a stay of the Illinois trialcourt’s order pending appeal and an accelerated appeal.  On October 13, 2006, the Illinois appellatecourt denied Sprint’s request for an accelerated appeal and ordered a stay ofthe Illinois trial court’s order pending appeal on the condition that (i)Sprint continue to comply with the Forbearance Agreement and (ii) Sprint complywith the September 7, 2006 order of the Delaware court, in both cases, only withrespect to iPCS Wireless’s territory. Accordingly, Sprint must comply with the Forbearance Agreement, as wellas the order of the Delaware court, in iPCS Wireless’s territory pending adecision from the Illinois appellate court, which we expect by mid to late2007.

Inaddition to the foregoing, from time to time, the Company is involved invarious legal proceedings relating to claims arising in the ordinary course ofbusiness. The Company is not currently a party to any such legal proceedings,the outcome of which, individually or in the aggregate, is expected to have amaterial adverse effect on the Company’s business, financial condition orresults of operations.

**(11)****                               TowerSales**

On September 4, 2004, the Company signed an agreement with TCPCommunications, LLC (“TCP”) whereby the Company agreed to sell up to 92 of itsowned towers to TCP.  During the ninemonths ended September 30, 2005, the Company sold 8 towers and receivedproceeds for these and previous sales to TCP of $1.4 million.

On May 25, 2005, the Company signed an agreement with Global Tower, LLCwhereby the Company agreed to sell its remaining 16 towers to GlobalTower.  During the three months endedSeptember 30, 2005, the Company sold these 16 towers to Global Tower forapproximately $2.8 million.

14

----

 

**(12) ConsolidatingFinancial Information**

The 11-1/2 %senior notes and the 11-3/8 % senior notes are fully, unconditionally and jointand severally guaranteed by the Company’s domestic restricted subsidiaries,including iPCS Wireless, Inc., iPCS Equipment, Inc., HorizonPersonal Communications, Inc., and Bright Personal CommunicationsServices, LLC, which are wholly owned subsidiaries of iPCS, Inc. Thefollowing consolidating financial information as of September 30, 2006 and 2005and for the three months and nine months ended September 30, 2006 and 2005 ispresented for iPCS, Inc., iPCS Wireless, Inc., iPCS Equipment, Inc.,Horizon Personal Communications, Inc., and Bright Personal CommunicationsServices, LLC (in thousands):

**iPCS, Inc. and SubsidiariesCondensed Consolidating Balance Sheetas of September 30, 2006**
| ** **                                                         | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|--------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Cash and cash  equivalents                                         |       | $                  | —     |               | $          | 73,452              |       | $                         | —     |       | $          | 29,498           |       | $                      | 208        |   | $ | — |   | $ | 103,158 |   |
| Other current  assets                                              |       | 136,415            |       | 69,381             |       | 35,360              |       | 83,478                    |       | 63,018     |       | (297,609         | )          | 90,043                 |       |
| Total current  assets                                              |       | 136,415            |       | 142,833            |       | 35,360              |       | 112,976                   |       | 63,226     |       | (297,609         | )          | 193,201                |       |
| Property and  equipment, net                                       |       | —             |       | 62,248             |       | 8,027               |       | 53,593                    |       | 14,161     |       | (71              | )          | 137,958                |       |
| Goodwill and  intangible assets, net                               |       | —             |       | 52,181             |       | —              |       | 171,623                   |       | 58,822     |       | —           |       | 282,626                |       |
| Other  non-current assets                                          |       | 5,014              |       | 1,557              |       | —              |       | 3,830                     |       | 746        |       | —           |       | 11,147                 |       |
| Investment in  subsidiaries                                        |       | 259,386            |       | —             |       | —              |       | —                    |       | —     |       | (259,386         | )          | —                 |       |
| Total assets                                                       |       | $                  | 400,815    |               | $          | 258,819             |       | $                         | 43,387     |       | $          | 342,022          |       | $                      | 136,955    |   | $ | (557,066 | ) | $ | 624,932 |   |
| Current  liabilities                                               |       | $                  | 12,017     |               | $          | 218,618             |       | $                         | 42         |       | $          | 108,492          |       | $                      | 48,437     |   | $ | (297,680 | ) | $ | 89,926 |   |
| Long-term debt                                                     |       | 165,000            |       | 376                |       | —              |       | 104,796                   |       | 32,299     |       | —           |       | 302,471                |       |
| Other long-term  liabilities                                       |       | —             |       | 3,766              |       | —              |       | 4,634                     |       | 337        |       | —           |       | 8,737                  |       |
| Total  liabilities                                                 |       | 177,017            |       | 222,760            |       | 42                  |       | 217,922                   |       | 81,073     |       | (297,680         | )          | 401,134                |       |
| Stockholders’  equity (deficiency)                            |       | 223,798            |       | 36,059             |       | 43,345              |       | 124,100                   |       | 55,882     |       | (259,386         | )          | 223,798                |       |
| Total liabilities and  stockholders’ equity (deficiency) |       | $                  | 400,815    |               | $          | 258,819             |       | $                         | 43,387     |       | $          | 342,022          |       | $                      | 136,955    |   | $ | (557,066 | ) | $ | 624,932 |   |

 

**iPCS, Inc. and SubsidiariesCondensed Consolidating Balance Sheetas of September 30, 2005**
| ** **                                                         | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|--------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Cash and cash  equivalents                                         |       | $                  | —     |               | $          | 75,805              |       | $                         | —     |       | $          | 22,112           |       | $                      | 190        |   | $ | — |   | $ | 98,107 |   |
| Other current  assets                                              |       | 150,398            |       | 41,314             |       | 24,967              |       | 49,848                    |       | 23,720     |       | (204,121         | )          | 86,126                 |       |
| Total current  assets                                              |       | 150,398            |       | 117,119            |       | 24,967              |       | 71,960                    |       | 23,910     |       | (204,121         | )          | 184,233                |       |
| Property and  equipment, net                                       |       | —             |       | 72,503             |       | 15,256              |       | 48,476                    |       | 17,363     |       | (94              | )          | 153,504                |       |
| Goodwill and  intangible assets, net                               |       | —             |       | 63,868             |       | —              |       | 195,056                   |       | 66,267     |       | —           |       | 325,191                |       |
| Other  non-current assets                                          |       | 5,912              |       | 1,033              |       | —              |       | 3,172                     |       | 945        |       | —           |       | 11,062                 |       |
| Investment in  subsidiaries                                        |       | 288,666            |       | —             |       | —              |       | —                    |       | —     |       | (288,666         | )          | —                 |       |
| Total assets                                                       |       | $                  | 444,976    |               | $          | 254,523             |       | $                         | 40,223     |       | $          | 318,664          |       | $                      | 108,485    |   | $ | (492,881 | ) | $ | 673,990 |   |
| Current  liabilities                                               |       | $                  | 9,894      |               | $          | 220,007             |       | $                         | 29         |       | $          | 42,372           |       | $                      | 21,148     |   | $ | (204,215 | ) | $ | 89,235 |   |
| Long-term debt                                                     |       | 165,000            |       | 389                |       | —              |       | 106,381                   |       | 32,788     |       | —           |       | 304,558                |       |
| Other long-term  liabilities                                       |       | —             |       | 2,970              |       | —              |       | 6,946                     |       | 199        |       | —           |       | 10,115                 |       |
| Total  liabilities                                                 |       | 174,894            |       | 223,366            |       | 29                  |       | 155,699                   |       | 54,135     |       | (204,215         | )          | 403,908                |       |
| Stockholders’  equity (deficiency)                            |       | 270,082            |       | 31,157             |       | 40,194              |       | 162,965                   |       | 54,350     |       | (288,666         | )          | 270,082                |       |
| Total liabilities and  stockholders’ equity (deficiency) |       | $                  | 444,976    |               | $          | 254,523             |       | $                         | 40,223     |       | $          | 318,664          |       | $                      | 108,485    |   | $ | (492,881 | ) | $ | 673,990 |   |

 

15

----

 

**iPCS, Inc.and SubsidiariesCondensed Consolidating Statement of OperationsFor the Three Months Ended September 30, 2006**
| ** **                                         | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|----------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Total revenues                                     |       | $                  | —     |               | $          | 70,941              |       | $                         | 1,031      |       | $          | 18,874           |       | $                      | 36,791     |   | $ | (1,031 | ) | $ | 126,606 |   |
| Cost of revenues                                   |       | —             |       | (46,536            | )          | —              |       | (17,855                   | )          | (20,449    | )          | 1,031            |       | (83,809                | )          |
| Selling and  marketing                             |       | —             |       | (9,490             | )          | —              |       | (4,605                    | )          | (3,167     | )          | —           |       | (17,262                | )          |
| General and  administrative                        |       | (500               | )          | (1,991             | )          | —              |       | (605                      | )          | (1,256     | )          | —           |       | (4,352                 | )          |
| Depreciation and  amortization                     |       | —             |       | (8,234             | )          | (1,165              | )          | (9,069                    | )          | (2,727     | )          | —           |       | (21,195                | )          |
| Gain (loss) on  disposal of property and equipment |       | —             |       | (83                | )          | 91                  |       | (111                      | )          | —     |       | 6                |       | (97                    | )          |
| Total operating expenses                           |       | (500               | )          | (66,334            | )          | (1,074              | )          | (32,245                   | )          | (27,599    | )          | 1,037            |       | (126,715               | )          |
| Other, net                                         |       | (4,968             | )          | 157                |       | 930                 |       | (1,964                    | )          | (729       | )          | —           |       | (6,574                 | )          |
| Loss in  subsidiaries                              |       | (1,221             | )          | —             |       | —              |       | —                    |       | —     |       | 1,221            |       | —                 |       |
| Net income (loss)                                  |       | $                  | (6,689     | )                  | $          | 4,764               |       | $                         | 887        |       | $          | (15,335          | )          | $                      | 8,463      |   | $ | 1,227 |   | $ | (6,683 | ) |

 

**iPCS, Inc. and SubsidiariesCondensed Consolidating Statement of OperationsFor the Three Months Ended September 30, 2005**
| ** **                                         | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|----------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Total revenues                                     |       | $                  | —     |               | $          | 61,795              |       | $                         | 1,321      |       | $          | 31,209           |       | $                      | 16,079     |   | $ | (1,321 | ) | $ | 109,083 |   |
| Cost of revenues                                   |       | —             |       | (40,243            | )          | —              |       | (22,126                   | )          | (9,465     | )          | 1,322            |       | (70,512                | )          |
| Selling and  marketing                             |       | —             |       | (9,688             | )          | —              |       | (5,182                    | )          | (2,397     | )          | —           |       | (17,267                | )          |
| General and  administrative                        |       | (95                | )          | (3,163             | )          | —              |       | (2,696                    | )          | (500       | )          | —           |       | (6,454                 | )          |
| Depreciation and  amortization                     |       | —             |       | (8,431             | )          | (1,415              | )          | (10,423                   | )          | (3,703     | )          | —           |       | (23,972                | )          |
| Gain (loss) on  disposal of property and equipment |       | —             |       | (61                | )          | —              |       | 1                         |       | —     |       | 5                |       | (55                    | )          |
| Total operating expenses                           |       | (95                | )          | (61,586            | )          | (1,415              | )          | (40,426                   | )          | (16,065    | )          | 1,327            |       | (118,260               | )          |
| Other, net                                         |       | (4,967             | )          | (170               | )          | 724                 |       | (2,002                    | )          | (669       | )          | —           |       | (7,084                 | )          |
| Loss in  subsidiaries                              |       | (11,205            | )          | —             |       | —              |       | —                    |       | —     |       | 11,205           |       | —                 |       |
| Net income (loss)                                  |       | $                  | (16,267    | )                  | $          | 39                  |       | $                         | 630        |       | $          | (11,219          | )          | $                      | (655       | ) | $ | 11,211 |   | $ | (16,261 | ) |

 

**iPCS, Inc. and SubsidiariesCondensed Consolidating Statement of OperationsFor the Nine Months Ended September 30, 2006**
| ** **                                         | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|----------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Total revenues                                     |       | $                  | —     |               | $          | 201,776             |       | $                         | 3,422      |       | $          | 102,739          |       | $                      | 54,950     |   | $ | (3,422 | ) | $ | 359,465 |   |
| Cost of revenues                                   |       | —             |       | (132,889           | )          | —              |       | (73,566                   | )          | (33,824    | )          | 3,422            |       | (236,857               | )          |
| Selling and  marketing                             |       | —             |       | (27,947            | )          | —              |       | (16,092                   | )          | (7,327     | )          | —           |       | (51,366                | )          |
| General and  administrative                        |       | (1,584             | )          | (8,751             | )          | (1                  | )          | (5,367                    | )          | (1,517     | )          | —           |       | (17,220                | )          |
| Depreciation and  amortization                     |       | —             |       | (25,828            | )          | (3,746              | )          | (29,671                   | )          | (8,255     | )          | —           |       | (67,500                | )          |
| Gain (loss) on  disposal of property and equipment |       | —             |       | (440               | )          | 195                 |       | (283                      | )          | —     |       | 18               |       | (510                   | )          |
| Total operating expenses                           |       | (1,584             | )          | (195,855           | )          | (3,552              | )          | (124,979                  | )          | (50,923    | )          | 3,440            |       | (373,453               | )          |
| Other, net                                         |       | (14,905            | )          | 235                |       | 2,594               |       | (5,810                    | )          | (2,183     | )          | —           |       | (20,069                | )          |
| Loss in  subsidiaries                              |       | (17,586            | )          | —             |       | —              |       | —                    |       | —     |       | 17,586           |       | —                 |       |
| Net income (loss)                                  |       | $                  | (34,075    | )                  | $          | 6,156               |       | $                         | 2,464      |       | $          | (28,050          | )          | $                      | 1,844      |   | $ | 17,604 |   | $ | (34,057 | ) |

 

16

----

 

**iPCS, Inc. and SubsidiariesCondensed Consolidating Statement of OperationsFor the Nine Months Ended September 30, 2005**
| ** **                                         | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|----------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Total revenues                                     |       | $                  | —     |               | $          | 176,762             |       | $                         | 3,988      |       | $          | 31,209           |       | $                      | 16,079     |   | $ | (3,988 | ) | $ | 224,050 |   |
| Cost of revenues                                   |       | —             |       | (117,297           | )          | —              |       | (22,126                   | )          | (9,465     | )          | 3,989            |       | (144,899               | )          |
| Selling and  marketing                             |       | —             |       | (26,991            | )          | —              |       | (5,182                    | )          | (2,397     | )          | —           |       | (34,570                | )          |
| General and  administrative                        |       | (846               | )          | (7,055             | )          | (1                  | )          | (2,696                    | )          | (500       | )          | —           |       | (11,098                | )          |
| Depreciation and  amortization                     |       | —             |       | (41,987            | )          | (4,206              | )          | (10,423                   | )          | (3,703     | )          | —           |       | (60,319                | )          |
| Gain (loss) on  disposal of property and equipment |       | —             |       | (144               | )          | —              |       | 1                         |       | —     |       | 15               |       | (128                   | )          |
| Total operating expenses                           |       | (846               | )          | (193,474           | )          | (4,207              | )          | (40,426                   | )          | (16,065    | )          | 4,004            |       | (251,014               | )          |
| Other, net                                         |       | (14,904            | )          | (710               | )          | 2,027               |       | (2,002                    | )          | (669       | )          | —           |       | (16,258                | )          |
| Loss in  subsidiaries                              |       | (27,488            | )          | —             |       | —              |       | —                    |       | —     |       | 27,488           |       | —                 |       |
| Net income (loss)                                  |       | $                  | (43,238    | )                  | $          | (17,422             | )          | $                         | 1,808      |       | $          | (11,219          | )          | $                      | (655       | ) | $ | 27,504 |   | $ | (43,222 | ) |

 

**iPCS, Inc. and SubsidiariesCondensed Consolidating Statement of Cash FlowsFor the Nine Months Ended September 30, 2006**
| ** **                                             | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Operating  activities                                  |       | $                  | —     |               | $          | 8,718               |       | $                         | (2,389     | )          | $          | 8,183            |       | $                      | 1,486      |   | $ | — |   | $ | 15,998 |   |
| Investing  activities                                  |       | —             |       | (5,388             | )          | 2,389               |       | (19,784                   | )          | (2,023     | )          |             |       | (24,806                | )          |
| Financing  activities                                  |       | —             |       | 1,129              |       | —              |       | —                    |       | —     |       | —           |       | 1,129                  |       |
| Increase  (decrease) in cash and cash equivalents      |       | —             |       | 4,459              |       | —              |       | (11,601                   | )          | (537       | )          | —           |       | (7,679                 | )          |
| Cash and cash  equivalents at beginning of period |       | —             |       | 68,993             |       | —              |       | 41,099                    |       | 745        |       | —           |       | 110,837                |       |
| Cash and cash  equivalents at end of period            |       | $                  | —     |               | $          | 73,452              |       | $                         | —     |       | $          | 29,498           |       | $                      | 208        |   | $ | — |   | $ | 103,158 |   |

 

**iPCS, Inc. and SubsidiariesCondensed Consolidating Statement of Cash FlowsFor the Nine Months Ended September 30, 2005**
| ** **                                             | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Operating  activities                                  |       | $                  | 1,294      |               | $          | 18,383              |       | $                         | 266        |       | $          | (2,679           | )          | $                      | (465       | ) | $ | 15 |   | $ | 16,814 |   |
| Investing  activities                                  |       | —             |       | (11,682            | )          | (266                | )          | 24,805                    |       | 655        |       | (15              | )          | 13,497                 |       |
| Financing  activities                                  |       | (1,294             | )          | 9,146              |       | —              |       | (14                       | )          | —     |       | —           |       | 7,838                  |       |
| Increase in cash  or cash equivalents                  |       | —             |       | 15,847             |       | —              |       | 22,112                    |       | 190        |       | —           |       | 38,149                 |       |
| Cash and cash  equivalents at beginning of period |       | —             |       | 59,958             |       | —              |       | —                    |       | —     |       | —           |       | 59,958                 |       |
| Cash and cash  equivalents at end of period            |       | $                  | —     |               | $          | 75,805              |       | $                         | —     |       | $          | 22,112           |       | $                      | 190        |   | $ | — |   | $ | 98,107 |   |

 

17

----

 

**ITEM2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

As used in thisquarterly report on Form 10-Q, unless the context otherwise requires:(i) ”Sprint PCS” refers to the affiliated entities of Sprint NextelCorporation that are party to our affiliation agreements; (ii) ”Sprint”refers to Sprint Nextel Corporation and its affiliates; (iii) a “PCSAffiliate of Sprint” is an entity whose sole or predominant business isoperating (directly or through one or more subsidiaries) a personalcommunications service business pursuant to affiliation agreements with SprintSpectrum L.P. and/or its affiliates or their successors; (iv) ”Sprint PCSproducts and services” refers to digital wireless personal communicationsservices, including wireless voice and data services, and related retailproducts, including handsets, in any case, offered under the Sprint brand name;and (v) ”our subscribers” refers to Sprint PCS subscribers who reside inour territory, excluding reseller subscribers.

Statements in thisquarterly report on Form 10-Q regarding Sprint or Sprint PCS are derivedfrom information contained in our affiliation agreements with Sprint PCS,periodic reports and other documents filed by Sprint with the SEC. Thisquarterly report on Form 10-Q contains trademarks, service marks and tradenames of companies and organizations other than us. Other than with respect toSprint PCS, our use or display of other parties’ trade names, trademarks orproducts is not intended to and does not imply a relationship with, orendorsement or sponsorship of us by, the trade name or trademark owners.

The following isan analysis of our results of operations, liquidity and capital resources andshould be read in conjunction with the unaudited Consolidated FinancialStatements and notes related thereto included in this Form 10-Q. To theextent that the following Management’s Discussion and Analysis containsstatements which are not of a historical nature, such statements areforward-looking statements which involve risks and uncertainties. These risksinclude, but are not limited to the risk and uncertainties listed in the nextsection entitled “Forward-Looking Statements” and other factors discussedelsewhere herein and in our other filings with the SEC.

**Forward-LookingStatements**

This quarterlyreport on Form 10-Q contains statements about future events andexpectations that are “forward-looking statements.” These statements relate tofuture events or our future financial performance, and involve known andunknown risks, uncertainties and other factors that may cause our actualresults, levels of activity, performance or achievements to be materiallydifferent from any future results, levels of activity, performance orachievements expressed or implied by these forward-looking statements. In somecases, you can identify forward-looking statements by terminology such as “may,”“will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,”“predicts,” “potential,” or the negative use of these terms or other comparableterminology. Any statement in this report that is not a statement of historicalfact may be deemed to be a forward-looking statement. These forward-lookingstatements include:

·                     statementsregarding our anticipated revenues, expense levels, liquidity and capitalresources and operating losses; and

·                     statementsregarding expectations or projections about markets in our territory.

Although webelieve that the expectations reflected in such forward-looking statements arereasonable, we can give no assurance that such expectations will prove to becorrect. Important factors with respect to any such forward-looking statements,including certain risks and uncertainties that could cause actual results todiffer materially from our expectations, include, but are not limited to:

·                     ourdependence on our affiliation with Sprint;

·                     the impactand final outcome of our litigation against Sprint, Nextel and Sprint PCS, aswell as the impact and outcome of the other litigation involving Sprint, SprintPCS and another PCS Affiliate of Sprint;

·                     changes inSprint’s affiliation strategy as a result of the Sprint/Nextel merger andSprint’s recent acquisitions of other PCS Affiliates of Sprint;

·                     the abilityof Sprint PCS to alter the terms of our affiliation agreements with it,including fees paid or charged to us and other program requirements;

·                     ourdependence on back office services, such as billing and customer care, providedby Sprint PCS, and the costs we incur to obtain such services;

·                     changes oradvances in technology in general, or specifically related to Sprint and itsaffiliates;

·                     competitionin the industry and markets in which we operate;

·                     our abilityto attract and retain skilled personnel;

·                     our potentialneed for additional capital or the need for refinancing any existingindebtedness;

18

----

 

·                     our potentialinability to expand our services and related products in the event ofsubstantial increases in demand for these services and related products;

·                     changes ingovernment regulation;

·                     thecompetitiveness and impact of Sprint PCS’s pricing plans and PCS products andservices on us;

·                     oursubscriber credit quality;

·                     the potentialfor us to experience a continued high rate of subscriber turnover;

·                     inaccuraciesin our financial information provided to us by Sprint PCS;

·                     our failureto establish and maintain effective internal controls to satisfy therequirements of Section 404 of the Sarbanes-Oxley Act, which requiresannual management assessments of the effectiveness of internal control overfinancial reporting;

·                     our rates ofpenetration in the wireless industry and in our territories;

·                     oursignificant level of indebtedness;

·                     adequacy ofbad debt and other reserves;

·                     ouranticipated future losses;

·                     oursubscriber purchasing patterns;

·                     subscribersatisfaction with our network and operations, including with services, such asbilling and customer care, provided to us by Sprint;

·                     availabilityof an adequate supply of subscriber equipment to Sprint PCS and to usspecifically;

·                     risks relatedto future growth and expansion, including subscriber growth;

·                     generaleconomic and business conditions; and

·                     effects ofmergers and consolidations within the wireless telecommunications industry,particularly business combinations involving Sprint Nextel or affiliates ofSprint Nextel, and unexpected announcements or developments from others in thewireless telecommunications industry.

**NewAccounting Pronouncements**

In September 2006,the FASB issued Statement of Financial Accounting Standards No. 157,  “Fair Value Measurements” (“SFAS No. 157”)which defines fair value, establishes a framework for measuring fair value undergenerally accepted accounting principles, and expands disclosures about fairvalue measurements.  SFAS No. 157 appliesto fair-value measurements that are already required or permitted by existingstandards except for measurements of share-based payments and measurements thatare similar to, but not intended to be, fair value and nullifies the EmergingIssues Task Force guidance that prohibited recognition of gains or losses atthe inception of derivative transactions whose fair value is estimated byapplying a model.  SFAS No. 157 clarifiesthat fair value is the amount that would be exchanged to sell an asset ortransfer a liability in an orderly transaction between marketparticipants.  SFAS No. 157 is effectivefor fiscal years beginning after November 15, 2007.  We do not anticipate that the implementationof SFAS No. 157 will have a material impact on our financial position, resultsof operations and cash flows.

On July 13, 2006, FASBissued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN48”), which is effective for fiscal years beginning after December 15, 2006.FIN 48 clarifies the accounting for uncertainty in income taxes recognizedin the financial statements in accordance with SFAS No. 109, “Accountingfor Income Taxes.” FIN 48 prescribes a comprehensive model for how acompany should recognize, measure, present and disclose in its financialstatements uncertain tax positions that the company has taken or expects totake on a tax return.   We do notanticipate that the implementation of FIN 48 will have a material impact on ourfinancial position, results of operations and cash flows

EffectiveOctober 1, 2005, we adopted Statement of Financial Accounting StandardsNo. 123R (“SFAS No. 123R”) using the modified prospective method. Theadoption of this standard requires the recognition of compensation expense forall share based payment award transactions measured at fair value. Under themodified prospective method, SFAS No. 123R requires compensation cost tobe recognized for 1) all share-based compensation expense arrangements grantedafter the adoption date and 2) all remaining unvested share-based compensationarrangements granted prior to the adoption date. Results for prior periods havenot been restated.

Prior toOctober 1, 2005, we applied APB Opinion No. 25, “Accounting for StockIssued to Employees,” and related interpretations to account for our employeeand director stock options. We did not record any stock-based compensationexpense for stock option grants prior to October 1, 2005 because all stockoption awards were granted at fair market value.

19

----

 

For the threemonths and nine months ended September 30, 2006, we recorded total stock-basedcompensation expense of approximately $0.4 million and $1.7 million,respectively, compared to approximately $0.8 million and $1.2 million,respectively for the three months and nine months ended September 30, 2005. Formore information regarding the impact of the adoption of SFAS No. 123R andthe comparison of results of operations for both the three months and the ninemonths ended September 30, 2006 and 2005, see Note 9, “Stock-based Compensation”in the notes to our consolidated financial statements found elsewhere in thisquarterly report on Form 10-Q.

**Definitionsof Operating Metrics**

In this “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”section, we provide certain financial measures that are calculated inaccordance with accounting principles generally accepted in the United States (“GAAP”)and as adjusted to GAAP (“non-GAAP”) to assess our financial performance. Inaddition, we use certain non-financial terms that are not measures of financialperformance under GAAP. Terms such as net subscriber additions and churn areterms used in the wireless telecommunications industry. The non-GAAP financialmeasures of average revenue per user (“ARPU”) and cost per gross addition (“CPGA”)reflect standard measures of performance commonly used in the wirelesstelecommunications industry. The non-financial terms and the non-GAAP measuresreflect wireless telecommunications industry conventions and are commonly usedby the investment community for comparability purposes. The non-GAAP financialmeasures included in this “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” are reconciled below in “Reconciliation ofNon-GAAP Financial Measures” and, together with the non-financial terms, aresummarized as follows:

·                     Netsubscriber additions for the period represented is calculated as the gross newsubscribers acquired in the period less the number of subscribers deactivatedplus the net subscribers transferred in or out of our markets during theperiod.

·                     Averagemonthly churn is a measure of the rate at which subscribers based in ourterritory deactivate service on a voluntary or involuntary basis. We calculateaverage monthly churn based on the number of subscribers deactivated during theperiod (net of transfers out of our territory and those who deactivated within30 days of activation) as a percentage of our average monthly subscriberbase during the period divided by the number of months during the period.

·                     ARPU,or average revenue per user, is a measure of the average monthly servicerevenue earned from subscribers based in our territory. This measure iscalculated by dividing subscriber revenues in our consolidated statement ofoperations by the number of our average monthly subscribers during the perioddivided by the number of months in the period.

·                     CPGA,or cost per gross addition, is a measure of the average cost we incur to add anew subscriber in our territory. These costs include handset subsidies on newsubscriber activations, commissions, rebates and other selling and marketingcosts. We calculate CPGA by dividing (a) the sum of cost of products soldless product sales revenues associated with transactions with new subscribers,and selling and marketing expenses, net of stock-based compensation expense,during the measurement period, by (b) the total number of subscribersactivated in our territory during the period.

·                     Licensedpopulation represents the number of residents (usually expressed in millions)in the markets in our territory for which we have an exclusive right to providewireless mobility communications services under the Sprint brand name. Thenumber of residents located in our territory does not represent the number ofwireless subscribers that we serve or expect to serve in our territory.

·                     Coveredpopulation represents the number of residents (usually expressed in millions)covered by our portion of the wireless network of Sprint. The number ofresidents covered by our network does not represent the number of wirelesssubscribers that we serve or expect to serve in our territory.

In this “Management’sDiscussion and Analysis of Financial Condition and Results of Operations,”unless the context indicates otherwise, all references to “subscribers” or “customers”and other operating metrics mean subscribers or customers excluding subscribersof resellers known as Mobile Virtual Network Operators, or MVNOs, that use ournetwork and resell wireless service under private brands.

20

----

 

**BusinessOverview**

As a PCS Affiliateof Sprint, we have the exclusive right to provide digital wireless personalcommunications services, or PCS, under the Sprint brand name in 80 marketsincluding markets in Illinois, Michigan, Pennsylvania, New York, Indiana, Iowa,Ohio and Tennessee. The territory includes key markets such as Grand Rapids(MI), Fort Wayne (IN), the Tri-Cities region of Tennessee (Johnson City,Kingsport and Bristol), Scranton (PA), Saginaw-Bay City (MI), and the QuadCities region of Illinois and Iowa (Bettendorf and Davenport, IA, and Molineand Rock Island, IL). We own and are responsible for building, operating andmanaging the portion of the 100% digital, 100% PCS wireless network ofSprint PCS located in our territory. We offer national calling plansdesigned by Sprint PCS as well as local plans tailored to our markets. Ourportion of the PCS network of Sprint PCS is designed to offer a seamlessconnection with the wireless network of Sprint PCS. We market Sprint PCSproducts and services through a number of distribution outlets located in ourterritory, including our company-owned retail stores, exclusive co-brandeddealers, major national retailers and local third party distributors. Based onthe 2000 population counts compiled by the U.S. Census Bureau adjusted byestimated growth rates from third party proprietary demographic databases, asof September 30, 2006, our licensed territory had a total population ofapproximately 15.0 million residents, of which our wireless networkcovered approximately 11.4 million residents. At September 30, 2006, wehad approximately 534,300 subscribers. We are headquartered in Schaumburg,Illinois.

We recognizerevenues from our subscribers for the provision of wireless telecommunicationsservices, proceeds from the sale of handsets and accessories through channelscontrolled by us and fees from Sprint PCS, other PCS Affiliates of Sprint andother wireless service providers and resellers when their subscribers roam ontoour network. Sprint PCS retains 8% of all service revenue collected from oursubscribers (not including product sales or roaming charges billed to oursubscribers) and 8% of all fees collected from other wireless service providersand resellers when their subscribers roam onto our network. We report theamount retained by Sprint PCS as an operating expense. In addition, Sprint PCSbills our subscribers for taxes, handset insurance and Universal Service Fundcharges which we do not record. Sprint PCS collects these amounts from thesubscribers and remits them to the appropriate entity.

A substantialportion of our revenue is derived from roaming revenue when subscribers ofSprint PCS and other PCS Affiliates of Sprint roam onto our network.  Based on Sprint’s recent estimates of itsretail yield for voice usage and data usage for 2006, effective January 1,2007, the roaming rate for voice will decrease from $0.058 per minute to$0.0405 per minute, and the roaming rate for data will decrease from $0.002 perkilobyte to $0.0012 per kilobyte.  Hadthese reciprocal roaming rates been in effect for 2006, our roaming revenuefrom Sprint PCS and other PCS Affiliates of Sprint for the nine months endedSeptember 30, 2006 would have decreased by approximately $28.1 million or 28%.  Likewise, a reduction inthese rates for the nine months ended September 30, 2006 would have decreasedour roaming expense to Sprint by approximately $21.7 million or 30%.  Such a reduction in the reciprocal roamingrate will decrease our net roaming margin and may have a material adverseeffect on us.  We expect to engage indiscussions with Sprint about its proposed rates. We strongly disagree withSprint’s estimated new roaming rates and intend to vigorously oppose them,including by submitting the matter to arbitration or litigation ifnecessary.  If the matter is submitted toan arbitration panel and the arbitration panel imposes rates different than theones then in effect, the new rates would be retroactively applied to theappropriate period. However in the meantime, beginning on January 1, 2007,the new rates go into effect. See discussion below in “—Commitments andContingencies.”

As part of our affiliationagreements with Sprint PCS, we have contracted with Sprint to provide to usback-office services such as subscriber activation, handset logistics, billing,customer care and network monitoring services through December 31, 2006.We elected to obtain these services from Sprint to take advantage of itseconomies of scale, to accelerate our build-out and market launches and tolower our capital requirements.  We incurthese costs on either a per user or per transaction basis.  Sprint has notified us that, effectiveJanuary 1, 2007, the costs we incur for certain of these services will increasefrom $6.75 per average monthly subscriber to $7.45 for 2007 and $7.05 for 2008and 2009.  Had the new rate for these servicesfor 2007 been in effect in 2006, we would have incurred additional expenses toSprint of approximately $3.3 million for the nine months ended September 30,2006, an increase of 10%.  We have had discussionswith Sprint about its proposed rates. We strongly disagree with Sprint’s proposednew rates and intend to vigorously oppose them, including by submitting thematter to arbitration or litigation if necessary.  If the matter is submitted to an arbitrationpanel and the arbitration panel imposes a rate different than the one then ineffect, the new rate would be retroactively applied to the appropriate period.However in the meantime, beginnin on January 1, 2007, we are required topay the new higher rate. See discussion below in “—Commitments andContingencies.”

***Reorganization***

OnFebruary 23, 2003, while we were wholly owned by AirGate, we filed forbankruptcy under Chapter 11 of the Bankruptcy Code. The decision to file wasbased on a combination of factors, including weakness in the wirelesstelecommunications industry and the economy generally. In addition, we hadexperienced a decline in liquidity and cash flow, making it difficult for us tocomply with our debt service obligations. We believe that actions taken bySprint—specifically, decreasing our roaming rate and imposing new and higherfees on us—were the primary reason for the decline in our liquidity.Accordingly, in connection with our bankruptcy filing, we filed a complaintagainst Sprint and Sprint PCS alleging that Sprint breached its affiliationagreements with us.  As a part of our approved plan of reorganization, allthen existing claims against Sprint, including those included in that complaint,were settled.

21

----

 

During ourbankruptcy we operated our business and managed our assets asdebtors-in-possession, subject to the supervision of the bankruptcy court,without obtaining debtor-in-possession financing. This relief provided us thetime necessary to reorganize our business, which included slowing subscribergrowth to reduce our acquisition costs, increasing our focus on primesubscribers and aligning our operations through cost reductions to compete inour marketplace and to improve our financial results.

On July 9,2004, the bankruptcy court confirmed our plan of reorganization and the plan ofreorganization became effective on July 20, 2004. On the effective date wepaid a portion of the net proceeds from the senior notes issued in connectionwith our emergence to satisfy in full in cash our obligations to each of thelenders under our then existing senior secured credit facility and topermanently retire the loans thereunder. The remaining net proceeds from thesenior notes was used to satisfy all other secured claims, administrative andother priority claims and unsecured convenience claims and to pay fees andexpenses related to the reorganization, as well as for general corporatepurposes. Additionally, all of our subordinated claims were discharged and allof our then existing capital stock was cancelled. As a result of theconsummation of our reorganization, our senior secured credit facility has beenrepaid in full in cash and terminated, and our senior discount notes have beencancelled and the holders have received shares of our common stock.

***Merger with Horizon PCS, Inc.***

On July 1,2005, we completed our tax-free stock for stock merger transaction with HorizonPCS, Inc., in which Horizon PCS, Inc. merged with and intoiPCS, Inc. with iPCS, Inc. as the surviving corporation. HorizonPCS, Inc. was a PCS Affiliate of Sprint whose territory covered 40 marketsin nine contiguous states.  The transaction nearly doubled the size of ouroperations, thereby providing synergies in a number of operating andadministrative areas.  Based on covered population and total subscribers,we are now the largest PCS Affiliate of Sprint. The transaction was accountedfor under the purchase method and the results of Horizon PCS, Inc. areincluded in our consolidated results of operations from the date ofacquisition.

***Relationship with Sprint***

Our relationshipwith Sprint is the most significant relationship we have. The terms of ourrelationship are set forth in our affiliation agreements with Sprint PCS.Pursuant to these affiliation agreements, we agreed to offer PCS services usingSprint’s spectrum under the Sprint brand name on a wireless network built andoperated at our own expense. We believe that our strategic relationship withSprint PCS provides significant competitive advantages. In particular, webelieve that our affiliation agreements with Sprint PCS allow us to offer highquality, nationally branded wireless voice and data services for lower cost andlower capital requirements than would otherwise be possible.

Sprint’s mergerwith Nextel, which closed in August, 2005, has thrust our relationship withSprint into a state of uncertainty, the resolution of which may have amaterially adverse effect on our business. On December 15, 2004, Sprintannounced that it had signed a merger agreement with Nextel pursuant to whichSprint and Nextel would merge and combine their operations. Shortly afterannouncing the merger, Sprint also announced that it would pursue discussionswith the PCS Affiliates of Sprint—including us—directed toward a modificationof their affiliation agreements to address the implications of its merger withNextel. Although we engaged in discussions with respect to such a modification,no agreement has been reached. We do not know whether we will ultimately reachagreement with Sprint on mutually satisfactory terms for revised affiliationagreements in light of the merger of Sprint and Nextel. If we are able tomodify our affiliation agreements with Sprint, it is likely that any suchrevised affiliation agreements would materially change our business andoperations.

As discussed in “—Commitmentsand Contingencies” below, Sprint’s merger with Nextel has been the subject oftwo separate lawsuits that we filed against Sprint in July 2005.  Although we have received final orders inboth lawsuits, Sprint has appealed the Illinois order.  Accordingly, the final outcome of the disputeis still unknown pending appeal.  Inaddition to our complaints, a number of other PCS Affiliates of Sprint alsofiled complaints against Sprint, Sprint PCS and Nextel, including AirGate PCS(a wholly owned subsidiary of Alamosa Holdings, Inc.), UbiquiTel, Inc., U.S.Unwired, Inc., Gulf Coast Wireless, Inc., Enterprise Communications Partnershipand Northern PCS Services, LLC. With the exception of Northern PCS, whosecomplaint remains outstanding, Sprint has acquired each of these other PCSAffiliates of Sprint and the complaints have been dismissed.

We do not know thefinal outcome of our litigation against Sprint. If we do not prevail, Sprintmay engage in conduct that has a material adverse effect on our business andoperations. We intend to continue to enforce our rights to the fullest extent,but there is no assurance that we will prevail.

**ConsolidatedResults of Operations**

***Summary***

For thethree months ended September 30, 2006 and 2005, our net loss was $6.7 millionand $16.3 million, respectively.  Thelower net loss for the three months ended September 30, 2006, was due to higherrevenues, lower depreciation expense and lower general and administrative costsdue to synergy savings as result of our integration of Horizon PCS.

For thenine months ended September 30, 2006 and 2005, our net loss was $34.1 millionand $43.2 million, respectively.  Thelower net loss for the nine months ended September 30, 2006, was due to thebenefits and economies of scale following our integration of Horizon PCS.  The results of Horizon PCS were included forthe full nine months in 2006 compared to only three months in 2005.  With the merger, we recorded higher revenuesand related costs due to a larger subscriber base.  In addition, we recorded lower depreciationexpense as a result of our network initiatives to swap out our Motorola andLucent equipment with Nortel equipment.

Presentedbelow is more detailed comparative data and discussion regarding ourconsolidated results of operations for the three and nine months endedSeptember 30, 2006 versus the three and nine months ended September 30, 2005.

***For the Three Months Ended September 30, 2006 compared tothe Three Months Ended September 30, 2005***

Results ofoperations for any period is less than one year are not necessarily indicativeof results of operations for a full year.

22

----

 

Management usesseveral key performance metrics to analyze the operations of our business.Below is a table setting forth the metrics that we use for the relevant timeperiods:
|                           | ** ** | **As of and For the  Three Months Ended  September 30, 2006** | ** ** | **As of and For the  Three Months Ended  September 30, 2005** | ** ** |
|---------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|
| Total  Subscribers        |       | 534,300                                                                                               |       | 476,400                                                                                               |       |
| Net Subscriber  Additions |       | 16,800                                                                                                |       | 17,400                                                                                                |       |
| Churn                     |       | 2.5                                                                                                   | %          | 2.7                                                                                                   | %          |
| ARPU                      |       | $                                                                                                     | 50.26      |                                                                                                  | $          | 50.09 |   |
| CPGA                      |       | $                                                                                                     | 362        |                                                                                                  | $          | 368 |   |

 

***Net Subscriber Additions.***     Netsubscriber additions decreased by 600, or 3%, in the three months endedSeptember 30, 2006 compared to the three months ended September 30, 2005.Net subscriber additions in the legacy Horizon markets increased byapproximately 2,600 due to our increased marketing and distribution efforts inthese markets since our merger with Horizon PCS.  The legacy iPCS markets posted net subscriberadditions of approximately 6,800 for the three months ended September 30, 2006,down from approximately 10,100 for the three months ended September 30, 2005, adecrease of approximately 33%.  This decrease was due to our efforts tode-emphasize “family add-a-phone” plans in order to maintain ARPU, increasedcompetitive advertising, the relative attractiveness of competitors’ phones(such as the RAZRTM) andpricing plans and continuing brand confusion related to the Sprint Nextelmerger.

***Churn.***     Churnfor the three months ended September 30, 2006 of 2.5% decreased from 2.7% forthe three months ending September 30, 2005 due to a decrease in voluntarychurn.  At September 30, 2006approximately 90% of our subscribers were under contract compared to 83% atSeptember 30, 2005.

***Average Revenue Per User.***     ARPUfor the three months ended September 30, 2006 compared to the same three monthsin 2005 remained relatively flat as an increase in average monthly data revenueper subscriber offset a decrease in average monthly voice revenue per subscriber.  We continue to experience decreasing voicerevenue offset by increasing data revenue. Average monthly data revenue increased from $6.00 in the three monthsended September 30, 2005 to $8.30 for the three months ended September 30,2006, while average monthly voice revenue declined from $44.04 in the threemonths ended September 30, 2005 to $41.60 for the three months ended September30, 2006 reflecting lower average minutes over plan revenue and lower monthlyrecurring charges. The decrease in minutes over plan revenue and monthlyrecurring charges can be attributed to the increasing popularity of the “PCS-to-PCS”program (now called “mobile-to-mobile” and which now includes Nextelsubscribers), “Fair and Flexible” plans and “family add-a-phone” plans. Datarevenue continues to increase due to the popularity of our various dataproducts, including text messaging, downloading ringers, taking and receivingpictures, playing games and browsing the Internet.

***Cost Per Gross Addition.***     CPGAdecreased by $6 from $368 for the three months ended September 30, 2005compared to $362 for the three months ended September 30, 2006.  In the three months ended September 30, 2006compared to this same period in 2005, lower advertising expenses and activationcosts were offset with higher average commission costs..  At September 30, 2006, we operated 39 retailstores and managed 78 exclusive co-branded dealers. At September 30, 2005, weoperated 33 retail stores and managed 59 exclusive co-branded dealers.

23

----

 

***Reconciliation of Non-GAAP Financial Measures (All Revenuesand Expenses in Thousands)***

Weutilize certain financial measures that are not calculated in accordance withGAAP to assess our financial performance. A non-GAAP financial measure isdefined as a numerical measure of 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 measure socalculated and presented. The non-GAAP financial measures discussed in “—Resultsof Operations” are ARPU and CPGA. A description of each of these non-GAAPfinancial measures is provided in “—Definition of Operating Metrics.” Thefollowing tables reconcile the non-GAAP financial measures with ourconsolidated financial statements presented in accordance with GAAP, excludingsubscriber data:
|                      | ** **   | **For the Three  Months Ended  September 30,   2006** | ** **   | **For the Three  Months Ended  September 30,   2005** | ** **   |
|----------------------|--------------|--------------------------------------------------------------------------------|--------------|--------------------------------------------------------------------------------|--------------|
| ***ARPU***           | *** *** | *** ***                                                                   | *** *** | *** ***                                                                   | *** *** |
| Service revenue      |         | $                                                                              | 79,300       |                                                                           | $            | 70,191 |   |
| Average  subscribers |         | 525,966                                                                        |         | 467,072                                                                        |         |
| ARPU                 |         | $                                                                              | 50.26        |                                                                           | $            | 50.09 |   |

 

ARPU,which is utilized by most wireless companies to determine recurring monthlyrevenue on a per subscriber basis, is used by analysts and investors to comparerelative subscriber revenue across the wireless industry. We use ARPU to assistin evaluating past selling performance and the success of specific rate planpromotions. We also use ARPU as a basis to forecast future service revenues.
|                                                 | ** **   | **For the Three  Months Ended  September 30,   2006** | ** **   | **For the Three  Months Ended  September 30,   2005** | ** **   |
|-------------------------------------------------|--------------|--------------------------------------------------------------------------------|--------------|--------------------------------------------------------------------------------|--------------|
| ***CPGA***                                      | *** *** | *** ***                                                                   | *** *** | *** ***                                                                   | *** *** |
| Selling and  Marketing:                         |         | $                                                                              | 17,262       |                                                                           | $            | 17,267 |   |
| plus: Equipment costs, net of cost of upgrades  |         | 7,807                                                                          |         | 7,168                                                                          |         |
| less: Equipment revenue, net of upgrade revenue |         | (2,838                                                                         | )            | (2,194                                                                         | )            |
| less: Stock-based compensation expense          |         | (71                                                                            | )            | (65                                                                            | )            |
| CPGA costs                                      |         | $                                                                              | 22,160       |                                                                           | $            | 22,176 |   |
| Gross adds                                      |         | 61,173                                                                         |         | 60,341                                                                         |         |
| CPGA                                            |         | $                                                                              | 362          |                                                                           | $            | 368 |   |

 

CPGA is utilizedby most wireless companies to determine their cost to acquire a new subscriber.CPGA is used by analysts and investors to compare us to other wirelesscompanies. We use CPGA to evaluate past selling performance, the success ofspecific promotions and as a basis to determine the amount of time we mustretain a new subscriber before we recover this cost. In addition, we use CPGAas a basis for budgeting.

***Revenues.***

Thefollowing table sets forth a breakdown of revenues by type:
|                                                                                    | ** ** | **For the Three  Months Ended  September 30,   2006** | ** ** | **For the Three  Months Ended  September 30,   2005** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|
|                                                                               |       |                                                                           |       |                                                                           |       |
| Service revenue                                                                    |       | $                                                                              | 79,300     |                                                                           | $          | 70,191 |   |
| Roaming revenue  from subscribers of Sprint PCS and other PCS affiliates of Sprint |       | 38,984                                                                         |       | 30,847                                                                         |       |
| Roaming revenue  from other wireless carriers                                      |       | 1,932                                                                          |       | 2,617                                                                          |       |
| Reseller revenue                                                                   |       | 2,812                                                                          |       | 2,705                                                                          |       |
| Equipment  revenue                                                                 |       | 3,563                                                                          |       | 2,712                                                                          |       |
| Other revenue                                                                      |       | 15                                                                             |       | 11                                                                             |       |
| Total revenues                                                                     |       | $                                                                              | 126,606    |                                                                           | $          | 109,083 |   |

 

24

----

 

·                    ***Service revenue.***   Servicerevenue is comprised of the monthly recurring charges for voice and data usageand the monthly non-recurring charges for voice and data minutes over plan,long distance, roaming usage charges, other feature revenues and late paymentfee and early cancellation fee revenues. Deductions for billing adjustments andpromotional credits are recorded as a reduction to service revenue. For thethree months ended September 30, 2006 compared to the three months endedSeptember 30, 2005, service revenue increased by $9.1 million, or 13%,primarily as a result of the higher average subscribers during the 2006 period.

·                    ***Roaming revenue from subscribers ofSprint PCS and other PCS Affiliates of Sprint.***   We receiverevenue on a per minute basis for voice traffic and per kilobyte basis for datatraffic when subscribers of Sprint PCS and other PCS Affiliates of Sprintuse our network.  In addition, we receive toll revenue for any longdistance calls made by these subscribers while roaming on our network. Thereciprocal roaming rate arrangement we have with Sprint PCS for inbound andoutbound roaming for the three months ended September 30, 2006 and 2005 was$0.058 per minute for voice traffic ($0.10 per minute in certain markets ineastern and western Pennsylvania) and $0.0020 per kilobyte for data traffic.These rates are effective through December 31, 2006 and will be reseteffective January 1, 2007 – see discussion below in –“Commitments andContingencies”; provided, however that the special rate for certain of ourPennsylvania markets will terminate on the earlier to occur of December 31,2011 or the date that we achieve a subscriber penetration rate of at least 7%of our covered population in these markets. For the three months endedSeptember 30, 2006 compared to the three months ended September 30, 2005,roaming revenue from subscribers of Sprint PCS and other PCS Affiliates ofSprint increased by $8.1 million, or 26%.  Approximately 76% of the increasereflected increased data revenue.  Wecontinue to experience increased growth in kilobyte data usage from subscribersof Sprint PCS and other PCS Affiliates of Sprint as more subscribers utilizedata products with their handsets. Roaming minutes and kilobytes fromsubscribers of Sprint PCS and other PCS Affiliates of Sprint for the threemonths ended September 30, 2006 were 0.4 billion and 3.6 billion,respectively, compared to 0.4 billion and 1.5 billion for the three monthsended September 30, 2005, respectively.

·                    ***Roaming revenue from other wirelesscarriers.***   We receive roaming revenue from wirelesscarriers other than Sprint and other PCS Affiliates of Sprint when subscribersof such other wireless carriers roam in our territory. We do not have agreementswith these other wireless carriers. Instead, we rely on roaming arrangementsSprint PCS has negotiated with them. We are paid on a per minute basis forvoice traffic pursuant to these agreements.  For the three months endedSeptember 30, 2006 compared to the three months ended September 30, 2005,roaming revenue from other wireless carriers decreased by $0.7 million, or26%.  Roaming minutes increased while the average per minute ratedecreased due mainly to a new roaming agreement Sprint signed with Alltel.  This agreement has increased the number ofroaming minutes we receive from Alltel, but at a rate 63% lower than what wehad previously received.  For the threemonths ended September 30, 2006, roaming minutes were 24.1 millioncompared to 21.5 million for the same period in 2005.  The average per minute rate decreased from$0.12 per minute for the three months ended September 30, 2005 to $0.08 perminute for the three months ended September 30, 2006.

·                    ***Reseller revenue.***   ThroughSprint PCS we allow resellers, known as MVNOs, such as Virgin Mobile, to useour network. Pursuant to these arrangements, we are paid on a per minute andper kilobyte basis. For the three months ended September 30, 2006 compared tothe three months ended September 30, 2005, reseller revenue increased$0.1 million.  At September 30,2006, we had approximately 192,000 reseller subscribers compared toapproximately 148,000 at September 30, 2005.

·                     ***Equipment revenue.***   Equipmentrevenue is derived from the sale of handsets and accessories to new customersand from current customers who upgrade their handsets through our retail andlocal distribution channels, in each case, net of sales incentives, rebates andan allowance for returns. Through June 18, 2006, our handset return policyallowed customers to return their handsets for a full refund within14 days after the date of purchase. With respect to handsets sold aftersuch date, we allow customers to return their handsets for a full refund within30 days after the date of purchase.  Forthe three months ended September 30, 2006 compared to the three months endedSeptember 30, 2005, equipment revenue increased by $0.9 million, or31% due to an increase in equipment upgrades from our retail anddistribution partner channels and a higher average phone price, net ofdiscounts and rebates, for both activations and upgrades.

·                     ***Other revenue.***   Forboth the three months ended September 30, 2006 and 2005, other revenueconsisted primarily of tower leasing revenue and restocking fees for handsetsreturned by our exclusive co-branded dealers.

***Cost of Service and Roaming.***   Costof service and roaming includes network operations expense, roaming expenserelating to when our subscribers roam either on other Sprint PCS networks orother wireless carriers’ networks, back-office customer services provided bySprint PCS, the provision for doubtful accounts, long distance expense, the 8%affiliation fee due to Sprint PCS for collected revenues and stock-basedcompensation expense. Network operations expenses include salaries and benefitsfor network personnel, cell site rent, utilities and maintenance expenses, feesrelating to the connection of our cell sites to our switches and othertransport and facility expenses. Roaming expense is our cost of our subscribersusing Sprint PCS and other wireless carriers’

25

----

 

networks. Roaming expenseon the Sprint PCS network is at the reciprocal rates as described above under “—Roamingrevenue from subscribers of Sprint PCS and other PCS Affiliates of Sprint.”Roaming expense when our subscribers use other wireless carriers networks is atrates as determined by the roaming agreements signed by Sprint PCS withthese other wireless carriers. Cost of service and roaming was $72.9 millionfor the three months ended September 30, 2006 compared to $61.2 million for thethree months ended September 30, 2005. Of this $11.7 million increase, 62% or$7.3 million was from an increase in roaming expenses, and increased bad debtexpense of $1.7 million due to a deterioration of our customer aging over theprior year and increased customer service and affiliate expenses due to thelarger number of subscribers served.

At September 30,2006, our network consisted of 1,558 leased cell sites and five switches.  At September 30, 2005, our network consistedof 1,488 cell sites and five switches.

***Cost of Equipment.***   Cost ofequipment includes the cost of handsets and accessories sold or upgraded fromour retail and local distribution channels. Cost of equipment for the threemonths ended September 30, 2006 and the three months ended September 30, 2005was $10.9 million and $9.3 million, respectively, an increase of $1.6million.  This increase primarilyreflects a 43% increase in equipment upgrade costs, resulting primarily from anincrease in the average cost of an upgraded handset, and a 9% increase in theequipment costs for new activations despite a 4% decrease in activations fromour retail and distribution partner channels.

***Selling and Marketing.  ***Sellingand marketing expense includes the costs to operate our retail stores,advertising and promotional expenses, commissions, equipment subsidies andrebate expenses relating to new subscriber additions from national thirdparties and other Sprint-controlled channels and stock-based compensationexpense. Selling and marketing expense for the both the three months endedSeptember 30, 2006 and September 30, 2005 was $17.3 million.   In the three months ended September 30, 2006compared to this same period in 2005, increased costs of $0.4 million forcommissions, and $0.7 million for advertising were offset with lower costs forhandset subsidies and rebates for activations from national third parties andother Sprint-controlled channels.

***General and Administrative.  ***Generaland administrative expenses include administrative salaries and benefits, legalfees, insurance expense, other professional expenses and stock-basedcompensation expenses.  For the three months ended September 30, 2006,general and administrative expenses totaled $4.4 million compared to $6.5million for the three months ended September 30, 2005, a decrease of  $2.1 million or 32%.  The majority of the reduction reflected theelimination of duplicate personnel and services following our integration ofHorizon PCS.  In addition, included inthe results for the three months ended September 30, 2005 was approximately$0.2 million in merger integration expenses and $0.9 million in Sprintlitigation expenses.  This compares to $0and $0.7 million, respectively, for the three months ended September 30, 2006.   With the adoption of SFAS No. 123R onOctober 1, 2005, stock-based compensation expense included in general andadministrative totaled approximately $0.3 million for the three monthsended September 30, 2006.  For the threemonths ended September 30, 2005, stock-based compensation expense totaled $0.7 million.  Of this amount, approximately $0.2 millionrelated to amendments to stock option award agreements of four of our formerdirectors who resigned from our board  inconnection with our merger with Horizon PCS. Effective with their resignation we amended each of these director’sstock option award agreements  to extendthe termination date of these director’s options from 90 days to 210 days postresignation.  An additional $0.4 millionof stock-based compensation expense was recorded in the three months endedSeptember 30, 2005 for the intrinsic value of the Horizon PCS options held bytwo employees who were terminated as part of our merger with Horizon PCS.

***Depreciation and Amortization.  ***Forthe three months ended September 30, 2006 and September 30, 2005, depreciationand amortization expense totaled $21.2 million and $24.0 million,respectively. Of these amounts, amortization of intangibles totaled$9.5 million and $9.4 million for these same periods, respectively.  Depreciation expense totaled $11.7 millionfor the three months ended September 30, 2006 compared to $14.5 million for thethree months ended September 30, 2005, a decrease of  $2.8 million. During the three months ended September, 30, 2005, we recordedadditional depreciation expense of $2.8 million due to a reduction in the remaining useful lives of Motorola equipmentbeing replaced in the Pennsylvania, Maryland, New York and New Jersey markets.

***Interest Income.  ***For threemonths ended September 30, 2006 and the three months ended September 30, 2005,interest income totaled $1.4 million and $0.9 million, respectively. Theincrease was due to higher average invested cash balances and higher averageyields earned on invested funds for the three months ended September 30, 2006compared to the three months ended September 30, 2005.

***Interest Expense.***   For both thethree months ended September 30, 2006 and 2005, interest expense was $8.0million.  Interest expense consists ofinterest on our 11-1/2% senior notes and 11-3/8% senior notes, net ofcapitalized interest. In the three months ended September 30, 2006, wecapitalized interest of approximately $0.1 million compared to $0.2 million inthe three months ended September 30, 2005.

26

----

***For the Nine Months Ended September 30, 2006 compared to theNine Months Ended September 30, 2005***

Results of operationsfor any periods less than one year are not necessarily indicative of results ofoperations for a full year.    Weclosed our merger with Horizon PCS, Inc. effective July 1, 2005.  Results for the nine months ended September30, 2005 include three months of results for the markets we acquired in ourmerger with Horizon PCS, while results for the nine months ended September 30,2006 include nine months of results for those markets. Accordingly theseperiods are not comparable.

Management usesseveral key performance metrics to analyze the operations of our business.Below is a table setting forth the metrics that we use for the relevant timeperiods:
| ** **                | ** ** | **As of and For the  Nine  Months Ended  September 30,  2006** | ** ** | **As of and For the  Nine  Months Ended  September 30,  2005** | ** ** |
|---------------------------|------------|----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| Total  Subscribers        |       | 534,300                                                                                      |       | 476,400                                                                                      |       |
| Net Subscriber  Additions |       | 40,700                                                                                       |       | 39,300                                                                                       |       |
| Churn                     |       | 2.5                                                                                          | %          | 2.6                                                                                          | %          |
| ARPU                      |       | $                                                                                            | 50.21      |                                                                                         | $          | 50.93 |   |
| CPGA                      |       | $                                                                                            | 370        |                                                                                         | $          | 369 |   |

 

***Net Subscriber Additions.***   Netsubscriber additions increased by 1,400, or 4%, in the nine months endedSeptember 30, 2006 compared to the nine months ended September 30, 2005,primarily as a result of our acquisition of the legacy Horizon PCS markets andour increased marketing and distribution emphasis in those markets. In thelegacy iPCS markets, net subscriber additions decreased from 32,000 in the ninemonths ended September 30, 2005 to 15,500 in the nine months ended September30, 2006, a decrease of 52%. We believe that, across our territory, we areexperiencing both an increase in the number of subscribers deactivating serviceand a slow down in gross additions due to our recent effort to de-emphasize “familyadd-a-phone” plans in order to maintain ARPU, increased competitiveadvertising, the relative attractiveness of competitors’ phones (such as theRAZRTM) and pricing plans and continuing brand confusion related to the SprintNextel merger.

***Churn.***   Churn for the nine monthsended September 30, 2006 of 2.5% decreased slightly from 2.6% for the ninemonths ending September 30, 2005 due to a decrease in voluntary churn.

***Average Revenue Per User.  ***Thedecrease in ARPU in the nine months ended September 30, 2006 compared to thesame nine months in 2005 reflected a decrease in average monthly voice revenueper subscriber partially offset with an increase in average monthly datarevenue per subscriber.  We continue toexperience decreasing voice revenue offset by increasing data revenue.  Average monthly data revenue increased from$5.85 for the nine months ended September 30, 2005 to $7.81 for the nine monthsended September 30, 2006.  Averagemonthly voice revenue declined from $45.27 for the nine months ended September30, 2005 to $42.14 for the nine months ended September 30, 2006 reflectinglower average minutes over plan revenue and lower monthly recurring charges.The decrease in minutes over plan revenue and lower monthly recurring chargescan be attributed to the increasing popularity of the “PCS-to-PCS” program (nowcalled “mobile-to-mobile” and which now includes Nextel subscribers), “Fair andFlexible” plans and “family add-a-phone” plans.  Data revenue continues toincrease due to the popularity of our various data products, including textmessaging, downloading ringers, taking and receiving pictures, playing gamesand browsing the Internet.

***Cost Per Gross Addition.  ***CPGAincreased $1 from $369 for the nine months ended September 30, 2005 compared to$370 for the nine months ended September 30, 2006.  Our retail store, employee and commissionrelated expenses increased by approximately $18 per gross addition due to lowersales productivity in our retail stores.  However, these increases wereoffset with lower subsidy, advertising and activation fee expenses ofapproximately $17 per gross addition in the nine months ended September 30,2006 compared to the same period in 2005.

27

----

***Reconciliation of Non-GAAP Financial Measures (All Revenuesand Expenses in Thousands)***
| ** **           | ** **   | **For the Nine  Months Ended  September 30,  2006** | ** **   | **For the Nine  Months Ended  September 30,  2005** | ** **   |
|----------------------|--------------|-------------------------------------------------------------------------|--------------|-------------------------------------------------------------------------|--------------|
| ***ARPU***           | *** *** | *** ***                                                            | *** *** | *** ***                                                            | *** *** |
| Service revenue      |         | $                                                                       | 232,021      |                                                                    | $            | 150,592 |   |
| Average  subscribers |         | 513,450                                                                 |         | 328,569                                                                 |         |
| ARPU                 |         | $                                                                       | 50.21        |                                                                    | $            | 50.93 |   |

 
| ** **                                      | ** **   | **For the Nine  Months Ended  September  30, 2006** | ** **   | **For the Nine  Months Ended  September  30, 2005** | ** **   |
|-------------------------------------------------|--------------|--------------------------------------------------------------------|--------------|--------------------------------------------------------------------|--------------|
| ***CPGA***                                      | *** *** | *** ***                                                       | *** *** | *** ***                                                       | *** *** |
| Selling and  Marketing:                         |         | $                                                                  | 51,366       |                                                               | $            | 34,570 |   |
| plus: Equipment costs, net of cost of upgrades  |         | 21,098                                                             |         | 16,527                                                             |         |
| less: Equipment revenue, net of upgrade revenue |         | (7,943                                                             | )            | (4,750                                                             | )            |
| less: Stock-based compensation expense          |         | (339                                                               | )            | (78                                                                | )            |
| CPGA costs                                      |         | $                                                                  | 64,182       |                                                               | $            | 46,269 |   |
| Gross adds                                      |         | 173,338                                                            |         | 125,320                                                            |         |
| CPGA                                            |         | $                                                                  | 370          |                                                               | $            | 369 |   |

 

***Revenues.***

The followingtable sets forth a breakdown of revenues by type:
| ** **                                                                         | ** ** | **For the Nine  Months Ended  September 30,  2006** | ** ** | **For the Nine  Months Ended  September 30,  2005** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
|                                                                               |       |                                                                    |       |                                                                    |       |
| Service revenue                                                                    |       | $                                                                       | 232,021    |                                                                    | $          | 150,592 |   |
| Roaming revenue  from subscribers of Sprint PCS and other PCS affiliates of Sprint |       | 102,143                                                                 |       | 58,762                                                                  |       |
| Roaming revenue  from other wireless carriers                                      |       | 6,312                                                                   |       | 4,383                                                                   |       |
| Reseller revenue                                                                   |       | 8,433                                                                   |       | 4,066                                                                   |       |
| Equipment  revenue                                                                 |       | 10,533                                                                  |       | 6,133                                                                   |       |
| Other revenue                                                                      |       | 23                                                                      |       | 114                                                                     |       |
| Total revenues                                                                     |       | $                                                                       | 359,465    |                                                                    | $          | 224,050 |   |

 

·                     ***Service revenue.***   Forthe nine months ended September 30, 2006 compared to the nine months endedSeptember 30, 2005, service revenue increased by $81.4 million, or 54%.  Of this increase, 15% was related tosubscriber growth in the legacy iPCS markets and the remaining 85% was due toour acquisition of subscribers in the Horizon PCS markets. This increase insubscribers for the nine months ended September 30, 2006 was offset with adecrease of $2.1 million in service revenue due to the drop in ARPU asdescribed above.

·                     ***Roaming revenue from subscribers ofSprint PCS and other PCS Affiliates of Sprint.  ***For thenine months ended September 30, 2006 compared to the nine months endedSeptember 30, 2005, roaming revenue from subscribers of Sprint PCS and otherPCS Affiliates of Sprint increased by $43.4 million, or 74%.  Of thisincrease, 24% was driven by increased roaming revenue in the legacy iPCSmarkets and the remaining 76% was due to our acquisition of the legacy HorizonPCS markets.  Of the 24% increase in the legacy iPCS markets, 78% of theincrease reflected increased data revenue. We continue to experience increased growth in kilobyte data usage fromsubscribers of Sprint PCS and other PCS Affiliates of Sprint as moresubscribers utilize data products with their handsets. Roaming minutes andkilobytes from subscribers of Sprint PCS and other PCS Affiliates ofSprint for the nine months ended September 30, 2006 were 1.2 billion and 9.7billion, respectively, compared to 0.8 billion and 2.8 billion for thenine months ended September 30, 2005, respectively.

·                     ***Roaming revenue from other wirelesscarriers.***   For the nine months ended September 30, 2006compared to the nine months ended September 30, 2005, roaming revenue fromother wireless carriers increased by $1.9 million, or 44%.  The

28

----

 

increase in roaming revenue was due to the acquisition of the legacy HorizonPCS markets, which historically had stronger roaming revenues than the legacyiPCS markets.  Roaming revenue in the legacy iPCS markets, excluding thelegacy Horizon PCS markets, decreased 20% in the nine months ended September30, 2006 compared to the nine months ended September 30, 2005 due primarily toa reduction in the average per minute roaming rate. For the nine months endedSeptember 30, 2006, roaming minutes were 64.2 million compared to 36.2million for the same period in 2005. For the nine months ended September 30,2006, the average per minute rate was $0.10 compared to $0.12 for the ninemonths ended September 30, 2005.

·                     ***Reseller revenue.***   Forthe nine months ended September 30, 2006 compared to the nine months endedSeptember 30, 2005, reseller revenue increased $4.4 million, or 108%.  Theincrease in reseller revenue was due to an increase in the number of resellersubscribers in our territory, in part as a result of our merger with HorizonPCS. In addition, for the legacy iPCS markets alone, reseller revenue increased74% in the nine months ended September 30, 2006 compared to the nine monthsended September 30, 2005 as the number of reseller subscribers in the legacyiPCS markets increased 51% over this same period.

·                     ***Equipment revenue.***   Forthe nine months ended September 30, 2006 compared to the nine months endedSeptember 30, 2005, equipment revenue increased by $4.4 million, or 72%. For the nine months ended September 30, 2006 compared to the nine months endedSeptember 30, 2005, equipment revenue in the legacy iPCS markets increasedapproximately 29% despite 12% lower gross adds from our retail and local dealerdistribution channels. This increase in revenue was due to increased equipmentupgrade revenue and higher phone prices, net of discounts and rebates offeredduring the nine months ended September 30, 2006 compared to the same period in2005.  The remaining increase is due to equipment revenue from the legacyHorizon PCS markets.

·                     ***Other revenue.***  For the nine months ended September 30, 2006, other revenue consisted ofrestocking fees for handsets returned by our exclusive co-branded dealers and asmall amount of network equipment leasing revenue.  For the nine months ended September 30, 2005,other revenue consisted primarily of tower leasing revenue along with a smallamount of restocking fee revenue for handsets returned by our exclusiveco-branded dealers. During fiscal year 2005, we sold all of the owned towers inthe legacy iPCS markets, which eliminated the tower leasing revenue stream.

***Cost of Service and Roaming.***   Costof service and roaming was $206.6 million for the nine months ended September30, 2006 compared to $123.4 million for the nine months ended September 30,2005. Of this increase, 19% was from the legacy iPCS markets mainly due to alarger number of subscribers served, increased bad debt expense and an increasein roaming expenses.   The remaining increase was due to theincreased costs associated with the acquired Horizon PCS markets.

***Cost of Equipment.***   Cost ofequipment for the nine months ended September 30, 2006 and the nine monthsended September 30, 2005 was $30.3 million and $21.5 million,respectively, an increase of $8.8 million. For the nine months ended September 30, 2006 compared to the nine monthsended September 30, 2005, cost of equipment in the legacy iPCS marketsincreased 4% due to 45% higher equipment upgrade costs partially offset with adecrease in cost of equipment expense associated with new subscribers.  The remaining increase was due to theincreased cost of equipment associated with the acquired Horizon PCS markets.

***Selling and Marketing.***   Sellingand marketing expense for the nine months ended September 30, 2006 was$51.4 million compared to $34.6 million for the nine months endedSeptember 30, 2005, an increase of $16.8 million. Of this increase, 94% was dueto the acquisition of the legacy Horizon PCS markets.

***General and Administrative.***   Forthe nine months ended September 30, 2006, general and administrative expensestotaled $17.2 million compared to $11.1 million for the nine months endedSeptember 30, 2005, an increase of $6.1 million.  Approximately $1.3 million of this increaseis attributable to general and administrative costs related to the legacyHorizon PCS markets. Also, during the nine months ended September 30, 2006, weincurred approximately $5.8 million of costs related to our litigation withSprint compared to $1.1 million for the nine months ended September 30,2005.  With the adoption of SFASNo. 123R on October 1, 2005, stock-based compensation expense included ingeneral and administrative totaled approximately $1.3 million for the ninemonths ended September 30, 2006 compared to approximately $1.1 million for thenine months ended September 30, 2005.

***Depreciation and Amortization.***   Forthe nine months ended September 30, 2006 and September 30, 2005, depreciationand amortization totaled $67.5 million and $60.3 million,respectively. Of these amounts, amortization of intangibles totaled$28.5 million and $15.1 million for these same periods, respectively.

For the ninemonths ended September 30, 2006 compared to the nine months ended September 30,2005, depreciation in the legacy iPCS markets decreased by approximately $16.9million due to the completion of the Nortel swap in the Michigan markets in

29

----

 

June 2005.  Thisdecrease in the legacy iPCS markets was due to 1) lower original costs for thenew Nortel equipment compared to the replaced Lucent equipment and 2)additional depreciation expense of $13.6 million in the nine months endedSeptember 30, 2005 to reflect the reduction in the estimated useful lives ofthe Lucent assets.  For the legacy Horizon markets, we recorded additionaldepreciation expense of $2.8 million for the 2005 period and $2.4 million forthe nine months ended September 30, 2006. This additional depreciation expense was the result of a reduction inthe remaining useful lives of Motorola equipment being replaced in the legacyHorizon PCS territory.   The remaining increase in depreciation andamortization relates to the property, plant, equipment and intangibles recordedas a result of the merger with Horizon PCS.

***Interest Income.***   For the ninemonths ended September 30, 2006 and the nine months ended September 30, 2005,interest income totaled $3.9 million and $1.6 million, respectively. Theincrease was due to a 43% higher average invested cash balance for the ninemonths ended September 30, 2006 coupled with an increase in the average yieldduring the same period.

 ***Interest Expense.***   For the nine monthsended September 30, 2006, interest expense was $24.0 million compared to$18.0 million for the nine months ended September 30, 2005.  Interestexpense consists of interest on our 11-1/2% senior notes and 11-3/8%senior notes, net of capitalized interest. The increase was attributable to the interest expense associated withthe 11-3/8% senior notes assumed in our merger with Horizon PCS onJuly 1, 2005. In the nine months ended September 30, 2006, we capitalizedinterest of approximately $0.5 million compared to $0.2 million of interestcapitalized in the nine months ended September 30, 2005.

**Liquidityand Capital Resources**

***Significant Sources of Cash***

We generated$16.0 million in operating cash flows for the nine months ended September30, 2006, compared to $16.8 million for the nine months ended September30, 20005, a decrease of $0.8 million. The decrease in operating cash flows is mostlyattributable to a decrease in operating cash flows in the legacy iPCS marketsdue to the purchases of short-term investments, offset with an increase inoperating cash flows from our acquisition of the legacy Horizon markets.

For the ninemonths ended September 30, 2006, we received approximately $0.5 million fromthe sale of land and other equipment no longer needed for operations andapproximately $3.0 million from the sale of used equipment which wasreplaced with equipment we purchased from Nortel Networks. In addition, for thenine months ended September 30, 2006, we received approximately $0.4 millionfrom the sale of the remaining four Horizon PCS owned towers. During the ninemonths ended September 30, 2005, we received approximately $4.2 million for theremaining towers sold in the legacy iPCS markets and $1.0 million from the saleof used equipment which was replaced with equipment we purchased from NortelNetworks.

For the ninemonths ended September 30, 2006, we received a total of $1.1 million inproceeds from the exercise of options representing approximately 49,500shares.  For the nine months endedSeptember 30, 2005, we received $9.5 million in proceeds from the exercise ofoptions representing approximately 407,200 shares. In addition, through ourmerger with Horizon PCS, we acquired its outstanding cash and cash equivalents,net of transaction costs, of $19.9 million.

***Significant Uses of Cash***

Cash flows usedfor investing activities for the nine months ended September 30, 2006 included$28.7 million for capital expenditures.  Included in this total was$20.8 million for the Nortel swap in our Horizon PCS markets, $5.3 millionfor new cell site construction and other network-related capital expenditures,and $2.6 million for new stores, store improvements,  IT and other corporate-related capitalexpenditures.

Cash flows usedfor investing activities for the nine months ended September 30, 2005 included$11.7 million for capital expenditures, of which $6.3 million related tothe Nortel swap project in the legacy iPCS markets. Other capital expendituresincluded $3.5 million for new cell site construction and other network-relatedcapital expenditures and $1.9 million for new stores, store improvements, ITand other corporate-related capital expenditures.

Cash flows usedfor financing activities for the nine months ended September 30, 2005 included$1.6 million for the payment of our CEO’s withholding obligations related tohis remaining stock unit awards, which payment was made through the return ofshares to the Company.

Principal paymentson our long-term debt, other than capital leases, are not due until 2012. During the nine months ended September 30, 2006, we made two semi-annualinterest payment on our 11-3/8% senior notes of approximately$7.1 million each and one semi-annual interest payment on our 11-1/2%senior notes of approximately $9.5 million.  The interest rates on oursenior notes

30

----

 

are fixed and thereforethe amount of our interest payments would not be impacted by a change in theoverall interest rate environment.

***Trends, Risks and Uncertainties ThatMay Affect Operating Results, Liquidity and Capital Resources***

We have identifiedthe following important trends and factors (as well as risks and uncertaintiesassociated with such items) that could impact our future financialperformance.  This section should be read in conjunction with the “RisksRelated to Our Business, Strategy and Operations” section found in Item 1Aof Part I of our annual report on Form 10-K, filed with the SEC onDecember 23, 2005, as updated herein and by our subsequent quarterlyreports on Form 10-Q as filed with the SEC.

·        *Continuing focus on subscriber additions.  * To theextent that we continue to seek to accelerate our subscriber additions, we willincur significant upfront subscriber acquisition expenses (including thecustomer handset subsidy, commissions and promotional expenses) that initiallywill result in increased losses and reduced levels of cash flows from operatingactivities. At the same time, competition in the wireless industry remainsintense as more competitors enter the market via MVNO or other relationshipswith existing carriers, or through the acquisition of new wireless spectrum,such as the FCC’s recent AWS auction. Unlimited minute and pre-paid plans, neither of which we currentlyoffer, also continue to increase in popularity, offering consumers morealternatives.  Accordingly, we may incur higher per subscriber acquisitionexpenses and/or offer more aggressive rate plans in order to maintain orachieve our planned growth.  Alternatively, we may not be able to maintainor achieve our planned growth in subscribers or obtain sufficient revenue toachieve and sustain profitability. If we are not able to achieve our plannedsubscriber growth, it will make it more difficult to obtain sufficient revenueto achieve or sustain profitability.

·        *Increasing churn.  *We may experience a high churn rate,which may be higher in the future due to increased competitive advertising, therelative attractiveness of competitors’ phones and pricing plans and continuingbrand confusion related to the Sprint Nextel merger. In addition, to the extentour subscriber growth includes a higher percentage of sub-prime creditsubscribers, our churn and bad debt expense may increase. If churn continues toincrease over the long-term, we would lose the cash flows attributable to thesesubscribers and have greater than projected losses.

·        *Declining voice revenue per subscriber.  *Our voice revenue continues todecrease. The wireless industry is very competitive and continued pressure inpricing is expected in the future as a result of, among other things, increasedfocus on family plans and overage protection plans. Although we believe thatfamily plans and overage protection plans should improve churn, these planstend to lower voice revenue on a per subscriber basis. Although the dataportion of ARPU is expected to continue to increase as more subscribers utilizedata products, declining voice ARPU resulting in lower overall ARPU will makeit more difficult to obtain sufficient revenue to achieve or sustainprofitability.

·        *Higher subscriber acquisition costs.  *We may experiencehigher costs to acquire subscribers. To the extent that we increase ourdistribution, we will increase the fixed costs in our sales and marketingorganization. In addition, we may increase our marketing expenses in an effortto attract and acquire new subscribers. Also, more aggressive promotionalefforts may lead to higher handset subsidies. With a higher CPGA, subscribersmust remain our subscribers for a longer period of time at a stable ARPU for usto recover those acquisition costs.

·             *Higher operating costs.  *Our operating costs continue to increasedue to our larger number of subscribers served, the increased size of ournetwork, increases in roaming usage and an increase in collected revenue, uponwhich our 8% affiliation fee is calculated. If our subscriber base continues toincrease, our operating costs will continue to increase. Our bad debtexpense has been increasing and, to the extent that our subscriber baseincludes a higher percentage of sub-prime credit subscribers, may continue toincrease in the future.  In addition, wemay incur significant wireless handset costs for existing subscribers whoupgrade to a new handset. Roaming kilobytes have been growing rapidly and areexpected to continue to grow reflecting increased usage of data applications,thereby increasing our roaming expenses. However, as discussed below in “—Commitmentsand Contingencies,” roaming expenses from Sprint PCS and other PCS Affiliatesof Sprint are expected to be positively impacted by a lower reciprocal roamingrate beginning January 1, 2007.  As alsodiscussed below in “—Commitments and Contingencies” the costs we incur forcertain back office services we obtain from Sprint is expected to increase.  We also expect to continue to incur costsrelated to our litigation with Sprint and related to compliance with Section404 of the Sarbanes-Oxley Act. At the same time, a large portion of our ongoingnetwork and general and administrative expenses are fixed. We believe that weneed to add more subscribers to recognize increased economies of scale in ourbusiness. If we are unable to add more subscribers to our network or continueto improve the efficiencies in our operating costs, results will be negativelyaffected.

 

31

----

 

·        *Roaming revenue.  *A substantialportion of our revenue is derived from roaming revenue from subscribers ofSprint PCS and other PCS Affiliates of Sprint. The increase in roaming revenueduring the nine months ended September 30, 2006 was due to an increase inroaming minutes and a substantial increase in kilobyte traffic. The roamingrevenue from Sprint PCS and other PCS Affiliates will be negatively impacted bya lower reciprocal roaming rate beginning January 1, 2007.  As discussed below in “—Commitments andContingencies”, we strongly disagree with Sprint’s proposed new roaming ratesand intend to vigorously oppose them, including by submitting the matter toarbitration or litigation if necessary.  Roaming revenue is typically strongest duringthe summer months and declines in both the fourth and first quarters.  In addition, there has been a significantslow down in Sprint PCS’s subscriber growth during the past year which mayadversely affect our roaming revenue from Sprint PCS.  If we receive fewer roaming minutes or lesskilobyte traffic on our network, our results of operations will be negativelyaffected.

·        *Increasing capital expenditures.  *Aswe continue to add capacity and coverage to our wireless network, we will incursignificant capital expenditures. Through September 30, 2006, we have incurredapproximately $28.7 million in capital expenditures and we continue toanticipate that total capital expenditures for 2006 will be between $41.0million and $45.0 million.  In addition, changes and upgrades intechnology, like EV-DO and EV-DO Rev A, will require additional expenditures.Sprint PCS has begun to deploy EV-DO technology in portions of its service areaand has stated publicly its intent to cover 190 million people by the end of2006. To date, we have deployed EV-DO technology in a small portion of ourservice area. We may elect to deploy EV-DO technology in additional portions ofour service area which may significantly increase our anticipated capitalexpenditures and operating expenses in the future. We have not yet determinedwhen, and to what extent, we may further deploy EV-DO throughout our territory.Unforeseen changes in technology and changes in our plans to upgrade or expandour network may require us to spend more money than we expected and have anegative effect on our cash flow.

·        *Ongoing Sprint Relationship and Litigation.  *Werely on Sprint for a number of important functions, including but not limitedto, customer service, billing, long-distance transport services, nationalnetwork operations, support, inventory logistics support, national advertising,product development, and financial information. Failure of Sprint to providethese and other services on a timely and cost efficient manner would negativelyimpact our results of operations. Sprint may also make decisions that couldreduce our revenues, increase our expenses and/or our capital expenditurerequirements and make our affiliate relationships with Sprint less advantageousthan expected.  For example, effectiveJanuary 1, 2007, the rate that we currently pay for certain back-officefunctions that we purchase from Sprint is increasing 10%.  See “-Commitments and Contingencies”below.   In addition, we filed complaintsagainst Sprint alleging that, among other things, Sprint will breach theexclusivity provisions of our management agreements. An adverse outcome to ourproceedings will have a negative effect on our results of operations and ourstock price.

·        *Capital Markets Availability.  *We maynot be able to access the credit or equity markets for additional capital ifthe liquidity discussed above is not sufficient for the cash needs of ourbusiness. We continually evaluate options for additional sources of capital tosupplement our liquidity position and maintain maximum financial flexibility.If the need for additional capital arises due to our actual results differingsignificantly from our business plan or for any other reason, we may be unableto raise additional capital.

***Commitments and Contingencies***

A substantialportion of our revenue is derived from roaming revenue when subscribers ofSprint PCS and other PCS Affiliates of Sprint roam onto our network.  The roaming rate paid to us by Sprint PCS andother PCS Affiliates of Sprint for voice is $0.058 per minute of use for themajority of our markets, and for data is $0.002 per kilobyte in all of ourmarkets.  These rates are fixed throughDecember 31, 2006 and, thereafter, will change annually to equal 90% of SprintPCS’s retail yield for voice usage and data usage from the prior year.   Sprint recently advised us that itsestimates of retail yield for voice and data for 2006 are $0.045 per minute and$0.0013 per kilobyte, respectively. Based on these estimates, beginning on January 1, 2007, the estimated roamingrates for voice and data will be $0.0405 and $0.0012, respectively.  Had these reciprocal roaming rates been ineffect for 2006, our roaming revenue from Sprint PCS and other PCS Affiliatesof Sprint for the nine months ended September 30, 2006, would have decreased byapproximately $28.1 million or 28%. Likewise, a reduction in these rates for the nine months ended September30, 2006 would have decreased our roaming expense to Sprint by approximately$21.7 million or 30%. Such a reduction in the reciprocal roaming rates may havea material adverse effect on our business. We expect to engage in discussions with Sprint about its proposed rates. We strongly disagree with Sprint’sestimated new roaming rates and intend to vigorously oppose them, including bysubmitting the matter to arbitration or litigation if necessary.  If the matter is submitted to an arbitrationpanel and the arbitration panel imposes a rate different than the one then ineffect, the new rate would be retroactively applied to the appropriate period.However, in the meantime, beginning on January 1, 2007, the new rates gointo effect.

We purchasecertain customer-related back-office services, such as customer billing andcustomer care, from Sprint PCS pursuant to our affiliation agreement withSprint PCS.  Depending on the type ofservice provided, we incur these costs on either a per

32

----

 

user basis (theseservices are referred to as “CCPU services”) or on a per gross subscriberaddition basis (these services are referred to as “CPGA services”).  The total cost for these services is recordedas an operating expense.  For the threemonths ended September 30, 2006 and 2005, these expense were approximately$10.7 million and $9.9 million, respectively.  For the nine monthsended September 30, 2006 and, 2005, we incurred approximately $31.4 million and$20.9 million, respectively, for these same services. Because we incur some ofthese costs on a per subscriber basis, we expect the aggregate cost for suchservices to increase as the number of our subscribers increases.  Our affiliationagreements with Sprint PCS set the monthly rate per subscriber charged to us bySprint for the CCPU services at $7.25 during 2004, $7.00 for 2005 and $6.75 for2006, and the per gross addition rate for the CPGA services at $23.00 for iPCS Wirelessand $22.00 for Horizon.  Our affiliationagreements with Sprint PCS provide that beginning on January 1, 2007, themonthly rate for these services will be reset by Sprint PCS to the amountnecessary to recover Sprint PCS’s reasonable costs for providing suchservices.  Sprint PCS notified us that,effective January 1, 2007, the costs we incur for the CCPU services willincrease from $6.75 per average monthly subscriber to $7.45 for 2007 and $7.05for 2008 and 2009, and the costs we incur for the CPGA services will remainunchanged through 2009. Had the new rate for the CCPU services for 2007 been ineffect in 2006, we would have incurred additional expenses to Sprint ofapproximately $3.3 million for the nine months ended September 30, 2006, anincrease of 10%.  Our affiliationagreements provide that, if we disagree with Sprint on its proposed new rates,we have the right to obtain the back-office services from a third party,self-provide the services or submit the determination of the new rates toarbitration.  We strongly disagree withSprint’s proposed new rates and intend to vigorously oppose them.  We have engaged in discussions with Sprint aboutits proposed rates and, if we are not able to reach agreement on acceptablerates in the near future, we plan to submit the matter to arbitration.  If the matter is submitted to an arbitrationpanel and the arbitration panel imposes a rate different than the one then ineffect, the new rate would be retroactively applied to the appropriateperiod.  However, in the meantime,beginning on January 1, 2007, we are required to pay the new higher rate.

Although SprintPCS has not done so, it may elect to terminate any service provided under ourservices agreements upon nine months’ prior written notice, but if we wouldlike to continue receiving such service, Sprint PCS has agreed that it willassist us in developing that function internally or locating a third-partyvendor that will provide that service. Although Sprint PCS has agreed in suchan event to reimburse us for expenses we incur in transitioning to any serviceinternally or to a third-party, if Sprint PCS terminates a service for which wehave not developed or are unable to develop a cost-effective alternative, ouroperating costs may increase beyond our expectations and our operations may beinterrupted or restricted. We do not currently have a contingency plan ifSprint PCS terminates a service we currently receive from it.

On July 15, 2005,iPCS Wireless, Inc., a wholly owned subsidiary of iPCS, Inc., filed a complaintagainst Sprint and Sprint PCS in the Circuit Court of Cook County, Illinois. OnJuly 22, 2005, Horizon Personal Communications, Inc. and Bright PersonalCommunications Services, LLC, wholly owned subsidiaries of iPCS, Inc., filed a complaintagainst Sprint and Sprint PCS and Nextel Communications, Inc. in the Court ofChancery of the State of Delaware, New Castle County. The complaints allege,among other things, that following the consummation of the merger betweenSprint and Nextel, Sprint will breach its exclusivity obligations under ouraffiliation agreements, as amended. We sought, among other things, a temporaryrestraining order (a TRO), a preliminary injunction and a permanent injunctionenjoining Sprint and those acting in concert with it from engaging in certainconduct post-closing that would violate our affiliation agreements with SprintPCS.

On July 28, 2005,iPCS, Inc. and certain of its wholly owned subsidiaries entered into aForbearance Agreement with Sprint relating to the complaints filed againstSprint. The Forbearance Agreement sets forth our agreement that we would notseek a TRO or a preliminary injunction against Sprint so long as Sprintoperates the Nextel business subject to the limitations set forth in theAgreement.  Although the ForbearanceAgreement expired on January 1, 2006 in the territory managed by iPCS Wirelessand on August 4, 2006 in the territory managed by Horizon PersonalCommunications and Bright Personal Communications Services, Sprint committed tocontinue to abide by the terms of the Forbearance Agreement in the territorymanaged iPCS Wireless during the pendency of Sprint’s appeal of the Illinoiscourt (discussed below).

The trial in theDelaware court began in January 2006.  OnAugust 4, 2006, the Delaware court issued its decision and, on September 7,2006 issued a final order and judgment effecting its decision. The final orderand judgment provides that:

·                  Sprint willviolate the implied duty of good faith and fair dealing if it offers iDENproducts and services using the same Sprint brand and marks that plaintiffs(Horizon Personal Communications and Bright Personal Communications Services)have used or are using in connection with their sale of Sprint PCS Products andServices (the “Sprint pcs brand and/or marks”) or a brand or mark confusinglysimilar to the Sprint pcs brand or marks in plaintiffs’ Service Areas.  Sprint may re-brand the legacy Nextel storesin plaintiffs’ Service Areas, but it must do so in a way that does not create alikelihood of confusion in the minds of consumers as to the sponsor of thestore or which products and services are available in it, and it may not usethe new Sprint logo.

·                  Withinplaintiffs’ Service Areas, Sprint and those acting in concert with it areenjoined from:

33

----

 

·                  offeringiDEN products and services that use the same or confusingly similar brands ormarks as the Sprint pcs brand or marks; provided that Sprint is not enjoined orotherwise prohibited from conducting national advertising offering iDENproducts and services that use the same or similar brands and marks as theSprint pcs brands or marks, subject to appropriate disclaimers regardingavailability in certain markets; and

·                  re-brandingthe legacy Nextel stores with the new Sprint logo or the same or confusinglysimilar brands or marks as the Sprint pcs brand and marks.

·                  Inlight of certain operational and confidentiality representations made bySprint, plaintiffs’ claims and requests for relief against such future Sprintbehavior were deemed not ripe for adjudication and therefore denied.  If, however, Sprint in the future breachesthese representations, the court will promptly entertain a request for appropriaterelief.

·                  Plaintiffs’claims for tortious interference and civil conspiracy against Nextel weredismissed with prejudice.

The trial in theIllinois court occurred intermittently from early March to early July2006.  On August 14, 2006, the Illinois courtissued its decision and on September 20, 2006 issued a final order effecting itsdecision.  The final order provides that:

·                  Within 180 daysof the date of the final order, Sprint and those acting in concert with it mustcease owning, operating, and managing the Nextel wireless network in iPCSWireless’s territory.

·                  Sprint shallcontinue to comply with all terms and conditions of the Forbearance Agreement.

On September 28,2006, Sprint appealed the ruling of the Illinois trial court to the AppellateCourt of Illinois, First Judicial District. In early October 2006, Sprint requested a stay of the Illinois trialcourt’s order pending appeal and an accelerated appeal.  On October 13, 2006, the Illinois appellatecourt denied Sprint’s request for an accelerated appeal and ordered a stay ofthe Illinois trial court’s order pending appeal on the condition that (i)Sprint continue to comply with the Forbearance Agreement and (ii) Sprint complywith the September 7, 2006 order of the Delaware court, in both cases, only withrespect to iPCS Wireless’s territory. Accordingly, Sprint must comply with the Forbearance Agreement, as wellas the order of the Delaware court, in iPCS Wireless’s territory pending adecision from the Illinois appellate court, which we expect by mid to late2007.

**ContractualObligations**

We are obligatedto make future payments under various contracts we have entered into, includingamounts pursuant to the senior notes, capital leases and non-cancelableoperating lease agreements for office space, cell sites, vehicles and officeequipment. Future minimum contractual cash obligations for the next five yearsand in the aggregate at September 30, 2005, are as follows (dollars inthousands):
| ** **                | ** ** | ** ** | ** ** | **Payments Due by Period  Year Ended September 30,** | ** ** |
|---------------------------|------------|------------|------------|------------------------------------------------------------------------------------|------------|
| ** **                | ** ** | **Total**  | ** ** | **2006**                                                                           | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Thereafter** | ** ** |
| Long-term debt            |       | $          | 290,000    |                                                                               | $          | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 290,000 |   |
| Cash interest             |       | 232,304    |       | 33,194                                                                             |       | 33,194 |   | 33,194 |   | 33,194 |   | 33,194 |   | 66,334 |   |
| Operating  leases(1)      |       | 103,121    |       | 28,284                                                                             |       | 21,428 |   | 19,368 |   | 18,271 |   | 11,175 |   | 4,595 |   |
| Capital lease obligations |       | 805        |       | 68                                                                                 |       | 63 |   | 66 |   | 69 |   | 71 |   | 468 |   |
| Purchase  obligations (2) |       | 8,350      |       | 8,350                                                                              |       | — |   | — |   | — |   | — |   | — |   |
| Total                     |       | $          | 634,580    |                                                                               | $          | 69,896 |   | $ | 54,685 |   | $ | 52,628 |   | $ | 51,534 |   | $ | 44,440 |   | $ | 361,397 |   |

 

----

(1)             Doesnot include payments due under renewals to the original lease terms.

(2)             Doesnot include commitments totaling $16.5 million to Nortel Networks for agreementsigned December 31, 2005, as discussed below under “Nortel NetworksEquipment Agreements”.

Both of our seniornotes contain covenants which restrict our ability to incur additionalindebtedness, merge, pay dividends, dispose of our assets, and certain othermatters as defined in the indentures. In addition, the senior notes:

·                         rank*pari passu* in right of payment with allour existing and future unsecured senior indebtedness;

34

----

 

·                         ranksenior in right of payment to all our future subordinated indebtedness; and

·                         areunconditionally guaranteed by our domestic restricted subsidiaries, includingiPCS Wireless, Inc., iPCS Equipment, Inc., Horizon PersonalCommunications, Inc. and Bright Personal Communication Services, LLC andany new domestic restricted subsidiaries of ours.

However, the senior notesare subordinated to all our secured indebtedness to the extent of the assetssecuring such indebtedness, and to any indebtedness of our subsidiaries that donot guarantee the new senior notes.

Upon a change ofcontrol as defined in the indentures, we will be required to make an offer topurchase the senior notes at a price equal to 101% of the aggregate principalamount of senior notes repurchased plus accrued and unpaid interest andliquidated damages, if any, to the date of purchase.

*11-1/2%Senior Notes:  *Interest on our 11-1/2% senior notes ispayable semi-annually in arrears on May 1 and November 1, commencingon November 1, 2004 to the holders of record on the immediately precedingApril 15 and October 15. At any time prior to May 1, 2007, wemay redeem up to 35% of the aggregate principal amount of the 11-1/2% seniornotes at a redemption price of 111.50% of the principal amount thereof, plusaccrued and unpaid interest, and liquidated damages (as defined in theindenture), if applicable, to the redemption date with the net cash proceeds ofa sale of our equity interests or a contribution to our common equity capital;provided that:

·                         atleast 65% of aggregate principal amount of senior notes originally issuedremains outstanding immediately after the redemption; and

·                         theredemption occurs within 90 days of the date of the closing of such saleof equity interests or contribution.

Except pursuant tothe preceding paragraph, the senior notes will not be redeemable at our optionprior to May 1, 2008.

On or afterMay 1, 2008, we may redeem all or a part of the senior notes issued underthe indenture upon not less than 30 nor more than 60 days’ notice, at theredemption prices (expressed as percentages of principal amount) set forthbelow plus accrued and unpaid interest and liquidated damages, if any, on thesenior notes redeemed, to the applicable redemption date, if redeemed duringthe twelve-month period beginning on May 1 of the years indicated below,subject to the rights of holders of senior notes on the relevant record date toreceive interest on the relevant interest payment date:

| Year                | ** ** | **Percentage** | ** ** |
|---------------------|------------|----------------|------------|
| 2008                |       | 105.750        | %          |
| 2009                |       | 102.875        | %          |
| 2010 and thereafter |       | 100.000        | %          |

 

*11-3/8%Senior Notes:*   Interest on our 11-3/8 % seniornotes is payable semi-annually in arrears on July 15 and January 15,commencing on January 15, 2005 to the holders of record on the immediatelypreceding July 1 and January 1. At any time prior to July 15,2007, we may redeem up to 35% of the aggregate principal amount of the 11-3/8%senior notes at a redemption price of 111.375% of the principal amount thereof,plus accrued and unpaid interest, and liquidated damages (as defined in theindenture), if applicable, to the redemption date with the net cash proceeds ofa sale of our equity interests or a contribution to our common equity capital;provided that:

·        at least 65% of aggregateprincipal amount of senior notes originally issued remains outstandingimmediately after the redemption; and

·        the redemption occurswithin 90 days of the date of the closing of such sale of equity interestsor contribution.

Except pursuant tothe preceding paragraph, the senior notes will not be redeemable at our optionprior to July 15, 2008.

35

----

 

On orafter July 15, 2008, we may redeem all or a part of the senior notesissued under the indenture upon not less than 30 nor more than 60 days’notice, at the redemption prices (expressed as percentages of principal amount)set forth below plus accrued and unpaid interest and liquidated damages, ifany, on the senior notes redeemed, to the applicable redemption date, ifredeemed during the twelve-month period beginning on May 1 of the yearsindicated below, subject to the rights of holders of senior notes on therelevant record date to receive interest on the relevant interest payment date:

| Year                | ** ** | **Percentage** | ** ** |
|---------------------|------------|----------------|------------|
| 2008                |       | 105.688        | %          |
| 2009                |       | 102.844        | %          |
| 2010 and thereafter |       | 100.000        | %          |

 

***Nortel Networks Equipment Agreements***

OnDecember 31, 2005, we signed a letter of agreement with Nortel Networks toreplace the Motorola equipment currently deployed in our Pennsylvania, NewYork, New Jersey and Maryland markets with Nortel equipment.  Under theterms of the agreement, we are required to purchase equipment necessary toreplace 425 existing base stations and related network infrastructure, plusvarious additional equipment to support future network footprint and capacityexpansion, totaling approximately $16.5 million, with an option to purchaseadditional equipment totaling $0.5 million.  On March 21, 2006, we amendedthe terms of this agreement accelerating payments for equipment totaling $4.0million from 2007 to 2006.  As of September 30, 2006, we had purchased$15.5 million of the required $16.5 million of equipment under thisagreement.  Accordingly, we are required to purchase an additional $1.0million of equipment under this agreement.

**Off-BalanceSheet Arrangements**

Other than theoperating lease commitments included above, we have no off-balance sheetarrangements that would have a current or future material effect on thefinancial condition, changes in financial condition, revenues, expenses,results of operations, liquidity, capital expenditures or capital resources.

**Seasonality**

Our business issubject to seasonality because the wireless telecommunications industryhistorically has been dependent on fourth calendar quarter results. Among otherthings, the industry relies on moderately higher subscriber additions andhandset sales in the fourth calendar quarter as compared to the other threecalendar quarters. A number of factors contribute to this trend, including: theuse of retail distribution, which is heavily dependent upon the year-endholiday shopping season; the timing of new product and service announcementsand introductions; competitive pricing pressures; and aggressive marketing andpromotions.

**CriticalAccounting Policies**

Our financialstatements are prepared in conformity with accounting principles generallyaccepted in the United States and require us to select appropriate accountingpolicies.  The assumptions and judgments we use in applying our accountingpolicies have a significant impact on our reported amounts of assets,liabilities, revenue and expenses.  While we believe that the assumptionsand judgments used in our estimates are reasonable, actual results may differfrom these estimates under different assumptions or conditions.

We have identifiedthe most critical accounting policies upon which our financial status depends. The critical policies were determined by considering accounting policies thatinvolve the most complex or subjective decisions or assessments. We also haveother policies considered key accounting policies; however, these policies donot meet the definition of critical accounting policies because they do notgenerally require us to make estimates or judgments that are complex orsubjective.  Our critical accounting policies include the following:

·                    Revenuerecognition

·                    Allowancefor doubtful accounts

·                    Long-livedasset recovery

·                    Intangibleassets

·                    Income taxes

36

----

 

In light of theadoption of SFAS No. 123R — discussed in Item 2 of Part I of thisquarterly report on Form 10-Q — we have also included our stock-basedcompensation policy as a critical accounting policy.  SFAS No. 123Rrequires significant judgment and the use of estimates in the assumptions forthe model used to value the share-based payment awards, including stock pricevolatility, and expected option terms.  In addition, expected forfeiturerates for the share-based awards must be estimated.  Because of our smallnumber of option grants, the relatively short period of time that we haveoperated as a public company, and the limited trading of our stock, we arelimited in our historical experience to use as a basis for theseassumptions.  While we believe that the assumptions and judgments used inour estimates are reasonable, actual results may differ from these estimatesunder different assumptions or conditions.

Additionalinformation regarding these critical accounting policies can be found in the “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”section of our Annual Report on Form 10-K for the year endedSeptember 30, 2005, filed with the SEC on December 23, 2005.

**Inflation**

We believe thatinflation has not had a significant impact in the past and is not likely tohave a significant impact in the foreseeable future on our results ofoperations.

37

----

 

**ITEM3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

We do not engagein commodity futures trading activities and do not enter into derivativefinancial instrument transactions for trading or other speculative purposes. Wealso do not engage in transactions in foreign currencies that could expose usto market risk.

**ITEM4.   CONTROLS AND PROCEDURES**

(a)             Evaluationof Disclosure Controls and Procedures. Each of our Chief Executive Officer andChief Financial Officer has evaluated the effectiveness of our disclosurecontrols and procedures (as such term is defined inRules 13a-14(c) and 15d-14(c) under the Exchange Act) as of theend of the period covered by this quarterly report. Based on such evaluation,such officers have concluded that, as of the end of the period covered by thisquarterly report, our disclosure controls and procedures are effective inalerting them on a timely basis to material information relating to us(including our consolidated subsidiaries) required to be included in ourreports filed or submitted under the Exchange Act.

(b)            Changesin Internal Controls over Financial Reporting. There have not been any changesin our internal control over financial reporting (as such term is defined inRules 13a-15(f) and 15d-15(f) under the Exchange Act) during thethree months ended September 30, 2006 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

(c)             Weplace reliance on Sprint PCS to adequately design its internal controls withrespect to the processes established to provide financial information and otherinformation to us and the other PCS Affiliates of Sprint. To address thisissue, Sprint engages an independent registered public accounting firm toperform a periodic evaluation of these controls and to provide a “Report onControls Placed in Operation and Tests of Operating Effectiveness forAffiliates” under guidance provided in Statement of Auditing StandardsNo. 70. Our agreements with Sprint provide that Sprint will provide uswith this report twice annually.  Weexpect the next report as of September 30, 2006 to be delivered to us by Sprintprior to November 30, 2006.  The mostrecent report provided to us was as of September 30, 2005.

38

----

**PART II.   OTHERINFORMATION**

**ITEM1.   LEGAL PROCEEDINGS**

See  — “Management’sDiscussion and Analysis of Financial Condition and Results of Operations —Commitmentsand Contingencies” of this report.

In addition to theabove, from time to time, we are involved in various legal proceedings relatingto claims arising in the ordinary course of business.  We are not currently a party to any suchlegal proceedings, the outcome of which, individually or in the aggregate, isexpected to have a material adverse effect on our business, financial conditionor results of operations.

**ITEM1A.   RISK FACTORS**

You shouldcarefully consider the risks and uncertainties described in Part I, Item1A. Risk Factors in our Annual Report on Form 10-K for the fiscal yearended September 30, 2005, as updated by our Quarterly Report on Form 10-Qfor the quarter ended March 31, 2006, and the other information in oursubsequent filings with the SEC, including this Quarterly Report onForm 10-Q. Our business, financial condition, results of operations andstock price could be materially adversely affected by any of these risks. Therisks described in our Annual Report on Form 10-K, as updated by anysubsequent Quarterly Reports on Form 10-Q, are not the only ones facing us.Additional risks and uncertainties that are currently unknown to us or that wecurrently consider to be immaterial may also impair our business or adverselyaffect our financial condition, results of operations and stock price.

Set forth below isan update to the following risk factor that was included in our Annual Reporton Form 10-K:

·            “Themerger between Sprint and Nextel and the outcome of our litigation relatingthereto may have an adverse effect on us in ways that would be beyond ourcontrol.”

As discussed in “—Commitmentsand Contingencies” above, rulings have been issued in both of our lawsuitsagainst Sprint relating to the merger between Sprint and Nextel.  Although the Delaware ruling is final, theIllinois ruling is not, as Sprint has appealed the ruling.

The Delawareruling does not protect us from all of the ways in which Sprint may operate thelegacy Nextel business in a manner that would have a material adverse effect onus.  To the extent that Sprint desires toexploit limitations of the Delaware ruling, our business may be adverselyaffected.  For example, the rulingprovides that Sprint may engage in limited re-branding of the legacy Nextelstores in our service area.  We do notknow how or if Sprint will attempt to re-brand the legacy Nextel stores in ourservice area.  Additionally, in light ofcertain representations that Sprint made to the Delaware court, the ruling doesnot impose additional restrictions on Sprint’s use of our confidentialinformation.  It is difficult for us tomonitor Sprint’s compliance with its representations as toconfidentiality.  If we believe that Sprintis violating the Delaware ruling, we may need to enforce the ruling throughcontempt proceedings in Delaware.  Wecannot predict the outcome of these proceedings.

With respect tothe Illinois ruling, we cannot predict the outcome of the appeal.  If we do not prevail on appeal, Sprint may bepermitted to operate the legacy Nextel business in our territory in a mannerthat has an adverse effect on our business and operations.  If we do not prevail on appeal, our stockprice may be adversely affected.  Additionally,the Illinois ruling has been stayed pending appeal.  As a condition of the stay, Sprint mustcontinue to comply with the Forbearance Agreement – which by its terms hasexpired – and the Delaware ruling in iPCS Wireless’s service area.  As noted above, the Delaware ruling does notprotect us from all of the ways in which Sprint may operate the legacy Nextelbusiness in a manner that would have a material adverse effect on us.  The protections afforded by the ForbearanceAgreement are limited as well.

Notwithstandingthe rulings and the Forbearance Agreement, Sprint’s ownership and operation ofthe legacy Nextel business in our territory has, among other things, causedcustomer confusion in our territory that is having an adverse effect on ourbusiness and operations.

We do not knowwhether it is possible to reach agreement on mutually satisfactory terms forrevised affiliation agreements, particularly in light of the lawsuits. Any suchrevised affiliation agreements may require us to modify our exclusivity, makesignificant payments to lease or acquire assets relating to the legacy Nextelnetwork in our territory, purchase legacy Nextel subscribers in our territoryand/or commit to a further build-out and expansion of our network beyond whatis required under our existing affiliation agreements with Sprint PCS. There isno assurance that we will have adequate funds on hand or the ability to borrowsuch funds in order to acquire the network assets or subscribers or tootherwise modify our network. In addition, any borrowing would increase ourexisting substantial leverage.

39

----

We believe thatour stock price has been, and continues to be, affected by market speculationinvolving potential changes in our relationship with Sprint as a result of theSprint/Nextel merger and the final outcome of our litigation against Sprint. Webelieve that the market speculation has been further fueled by changes in therelationships between Sprint and other PCS Affiliates of Sprint, includingSprint’s acquisition of six other PCS Affiliates of Sprint since August2005.  Accordingly, the price of ourcommon stock has been, and may continue to be, volatile.

**ITEM2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

None.

**ITEM3.   DEFAULTS UPON SENIOR SECURITIES**

None.

**ITEM4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

At our Annual Meeting of Stockholders held onSeptember 28, 2006, the stockholders voted on the following:

1.  The election of seven directors to our boardof directors:
|                    | ** ** | **For**    | ** ** | **Withheld** | ** ** |
|--------------------|------------|------------|------------|--------------|------------|
| Timothy G. Biltz   |       | 12,835,163 |       | 1,890,174    |       |
| Jeffrey W. Jones   |       | 12,835,163 |       | 1,890,174    |       |
| Robert A. Katz     |       | 12,835,163 |       | 1,890,174    |       |
| Ryan L. Langdon    |       | 14,606,317 |       | 119,020      |       |
| Richard S.  Parisi |       | 14,606,317 |       | 119,020      |       |
| Kevin M. Roe       |       | 14,606,317 |       | 119,020      |       |
| Timothy M. Yager   |       | 14,606,317 |       | 119,020      |       |

 

2.  The approval of the iPCS Amended and Restated2004 Long-Term Incentive Plan, including the reservation of an additional500,000 shares of common stock that may be issued as awards under the plan:

| For        | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker Non-Votes** | ** ** |
|------------|------------|-------------|------------|-------------|------------|---------------------------|------------|
| 10,685,148 |       | 1,880,930   |       | -0-         |       | 2,159,259                 |       |

 

3.  The approval of the Horizon PCS, Inc. Amendedand Restated 2004 Stock Incentive Plan:

| For        | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker Non-Votes** | ** ** |
|------------|------------|-------------|------------|-------------|------------|---------------------------|------------|
| 12,215,946 |       | 350,132     |       | -0-         |       | 2,159,259                 |       |

 

4.  The ratification of our audit committee’sselection of Deloitte & Touche LLP as our independent registeredpublic accounting firm for the year ending December 31, 2006:

| For        | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker Non-Votes** | ** ** |
|------------|------------|-------------|------------|-------------|------------|---------------------------|------------|
| 14,703,027 |       | 22,310      |       | -0-         |       | n/a                       |       |

 

**ITEM5.   OTHER INFORMATION**

None

40

----

**ITEM6.   EXHIBITS**
| 2.1    |   | Agreement and Plan of Merger, dated as of  March 17, 2005, by and between iPCS, Inc. and Horizon PCS, Inc.  (Incorporated by reference to Exhibit 2.1 to the current report on  Form 8-K filed by iPCS, Inc. on March 18, 2005 (SEC File  No. 333-32064))                                                                                                                                                                                                                                                                |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 2.2    |   | Second Amended and Restated Joint Plan of  Reorganization for iPCS, Inc., iPCS Wireless, Inc. and iPCS  Equipment, Inc., dated as of May 26, 2004 (Incorporated by  reference to Exhibit 2.1 to the registration statement on Form S-4  filed by iPCS, Inc. on August 5, 2004 (SEC File  No. 333-117942))                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 2.3    |   | Technical Amendment to Second Amended and Restated Joint  Plan of Reorganization for iPCS, Inc., iPCS Wireless, Inc. and iPCS  Equipment, Inc., dated as of July 8, 2004 (Incorporated by  reference to Exhibit 2.2 to the registration statement on Form S-4  filed by iPCS, Inc. on August 5, 2004 (SEC File No. 333-117942))                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 2.4    |   | Modification to Second Amended and Restated Joint  Plan of Reorganization for iPCS, Inc., iPCS Wireless Inc. and iPCS  Equipment, Inc., dated as of July 8, 2004 (Incorporated by  reference to Exhibit 2.3 to the registration statement on Form S-4  filed by iPCS, Inc. on August 5, 2004 (SEC File  No. 333-117942))                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 2.5    |   | Findings of Fact, Conclusions of Law and Order under  U.S.C. Section 1129(a) and (b) and Federal Rules of  Bankruptcy Procedure 3020 confirming the Second Amended Joint Plan of Reorganization  of iPCS, Inc., iPCS Wireless, Inc. and iPCS Equipment, Inc.,  Debtors and Debtors In Possession, as modified, dated as of July 8, 2004  (Incorporated by reference to Exhibit 2.4 to the registration statement  on Form S-4 filed by iPCS, Inc. on August 5, 2004 (SEC File  No. 333-117942)) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 2.6    |   | Joint Plan of Reorganization of Horizon  PCS, Inc., Horizon Personal Communications, Inc. and Bright  Personal Communications Services, LLC, dated as of September 20, 2004  (Incorporated by reference to Exhibit 2.2 to the registration statement  on Form S-4 filed by Horizon PCS, Inc. on March 17, 2005 (SEC  File No. 333-123383))                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.1    |   | Second Restated Certificate of Incorporation of  iPCS, Inc. (Incorporated by reference to Exhibit 3.1 to the current  report on Form 8-K filed by iPCS, Inc. on July 1, 2005 (SEC  File No. 333-32064))                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.2    |   | Amended and Restated Bylaws of iPCS, Inc.  (Incorporated by reference to Exhibit 3.2 to the transition report on Form  10-Q filed by iPCS, Inc. on February 14, 2006 (SEC File No. 333-32064))                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.3    |   | Certificate of Incorporation of iPCS  Wireless, Inc. (Incorporated by reference to Exhibit 3.4 to the  registration statement on Form S-4 filed by iPCS, Inc. on  January 8, 2001 (SEC File No. 333-47688))                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.4    |   | Bylaws of iPCS Wireless, Inc. (Incorporated by  reference to Exhibit 3.5 to the registration statement on Form S-4  filed by iPCS, Inc. on January 8, 2001 (SEC File  No. 333-47688))                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.5    |   | Certificate of Incorporation of iPCS  Equipment, Inc. (Incorporated by reference to Exhibit 3.6 to the  registration statement on Form S-4 filed by iPCS, Inc. on  January 8, 2001 (SEC File No. 333-47688))                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.6    |   | Bylaws of iPCS Equipment, Inc. (Incorporated by  reference to Exhibit 3.7 to the registration statement on Form S-4  filed by iPCS, Inc. on January 8, 2001 (SEC File  No. 333-47688))                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.7    |   | Articles of Incorporation of Bright Personal  Communications Services, LLC. (Incorporated by reference to Exhibit 3.7  to the registration statement on Form S-1 filed by iPCS, Inc. on  August 11, 2005 (SEC File No. 333-117944))                                                                                                                                                                                                                                                                                                     |

 

41

----

 
| 3.8    |   | Bylaws of Bright Personal Communications Services,  LLC (Incorporated by reference to Exhibit 3.8 to the registration  statement on Form S-1 filed by iPCS, Inc. on August 11, 2005  (SEC File No. 333-117944))                                                                                                                                                                                                                                                                |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.9    |   | Articles of Incorporation of Horizon Personal  Communications, Inc. (Incorporated by reference to Exhibit 3.9 to  the registration statement on Form S-1 filed by iPCS, Inc. on  August 11, 2005 (SEC File No. 333-117944))                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.10   |   | Bylaws of Horizon Personal Communications, Inc.  (Incorporated by reference to Exhibit 3.10 to the registration statement  on Form S-1 filed by iPCS, Inc. on August 11, 2005 (SEC File  No. 333-117944))                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.1    |   | Amended and Restated Common Stock Registration  Rights Agreement, dated as of June 30, 2005, by and among iPCS, Inc.,  affiliates of Silver Point Capital, affiliates of AIG Global Investment  Corp., the Timothy M. Yager 2001 Trust, Apollo Investment Fund IV, L.P. and  Apollo Overseas Partners IV, L.P. (Incorporated by reference to  Exhibit 99.1 to the current report on Form 8-K filed by  iPCS, Inc. with the SEC on July 1, 2005 (SEC File  No. 333-32064)) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.2    |   | Indenture dated as of April 30, 2004, by and  among, iPCS Escrow Company, iPCS, Inc., iPCS Wireless, Inc., iPCS  Equipment, Inc. and U.S. Bank National Association (Incorporated by  reference to Exhibit 4.1 to the registration statement on Form S-4  filed by iPCS, Inc. with the SEC on August 5, 2004 (SEC File  No. 333-117942))                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.3    |   | Indenture, dated as of July 19, 2004, by and  among Horizon PCS Escrow Company, Horizon PCS, certain subsidiary guarantors  and U.S. Bank National Association, as Trustee (Incorporated by reference to  Exhibit 4.1 to the registration statement on Form S-4 filed by  Horizon PCS, Inc. with the SEC on March 19, 2005 (SEC File  No. 333-123383))                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.4    |   | First Supplemental Indenture, dated as of June 30,  2005, by and between U.S. Bank National Association, as Trustee, and  iPCS, Inc. (Incorporated by reference to Exhibit 4.2 to the current  report on Form 8-K filed by iPCS, Inc. with the SEC on July 1,  2005 (SEC File No. 333-117942))                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.5    |   | Second Supplemental Indenture, dated as of  July 15, 2005, by and among iPCS, Inc., iPCS Wireless, Inc.,  iPCS Equipment, Inc., Bright PCS Holdings, Inc. and U.S. Bank  National Association, as Trustee (Incorporated by reference to  Exhibit 4.5 to the transition report on Form 10-Q filed by  iPCS, Inc. on February 14, 2006 (SEC File No. 333-32064))                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.6    |   | First Supplemental Indenture, dated as of  July 15, 2005, by and among iPCS, Inc., Bright Personal Communications  Services, LLC, Horizon Personal Communications, Inc., Bright PCS  Holdings, Inc. and U.S. Bank National Association, as Trustee  (Incorporated by reference to Exhibit 4.6 to the transition report on Form  10-Q filed by iPCS, Inc. on February 14, 2006 (SEC File No. 333-32064))                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 31.1   |   | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as  amended                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 31.2   |   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as  amended                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 32.1   |   | Certification Pursuant to 18 U.S.C.  Section 1350                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

 

42

----

**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                                     | iPCS, Inc. |
|-------------------------------------|-----------------|
|                                |            |
|                                | By:             | /s/ TIMOTHY M. YAGER |
|                                | * *        | Timothy M. Yager |
|                                | * *        | President and Chief  Executive Office (Principal Executive Officer) |
|                                |            |   |
| Date:   November 13, 2006 |            |   |
|                                | By:             | /s/ STEBBINS B. CHANDOR, JR. |
|                                | * *        | Stebbins B. Chandor, Jr. |
|                                |            | Executive Vice President  and   Chief Financial Officer (Principal Financial Officer) |
|                                |            |   |
| Date:   November 13, 2006 |            |   |

 

43

----