**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-Q**

 
| **(Mark One)**                                                                                                 |
|----------------------------------------------------------------------------------------------------------------|
| **ý**                                                                                                     | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT  OF 1934** |
|                                                                                                           | ** ** | ** ** |
| **For the  quarterly period ended: June 30, 2005**                                                        |
| ** **                                                                                                     |
| **or**                                                                                                         |
| ** **                                                                                                     |
| **o**                                                                                                          | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT  OF 1934** |
| ** **                                                                                                     |
| **For the  transition period  from      to      ** |

 

**CommissionFile Numbers 333-32064**

 

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**iPCS,INC.**

(Exact Name of Registrant as Specified in Its Charter)

 
| **Delaware**                                                    | ** ** | **36-4350876**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or  Organization) |       | (I.R.S. Employer Identification No.) |
|                                                            |       |                                 |
| **1901 N. Roselle Road, Schaumburg, Illinois**                  | ** ** | **60195**                            |
| (Address of Principal Executive Offices)                        |       | (Zip Code)                           |

 

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Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past90 days. Yes ýNo o

 

Indicate by check mark whether the registrantis an accelerated filer (as defined in Rule 12b-2 of theAct). Yes o  No ý

 

Indicate by check mark whether the registranthas filed all documents and reports required to be filed by Section 12, 13or15(d) of the Securities Exchange Act of 1934 subsequent to thedistribution of securities under a plan confirmed by a court. Yes ý  No o

 

As of August 10, 2005, there were 16,267,281shares of common stock, $0.01 par value per share, outstanding.

 

 

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**TABLE OFCONTENTS**

 
| PART I    |                                                                                                                                                                                | 3  |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----|
| ITEM 1.        | FINANCIAL INFORMATION                                                                                                                                                               | 3  |
|           | FINANCIAL STATEMENTS                                                                                                                                                                | 3  |
|           | CONSOLIDATED  BALANCE SHEETS AS OF JUNE 30, 2005 AND SEPTEMBER 30, 2004  (SUCCESSOR COMPANY) (UNAUDITED)                                                                  | 3  |
|           | CONSOLIDATED  STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED  JUNE 30, 2005 (SUCCESSOR COMPANY) AND JUNE 30, 2004 (PREDECESSOR  COMPANY) (UNAUDITED) | 4  |
|           | CONSOLIDATED  STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 2005  (SUCCESSOR COMPANY) AND JUNE 30, 2004 (PREDECESSOR COMPANY (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                                                                                                                         | 34 |
| ITEM 4.        | CONTROLS AND PROCEDURES                                                                                                                                                             | 34 |
| PART II   | OTHER INFORMATION                                                                                                                                                                   | 35 |
| ITEM 1.        | LEGAL PROCEEDINGS                                                                                                                                                                   | 35 |
| ITEM 2.        | UNREGISTERED SALES OF EQUITY SECURITIES AND  USE OF PROCEEDS                                                                                                                        | 35 |
| ITEM 3.        | DEFAULTS UPON SENIOR SECURITIES                                                                                                                                                     | 35 |
| ITEM 4.        | SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS                                                                                                                                | 35 |
| ITEM 5.        | OTHER INFORMATION                                                                                                                                                                   | 36 |
| ITEM 6.        | EXHIBITS                                                                                                                                                                            | 36 |
| SIGNATURES     | 37                                                                                                                                                                                  |
| CERTIFICATIONS |                                                                                                                                                                                |

 

2

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**PART I. FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS**

 

**iPCS, INC. AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**(UNAUDITED)**

**(Dollars in thousands, except per share amounts)**

 
| ** **                                                                                                                                  | ** ** | **Successor  Company**  | ** ** | **Successor  Company**           | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|----------------------------------|------------|
| ** **                                                                                                                                  | ** ** | **June 30,  2005** | ** ** | **September 30,  2004 (a)** | ** ** |
|                                                                                                                                        |       |                    |       |                             |       |
| **Assets**                                                                                                                                  |       |                    |       |                             |       |
| Current Assets:                                                                                                                             |       |                    |       |                             |       |
| Cash and cash equivalents                                                                                                                   |       | $                       | 60,610     |                             | $          | 57,760 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $1,948 and $1,217, respectively                                             |       | 18,205                  |       | 14,772                           |       |
| Receivable from Sprint (Note 5)                                                                                                             |       | 13,427                  |       | 13,264                           |       |
| Inventories, net of reserves for  excess/obsolescence of $166 and $50, respectively (Note 5)                                                |       | 1,571                   |       | 1,310                            |       |
| Prepaid expenses                                                                                                                            |       | 5,295                   |       | 3,127                            |       |
| Other current assets                                                                                                                        |       | 8                       |       | 21                               |       |
| Total current assets                                                                                                                        |       | 99,116                  |       | 90,254                           |       |
| Property and equipment, net (Note 6)                                                                                                        |       | 95,013                  |       | 134,931                          |       |
| Financing costs                                                                                                                             |       | 6,137                   |       | 6,497                            |       |
| Customer activation costs                                                                                                                   |       | 830                     |       | 451                              |       |
| Intangible assets, net of accumulated  amortization of $11,754 and $3,051, respectively (Note 7)                                       |       | 67,173                  |       | 78,861                           |       |
| Other assets                                                                                                                                |       | 175                     |       | 1,314                            |       |
| Total assets                                                                                                                                |       | $                       | 268,444    |                             | $          | 312,308 |   |
|                                                                                                                                        |       |                    |       |                             |       |
| **Liabilities  and Stockholders’ Equity (Deficiency)**                                                                                 |       |                    |       |                             |       |
| Current Liabilities:                                                                                                                        |       |                    |       |                             |       |
| Accounts payable                                                                                                                            |       | $                       | 4,307      |                             | $          | 2,742 |   |
| Accrued expenses                                                                                                                            |       | 13,736                  |       | 20,880                           |       |
| Payable to Sprint (Note 5)                                                                                                                  |       | 22,215                  |       | 24,404                           |       |
| Deferred revenue                                                                                                                            |       | 6,253                   |       | 5,764                            |       |
| Current maturities of long-term debt and  capital lease obligations (Note 8)                                                                |       | 9                       |       | 7                                |       |
| Total current liabilities                                                                                                                   |       | 46,520                  |       | 53,797                           |       |
| Customer activation fee revenue                                                                                                             |       | 830                     |       | 451                              |       |
| Other long-term liabilities                                                                                                                 |       | 2,036                   |       | 3,614                            |       |
| Long-term debt and capital lease  obligations, excluding current maturities (Note 8)                                                        |       | 165,392                 |       | 165,400                          |       |
| Total liabilities                                                                                                                           |       | 214,778                 |       | 223,262                          |       |
|                                                                                                                                        |       |                    |       |                             |       |
| Commitments and contingencies (Note 13)                                                                                                     |       | —                  |       | —                           |       |
|                                                                                                                                        |       |                    |       |                             |       |
| Stockholders’ Equity (Deficiency):                                                                                                     |       |                    |       |                             |       |
| 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, 9,080,009 and 8,744,164 shares issued and  outstanding, respectively |       | 91                      |       | 87                               |       |
| Additional paid-in-capital                                                                                                                  |       | 94,536                  |       | 95,275                           |       |
| Unearned compensation                                                                                                                       |       | (308                    | )          | (340                             | )          |
| Accumulated deficiency                                                                                                                      |       | (40,653                 | )          | (5,976                           | )          |
| Total stockholders’ equity                                                                                                             |       | 53,666                  |       | 89,046                           |       |
| Total liabilities and stockholders’ equity                                                                                             |       | $                       | 268,444    |                             | $          | 312,308 |   |

 

See notes to unaudited consolidated financial statements.

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(a) Derived from the Company’saudited financial statements as of September 30, 2004

 

3

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**iPCS, INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(UNAUDITED)**

**(Dollars in thousands, except per share amounts)**

 

 
| ** **                                                                                                                                                                                                             | ** ** | **Successor Company**                               | ** ** | **Predecessor Company**                             | ** ** | **Successor Company**                              | ** ** | **Predecessor Company**                            | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                                                                                                                                                             | ** ** | **For the Three Months  Ended June 30,  2005** | ** ** | **For the Three Months  Ended June 30,  2004** | ** ** | **For the Nine Months  Ended June 30,  2005** | ** ** | **For the Nine Months  Ended June 30,  2004** | ** ** |
| ** **                                                                                                                                                                                                             | ** ** | ** **                                          | ** ** | ** **                                          | ** ** | ** **                                         | ** ** | ** **                                         | ** ** |
| **Revenues:**                                                                                                                                                                                                          |       |                                                |       |                                                |       |                                               |       |                                               |       |
| Service revenue                                                                                                                                                                                                        |       | $                                                   | 41,307     |                                                | $          | 37,175                                             |       | $                                                  | 118,986    |   | $ | 107,097 |   |
| Roaming revenue                                                                                                                                                                                                        |       | 16,520                                              |       | 13,391                                              |       | 46,790                                             |       | 34,393                                             |       |
| Equipment and other                                                                                                                                                                                                    |       | 1,686                                               |       | 1,446                                               |       | 5,188                                              |       | 4,372                                              |       |
| Total revenues                                                                                                                                                                                                         |       | 59,513                                              |       | 52,012                                              |       | 170,964                                            |       | 145,862                                            |       |
| **Operating Expenses:**                                                                                                                                                                                                |       |                                                |       |                                                |       |                                               |       |                                               |       |
| Cost of service and roaming (exclusive of  depreciation, as shown separately below)                                                                                                                                    |       | (31,787                                             | )          | (29,454                                             | )          | (91,763                                            | )          | (83,230                                            | )          |
| Cost of equipment                                                                                                                                                                                                      |       | (6,064                                              | )          | (3,971                                              | )          | (17,941                                            | )          | (12,801                                            | )          |
| Selling and marketing                                                                                                                                                                                                  |       | (9,056                                              | )          | (8,092                                              | )          | (27,517                                            | )          | (20,976                                            | )          |
| General and administrative                                                                                                                                                                                             |       | (2,153                                              | )          | (1,576                                              | )          | (6,051                                             | )          | (3,550                                             | )          |
| Reorganization expense (Note 4)                                                                                                                                                                                        |       | —                                              |       | (2,862                                              | )          | —                                             |       | (7,893                                             | )          |
| Non-cash stock compensation expense (In  2005, $6 and $22 related to cost of service and roaming, $364 and $384  related to general and administrative and $9 and $18 related to selling and  marketing, respectively) |       | (379                                                | )          | —                                              |       | (425                                               | )          | —                                             |       |
| Depreciation                                                                                                                                                                                                           |       | (15,390                                             | )          | (9,539                                              | )          | (39,151                                            | )          | (28,596                                            | )          |
| Amortization of intangible assets (Note 7)                                                                                                                                                                             |       | (2,605                                              | )          | —                                              |       | (8,703                                             | )          | —                                             |       |
| Loss on disposal of property and equipment                                                                                                                                                                             |       | (41                                                 | )          | (18                                                 | )          | (86                                                | )          | (13                                                | )          |
| Total operating expenses                                                                                                                                                                                               |       | (67,475                                             | )          | (55,512                                             | )          | (191,637                                           | )          | (157,059                                           | )          |
| **Operating loss**                                                                                                                                                                                                     |       | (7,962                                              | )          | (3,500                                              | )          | (20,673                                            | )          | (11,197                                            | )          |
| Interest income                                                                                                                                                                                                        |       | 412                                                 |       | 201                                                 |       | 914                                                |       | 263                                                |       |
| Interest expense                                                                                                                                                                                                       |       | (4,981                                              | )          | (5,522                                              | )          | (14,936                                            | )          | (10,142                                            | )          |
| Other income                                                                                                                                                                                                           |       | 6                                                   |       | 3                                                   |       | 18                                                 |       | 7                                                  |       |
| **Loss before income taxes**                                                                                                                                                                                           |       | (12,525                                             | )          | (8,818                                              | )          | (34,677                                            | )          | (21,069                                            | )          |
| Income tax benefit (Note 9)                                                                                                                                                                                            |       | —                                              |       | —                                              |       | —                                             |       | —                                             |       |
| **Net loss**                                                                                                                                                                                                           |       | $                                                   | (12,525    | )                                                   | $          | (8,818                                             | )          | $                                                  | (34,677    | ) | $ | (21,069 | ) |
|                                                                                                                                                                                                                   |       |                                                |       |                                                |       |                                               |       |                                               |       |
| Basic and diluted loss per share of common  stock                                                                                                                                                                      |       |                                                |       |                                                |       |                                               |       |                                               |       |
| Loss available to common stockholders                                                                                                                                                                                  |       | $                                                   | (1.35      | )                                                   | n/a        |                                               | $          | (3.74                                              | )          | n/a |   |
|                                                                                                                                                                                                                   |       |                                                |       |                                                |       |                                               |       |                                               |       |
| Weighted average common shares outstanding                                                                                                                                                                             |       | 9,261,549                                           |       | n/a                                                 |       | 9,266,627                                          |       | n/a                                                |       |

 

See notes to unuadited consolidated financial statements.

 

4

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**iPCS, INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

**(In thousands)**

 
| ** **                                                                                         | ** ** | **Successor Company**                              | ** ** | **Predecessor Company**                            | ** ** |
|----------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                                         | ** ** | **For the Nine Months  Ended June 30,  2005** | ** ** | **For the Nine Months  Ended June 30,  2004** | ** ** |
| **Cash Flows from Operating Activities:**                                                          |       |                                               |       |                                               |       |
| Net loss                                                                                           |       | $                                                  | (34,677    | )                                                  | $          | (21,069 | ) |
| Adjustments to reconcile net loss to net  cash flows from operating activities:                    |       |                                               |       |                                               |       |
| Loss on disposal of property and equipment                                                         |       | 86                                                 |       | 13                                                 |       |
| Depreciation                                                                                       |       | 39,151                                             |       | 28,596                                             |       |
| Amortization of intangible assets                                                                  |       | 8,703                                              |       | —                                             |       |
| Amortization of financing costs                                                                    |       | 666                                                |       | 455                                                |       |
| Reorganization expense                                                                             |       | —                                             |       | 414                                                |       |
| Non-cash stock compensation                                                                        |       | 425                                                |       | —                                             |       |
| Provision for doubtful accounts                                                                    |       | 1,166                                              |       | 246                                                |       |
| Changes in assets and liabilities:                                                                 |       |                                               |       |                                               |       |
| Accounts receivable                                                                                |       | (4,607                                             | )          | 459                                                |       |
| Receivable from Sprint                                                                             |       | (163                                               | )          | (4,251                                             | )          |
| Inventories, net                                                                                   |       | (261                                               | )          | (444                                               | )          |
| Prepaid expenses, other current and long  term assets                                              |       | (1,540                                             | )          | (1,961                                             | )          |
| Accounts payable, accrued expenses and  other long term liabilities                                |       | (6,124                                             | )          | 4,596                                              |       |
| Payable to Sprint                                                                                  |       | (2,189                                             | )          | 9,639                                              |       |
| Deferred revenue                                                                                   |       | 868                                                |       | (999                                               | )          |
| Net cash flows from operating activities                                                           |       | 1,504                                              |       | 15,694                                             |       |
| **Cash Flows from Investing Activities:**                                                          |       |                                               |       |                                               |       |
| Purchases of property and equipment                                                                |       | (13,061                                            | )          | (8,643                                             | )          |
| Proceeds from disposition of property and  equipment                                               |       | 15,845                                             |       | 86                                                 |       |
| Change in restricted cash                                                                          |       | —                                             |       | (3,417                                             | )          |
| Net cash flows from investing activities                                                           |       | 2,784                                              |       | (11,974                                            | )          |
| **Cash Flows from Financing Activities:**                                                          |       |                                               |       |                                               |       |
| Repayments under senior credit facilities                                                          |       | —                                             |       | (1,141                                             | )          |
| Stock options exercised                                                                            |       | 499                                                |       | —                                             |       |
| Stock purchases and retirements                                                                    |       | (1,626                                             | )          | —                                             |       |
| Debt financing and other                                                                           |       | (311                                               | )          | (1,462                                             | )          |
| Net cash flows from financing activities                                                           |       | (1,438                                             | )          | (2,603                                             | )          |
| Net increase in cash and cash equivalents                                                          |       | 2,850                                              |       | 1,117                                              |       |
| **Cash and cash equivalents at beginning of  period**                                              |       | 57,760                                             |       | 17,654                                             |       |
| **Cash and cash equivalents at end of period**                                                     |       | $                                                  | 60,610     |                                               | $          | 18,771 |   |
| **Supplemental disclosure of cash flow  information- cash paid for interest**                      |       | $                                                  | 19,028     |                                               | $          | 8,362 |   |
| **Supplemental disclosure for non-cash  investing activities:**                                    |       |                                               |       |                                               |       |
| Accounts payable incurred for the  acquisition of property, equipment and construction in progress |       | 2,338                                              |       | 1,505                                              |       |
| Increase in restricted cash from issuance  of senior notes                                         |       | —                                             |       | 165,000                                            |       |

 

See notes to unaudited consolidated financial statements.

 

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**iPCS, INC.AND SUBSIDIARIES**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

 

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

 

iPCS, Inc. and subsidiaries(collectively, the “Company” or “iPCS”) were created for the purpose ofbecoming a leading provider of wireless personal communication services (“PCS”).On January 22, 1999, the Company entered into affiliation agreements withSprint Corporation (“Sprint”) whereby it became a PCS affiliate of Sprint (a “PCSAffiliate of Sprint”) with the exclusive right to sell Sprint PCS products andservices in its territories which includes approximately 7.8 millionresidents as of June 30, 2005. On November 30, 2001, AirGate PCS, Inc.(“AirGate”), a PCS Affiliate of Sprint providing service in North Carolina,South Carolina, and Georgia, acquired iPCS in a tax-free stock transaction.iPCS was designated as an unrestricted subsidiary of AirGate and both companiesoperated as separate business entities. Due to restrictions in AirGate’sindenture governing its outstanding notes, AirGate was not permitted to providefunding or financial support to iPCS. On February 23, 2003, the Companyand its subsidiaries filed for Chapter 11 bankruptcy protection (the “Filing”)in the United States Bankruptcy Court for the Northern District of Georgia (the“Bankruptcy Court”) (see Note 3). On March 31, 2004, the Company andits subsidiaries filed its Joint Plan of Reorganization (the “Plan ofReorganization”) with the Bankruptcy Court and subsequently amended it on April 16,2004 and May 25, 2004. On July 9, 2004, the Plan of Reorganizationwas approved by the Bankruptcy Court and was declared effective on July 20,2004.  On March 17, 2005, theCompany entered into an agreement and Plan of Merger with Horizon PCS, Inc.(see Note 15).

 

The unaudited condensed consolidatedfinancial statements included herein include the accounts of iPCS, Inc.and its subsidiaries, iPCS Wireless, Inc. and iPCS Equipment, Inc. Inaccordance with the American Institute of Certified Public AccountantsStatement of Position 90-7, Financial Reporting by Entities in Reorganizationunder the Bankruptcy Code, the Company adopted fresh-start accounting as of July 1,2004, and the Company’s emergence from Chapter 11 resulted in a new reportingentity. The periods as of and prior to July 1, 2004 have been designated “PredecessorCompany” and the periods subsequent to July 1, 2004 have been designatedas “Successor Company.” Under fresh-start accounting, the reorganization equityvalue of the Company was allocated to the assets and liabilities based on theirrespective fair values and was in conformity with SFAS No. 141 “BusinessCombinations.” As a result of the implementation of fresh-start accounting, thefinancial statements of the Company after the effective date are not comparableto the Company’s financial statements for prior periods. The unauditedconsolidated balance sheet as of June 30, 2005, the unaudited consolidatedstatements of operations for the three months and nine months ended June 30,2005 and 2004, the unaudited consolidated statements of cash flows for the ninemonths ended June 30, 2005 and 2004 and related footnotes have beenprepared in accordance with accounting principles generally accepted in theUnited States of America for interim financial information and Rule 10-01of Regulation S-X.  Accordingly, they donot include all of the information and footnotes required by accountingprinciples generally accepted in the United States for complete financialstatements. The financial information presented herein should be read inconjunction with the Company’s 2004 Annual Report on Form 10-K whichincludes information and disclosures not presented herein.  All significant intercompany accounts andtransactions have been eliminated in consolidation. In the opinion ofmanagement, the unaudited consolidated financial statements contain all of theadjustments, consisting only of normal recurring adjustments, necessary topresent fairly, in summarized form, the consolidated financial position,results of operations and cash flows of the Company.  The results of operations for the threemonths and nine months ended June 30, 2005, are not indicative of theresults that may be expected for the full fiscal 2005.

 

The wireless market is characterized bysignificant risks as a result of rapid changes in technology, increasingcompetition and the cost associated with continued upgrades to, and maintenanceof, the portion of the Sprint PCS network in our territory. The Company’scontinuing operations are dependent upon Sprint’s ability to perform itsobligations under the Sprint Agreements. In addition, the Company must be ableto attract and maintain a sufficient customer base and achieve satisfactorygrowth while successfully managing operations to generate enough cash fromoperations to meet future obligations. Changes in technology, increasedcompetition, or the inability to obtain required financing or achievebreak-even operating cash flow, among other factors, could have an adverseeffect on the Company’s financial position and results of operations.  Subject to the Company’s ability to managesubscriber growth and achieve operating efficiencies, cash and cashequivalents, combined with cash flows from operations, are expected to besufficient to fund any operating losses and meet working capital needs, capitalexpenditure needs and debt service requirements for the next twelve months.

 

**(2)  Summary of Significant AccountingPolicies**

 

*Loss Per Share:*

 

Basic and diluted loss per share for theSuccessor Company are calculated by dividing the net loss available to common

 

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stockholders by the weighted average number of shares of common stockof the Company. Pursuant to the Company’s Plan of Reorganization,8.8 million shares have been distributed to claimants from the effectivedate of the Plan of Reorganization through June 30, 2005.  All remaining claims were settled by June 30,2005 and the remaining 0.2 million shares held in reserve were distributedin July 2005. The full nine million shares were used in the calculation ofweighted average shares. The calculation was made in accordance with SFAS No. 128,“Earnings Per Share.” The basic and diluted loss per share are the same becausethe inclusion of the incremental potential common shares from any assumedexercise of stock options is antidilutive. Per share information is notpresented for the Predecessor Company as it is not meaningful.

 

Potential common shares excluded from theloss per share computations totaled 578,250 stock options because they wereantidilutive.

 

*New Accounting Pronouncements*

* *

*In May 2005, the FASB issued SFAS No. 154,“Accounting Changes and Error Corrections” which changes the requirements for the accounting and reporting of achange in accounting principle.  SFAS No. 154replaces APB Opinion No. 20 and SFAS No. 3 and eliminates therequirement to include the cumulative effect of changes in accounting principlein the current period of change and instead, requires that changes inaccounting principle be retrospectively applied.  SFAS No. 154 is effective for accountingchanges made in fiscal years beginning after December 15, 2005.  The Company does not anticipate that theimplementation of SFAS No. 154 will have a material impact on itsfinancial position, results of operations, or cash flows.*

* *

*In March 2005, the FASB issuedInterpretation No. 47 “Accounting for Conditional Asset RetirementObligations, an interpretation of FASB Statement No. 143” (“FIN 47”).  FIN 47 clarifies the recognition andmeasurement provisions of SFAS No. 143 “Accounting for Asset RetirementObligations” that apply to asset retirement obligations in which the timingand/or method of settlement may be conditional on a future event.  FIN 47 is effective for fiscal years endingafter December 15, 2005.  TheCompany does not anticipate that the implementation of FIN 47 will have amaterial impact on its financial position, results of operations or cash flows.*

* *

In December 2004, the FASB issued SFAS No. 123(Revised 2004) “Share-Based Payment” (“SFAS No. 123R”) that addresses theaccounting for share-based payment transactions in which a Company receivesemployee services in exchange for (a) equity instruments of the Company or(b) liabilities that are based on the fair value of the Company’s equityinstruments or that may be settled by the issuance of such equity instruments.SFAS No. 123R addresses all forms of share-based payment awards, includingshares issued under employee stock purchase plans, stock options, restrictedstock and stock appreciation rights. SFAS No. 123R eliminates the abilityto account for share-based compensation transactions using APB Opinion No. 25,“Accounting for Stock Issued to Employees”, that was provided in Statement 123as originally issued. Under SFAS No. 123R companies are required to recordcompensation expense for all share based payment award transactions measured atfair value. This statement is effective for fiscal years starting after June 15,2005. The Company has not yet determined the impact of applying the variousprovisions of SFAS No. 123R.

 

**(3)** **Plan of Reorganization**

 

On February 23, 2003, the Company andits subsidiaries made the Filing in the Bankruptcy Court. On this same date,the Company filed an action against Sprint alleging that Sprint had breachedits agreements with the Company, causing it severe financial damage. TheCompany continued to operate as a debtor-in-possession.  As part of the Plan of Reorganization, on March 22,2004, the

 

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Bankruptcy Court authorized the Company to proceed with an offering ofnew senior notes and the execution of related agreements, to issue apreliminary and final offering memorandum, and to use cash collateral to payexpenses and interest to be funded into escrow related to the new senior notes.

 

The Bankruptcy Court confirmed the Plan ofReorganization on July 9, 2004 and it was declared effective on July 20,2004. The significant terms of the Plan of Reorganization are as follows:

 

•                  The net proceeds from the offering of $165.0 millionin aggregate principal amount of 11.5% senior notes were used to pay off infull the balance outstanding under the Company’s then existing senior creditfacility. The remaining net proceeds were used by the Company to satisfy allother secured claims, administrative and other priority claims and unsecuredconvenience claims and will be used in the future for general corporate purposes.

 

•                  All of the Company’s subordinated claims weredischarged and all of its existing capital stock was cancelled.

 

•                  The Company issued 8.6 million shares of newcommon stock to the Company’s general unsecured creditors in satisfaction andretirement of their claims as of the effective date.  An additional 0.2 million shares have beendistributed subsequent to the effective date through June 30, 2005.  All disputed claims were resolved by June 30,2005 and the remaining 0.2 million shares held in reserve were issued in July,2005. The final resolution of the disputed claims resulted in a $3.0 millionreduction in intangibles recorded as an adjustment to the value allocated tothe assets and liabilities of the Reorganized Company in proportion to theirfair values and was in conformity with SFAS No. 141 “BusinessCombinations.”   An additional 1.0million shares were reserved for issuance to certain members of the Company’smanagement, directors and other employees through the Company’s amended andrestated 2004 long-term incentive plan.

 

•                  The Company assumed its affiliation agreements, asamended, with Sprint; settled all claims by and between the Company and Sprint,which resulted in the write-off of all pre-petition claims, as set forth in thesettlement agreement and mutual release; and paid Sprint approximately$5.1 million in full and complete satisfaction of the Company’s obligationto cure defaults under its affiliation agreements with Sprint.

 

•                  The Company assumed all contracts and leases thathad not been previously rejected.

 

•                  Timothy M. Yager was appointed as president andchief executive officer.

 

•                  Four new directors were appointed to the Company’sboard of directors.

 

•                  The Plan of Reorganization released (a) all ofthe Company’s officers, directors and employees, in each case, as of the dateof the commencement of the hearing on the disclosure statement; (b) theCompany’s creditors’ committee and all of its members, in their respectivecapacities as such; (c) the trustee under the indenture for the Company’sthen existing senior discount notes, in its capacity as such; (d) thelenders under the Company’s senior credit facility, in their capacities assuch; (e) the agent for the lenders under the Company’s then existingsenior credit facility, in its capacity as such; (f) the holders of thethen existing senior discount notes, in their capacity as such; and (g) withrespect to each of the above-named persons, such person’s present affiliates,principals, employees, agents, officers, directors, financial advisors,attorneys and other professionals, in their capacities as such.

 

The Company’s emergence from Chapter 11proceedings resulted in a new reporting entity with the adoption of fresh-startaccounting in accordance with the SOP 90-7. Pursuant to SOP 90-7, theaccounting for the effects of the reorganization occurred as of theconfirmation date because there were no remaining conditions precedent to theeffectiveness of the plan as of the July 9, 2004 confirmation date. Foraccounting purposes, the Company applied fresh-start accounting as of July 1,2004, because the results of operations for the eight days through July 9,2004 did not have a material impact on the reorganized company’s financialposition, results of operations and cash flows. The estimated reorganizationequity value of the Company of $95.0 million, which served as the basisfor the Plan of Reorganization approved by the Bankruptcy Court, was used todetermine the value allocated to the assets and liabilities of the ReorganizedCompany in proportion to their fair values and is in conformity with SFAS No. 141“Business Combinations.” The reorganization equity value was determinedutilizing appraisals, commonly used discounted cash flow valuation methods andselected price earnings multiples of publicly-traded companies similar to theCompany to determine the relative fair values of the Company’s assets andliabilities. Factors taken into consideration included projected revenuegrowth, market and industry growth rates, competition and general economicconditions, working capital and capital expenditure requirements.

 

**(4)  Reorganization Expense**

 

The following expenses are included inreorganization expense in the consolidated statement of operations for thethree months and nine months ended June 30, 2004 (in thousands):

 

8

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| ** **                                                          | ** ** | **Predecessor Company**                           | ** ** |
|---------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                          | ** ** | **For the Three Months Ended June 30, 2004** | ** ** | **For the Nine Months Ended June 30, 2004** | ** ** |
| Professional fees and other costs related  to the Reorganization    |       | $                                                 | 1,754      |   | $ | 6,458 |   |
| Costs related to the closing of retail  stores and rejecting leases |       | 1,108                                             |       | 1,435 |   |
|                                                                |       | $                                                 | 2,862      |   | $ | 7,893 |   |

 

**(5)  Sprint Agreements**

 

Under the Sprint agreements, Sprint providesthe Company significant support services such as customer service, billing,long distance transport services, national network operations support,inventory logistics support, use of the Sprint and Sprint PCS brand name,national advertising, national distribution and product development.Additionally, the Company derives substantial roaming revenue when wirelesscustomers of Sprint and other PCS Affiliates of Sprint incur minutes of use inthe Company’s territories and incurs expense to Sprint and to other PCSAffiliates of Sprint when the Company’s customers incur minutes of use in theterritories of Sprint and other PCS Affiliates of Sprint. The expense isrecorded in the cost of service and roaming and in the selling and marketingdetail lines within the statement of operations. Cost of service and roamingtransactions with Sprint include the 8% affiliation fee, long distance, roamingexpenses, billing support and customer care support. Cost of equipment relatesto inventory sold by the Company that was purchased from Sprint under theSprint agreements. Selling and marketing transactions relate to subsidizedcosts on wireless handsets and commissions under Sprint’s national distributionprogram.

 

Sprint is a service provider for asignificant portion of technical, marketing and administrative functions. Thesefunctions include billing, customer care, credit and collections, networkoperations support, inventory logistics handling, long distance transport andmarketing and design of the products and services the Company sells. Inaddition, Sprint collects payments from customers, and according to the termsof the Sprint agreements, remits to the Company its percentage of theserevenues, net of the 8% affiliation fee. Because the Company derivessubstantial revenues and expenses from Sprint and Sprint PCS, should Sprint beunable to provide these services, the Company could be negatively impacted.

 

For both the three and nine months ended June 30,2005 and the three and nine months ended June 30, 2004, approximately 97%of the Company’s revenue was derived from data provided by Sprint. Of theCompany’s cost of service and roaming, approximately 72% and 70% for the threemonths ended June 30, 2005, and 2004, respectively, was derived from dataprovided by Sprint.  For the nine monthsended June 30, 2005 and 2004, approximately 64% and 65% of cost of serviceand roaming, respectively, was derived from Sprint data. The Company reviewsall charges from Sprint and disputes certain of these charges in cases wherethe Company does not receive enough supporting detail to validate the chargesor it does not believe Sprint can charge the Company for certain expenses underthe terms of the Sprint agreements.  At June 30,2005 and September 30, 2004, the Company had approximately $0.1 million indisputed charges.

 

Amounts relating to the Sprint agreements forthe three months and nine months ended June 30, 2005 and 2004 are asfollows (in thousands):

 
| ** **                                                          | ** ** | **Successor  Company**                      | ** ** | **Predecessor  Company**                    | ** ** | **Successor  Company**                     | ** ** | **Predecessor  Company**                   | ** ** |
|---------------------------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                          | ** ** | **Three Months  Ended  June 30, 2005** | ** ** | **Three Months  Ended  June 30, 2004** | ** ** | **Nine Months  Ended  June 30, 2005** | ** ** | **Nine Months  Ended  June 30, 2004** | ** ** |
| **Amounts included in the Consolidated  Statements of Operations:** | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                 | ** ** | ** **                                 | ** ** |
| Service revenue                                                     |       | $                                           | 41,307     |                                        | $          | 37,175                                     |       | $                                          | 118,986    |   | $ | 107,097 |   |
| Roaming revenue                                                     |       | $                                           | 16,520     |                                        | $          | 13,391                                     |       | $                                          | 46,790     |   | $ | 34,393 |   |
| Cost of service and roaming:                                        |       |                                        |       |                                        |       |                                       |       |                                       |       |
| Roaming                                                             |       | $                                           | 11,084     |                                        | $          | 8,923                                      |       | $                                          | 31,096     |   | $ | 22,932 |   |
| Customer service                                                    |       | 5,840                                       |       | 5,215                                       |       | 16,820                                     |       | 12,897                                     |       |
| Affiliation fees                                                    |       | 3,292                                       |       | 3,054                                       |       | 9,432                                      |       | 8,685                                      |       |
| Long distance                                                       |       | 1,717                                       |       | 1,796                                       |       | 4,838                                      |       | 5,946                                      |       |
| Other                                                               |       | 965                                         |       | (238                                        | )          | 2,368                                      |       | 3,326                                      |       |
| Total cost of service and roaming                                   |       | $                                           | 22,898     |                                        | $          | 18,750                                     |       | $                                          | 64,554     |   | $ | 53,786 |   |
| Cost of equipment                                                   |       | $                                           | 6,064      |                                        | $          | 3,971                                      |       | $                                          | 17,941     |   | $ | 12,801 |   |
| Selling and marketing                                               |       | $                                           | 1,801      |                                        | $          | 3,509                                      |       | $                                          | 7,342      |   | $ | 8,792 |   |

 

9

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| ** **                                                | ** ** | **Successor  Company** | ** ** | **Successor  Company**      | ** ** |
|-----------------------------------------------------------|------------|------------------------|------------|-----------------------------|------------|
| ** **                                                | ** ** | **June 30, 2005** | ** ** | **September 30, 2004** | ** ** |
| **Amounts included in the Consolidated  Balance Sheets:** | ** ** | ** **             | ** ** | ** **                  | ** ** |
| Receivable from Sprint                                    |       | $                      | 13,427     |                        | $          | 13,264 |   |
| Inventories                                               |       | 1,571                  |       | 1,310                       |       |
| Payable to Sprint                                         |       | 22,215                 |       | 24,404                      |       |
|                                                           |            |                        |            |                             |            |  |  |

 

**(6)****         Property and Equipment**

 

Property and equipment consists of thefollowing at June 30, 2005 and September 30, 2004 (in thousands):

 
| ** **                                      | ** ** | **Successor Company**  | ** ** | **Successor Company**       | ** ** |
|-------------------------------------------------|------------|------------------------|------------|-----------------------------|------------|
| ** **                                      | ** ** | **June 30, 2005** | ** ** | **September 30, 2004** | ** ** |
| Network assets                                  |       | $                      | 132,180    |                        | $          | 134,552 |   |
| Computer equipment                              |       | 1,219                  |       | 874                         |       |
| Furniture, fixtures, and office equipment       |       | 4,050                  |       | 2,935                       |       |
| Vehicles                                        |       | 358                    |       | 530                         |       |
| Construction in progress                        |       | 1,790                  |       | 4,830                       |       |
| Total property and equipment                    |       | 139,597                |       | 143,721                     |       |
| Less accumulated depreciation and  amortization |       | (44,584                | )          | (8,790                      | )          |
| Total property and equipment, net               |       | $                      | 95,013     |                        | $          | 134,931 |   |

 

On July 1, 2004, as a result of theCompany’s reorganization and in accordance with fresh-start accounting underSOP 90-7, the Company reduced its property and equipment by $8.7 million totheir estimated fair values.  Noadditional impairment was necessary at September 30, 2004.

 

The Company’s decision to replace the Lucent equipment in its Michiganmarkets with Nortel equipment (see Note 13) will result in retiring existingassets before the end of their estimated useful life.  Upon determination of the schedule toreplace the Lucent equipment, the estimated useful life was reduced to theremaining number of months such assets will be in use prior to being replaced, whichresulted in accelerating depreciation.  On April 5, 2005, the Company signed an agreement with TeltechCommunications, L.L.C. (“Teltech”) to sell the Company’s Lucent equipment forapproximately $4.3 million which also adjusted the salvage value of theequipment. The effect of both of these changes increased depreciation expenseapproximately $6.8 million and $13.6 million for the three months and ninemonths ended June 30, 2005, respectively, and at June 30, 2005, theLucent assets were fully depreciated.

 

Under the agreement with Teltech, an initial down payment totalingapproximately $0.9 million was received in April 2005 and the remainder ofthe amount owed will be paid in installments, but no later than July 1,2006.

 

**(7)  Intangible Assets**

 

On July 1, 2004, as a result of theCompany’s reorganization and in accordance with fresh-start accounting underSOP 90-7, the Company revalued its assets to their estimated fair values. Withthe implementation of fresh-start accounting, the Company recorded intangibleassets of $19.8 million relating to the fair value of the customer baseand $62.1 million relating to the fair value of the right to provideservice under the Sprint agreements. The resolution of the final outstandingclaims in June 2005, resulted in a decrease to the customer base and theright to provide service under the Sprint agreements of $0.7 million, and $2.3million, respectively.  The customer baseis being amortized over the estimated average life of a customer, or30 months. The right to provide service under the Sprint agreements isbeing amortized over the remaining term of the agreement or 14.5 years.

 

The amortization period, gross carryingamount, accumulated amortization and net carrying amount of intangible assetsat June 30, 2005 and September 30, 2004 are as follows (inthousands):

 
| ** **                                            | ** ** | **Successor Company**    | ** ** |
|-------------------------------------------------------|------------|--------------------------|------------|
| ** **                                            | ** ** | **June 30, 2005**   | ** ** |
| ** **                                            | ** ** | **Amortization  Period** | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net Carrying  Value** | ** ** |
| Amortized intangible assets:                          |       |                     |       |   |   |   |   |   |   |
| Right to provide service under the Sprint  agreements |       | 174 months               |       | $ | 59,863 |   | $ | (4,128 | ) | $ | 55,735 |   |
| Customer base                                         |       | 30 months                |       | 19,064 |   | (7,626 | ) | 11,438 |   |
|                                                  |       |                     |       | $ | 78,927 |   | $ | (11,754 | ) | $ | 67,173 |   |

 

10

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| ** **                                            | ** ** | **Successor Company**       | ** ** |
|-------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                            | ** ** | **September 30, 2004** | ** ** |
| ** **                                            | ** ** | **Amortization  Period**    | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net Carrying  Value** | ** ** |
| Amortized intangible assets:                          |       |                        |       |   |   |   |   |   |   |
| Right to provide service under the Sprint  agreements |       | 174 months                  |       | $ | 62,127 |   | $ | (1,072 | ) | $ | 61,055 |   |
| Customer base                                         |       | 30 months                   |       | 19,785 |   | (1,979 | ) | 17,806 |   |
|                                                  |       |                        |       | $ | 81,912 |   | $ | (3,051 | ) | $ | 78,861 |   |

 

The amortization of intangible assets for the three months and ninemonths ended June 30, 2005 was $2.6 million and $8.7 million,respectively.  There was no amortizationexpense during the three months or nine months ended June 30, 2004.  Aggregate amortization expense relative tointangible assets for the periods shown will be as follows:

 
| **Year Ended September 30,** | ** ** | ** ** | ** ** |
|-----------------------------------|------------|------------|------------|
| 2005                              |       | $          | 11,642     |   |
| 2006                              |       | 11,754     |       |
| 2007                              |       | 6,035      |       |
| 2008                              |       | 4,129      |       |
| 2009                              |       | 4,129      |       |
| Thereafter                        |       | 38,187     |       |
| Total                             |       | $          | 75,876     |   |

 

**(8) Long-Term Debt**

 

Long-term debt consists of the following at June 30, 2005 and September 30,2004 (in thousands):

 
| ** **                                                                  | ** ** | **Successor Company**  | ** ** | **Successor Company**       | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------|------------|-----------------------------|------------|
| ** **                                                                  | ** ** | **June 30, 2005** | ** ** | **September 30, 2004** | ** ** |
| Senior notes due 2012                                                       |       | $                      | 165,000    |                        | $          | 165,000 |   |
| Capital lease obligations                                                   |       | 401                    |       | 407                         |       |
| Total long-term debt and capital lease  obligations                         |       | 165,401                |       | 165,407                     |       |
| Less: current portion                                                       |       | 9                      |       | 7                           |       |
| Long-term debt and capital lease  obligations, excluding current maturities |       | $                      | 165,392    |                        | $          | 165,400 |   |

 

The indenture governing the$165.0 million in aggregate principal amount of 11.5% senior notescontains covenants which restrict the Company’s ability to incur additionalindebtedness, merge, pay dividends, dispose of its assets, and certain othermatters as defined in the indenture. However, the senior notes are subordinatedto all secured indebtedness of the Company to the extent of the assets securingsuch indebtedness, and to any indebtedness of subsidiaries of the Company thatdo not guarantee the senior notes. Interest is payable semi-annually in arrearson May 1 and November 1, commencing on November 1, 2004 to theholders of record on the immediately preceding April 15 and October 15.

 

**(9)  Income Taxes**

 

The Company’s effective income tax rate forthe interim periods presented is based on management’s estimate of the Company’seffective tax rate for the applicable year and differs from the federalstatutory income tax rate primarily due to nondeductible permanent differences,state income taxes and changes in the valuation allowance for deferred incometaxes.  In assessing the realizability ofdeferred tax assets, management considers whether it is more likely than notthat some portion or all of the deferred tax assets will not be realized. Theultimate realization of deferred tax assets is dependent upon the generation offuture taxable income during the periods in which those temporary differencesbecome deductible. No benefit for federal income taxes has been recorded forthe three months and nine months ended June 30, 2005 and 2004 as the netdeferred tax asset generated, primarily from temporary differences related tothe net operating loss, was offset by a full valuation allowance because it isnot considered more likely than not that these benefits will be realized due tothe Company’s losses since inception.

 

**(10)  Stock Compensation**

 

The Company applies APB Opinion No. 25, “Accounting for StockIssued to Employees,” and related interpretations to account for its employeeand director stock options. Compensation expense is determined as the excess ofthe fair value of the Company’s common stock at date of grant over the exerciseprice. On July 15, 2004, the Company’s board of directors approved the

 

11

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2004 long-term incentive plan, as provided under the Plan ofReorganization (see Note 3) which plan was amended and restated in January 2005.Under the Amended and Restated 2004 Long-Term Incentive Plan (the “Plan”), theCompany may grant to employees, directors and consultants of the Companyincentive and non-qualified stock options, stock appreciation rights (SARs),restricted and unrestricted stock awards and cash incentive awards. The maximumnumber of shares of stock that may be awarded to participants is one million.Up to 500,000 shares may be issued in conjunction with awards other thanoptions and SARs.  On May 5, 2005,the Board of Directors of the Company approved an amendment to the Plan andrecommended that the stockholders of the Company vote to approve the Plan atthe annual meeting on June 30, 2005. The stockholders approved the Plan on June 30, 2005.  The amendment provides for the reservation ofan additional 250,000 shares of the Company’s common stock that may be issuedunder the Plan.

 

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:

 
| ** **                                                             | ** ** | **Three Months Ended  June 30, 2005** | ** ** | **Nine Months Ended  June 30, 2005** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| **Net loss (in thousands):**                                           | ** ** | ** **                                 | ** ** | ** **                                | ** ** |
| As reported                                                            |       | $                                          | (12,525    | )                                         | $          | (34,677 | ) |
| Plus non-cash stock compensation in  accordance with SFAS No. 123 |       | (351                                       | )          | (1,053                                    | )          |
| Pro forma                                                              |       | $                                          | (12,876    | )                                         | $          | (35,730 | ) |
| **Basic and diluted loss per common share:**                           | ** ** | ** **                                 | ** ** | ** **                                | ** ** |
| As reported                                                            |       | $                                          | (1.35      | )                                         | $          | (3.74 | ) |
| Pro forma                                                              |       | $                                          | (1.39      | )                                         | $          | (3.86 | ) |

 

In connection with the Company’s merger withHorizon PCS (see Note 15) Mr. Gaffney resigned from the Company’s board ofdirectors on June 30, 2005. Effective as of such date, the Company amended Mr. Gaffney’s stockoption award agreement to extend the termination date of his options from 90days to 210 days post-resignation.  As aresult of this amendment, the Company recorded additional non-cash stockcompensation expense of approximately $0.4 million for the three months ended June 30,2005. The amount of non-cash stock compensation expense was calculated usingthe intrinsic value method.

 

As part of the Company’s reorganization (seeNote 3), the Company awarded Mr. Yager, the Company’s former chiefrestructuring officer and current chief executive officer, 250,000 stock andstock unit awards as consideration for facilitating the Company’s emergencefrom bankruptcy.  Per the terms of thisaward agreement Mr. Yager was allowed to surrender shares to the Companyas repayment for his withholding obligations. During the three months ended June 30, 2005, the Company’s CEO surrenderedapproximately 46,000 shares as payment for his tax withholding obligations ofapproximately $1.6 million related to the remaining 125,000 shares not yetreceived by Mr. Yager.

 

There were no outstanding stock options during the three months or ninemonths ended June 30, 2004.

 

**(11) Related Party Transactions**

 

Prior to the Company’s Chapter 11 filing, and**atthe request of the senior lenders and the majority holders of the then existingsenior discount notes, on January 27, 2003, the Company signed arestructuring management services agreement with YMS Management, L.L.C.  (“YMS”) to perform restructuring managementservices for the Company and to appoint a Chief Restructuring Officer (“CRO”).The Company appointed Timothy M. Yager as CRO at the time the agreement wassigned. Under terms of this agreement, YMS received a weekly fee of $15,000,reimbursement of reasonable administrative expenses plus a success fee, asdefined in the agreement. During the three months and nine months ended June 30,2004, the Company incurred expenses of $0.2 million and $0.6 million,respectively, to YMS.  Effective July 20,2004, the agreement between YMS and the Company was terminated.

 

**(12)****           TowerSales**

 

On September 4, 2004, theCompany signed an agreement with TCP Communications, LLC (“TCP”) whereby theCompany agreed to sell up to 92 of its owned towers to TCP. The towers arepriced individually and the sale of all 92 towers would provide the Companywith gross proceeds of approximately $16.5 million. After the sale, theCompany will lease space on the towers sold to TCP at rates and termsconsistent with that of the Company’s existing leases. The transaction issubject to exclusion of towers by TCP based on its due diligence and othercustomer closing conditions. On April 27, 2005, TCP notified the Companythat it had elected to exclude 16 towers based on its due diligence and othercustomary closing conditions.

 

On November 9, 2004, December 29, 2004, and June 14, 2005,the Company sold 51, 17 and 8 towers, respectively, to TCP

 

12

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for proceeds, net of broker’s fees, totaling approximately $13.6million.  Because the cost basis of thesetowers was adjusted to fair value as part of fresh-start accounting, no gain orloss on the sales was recorded.

 

On May 25, 2005, the Company signed an agreement with GlobalTower, LLC, whereby the Company agreed to sell its remaining 16 owned towers toGlobal Tower.  The selling price for all16 towers is approximately $2.8 million, but will be paid on a per tower basiswith each closing.  After the sale, theCompany will lease space on the towers sold to Global Towers at rates and termsconsistent with that of its existing leases. On June 29, 2005, the Company sold 10 towers to Global Tower forapproximately $1.7 million.

 

**(13)  Commitments and Contingencies**

 

*Commitments*

 

On November 22, 2004, the Company signed a letter of agreementwith Nortel Networks to replace the Company’s Lucent network equipmentcurrently deployed in its Michigan markets with Nortel equipment including oneswitch, 232 base stations and various additional capacity and networkequipment. Under the terms of the agreement, the Company has agreed to purchaseequipment totaling approximately $15.2 million and will receive special pricingon future purchases through December 31, 2007.  As of June 30, 2005, the Company hadpurchased approximately $9.1 million of network equipment under the agreement.

 

*Litigation*

 

On October 1, 2003,AT&T filed an administrative proof of claim and a pre-petition proof ofclaim against the Company, both of which claims the Company disputed. Inconnection with the Company’s Plan of Reorganization, the Company deposited$0.7 million in escrow pending resolution of both of these disputedclaims.  On August 31, 2004,AT&T filed a cure claim against the Company, contending that a portion ofthe amount set forth in the pre-petition proof of claim, and a portion of theamount set forth in the administrative proof of claim were presently due incash as cure amounts, which the Company also disputed. Also on August 31,2004, AT&T amended its administrative proof of claim originally filed on October 1,2003. If all of AT&T’s claims were allowed as valid, AT&T would had a$0.2 million pre-petition claim payable in stock under our Plan ofReorganization, with the remaining claims (both cure and administrative)payable in $6.6 million of cash. Both the administrative and pre-petitionclaims between AT&T and the Company were consolidated in claims proceedingspending before the Bankruptcy Court. On September 30, 2004, the Companyfiled a response to the cure claim requesting that the dispute on the cureclaim be consolidated with the administrative and pre-petition claimdispute.  On May 27, 2005, theCompany resolved its outstanding claim with AT&T for $1.0 million payablein stock for its pre-petition claim and $0.9 million payable in cash for itsadministrative claim.

 

**(14) Consolidating Financial Information**

 

The senior notes are fully, unconditionallyand joint and severally guaranteed by iPCS Wireless, Inc. and iPCSEquipment, Inc., which are wholly owned subsidiaries of the Company. Thefollowing unaudited condensed consolidating financial information as of June 30,2005 and September 30, 2004 and for the three months and nine months endedJune 30, 2005 and 2004 is presented for the Company, iPCS Wireless, Inc.and iPCS Equipment, Inc. (in thousands):

 

13

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**iPCS, Inc. and Subsidiaries**

**Condensed Consolidating Balance Sheet**

**as of June 30, 2005**

 
| ** **                                                    | ** ** | **Successor Company** | ** ** |
|---------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                    | ** ** | **iPCS Inc.**         | ** ** | **iPCS Wireless** | ** ** | **iPCS Equipment** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
| Cash and cash equivalents                                     |       | $                     | —     |   | $ | 60,610 |   | $ | — |   | $ | — |   | $ | 60,610 |   |
| Other current assets                                          |       | 145,364               |       | 59,837 |   | 23,053 |   | (189,748 | ) | 38,506 |   |
| Total current assets                                          |       | 145,364               |       | 120,447 |   | 23,053 |   | (189,748 | ) | 99,116 |   |
| Property and equipment, net                                   |       | —                |       | 78,552 |   | 16,560 |   | (99 | ) | 95,013 |   |
| Intangible assets, net                                        |       | —                |       | 67,173 |   | — |   | — |   | 67,173 |   |
| Other noncurrent assets                                       |       | 6,137                 |       | 1,005 |   | — |   | — |   | 7,142 |   |
| Investment in subsidiaries                                    |       | 70,679                |       | — |   | — |   | (70,679 | ) | — |   |
| Total assets                                                  |       | $                     | 222,180    |   | $ | 267,177 |   | $ | 39,613 |   | $ | (260,526 | ) | $ | 268,444 |   |
|                                                          |       |                  |       |   |   |   |   |   |   |   |   |
| Current liabilities                                           |       | $                     | 3,514      |   | $ | 232,804 |   | $ | 49 |   | $ | (189,847 | ) | 46,520 |   |
| Long-term debt                                                |       | 165,000               |       | 392 |   | — |   | — |   | 165,392 |   |
| Other long-term liabilities                                   |       | —                |       | 2,866 |   | — |   | — |   | 2,866 |   |
| Total liabilities                                             |       | 168,514               |       | 236,062 |   | 49 |   | (189,847 | ) | 214,778 |   |
| Stockholders’ equity (deficiency)                        |       | 53,666                |       | 31,115 |   | 39,564 |   | (70,679 | ) | 53,666 |   |
| Total liabilities and stockholders’ equity  (deficiency) |       | $                     | 222,180    |   | $ | 267,177 |   | $ | 39,613 |   | $ | (260,526 | ) | $ | 268,444 |   |

 

**iPCS, Inc. and Subsidiaries**

**Condensed Consolidating Balance Sheet**

**as of September 30, 2004**

 
| ** **                                                    | ** ** | **Successor Company** | ** ** |
|---------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                    | ** ** | **iPCS Inc.**         | ** ** | **iPCS Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
| Cash and cash equivalents                                     |       | $                     | —     |   | $ | 57,760 |   | $ | — |   | $ | — |   | $ | 57,760 |   |
| Other current assets                                          |       | 166,126               |       | 32,276 |   | 16,387 |   | (182,295 | ) | 32,494 |   |
| Total current assets                                          |       | 166,126               |       | 90,036 |   | 16,387 |   | (182,295 | ) | 90,254 |   |
| Property and equipment, net                                   |       | —                |       | 113,394 |   | 21,647 |   | (110 | ) | 134,931 |   |
| Intangible assets, net                                        |       | —                |       | 78,861 |   | — |   | — |   | 78,861 |   |
| Other noncurrent assets                                       |       | 6,497                 |       | 1,765 |   | — |   | — |   | 8,262 |   |
| Investment in subsidiaries                                    |       | 89,578                |       | — |   | — |   | (89,578 | ) | — |   |
| Total assets                                                  |       | $                     | 262,201    |   | $ | 284,056 |   | $ | 38,034 |   | $ | (271,983 | ) | $ | 312,308 |   |
|                                                          |       |                  |       |   |   |   |   |   |   |   |   |
| Current liabilities                                           |       | $                     | 8,155      |   | $ | 227,892 |   | $ | 155 |   | $ | (182,405 | ) | 53,797 |   |
| Long-term debt                                                |       | 165,000               |       | 400 |   | — |   | — |   | 165,400 |   |
| Other long-term liabilities                                   |       | —                |       | 4,065 |   | — |   | — |   | 4,065 |   |
| Total liabilities                                             |       | 173,155               |       | 232,357 |   | 155 |   | (182,405 | ) | 223,262 |   |
| Stockholders’ equity (deficiency)                        |       | 89,046                |       | 51,699 |   | 37,879 |   | (89,578 | ) | 89,046 |   |
| Total liabilities and stockholders’ equity  (deficiency) |       | $                     | 262,201    |   | $ | 284,056 |   | $ | 38,034 |   | $ | (271,983 | ) | $ | 312,308 |   |

 

14

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**iPCS, Inc. and Subsidiaries**

**Condensed Consolidating Statement ofOperations**

**For the Three Months Ended June 30, 2005**

 
| ** **                                         | ** ** | **Successor Company** | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **iPCS Inc.**         | ** ** | **iPCS Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
| Total revenues                                     |       | $                     | —     |   | $ | 59,513 |   | $ | 1,327 |   | $ | (1,327 | ) | $ | 59,513 |   |
| Cost of revenues                                   |       | —                |       | (39,177 | ) | — |   | 1,326 |   | (37,851 | ) |
| Selling and marketing                              |       | —                |       | (9,056 | ) | — |   | — |   | (9,056 | ) |
| General and administrative                         |       | (516                  | )          | (2,016 | ) | — |   | — |   | (2,532 | ) |
| Depreciation and amortization                      |       | —                |       | (16,614 | ) | (1,381 | ) | — |   | (17,995 | ) |
| Gain (loss) on disposal of property and  equipment |       | —                |       | (46 | ) | — |   | 5 |   | (41 | ) |
| Total operating expenses                           |       | (516                  | )          | (66,909 | ) | (1,381 | ) | 1,331 |   | (67,475 | ) |
| Other, net                                         |       | (4,968                | )          | (267 | ) | 672 |   | — |   | (4,563 | ) |
| Loss in subsidiaries                               |       | (7,045                | )          | — |   | — |   | 7,045 |   | — |   |
| Net income (loss)                                  |       | $                     | (12,529    | ) | $ | (7,663 | ) | $ | 618 |   | $ | 7,049 |   | $ | (12,525 | ) |

 

**iPCS, Inc. and Subsidiaries**

**Condensed Consolidating Statement ofOperations**

**For the Three Months Ended June 30, 2004**

 
| ** **                                         | ** ** | **Predecessor Company** | ** ** |
|----------------------------------------------------|------------|-------------------------|------------|
| ** **                                         | ** ** | **iPCS Inc.**           | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **iPCS  Escrow** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
| Total revenues                                     |       | $                       | —     |   | $ | 52,012 |   | $ | 1,271 |   | $ | — |   | $ | (1,271 | ) | $ | 52,012 |   |
| Cost of revenues                                   |       | —                  |       | (34,563 | ) | (132 | ) | — |   | 1,270 |   | (33,425 | ) |
| Selling and marketing                              |       | —                  |       | (8,092 | ) | — |   | — |   | — |   | (8,092 | ) |
| General and administrative                         |       | (38                     | )          | (1,536 | ) | (1 | ) | (1 | ) | — |   | (1,576 | ) |
| Depreciation and amortization                      |       | —                  |       | (8,359 | ) | (1,180 | ) | — |   | — |   | (9,539 | ) |
| Gain (loss) on disposal of property and  equipment |       | —                  |       | (22 | ) | (11 | ) | — |   | 15 |   | (18 | ) |
| Reorganization expense                             |       | —                  |       | (2,855 | ) | (7 | ) | — |   | — |   | (2,862 | ) |
| Total operating expenses                           |       | (38                     | )          | (55,427 | ) | (1,331 | ) | (1 | ) | 1,285 |   | (55,512 | ) |
| Other, net                                         |       | 7,139                   |       | (8,697 | ) | (671 | ) | (3,089 | ) | — |   | (5,318 | ) |
| Loss in subsidiaries                               |       | (15,933                 | )          | — |   | — |   | — |   | 15,933 |   | — |   |
| Net income (loss)                                  |       | $                       | (8,832     | ) | $ | (12,112 | ) | $ | (731 | ) | $ | (3,090 | ) | $ | 15,947 |   | $ | (8,818 | ) |

 

15

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**iPCS, Inc. and Subsidiaries**

**Condensed Consolidating Statement ofOperations**

**For the Nine Months Ended June 30, 2005**

 
| ** **                                         | ** ** | **Successor Company** | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **iPCS Inc.**         | ** ** | **iPCS Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
| Total revenues                                     |       | $                     | —     |   | $ | 170,964 |   | $ | 4,918 |   | $ | (4,918 | ) | $ | 170,964 |   |
| Cost of revenues                                   |       | —                |       | (113,679 | ) | (938 | ) | 4,913 |   | (109,704 | ) |
| Selling and marketing                              |       | —                |       | (27,517 | ) | — |   | — |   | (27,517 | ) |
| General and administrative                         |       | (891                  | )          | (5,584 | ) | (1 | ) | — |   | (6,476 | ) |
| Depreciation and amortization                      |       | —                |       | (43,674 | ) | (4,180 | ) | — |   | (47,854 | ) |
| Gain (loss) on disposal of property and  equipment |       | —                |       | (101 | ) | — |   | 15 |   | (86 | ) |
| Total operating expenses                           |       | (891                  | )          | (190,555 | ) | (5,119 | ) | 4,928 |   | (191,637 | ) |
| Other, net                                         |       | (14,898               | )          | (992 | ) | 1,886 |   | — |   | (14,004 | ) |
| Loss in subsidiaries                               |       | (18,898               | )          | — |   | — |   | 18,898 |   | — |   |
| Net income (loss)                                  |       | $                     | (34,687    | ) | $ | (20,583 | ) | $ | 1,685 |   | $ | 18,908 |   | $ | (34,677 | ) |

 

**iPCS, Inc. and Subsidiaries**

**Condensed Consolidating Statement ofOperations**

**For the Nine Months Ended June 30, 2004**

 
| ** **                                         | ** ** | **Predecessor Company** | ** ** |
|----------------------------------------------------|------------|-------------------------|------------|
| ** **                                         | ** ** | **iPCS  Inc.**          | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **iPCS  Escrow** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
| Total revenues                                     |       | $                       | —     |   | $ | 145,862 |   | $ | 5,582 |   | $ | — |   | $ | (5,582 | ) | $ | 145,862 |   |
| Cost of revenues                                   |       | —                  |       | (99,437 | ) | (2,165 | ) | — |   | 5,571 |   | (96,031 | ) |
| Selling and marketing                              |       | —                  |       | (20,976 | ) | — |   | — |   | — |   | (20,976 | ) |
| General and administrative                         |       | (104                    | )          | (3,444 | ) | (1 | ) | (1 | ) | — |   | (3,550 | ) |
| Depreciation and amortization                      |       | —                  |       | (25,085 | ) | (3,511 | ) | — |   | — |   | (28,596 | ) |
| Gain (loss) on disposal of property and  equipment |       | —                  |       | (22 | ) | (11 | ) | — |   | 20 |   | (13 | ) |
| Reorganization expense                             |       | (1                      | )          | (7,876 | ) | (16 | ) | — |   | — |   | (7,893 | ) |
| Total operating expenses                           |       | (105                    | )          | (156,840 | ) | (5,704 | ) | (1 | ) | 5,591 |   | (157,059 | ) |
| Other, net                                         |       | 21,494                  |       | (26,242 | ) | (2,035 | ) | (3,089 | ) | — |   | (9,872 | ) |
| Loss in subsidiaries                               |       | (42,467                 | )          | — |   | — |   | — |   | 42,467 |   | — |   |
| Net income (loss)                                  |       | $                       | (21,078    | ) | $ | (37,220 | ) | $ | (2,157 | ) | $ | (3,090 | ) | $ | 42,476 |   | $ | (21,069 | ) |

 

16

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**iPCS, Inc. and Subsidiaries**

**Condensed Consolidating Statement of CashFlows**

**For the Nine Months Ended June 30, 2005**

 
| ** **                                        | ** ** | **Successor Company** | ** ** |
|---------------------------------------------------|------------|-----------------------|------------|
| ** **                                        | ** ** | **iPCS Inc.**         | ** ** | **iPCS Wireless** | ** ** | **iPCS Equipment** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
| Operating activities                              |       | $                     | 1,549      |   | $ | 551 |   | $ | (606 | ) | $ | 10 |   | $ | 1,504 |   |
| Investing activities                              |       | —                |       | 2,188 |   | 606 |   | (10 | ) | 2,784 |   |
| Financing activities                              |       | (1,549                | )          | 111 |   | — |   | — |   | (1,438 | ) |
| Increase in cash and cash equivalents             |       | —                |       | 2,850 |   | — |   | — |   | 2,850 |   |
| Cash and cash equivalents at beginning of  period |       | —                |       | 57,760 |   | — |   | — |   | 57,760 |   |
| Cash and cash equivalents at end of period        |       | $                     | —     |   | $ | 60,610 |   | $ | — |   | $ | — |   | $ | 60,610 |   |

 

**iPCS, Inc. and Subsidiaries**

**Condensed Consolidating Statement of CashFlows**

**For the Nine Months Ended June 30, 2004**

 
| ** **                                       | ** ** | **Predecessor Company** | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|
| ** **                                       | ** ** | **iPCS Inc.**           | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **iPCS  Escrow** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
| Operating activities                             |       | $                       | 21,584     |   | $ | (4,190 | ) | $ | 1,359 |   | $ | (3,067 | ) | $ | 8 |   | $ | 15,694 |   |
| Investing activities                             |       | —                  |       | (4,843 | ) | (3,706 | ) | (3,417 | ) | (8 | ) | (11,974 | ) |
| Financing activities                             |       | (21,584                 | )          | 9,758 |   | 2,739 |   | 6,484 |   | — |   | (2,603 | ) |
| Decrease in cash or cash equivalents             |       | —                  |       | 725 |   | 392 |   | — |   | — |   | 1,117 |   |
| Cash and cash equivalents at beginning of period |       | —                  |       | 18,169 |   | (515 | ) | — |   | — |   | 17,654 |   |
| Cash and cash equivalents at end of the  period  |       | $                       | —     |   | $ | 18,894 |   | $ | (123 | ) | $ | — |   | $ | — |   | $ | 18,771 |   |

 

17

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**(15)  Subsequent Events**

** **

On March 17, 2005, the Company entered into an Agreement and Planof Merger (the “Merger Agreement”) with Horizon PCS, Inc., another PCSAffiliate of Sprint (“Horizon PCS”). Pursuant to the terms of the Merger Agreement, Horizon PCS will bemerged with and into iPCS, Inc. with iPCS, Inc. as the survivingcorporation.  Horizon PCS stockholderswill receive 0.7725 shares of iPCS, Inc. common stock for each share ofHorizon PCS common stock they hold, subject to adjustment.  Each outstanding option to purchase shares ofHorizon PCS common stock will be converted into an option to purchase a numberof shares of iPCS, Inc. common stock equal to the number of shares ofHorizon PCS common stock for which such option may be exercised multiplied by0.7725, at an exercise price equal to the original exercise price divided by0.7725. Final approval from the shareholders of each of iPCS, Inc. andHorizon PCS was received on June 30, 2005.

 

**On July 1, 2005 (the “Effective Time”), theCompany completed its merger with Horizon PCS, Inc. Pursuant to the MergerAgreement, Horizon PCS, in a tax-free stock for stock transaction, merged withand into iPCS, Inc, with iPCS, Inc. surviving the merger. Horizon PCSstockholders received the right to receive an aggregate of 6,962,787 shares ofiPCS common stock in exchange for shares of Horizon PCS common stock they heldas of the Effective Time.  Theoutstanding options to purchase shares of Horizon PCS common stock convertedinto options to purchase an aggregate of 598,962 shares of iPCS common stock ata price of $23.00.**

** **

**Pursuant to the Merger Agreement, on July 1, 2005,Timothy G. Biltz, Jeffrey W. Jones and Robert A. Katz, each of whom had been amember of the board of directors of Horizon PCS immediately prior to theMerger, joined the iPCS board of directors and Donald L. Bell, Eugene I. Davisand Eric F. Ensor resigned from the iPCS board of directors.**

** **

**Pursuant to a supplemental indenture, dated as of June 30,2005, by and between U.S. Bank National Association, as Trustee, and iPCS (the “SupplementalIndenture”), iPCS assumed Horizon PCS’ obligations under the outstanding $125.0million principal amount of 11 3/8% senior notes due 2012 issued pursuant tothe indenture, dated as of July 19, 2004, by and among Horizon PCS EscrowCompany, Horizon PCS, certain subsidiary guarantors and U.S. Bank NationalAssociation, as Trustee.**

** **

On July 15, 2005, iPCS Wireless, Inc., a wholly ownedsubsidiary of iPCS, Inc., filed a complaint (the “Complaint”) againstSprint, WirelessCo L.P., Sprint Spectrum L.P., SprintCom, Inc. and SprintCommunications Company L.P. in the Circuit Court of Cook County, Illinois.  The Complaint alleges, among other things,that following the consummation of the anticipated merger between Sprint andNextel Communications, Inc., Sprint will breach its exclusivity andconfidentiality obligations under its management agreement, as amended, withthe Company (see Note 1) .  The Companyseeks, among other things, a temporary restraining order, a preliminaryinjunction and a permanent injunction enjoining Sprint and those acting inconcert with it from engaging in certain conduct post-closing in violation ofits management agreement. On July 22, 2005, Horizon PersonalCommunications, Inc. and Bright Personal Communications Services, LLC,wholly owned subsidiaries of iPCS Inc., filed a substantially similar complaintagainst Sprint Corporation, WirelessCo L.P., Sprint Spectrum L.P., SprintCom, Inc.,Sprint Communications Company L.P. and Nextel Communications, Inc. in theCourt of Chancery of the State of Delaware, New Castle County.

 

On July 28, 2005, iPCS, Inc. and certain of its wholly ownedsubsidiaries entered into a Forbearance Agreement (the “Agreement”) with Sprintrelating to the complaints filed against Sprint.  The Agreement sets forth the Company’s agreementthat neither it nor its subsidiaries will seek certain injunctive relief in theongoing litigation under certain circumstances and contemplates proceedingdirectly to trial relating to the Company’s subsidiaries’ request for permanentinjunction and other equitable relief. The Agreement also sets forth Sprint’s agreement relating to certainparameters for the operation of its wireless business in the Company’sterritories following the merger involving Sprint and Nextel Communications, Inc.,in each case, during the period of time the Agreement remains in effect.

 

A trial date of December 5, 2005 has been set for the complaintfiled by iPCS Wireless, Inc. in the Circuit Court of Cook County,Illinois.   A trial date has not yet beenset for the complaint filed by Horizon Personal Communications, Inc. andBright Personal Communications Services, LLC.

 

**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

** **

# **Forward-Looking Statements**

# ** **

This quarterly report on Form 10-Q contains statements aboutfuture events and expectations that are “forward-looking statements.” Thesestatements relate to future events or our future financial performance, andinvolve known and unknown risks, uncertainties and other factors that may causeour actual results, levels of activity, performance or achievements to bematerially different from any future results, levels of activity, performanceor achievements expressed or implied by these forward-looking statements. Insome cases, 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:

 

•                  statements about the benefits of the merger betweenus and Horizon PCS, including future financial and operating results.

 

18

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•                  statements regarding our anticipated revenues,expense levels, liquidity and capital resources and operating losses; and

 

•                  statements regarding expectations or projections aboutmarkets in our territory.

 

Although we believe that theexpectations reflected in such forward-looking statements are reasonable, wecan give no assurance that such expectations will prove to be correct.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, are further discussed in our annualreport on Form 10-K for the period ended September 30, 2004.  Important factors that could cause actualresults to differ materially from those in the forward-looking statementsinclude, but are not limited to:

 

•                  the businesses of iPCS and Horizon PCS may not beintegrated successfully or such integration may be more difficult, time-consumingor costly than expected;

 

•                  disruption from the merger impacting the ability ofthe combined entity to maintain relationships with subscribers, employees orsuppliers;

 

•                  iPCS’ and Horizon PCS’ dependence on theiraffiliation with Sprint, including the competitiveness of Sprint PCS pricingplans and PCS services in the markets in which they operate;

 

•                  the ability of Sprint PCS to alter the terms of itsaffiliation agreements with iPCS and Horizon PCS, including fees paid orcharged and other program requirements;

 

•                  the dependence of iPCS and Horizon PCS on backoffice services provided by Sprint PCS, such as billing and customer care;

 

•                  changes or advances in technology, in general and asspecifically related to Sprint and its affiliates;

 

•                    competitionin the industry and in the markets in which iPCS and Horizon PCS operate;

 

•                  changes in government regulation;

 

•                  the credit quality and turnover rate of iPCS’ andHorizon PCS’ subscribers;

 

•                  the significant level of indebtedness of thecombined entity;

 

•                  the effect of mergers and consolidations within thewireless telecommunications industry, particularly business combinationsinvolving Sprint or affiliates of Sprint, and unexpected announcements ordevelopments from others in the wireless telecommunications industry;

 

•                    theability of Sprint PCS to meet increased demand for product and services and toprovide equipment to affiliates on a timely basis;

 

•                  the impact of general economic conditions on thefinancial position, condition and results of operations of the combined entity;

 

•                  the impact of the merger of Sprint and Nextel andthe litigation related thereto filed by the Company’s subsidiaries; and

 

•                  possible risks associated with compliance with Section 404of the Sarbanes-Oxley Act.

 

**Business**

 

*Overview*

 

Weare a PCS affiliate of Sprint, the operator of a 100% digital personalcommunications service, or PCS, wireless network with licenses to provide voiceand data service to the entire United States population using a singlefrequency band and a single technology. As a PCS Affiliate of Sprint, we havethe exclusive right to provide wireless mobility communications services and

 

19

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products under the Sprint brand name in theterritory licensed to us by Sprint PCS. We own and are responsible forbuilding, operating and managing the portion of the PCS wireless network ofSprint PCS located in our territory. Our network is designed to offer aseamless connection with the wireless network of Sprint PCS and uses the sametechnology as Sprint PCS to transmit wireless calls. We have completed therequired build-out of our portion of the PCS wireless network of Sprint PCS,although we may elect to build-out additional markets in our territory. Weoffer national calling plans designed by Sprint PCS, as well as local planstailored to the markets within our territory. We market Sprint PCS products andservices through a number of distribution outlets located in our territory,including our own retail stores, major national retailers (including RadioShackand Best Buy stores) and local third-party distributors.  Our territory consists of 40 markets – knownas “basic trading areas” or BTAs – located in Illinois, Michigan, Iowa andeastern Nebraska. Based on the 2000 population counts compiled by the U.S.Census Bureau and adjusted by estimated growth rates from third partyproprietary demographic databases, at June 30, 2005, our licensedterritory had a total population of approximately 7.8 million residents, ofwhich our wireless network covered approximately 5.9 million residents. AtJune 30, 2005, we had approximately 271,000 subscribers in all ourmarkets.

 

We recognize revenues from oursubscribers for the provision of wireless telecommunications services, proceedsfrom the sale of handsets and accessories through distribution channelscontrolled by us and fees from Sprint PCS and other wireless service

 

providers and resellers when theirsubscribers roam onto our network. Sprint PCS retains 8% of all service revenuecollected from our subscribers (not including product sales or roaming chargesbilled to our subscribers) and 8% of all fees collected from non-Sprintwireless service providers and resellers when their subscribers roam onto ournetwork. We report the amount retained by Sprint PCS as an operating expense.In addition, Sprint PCS bills our subscribers for taxes, handset insurance andUniversal Service Fund charges which we do not record. Sprint collects theseamounts from the subscribers and remits them to the appropriate entity.

 

As part of our affiliationagreements with Sprint PCS, we have contracted with Sprint PCS to receiveback-office services such as subscriber activation, handset logistics, billing,customer care and network monitoring services. We initially elected to delegatethe performance of these services to Sprint PCS to take advantage of itseconomies of scale, to accelerate our build-out and market launches and tolower our initial capital requirements. Under the terms of the amendment to ouraffiliation agreements we have contracted with Sprint PCS for these servicesthrough December 31, 2006. The cost for these services is primarily on aper subscriber or per transaction basis and is recorded as an operatingexpense.

 

As we do not own any PCSlicenses to operate a wireless network, our operations and revenues aresubstantially dependent on the continuation of our affiliation with Sprint PCS.Additionally, our affiliation agreements with Sprint PCS give Sprint PCS a substantialamount of control over factors that significantly affect the conduct of ourbusiness.

 

*Reorganization*

 

We filed a voluntary petitionin bankruptcy court pursuant to Chapter 11 of the Bankruptcy Code on February 23,2003.  From the date of our bankruptcyfiling through the effective date of our plan of reorganization, we operatedour business and managed our assets as debtors-in-possession, subject to thesupervision of the bankruptcy court, without obtaining debtor-in-possessionfinancing. On April 30, 2004, we, through a newly formed special purposeentity, issued $165.0 million in aggregate principal amount of 11.5%senior notes, the net proceeds of which offering were deposited into an escrowaccount to be used in accordance with our plan of reorganization uponconfirmation by the bankruptcy court and effectiveness.

 

On July 9, 2004, thebankruptcy court confirmed our plan of reorganization and declared it effectiveas of July 20, 2004. Pursuant to the terms of our plan of reorganization,on the effective date we paid a portion of the net proceeds from the seniornotes offering to satisfy in full the balance outstanding under ourthen-existing senior secured credit facility and to permanently retire theloans thereunder.  The remaining netproceeds from the senior notes were used to satisfy all other secured claims,administrative and other priority claims and unsecured convenience claims andto pay fees and expenses related to the reorganization, as well as for generalcorporate purposes. Additionally, all of our subordinated claims weredischarged and all of our then existing capital stock was cancelled.

 

Our plan of reorganizationauthorized us to issue ten million shares of our common stock upon ouremergence from bankruptcy. On the effective date of our plan of reorganization,we issued 8.6 million shares of common stock to our general unsecuredcreditors who held undisputed claims, including holders of our then-existingsenior discount notes, in satisfaction and retirement of their claims.Accordingly, our former general unsecured creditors are now our principalequity holders.  We also reserved 400,002shares of our common stock for future issuances to our general unsecuredcreditors upon resolution of their disputed claims. As of June 30, 2005all disputed claims were resolved and as of July 29, 2005, the full 9.0million shares have been distributed. The remaining one million shares were reserved for issuance to certainmembers of our management, directors and other employees through our amendedand restated 2004 long-term incentive plan.

 

With respect to Sprint, ourplan of reorganization provided for the following:

 

20

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•                  theassumption of our affiliation agreements with Sprint PCS, as amended to provideus a number of benefits;

 

•                  thesettlement of all claims by and between us and Sprint which resulted in ourwrite-off of all pre-petition claims, as set forth in the settlement agreementand mutual release; and

 

•                  thepayment to Sprint, in cash, of approximately $5.1 million in full andcomplete satisfaction of our obligation to cure defaults under our affiliationagreements with Sprint PCS.

 

Our plan of reorganization also provided forvarious other matters relating to our operations post-reorganization, includingthe following:

 

•                  ourassumption of all contracts and leases that have not been previously rejected;

 

•                  theappointment of Timothy M. Yager as president and chief executive officer anddirector;

 

•                  theappointment of four new directors to the iPCS board of directors as selected bythe committee of unsecured creditors; and

 

•                  ourrelease of any and all claims against: (i) all of our officers, directorsand employees, in each case, as of the date of the commencement of the hearingon the disclosure statement; (ii) our creditors’ committee and all of itsmembers, in their respective capacities as such; (iii) trustee under theindenture for our existing senior discount notes, in its capacity as such; (iv) thelenders under our senior secured credit facility, in their capacities as such; (v) theagent for the lenders under our senior secured credit facility, in its capacityas such; (vi) the holders of the new notes offered hereby, in theircapacity as such; and (vii) with respect to each of the above-named persons,such person’s present affiliates, principals, employees, agents, officers,directors, financial advisors, attorneys and other professionals, in theircapacities as such.

 

*Merger with Horizon PCS, Inc.*

* *

On July 1, 2005, we completed our merger with Horizon PCS, anotherSprint PCS Affiliate pursuant to the terms of an Agreement and Plan of Merger(the “Merger Agreement”), dated as of March 17, 2005, by and betweenHorizon PCS, Inc. (“Horizon

 

PCS”). Under the terms of the Merger Agreement, Horizon PCS merged withand into iPCS, Inc. with iPCS, Inc. as the survivingcorporation.  Horizon PCS stockholdersreceived 0.7725 shares of our common stock for each share of Horizon PCS commonstock they held as of the effective time of the merger. Each outstanding optionto purchase shares of Horizon PCS   commonstock was converted into an option to purchase a number of shares of our commonstock equal to the number of options to purchase shares of Horizon PCS commonstock multiplied by 0.7725, at an exercise price equal to the option exerciseprice divided by 0.7725.

 

Following the merger, our board of directors consists of sevendirectors, three designated by us, three designated by Horizon PCS, and TimothyM. Yager, our president and chief executive officer.

 

*Sprint/Nextel Merger*

* *

On December 15, 2004, Sprint Corporation and Nextel Communications, Inc.announced that they had signed a merger agreement, pursuant to which they wouldmerge and combine their operations. Nextel Communications, Inc. and anaffiliated company, Nextel Partners, Inc., operate wirelesstelecommunications networks in portions of our service areas.  The merger closed on August 12, 2005.

 

Pursuant to our affiliation agreements with Sprint PCS, Sprint PCS hasgranted us certain exclusivity rights within our service areas.  We believe that the operation of the combinedcompany after the merger results in a breach of the exclusivity and confidentialityprovisions, among others, of our affiliation agreements with Sprint PCS.  From time to time we have engaged in discussionswith Sprint directed toward a modification of our affiliation agreements as aresult of the Sprint/Nextel merger.  Wedo not know whether we will ultimately reach agreement with Sprint on mutuallysatisfactory terms for a revised affiliation agreement.  It is likely that any such revisedaffiliation agreement would materially change our business and operations andmay result in us making significant payments to lease or acquire network assetsand subscribers or to otherwise modify our network and marketing plans.  There is no assurance that we will haveadequate funds on hand or the ability to borrow such funds in order to acquirethe network assets and subscribers or to otherwise modify our network.  In addition, any borrowing would increase ourexisting substantial leverage.  Theannouncement and closing of the Sprint/Nextel merger may give rise to anegative reaction by our existing and potential customers and a diminution inbrand recognition or loyalty, which

 

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may have an adverse effect on our revenues.  The Sprint/Nextel merger, or any other suchbusiness combination involving Sprint, imposes a degree of uncertainty on thefuture of our business and operations insofar as it may lead to a change inSprint PCS’ affiliate strategy, which may have an adverse effect on our shareprice.

 

On July 15,2005, iPCS Wireless, Inc., a wholly owned subsidiary of iPCS, Inc.,filed a complaint against Sprint Corporation, WirelessCo L.P., Sprint Spectrum,L. P., SprintCom, Inc. and Sprint Communications Company L.P. in theCircuit Court of Cook County, Illinois. Our complaint alleges, among other things, that following theconsummation of the anticipated merger between Sprint and Nextel, Sprint willbreach its exclusivity and confidentiality obligations under its managementagreement, as amended with us.  Ourcomplaint seeks, among other things, a temporary restraining order, apreliminary injunction and a permanent injunction enjoining Sprint and thoseacting in concert with it from engaging in certain conduct post-closing inviolation of its management agreement. On July 22, 2005, Horizon Personal Communications, Inc. andBright Personal Communications Services, LLC, wholly owned subsidiaries of iPCS, Inc.,filed a substantially similar complaint against Sprint Corporation, WirelessCoL.P., Sprint Spectrum L.P., SprintCom, Inc., Sprint Communications CompanyL.P. and Nextel Communications, Inc. in the Court of Chancery of the Stateof Delaware, New Castle County.

 

On July 28, 2005, iPCS, Inc. and certain of our wholly ownedsubsidiaries entered into a Forbearance Agreement (the “Agreement”) with Sprintrelating to the complaints filed against Sprint.  The Agreement sets forth our agreement that oursubsidiaries will not seek certain injunctive relief in the ongoing litigationunder certain circumstances and contemplates the parties proceeding directly totrial relating to the subsidiaries’ request for permanent injunction and otherequitable relief.  The Agreement alsosets forth Sprint’s agreement relating to certain parameters for the operationof its wireless business in our territories following the merger involvingSprint and Nextel Communications, Inc., in each case, during the period oftime the Agreement remains in effect.

 

A trial date of December 5, 2005 has been set for the complaintfiled by iPCS Wireless, Inc. in the Circuit Court of Cook County,Illinois.  A trial date has not yet beenset for the complaint filed by Horizon Personal Communications, Inc. andBright Personal Communications Services, LLC.

 

**Definitions of 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 other measures which are derived from GAAP (“Non-GAAP Financial Measures”)to assess our financial performance. In addition, we use certain non-financialterms that are not measures of financial performance under GAAP. Terms such assubscriber additions and churn are terms used in the wirelesstelecommunications industry. The Non-GAAP Financial Measures of average revenueper user (“ARPU”) and cost per gross addition (“CPGA”) reflect standardmeasures of liquidity, profitability or performance commonly used in thewireless telecommunications industry. The non-financial terms and the Non-GAAP FinancialMeasures reflect wireless telecommunications industry conventions and arecommonly used by the investment community for comparability purposes. The Non-GAAPFinancial Measures included in this “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” are reconciled below in “—ConsolidatedResults of Operations—Reconciliation of Non-GAAP Financial Measures” and aresummarized as follows:

 

•                  Churn is a measure of the rate at which subscribersbased in our territory deactivate service on a voluntary or involuntary basis.We calculate average monthly churn based on the number of subscribersdeactivated during the period (net of transfers out of our territory and thosewho deactivated within 30 days of activation) as a percentage of ouraverage monthly subscriber base during the period divided by the number ofmonths during the period.

 

•                  ARPU, or average revenue per user, is a measure ofthe average monthly service revenue earned from subscribers based in ourterritory, excluding roaming revenue. This measure is calculated by dividing subscriberrevenues in our consolidated statement of operations by the number of ouraverage monthly subscribers during the period divided by the number of monthsin the period.

 

•                  CPGA, or cost per gross addition, is a measure ofthe average cost we incur to add a new subscriber in our territory. These costsinclude handset subsidies on new subscriber activations, commissions, rebatesand other selling and marketing costs. We calculate CPGA by dividing (a) thesum of cost of products sold and selling and marketing expenses associated withtransactions with new subscribers during the measurement period, less productsales revenues associated with transactions with new subscribers during themeasurement period, by (b) the total number of subscribers activated inour territory during the period.

 

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•                  Licensed population represents the number ofresidents in the markets in our territory for which we have an exclusive rightto provide wireless mobility communications services under the Sprint brandname. The number of residents located in our territory does not represent thenumber of wireless subscribers that we serve or expect to serve in ourterritory.

 

•                  Covered population represents the number ofresidents covered by our network in our territory. The number of residentscovered by our network does not represent the number of wireless subscribersthat we serve or expect to serve in our territory.

 

**Critical Accounting Policies**

 

The fundamental objective offinancial reporting is to provide useful information that allows a reader tocomprehend the business activities of an entity. To aid in that understanding,we have identified our “critical accounting policies.” These policies have thepotential to have a significant impact on our consolidated financialstatements, either because of the significance of the financial statement itemto which they relate or because they require judgment and estimation due to theuncertainty involved in measuring, at a specific point in time, events whichare continuous in nature.

 

***Revenue recognition.***  We recognize revenues when persuasiveevidence of an arrangement exists, services have been rendered, the price tothe buyer is fixed or determinable, and collectibility is reasonably assured.We recognize service revenue from our subscribers as they use the service. We pro-ratemonthly subscriber revenue over the billing period and record airtime usage inexcess of the pre-subscribed usage plan. Our subscribers pay an activation feewhen they initiate service. We reduce recorded service revenue for billingadjustments, and estimated uncollectible fees for late payments and earlycancellation. We also reduce service revenue for rebates and discounts given tosubscribers on wireless handset sales in accordance with the Emerging IssuesTask Force (“EITF”), EITF 01-09 “Accounting for Consideration Given by a Vendorto a Customer (Including a Reseller of the Vendor’s Products).” Effective July 1,2003, we adopted EITF No. 00-21, “Accounting for Revenue Arrangements withMultiple Deliverables.” This EITF guidance addresses accounting forarrangements that involve multiple revenue-generating activities. In applyingthis

 

guidance, separate contracts with the sameparty, entered into at or near the same time, will be presumed to be a bundledtransaction, and the consideration will be measured and allocated to theseparate units of the arrangement based on their relative fair values. Theguidance in EITF 00-21 became effective for revenue arrangements entered intofor quarters beginning after June 15, 2003. We have elected to apply thisguidance prospectively from July 1, 2003. Prior to the adoption of EITF 00-21,under the provisions of SAB No. 101, we accounted for the sale of ourhandsets and our subsequent service to the customer as a single unit ofaccounting because our wireless service is essential to the functionality ofour handsets. Accordingly, we deferred all activation fee revenue and itsassociated direct costs and amortized these revenues and costs over the averagelife of our subscribers which we estimate to be 30 months. Under EITF 00-21we no longer need to consider whether customers can use their handsets withoutour wireless service provided to them. Because we meet the criteria stipulatedin EITF 00-21, the adoption of EITF 00-21 requires us to account for the saleof the handset as a separate unit of accounting from the subsequent service tothe customer. With the adoption of EITF 00-21, we now recognize activation feerevenue generated from our retail stores as equipment revenue. In addition, werecognize the portion of the direct activation fee costs related to thehandsets sold in our retail stores. Subsequent to July 1, 2003, we havecontinued to apply the provisions of SAB No. 101 and have deferred andamortized activation fee revenue and costs generated by subscribers activatedthrough channels other than through our retail stores.

 

We participate in the SprintPCS national and regional distribution program in which national retailers suchas RadioShack and Best Buy sell Sprint PCS products and services. In order tofacilitate the sale of Sprint PCS products and services, national retailerspurchase wireless handsets from Sprint for resale and receive compensation fromSprint PCS for products and services sold. For industry competitive reasons,Sprint PCS subsidizes the price of these handsets by selling the handsets at aprice below cost. Under our affiliation agreements with Sprint PCS, when anational retailer sells a handset purchased from Sprint PCS to a subscriber inour territory, we are obligated to reimburse Sprint PCS for the handset subsidythat Sprint originally incurred. The national retailers sell Sprint wirelessservices under the Sprint and Sprint PCS brands and marks. We do not receiveany revenues from the sale of wireless handsets by national retailers. Weclassify these Sprint PCS wireless handset subsidy charges as a sales andmarketing expense for a wireless handset sale to a new subscriber and classifythese subsidies as a cost of service for a wireless handset upgrade to anexisting subscriber.

 

Sprint PCS retains 8% ofservice revenues collected from our subscribers and from non-Sprint subscriberswho roam onto our network. The amount retained by Sprint PCS is recorded ascost of service and roaming. Revenues generated from the sale of handsets andaccessories and from roaming services provided to Sprint PCS and other SprintPCS affiliate subscribers who are not based in our markets are not subject tothe 8% affiliation fee for Sprint PCS.

 

***Allowance for doubtfulaccounts.*** Estimates are used in determining our allowance for doubtful accountsand are based on our historical write-off experience, and the uncollectibilityof accounts receivable by aging category, as well as current informationregarding the credit quality of our subscribers. Using this historicalinformation, we estimate allowances for uncollectibility relative to

 

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the aging categories. If our estimates areinsufficient for any reason, our operating losses and available cash would benegatively impacted.

 

***Long-lived asset recovery.***  Long-lived assets, consisting primarily ofproperty and equipment and intangibles, comprise approximately 60% of our totalassets, at June 30, 2005. Changes in technology or in our intended use ofthese assets may cause the estimated period of use or the value of these assetsto be reduced. In addition, changes in general industry conditions could causethe value of certain of these assets to be reduced. We monitor theappropriateness of the estimated useful lives of these assets on a quarterlybasis. Whenever events or changes in circumstances indicate that the carryingamounts of these assets may not be recoverable, we review the respective assetsfor impairment. As part of our reorganization, our assets and liabilities wererevalued to their fair value. Estimates and assumptions used in both theestimated useful life and evaluating potential impairment issues require asignificant amount of judgment.

 

***Income taxes.***  As part of the process of preparing ourconsolidated financial statements we are required to estimate our taxes in eachof the jurisdictions of our operations. This process involves managementestimating the actual current tax expense together with assessing temporarydifferences resulting from differing treatment of items for tax and accountingpurposes. These differences result in deferred tax assets and liabilities,which are included within the consolidated balance sheets. We must then assessthe likelihood that the deferred tax assets will be recovered from futuretaxable income and to the extent recovery is not likely, we must establish avaluation allowance. Future taxable income depends on the ability to generateincome in excess of allowable deductions. To the extent we establish a valuationallowance or increase this allowance in a period, an expense is recorded withinthe tax provision in the consolidated statement of operations. Significantmanagement judgment is required in determining our provision for income taxes,our deferred tax assets and liabilities and any valuation allowance recordedagainst net deferred tax assets. In the event that actual results differ fromthese estimates or we adjust these estimates in future periods, we may need toestablish an additional valuation allowance that could materially impact ourfinancial condition and results of operations.

 

**Recent Accounting Pronouncements**

 

*In May 2005, the FASB issued SFAS No. 154,“Accounting Changes and Error Corrections” which changes the requirements forthe accounting and reporting of a change in accounting principle.  SFAS No. 154 replaces APB Opinion No. 20and SFAS No. 3 and eliminates the requirement to include the cumulativeeffect of changes in accounting principle in the current period of change andinstead, requires that changes in accounting principle be retrospectivelyapplied.  SFAS No. 154 is effectivefor accounting changes made in fiscal years beginning after December 15,2005.  The Company does not anticipatethat the implementation of SFAS No. 154 will have a material impact on itsfinancial position, results of operations, or cash flows.*

* *

In March 2005, the FASB issuedInterpretation No. 47 “Accounting for Conditional Asset RetirementObligations, an interpretation of FASB Statement No. 143” (“FIN 47”).  FIN 47 clarifies the recognition andmeasurement provisions of SFAS No. 143 “Accounting for Asset RetirementObligations” that apply to asset retirement obligations in which the timingand/or method of settlement may be conditional on a future event.  FIN 47 is effective for fiscal years endingafter December 15, 2005.  We do notanticipate that the implementation of FIN 47 will have a material impact on ourfinancial position, results of operations or cash flows.

 

In December 2004, the FASB issued SFAS No. 123(Revised 2004) “Share-Based Payment” (“SFAS No. 123R”) that addresses theaccounting for share-based payment transactions in which a Company receivesemployee services in exchange for (a) equity instruments of the Company or(b) liabilities that are based on the fair value of the Company’s equityinstruments or that may be settled by the issuance of such equity instruments.SFAS No. 123R addresses all forms of share-based payment awards, includingshares issued under employee stock purchase plans, stock options, restrictedstock and stock appreciation rights. SFAS No. 123R eliminates the abilityto account for share-based compensation transactions using APB Opinion No. 25,“Accounting for Stock Issued to Employees”, that was provided in Statement 123as originally issued. Under SFAS No. 123R companies are required to recordcompensation expense for all share based payment award transactions measured atfair value. This statement is effective for fiscal years starting after June 15,2005. The Company has not yet determined the impact of applying the variousprovisions of SFAS No. 123R.

 

**Consolidated Results of Operations**

 

***For the three months ended June 30, 2005compared to the three months ended June 30, 2004***

 

In accordance with the AmericanInstitute of Certified Public Accountants Statement of Position 90-7, “FinancialReporting by Entities in Reorganization under the Bankruptcy Code”, we adoptedfresh-start accounting as of July 1, 2004, and our emergence from Chapter11 resulted in a new reporting entity. The periods as of and prior to July 1,2004 have been designated “Predecessor Company” and the periods subsequent to July 1,2004 have been designated as “Successor Company”. Under fresh-start accounting,our reorganization equity value was allocated to the assets and liabilitiesbased on their respective fair values and was in conformity

 

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with SFAS No. 141 “Business Combinations”.As a result of the implementation of fresh-start accounting, our financialstatements after July 1, 2004 are not comparable to our financialstatements for prior periods.

 

***Subscriber Additions.***  As of June 30, 2005, we hadapproximately 271,000 subscribers in all our markets compared toapproximately 233,000 as of June 30, 2004. For the three months ended June 30, 2005, we added approximately11,800 net subscribers in all our markets compared to approximately 5,600 forthe three months ended June 30, 2004. The increase in subscriber growth can be attributed to the increase inour distribution outlets, primarily from our retail and branded dealers in ourterritory, and to our increased sales and promotional efforts to attract newsubscribers.

 

***Churn.***  Churn for the three months ended June 30,2005, was 2.2% versus 2.4% for the three months ended June 30, 2004.  The lower churn in 2005 was the result oflower voluntary churn in the three months ended June 30, 2005 compared tothe prior year.

 

***AverageRevenue Per User.*** ARPU was $51.91 for the three months ended June 30, 2005 comparedto $53.57 for the three months ended June 30, 2004.  The decrease in ARPU is attributable to lowerminutes over plan revenue and lower activation fee revenue due to the effectsof fresh-start accounting.  Thesedecreases are being partially offset with increased data revenue.  This is discussed in more detail under “ServiceRevenue” below.

 

***CostPer Gross Addition.***  CPGA was $384 for the three months ended June 30,2005 compared to $404 for the three months ended June 30, 2004.  The lower CPGA was due to lower nationalthird party handset subsidy and rebate costs offset with higher advertising andpromotion costs in the three months ended June 30, 2005 compared to thesame three month period in 2004.  Theincreased advertising and promotion costs related to the opening of two newretail stores and ten exclusive branded dealers in the three months ended June 30,2005 compared to opening only one retail store and no exclusive branded dealersin the three months ended June 30, 2004.

 

***Revenues.***

 

•      ***ServiceRevenue.***  Service revenueis comprised of the monthly recurring charges for voice and data usage and themonthly non-recurring charges for voice and data minutes over plan, longdistance, travel and roaming usage charges, other feature revenues and latepayment fee and early cancellation fee revenues. Deductions for billingadjustments and promotional credits are recorded as a reduction to servicerevenue. For the three months ended June 30, 2005, service revenuestotaled $41.3 million compared to $37.2 million for the three months endedJune 30, 2004. As a result of a higher number of subscribers, monthlyrecurring charges increased by $3.9 million from $29.4 in the three monthsended June 30, 2004 to $33.3 million in the three months ended June 30,2005. Our data products continue to gain popularity with our customers andcontributed higher revenues of $2.2 million increasing from $2.5 million forthe three months ended June 30, 2004 to $4.7 million for the three monthsended June 30, 2005.  Offsetting theseincreases was a decrease in minutes over plan revenue of $0.9 million, which ispartially attributable to the increasing popularity of Sprint’s Fair andFlexible plans which eliminate minute overage charges.  In addition, activation fee revenue decreasedby  $0.7 million due to the effects offresh-start accounting where our deferred activation fee revenue was writtenoff in the revaluation of our assets and liabilities.

 

•      ***RoamingRevenue.***  Roaming revenueis comprised of revenue we receive from Sprint and other wireless subscribersthat roam onto our network. We receive revenue on a per minute basis for voicetraffic and per kilobyte basis for data traffic when subscribers other thanours use our network. We also receive toll revenue for any roaming longdistance calls made on our network. The reciprocal roaming rate arrangement wehave with Sprint for inbound and outbound roaming relative to Sprintsubscribers was $0.058 per minute for voice charges effective January 1,2003, and dropped to $0.041 per minute effective January 1, 2004.Effective April 1, 2004, this rate returned to $0.058 per minute.  This rate is effective through December 31,2006.  For data traffic, this rate was$0.0013 per kilobyte in 2003 and $0.0020 in 2004.  The 2004 rate is also effective through December 31,2006.  For the three months ended June 30,2005, roaming revenue from Sprint and the other PCS Affiliates of Sprinttotaled $14.9 millioncompared to $11.8 million for the three months ended June 30, 2004.  The increase in roaming revenue is dueprimarily to an increase in roaming minutes and increased kilobytetraffic.  As we have seen in our owncustomer usage, we are also experiencing increased growth in kilobyte datausage from other customers of Sprint and the other PCS affiliates ofSprint.  Roaming minutes and kilobytesfrom Sprint and the other PCS Affiliates of Sprint for the three months ended June 30,2005 were 206.6 million and 743.0 million, respectively, compared to 171.1million and 401.1 million for the three months ended June 30, 2004,respectively.  Roaming revenue from otherwireless subscribers including reseller revenue was $1.6 million for both the three months ended June 30,2005 and June 30, 2004.  We signedour first reseller agreement in April 2004.  Reseller revenues for the three months ended June 30,2005 was $0.8 million compared to $0.1 million for the three months ended June 30,2004.  Excluding reseller revenue, thenet decrease of $0.6 million of roaming revenue from other wireless subscriberswas due to both lower minutes and a lower average per minute rate.  Roaming minutes and the per minute rate forthe three months ended June 30, 2005 were 7.6 million and $0.11,respectively.   For the three monthsended June 30, 2004, the roaming minutes and per minute rate were 9.8million and $0.14, respectively.

 

•      ***Equipment and Other Revenue.*** Equipment revenue is derived fromthe sale of handsets and accessories to our subscribers from our retail andlocal distribution channels, net of sales incentives, rebates and an allowancefor returns. Our handset return policy allows customers to return theirhandsets for a full refund within 14 days after the date of purchase. Whenhandsets are returned to us,

 

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we may be able to reissue thehandsets to customers at little additional cost to us; however, when usedhandsets are returned to Sprint PCS for refurbishing, we receive a creditfrom Sprint PCS which is less than what we originally paid for the handset.This return policy changed effective February 1, 2005.  We no longer receive a credit for thereturned handset.  Instead, we receive arefurbished handset at a reduced cost. For the three months ended June 30,2005 and 2004, handset revenues were $1.6 millionand $1.3****million,respectively.  The increase in handsetrevenues for the three months ended June 30, 2005 was due to increasedsales for new activations and upgrades for current subscribers.  Other revenues, which consists principally oftower leasing revenue, decreased from $0.2 million for the three months ended June 30,2004 to $0.1 million for the three months ended June 30, 2005.  The decrease was due to the 86 towers soldsince June 30, 2004. After a tower is sold, we no longer receivetower-leasing revenue from it.

 

***Costof Service and Roaming.***  Cost of service and roaming include networkoperations expense, roaming expense relating to when our subscribers roameither on other Sprint PCS networks or other wireless carriers’ networks,back-office customer services provided by Sprint PCS, the provision fordoubtful accounts, long distance expense and the 8% affiliation fee due toSprint PCS for collected revenues. Network operations expenses includesalaries and benefits for network personnel, cell site rent, utilities andmaintenance expenses, fees relating to the connection of our cell sites to ourswitches and other transport and facility expenses. Roaming expense is our costof our subscribers using Sprint and other wireless carriers’ networks. Roamingexpense on the Sprint PCS network is at the reciprocal rates as described aboveunder “Roaming Revenue”. Roaming expense when our subscribers use otherwireless carriers networks is at rates as determined by the roaming agreementssigned by Sprint PCS with these other wireless carriers. For the threemonths ended June 30, 2005 cost of service and roaming was$31.8 million compared to $29.5 million for the three months ended June 30,2004.  For the three months ended June 30,2005 compared to June 30, 2004, roaming expense increased $2.2 million astravel and roaming minutes per subscriber increased from 177 minutes for thethree months ended June 30, 2004 to 190 minutes for the three months endedJune 30, 2005.  Our fixed CCPUcharge to Sprint increased from $5.0 million in the three months ended June 30,2004 compared to $5.6 million in the three months ended June 30, 2005because of an increase subscriber base. For the three months ended June 30, 2005 compared to the threemonths ended June 30, 2004 equipment upgrade costs increased $0.5 millionbecause of higher costs associated with mail in rebates for upgrades handledthrough Sprint controlled channels such as Radio Shack and Best Buy. Offsettingthese increases were lower network operations expenses of $1.1 million infacilities, transport and toll expense. These lower costs were the result of savings from rejected agreementsand other initiatives we were able to take advantage of through the bankruptcyprocess.   At June 30, 2005 ournetwork consisted of 690 cell sites and two switches compared to 662 cellsites and two switches at June 30, 2004.

 

***Costof Equipment.*** Cost of equipment includes the cost of handsets and accessories sold orupgraded from our retail and local distribution channels. For the three monthsended June 30, 2005, cost of equipment totaled $6.1 million compared to$4.0 million for the three months ended June 30, 2004.  The increase is due primarily to higher grossadds and increased costs for customer upgrades. The cost of equipment for upgrades totaled $1.4 million in the threemonths ended June 30, 2005 compared to $0.6 million in the same period in2004 due mainly to a change in policy for rebates on upgrades.  Prior to the three months ended June 30,2004,  we switched to mail-in rebatesfrom instant rebates for upgrades. Mail-in rebates reduce the number of customers that upgrade theirphones.  For competitive reasons, weconverted back to instant rebates in late 2004 so that during the three monthsended June 30, 2005, the number of customers upgrading their phoneincreased over the same three-month period in 2004.

 

***Sellingand Marketing.*** Selling and marketing costs include the costs to operate our retailstores, advertising and promotional expenses, commissions and equipmentsubsidies and rebate expenses relating to new subscriber additions fromnational third parties and other Sprint controlled channels. Selling andmarketing expense for the three months ended June 30, 2005 was $9.1million compared to $8.1 million for the three months ended June 30,2004.    Despite a 22% increase in grossadds in the three months ended June 30, 2005 compared to the three monthsended June 30, 2004, costs did not increase proportionately. Nationalthird party handset subsidy and rebate costs decreased from $1.3 million in thethree months ended June 30, 2004 to $0.2 million in three months ended June 30,2005 due partially to $0.5 million of credits received from Sprint forincorrectly charged handset return costs and Radio Shack rebate costs.  In addition, in the three months ended June 30,2005 compared to the same three-month period in 2004 lower average subsidy andreturn costs for Sprint-controlled channels contributed to this decrease.  Advertising expense increased by $1.1 millionfor the three months ended June 30, 2005 compared to the three monthsended June 30, 2004 as we expanded our distribution channels in 2005.

 

***Generaland Administrative.***  General and administrative expenses includeadministrative salaries and benefits, legal fees, insurance expense and otherprofessional expenses.******Forthe three months ended June 30, 2005, general and administrative expenseswere $2.2 million compared to $1.6 million in the three months ended June 30,2004. The increase was due to higher legal, consulting, franchise tax, andother professional fees.  In addition, inthe three months ended June 30, 2005, we incurred $0.1 million of planningexpenses related to the integration after the Horizon merger.

 

***ReorganizationExpense.*** Reorganization expenses consist of expenses incurred or accrued as adirect result of our Chapter 11 filing. Reorganization expenses totaling $2.9 million for the three months endedJune 30, 2004 consisted of $1.8 million of professional fees and otherreorganization expenses and $1.1 million of costs related to rejected leasesand closing stores.  We emerged frombankruptcy in July 2004 and incurred no reorganization expenses in thethree months ended June 30, 2005.

 

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***Non-CashStock Compensation Expense***.  For the three months ended June 30,2005, we recorded $0.4 million of non-cash stock compensation expense.  In connection with the merger with HorizonPCS, Mr. Gaffney resigned from our board of directors on June 30,2005.  Effective as of this date, weamended Mr. Gaffney’s stock option award agreement to extend thetermination date of his options from 90 days to 210 days post-resignation.  As a result of this amendment, we recorded$355,000 of non-cash stock compensation expense related to this modification tohis award agreement.  The remainingnon-cash stock compensation expense in the three months ended June 30,2005 related to the restricted stock grants to employees under our long-termincentive plan. Non-cash stock compensation expense for the three months ended June 30,2004 was zero.

 

***Depreciationand Amortization.*** For the three months ended June 30, 2005,depreciation expensetotaled $15.4 million compared to $9.5 million for the three months ended June 30,2004.  The increase in depreciationexpense in the three months ended June 30, 2005 was the result ofaccelerating depreciation expense due to a reduction in the estimated economicuseful life of Lucent network equipment. We signed an agreement with Nortel Networks to replace the existingLucent network equipment in our Michigan markets in late 2004.  The effect of this change increaseddepreciation expense approximately $6.8 million for the three months ended June 30,2005.  Amortization of intangiblestotaled $2.6 million and $0 for the three months ended June 30, 2005 and2004, respectively.  As a result offresh-start accounting, all our assets were revalued and we recorded $78.9million of new intangibles that are being amortized over their remaining lives.  For the three months ended June 30,2004, the remaining value of our intangible assets at that time were fullyamortized.

 

***InterestIncome.* **Interestincome totaled $0.4 million for the three months ended June 30, 2005compared to $0.2 million for the three months ended June 30, 2004.  The increase was due to a higher cash balanceafter the receipt of the net proceeds from the senior notes offering completedin April 2004.

 

***InterestExpense.*** For the three months ended June 30, 2005 interest expense was $5.0 millioncompared to $5.5 million for the three months ended June 30, 2004.  Interest expense in the three months ended June 30,2005 related to the 11.5% interest on the $165.0 million in aggregate principalamount of senior notes issued in April 2004.  For the three months ended June 30,2004, we incurred interest expense on our then outstanding senior creditfacility at the prime interest rate under the Bankruptcy Court’s cashcollateral order.  In addition weincurred interest expense on the new senior notes issued in April 2004.

 

***NetLoss.***  Netloss for the three months ended June 30, 2005 was $12.5 million comparedto the net loss for the three months ended June 30, 2004 of $8.8 million.The increase of $3.7 million in our net loss was due to higher depreciation andamortization expense of $8.5 million and increased cost of service and cost ofequipment of $2.3 million and $2.1 million, respectively.  These increases in costs were offset withhigher revenue of $7.5 million.  Inaddition, in the three months ended June 30, 2005, there was no reorganizationexpense compared to $2.9 million recorded in the three months ended June 30,2004.

 

***For the nine months ended June 30, 2005compared to the nine months ended June 30, 2004***

 

***SubscriberAdditions.*** As of June 30, 2005, we had approximately 271,000 subscribersin all our markets compared to approximately 233,000 as of June 30,2004.  For the nine months ended June 30,2005, we added approximately 30,500 net subscribers in all our markets comparedto approximately 12,900 for the nine months ended June 30, 2004.  The increase in subscriber growth can beattributed to the increase in our distribution outlets, primarily from ourretail and branded dealers in our territory and to our increased sales andpromotional efforts to attract new subscribers.

 

***Churn.***  Churn for the nine months ended June 30,2005 and June 30, 2004 was 2.6% and 2.7%, respectively.

 

***AverageRevenue Per User.*** ARPU was $51.99 for the nine months ended June 30, 2005 compared to$53.04 for the nine months ended June 30, 2004.  The decrease in ARPU is due to lower minutesover plan revenue and activation fee revenue offset with increased monthlyrecurring revenue and data revenue.  Thisis discussed in more detail under “Service Revenue” below.

 

***CostPer Gross Addition.***  CPGA was $383 for the nine months ended June 30,2005 compared to $378 for the nine months ended June 30, 2004.  Advertising and promotion costs increased byapproximately $24 per gross add due to an increased sales and promotionaleffort.  This effort included the costsof opening eight new retail stores and forty-two branded dealers since June 30,2004.  Reduced commission costs ofapproximately $18 per gross add offset the increases in advertising andpromotion costs.

 

***Revenues.***

 

•      ***Service Revenue.***  For the nine months ended June 30, 2005,service revenues totaled $119.0 million compared to $107.1 million for thenine months ended June 30, 2004. As a result of both more subscribers andmore subscribers activating or converting to service plans with more minutes ata higher monthly recurring charge, our service revenue derived from minutesover plan decreased $2.0 million, but was offset with higher monthly recurringcharges of $11.8 million. Also offsetting the monthly recurring revenueincrease was a drop in activation fee revenue of $2.5 million due to theeffects of fresh-start accounting where our deferredactivation fee revenue was written off in the revaluation of our assets andliabilities.  In addition, because theusage of our

 

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dataproducts continues to gain popularity with our subscriber base, data revenue of$12.5 million for the nine months ended June 30, 2005 was $6.7 millionhigher than for the nine months ended June 30, 2004.

 

•      ***RoamingRevenue.***   For the ninemonths ended June 30, 2005, roaming revenue from Sprint and the other PCSAffiliates of Sprint totaled $42.2 millioncompared to $29.7 million for the nine months ended June 30, 2004. Theincrease in roaming revenue from Sprint and the other PCS Affiliates of Sprintis due primarily to an increase in roaming minutes at the favorable rate of$0.058 per minute for all of the nine months ended June 30, 2005 versus$0.041 for six of the nine months ended June 30, 2004, coupled withincreased kilobyte traffic.  As we haveseen in our own customer usage, we are also experiencing increased growth inkilobyte data usage from other customers of Sprint and the other PCS affiliatesof Sprint.  Roaming minutes and kilobytesfrom Sprint and the other PCS affiliates of Sprint for the nine months ended June 30,2005 were 592.9 million and 1.8 billion, respectively, compared to 466.4million and 940.0 million for the nine months ended June 30, 2004,respectively.  Roaming revenue from otherwireless subscribers including reseller revenue was $4.6 million and $4.7 millionfor the nine months ended June 30, 2005 and June 30, 2004,respectively.    Reseller revenue for thenine months ended June 30, 2005 was $1.7 million compared to $0.1 millionfor the nine months ended June 30, 2004. We signed our first reseller agreement in April 2004; therefore,there was very little reseller revenue in the nine months ended June 30,2004. Excluding reseller revenue, the net decrease of $1.7 million of roamingrevenue from other wireless subscribers was due to both lower minutes and alower average per minute rate.  Roamingminutes and the per minute rate for the nine months ended June 30, 2005were 24.0 million and $0.12, respectively. For the nine months ended June 30, 2004, the roaming minutes andper minute rate were 32.6 million and $0.14, respectively.

 

•      ***Equipment and Other Revenue.*** For the nine months ended June 30,2005 and 2004, handset revenues were $5.0 millionand $3.8****million,respectively.   Other revenues were $0.2 million and $0.4 million forthe nine months ended June 30, 2005 and 2004, respectively.  The increase in handset revenues for the ninemonths ended June 30, 2005 was due to increased sales for new activationsand upgrades for current subscribers. Other revenues, which consist principally of tower leasing revenue,decreased from $0.4 million for the nine months ended June 30, 2004 to$0.2 million for the nine months ended June 30, 2005.  The decrease was due to the 86 towers soldsince June 30, 2004. After a tower is sold, we no longer receivetower-leasing revenue from it.

 

***Costof Service and Roaming.***  For the nine months ended June 30, 2005cost of service and roaming was $91.8 million compared to $83.2 million for thenine months ended June 30, 2004. For the nine months ended June 30, 2005 compared to June 30,2004, roaming expense increased $8.2 million due to the change in the ratementioned above under “Roaming Revenue” coupled with a higher subscriber baseand higher usage.  Travel and roamingminutes per subscriber increased from 167 minutes for the nine months ended June 30,2004 to 186 minutes for the nine months ended June 30, 2005.  Sprint related back office charges increasedby $2.8 million due to a higher subscriber base.  Bad debt expense increased $0.9 million dueto lower recoveries and a slight increase in our sub-prime subscriber base fromJune 30, 2004 to June 30, 2005. Offsetting these increases were lower network operations expenses of$3.1 million in facilities, transport and toll expense.  These lower costs were the result of savingsfrom rejected agreements and other initiatives we were able to take advantageof through the bankruptcy process.

 

***Costof Equipment.*** For the nine months ended June 30, 2005, cost of equipment totaled$17.9 million compared to $12.8 million for the nine months ended June 30,2004.  The increase in 2005 is dueprimarily to higher gross adds.

 

***Sellingand Marketing*** Selling and marketing expense for the nine months ended June 30,2005 was $27.5 million compared to $21.0 million for the nine months ended June 30,2004. As part of our plan to grow our subscriber base once we emerged frombankruptcy in July 2004, we increased employee and store-related costs by$2.2 million to increase our distribution channels.  Since June 30, 2004, we opened eight newretail stores and forty-two branded dealers which contributed to 30% highergross adds in the nine months ended June 30, 2005 compared to the ninemonths ended June 30, 2004. To drive the increase in gross adds,advertising and promotional expenses increased by $3.8 million for the ninemonths ended June 30, 2005 compared to the nine months ended June 30,2004.

 

***Generaland Administrative.***  For the nine months ended June 30, 2005,general and administrative expenses were $6.1 million compared to $3.6 millionin the nine months ended June 30, 2004. Salary and benefit expensesincreased $0.8 million in the nine months ended June 30, 2005 compared tothe same period in 2004, as the company expanded its senior management teamafter emerging from bankruptcy in July 2004.  In the nine months ended June 30, 2005compared to the nine months ended June 30, 2004, we incurred higher legalexpenses of $0.6 million, higher audit, tax, and other professional fees of$0.6 million, and increased board member expenses of $0.2 million.  All of these expenses are related to ouremergence from bankruptcy in July 2004, and operating as   a public company. In addition, in the threemonths ended June 30, 2005, we incurred $0.1 million of planning expensesrelated to the integration after the Horizon merger.

 

***ReorganizationExpense.***  Inthe nine months ended June 30, 2004, we incurred $6.5 million inprofessional fees related to our reorganization and $1.4 million costs relatedto store closings and rejected leases. We emerged from bankruptcy in July 2004 and incurred noreorganization expenses in the nine months ended June 30, 2005.

 

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***Non-CashStock Compensation Expense***.  For the nine months ended June 30, 2005,we recorded $0.4 million of non-cash stock compensation expense. In connectionwith the merger with Horizon PCS, Mr. Gaffney resigned from our board ofdirectors on June 30, 2005. Effective as of this date, we amended Mr. Gaffney’s stock optionaward agreement to extend the termination date of his options from 90 days to210 days post-resignation.  As a resultof this amendment, we recorded $355,000 of non-cash stock compensation expenserelated to this modification to his award agreement.   The remaining non-cash stock compensation inthe nine months ended June 30, 2005 related to the restricted stock grantsto employees under our long-term incentive plan. Non-cash stock compensationexpense for the three months ended June 30, 2004 was zero.

 

***Depreciation andAmortization.*** For the nine months ended June 30, 2005, depreciation expensetotaled $39.2 million compared to $28.6 million for the nine months ended June 30,2004.  The increase in depreciationexpense in the nine months ended June 30, 2005 was the result ofaccelerating depreciation expense due to a reduction in the estimated economicuseful life of Lucent network equipment. We signed an agreement with Nortel Networks to replace the existingLucent network equipment in our Michigan markets in late 2004.  The effect of this change increaseddepreciation expense approximately $13.6 million for the nine months ended June 30,2005. Amortization of intangibles totaled $8.7 million and $0 for the ninemonths ended June 30, 2005 and 2004, respectively.  As a result of fresh-start accounting, allour assets were revalued and we recorded $78.9 million of new intangibles thatare being amortized over their remaining lives. For the nine months ended June 30, 2004, the remaining value of ourintangible assets at that time were fully amortized.

 

***InterestIncome.* **Interestincome totaled $0.9 million for the nine months ended June 30, 2005compared to $0.3 million for the nine months ended June 30, 2004.  The increase was due to a higher cash balancein 2004 after the receipt of the net proceeds from the senior notes offeringcompleted in April 2004.

 

***InterestExpense.*** For the nine months ended June 30, 2005 interest expense was$14.9 million compared to $10.1 million for the nine months ended June 30,2004.  Higher interest expense in thenine months ended June 30, 2005 related to the 11.5% interest on the$165.0 million in aggregate principal amount of senior notes issued in April 2004.  For the nine months ended June 30, 2004,we incurred interest expense on our then outstanding senior credit facility atthe prime interest rate under the Bankruptcy Court’s cash collateralorder.  In addition we incurred interestexpense on the new senior notes issued in April 2004.

 

***NetLoss.***  Netloss for the nine months ended June 30, 2005 was $34.7 million compared tothe net loss at June 30, 2004 of $21.1 million.  The increase of $13.6 million in our net losswas due to increased depreciation and amortization expense of $19.3 million,cost of service and roaming of $8.6 million and selling and marketing of $6.5million. These increased costs were offset with higher revenues of $25.1million.  In addition, in the nine monthsended June 30, 2005, there was no reorganization expense compared to $7.9million recorded in the nine months ended June 30, 2004.

 

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

 

We utilize certain financialmeasures that are not calculated in accordance with GAAP to assess ourfinancial performance. A Non-GAAP Financial Measure is defined as a numericalmeasure of financial performance that (a) excludes amounts, or is subjectto adjustments that have the effect of excluding amounts, that are included inthe comparable measure calculated and presented in accordance with GAAP in thestatement of income or statement of cash flows; or (b) includes amounts,or is subject to adjustments that have the effect of including amounts, thatare excluded from the comparable measure so calculated and presented. The Non-GAAPfinancial measures discussed in “—Consolidated Results of Operations” are ARPUand CPGA. A description of each of these Non-GAAP Financial Measures isprovided in “ —Definition of Operating Metrics.” The following tables reconcilethe Non-GAAP financial measures with our consolidated financial statementspresented in accordance with GAAP, excluding subscriber data.

 
| ** **          | ** ** | **Successor Company**                               | ** ** | **Predecessor Company**                             | ** ** | **Successor Company**                              | ** ** | **Predecessor Company**                            | ** ** |
|---------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **          | ** ** | **For the Three Months  Ended  June 30, 2005** | ** ** | **For the Three Months  Ended  June 30, 2004** | ** ** | **For the Nine Months  Ended  June 30, 2005** | ** ** | **For the Nine Months  Ended  June 30, 2004** | ** ** |
| **ARPU**            |       |                                                |       |                                                |       |                                               |       |                                               |       |
| Service revenue     |       | $                                                   | 41,307     |                                                | $          | 37,175                                             |       | $                                                  | 118,986    |   | $ | 107,097 |   |
| Average subscribers |       | 265,227                                             |       | 231,310                                             |       | 254,303                                            |       | 224,334                                            |       |
| ARPU                |       | $                                                   | 51.91      |                                                | $          | 53.57                                              |       | $                                                  | 51.99      |   | $ | 53.04 |   |

 

ARPU, which is utilized by mostwireless companies to determine recurring monthly revenue on a per subscriberbasis, is used by analysts and investors to compare relative subscriber revenueacross the wireless industry. We use ARPU to assist in evaluating past sellingperformance and the success of specific rate plan promotions. We also use ARPUas a basis to forecast future service revenues.

 

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| ** **                                                      | ** ** | **Successor Company**                               | ** ** | **Predecessor Company**                             | ** ** | **Successor Company**                              | ** ** | **Predecessor Company**                            | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                      | ** ** | **For the Three Months  Ended  June 30, 2005** | ** ** | **For the Three Months  Ended  June 30, 2004** | ** ** | **For the Nine Months  Ended  June 30, 2005** | ** ** | **For the Nine Months  Ended  June 30, 2004** | ** ** |
| **CPGA**                                                        |       |                                                |       |                                                |       |                                               |       |                                               |       |
| Selling and Marketing:                                          |       | $                                                   | 9,056      |                                                | $          | 8,092                                              |       | $                                                  | 27,517     |   | $ | 20,976 |   |
| Plus: Activation costs included in cost of  service and roaming |       | (70                                                 | )          | 199                                                 |       | (379                                               | )          | 1,070                                              |       |
| Plus: Equipment costs, net of cost of  upgrades                 |       | 4,642                                               |       | 3,351                                               |       | 13,972                                             |       | 9,669                                              |       |
| Less: Equipment revenue, net of upgrade  revenue                |       | (1,248                                              | )          | (1,118                                              | )          | (3,647                                             | )          | (3,179                                             | )          |
| CPGA costs                                                      |       | $                                                   | 12,380     |                                                | $          | 10,524                                             |       | $                                                  | 37,463     |   | $ | 28,536 |   |
| Gross adds                                                      |       | 32,272                                              |       | 26,045                                              |       | 97,884                                             |       | 75,395                                             |       |
| CPGA                                                            |       | $                                                   | 384        |                                                | $          | 404                                                |       | $                                                  | 383        |   | $ | 378 |   |

 

CPGA is utilized by mostwireless companies to determine their cost to acquire a new subscriber. CPGA isused by analysts and investors to compare us to other wireless companies. Weuse CPGA to evaluate past selling performance, the success of specific promotionsand as a basis to determine the amount of time we must retain a new subscriberbefore we recover this cost. In addition, we use CPGA as a basis for budgeting.

 

**Liquidity and Capital Resources**

 

As of June 30, 2005, wehad $60.6 million in cash and cash equivalents compared to$18.7 million at June 30, 2004.

 

With our available cash andcash equivalents, and subject to our ability to manage subscriber growth andachieve operating efficiencies, cash and cash equivalents, combined with cashflows from operations, are expected to be sufficient to fund any operatinglosses and working capital and to meet capital expenditure needs and debtservice requirements for the next twelve months.

 

###### ***Net Cash Flows from Operating Activities***

 

For the nine months ended June 30,2005, cash flows from operations totaled $1.5 million compared to $15.7 milliongenerated for the nine months ended June 30, 2004.  The $14.2 million decrease in 2005 was mainlydue to unfavorable working capital effects. Accounts receivable increased $3.4 million due to the delayed timing ofreceipts from Sprint at June 30, 2005. Accrued liabilities decreased $7.2million due to the final settlement of outstanding bankruptcy claims and asemi-annual interest payment in May 2005.  For the nine months ended June 30, 2004, the $15.7 million of cashflows from operating activities was due to decreases in our net losses afteradjustments for non-cash items, coupled with favorable changes in workingcapital of $7.0 million.

 

***Net Cash Flows from Investing Activities***

 

For the nine months ended June 30,2005, we generated $2.8 million in cash flows from investing activities.  Proceeds generated from the sale of 76 towersto TCP Communications and 10 towers to Global Towers as described below totaled$15.3 million.  In addition, we received$0.5 million in proceeds for an initial shipment of Lucent equipment that wasreplaced with Nortel equipment purchased under the agreement with Nortel asdescribed below in “Contractual Obligations”. Offsetting these proceeds werecapital expenditures totaling $13.1 million, which included $9.1 million forNortel equipment purchased under this agreement.

 

For the nine months ended June 30,2004, cash flows used in investing activities totaled $12.0 million.  Purchases of property and equipment totaled$8.6 million and included in this total was $4.1 million in switch capitalexpenditures mainly for the purchase and installation of equipment for ourswitching center at the Davenport, Iowa switch location.  This additional equipment was necessary toadd capacity in order to accommodate the movement of cell traffic away from ourGridley, Illinois switch which we decommissioned in June 2004.  In the nine months ended June 30, 2004,we also incurred $2.3 million of capital expenditures to upgrade portions ofour network to 1xRTT and we incurred $2.1 million of capital expenditures toadd fifteen additional cell sites to our network. Coupled with these capitalexpenditures, restricted cash increased by $3.4 million as we funded interestfor the senior notes through June 30, 2004.

 

***Net Cash Flows from Financing Activities***

 

Net cash used for financingactivities for the nine months ended June 30, 2005 totaled $1.4 millionand included $1.6 million for the payment of our CEO’s withholding obligationsrelated to his remaining stock unit awards, which payment was made through

 

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the return of shares to the Company.  In addition, we incurred $0.3 million fordebt financing costs related to the 11.5% senior notes, and received $0.5million from the exercise of stock options.

 

For the nine months ended June 30,2004, cash flows used for financing activities totaled $2.6 and included $1.1million for principal payments made under the senior secured credit facility inplace at that time and $1.5 million of debt financing costs related to thesenior notes issued in April 2004.

 

***Tower Sale Leasebacks***

 

On September 4, 2004, wesigned an agreement with TCP Communications, LLC whereby we agreed to sell upto 92 of our owned towers to TCP Communications. The towers are pricedindividually and subject to exclusion of towers by TCP Communications based onits due diligence and other customer closing conditions. After the sale, wewill lease space on the towers sold to TCP Communications at rates and termsconsistent with that of our existing leases. The transaction is expected toclose in several installments during fiscal year 2005.

 

On November 9, 2004 and December 29,2004, we sold 51 and 17 towers, respectively, to TCP Communications for grossproceeds, net of broker’s fees, totaling approximately $12.8 million.  Because the cost basis of these towers wasadjusted to fair value as part of fresh-start accounting, no gain or loss onthe sales was recorded.  As of April 27,2005, TCP notified us that it had elected to exclude 16 towers based on its duediligence and other customary closing conditions.  On June 14, 2005, we sold 8 towers toTCP for approximately $0.8 million.

 

On May 25, 2005, we signed an agreementwith Global Tower, LLC whereby we agreed to sell our remaining 16 owned towersto Global Tower.  The selling price forall 16 towers is approximately $2.8 million, but will be paid on a per towerbasis with each closing.  After the sale,we will lease space on the towers sold to Global Towers at rates and termsconsistent with that of our existing leases. On June 29, 2005, we sold 10 towers to Global Tower forapproximately $1.7 million.  Theremaining installment of tower sales is expected to close by September 30,2005.

 

***Commitments and Contingencies***

 

On July 15, 2005, iPCS Wireless, Inc.,a wholly owned subsidiary of the iPCS Inc., filed a complaint (the “Complaint”)against Sprint, WirelessCo L.P., Sprint Spectrum L.P., SprintCom, Inc. andSprint Communications Company L.P. in the Circuit Court of Cook County,Illinois.  The Complaint alleges, amongother things, that following the consummation of the anticipated merger betweenSprint and Nextel Communications, Inc., Sprint will breach its exclusivityobligations under its management agreement , as amended, with the Company.  The Company seeks, among other things, atemporary restraining order, a preliminary injunction and a permanentinjunction enjoining Sprint and those acting in concert with it from engagingin certain conduct post-closing in violation of its management agreement. On July 22,2005, Horizon Personal Communications, Inc. and Bright PersonalCommunications Services, LLC, wholly owned subsidiaries of iPCS Inc., filed asubstantially similar complaint against Sprint Corporation, WirelessCo L.P.,Sprint Spectrum L.P., SprintCom, Inc., Sprint Communications Company L.P.and Nextel Communications, Inc. in the Court of Chancery of the State ofDelaware, New Castle County.

 

On July 28, 2005, iPCS Inc. and certainof its wholly owned subsidiaries entered into a Forbearance Agreement (the “Agreement”)with Sprint relating to the complaints filed against Sprint.  The Agreement sets forth the Company’sagreement that the subsidiaries would not seek certain injunctive relief in theongoing litigation under certain circumstances and contemplates proceedingdirectly to a trial relating to the subsidiaries’ request for permanentinjunction and other equitable relief. The Agreement also sets forth Sprint’s agreement relating to certainparameters for the operation of its wireless business in the Company’sterritories following the merger involving Sprint and Nextel Communications, Inc.,in each case, during the period of time the Agreement remains in effect.

 

A trial date of December 5, 2005 hasbeen set for the complaint filed by iPCS Wireless, Inc. in the CircuitCourt of Cook County, Illinois.   A trialdate has not yet been set for the complaint filed by Horizon PersonalCommunications, Inc. and Bright Personal Communications Services, LLC.

 

On October 1, 2003,AT&T filed an administrative proof of claim and a pre-petition proof ofclaim against us, both of which claims we dispute. In connection with our planof reorganization, we deposited $0.7 million in escrow pending resolutionof both of these disputed claims.  On August 31,2004, AT&T filed a cure claim against us, contending that a portion of theamount set forth in the pre-petition proof of claim, and a portion of theamount set forth in the administrative proof of claim are presently due in cashas cure amounts, which we also dispute. Also on August 31, 2004, AT&Tamended its administrative proof of claim originally filed on October 1,2003. If all of AT&T’s claims are allowed as valid, AT&T would have a$0.2 million pre-petition claim payable in stock under our plan ofreorganization, with the remaining claims (both cure and administrative)payable in $6.6 million of cash. Both the administrative and pre-petitionclaims between AT&T and us have been consolidated in claims proceedingspending before the Bankruptcy Court. On September 30, 2004, we filed aresponse to the cure claim requesting that our dispute on the cure claim beconsolidated with the administrative and pre-petition claim dispute.  On May 27, 2005, we settled all claimswith AT&T.  As part of

 

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the settlement, we agreed to a pre-petitionclaim of $1.0 million payable in stock, and an administrative claim of $0.9million payable in cash.

 

The costs for the servicesprovided by Sprint PCS under our service agreements with Sprint PCS relative tobilling, customer care and other back-office functions for the three monthsended June 30, 2005 and 2004, totaled approximately $5.8 million and$5.2 million, respectively. For the nine months ended June 30, 2005and 2004, we incurred approximately $16.8 million and $12.9 million,respectively, for these same services. Because we incur the majority of these costs on a per subscriber basiswhich is fixed until the end of December 2006 and after which will beadjusted by Sprint PCS based on a formula related to Sprint PCS’ costs toprovide the services, we expect the aggregate cost for such services toincrease as the number of our subscribers increases after December 2006.Sprint PCS may terminate any service provided under such agreements upon ninemonths’ prior written notice, but if we would like to continue receiving suchservice, Sprint PCS has agreed that it will assist us in developing thatfunction internally or locating a third-party vendor that will provide thatservice. Although Sprint PCS has agreed in such an event to reimburse us forexpenses we incur in transitioning to any service internally or to athird-party, if Sprint PCS terminates a service for which we have not developedor are unable to develop a cost-effective alternative, our operating costs mayincrease beyond our expectations and our operations may be interrupted orrestricted. We do not currently have a contingency plan if Sprint PCSterminates a service we currently receive from it.

 

***Contractual Obligations***

 

We are obligated to make futurepayments under various contracts we have entered into, including amountspursuant to the senior notes, capital leases and non-cancelable operating leaseagreements for office space, cell sites, vehicles and office equipment. Futureminimum contractual cash obligations for the next five years and in theaggregate at September 30, 2004, are as follows (dollars in thousands):

 
| ** **                | ** ** | **Payments Due by Period**        | ** ** |
|---------------------------|------------|-----------------------------------|------------|
| ** **                | ** ** | **Year Ended September 30,** | ** ** |
| ** **                | ** ** | **Total**                         | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **Thereafter** | ** ** |
| Senior notes(1)           |       | $                                 | 165,000    |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 165,000 |   |
| Operating leases(2)       |       | 48,826                            |       | 12,118 |   | 9,401 |   | 7,258 |   | 6,498 |   | 5,947 |   | 7,604 |   |
| Capital lease obligations |       | 858                               |       | 59 |   | 61 |   | 64 |   | 66 |   | 69 |   | 539 |   |
| Total                     |       | $                                 | 214,684    |   | $ | 12,177 |   | $ | 9,462 |   | $ | 7,322 |   | $ | 6,564 |   | $ | 6,016 |   | $ | 173,143 |   |

 

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(1)           Does not include interest paymentobligations at a fixed interest rate of 11.5%, or $18,975 per year.

 

(2)           Does not include payments due underrenewals to the original lease terms.

 

The senior notes containcovenants which restrict our ability to incur additional indebtedness, merge,pay dividends, dispose of our assets, and certain other matters as defined inthe indenture. In addition, the senior notes:

 

•                  rank pari passu in right of payment with all ourexisting and future unsecured senior indebtedness;

 

•                  rank senior in right of payment to all our futuresubordinated indebtedness; and

 

•                  are unconditionally guaranteed by iPCS Wireless, Inc.,iPCS Equipment, Inc. and any new domestic restricted subsidiaries of ours.

 

However, the senior notes aresubordinated 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.

 

Interest is payablesemi-annually in arrears on May 1 and November 1, commencing on November 1,2004 to the holders of record on the immediately preceding April 15 and October 15.At any time prior to May 1, 2007, we may redeem up to 35% of the aggregateprincipal amount of the senior notes at a redemption price of 111.50% of theprincipal amount thereof, plus accrued and unpaid interest, and liquidateddamages (as defined in the indenture), if applicable, to the redemption datewith the net cash proceeds of a sale of our equity interests or a contributionto our common equity capital; provided that:

 

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•                  at least 65% of aggregate principal amount of seniornotes originally issued remains outstanding immediately after the redemption;and

 

•                  the redemption occurs within 45 days of thedate of the closing of such sale of equity interests or contribution.

 

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

 

On or after May 1, 2008, we may redeemall or a part of the senior notes issued under the indenture upon not less than30 nor more than 60 days’ notice, at the redemption prices (expressed aspercentages of principal amount) set forth below plus accrued and unpaidinterest and liquidated damages, if any, on the senior notes redeemed, to theapplicable redemption date, if redeemed during the twelve-month period beginningon May 1 of the years indicated below, subject to the rights of holders ofsenior notes on the relevant record date to receive interest on the relevantinterest payment date:

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

 

Upon a change of control as defined in theindenture, we will be required to make an offer to purchase the senior notes ata price equal to 101% of the aggregate principal amount of senior notesrepurchased plus accrued and unpaid interest and liquidated damages, if any, tothe date of purchase.

 

*NortelNetworks Equipment Agreement*

 

On November 22, 2004, we signed a letterof agreement with Nortel Networks to replace our Lucent network equipmentcurrently deployed in our Michigan markets with Nortel equipment including oneswitch, 232 base stations, various additional capacity growth and networkequipment. Under the terms of the agreement, we have agreed to purchaseequipment totaling $15.2 million and will receive special pricing on futurepurchases through December 31, 2007. Through June 30, 2005, we have purchased approximately $9.1 millionof equipment under this agreement.

 

***Seasonality***

 

Our business is subject to seasonalitybecause the wireless telecommunications industry historically has been heavilydependent on fourth calendar quarter results. Among other things, the industryrelies on significantly higher subscriber additions and handset sales in thefourth calendar quarter as compared to the other three calendar quarters. Anumber of factors contribute to this trend, including: the use of retaildistribution, which is heavily dependent upon the year-end holiday shoppingseason; the timing of new product and service announcements and introductions;competitive pricing pressures; and aggressive marketing and promotions. Theincreased level of activity requires a greater use of available financialresources during this period.

 

***Inflation***

 

We believe that inflation has not had asignificant impact in the past and is not likely to have a significant impactin the foreseeable future on our results of operations.

 

***Future Trends That May Affect OperatingResults, Liquidity and Capital Resources***

 

During 2003 and into 2004 we experiencedoverall declining net subscriber growth compared to previous periods. Webelieve this trend was attributable to increased competition and slowingaggregate subscriber growth in the wireless telecommunications industry as wellas the implementation of a tighter credit policy that decreased the number ofsub-prime activations. In addition, as a means to conserve cash in 2003, weclosed 15 company-owned retail stores and cancelled 21 agreements with localthird party distributors, thereby reducing our retail presence in a number ofour markets.  We have seen improvementsin our net subscriber growth in our last five quarters; however, we still incurnet losses to acquire new subscribers. As we seek to accelerate our subscriber growth, we will incursignificant upfront subscriber acquisition expenses (including the customerhandset subsidy, commissions and promotional expenses) that initially willresult in increased losses and reduced levels of cash flows from operatingactivities as compared to our most recent prior periods. Alternatively, we maynot be able to sustain our planned growth in subscribers or obtain sufficientrevenue to achieve and sustain profitability. Net subscriber growth wasapproximately 30,500 subscribers in all our markets for the nine months ended June 30,2005. For the nine months ended June 30, 2004 we added approximately12,900 net subscribers in

 

33

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all our markets.  If we are notable to achieve our planned subscriber growth, it will lengthen the amount oftime it will take for us to reach a sufficient number of subscribers to achievepositive free cash flow, which in turn will have a negative effect on capitalresources. In addition, to the extent our subscriber growth includes a higherpercentage of sub-prime credit subscribers, our churn and bad debt expense mayincrease.

 

We may continue to experience higher costs toacquire subscribers. For the nine months ended June 30, 2005, our CPGA was$383 per activation compared to $378 per activation for the period ended June 30,2004.  To accelerate our subscribergrowth, we are offering more aggressive handset promotions and spending more inadvertising to acquire new customers than we did while we were in bankruptcyand trying to conserve cash.  With ahigher CPGA, subscribers must remain our subscribers for a longer period oftime at a stable ARPU for us to recover those acquisition costs.

 

We may experience a higher churn rate. Ouraverage subscriber monthly churn (net of deactivations that take place within30 days of the activation date) for the nine months ended June 30,2005 and 2004 was 2.6% and 2.7%, respectively. In our 2003 fiscal year, our churn rate was the highest we hadexperienced to date due to a significantly higher number of involuntarydeactivations relating to sub-prime credit subscribers. A tighter credit policyimplemented in mid-2003 decreased the number of sub-prime activations whichhelped to reduce churn but it also contributed to the overall smallersubscriber growth than we had experienced in the past. If churn increases overthe long-term, we would lose the cash flows attributable to these subscribersand have greater-than-projected losses.

 

We may incur significant wireless handsetsubsidy costs for existing subscribers who upgrade to a new handset. As oursubscriber base matures and technological innovations occur, more existingsubscribers will begin to upgrade to new wireless handsets for which wesubsidize the cost to the subscriber. We incurred net upgrade costs ofapproximately $3.7 million and $3.6 million associated with wirelesshandset upgrade costs for the nine months ended June 30, 2005 and 2004,respectively. We have limited historical experience regarding the adoption ratefor wireless handset upgrades. If more subscribers upgrade to new wirelesshandsets than we project, near term cash flows would be lower than projected.

 

**ITEM 3. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

We do not engage in commodity futures tradingactivities and do not enter into derivative financial instrument transactionsfor trading or other speculative purposes. We also do not engage intransactions in foreign currencies that could expose us to market risk.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

***Evaluation of Disclosure Controls andProcedures***

 

We maintain disclosure controls andprocedures that are designed to ensure that information required to bedisclosed in our Securities Exchange Act of 1934 reports is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms, and that such information is accumulated and communicatedto our management, including our Chief Executive Officer and Chief FinancialOfficer, as appropriate, to allow timely decisions regarding requireddisclosure.

 

We place reliance on Sprint to adequatelydesign its internal controls with respect to the processes established toprovide financial information and other information to us and the other PCSAffiliates of Sprint.  To address thisissue, Sprint engages an independent registered public accounting firm toperform 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 Standards No. 70.  This report is provided to us bi-annually.

 

As of June 30, 2005, we carried out anevaluation, under the supervision and with the participation of our management,including our Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures.  Based on the foregoing, ourChief Executive Officer and Chief Financial Officer concluded that the designand operation of the Company’s disclosure controls and procedures wereeffective as of June 30, 2005.

 

***Changes in Internal Controls over FinancialReporting***

 

During the fiscal quarter ended June 30,2005, there was no change in our internal control over financial reporting thathas materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

 

34

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**PART II . OTHER INFORMATION**

** **

**ITEM 1. LEGAL PROCEEDINGS**

 

See Item 2 — “Management’s Discussion andAnalysis of Financial Condition and Results of Operations —Commitments and Contingencies” of thisreport.

 

In addition to the above, from time to time,we are involved in various legal proceedings relating to claims arising in theordinary course of business and in connection with our bankruptcy petition. Weare not currently a party to any such legal proceedings, the adverse outcome towhich, individually or in the aggregate, is expected to have a material adverseeffect on our business, financial condition or results of operations.

 

# **ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS**

 

During the quarter ended June 30, 2005,we issued 131,012 shares of common stock to creditors pursuant to our Plan ofReorganization.  We relied on theexemption from registration under the Securities Act of 1933 provided by Section 1145of the United States Bankruptcy Code.

 

# **ITEM 3. DEFAULTS UPON SENIOR SECURITIES**

# ** **

None.

 

# **ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

# ** **

At our annual meeting of stockholders held onJune 30, 2005 the stockholders voted on the following:

 

1.  Theadoption of the Agreement and Plan of Merger, dated as of March 17, 2005,by and between iPCS, Inc. and Horizon PCS, Inc., pursuant to whichHorizon PCS, Inc. would merge with and into iPCS, Inc.:

 
| **For**   | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker Non-Votes** | ** ** |
|-----------|------------|-------------|------------|-------------|------------|----------------------|------------|
| 6,357,167 |       | -0-         |       | -0-         |       | 1,459,759            |       |

 

2.  Theadoption of the amendment to our restated certificate of incorporationcontemplated by the Agreement and Plan of Merger:

 
| **For**   | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker Non-Votes** | ** ** |
|-----------|------------|-------------|------------|-------------|------------|----------------------|------------|
| 6,257,167 |       | -0-         |       | 100,000     |       | 1,459,759            |       |

 

3.  Theelection of seven directors to our board of directors:

 
| ** **        | ** ** | **For**   | ** ** | **Withheld** | ** ** |
|-------------------|------------|-----------|------------|--------------|------------|
| Timothy C. Babich |       | 7,816,926 |       | -0-          |       |
| Donald L. Bell    |       | 7,816,926 |       | -0-          |       |
| Eugene I. Davis   |       | 7,804,363 |       | 12,563       |       |
| Eric F. Ensor     |       | 7,816,926 |       | -0-          |       |
| James F. Gaffney  |       | 7,816,926 |       | -0-          |       |
| Kevin M. Roe      |       | 7,816,926 |       | -0-          |       |
| Timothy M. Yager  |       | 7,816,926 |       | -0-          |       |

 

4.  Theapproval of the iPCS Amended and Restated 2004 Long-Term Incentive Plan,including the reservation of an additional 250,000 shares of common stock thatmay be issued as awards under the plan:

 
| **For**   | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker Non-Votes** | ** ** |
|-----------|------------|-------------|------------|-------------|------------|----------------------|------------|
| 6,072,877 |       | 182,222     |       | 102,068     |       | 1,459,759            |       |

 

5.  Theratification of our audit committee’s selection of Deloitte & ToucheLLP as our independent registered public accounting firm for the fiscal yearending September 30, 2005:

 

35

----

 
| **For**   | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker Non-Votes** | ** ** |
|-----------|------------|-------------|------------|-------------|------------|----------------------|------------|
| 7,714,858 |       | -0-         |       | 102,068     |       | -0-                  |       |

 

# **ITEM 5. OTHER INFORMATION**

 

**ITEM 6. EXHIBITS**

 

See the Index to Exhibits following the signature page heretofor a list of the exhibits filed pursuant to Item 601 of Regulation S-K.

 

36

----

 

**SIGNATURES**

 

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

 
|                        | iPCS, Inc. |
|-----------------------------|-----------------|
|                        |            |
|                        | By:             |   | /s/ TIMOTHY M. YAGER |
|                        |            | Timothy M. Yager*President and Chief Executive Officer*  (Principal Executive Officer) |
| Date: August 15, 2005  |            |   |
|                        | By:             |   | /s/ STEBBINS B. CHANDOR, JR. |
|                        |            | Stebbins B. Chandor, Jr.*Executive Vice President and  Chief Financial Officer*  (Principal Financial Officer) |
| Date:  August 15, 2005 |            |

 

37

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**INDEX TOEXHIBITS**

 
| **Exhibit  Number** | ** ** | **Exhibit Title**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|---------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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 the Registrant with the SEC 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 the Registrant with the SEC 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 the Registrant with the SEC 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 the Registrant with the SEC 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 the Registrant with the SEC  on August 5, 2004 (SEC File No. 333-117942)) |
| 2.6                 |       | Asset Purchase Agreement, dated as of  May 12, 2004, by and between Horizon PCS, Inc., Horizon Personal  Communications, Inc., Bright Personal Communications Services, LLC and  Sprint PCS, Inc. (Incorporated by reference to Exhibit 2.1 to the  registration statement on Form S-4 filed by Horizon PCS, Inc. with  the SEC on March 17, 2005 (SEC File No. 333-123383))                                                                                                                                                    |
| 2.7                 |       | 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. with the SEC 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 the  Registrant with the SEC 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 current  report on  Form 8-K filed by the Registrant with the SEC on July 1, 2005 (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 the Registrant with the SEC  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 the Registrant with the SEC 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 the Registrant with the SEC  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 the Registrant with the SEC 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 the Registrant with  the SEC on August 11, 2005 (SEC File   No. 333-117944))                                                                                                                                                                                                                                                                                                                        |
| 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 the Registrant with the SEC 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 the Registrant with the  SEC 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 the Registrant with the SEC on August 11, 2005  (SEC File No. 333-117944))                                                                                                                                                                                                                                                                                                                                       |
| 4.1                 |       | Specimen Common Stock Certificate  (Incorporated by reference to Exhibit 4.1 to the registration statement  on  Form S-1 filed by the Registrant with the SEC on August 5, 2004  (SEC File No. 333-117944))                                                                                                                                                                                                                                                                                                                                              |
| 4.2                 |       | 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 the  Registrant with the SEC on July 1, 2005 (SEC File  No. 333-32064)                                                                   |
| 4.3                 |       | 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 the Registrant with the SEC on August 5, 2004 (SEC File  No. 333-117942))                                                                                                                                                                                         |
| 4.4                 |       | 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))                                                                                                                                                                                         |
| 4.5                 |       | 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 the Registrant with the SEC  on July 1, 2005 (SEC File No. 333-117942))                                                                                                                                                                                                                                             |

 

38

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| 5.1    |   | Opinion of Mayer, Brown, Rowe &  Maw LLP regarding legality of securities being registered (filed as an  exhibit to the Registration Statement filed on August 5, 2004)                                                                                                                                                                                                                                                                                               |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1*  |   | Sprint PCS Management Agreement dated as of  January 22, 1999 between WirelessCo, L.P., Sprint Spectrum, L.P.,  SprintCom, Inc., and Illinois PCS, L.L.C. (predecessor of iPCS  Wireless, Inc.) as amended by Addendum I through Addendum V thereto  (Incorporated by reference to Exhibit 10.1 to the registration statement  on Form S-4 filed by the Registrant with the SEC on January 9, 2001  (SEC File No. 333-47688))                    |
| 10.2   |   | Addendum VI to Sprint PCS Management  Agreement (Incorporated by reference to Exhibit 10.40 to the annual  report on Form 10-K filed by the Registrant with the SEC on  March 29, 2001 (SEC File No. 333-32064))                                                                                                                                                                                                                                                |
| 10.3   |   | Addendum VII to Sprint PCS Management  Agreement (Incorporated by reference to Exhibit 10.3 to the registration  statement on Form S-4 filed by the Registrant with the SEC on  August 5, 2004 (SEC File No. 333-117942))                                                                                                                                                                                                                                       |
| 10.4   |   | Addendum VIII to Sprint PCS Management Agreement  (Incorporated by reference to Exhibit 10.4 to the registration statement  on Form S-4 filed by the Registrant with the SEC on August 5, 2004  (SEC File No. 333-117942))                                                                                                                                                                                                                                      |
| 10.5   |   | Amended and Restated Addendum VIII to  Sprint PCS Management Agreement (Incorporated by reference to  Exhibit 10.1 to the current report on Form 8-K filed by the  Registrant with the SEC on November 4, 2004) (SEC File  No. 333-32064))                                                                                                                                                                                                                      |
| 10.6   |   | Addendum IX to Sprint PCS Management  Agreement (Incorporated by reference to Exhibit 10.5 to the registration  statement on Form S-4 filed by the Registrant with the SEC on  August 5, 2004 (SEC File No. 333-117942))                                                                                                                                                                                                                                        |
| 10.7*  |   | Sprint PCS Services Agreement dated as of  January 22, 1999 by and between Sprint Spectrum, L.P. and Illinois PCS,  L.L.C. (predecessor of iPCS Wireless, Inc.) (Incorporated by reference  to Exhibits 10.2 to the registration statement on Form S-4 filed by the  Registrant with the SEC on January 8, 2001 (SEC File  No. 333-47688))                                                                                                                 |
| 10.8*  |   | Sprint Trademark and Service Mark License  Agreement dated as of January 22, 1999 between Sprint Communications  Company, L.L.C. and Illinois PCS, L.L.C. (predecessor of iPCS  Wireless, Inc.) (Incorporated by reference to Exhibit 10.3 to the  registration statement on Form S-4 filed by the Registrant with the SEC  on January 8, 2001 (SEC File No. 333-47688))                                                                              |
| 10.9*  |   | Sprint Spectrum Trademark and Service Mark  License Agreement dated as of January 22, 1999 between Sprint Spectrum  L.P. and Illinois PCS, L.L.C. (predecessor of iPCS Wireless, Inc.)  (Incorporated by reference to Exhibit 10.4 to the registration statement  on Form S-4 filed by the Registrant with the SEC on January 8, 2001  (SEC File  No. 333-47688))                                                                                     |
| 10.10* |   | Sprint PCS Management Agreement, dated  June 8, 1998, by and between Sprint Spectrum, L.P., SprintCom, Inc.  and Horizon Personal Communications, Inc. (includes Addenda I, II  and III) (Incorporated by reference to Exhibit 10.3 to the registration  statement on Form S-4 filed by Horizon PCS, Inc. with the SEC on  December 15, 2000 (SEC File  No. 333-51238))                                                                |
| 10.11* |   | Addendum IV to Sprint PCS Management  Agreement, dated as of March 16, 2005, by and between Sprint Spectrum  L.P., Sprint Communications Company, L.P. and Bright Personal Communications  Services, LLC (Incorporated by reference to Exhibit 10.7.1 to the  registrations statement on Form S-4 filed by Horizon PCS, Inc. with  the SEC on March 17, 2005 (SEC File No. 333-123383))                                                               |
| 10.12* |   | Addendum V to Sprint PCS Management  Agreement, dated as of June 1, 2001, by and between Sprint Spectrum,  L.P., SprintCom, Inc. and Horizon Personal Communications, Inc.  (Incorporated herein by reference to Exhibit 10.3.1 to the registration  statement on Form 10-12G/A filed by Horizon Telcom, Inc. with the  SEC on June 25, 2001 (SEC File No. 000-32617))                                                                      |
| 10.13  |   | Addendum VI to Sprint PCS Management  Agreement, dated as of August 20, 2001, by and between Sprint Spectrum,  L.P., SprintCom, Inc. and Horizon Personal Communications, Inc.  (Incorporated by reference to Exhibit 10.3.2 to the current report on  Form 8-K filed by Horizon PCS, Inc. with the SEC on August 24,  2001 (SEC File No. 333-51240)                                                                                        |
| 10.14  |   | Addendum VII to Sprint PCS Management  Agreement, dated as of June 16, 2004, by and between Sprint Spectrum,  L.P., SprintCom, Inc. and Horizon Personal Communications, Inc.  (Incorporated by reference to Exhibit 10.3.4 to the annual report on  Form 10-K filed by Horizon PCS, Inc. with the SEC on March 31,  2005 (SEC File No. 333-37516))                                                                                         |
| 10.15  |   | Addendum VIII to Sprint PCS Management  Agreement, dated as of March 16, 2005, among Horizon Personal  Communications, Inc., SprintCom, Inc., Sprint Spectrum L.P.,  WirelessCo, L.P., PhillieCo, L.P., APC PCS, LLC and Sprint Communications  Company, L.P. (Incorporated by reference to Exhibit 10.3.5 to the  registration statement on Form S-4 filed by Horizon PCS, Inc. with  the SEC on March 17, 2005 (SEC File No. 333-123383)) |
| 10.16* |   | Sprint PCS Services Agreement, dated as of  June 8, 1998, by and between Sprint Spectrum, L.P. and Horizon Personal  Communications, Inc. (Incorporated by reference to Exhibit 10.4 to  the registration statement on Form S-4 filed by Horizon PCS, Inc.  with the SEC on December 15, 2000 (SEC File No. 333-51238))                                                                                                                          |
| 10.17  |   | Sprint Trademark and Service Mark License  Agreement, dated as of June 8, 1998, by and between Sprint Communications  Company, L.P. and Horizon Personal Communications, Inc. (Incorporated by  reference to Exhibit 10.5 to the registration statement on Form S-4  filed by Horizon PCS, Inc. with the SEC on December 15, 2000 (SEC  File No. 333-51238))                                                                                     |
| 10.18  |   | Sprint Spectrum Trademark and Service Mark  License Agreement, dated as of June 8, 1998, by and between Sprint  Spectrum L.P. and Horizon Personal Communications, Inc. (Incorporated by  reference to Exhibit 10.6 to the registration statement on Form S-4  filed by Horizon PCS, Inc. with the SEC on December 15, 2000 (SEC  File  No. 333-51238))                                                                                          |

 

39

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| 10.19* |   | Sprint PCS Management Agreement, dated as  of October 13, 1999, by and between Sprint Spectrum, L.P.,  SprintCom, Inc., Wirelessco, L.P. and Bright Personal Communications  Services, LLC (includes Addenda I, II and III) (Incorporated by  reference to Exhibit 10.7 to the registration statement on Form S-4  filed by Horizon PCS, Inc. with the SEC on December 15, 2000 (SEC  File No. 333-51238)) |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.20  |   | Addendum IV to Sprint PCS Management  Agreement, dated as of March 16, 2005, by and between Sprint Spectrum  L.P., Sprint Communications Company, L.P. and Bright Personal Communications  Services, LLC. (Incorporated by reference to Exhibit 10.7.1 to the  registration statement on Form S-4 filed by Horizon PCS, Inc. with  the SEC on March 17, 2005 (SEC File No. 333-123383))                              |
| 10.21* |   | Sprint PCS Services Agreement, dated as of  October 13, 1999, by and between Sprint Spectrum, L.P. and Bright  Personal Communications Services, LLC (Incorporated by reference to  Exhibit 10.8 to the registration statement on Form S-4 filed by  Horizon PCS, Inc. with the SEC on December 15, 2000 (SEC File  No. 333-51238))                                                                                  |
| 10.22  |   | Sprint Trademark and Service Mark License  Agreement, dated as of October 13, 1999, by and between Sprint  Communications Company, L.P. and Bright Personal Communications Services, LLC  (Incorporated by reference to Exhibit 10.9 to the registration statement  on Form S-4 filed by Horizon PCS, Inc. with the SEC on  December 15, 2000 (SEC File No. 333-51238))                                              |
| 10.23  |   | Sprint Spectrum Trademark and Service Mark  License Agreement, dated as of October 13, 1999, between Sprint  Spectrum, L.P. and Bright Personal Communications Services, LLC (Incorporated  by reference to Exhibit 10.10 to the registration statement on  Form S-4 filed by Horizon PCS, Inc. with the SEC on  December 15, 2000 (SEC File  No. 333-51238))                                                        |
| 10.24  |   | Master Lease Agreement dated as of  August 31, 2000 between iPCS Wireless, Inc. and Trinity Wireless  Towers, Inc. (Incorporated by reference to Exhibit 10.43 to the  annual report on Form 10-K filed by the Registrant with the SEC on  March 29, 2001) (SEC File No. 333-32064))                                                                                                                            |
| 10.25  |   | Master Tower Space Reservation and License  Agreement dated as of July 20, 2002 by and between American Tower, L.P.  and iPCS Wireless, Inc. (Incorporated by reference to Exhibit 10.10  to the registration statement on Form S-4 filed by the Registrant with  the SEC on August 5, 2004 (SEC File No. 333-117942))                                                                                               |
| 10.26  |   | Restructuring Management Services Agreement  between iPCS, Inc. and YMS Management LLC dated as of January 27,  2003, as amended. (Incorporated by reference to Exhibit 10.11 to the  registration statement on Form S-4 filed by the Registrant with the SEC  on August 5, 2004 (SEC File No. 333-117942))                                                                                                          |
| 10.27  |   | iPCS, Inc. Amended and Restated 2004  Long-Term Incentive Plan, (Incorporated by reference to Exhibit 99.1 to  the current report on Form 8-K filed by the Registrant with the SEC on  February 2, 2005) (SEC File No. 333-32064))                                                                                                                                                                                        |
| 10.28  |   | Employment Agreement, dated as of  July 20, 2004, by and between Timothy M. Yager and iPCS  Wireless, Inc. (Incorporated by reference to Exhibit 10.13 to the  registration statement on Form S-4 filed by the Registrant with the SEC  on August 5, 2004 (SEC File No. 333-117942))                                                                                                                                 |
| 10.29  |   | Employment Agreement, dated as of  July 20, 2004, by and between Stebbins B. Chandor, Jr. and iPCS  Wireless, Inc. (Incorporated by reference to Exhibit 10.14 to the  registration statement on Form S-4 filed by the Registrant with the SEC  on August 5, 2004 (SEC File No. 333-117942))                                                                                                                    |
| 10.30  |   | Employment Agreement, dated as of  July 20, 2004, by and between Patricia M. Greteman and iPCS  Wireless, Inc. (Incorporated by reference to Exhibit 10.15 to the  registration statement on Form S-4 filed by the Registrant with the SEC  on August 5, 2004 (SEC File No. 333-117942))                                                                                                                             |
| 10.31  |   | Employment Agreement, dated as of  July 20, 2004, by and between Craig A. Kinley and iPCS  Wireless, Inc. (Incorporated by reference to Exhibit 10.16 to the  registration statement on Form S-4 filed by the Registrant with the SEC  on August 5, 2004 (SEC File No. 333-117942))                                                                                                                                  |
| 10.32  |   | Form of Incentive Stock Option  Agreement (Incorporated by reference to Exhibit 10.17 to the  registration statement on Form S-4 filed by the Registrant with the SEC  on August 5, 2004 (SEC File No. 333-117942))                                                                                                                                                                                                       |
| 10.33  |   | Form of Non-Qualified Stock Option  Agreement (Incorporated by reference to Exhibit 10.18 to the  registration statement on Form S-4 filed by the Registrant with the SEC  on August 5, 2004 (SEC File No. 333-117942))                                                                                                                                                                                                   |
| 10.34  |   | Form of Director Non-Qualified Stock  Option Agreement (Incorporated by reference to Exhibit 10.19 to the  registration statement on Form S-4 filed by the Registrant with the SEC  on August 5, 2004 (SEC File No. 333-117942))                                                                                                                                                                                          |
| 10.35  |   | Timothy M. Yager’s Amended and Restated  Stock Unit Agreement, dated as of January 27, 2005 (Incorporated by  reference to Exhibit 99.3 to the current report on Form 8-K filed  by the Registrant with the SEC on February 2, 2005) (SEC File No. 333-32064))                                                                                                                                                       |
| 10.36  |   | Form of Restricted Stock Agreement  (Incorporated by reference to Exhibit 10.21 to the registration  statement on Form S-1 filed by the Registrant with the SEC on  October 5, 2004 (SEC File No. 333-117944))                                                                                                                                                                                                            |
| 10.37  |   | Agreement of Purchase and Sale, dated  September 8, 2004, between iPCS Wireless, Inc. and TCP  Communications LLC (Incorporated by reference to Exhibit 10.1 to the  current report on the Form 8-K filed by the Registrant with the SEC on  September 14, 2004) (SEC File No. 333-32064))                                                                                                                           |
| 10.38  |   | Employment Agreement by and between iPCS  Wireless, Inc. and John J. Peterman, dated as of August 24, 2004  (Incorporated by reference to Exhibit 10.1 to the current report on the  Form 8-K filed by the Registrant with the SEC on September 14, 2004  (SEC File No. 333-32064))                                                                                                                                  |

 

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| 10.39  |   | Employment Agreement by and between iPCS  Wireless, Inc. and Edmund L. Quatmann, Jr. dated as of  November 30, 2004 (Incorporated by reference to Exhibit 10.1 to the  current report on Form 8-K filed by the Registrant with the SEC on  December 3, 2004 (SEC File No. 333-32064))                                                                                                                                                                                                                                |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.40  |   | Form of Non-Qualified Stock Option  Agreement for Non-Employee Directors (Employing Stockholder version)  (Incorporated by reference to Exhibit 99.2 to the current report on  Form 8-K filed by the Registrant with the SEC on February 2, 2005  (SEC File No. 333-32064))                                                                                                                                                                                                                                                    |
| 10.41  |   | Amended and Restated Non-Employee Directors  Non-Qualified Stock Option Agreement, dated as of June 30, 2005, by and  between iPCS, Inc. and Donald L. Bell (Incorporated by reference to  Exhibit 99.2 to the current report on Form 8-K filed by the  Registrant with the SEC on July 1, 2005 (SEC File No. 333-32064))                                                                                                                                                                                                 |
| 10.42  |   | Amended and Restated Non-Employee Directors  Non-Qualified Stock Option Agreement, dated as of June 30, 2005, by and  between iPCS, Inc. and Eugene I. Davis (Incorporated by reference to  Exhibit 99.3 to the current report on Form 8-K filed by the  Registrant with the SEC on July 1, 2005 (SEC File No. 333-32064))                                                                                                                                                                                                |
| 10.43  |   | Amended and Restated Non-Employee Directors  Non-Qualified Stock Option Agreement, dated as of June 30, 2005, by and  between iPCS, Inc. and Eric F. Ensor (Incorporated by reference to  Exhibit 99.4 to the current report on  Form 8-K filed by the Registrant with the SEC on July 1, 2005 (SEC  File No. 333-32064))                                                                                                                                                                                                 |
| 10.44  |   | Amended and Restated Non-Employee Directors  Non-Qualified Stock Option Agreement, dated as of June 30, 2005, by and  between iPCS, Inc. and James J. Gaffney (Incorporated by reference to  Exhibit 99.5 to the current report on  Form 8-K filed by the Registrant with the SEC on July 1, 2005 (SEC File  No. 333-32064))                                                                                                                                                                                                   |
| 10.45  |   | Horizon PCS, Inc. 2004 Stock Incentive  Plan (Incorporated by reference to Exhibit 10.16 to the annual report on  Form 10-K filed by Horizon PCS, Inc. with the SEC on March 31,  2005 (SEC File No. 333-37516))                                                                                                                                                                                                                                                                                                          |
| 10.46  |   | Form of Nonqualified Stock Option  Agreement for Non-Employee Directors under the Horizon PCS, Inc. 2004  Stock Incentive Plan (Incorporated by reference to Exhibit 10.13 to the  annual report on Form 10-K filed by Horizon PCS, Inc. with the SEC  on March 31, 2005 (SEC File No. 333-37516))                                                                                                                                                                                                                   |
| 10.47  |   | Employment Agreement, dated as of  October 1, 2004, by and between Horizon PCS, Inc. and Alan G. Morse  (Incorporated by reference to Exhibit 10.11 to the annual report on  Form 10-K filed by Horizon PCS, Inc. with the SEC on March 31,  2005 (SEC File No. 333-37516))                                                                                                                                                                                                                                          |
| 10.48  |   | Nonqualified Stock Option Agreement, dated  as of October 21, 2004, by and between Horizon PCS, Inc. and Alan  G. Morse (Incorporated by reference to Exhibit 10.11.1 to the annual  report on Form 10-K filed by Horizon PCS, Inc. with the SEC on  March 31, 2005 (SEC File No. 333-37516))                                                                                                                                                                                                                        |
| 10.49  |   | Settlement Agreement and Mutual Release,  dated as of March 16, 2005, by and between Sprint Spectrum L.P.,  SprintCom, Inc., WirelessCo, L.P., PhillieCo, L.P., APC PCS, LLC, Sprint  Communications Company L.P., Horizon Personal Communications, Inc.  Bright Personal Communications Services, LLC and Horizon PCS, Inc.  (Incorporated by reference to Exhibit 10.14 to the registration  statement on Form S-4 filed by Horizon PCS, Inc. with the SEC on  March 17, 2005 (SEC File No. 333-123383)) |
| 10.50* |   | Site Development Agreement, dated as of  August 17, 1999, by and between Horizon Personal  Communications, Inc. and SBA Towers, Inc. (Incorporated by  reference to Exhibit 10.26 to the registration statement on  Form S-4 filed by Horizon PCS with the SEC on December 15, 2000  (SEC File No. 333-51238))                                                                                                                                                                                                       |
| 10.51* |   | Master Site Agreement, dated as of  July 1999, by and between SBA Towers, Inc. and Horizon Personal  Communications, Inc. (Incorporated by reference to Exhibit 10.27 to  the registration statement on Form S-4 filed by Horizon PCS with the SEC  on December 15, 2000 (SEC File No. 333-51238))                                                                                                                                                                                                                   |
| 10.52  |   | Settlement and Assumption Agreement and  Release, dated as of August 31, 2004, by and between Horizon  PCS, Inc., Horizon Personal Communications, Inc., Bright Personal  Communications Services, LLC, SBA Broadband, Inc., SBA Network  Services, Inc., SBA Sites, Inc. and SBA Towers, Inc.  (Incorporated by reference to Exhibit 10.27.1 to the registration  statement on Form S-4 filed by Horizon PCS, Inc. with the SEC on  March 17, 2005 (SEC File  No. 333-123383))             |
| 10.53* |   | Master Design Build Agreement, dated as of  August 17, 1999, by and between Horizon Personal  Communications, Inc. and SBA Towers, Inc. (Incorporated by  reference to Exhibit 10.28 to the registration statement on  Form S-4 filed by Horizon PCS, Inc. with the SEC on  December 15, 2000 (SEC File No. 333-51238))                                                                                                                                                                                         |
| 10.54* |   | Master Site Agreement, dated as of  October 1, 1999, by and between SBA Towers, Inc. and Bright  Personal Communications Services, LLC (Incorporated by reference to  Exhibit 10.29 to the registration statement on Form S-4 filed by  Horizon PCS, Inc. with the SEC on December 15, 2000 (SEC File  No. 333-51238))                                                                                                                                                                                               |
| 10.55* |   | Master Design Build Agreement, dated as of  October 1, 1999, by and between Bright Personal Communications Services,  LLC and SBA Towers, Inc. (Incorporated by reference to  Exhibit 10.30 to the registration statement on Form S-4 filed by  Horizon PCS, Inc. with the SEC on December 15, 2000 (SEC File  No. 333-51238))                                                                                                                                                                                       |
| 10.56  |   | Lease Agreement, dated as of May 1,  2000, by and between Chillicothe Telephone Company and Horizon Personal  Communications, Inc. (Incorporated by reference to Exhibit 10.32 to  the registration statement on Form S-4 filed by Horizon PCS, Inc.  with the SEC on December 15, 2000 (SEC File No. 333-51238))                                                                                                                                                                                                    |
| 10.57  |   | Settlement Agreement and Mutual Release,  dated as of May 12, 2004, by and among Sprint PCS, Inc., Horizon  PCS, Inc., Horizon Personal Communications, Inc. and Bright  Personal Communications Services, LLC (Incorporated by reference to  Exhibit 10.34 to the registration statement on Form S-4 filed by  Horizon PCS, Inc. with the SEC on March 17, 2005 (SEC File  No. 333-123383))                                                                                                               |

 

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| 10.58 |   | 1 Settlement Agreement, dated as of  June 5, 2004, by and among Horizon Personal Communications, Inc.,  Horizon PCS, Inc., Virginia PCS Alliance, L.C. and West Virginia PCS  Alliance, L.C. (Incorporated by reference to Exhibit 10.35 to the  registration statement on Form S-4 filed by Horizon PCS, Inc. with  the SEC on March 17, 2005 (SEC File No. 333-123383)) |
|-------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.59 |   | Employment Agreement by and between iPCS  Wireless, Inc. and Alan G. Morse, dated as of August 5, 2005 (Incorporated by  reference to Exhibit 99.1 to the current report on Form 8-K  filed by the Registrant with the SEC on August 11,  2005 (SEC File No. 333-32064))                                                                                                                      |
| 10.60 |   | Letter Agreement by and between iPCS  Wireless, Inc. and Alan G. Morse, dated August 5, 2005, regarding relocation  expenses (Incorporated by reference to Exhibit 99.2 to the current  report on Form 8-K  filed by the  Registrant with the SEC on August 11, 2005 (SEC File No. 333-32064))                                                                                                |
| 10.61 |   | Letter Agreement by and between iPCS, Inc.  and Alan G. Morse, dated as of August 5, 2005, regarding amendment to Mr.  Morse’s non-qualified stock option agreement (Incorporated by reference to  Exhibit 99.3 to the current report on Form 8-K  filed by the Registrant with the SEC on August 11,  2005 (SEC File No. 333-32064))                                                    |
| 16.1  |   | KPMG letter, dated as of October 4,  2004, regarding change in independent registered public accounting firm  (Incorporated by reference to Exhibit 16.2 to the registration statement  on Form S-1 filed by the Registrant with the SEC on October 5, 2004  (SEC File No. 333-117944))                                                                                                  |
| 31.1  |   | Certification of Chief Executive Officer  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                          |
| 31.2  |   | Certification of Chief Financial Officer  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                          |
| 32.1  |   | Certification Pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                |

 

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*              Confidential treatment has beengranted on portions of these documents.

 

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