**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

**FORM10-Q**

 

**QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF**

**THESECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period endedSeptember 30, 2004**

 

CommissionFile Number

**000-30761**

 

**UbiquiTelInc.**

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

 

| **Delaware**                                               |   | **23-3017909**                        |
|------------------------------------------------------------|--------|---------------------------------------|
| (State of  incorporation)                                  |   | (I.R.S. Employer  Identification No.) |
|                                                       |   |                                  |
| **One  West Elm Street, Suite 400, Conshohocken, PA**      |   | **19428**                             |
| (Address of principal  executive office)                   |   | (Zip code)                            |
|                                                       |   |                                  |
| Co-Registrant’s  telephone number: **(610) 832-3300** |

 

CommissionFile Number

**333-39950**

 

**UbiquiTelOperating Company**

(Exactname of Co-Registrant as specified in its charter)

 

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

 

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

 

Indicate by check mark whether eachof the co-registrants (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that each co-registrant was required tofile such reports), and (2) has been subject to such filing requirements forthe past 90 days.
| Yes ý      No o |
|--------------------------------------------------------------|

 

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

 

There were 92,892,520 shares of common stock, $0.0005 par value, of UbiquiTel Inc. outstanding at November5, 2004.

 

There were 1,000 shares of common stock, $0.01 par value, of UbiquiTelOperating Company outstanding at November5, 2004, all of which were owned by UbiquiTel Inc.

 

 

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**UbiquiTel Inc. and Subsidiaries**

 

**Form 10-Q for the Quarter EndedSeptember 30, 2004**

 

 

**INDEX**

 
| PART I.    | FINANCIAL INFORMATION                                             |                                                                       |   |
|------------|-------------------------------------------------------------------|----------------------------------------------------------------------------|--------|
|       |                                                              |                                                                       |   |   |
| Item 1.    | Financial Statements                                              |                                                                       |   |
|       |                                                              | Consolidated Balance Sheets  as of September 30, 2004 and                  |   |   |
|       |                                                              | December 31, 2003                                                          |   |   |
|       |                                                              | Consolidated  Statements of Operations for the three and nine months ended |   |   |
|       |                                                              | September 30,  2004 and 2003                                               |   |   |
|       |                                                              | Consolidated  Statements of Cash Flows for the nine months ended           |   |   |
|       |                                                              | September 30,  2004 and 2003                                               |   |   |
|       |                                                              | Notes to  Consolidated Financial Statements                                |   |   |
|       |                                                              |                                                                       |   |   |
| Item  2.   | Management’s  Discussion and Analysis of Financial Condition |                                                                       |   |
|       |                                                              | and Results of Operations                                                  |   |   |
|       |                                                              |                                                                       |   |   |
| Item  3.   | Quantitative  and Qualitative Disclosures About Market Risk       |                                                                       |   |
|       |                                                              |                                                                       |   |   |
| Item 4.    | Controls and Procedures                                           |                                                                       |   |
|       |                                                              |                                                                       |   |   |
| PART II.   | OTHER INFORMATION                                                 |                                                                       |   |
|       |                                                              |                                                                       |   |   |
| Item 1.    | Legal Proceedings                                                 |                                                                       |   |
|       |                                                              |                                                                       |   |   |
| Item  2.   | Unregistered  Sales of Equity Securities and Use of Proceeds      |                                                                       |   |
|       |                                                              |                                                                       |   |   |
| Item 3.    | Defaults Upon  Senior Securities                                  |                                                                       |   |
|       |                                                              |                                                                       |   |   |
| Item  4.   | Submission  of Matters to a Vote of Security Holders              |                                                                       |   |
|       |                                                              |                                                                       |   |   |
| Item 5.    | Other Information                                                 |                                                                       |   |
|       |                                                              |                                                                       |   |   |
| Item 6.    | Exhibits                                                          |                                                                       |   |
|       |                                                              |                                                                       |   |   |
| Signatures |                                                              |                                                                       |
|            |                                                                   |                                                                            |        |  |  |  |

 

2

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**ExplanatoryNote:**

 

The Consolidated Financial Statements included herein are those ofUbiquiTel Inc. (“UbiquiTel”).  TheCo-Registrants are UbiquiTel and UbiquiTel Operating Company (“OperatingCompany”), which is a wholly-owned subsidiary of UbiquiTel and the issuer of9.875% senior notes due 2011, 14% senior subordinated discount notes due 2010and 14% senior discount notes due 2010 (collectively, the “Notes”).  UbiquiTel has provided a full, unconditional,joint and several guaranty of Operating Company’s obligations under theNotes.  UbiquiTel has no operationsseparate from its investment in Operating Company.  Pursuant to Rule 12h-5 of the SecuritiesExchange Act, no separate financial statements and other disclosures concerningOperating Company other than narrative disclosures set forth in Notes 5, 6 and7 to the Consolidated Financial Statements have been presented herein. As usedherein and except as the context otherwise may require, the “Company,” “we,”“us,” “our” or “UbiquiTel” means, collectively UbiquiTel, Operating Company andtheir consolidated subsidiary, UbiquiTel Leasing Company.

 

3

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**PART I.FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements**

 

**UbiquiTel Inc. and Subsidiaries**

**Consolidated Balance Sheets**

**(Unaudited)**

**(In Thousands, Except Per ShareData)**

 
| ** **                                                                                                                                                                         | ** ** | **September 30, 2004** | ** ** | **December 31, 2003** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| **ASSETS**                                                                                                                                                                         |       |                   |       |                  |       |
| CURRENT ASSETS:                                                                                                                                                                    |       |                   |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                         |       | $                      | 67,038     |                  | $          | 57,225 |   |
| Restricted cash                                                                                                                                                                    |       | 1,137                  |       | 3,562                 |       |
| Accounts  receivable, net of allowance for doubtful accounts of $3,226 at  September 30, 2004 and $2,722 at December 31, 2003                                                      |       | 22,591                 |       | 19,614                |       |
| Inventory                                                                                                                                                                          |       | 3,141                  |       | 3,408                 |       |
| Prepaid expenses  and other assets                                                                                                                                                 |       | 19,990                 |       | 15,848                |       |
| Income tax  receivable                                                                                                                                                             |       | 76                     |       | 217                   |       |
| Total current  assets                                                                                                                                                              |       | 113,973                |       | 99,874                |       |
| PROPERTY AND  EQUIPMENT, NET                                                                                                                                                       |       | 242,458                |       | 259,556               |       |
| CONSTRUCTION IN  PROGRESS                                                                                                                                                          |       | 5,654                  |       | 5,045                 |       |
| DEFERRED  FINANCING COSTS, NET                                                                                                                                                     |       | 8,339                  |       | 8,918                 |       |
| GOODWILL                                                                                                                                                                           |       | 38,138                 |       | 38,138                |       |
| OTHER INTANGIBLE  ASSETS, NET                                                                                                                                                      |       | 65,641                 |       | 68,869                |       |
| OTHER LONG-TERM  ASSETS                                                                                                                                                            |       | 2,662                  |       | 3,004                 |       |
| Total assets                                                                                                                                                                       |       | $                      | 476,865    |                  | $          | 483,404 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                      |       |                   |       |                  |       |
| CURRENT  LIABILITIES:                                                                                                                                                              |       |                   |       |                  |       |
| Current portion  of long-term debt                                                                                                                                                 |       | $                      | 218        |                  | $          | 8,209 |   |
| Accounts payable                                                                                                                                                                   |       | 8,642                  |       | 3,633                 |       |
| Book cash  overdraft                                                                                                                                                               |       | —                 |       | 5,671                 |       |
| Accrued expenses                                                                                                                                                                   |       | 17,156                 |       | 16,591                |       |
| Accrued  compensation and benefits                                                                                                                                                 |       | 3,911                  |       | 3,978                 |       |
| Interest payable                                                                                                                                                                   |       | 2,222                  |       | 1,563                 |       |
| Taxes payable                                                                                                                                                                      |       | 3,909                  |       | 4,049                 |       |
| Deferred revenue                                                                                                                                                                   |       | 12,275                 |       | 11,347                |       |
| Other                                                                                                                                                                              |       | 1,896                  |       | 4,110                 |       |
| Total current  liabilities                                                                                                                                                         |       | 50,229                 |       | 59,151                |       |
| LONG-TERM  DEBT AND CAPITAL LEASE OBLIGATIONS, EXCLUDING CURRENT MATURITIES                                                                                                        |       | 412,517                |       | 396,664               |       |
| OTHER LONG-TERM  LIABILITIES                                                                                                                                                       |       | 9,429                  |       | 9,369                 |       |
| Total long-term  liabilities                                                                                                                                                       |       | 421,946                |       | 406,033               |       |
| Total  liabilities                                                                                                                                                                 |       | 472,175                |       | 465,184               |       |
| COMMITMENTS AND  CONTINGENCIES                                                                                                                                                     |       |                   |       |                  |       |
| STOCKHOLDERS’  EQUITY:                                                                                                                                                        |       |                   |       |                  |       |
| Preferred stock,  par value $0.001 per share; 10,000 shares authorized; 0 shares issued and  outstanding at September 30, 2004 and December 31, 2003                               |       | —                 |       | —                |       |
| Common stock,  par value $0.0005 per share; 240,000 shares authorized; 92,850 and 92,579  shares issued and outstanding at September 30, 2004 and December 31, 2003,  respectively |       | 46                     |       | 46                    |       |
| Additional paid-in  capital                                                                                                                                                        |       | 300,264                |       | 299,955               |       |
| Accumulated  deficit                                                                                                                                                               |       | (295,620               | )          | (281,781              | )          |
| Total  stockholders’ equity                                                                                                                                                   |       | 4,690                  |       | 18,220                |       |
| Total liabilities  and stockholders’ equity                                                                                                                                   |       | $                      | 476,865    |                  | $          | 483,404 |   |

 

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

 

4

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**UbiquiTel Inc. and Subsidiaries**

**Consolidated Statements of Operations**

**(Unaudited)**

**(In Thousands, Except Per ShareData)**

 
| ** **                                                                            | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                            | ** ** | **2004**                             | ** ** | **2003**                            | ** ** | **2004** | ** ** | **2003** | ** ** |
| REVENUES:                                                                             |       |                                 |       |                                |       |   |   |   |   |
| Service revenue                                                                       |       | $                                    | 94,428     |                                | $          | 69,289 |   | $ | 257,355 |   | $ | 188,961 |   |
| Equipment revenue                                                                     |       | 3,320                                |       | 3,504                               |       | 10,384 |   | 8,361 |   |
| Total revenues                                                                        |       | 97,748                               |       | 72,793                              |       | 267,739 |   | 197,322 |   |
| COSTS AND  EXPENSES:                                                                  |       |                                 |       |                                |       |   |   |   |   |
| Cost of service  and operations (exclusive of depreciation as shown separately below) |       | 37,886                               |       | 29,984                              |       | 109,020 |   | 90,942 |   |
| Cost of products  sold                                                                |       | 10,340                               |       | 10,721                              |       | 28,473 |   | 29,526 |   |
| Selling and  marketing                                                                |       | 17,132                               |       | 13,095                              |       | 49,961 |   | 37,255 |   |
| General and  administrative expenses excluding non-cash compensation charges          |       | 9,120                                |       | 7,876                               |       | 27,981 |   | 23,098 |   |
| Non-cash  compensation for general and administrative matters                         |       | (226                                 | )          | 47                                  |       | — |   | 157 |   |
| Depreciation,  amortization and accretion                                             |       | 11,369                               |       | 11,032                              |       | 38,004 |   | 34,690 |   |
| Total costs and  expenses                                                             |       | 85,621                               |       | 72,755                              |       | 253,439 |   | 215,668 |   |
| OPERATING INCOME  (LOSS)                                                              |       | 12,127                               |       | 38                                  |       | 14,300 |   | (18,346 | ) |
| INTEREST INCOME                                                                       |       | 207                                  |       | 146                                 |       | 482 |   | 483 |   |
| INTEREST EXPENSE                                                                      |       | (10,453                              | )          | (6,989                              | )          | (29,253 | ) | (24,147 | ) |
| GAIN ON DEBT  RETIREMENTS                                                             |       | —                               |       | —                              |       | 1,109 |   | 42,872 |   |
| INCOME (LOSS)  BEFORE INCOME TAXES                                                    |       | 1,881                                |       | (6,805                              | )          | (13,362 | ) | 862 |   |
| INCOME TAX  EXPENSE                                                                   |       | (325                                 | )          | (200                                | )          | (477 | ) | (569 | ) |
| NET INCOME  (LOSS)                                                                    |       | $                                    | 1,556      |                                | $          | (7,005 | ) | $ | (13,839 | ) | $ | 293 |   |
|                                                                                  |       |                                 |       |                                |       |   |   |   |   |
| NET INCOME  (LOSS) PER SHARE:                                                         |       |                                 |       |                                |       |   |   |   |   |
| BASIC                                                                                 |       | $                                    | 0.02       |                                | $          | (0.08 | ) | $ | (0.15 | ) | $ | 0.00 |   |
| DILUTED                                                                               |       | $                                    | 0.02       |                                | $          | (0.08 | ) | $ | (0.15 | ) | $ | 0.00 |   |
|                                                                                  |       |                                 |       |                                |       |   |   |   |   |
| WEIGHTED AVERAGE  SHARES OUTSTANDING:                                                 |       |                                 |       |                                |       |   |   |   |   |
| BASIC                                                                                 |       | 92,812                               |       | 90,687                              |       | 92,703 |   | 84,952 |   |
| DILUTED                                                                               |       | 96,825                               |       | 90,687                              |       | 92,703 |   | 93,478 |   |

 

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

 

5

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**UbiquiTel Inc. and Subsidiaries**

**Consolidated Statements of CashFlows**

**(Unaudited)**

**(InThousands)**

 
| ** **                                                                                | ** ** | **Nine Months Ended  September 30, 2004** | ** ** | **Nine Months Ended  September 30, 2003** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                    |       |                                      |       |                                      |       |
| Net income (loss)                                                                         |       | $                                         | (13,839    | )                                         | $          | 293 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |                                      |       |                                      |       |
| Amortization of  deferred financing costs                                                 |       | 1,073                                     |       | 1,386                                     |       |
| Amortization of  debt discount                                                            |       | 811                                       |       | 995                                       |       |
| Amortization of  intangible assets                                                        |       | 3,228                                     |       | 5,982                                     |       |
| Depreciation and  accretion                                                               |       | 34,776                                    |       | 28,709                                    |       |
| Interest accrued  on discount notes                                                       |       | 9,253                                     |       | 12,040                                    |       |
| Non-cash  compensation from stock options granted to employees                            |       | —                                    |       | 157                                       |       |
| Deferred income  taxes                                                                    |       | 231                                       |       | —                                    |       |
| Loss on sale of  equipment                                                                |       | 119                                       |       | 31                                        |       |
| Gain on debt  retirements                                                                 |       | (1,109                                    | )          | (42,872                                   | )          |
| Interest earned  on restricted cash balances                                              |       | (12                                       | )          | (16                                       | )          |
| Changes in  operating assets and liabilities exclusive of capital expenditures:           |       |                                      |       |                                      |       |
| Accounts  receivable                                                                      |       | (2,977                                    | )          | 505                                       |       |
| Inventory                                                                                 |       | 267                                       |       | 385                                       |       |
| Prepaid expenses  and other assets                                                        |       | (3,807                                    | )          | (865                                      | )          |
| Income tax  receivable                                                                    |       | 141                                       |       | 8,567                                     |       |
| Accounts payable  and accrued expenses                                                    |       | 7,120                                     |       | 2,392                                     |       |
| Net cash  provided by operating activities                                                |       | 35,275                                    |       | 17,689                                    |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                    |       |                                      |       |                                      |       |
| Capital  expenditures                                                                     |       | (18,522                                   | )          | (12,741                                   | )          |
| Net cash used in  investing activities                                                    |       | (18,522                                   | )          | (12,741                                   | )          |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                    |       |                                      |       |                                      |       |
| Repayments under  senior secured credit facility                                          |       | (230,000                                  | )          | (15,000                                   | )          |
| Proceeds from  issuance of 9.875% senior notes                                            |       | 265,302                                   |       | —                                    |       |
| Proceeds from  issuance of 14% Series B senior discount notes                             |       | —                                    |       | 10,914                                    |       |
| Cash payments  for amount of 14% senior subordinated discount notes exchanged             |       | —                                    |       | (10,701                                   | )          |
| Repayment of 14%  Series B senior discount notes                                          |       | (12,478                                   | )          | —                                    |       |
| Purchase of 14%  senior discount notes                                                    |       | (15,872                                   | )          | —                                    |       |
| Financing costs                                                                           |       | (8,296                                    | )          | (4,573                                    | )          |
| Change in book  cash overdraft                                                            |       | (5,671                                    | )          | —                                    |       |
| Proceeds from  issuance of common stock                                                   |       | 176                                       |       | 32                                        |       |
| Proceeds from  exercise of stock options and warrants                                     |       | 133                                       |       | 147                                       |       |
| Repayment of  capital lease obligations and other long-term liabilities                   |       | (234                                      | )          | (548                                      | )          |
| Net cash used in  financing activities                                                    |       | (6,940                                    | )          | (19,729                                   | )          |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                                     |       | 9,813                                     |       | (14,781                                   | )          |
| CASH AND CASH  EQUIVALENTS, beginning of period                                           |       | 57,225                                    |       | 73,481                                    |       |
| CASH AND CASH  EQUIVALENTS, end of period                                                 |       | $                                         | 67,038     |                                      | $          | 58,700 |   |
| SUPPLEMENTAL  DISCLOSURE OF CASH FLOW INFORMATION:                                        |       |                                      |       |                                      |       |
| Cash paid for  interest                                                                   |       | $                                         | 17,553     |                                      | $          | 9,726 |   |
| Cash paid for  taxes                                                                      |       | 27                                        |       | 318                                       |       |

 

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

 

6

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**UbiquiTel Inc. and Subsidiaries**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

**1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

**Basis ofPresentation of Unaudited Interim Financial Information**

 

The consolidated financial information as of September30, 2004 and for the three and nine months ended September 30, 2004 and 2003 isunaudited, but has been prepared in accordance with generally acceptedaccounting principles for interim financial information and Article 10 ofRegulation S-X.  Accordingly, they do notinclude all the information and footnotes required by generally acceptedaccounting principles.  In the opinion ofmanagement, the interim data includes all adjustments, consisting only ofnormal recurring adjustments that are considered necessary for a fairpresentation of the Company’s interim results. Operating results for the three and nine months ended September 30, 2004are not necessarily indicative of results that may be expected for the entireyear.  This financial information shouldbe read in conjunction with the audited consolidated financial statements andnotes thereto for the year ended December 31, 2003 of UbiquiTel which areincluded in its and Operating Company’s Joint Annual Report on Form 10-K forthe year ended December 31, 2003.

 

**Principlesof Consolidation and Use of Estimates**

 

The accompanying financial statements include the accounts of UbiquiTelInc. and its subsidiaries (see Note 2). All significant intercompany balances and transactions have beeneliminated.

 

The preparation of financial statements in conformitywith generally accepted accounting principles requires management to makeestimates and assumptions.  Theseestimates and assumptions affect the reported amounts of assets and liabilitiesand disclosure of contingent assets and liabilities at the date of thefinancial statements.  These assumptionsalso affect the reported amounts of revenues and expenses during the reportingperiods.  Actual results could differfrom those estimates and assumptions.

 

**Stock-Based Compensation**

 

At September 30, 2004, UbiquiTel had two stock-basedemployee compensation plans, an employee stock purchase plan and an equityincentive plan.  The employee stockpurchase plan was suspended effective with the offering period beginningJanuary 1, 2003 and resumed effective with the offering period beginningJanuary 1, 2004. Under the terms of the employee stock purchase plan, during acalendar year there are four quarterly offering periods, beginning January 1,April 1, July 1 and October 1, during which eligible employees can participate.The stock purchase price is the lower of 85% of fair market value of the commonstock on the first business day of the offering period or 85% of the fairmarket value of the common stock on the last business day of the offeringperiod. The Company accounts for these plans in accordance with AccountingPrinciples Board Opinion No. 25, “Accounting for Stock Issued to Employees,”and related interpretations.

 

In May 2002, the Company modified 1,220,800 optionspreviously issued to employees and board members under its equity incentiveplan to reduce the exercise price to $4.00 per share, which was $2.14 per shareabove the fair market value on the date of modification.  The modification reducing the exercise priceof these stock options results in variable accounting for the options from thedate of modification to the date the options are exercised, forfeited or expireunexercised.  Under variable accounting,compensation expense of $0.2 million was recognized in the six months endedJune 30, 2004 for the excess of the common stock’s fair market value over themodification price on 1,027,500 stock options deemed vested. As of September30, 2004, the market price per share of common stock was $4.00, resulting in areduction in compensation expense of approximately $0.2 million for the three

 

7

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months ended September 30, 2004.

 

The following table illustrates the effect on netincome and earnings per share if the Company had applied the fair valuerecognition provisions of Statement of Financial Accounting Standards (“SFAS”)No. 123, “Accounting for Stock-Based Compensation.”

 
| ** **                                                                                                             | ** ** | **Three Months Ended September 30,**         | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                                             | ** ** | **2004**                                     | ** ** | **2003**                            | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                                             | ** ** | **(In Thousands, Except Per Share Amounts)** | ** ** |
| Net income  (loss), as reported                                                                                        |       | $                                            | 1,556      |                                | $          | (7,005 | ) | $ | (13,839 | ) | $ | 293 |   |
| Add: stock-based  employee compensation expense included in reported net income (loss), net of  related tax            |       | (226                                         | )          | 47                                  |       | — |   | 157 |   |
| Deduct: total  stock-based employee compensation expense determined under fair value-based  method, net of related tax |       | (328                                         | )          | (561                                | )          | (1,447 | ) | (1,660 | ) |
| Pro forma net  income (loss)                                                                                           |       | $                                            | 1,002      |                                | $          | (7,519 | ) | $ | (15,286 | ) | $ | (1,210 | ) |
|                                                                                                                   |       |                                         |       |                                |       |   |   |   |   |
| Basic net income  (loss) per share:                                                                                    |       |                                         |       |                                |       |   |   |   |   |
| As reported                                                                                                            |       | $                                            | 0.02       |                                | $          | (0.08 | ) | $ | (0.15 | ) | $ | 0.00 |   |
| Pro forma                                                                                                              |       | $                                            | 0.01       |                                | $          | (0.08 | ) | $ | (0.16 | ) | $ | (0.01 | ) |
|                                                                                                                   |       |                                         |       |                                |       |   |   |   |   |
| Diluted net  income (loss) per share:                                                                                  |       |                                         |       |                                |       |   |   |   |   |
| As reported                                                                                                            |       | $                                            | 0.02       |                                | $          | (0.08 | ) | $ | (0.15 | ) | $ | 0.00 |   |
| Pro forma                                                                                                              |       | $                                            | 0.01       |                                | $          | (0.08 | ) | $ | (0.16 | ) | $ | (0.01 | ) |

 

**Other Intangible Assets**

 

**Otherintangible assets were approximately $65.6 million and $68.9 million, net ofaccumulated amortization expense of approximately $13.5 million and $10.3million as of September 30, 2004 and December 31, 2003, respectively. Otherintangible assets represents the estimated value of VIA Wireless’ Sprint PCSmanagement agreement and is amortized on a straight-line basis over itsestimated useful life of 18 years. Amortization expense for other intangible assets was approximately $1.1million for the three months ended September 30, 2004 and 2003 andapproximately $3.2 million for the nine months ended September 30, 2004 and2003.**

** **

**Estimatedfuture amortization expense of intangible assets for the next five years atSeptember 30, 2004 is as follows:**

 
| **Years Ending December 31,** | ** ** | **(In Thousands)** | ** ** |
|-------------------------------|------------|--------------------|------------|
|                          |       |               |       |
| 2004                          |       | $                  | 1,076      |   |
| 2005                          |       | 4,304              |       |
| 2006                          |       | 4,304              |       |
| 2007                          |       | 4,304              |       |
| 2008                          |       | 4,304              |       |
|                               |            |                    |            |  |

 

**Reclassifications**

 

Certain prior year amounts have been reclassified to conform withcurrent year presentation.

 

8

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**2.ORGANIZATION AND NATURE OF BUSINESS**

 

**Organizationand Nature of Business**

 

UbiquiTel Inc.and Subsidiaries (“UbiquiTel” or the “Company”) was formed for the purpose ofbecoming the exclusive provider of Sprint Personal Communications Services(“PCS”) in certain defined midsize markets in the western and midwestern UnitedStates.

 

InOctober 1998, UbiquiTel L.L.C. (a Washington state limited liabilitycompany) entered into a management agreement with Sprint PCS for the exclusiverights to market Sprint’s 100% digital, 100% PCS products and services to theresidents in the Reno/Tahoe, Nevada market. UbiquiTel L.L.C. had no financialtransactions from its inception (August 24, 1998) to September 29,1999. On September 29, 1999, UbiquiTel Inc. (formerly, UbiquiTel Holdings, Inc.)was incorporated in Delaware. In November 1999, UbiquiTel L.L.C. assignedall of its material contracts including the rights to the Sprint PCS agreementsto UbiquiTel Inc. On November 9, 1999, UbiquiTel Operating Company (aDelaware corporation, formerly a Delaware limited liability company)(“Operating Company”), was formed to serve as the operating company forUbiquiTel Inc. Also, on March 17, 2000, UbiquiTel Leasing Company (aDelaware corporation) was formed to serve as the leasing company for UbiquiTel Inc.UbiquiTel Inc. assigned the Sprint PCS agreements to Operating Companyfollowing its formation. On December 28, 1999, UbiquiTel amended itsmanagement agreement with Sprint PCS to expand its markets to include northernCalifornia, Spokane/Montana, southern Idaho/Utah/Nevada and southernIndiana/Kentucky, which together with Reno/Tahoe, contain approximately7.7 million residents. On February 21, 2001, in connection withUbiquiTel’s acquisition of VIA Wireless LLC, UbiquiTel amended its management agreementwith Sprint PCS to expand its markets effective at the closing inAugust 2001 to include 3.4 million additional residents from the sixVIA Wireless Basic Trading Areas covering the central valley of Californiamarket. On August 13, 2001, upon the closing of the merger agreement, VIAWireless became a wholly owned subsidiary of Operating Company and was latermerged into Operating Company in June 2003. On July 31, 2003,Operating Company amended its management agreement with Sprint PCS to eliminatethe obligation to build out the state of Montana, thereby reducing its licensedresident population in its markets to approximately 10.0 million.

 

The consolidated financial statements contain the financial informationof UbiquiTel Inc. and its subsidiaries, UbiquiTel Operating Company andUbiquiTel Leasing Company. The Company operates under one segment.

 

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

 

The Company computes net income (loss) per common share in accordancewith SFAS No. 128, “Earnings per Share” (“SFAS No. 128”).  Under the provisions of SFAS No. 128,basic net income (loss) per common share is computed by dividing the net income(loss) applicable to common stockholders for the period by the weighted averagenumber of shares of common stock outstanding.  In accordance with SFAS No. 128, incremental potential common sharesfrom stock options and warrants are excluded in the calculation of diluted lossper share when the effect would be antidilutive.

 

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

 

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| ** **                                           | ** ** | **Three Months Ended September 30,**         | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------|------------|-------------------------------------|------------|
| ** **                                           | ** ** | **2004**                                     | ** ** | **2003**                            | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                           | ** ** | **(In Thousands, Except Per Share Amounts)** | ** ** |
| Basic                                                |       |                                         |       |                                |       |   |   |   |   |
| Net income (loss)                                    |       | $                                            | 1,556      |                                | $          | (7,005 | ) | $ | (13,839 | ) | $ | 293 |   |
| Average common  shares outstanding                   |       | 92,812                                       |       | 90,687                              |       | 92,703 |   | 84,952 |   |
| Basic                                                |       | $                                            | 0.02       |                                | $          | (0.08 | ) | $ | (0.15 | ) | $ | 0.00 |   |
|                                                 |       |                                         |       |                                |       |   |   |   |   |
| Diluted                                              |       |                                         |       |                                |       |   |   |   |   |
| Net income  (loss)                                   |       | $                                            | 1,556      |                                | $          | (7,005 | ) | $ | (13,839 | ) | $ | 293 |   |
| Average common  shares outstanding                   |       | 92,812                                       |       | 90,687                              |       | 92,703 |   | 84,952 |   |
| Effect of:                                           |       |                                         |       |                                |       |   |   |   |   |
| Dilutive options                                     |       | 4,013                                        |       | —                              |       | — |   | 1,185 |   |
| Dilutive  securities                                 |       | —                                       |       | —                              |       | — |   | 7,341 |   |
| Average common  shares outstanding assuming dilution |       | 96,825                                       |       | 90,687                              |       | 92,703 |   | 93,478 |   |
|                                                 |       |                                         |       |                                |       |   |   |   |   |
| Diluted                                              |       | $                                            | 0.02       |                                | $          | (0.08 | ) | $ | (0.15 | ) | $ | 0.00 |   |

 

The following table summarizes the securitiesthat are excluded from the income (loss) per share calculation, as amounts would have an antidilutive effect.

 
| ** **    | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------|------------|--------------------------------------|------------|-------------------------------------|------------|
| ** **    | ** ** | **2004**                             | ** ** | **2003**                            | ** ** | **2004** | ** ** | **2003** | ** ** |
| Stock options |       | 6,000                                |       | 6,658,300                           |       | 7,994,550 |   | 2,115,800 |   |
| Warrants      |       | 3,665,183                            |       | 3,665,183                           |       | 3,665,183 |   | 3,665,183 |   |
| Total         |       | 3,671,183                            |       | 10,323,483                          |       | 11,659,733 |   | 5,780,983 |   |

 

**4.PROPERTY AND EQUIPMENT**

 

Property and equipment consisted of the following:

 
| ** **                       | ** ** | **September 30, 2004** | ** ** | **December 31, 2003** | ** ** |
|----------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **(In Thousands)**     | ** ** |
| Network  equipment               |       | $                      | 340,662    |                  | $          | 330,738 |   |
| Vehicles                         |       | 1,442                  |       | 1,381                 |       |
| Furniture and  office equipment  |       | 4,945                  |       | 4,727                 |       |
| Computer  equipment and software |       | 8,222                  |       | 7,687                 |       |
| Leasehold  improvements          |       | 4,074                  |       | 4,196                 |       |
| Land                             |       | 130                    |       | 130                   |       |
| Buildings                        |       | 4,670                  |       | 4,670                 |       |
|                             |       | 364,145                |       | 353,529               |       |
| Accumulated  depreciation        |       | (121,687               | )          | (93,973               | )          |
| Property and  equipment, net     |       | $                      | 242,458    |                  | $          | 259,556 |   |

 

Depreciation expense was approximately $10.2 million and $9.8 millionfor the three months ended September 30, 2004 and 2003, respectively, andapproximately $34.7 million and $28.6 million for the nine months endedSeptember 30, 2004 and 2003, respectively.

 

In the fourth quarter of 2003, the Company entered into anagreement to systematically replace many of the Company’s existing minicellbase stations with an equivalent quantity of current generation multi-carriercapable base stations, or modcells. As of the date of the agreement, theestimated useful life of each existing minicell base station was reduced toreflect the remaining number of months such assets will be in use prior toconversion, thereby accelerating depreciation expense. The impact of thischange increased depreciation expense by approximately $0.1 million and$4.8 million for the three and nine months ended September 30, 2004,respectively, and is estimated to

 

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increasedepreciation expense by approximately $5.0 million and $0.7 millionfor the years ending December 31, 2004 and 2005, respectively.

 

**5. LONG-TERM DEBT AND CAPITALLEASE OBLIGATIONS AND DEBT RETIREMENTS**

 

Long-term debt and capital lease obligations outstanding as of September 30, 2004 and December 31, 2003 were as follows: 

 
| ** **                                                                          | ** ** | **September 30, 2004** | ** ** | **December 31, 2003** | ** ** |
|-------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                          | ** ** | **(In Thousands)**     | ** ** |
| 9.875% senior  notes                                                                |       | $                      | 270,000    |                  | $          | — |   |
| Less: discount                                                                      |       | (4,407                 | )          | —                |       |
| 14% senior  discount notes                                                          |       | 31,473                 |       | 48,180                |       |
| Less: discount                                                                      |       | (2,211                 | )          | (7,691                | )          |
| 14% senior  subordinated discount notes                                             |       | 100,380                |       | 100,380               |       |
| Less: discount                                                                      |       | (7,078                 | )          | (16,050               | )          |
| Less: additional  discount for detachable warrants                                  |       | (2,963                 | )          | (3,364                | )          |
| 14% Series B  senior discount notes                                                 |       | —                 |       | 14,515                |       |
| Less: discount                                                                      |       | —                 |       | (2,318                | )          |
| Less: additional  discount for detachable warrants                                  |       | —                 |       | (3,730                | )          |
| Senior secured  credit facility                                                     |       | —                 |       | 230,000               |       |
| Capital lease  obligations                                                          |       | —                 |       | 81                    |       |
| Building  mortgage and other long-term liabilities                                  |       | 3,299                  |       | 3,453                 |       |
| Subtotal                                                                            |       | 388,493                |       | 363,456               |       |
| Future cash  flows associated with 14% senior discount notes for interest and other |       | 24,242                 |       | 41,417                |       |
| Total long-term  debt and capital lease obligations                                 |       | 412,735                |       | 404,873               |       |
| Less: current  maturities                                                           |       | 218                    |       | 8,209                 |       |
| Total long-term  debt and capital lease obligations, excluding current maturities   |       | $                      | 412,517    |                  | $          | 396,664 |   |

 

**Firstand Second Quarter 2003 Refinancings**

 

In February 2003, Operating Company consummated certaintransactions which reduced its long-term debt outstanding. Operating Companyconsummated a private placement exchange of $48.2 million aggregateprincipal amount of its 14% senior discount notes due May 15, 2010 (“14%Senior Notes”) and $9.6 million in cash for $192.7 million aggregateprincipal amount of its outstanding 14% senior subordinated discount notes dueApril 15, 2010 (“14% Subordinated Notes”). The 14% Senior Notes weresubsequently registered with the Securities and Exchange Commission.

 

Additionally, in February 2003, Operating Company consummated a relatedfinancing, in a private placement offering, of $12.8 million aggregateprincipal amount of 14% Series B senior discount notes due 2008 (“14%Series B Senior Notes”) in which Operating Company received cash proceedsof $9.6 million to fund the cash portion of the exchange. Under thefinancing, the Company issued detachable warrants to purchase up toapproximately 9.6 million shares of UbiquiTel’s common stock at anexercise price of $0.01 per share.

 

As a condition to the transactions consummated in February 2003, OperatingCompany’s senior secured lenders required Operating Company to prepay$15.0 million of its outstanding term loans under its former seniorsecured credit facility, thereby reducing the outstanding term loans under thesenior secured credit facility to $230.0 million. In addition, the$55.0 million unused revolving line of credit was permanently reduced by$5.0 million to $50.0 million, which was further reduced to$47.7 million during the third quarter of 2003.

 

The Company followed the provisions of SFAS No. 15, “Accounting byDebtors and Creditors for Troubled

 

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DebtRestructurings,” and Emerging Issues Task Force Issue No. 02-04,“Determining Whether a Debtor’s Modification or Exchange of Debt Instruments IsWithin the Scope of FASB Statement No. 15,” in recording the privateplacement exchange transaction. These provisions require that the carryingvalue of the 14% Senior Notes be recorded at the total future cash payments(principal and interest) specified by the 14% Senior Notes; therefore, the 14%Senior Notes were classified on the Company’s balance sheet as long-termliabilities and were valued at $81.9 million as of the transaction date.As a result, no interest expense related to the 14% Senior Notes will berecognized in future periods. As a result of these transactions, the Companyreduced overall debt by approximately $146.7 million aggregate principalamount ($113.8 million aggregate accreted value). In the first quarter of2003, the Company recognized a gain of approximately $39.0 million as aresult of the private placement exchange.

 

Additionally, in a series of transactions during the second quarter of2003, Operating Company received cash proceeds of approximately$1.3 million, of which $1.1 million were used by Operating Company tofund open market purchases of $6.9 million aggregate principal amount($5.3 million aggregate accreted value) of 14% Subordinated Notes, andOperating Company issued approximately $1.7 million aggregate principalamount of additional 14% Series B Senior Notes. Under these privateplacement sales, the Company issued detachable warrants to purchase up toapproximately 1.3 million shares of UbiquiTel’s common stock at anexercise price of $0.01 per share. In connection with these transactions, theCompany wrote off approximately $0.1 million in deferred financing feesand $0.3 million in unamortized debt discount for detachable warrantsrelated to the original issuance of the 14% Subordinated Notes, which reducedthe gain resulting from the open market purchases. As a result of thesetransactions, the Company recorded a gain of approximately $3.9 millionduring the second quarter of 2003.

 

**FirstQuarter 2004 Refinancing**

 

On February 23, 2004, Operating Company issued$270.0 million in aggregate principal amount of 9.875% senior notes due March1, 2011 (“9.875% Senior Notes”), in a transaction exempt from the registrationrequirements of the Securities Act. The 9.875% Senior Notes were issued at adiscount and generated approximately $265.3 million in proceeds. Theproceeds were used to repay and terminate Operating Company’s senior securedcredit facility, including the repayment of $230.0 million in outstandingborrowings plus accrued interest and termination of its unused  $47.7 million revolving line of credit,to redeem all of Operating Company’s outstanding 14% Series B Senior Notes($14.5 million outstanding principal amount) for approximately$12.5 million, to purchase $16.7 million principal amount of OperatingCompany’s outstanding 14% Senior Notes for approximately $15.9 million andto pay financing costs for the issuance of the 9.875% Senior Notes ofapproximately $7.8 million. The repaymentsof the senior secured credit facility and the 14% Series B Senior Notes and thepurchase of the 14% Senior Notes resulted in a net gain on debt retirements ofapproximately $1.1 million, consisting of a loss on the purchase of the 14%Senior Notes of approximately $1.6 million, the write-off of deferred financingfees related to the senior secured credit facility and the 14% Series B SeniorNotes of approximately $7.7 million, the write-off of unamortized debt discountfor detachable warrants associated with the 14% Series B Senior Notes ofapproximately $3.6 million and costs of approximately $0.1 million related tothe termination of the senior secured credit facility, net of a gain ofapproximately $14.1 million recognized on the reduction in carrying value ofthe future cash payments associated with the purchased 14% Senior Notes.

 

The 9.875% Senior Notesrank pari passu in right of payment to the 14% Senior Notes and senior to the14% Subordinated Notes. Interest on the 9.875% Senior Notes will be payablesemiannually beginning on September 1, 2004. The 9.875% Senior Notes areredeemable in whole or in part on or after March 1, 2007. Prior to March 1,2007, Operating Company may redeem up to 35% of the aggregate principal amountof the 9.875% Senior Notes with net cash proceeds of a sale of its equity or acontribution to its common equity capital, provided that at least 65% of theprincipal amount of 9.875% Senior Notes originally issued under the indentureremains outstanding after giving effect to such redemption and such redemptionoccurs within 45 days of the date of such sale of equity interests orcontribution. The indenture governing the 9.875% Senior Notes containscustomary covenants, including covenants limiting indebtedness, dividends anddistributions on, and redemptions and repurchases of, capital stock

 

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and other similar payments, the acquisition anddisposition of assets, and transactions with affiliates or related persons. Theindenture governing the 9.875% Senior Notes provides for customary events of default,including cross defaults, judgment defaults and events of bankruptcy.  Operating Company is permitted to issueadditional 9.875% Senior Notes under the indenture from time to time (see Note 7). On July 29, 2004, Operating Company completed a registered exchangeoffer involving the 9.875% Senior Notes, pursuant to which all of theoutstanding 9.875% Senior Notes were exchanged for 9.875% Senior Notes thathave been registered under the Securities Act. The registered 9.875% SeniorNotes are substantially identical to the unregistered 9.875% Senior Notes,except that certain transfer restrictions and registration rights do not applyto the registered 9.875% Senior Notes.

 

UbiquiTel has fully and unconditionally guaranteed Operating Company’sobligations under the 14% Subordinated Notes, the 14% Senior Notes and the9.875% Senior Notes. UbiquiTel has no independent assets or operations separatefrom its investment in Operating Company.

 

The Company presently is in compliance with all covenants associatedwith the 14% Subordinated Notes, the 14% Senior Notes and the 9.875% SeniorNotes.

 

The Company may from time to time purchase outstanding 14% SubordinatedNotes, 14% Senior Notes and 9.875% Senior Notes in the open market, inprivately negotiated transactions or otherwise in accordance with its debtinstruments and applicable law (see Note 7).

 

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

 

UbiquiTel has fully andunconditionally guaranteed Operating Company’s obligations under the 14%Subordinated Notes, the 14% Senior Notes and the 9.875% Senior Notes (seeNote 5). UbiquiTel has no independent assets or operations separate fromits investment in Operating Company. UbiquiTel Leasing Company is a minorsubsidiary.

 

**7.**** SUBSEQUENTEVENT**

 

On October 14, 2004, OperatingCompany completed a financing of an additional $150.0 million aggregateprincipal amount of 9.875% Senior Notes in a transaction exempt from theregistration requirements of the Securities Act. These 9.875% Senior Notes areof the same class as the previously outstanding $270.0 million aggregateprincipal amount of 9.875% Senior Notes and were issued at a price of 103.5%generating cash proceeds of approximately $155.3 million.

 

Operating Company used approximately $139.3 million ofthese cash proceeds to fund the cash tender offer and consent solicitation forits outstanding 14% Subordinated Notes and 14% Senior Notes. Approximately$100.4 million aggregate principal amount of 14% Subordinated Notes andapproximately $31.4 million aggregate principal amount of 14% Senior Notes werevalidly tendered and accepted. The amendments to the indentures governing the14% Subordinated Notes and the 14% Senior Notes eliminating substantially allof the indentures’ restrictive covenants and certain of their events of defaultbecame effective on October 14, 2004.  There are approximately $32,000aggregate principal amount of 14% Senior Notes that remainoutstanding.   Operating Company expects to use a portion of theremaining cash proceeds from the offering necessary to repurchase and retire,to defease or to redeem all of these notes.

 

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

 

**Forward-Looking Statements**

 

This Joint Quarterly Report on Form 10-Q includesforward-looking statements that involve known and

 

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unknown risks, uncertainties and other factors.  Our actual results could differ materiallyfrom the results anticipated in these forward-looking statements.   Investors are referred to the documentsfiled by UbiquiTel and/or UbiquiTel Operating Company with the Securities andExchange Commission, specifically the most recent filings which identifyimportant risk factors that could cause actual results to differ from thosecontained in the forward-looking statements, including, but not limited to:

 

•                                          UbiquiTel’sdependence on its affiliation with Sprint;

 

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

 

•                                          increasedcompetition in UbiquiTel’s markets;

 

•                                          rates ofpenetration in the wireless communications industry;

 

•                                          the potentialto experience a high rate of customer turnover;

 

•                                          customerquality;

 

•                                          potentialdeclines in roaming revenue;

 

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

 

•                                          the abilityof Sprint to provide back office, customer care and other services;

 

•                                          the potentialimpact of wireless local number portability;

 

•                                          UbiquiTel’sdebt level;

 

•                                          adequacy ofbad debt and other reserves;

 

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

 

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

 

•                                          changes inpopulation;

 

•                                          changes oradvances in technology; and

 

•                                          general economic and business conditions.

 

These and other applicable risks are described underthe caption “Business3⁄4Risk Factors” andelsewhere in UbiquiTel’s and Operating Company’s Joint Annual Report on Form10-K for the fiscal year ended December 31, 2003 filed with the Securities andExchange Commission, and under the caption “Liquidity and CapitalResources—Factors That May Affect Operating Results and Liquidity” andelsewhere in this Item 2. We assume no obligation to publicly update or reviseany forward-looking statement made in this report, whether as a result of newinformation, future events, changes in assumptions or otherwise, after the dateof this report.  All written or oral forward-lookingstatements attributable to us are expressly qualified in their entirety bythese cautionary statements.

 

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**Use ofCertain Terms**

 

In 2003, we initiated areseller program in which mobile virtual network operators (MVNOs) use our networkand resell wireless service under a private label. Minutes and kilobytes aresold at wholesale rates. Virgin Mobile USA launched reseller service in thesecond quarter of 2003. Qwest Communications launched reseller service in thesecond quarter of 2004. As of September 30, 2004, we had approximately 78,200reseller subscribers. In this “Item 2. Management’s Discussion andAnalysis of Financial Condition and Results of Operations,” unless the contextindicates otherwise, all references to “subscribers” or “customers” and otheroperating metrics mean subscribers or customers excluding reseller subscribers.

 

**Overview**

 

UbiquiTel Inc.and Subsidiaries (“UbiquiTel” or the “Company”) was formed for the purpose ofbecoming the exclusive provider of Sprint Personal Communications Services(“PCS”) in certain defined midsize markets in the western and midwestern UnitedStates.

 

InOctober 1998, UbiquiTel L.L.C. entered into a management agreement withSprint PCS for the exclusive rights to market Sprint’s 100% digital, 100% PCSproducts and services to the residents in the Reno/Tahoe, Nevada market.UbiquiTel L.L.C. had no financial transactions from its inception(August 24, 1998) to September 29, 1999. On September 29, 1999,UbiquiTel Inc. (formerly, UbiquiTel Holdings, Inc.) was incorporatedin Delaware. In November 1999, UbiquiTel L.L.C. assigned all of itsmaterial contracts including the rights to the Sprint PCS agreements toUbiquiTel Inc. On November 9, 1999, UbiquiTel Operating Company (“OperatingCompany”) was formed to serve as the operating company for UbiquiTel Inc.Also, on March 17, 2000, UbiquiTel Leasing Company was formed to serve asthe leasing company for UbiquiTel Inc. UbiquiTel Inc. assigned theSprint PCS agreements to Operating Company following its formation. OnDecember 28, 1999, we amended our management agreement with Sprint PCS toexpand our markets to include northern California, Spokane/Montana, southernIdaho/Utah/Nevada and southern Indiana/Kentucky, which together with Reno/Tahoe,contain approximately 7.7 million residents. On February 21, 2001, inconnection with our acquisition of VIA Wireless LLC, we amended our managementagreement with Sprint PCS to expand our markets effective at the closing inAugust 2001 to include 3.4 million additional residents from the sixVIA Wireless Basic Trading Areas covering the central valley of Californiamarket. On August 13, 2001, upon the closing of the merger agreement, VIAWireless became a wholly owned subsidiary of Operating Company and was latermerged into Operating Company in June 2003. On July 31, 2003, weamended our management agreement with Sprint PCS to eliminate the obligation tobuild out the state of Montana, thereby reducing our licensed residentpopulation in our markets to approximately 10.0 million.

 

As of September 30, 2004, we had approximately 383,400 subscribersexcluding resellers and approximately 78,200 reseller subscribers, for a totalsubscriber base of approximately 461,600. As of September 30, 2004, our networkcovered approximately 7.9 million residents which representedapproximately 79% of the licensed population in our markets.

 

As a PCS affiliate of Sprint, we do not own the licenses to operate ournetwork and instead pay Sprint PCS for the use of its licenses. Under ourmanagement agreement with Sprint PCS and for the period from our inceptionthrough October 31, 2003, Sprint PCS was entitled to receive 8.0% ofcollected revenue from Sprint PCS subscribers based in our markets and feesfrom wireless service providers other than Sprint PCS when their subscribersroam into our network. Effective November 1, 2003, Sprint is entitled toreceive 8.0% of billed revenue less current period bad debts, net of bad debtrecoveries, from Sprint PCS subscribers based in our markets and fees fromwireless service providers other than Sprint PCS when their subscribers roaminto our network. We are entitled to 100% of revenues collected from the saleof handsets and accessories from our stores and on roaming revenues receivedwhen Sprint PCS customers from a different territory make a wireless call onour PCS network and outbound non-Sprint PCS roaming billed to subscribers basedin our markets. We are responsible for building,

 

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owning andmanaging the portion of the PCS network located in our markets under the Sprintbrand name. Our results of operations are dependent on Sprint PCS’ network and,to a lesser extent, on the networks of other PCS affiliates of Sprint.

 

As a PCS affiliate of Sprint, we purchase a full suite of supportservices from Sprint PCS including billing, customer care, collections andnational platform services. We pay a monthly per subscriber rate for theseservices which is reset every three years. The initial period for the servicerates ends December 31, 2006. We have access to these services during the termof our management agreement unless Sprint PCS provides us at least nine months’advance notice of its intention to terminate any particular significant service.If Sprint PCS terminates service, our operations may be interrupted orrestricted.

 

**CriticalAccounting Policies and Estimates**

 

We rely on the use of estimates and make assumptions that impact ourfinancial condition and results. These estimates and assumptions are based onhistorical results and trends as well as our forecasts as to how these mightchange in the future. Some of the most critical accounting policies that mightmaterially impact our results include:

 

***RevenueRecognition:***

 

We recognize revenues when services have been rendered or products havebeen delivered, the price to the buyer is fixed and determinable, andcollectibility is reasonably assured. We account for rebates, discounts andother sales incentives as a reduction to revenue. Service revenues includesubscriber revenues, reseller revenues, Sprint PCS travel revenues andnon-Sprint PCS roaming revenues. Equipment revenues include sales of handsetsand accessories. Subscriber revenues consist of monthly recurring servicecharges for voice and third generation data (“3G data”) services and monthlynon-recurring charges for local, long distance, travel and roaming airtimeusage and 3G data usage in excess of the pre-subscribed usage plan receivedfrom our subscribers, cancellation and late fee revenues and surcharges, lessreductions for billing adjustments and credits. Our revenue recognitionpolicies are consistent with the guidance in Emerging Issues Task Force(“EITF”) Issue No. 00-21, “Accounting for Revenue Arrangements with MultipleDeliverables” (“EITF 00-21”), and Staff Accounting Bulletin No. 104,“Revenue Recognition.”

 

We recognize service revenue from our subscribers as they use theservice. We pro-rate access revenue over the billing period and record airtimeusage in excess of the pre-subscribed usage plan. Our subscribers pay anactivation fee to us when they initiate service. Prior to the adoption of EITF00-21 on July 1, 2003, we deferred all activation fee revenue and directcustomer activation costs on a straight-line basis over the average life of oursubscribers, which was estimated to be 30 months. Direct customeractivation costs in excess of activation fee revenue were recognizedimmediately. For the nine months ended September 30, 2004 and 2003, we recognizedapproximately $3.8 million and $3.6 million, respectively, of activation feerevenue. We have deferred approximately $4.9 million and $5.9 million ofactivation fee revenue and related costs as of September 30, 2004 and December31, 2003, respectively, to future periods. We have determined that the sale ofwireless services through our direct sales channels with an accompanyinghandset constitutes a revenue arrangement with multiple deliverables, asdefined in EITF 00-21. Upon adoption of EITF 00-21, non-refundable, up-frontactivation fees billed in our direct sales channel are now included inequipment revenue rather than service revenue in the consolidated statement ofoperations to the extent that the aggregate activation fee and handset proceedsreceived from a subscriber do not exceed the fair value of the handset sold. Asthe total fair value of the handsets sold in direct sales channels consistentlyexceeds the aggregate activation fees and handset proceeds received from oursubscribers, our adoption of EITF 00-21 has resulted in our no longer deferringactivation fees and, therefore, no longer deferring incremental directactivation costs for direct sales channel revenue arrangements. Approximately$1.4 million of activation fees were included in equipment revenue during thenine months ended September 30, 2004.

 

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We record Sprint PCS travel revenue on a per minute rate for voiceservices and on a per kilobit rate for data services when Sprint PCS subscribersbased outside our markets use our network. We record non-Sprint PCS roamingrevenue when non-Sprint PCS subscribers use our network. We record resellerrevenue when reseller subscribers use our network.

 

Equipment revenue consists of proceeds from sales of handsets andaccessories which are recorded at the time of sale. Revenues from sales ofhandsets and accessories represent a separate earnings process from servicerevenue because sales of handsets and accessories do not require customers tosubscribe to wireless services. Beginning July 1, 2003 in accordance withEITF 00-21, equipment revenue also includes an allocation of the arrangementconsideration from activation revenue received as part of revenue arrangementswith multiple deliverables.

 

We participate inthe Sprint national and regional distribution programs in which nationalretailers such as RadioShack, Best Buy and Costco sell Sprint PCS products andservices. In order to facilitate the sale of Sprint PCS products and services,national retailers purchase wireless handsets from Sprint for resale andreceive compensation from Sprint for Sprint PCS products and services sold. Forindustry competitive reasons, Sprint subsidizes the price of these handsets byselling the handsets at a price below cost. Under our Sprint PCS agreements,when a national retailer sells a handset purchased from Sprint to a subscriberin our markets, we are obligated to reimburse Sprint for the handset subsidy.We do not receive any revenues from sales of handsets and accessories bynational retailers. For a new subscriber activation and a handset upgrade to anexisting subscriber, we include these handset subsidy charges in cost ofproducts sold in the consolidated statements of operations.

 

***Valuation of Accounts Receivable and Inventories:***

 

**Reserve for Doubtful Accounts**—Estimatesare used in determining our allowance for bad debt and are based both on ourhistorical collection experience, current trends and credit policy and on apercentage of our accounts receivables by aging category. In determining thesepercentages, we look at historical write-offs of our receivables. We also lookat current trends in the credit quality of our customer base and changes in thecredit policies. Under the Sprint PCS service plans, customers who do not meetcertain credit criteria can nevertheless select any plan offered subject to anaccount spending limit, or ASL, to control credit exposure. Account spendinglimits range from $125 to $250 depending on the credit quality of the customer.Sub-prime subscribers are required to make a deposit ranging from $125 to $250that can be credited against future billings. If these estimates areinsufficient for any reason, our operating income and available cash would bereduced.

 

**Reserve for Obsolete/Excess Inventory**—Werecord a reserve for obsolete or excess handset and accessories inventory formodels and accessories that are no longer manufactured, for defective modelsand accessories that have been returned by customers and for second generationhandsets and accessories. If the estimate of obsolete inventory is understated,our operating income would be reduced.

 

***Long-Lived Assets and Goodwill:***

 

Statement ofFinancial Accounting Standards (“SFAS”) No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), requiresthat long-lived assets be reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. Recoverability is assessed based on the future cash flows expectedto result from the use of the asset and its eventual disposition. If the sum ofthe undiscounted cash flows is less than the carrying value of the asset, animpairment loss is recognized. Any impairment loss, if indicated, is measuredas the amount by which the carrying amount of the asset exceeds the fair valueof the asset. SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFASNo. 142”), requires that goodwill and certain intangible assets resultingfrom business combinations be reviewed for recoverability, and that annualtests for impairment of goodwill and intangible assets that have indefiniteuseful lives

 

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be performed. SFASNo. 142 also requires interim tests when an event has occurred that morelikely than not has reduced the fair value of such assets. We assess on anannual basis the fair values of the reporting unit housing the goodwill andintangibles and, when necessary, assess on an annual basis for any impairment.Any write-offs would result in a charge to earnings and a reduction in equityin the period taken. As of October 31, 2003, we completed our annualimpairment review and determined that no impairment charge was required. Management does not believe that anysignificant changes have occurred since this review and accordingly nowrite-offs have been made in the subsequent period. Management will continue tomonitor any triggering events and perform re-evaluations, as necessary.

 

Purchase price accounting requires extensive use of accountingestimates and judgments to allocate the purchase price to the fair market valueof the assets and liabilities purchased. In our recording of the purchase ofVIA Wireless LLC, we engaged a nationally recognized valuation expert to assistus in determining the fair value of these assets and liabilities. Intangibleassets are amortized over their respective useful life. If there were areduction in useful lives, our operating income would be reduced. VIA Wireless’Sprint PCS management agreement is being amortized over its estimated usefullife of 18 years from the date of acquisition on August 13, 2001.

 

***Income Taxes:***

 

As part of the process of preparing our consolidated financialstatements, we are required to estimate our taxes in each of the jurisdictionsof operation. This process involves management estimating the actual currenttax expense together with assessing temporary differences resulting fromdiffering treatment of items for tax and accounting purposes in accordance withthe provisions of SFAS No. 109, “Accounting for Income Taxes.” Thesedifferences result in deferred tax assets and liabilities, which are includedwithin the consolidated balance sheets. We then must assess the likelihood thatthe deferred tax assets will be recovered from future taxable income and, tothe extent recovery is not likely, we must establish a valuation allowance.Future taxable income depends on the ability to generate income in excess ofallowable deductions. To the extent we establish a valuation allowance orincrease this allowance in a period, an expense is recorded within the taxprovision in the consolidated statement of operations. Significant managementjudgment is required in determining our provision for income taxes, deferredtax assets and liabilities and any valuation allowance recorded against netdeferred tax assets. In the event that actual results differ from theseestimates or we adjust these estimates in future periods, we may need toestablish a valuation allowance that could materially impact our financialcondition and results of operations.

 

**Results of Operations**

 

We provide certain financial measures that arecalculated in accordance with accounting principles generally accepted in theUnited States (GAAP) and adjustments to GAAP (non-GAAP) to assess our financialperformance.  In addition, we use certainnon-financial terms that are not measures of financial performance underGAAP.  Terms such as customer additionsand churn are terms used in the wireless communications industry.  The non-GAAP financial measures of averagerevenue per user, cash cost per user and cost per gross addition reflectstandard measures of liquidity, profitability or performance.  The non-financial terms and the non-GAAPmeasures reflect wireless communications industry conventions and are commonlyused by the investment community for comparability purposes.  The non-GAAP measures included in this reportare reconciled below in “—Liquidity and Capital Resources—Reconciliation ofnon-GAAP financial measures.”

 

***Analysis of the three months ended September 30, 2004 compared to thethree months ended September 30, 2003***

 

***Customer Net Additions***

 

As of September 30, 2004, we provided personal communications servicesto approximately 383,400 customers compared to approximately 305,000 customersas of September 30, 2003.  During thethree months ended

 

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September 30,2004, we added 17,500 net new subscribers compared to 13,200 net subscriberadditions for the three months ended September 30, 2003.  The increase was primarily attributable toincreases in our points of exclusive distribution.

 

***Churn***

 

Churn is the monthly rate of customer turnoverexpressed as the percentage of customers of the beginning customer base thatboth voluntarily and involuntarily discontinued service during the period.  Churn is computed by dividing the number ofcustomers that discontinued service during the month, net of 30 day returns, bythe beginning customer base for the period. Churn for the three months ended September 30, 2004 was approximately2.9% compared to approximately 3.4% for the three months ended September 30, 2003.  The decrease in churn was primarily theresult of the improvement in the credit quality of the overall customer baseresulting in less service being discontinued involuntarily. At September 30,2004, the overall mix of our customer base was 75% prime, 19% sub-prime withdeposits and 6% sub-prime without deposits. At September 30, 2003, the overallmix of our customer base was 73% prime, 20% sub-prime with deposits and 7%sub-prime without deposits. We expect involuntary churn to continue to declinewith continued improvement in the quality of our customer base.

 

***Average Revenue Per User (ARPU)***

 

Average revenue per user (ARPU) summarizes the average monthly servicerevenue per customer, excluding wholesale revenue. ARPU is computed by dividingsubscriber revenue by the average subscribers for the period. During the threemonths ended September 30, 2004 and 2003, our ARPU was approximately $58. ARPUincreased slightly and was primarily impacted by an increase in thirdgeneration services (3G) revenues of approximately $2 per user, offset by areduction in overage charge revenues attributable to a higher mix of customerson larger anytime minutes rate plans of approximately $2 per user. We expectARPU to decline marginally as billing for overage minutes continues todecrease. This reduction is expected to be partially offset by the continuedincrease in data revenue.

 

***Cash Cost Per User (CCPU)***

 

Cash cost per user summarizes the average monthly cash costs to providedigital wireless mobility communications services per customer.  CCPU is computed by dividing the sum of costof service and operations and general and administrative expenses by theaverage subscribers for the period.  Duringthe three months ended September 30, 2004 and 2003, our CCPU was approximately$42. Included in CCPU for the three months ended September 30, 2003 was anapproximate $4 credit per subscriber resulting from an adjustment ofapproximately $3.2 million relating to the resolution of disputed charges withSprint PCS. Excluding the $4 credit per subscriber, the decrease in CCPUprimarily resulted from lower network operating and general administrativeexpenses of approximately $3 per subscriber and Sprint CCPU service fees on aper subscriber basis of approximately $1 per subscriber. The decrease innetwork operating expense reflects the continuing benefits of scale resultingfrom the increase in the subscriber base. The reduction in Sprint CCPU servicefees is due to the recent addendums to the services agreement between SprintPCS and us. We expect CCPU to remain stable as future net additions enable usto spread fixed charges over a larger subscriber base, slightly offset byhigher minutes and kilobytes of use by our customers using the Sprint PCSnetwork outside of our markets.

 

***Cost Per Gross Addition (CPGA)***

 

Cost per gross addition (CPGA) summarizes the average cost to acquirenew customers during the period. CPGA is computed by adding the incomestatement components of selling and marketing and the cost of products sold,and reducing that amount by the equipment revenue recorded. The net result ofthese components is then divided by the gross customers acquired during theperiod. CPGA was approximately $488 for the three months

 

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ended September30, 2004 compared to approximately $466 for the three months ended September30, 2003. The increase in CPGA was primarily due to a higher number of customerhandset upgrades. We expect CPGA to range between $440 and $460 in 2004.

 

***Revenues***

 

•                  *Subscriber Revenue*. Subscriber revenue during the three months ended September 30, 2004 and2003 was approximately $65.3 million and $51.6 million, respectively.Subscriber revenue consists of monthly recurring service charges for voice and3G data usage and monthly non-recurring charges for local, long distance,travel and roaming airtime usage and 3G data usage in excess of thepre-subscribed usage plan amount received from our subscribers, cancellationand late fee revenues and surcharges, less reductions for billing adjustmentsand billing corrections. Our customers’ charges are dependent on their rateplans, based on the number of minutes and 3G data usage included in theirplans. The increase in subscriber revenue was primarily attributable to theincrease in our subscriber base of approximately $13.3 million and the increasein our average revenue per user (ARPU) of approximately $0.4 million.

 

•                  *Reseller Revenue*.  Reseller revenue is generated when a resellersubscriber uses our PCS network. During the second quarters of 2003 and 2004,we initiated reseller programs with Virgin Mobile and Qwest, respectively.Reseller revenue was approximately $3.7 million and $59,000 for the threemonths ended September 30, 2004 and 2003, respectively. The increase inreseller revenue was primarily due to the increase of reseller subscribers from8,300 as of September 30, 2003 to 78,200 as of September 30, 2004. During theremainder of 2004, we expect reseller revenue to increase as we expect anadditional increase in Qwest subscribers’ minutes of use.

 

•                  *Sprint PCS Travel Revenue*.  Travel revenue is generated on a per minuterate or on a per kilobit rate when a Sprint PCS subscriber based outside ourmarkets uses our network. An additional long distance rate per minute isgenerated when that customer initiates a call from our network to call outsidethe local calling area. During 2003 and the first nine months of 2004, thetravel rate per minute was $0.058. The average long distance rate per minutedecreased from approximately $0.012 per minute during the three months endedSeptember 30, 2003 to approximately $0.010 per minute during the three monthsended September 30, 2004. During the first nine months of 2003 and the firstnine months of 2004, the travel rate for data services was $0.0014 per kilobitof use and $0.002 per kilobit of use, respectively.

 

During the threemonths ended September 30, 2004, our network captured approximately 276.9million system travel minutes with approximately 60% of those minutes generatinglong distance charges which resulted in approximately $17.8 million intravel revenue. During the three months ended September 30, 2003, our networkcaptured approximately 195.5 million system travel minutes with approximately64% of those minutes generating long distance charges which resulted inapproximately $12.5 million in travel revenue. 3G data usage by Sprint PCSsubscribers based outside our markets increased from approximately 522.2million kilobytes, or approximately $0.7 million in travel revenues, during thethree months ended September 30, 2003 to approximately 1,017.0 millionkilobytes, or approximately $2.1 million in travel revenues, during the threemonths ended September 30, 2004.  Theincrease in Sprint PCS travel revenue was due to the effects of the increasesin travel minutes of use and 3G data usage of approximately $5.5 million and$1.0 million, respectively, and the effect of an increase in the travel ratefor data services of approximately $0.4 million, partially offset by the effectof the decrease in the average long distance rate per minute of approximately$0.2 million. We expect the growth rate for travel minutes and kilobytes in thefourth quarter of 2004 to be consistent with that of the prior three quartersof 2004.

 

•                  *Non-Sprint PCS Roaming Revenue*.  Non-Sprint PCS roaming revenue is generatedwhen a non-Sprint PCS subscriber uses our network. We earned approximately $5.6million in non-Sprint PCS roaming revenue

 

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during the three monthsended September 30, 2004 compared to approximately $3.9 million during thethree months ended September 30, 2003. Non-Sprint PCS roaming minutes increased from 29.2 million during thethree months ended September 30, 2003 to 44.1 million during the three monthsended September 30, 2004. The increase in roaming minutes represented a $1.9million increase in revenue, and the decrease in the average non-Sprint PCSroaming revenue rate we receive from other carriers represented a $0.2 millionreduction of roaming revenue. We expect non-Sprint PCS roaming revenue growthrates to slow in the near- to medium-term.

 

•                  *Equipment Revenue*. Equipment revenue is generated from the sale of handsets and accessoriesand is recorded at the time of sale. We record and retain 100% of the revenuefrom the sale of handsets and accessories, net of rebates, discounts and othersales incentives, as equipment revenue. The amounts recorded during the three months ended September 30, 2004and 2003 from equipment revenue totaled approximately $3.3 million and $3.5million, respectively.

 

***Cost of Service and Operations***

 

•                  *Network Operations Expenses*. Network operations expenses include radio communications site leasecosts, utilities, network control maintenance, network control site leases,engineering personnel, transport facilities and interconnect charges, andtotaled approximately $14.6 million during the three months endedSeptember 30, 2004 compared to approximately $13.4 million during the threemonths ended September 30, 2003. For the three months ended September 30, 2003,we reclassified certain network operations expenses to operating expenses toconform with current year presentation, due to the changes in costs resultingfrom the amendment to our Sprint agreements in the fourth quarter of 2003. Theincrease was primarily due to an increase in radio communications site leaseand software maintenance costs of approximately $1.7 million, partially offsetby an approximate $1.0 million benefit from a property tax appeal settlement.

 

•                  *Sprint PCS Travel Expense*.  We pay Sprint PCS travel fees on a per minuterate or on a per kilobit rate when our customers use the Sprint PCS networkoutside our markets and we incur additional long distance fees when our customerscall long distance originating in a Sprint PCS or PCS affiliate of Sprintterritory. During the three months ended September 30, 2004, our customersgenerated approximately 171.6 million travel minutes with approximately61% of those minutes generating long distance charges which resulted inapproximately $11.0 million in travel fees. During the three months endedSeptember 30, 2003, our customers generated approximately 119.6 milliontravel minutes with approximately 63% of those minutes generating long distancecharges which resulted in approximately $7.5 million in travel fees. 3Gdata usage by our customers outside our markets increased from approximately319.1 million kilobytes, or approximately $0.4 million in travel fees, duringthe three months ended September 30, 2003, to approximately 572.5 millionkilobytes, or approximately $1.2 million in travel fees, during the threemonths ended September 30, 2004. The increase in Sprint PCS travel expense wasdue to the effects of the increases in travel minutes of use and 3G data usageof approximately $3.7 million and $0.5 million, respectively, and the effect ofan increase in the travel rate for data services of approximately $0.2 million,partially offset by the effect of the decrease in the average long distancerate per minute of approximately $0.1 million.

 

•                  *Non-Sprint PCS Roaming Expense*. We payroaming fees to other wireless providers when our customers use their network.During the three months ended September 30, 2004, our customers generatedapproximately 4.8 million roaming minutes resulting in approximately$0.7 million in roaming fees. During the three months ended September 30,2003, our customers generated approximately 3.0 million roaming minutesresulting in approximately $0.7 million in roaming fees. Roaming expense wasprimarily impacted by a decrease in the average non-Sprint PCS roaming ratepaid to other carriers of approximately $0.3 million offset by the effect of anincrease in minutes of approximately $0.3 million.

 

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•                  *Bad Debt Expense.*  Bad debt expense during the three monthsended September 30, 2004 was approximately $1.7 million compared to a credit ofapproximately $0.1 million for the three months ended September 30, 2003.  Bad debt expense for the three months endedSeptember 30, 2003 included a credit adjustment of approximately $1.2 milliondue to the resolution of disputed charges with Sprint PCS. We expect bad debtexpense to approximate 2.5% of subscriber revenues for 2004 and beyond.

 

•                  *Operating Expenses. *Operatingexpenses during the three months ended September 30, 2004 and 2003 wereapproximately $8.7 million and $7.6 million, respectively. Operating expensesincluded fees we paid to Sprint PCS for the use of its support services,including billing and collections services and customer care. As noted aboveunder network operations expenses, certain expenses were reclassified fromnetwork operations expenses to operating expenses for the three months endedSeptember 30, 2003. The increase in operating expenses was primarilyattributable to the effect of the increase in our subscriber base ofapproximately $1.8 million, offset by savings related to the amendment to ourSprint agreements in the fourth quarter of 2003 of approximately $0.7million.

 

***Cost of Products Sold***

 

**The cost of products sold includes the costs ofhandsets and accessories and totaled approximately $10.3 million and $10.7million during the three months ended September 30, 2004 and 2003, respectively. **The cost of handsets generally exceeds the sales price because wesubsidize the cost of handsets to subscribers, consistent with industrypractice. Handsetsubsidies on units sold by third parties totaled approximately $3.5 million and$4.1 million for the three months ended September 30, 2004 and 2003,respectively.

 

***Selling and Marketing***

 

**Selling and marketing expenses relate to ourdistribution channels, sales representatives, sales support personnel, retailstores, advertising programs and commissions. We incurred**sellingand marketingexpensesof approximately $17.1 million and $13.1 million during the three months endedSeptember 30, 2004 and 2003, respectively. The increase in selling and marketing expenses was primarilyattributable to the effects of the increases in gross additions and the numberof customer handset upgrades of approximately $2.0 million and $0.8 million,respectively, and an increase in advertising expense of approximately $0.4million.

 

***General and Administrative***

 

We incurred general and administrativeexpenses (excluding non-cash compensation expenses) totaling approximately $9.1million and $7.9 million during the three months ended September 30, 2004 and 2003, respectively. General andadministrative expenses included approximately $5.4 million and $4.3 million ofmanagement fee expense paid to Sprint PCS during the three months ended September30, 2004 and 2003, respectively. Theincrease in general and administrative expenses was primarily due to theincrease in management fee expense resulting from the increase in oursubscriber base.

 

***Non-Cash Compensation for General and Administrative Matters***

 

During the threemonths ended September 30, 2004, non-cash compensation for general andadministrative matters was a credit of approximately $0.2 million, compared toan expense of $47,000 for the three months ended September 30, 2003.  We apply the provisions of AccountingPrinciples Board Opinion No. 25, “Accounting for Stock Issued to Employees,”and related interpretations in accounting for our equity incentive plan.

 

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***Depreciation, Amortization and Accretion***

 

Depreciation,amortization and accretion expense for the three months ended September 30,2004 and 2003 totaled approximately $11.4 million and $11.0 million,respectively.  We depreciate our propertyand equipment using the straight-line method over four to 10 years.  A building acquired as part of the VIAWireless acquisition is being depreciated using the straight-line method over30 years. Amortization of intangible assets with finite useful lives is over 18years.  Accretion expense increases theasset retirement obligation associated with our tower leases, switch site andretail and administrative locations to its present value.

 

***Interest Income***

 

For the threemonths ended September 30, 2004 and 2003, interest income was approximately$0.2 million and $0.1 million, respectively. The interest income was generated from cash, cash equivalents andrestricted cash balances.

 

***Interest Expense***

 

Interest expensetotaled approximately $10.5 million and $7.0 million during the three monthsended September 30, 2004 and 2003, respectively. Interest is accrued on ournotes on a per annum basis at the stated interest rate. Interest on our seniorsecured credit facility during the three months ended September 30, 2003 wasaccrued at the London interbank offered rate, based on contracts ranging from30 to 180 days. The increase in interest expense primarily resulted from ourrefinancing of the outstanding borrowings under our senior secured creditfacility in the first quarter of 2004 with longer term higher fixed rate notes.

 

Interest expensealso included the amortized amount of deferred financing fees relating to oursenior secured credit facility and various note offerings, prior to anyretirements of such debt.

 

***Income Taxes***

 

For the three months ended September 30, 2004 and 2003, we recognizedan income tax expense of approximately $0.3 million and $0.2 million,respectively. Income tax expense for the three months ended September 30, 2004consisted of deferred income taxes that resulted from an expected income taxdeduction for amortization of goodwill, which is not amortizable to expense forfinancial reporting purposes, and a provision for state income taxes.

 

***Net Income (Loss)***

 

For the threemonths ended September 30, 2004, our net income was approximately $1.6 million,compared to a net loss of approximately $7.0 million for the three months endedSeptember 30, 2003.

 

***Analysis of the nine months ended September 30, 2004 compared to thenine months ended September 30, 2003***

 

***Customer Net Additions***

 

During the nine months ended September 30, 2004, we added 55,700 netnew subscribers compared to 48,000 net new subscribers for the nine monthsended September 30, 2003.  The increasewas primarily attributable to increases in our points of exclusivedistribution.

 

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***Churn***

 

Churn for the nine months ended September 30, 2004 wasapproximately 2.9% compared to approximately 3.3% for the nine months endedSeptember 30, 2003.  The decrease inchurn was primarily the result of the improvement in the credit quality of theoverall customer base resulting in less service being discontinued involuntarily.

 

***Average Revenue Per User (ARPU)***

 

During the nine months ended September 30, 2004 and 2003, our ARPU wasapproximately $57. ARPU increased slightly and was primarily impacted byincreases in monthly recurring access charges and third generation services(3G) revenues of approximately $2 per user, offset primarily by a reduction inoverage charge revenues attributable to a higher mix of customers on largeranytime minutes rate plans of approximately $2 per user.

 

***Cash Cost Per User (CCPU)***

 

During the nine months ended September 30, 2004 and 2003, our CCPU wasapproximately $43 and $45, respectively. The decrease in CCPU primarilyresulted from lower network operating expenses and Sprint CCPU services fees ona per subscriber basis. The decrease in network operating expense reflects thecontinuing benefits of scale resulting from the increase in the subscriber baseand the reduction in Sprint CCPU service fees due to the recent addendums tothe services agreement between Sprint PCS and us, slightly offset by higherminutes and kilobytes of use by our customers using the Sprint PCS networkoutside of our markets.

 

***Cost Per Gross Addition (CPGA)***

 

CPGA was approximately $460 for the nine months ended September 30,2004 compared to approximately $450 for the nine months ended September 30,2003. The increase in CPGA was primarily due to a higher number of customerhandset upgrades.

 

***Revenues***

 

•                       *Subscriber Revenue*. Subscriber revenue during the nine months ended September 30, 2004 and2003 was approximately $183.9 million and $144.1 million, respectively. Theincrease in subscriber revenue was primarily attributable to the increase inour subscriber base of approximately $38.7 million and the increase in ouraverage revenue per user (ARPU) of approximately $1.1 million.

 

•                       *Reseller Revenue*.  Reseller revenue was approximately$6.0 million and $70,000 for the nine months ended September 30, 2004 and2003, respectively.

 

•                       *Sprint PCS Travel Revenue*. During the nine months endedSeptember 30, 2004, our network captured approximately 729.0 million systemtravel minutes with approximately 61% of those minutes generating long distancecharges which resulted in approximately $47.1 million in travel revenue.During the nine months ended September 30, 2003, our network capturedapproximately 500.4 million system travel minutes with approximately 64% ofthose minutes generating long distance charges which resulted in approximately$33.6 million in travel revenue. 3G data usage by Sprint PCS subscribersbased outside our markets increased from approximately 976.6 million kilobytes,or approximately $1.3 million in travel revenues, during the nine months endedSeptember 30, 2003 to approximately 2,651.1 million kilobytes, or approximately$5.3 million in travel revenues, during the nine months ended September 30,2004. The increase in Sprint PCS travel revenue was due to the effects of theincreases in travel minutes of use and 3G data usage of approximately $14.6million and $3.4 million, respectively, and the

 

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effect of an increase inthe travel rate for data services of approximately $0.6 million, partiallyoffset by the effect of the decrease in the average long distance rate perminute of approximately $1.1 million.

 

•                       *Non-SprintPCS Roaming Revenue*.  Weearned approximately $15.0 million in non-Sprint PCS roaming revenue during thenine months ended September 30, 2004 compared to approximately $9.9 millionduring the nine months ended September 30, 2003.  Non-Sprint PCS roaming minutes increased from70.7 million during the nine months ended September 30, 2003 to 117.4 millionduring the nine months ended September 30, 2004. The increase in roamingminutes represented a $5.9 million increase in revenue, and the decrease in theaverage non-Sprint PCS roaming revenue rate we receive from other carriersrepresented a $0.8 million reduction of roaming revenue.

 

•                       *EquipmentRevenue*.  Equipment revenuerecorded during the nine months ended September 30, 2004 and 2003 totaledapproximately $10.4 million and $8.4 million, respectively. The increase wasprimarily due to the effects of the increase in gross additions and higher nethandset retail prices charged to subscribers of approximately $0.5 million and$0.7 million, respectively, and an increase in the allocation of activationrevenue to equipment revenue of approximately $0.8 million in accordance withEITF 00-21.

 

***Cost of Service and Operations***

 

•                       *NetworkOperations Expenses*.  Networkoperations expenses totaled approximately $45.7 million during the ninemonths ended September 30, 2004 compared to approximately $43.3 millionduring the nine months ended September 30, 2003. For the nine months endedSeptember 30, 2003, we reclassified certain network operations expenses tooperating expenses to conform with current year presentation, due to thechanges in costs resulting from the amendment to our Sprint agreements in thefourth quarter of 2003. The increase was primarily due to an increase in radiocommunications site lease and software maintenance expenses of approximately$2.9 million, partially offset by an approximate $0.8 million benefit from aproperty tax appeal settlement.

 

•                       *Sprint PCS Travel Expense*.  During the nine months ended September 30,2004, our customers generated approximately 467.7 million travel minuteswith approximately 61% of those minutes generating long distance charges whichresulted in approximately $30.3 million in travel fees. During the ninemonths ended September 30, 2003, our customers generated approximately305.5 million travel minutes with approximately 63% of those minutesgenerating long distance charges which resulted in approximately$20.4 million in travel fees. 3G data usage by our customers outside ourmarkets increased from approximately 600.3 million kilobytes, or approximately$0.8 million in travel fees, during the nine months ended September 30, 2003,to approximately 1621.5 million kilobytes, or approximately $3.3 million intravel fees, during the nine months ended September 30, 2004. The increase inSprint PCS travel expense was due to the effects of the increases in travelminutes of use and 3G data usage of approximately $10.4 million and $2.1million, respectively, and the effect of an increase in the travel rate fordata services of approximately $0.4 million, partially offset by the effect ofthe decrease in the average long distance rate per minute of approximately $0.5million.

 

•                       *Non-SprintPCS Roaming Expense*. During the nine months ended September 30,2004, our customers generated approximately 10.8 million roaming minutesresulting in approximately $1.7 million in roaming fees. During the ninemonths ended September 30, 2003, our customers generated approximately7.0 million roaming minutes resulting in approximately $1.8 million inroaming fees. The decrease in roaming expense was attributable to the effect ofa decrease in the average non-Sprint PCS roaming revenue rate paid to othercarriers of approximately $0.7 million partially offset by the effect of anincrease in minutes of approximately $0.6 million.

 

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•                       *Bad Debt Expense.*  Bad debt expense during the nine months endedSeptember 30, 2004 and 2003 was approximately $3.8 million and $2.5 million,respectively. The increase in bad debt expense was primarily attributable tothe credit adjustment of approximately $1.2 million due to the resolution ofdisputed charges with Sprint PCS during the nine months ended September 30,2003.

 

•                       *Operating Expenses. *Operatingexpenses during the nine months ended September 30, 2004 and 2003 wereapproximately $24.3 million and $22.1 million, respectively. As noted aboveunder network operations expenses, certain expenses were reclassified fromnetwork operations expenses to operating expenses for the nine months endedSeptember 30, 2003. The increase in operating expenses was primarilyattributable to the effect of the increase in our subscriber base ofapproximately $5.1 million, offset by savings related to the amendment to ourSprint agreements in the fourth quarter of 2003 of approximately $2.9million.

 

***Cost of Products Sold***

 

**Cost of products sold totaled approximately $28.5million and $29.5 million during the nine months ended September 30, 2004 and2003, respectively.  Handset subsidies onunits sold by third parties totaled approximately $9.2 million and $11.4million for the nine months ended September 30, 2004 and 2003, respectively.**

 

***Selling and Marketing***

 

**We incurred**selling and marketingexpenses of approximately $50.0 million and$37.3 million during the nine months ended September 30, 2004 and 2003,respectively. The increase in sellingand marketing expenses was primarily attributable to the effects of theincreases in gross additions and the number of customer handset upgrades ofapproximately $6.1 million and $2.2 million, respectively, and an increase inadvertising expense of approximately $1.0 million.

 

***General and Administrative***

 

We incurred general and administrativeexpenses (excluding non-cash compensation expenses) totaling approximately$28.0 million and $23.1 million during the nine months ended September30, 2004 and 2003, respectively.General and administrative expenses included approximately $15.4 million and$11.9 million of management fee expense paid to Sprint PCS during the ninemonths ended September 30, 2004and 2003, respectively. The increase in general and administrativeexpenses was primarily due to the increase in management fee expense resultingfrom the increase in our subscriber base.

 

***Non-Cash Compensation for General and Administrative Matters***

 

During the nine months ended September 30, 2003,non-cash compensation for general and administrative matters totaledapproximately $0.2 million, representing stock-based employee compensationexpense incurred in connection with our equity incentive plan.

 

***Depreciation, Amortization and Accretion***

 

Depreciation,amortization and accretion expense for the nine months ended September 30, 2004and 2003 totaled approximately $38.0 million and $34.7 million, respectively.The increase in depreciation, amortization and accretion expense was primarilydue to the impact of accelerated depreciation of our existing minicell basestations resulting from our reduction of their estimated useful lives duringthe fourth quarter of 2003 totaling $4.8 million and increases in depreciationexpense of approximately $1.3 million resulting from net additions to ournetwork

 

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equipment during the previous twelve months, offset by an approximate$2.8 million decrease in amortization expense attributable to the VIA Wirelesssubscriber base, which was fully amortized as of March 31, 2003.

 

***Interest Income***

 

For the ninemonths ended September 30, 2004 and 2003, interest income was approximately$0.5 million.

 

***Interest Expense***

 

Interest expensetotaled approximately $29.3 million and $24.1 million during the nine monthsended September 30, 2004 and 2003, respectively. The increase in interestexpense primarily resulted from our refinancing of the outstanding borrowingsunder our senior secured credit facility in the first quarter of 2004 withlonger term higher fixed rate notes.

 

Interest expensealso included the amortized amount of deferred financing fees relating to oursenior secured credit facility and various note offerings, prior to anyretirements of such debt.

 

***Gain on DebtRetirements***

 

During the first quarter of 2004, OperatingCompany issued $270.0 million in aggregate principal amount of 9.875% seniornotes due March 1, 2011 (the “9.875% Senior Notes”), in a transaction exemptfrom the registration requirements of the Securities Act of 1933, as amended.The 9.875% Senior Notes were issued at a discount and generated approximately$265.3 million in proceeds. The proceeds were used to repay and terminateOperating Company’s senior secured credit facility, including the repayment of$230.0 million in outstanding borrowings plus accrued interest andtermination of its unused $47.7 million revolving line of credit, toredeem all of its outstanding 14% Series B senior discount notes due 2008 (“14%Series B Senior Notes”) ($14.5 million outstanding principal amount) forapproximately $12.5 million, and to purchase $16.7 million principalamount of its outstanding 14% senior discount notes due 2010 (“14% SeniorNotes”) for approximately $15.9 million.The repayments of the senior secured credit facility and the 14% SeriesB Senior Notes and the purchase of the 14% Senior Notes resulted in a net gainon debt retirements of approximately $1.1 million, consisting of a loss on thepurchase of the 14% Senior Notes of approximately $1.6 million, the write-offof deferred financing fees related to the senior secured credit facility andthe 14% Series B Senior Notes of approximately $7.7 million, the write-off ofunamortized debt discount for detachable warrants associated with the 14%Series B Senior Notes of approximately $3.6 million and costs ofapproximately $0.1 million related to the termination of the senior securedcredit facility, net of a gain of approximately $14.1 million recognized on thereduction in carrying value of the future cash payments associated with thepurchased 14% Senior Notes.

 

During the first quarter of 2003, Operating Company consummated aprivate placement exchange of approximately $48.2 million aggregateprincipal amount of its 14% Senior Notes and approximately $9.6 million incash for approximately $192.7 million aggregate principal amount of itsoutstanding 14% senior subordinated discount notes due 2010 (“14% SubordinatedNotes”). Additionally, Operating Company consummated a related financing, in aprivate placement offering, of approximately $12.8 million aggregateprincipal amount of 14% Series B Senior Notes in which we received cashproceeds of approximately $9.6 million to fund the cash portion of theexchange. Under the financing, UbiquiTel issued detachable warrants to purchaseup to approximately 9.6 million shares of its common stock at an exerciseprice of $0.01 per share. We followed the provisions of SFAS No. 15,“Accounting by Debtors and Creditors for Troubled Debt Restructurings,” andEITF Issue No. 02-04, “Determining Whether a Debtor’s Modification orExchange of Debt Instruments Is Within the Scope of FASB StatementNo. 15,” in recording the private placement exchange transaction in thefirst quarter of 2003. These provisions require that the carrying value of the14% Senior Notes be recorded at the total future cash payments (principal andinterest) specified by the 14% Senior Notes; therefore, the 14% Senior Noteswere classified on our balance sheet as long-

 

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term liabilitiesand were valued at approximately $81.9 million as of the transaction date.As a result, no interest expense related to the 14% Senior Notes will berecognized in future periods. In the first quarter of 2003, we recognized again of approximately $39.0 million as a result of the private placementexchange in addition to the $3.9 million gain recognized in the second quarterof 2003, for a total gain during the nine months ended September 30, 2003 of$42.9 million.

 

***Income Taxes***

 

For the nine months ended September 30, 2004 and 2003, we recognized anincome tax expense of approximately $0.5 million and $0.6 million,respectively. Income tax expense for the nine months ended September 30, 2004and September 30, 2003 was comprised primarily of deferred income taxes thatresulted from an expected income tax deduction for amortization of goodwill,which is not amortizable to expense for financial reporting purposes.

 

***Net Income (Loss)***

 

For the ninemonths ended September 30, 2004, our net loss was approximately $13.8 millionand for the nine months ended September 30, 2003, our net income wasapproximately $0.3 million. We recognized gains on debt retirements ofapproximately $1.1 million and $42.9 million for the nine months endedSeptember 30, 2004 and 2003, respectively.

 

**Liquidity and Capital Resources**

 

From inception through December 31, 2002, weprincipally relied on the proceeds from equity and debt financings, and to alesser extent revenues, as our primary sources of capital. In 2003, wegenerated approximately $14.5 million of positive cash flow from operatingactivities.  In the nine months ended September30, 2004, we generated approximately$35.3 million of positive cash flow from operating activities.

 

Completion of our PCS network has required substantial capital. Althoughwe have essentially completed our network coverage build-out, our businesscould require additional capital expenditures of up to approximately$25 million annually for capacity enhancements and coverage improvements.Capital expenditures for the nine months ended September 30, 2004 totaled approximately $18.5 million.In September 2004, we entered into an agreement with an equipment vendor topurchase network equipment for capacity enhancements and coverage improvementsand network performance services which provides for a minimum purchasecommitment of $18 million in each of the years 2005 through 2008. In the second quarterof 2004, Sprint announced its intention to deploy the next generation of CDMAtechnology known as EVDO in a portion of its network over the next 18 months.EVDO technology is expected to generate higher network data speeds and allow theintroduction of new data products and features. While Sprint will not requirethe implementation of EVDO by us or its other PCS affiliates, during the secondhalf of 2004 we intend to analyze the business case for the implementation ofEVDO in portions of our network. If we decide to implement EVDO in portions ofour network, we expect to be able to fund capital expenditures necessary forthe EVDO technology deployment through cash flows from our operatingactivities, and presently do not anticipate the need to raise additionalcapital to fund such expenditures.

 

On February 23, 2004, Operating Companyissued $270.0 million in aggregate principal amount of the 9.875% Senior Notesat a discount and generated approximately $265.3 million in proceeds.UbiquiTel has fully and unconditionally guaranteed Operating Company’sobligations under the 9.875% Senior Notes. The proceeds were used to repay andterminate Operating Company’s senior secured credit facility, including therepayment of $230.0 million in outstanding borrowings plus accruedinterest and termination of its unused $47.7 million revolving line ofcredit, to redeem all of its outstanding 14% Series B Senior Notes($14.5 million outstanding principal amount) for approximately $12.5 millionand to purchase $16.7 million principal amount of its outstanding 14%

 

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Senior Notes forapproximately $15.9 million. Under the indenture governing the 9.875%Senior Notes, Operating Company is permitted to issue additional notes fromtime to time, and did so on October 14, 2004 in connection with the refinancingtransactions described below.On July 29, 2004, Operating Company completed a registered exchange offerinvolving the 9.875% Senior Notes, pursuant to which all of the outstanding9.875% Senior Notes were exchanged for 9.875% Senior Notes that have beenregistered under the Securities Act of 1933. The registered 9.875% Senior Notes are substantially identical to theunregistered 9.875% Senior Notes, except that certain transfer restrictions andregistration rights do not apply to the registered 9.875% Senior Notes.

 

On October 14, 2004, Operating Company completed a financing of anadditional $150.0 million aggregate principal amount of 9.875% Senior Notes ina transaction exempt from the registration requirements of the SecuritiesAct.  These 9.875% Senior Notes are of the same class as the previouslyoutstanding $270.0 million aggregate principal amount of 9.875% Senior Notesand were issued at a price of 103.5% generating cash proceeds of approximately$155.3 million.

 

Operating Company used approximately $139.3 million ofthese cash proceeds to fund the cash tender offer and consent solicitation forits outstanding 14% Subordinated Notes and 14% Senior Notes. Approximately$100.4 million aggregate principal amount of 14% Subordinated Notes andapproximately $31.4 million aggregate principal amount of 14% Senior Notes werevalidly tendered and accepted. The amendments to the indentures governing the14% Subordinated Notes and the 14% Senior Notes eliminating substantially allof the indentures’ restrictive covenants and certain of their events of defaultbecame effective on October 14, 2004.  There are approximately $32,000aggregate principal amount of 14% Senior Notes that remain outstanding. We expect to use a portion of the remaining cash proceeds from the offeringnecessary to repurchase and retire, to defease or to redeem all of these notes.

 

Prior to March 1, 2007, Operating Company may redeem up to 35% of theaggregate principal amount of the 9.875% Senior Notes with net cash proceeds ofa sale of its equity or a contribution to its common equity capital, providedthat at least 65% of the principal amount of 9.875% Senior Notes originallyissued under the indenture remains outstanding after giving effect to suchredemption and such redemption occurs within 45 days of the date of such saleof equity interests or contribution.  Wedo not have any current plans to sell equity interests of Operating Company or makeany capital contributions to its common equity capital and, as such, do notcurrently anticipate exercising this optional redemption right.

 

The $420.0 million aggregate principal amount of 9.875% Senior Notesoutstanding as of October 14, 2004 will require cash payments of interest of$41.5 million in each of the years 2005 through 2009. We presently are incompliance with all covenants associated with the 14% Subordinated Notes, 14%Senior Notes and 9.875% Senior Notes. We may from time to time purchaseoutstanding 9.875% Senior Notes in the open market, in privately negotiatedtransactions or otherwise in accordance with our debt agreements and applicablelaw.

 

As of September 30, 2004, we had approximately $68.2 million in cash, cashequivalents and restricted cash, and working capital of approximately$63.7 million. Management expects cash and cash equivalents, combined withcash flow from operating activities, to be sufficient to meet capitalexpenditures needs and service debt requirements through September 30, 2005 and into the foreseeable future.

 

While management does not anticipate the need toraise additional capital to meet our operating or capital expenditurerequirements in the foreseeable future, our funding status is dependent on anumber of factors influencing projections of operating cash flows, includingthose related to gross new customer additions, customer turnover, revenues,marketing costs, bad debt expense and roaming and reseller revenue. Managementbelieves our financial position will be sufficient to meet the cashrequirements of the business including capital expenditures, any operatinglosses, cash interest and working capital needs. Should actual results differsignificantly from these assumptions, our liquidity position could be adverselyaffected and we could be in a position that would require us to raiseadditional

 

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capital which may not be available or may not be available on acceptableterms.

 

***Contractual Obligations***

 

As of September 30, 2004, we are obligated to makefuture payments under various contracts we have entered into, including amountspursuant to noncancelable operating lease agreements for office space, retailstores, land for radio communications sites, leased space on radiocommunications sites and office equipment; capital leases; purchaseobligations; the building mortgage and other long-term liabilities; the 14%Subordinated Notes; the 14% Senior Notes; and the 9.875% Senior Notes. Thefollowing table lists our expected future minimum contractual cash obligationsfor the next five years and in the aggregate as of September 30, 2004 (dollarsin thousands), which does not give effect to the refinancing transactionscompleted in October 2004 (see “—Liquidity and Capital Resources”):

 
| ** **                                         | ** ** | ** ** | ** ** | **Payments due by period ending September 30:** | ** ** |
|----------------------------------------------------|------------|------------|------------|-------------------------------------------------|------------|
| **Contractual  obligation**                        | ** ** | **Total**  | ** ** | **Less than  1 year**                           | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **After 5  years** | ** ** |
| Operating  leases(1)                               |       | $          | 70,900     |                                            | $          | 16,880 |   | $ | 22,723 |   | $ | 14,032 |   | $ | 17,265 |   |
| Purchase obligations(2)                            |       | 72,000     |       | 13,500                                          |       | 36,000 |   | 22,500 |   | — |   |
| Building  mortgage and other long-term liabilities |       | 3,299      |       | 218                                             |       | 485 |   | 558 |   | 2,038 |   |
| 14% subordinated  notes(3)                         |       | 100,380    |       | —                                          |       | — |   | — |   | 100,380 |   |
| 14% senior  notes(3)                               |       | 31,473     |       | —                                          |       | — |   | — |   | 31,473 |   |
| 9.875% senior  notes(3)                            |       | 270,000    |       | —                                          |       | — |   | — |   | 270,000 |   |
|                                               |       | $          | 548,052    |                                            | $          | 30,598 |   | $ | 59,208 |   | $ | 37,090 |   | $ | 421,156 |   |

 

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(1)           Does not include payments due underrenewals to the original lease term.

 

(2)                                  OperatingCompany is committed to purchase network equipment for capacity enhancementsand coverage improvements and network performance services during the years2005 through 2008 pursuant to an agreement with a third party.

 

(3)                                Totalrepayments, excluding interest payments, are based on borrowings outstanding asof September 30, 2004.

 

There are provisions in each of the indenturesgoverning the 14% Subordinated Notes, 14% Senior Notes  and 9.875% Senior Notes that provide for anacceleration of repayment upon an event of default, as defined in therespective agreements.

 

***Analysis of Cash Flows***

 

A significant portion of our revenues is generated from customers whosubscribe to our PCS service on contracts that range from one to twoyears.  Our cash flow from operatingactivities will fluctuate with the size of our subscriber base and therecurring revenue stream generated from these customers.  Our subscriber base grew to an inflectionpoint in 2003 when subscriber revenues exceeded total cash costs and expenses(excluding non-cash compensation, depreciation, amortization and accretion) andis continuing to grow in 2004.  We expectcash flow from operating activities will continue to grow in future periods asour subscriber base continues to grow.

 

Net cash provided by operating activities wasapproximately $35.3 million and $17.7 million for the nine months endedSeptember 30, 2004 and 2003, respectively. The increase in cash provided by operating activities was primarily dueto the reduction in operating loss and increases in accounts payable andaccrued expenses offset by

 

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increases in accounts receivable and prepaid and otherassets.

 

Net cash used in investing activities was approximately $18.5 millionand $12.7 million for the nine months ended September 30, 2004 and 2003,respectively.  The increase resulted fromhigher capital expenditures for switch capacity upgrades and cash payments forthe purchase of current generation multi-carrier capable base stations pursuantto our plan to replace our existing minicell base stations.

 

Net cash used infinancing activities for the nine months ended September 30, 2004 wasapproximately $6.9 million, consisting primarily of the reduction in the bookcash overdraft of approximately $5.7 million, financing costs incurred inconnection with our January 2004amendment to modify certain covenants of our senior secured credit facility ofapproximately $0.4 million and capital lease and other long-term debt paymentsof approximately $0.2 million. As discussed above, the proceeds from theissuance of the 9.875% Senior Notes in February 2004 were used to repayoutstanding borrowings plus accrued interest due under the senior securedcredit facility, to redeem outstanding 14% Series B Senior Notes, topurchase a portion of the outstanding 14% Senior Notes and to pay all financingfees associated with the refinancing. Net cash used in financing activities forthe nine months ended September 30,2003 was approximately $19.7 million, consisting primarily of a $15.0 millionrepayment under the senior secured credit facility, $4.2 million in financingcosts directly associated with the issuance of the 14% Series B Senior Notes,the debt-for-debt exchange offer and open market note purchases and $0.5million of capital lease and other long-term debt payments.

 

***Factors That May Affect Operating Results and Liquidity***

 

In addition to the risk factors referred to in the“Forward-Looking Statements” section of this Item 2, the following risk factorscould materially and adversely affect our future operating results andliquidity and could cause actual events to differ materially from thosepredicted in forward-looking statements related to our business.

 

Wemay not be able to sustain our growth or obtain sufficient revenue to sustainprofitability. If customer growth slows more than we anticipate, it will lowerthe expected amount of positive cash flow from operating activities lesscapital expenditures, which in turn will have a negative effect on liquidityand capital resources. For the three months ended September 30, 2004, approximately $12.0 million ofcash flow was provided by operating activities. Our business projectionsreflect continuing growth in our subscriber base and the elimination of netlosses. If we acquire more new customers than we project, the upfront costs toacquire those customers (including the handset subsidy, commissions andpromotional expenses) may result in greater cash used in the near term butprovide greater cash flows in later periods. In addition, if there is a slowdownin new subscriber growth in our markets or the wireless industry generally, wemay acquire fewer new customers, which would result in higher cash provided inthe near term but provide lower cash flows in later periods.

 

At times, we have been invoiced by Sprint for chargesor paid at rates that we have believed to be contractually incorrect. We reviewall charges and payments from Sprint and dispute items if appropriate basedupon our interpretation of our agreements with Sprint PCS. We record estimatesprimarily based on invoiced amounts and we record any subsequent adjustments atthe time the dispute is resolved.

 

The FCC mandatedthat wireless carriers provide for wireless local number portability (“WLNP”)by November 24, 2003 in certain markets, and by May 24, 2004 in the remainingmarkets. Local number portability allows subscribers to keep their wirelessphone number when switching to a different service provider. Number portabilitycould potentially increase churn, which could lower our revenues. We may berequired to increase subsidies for product upgrades and/or reduce pricing tomatch competitors’ initiatives and retain customers, which could adverselyimpact our revenue and profitability and our liquidity. WLNP had no materialimpact on our results for the year ended December 31, 2003 or the nine monthsended September 30, 2004.

 

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Wemay not be able to access the credit markets for additional capital if theliquidity discussed above is insufficient for the cash needs of our business.We frequently evaluate options for additional financings to supplement ourliquidity position and maintain maximum financial flexibility. However, if theassumptions used in our projections are incorrect, we may be unable to raiseadditional capital.

 

***Reconciliation of non-GAAP financialmeasures***

 

We utilize certain financial measures that are notcalculated in accordance with accounting principles generally accepted in theUnited States, or GAAP, to assess our financial performance. A non-GAAPfinancial measure is defined as a numerical measure of a company’s financialperformance that (a) excludes amounts, or is subject to adjustments thathave the effect of excluding amounts, that are included in the comparable measurecalculated and presented in accordance with GAAP in the statement of income orstatement of cash flows; or (b) includes amounts, or is subject toadjustments that have the effect of including amounts, that are excluded fromthe comparable measure so calculated and presented. The non-GAAP financialmeasures discussed in “—Results of Operations” are average revenue per user(ARPU), cash cost per user (CCPU) and cost per gross addition (CPGA).Descriptions of these non-GAAP financial measures are provided where theparticular measures are discussed in “—Results of Operations—Analysis of thethree months ended September 30, 2004 compared to the three months endedSeptember 30, 2003,” and the following tables reconcile the non-GAAP financialmeasures with our unaudited consolidated financial statements presented inaccordance with GAAP (excluding subscriber data).

 
| ** **                       | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|----------------------------------|------------|--------------------------------------|------------|-------------------------------------|------------|
| ** **                       | ** ** | **2004**                             | ** ** | **2003**                            | ** ** | **2004** | ** ** | **2003** | ** ** |
| Average revenue  per user (ARPU) |       |                                 |       |                                |       |   |   |   |   |
| Service revenue                  |       | $                                    | 94,428,000 |                                | $          | 69,289,000 |   | $ | 257,355,000 |   | $ | 188,961,000 |   |
| Less: Wholesale  revenue         |       | (29,094,000                          | )          | (17,735,000                         | )          | (73,475,000 | ) | (44,814,000 | ) |
| Subscriber  revenue              |       | $                                    | 65,334,000 |                                | $          | 51,554,000 |   | $ | 183,880,000 |   | $ | 144,147,000 |   |
|                             |       |                                 |       |                                |       |   |   |   |   |
| Average  subscribers             |       | 374,900                              |       | 298,200                             |       | 357,000 |   | 281,900 |   |
|                             |       |                                 |       |                                |       |   |   |   |   |
| ARPU                             |       | $                                    | 58         |                                | $          | 58 |   | $ | 57 |   | $ | 57 |   |

 

We believe ARPU, which calculates the average monthly service revenueper customer, excluding wholesale revenue (that is, the total of resellerrevenue, travel revenue and roaming revenue), is a useful measure to assist inevaluating our past and forecasting our future subscriber revenue. In addition,it provides a gauge to compare our subscriber revenue to that of other wirelesscommunications providers, although other wireless communications providers mayinclude or exclude certain items from their calculations which may make thecomparison less meaningful.

 
| ** **                                                                           | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                           | ** ** | **2004**                             | ** ** | **2003**                            | ** ** | **2004** | ** ** | **2003** | ** ** |
| Cash cost per  user (CCPU)                                                           |       |                                 |       |                                |       |   |   |   |   |
| Cost of service  and operations (excluding depreciation, amortization and accretion) |       | $                                    | 37,886,000 |                                | $          | 29,984,000 |   | $ | 109,020,000 |   | $ | 90,942,000 |   |
| Add: General and  administrative expenses                                            |       | 9,120,000                            |       | 7,876,000                           |       | 27,981,000 |   | 23,098,000 |   |
| Total cash costs                                                                     |       | $                                    | 47,006,000 |                                | $          | 37,860,000 |   | $ | 137,001,000 |   | $ | 114,040,000 |   |
|                                                                                 |       |                                 |       |                                |       |   |   |   |   |
| Average  subscribers                                                                 |       | 374,900                              |       | 298,200                             |       | 357,000 |   | 281,900 |   |
|                                                                                 |       |                                 |       |                                |       |   |   |   |   |
| CCPU                                                                                 |       | $                                    | 42         |                                | $          | 42 |   | $ | 43 |   | $ | 45 |   |

 

We believe CCPU, which measures the average monthly cash costs toprovide digital wireless mobility communications services per customer, is auseful measure used to compare our cash cost of operations per customer to thatof other wireless communications providers, although other wirelesscommunications providers

 

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may include orexclude certain items from their calculations which may make the comparisonless meaningful. Our calculation of CCPU excludes depreciation, amortizationand accretion expenses.

 
| ** **                      | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------------------|------------|--------------------------------------|------------|-------------------------------------|------------|
| ** **                      | ** ** | **2004**                             | ** ** | **2003**                            | ** ** | **2004** | ** ** | **2003** | ** ** |
| Cost per gross  addition (CPGA) |       |                                 |       |                                |       |   |   |   |   |
| Selling and  marketing          |       | $                                    | 17,132,000 |                                | $          | 13,095,000 |   | $ | 49,961,000 |   | $ | 37,255,000 |   |
| Add: Cost of  products sold     |       | 10,340,000                           |       | 10,721,000                          |       | 28,473,000 |   | 29,526,000 |   |
| Less: Equipment  revenue        |       | (3,320,000                           | )          | (3,504,000                          | )          | (10,384,000 | ) | (8,361,000 | ) |
| CPGA costs                      |       | $                                    | 24,152,000 |                                | $          | 20,312,000 |   | $ | 68,050,000 |   | $ | 58,420,000 |   |
|                            |       |                                 |       |                                |       |   |   |   |   |
| Gross additions                 |       | 49,500                               |       | 43,600                              |       | 147,800 |   | 129,900 |   |
|                            |       |                                 |       |                                |       |   |   |   |   |
| CPGA                            |       | $                                    | 488        |                                | $          | 466 |   | $ | 460 |   | $ | 450 |   |

 

We believe CPGA, which measures the average cost to acquire newcustomers during the period, is a useful measure used to compare our averagecost to acquire a new subscriber to that of other wireless communicationproviders, although other wireless communications providers may include orexclude certain items from their calculations which may make the comparisonless meaningful. The inclusion of cost of products sold net of the equipmentrevenues earned is critical to our understanding of how much it costs us toacquire a new customer.

 

***Inflation***

 

We believe thatinflation has not had, and will not have, a material adverse effect on ourresults of operations.

 

***Seasonality***

 

Our business isseasonal because the wireless industry is heavily dependent on fourth quarterresults.  Among other things, theindustry relies on significantly higher customer additions and handset sales inthe fourth quarter as compared to the other three fiscal quarters.  The factors contributing to this trendinclude the increasing use of retail distribution, which is dependent onyear-end holiday shopping, the timing of new product and service offerings,competitive pricing pressures and aggressive marketing and promotions duringthe holiday season.  The increased levelof activity requires a greater use of our available financial resources duringthis period.

 

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

 

Market risk is thepotential loss arising from adverse changes in market prices and rates,including interest rates. All of the interest rates on our notes are fixed. Wehave not entered into derivatives or other financial instruments for trading,speculative or hedging purposes, though we may do so from time to time if such instruments are availableto us on acceptable terms and prevailing market conditions are accommodating.No principal repayments on our notes are due within the next five years.

 

**Item 4. Controls and Procedures**

 

**Evaluation of Disclosure Controls and Procedures**

 

Our management, under thesupervision and with the participation of our Chief Executive Officer and ChiefFinancial Officer (who serves as our principal financial and accounting officer),has conducted an evaluation of our “disclosure controls and procedures” (asdefined in the Securities Exchange Act of 1934 (“Exchange Act”) Rules 13a-15(e)or 15d-15 (e)) as of September 30, 2004. Based on that evaluation, our ChiefExecutive Officer and Chief Financial Officer concluded that our disclosurecontrols and procedures were effective as of September 30, 2004.

 

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We place reliance on Sprintto adequately design its internal controls with respect to the processesestablished to provide financial information and other information to us andthe other PCS affiliates of Sprint.  Toaddress this issue, Sprint engages its independent auditors to perform a periodicevaluation of these controls and to provide a “Report on Controls Placed inOperation and Tests of Operating Effectiveness for Affiliates” under guidanceprovided in Statement of Auditing Standards No. 70. This report is providedsemi-annually to us.

 

**Changes in Internal Controls**

 

There was no change in ourinternal control over financial reporting identified in connection with theevaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15that occurred during the three months ended September 30, 2004 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

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**PART II. OTHER INFORMATION**

 

**Item 1.Legal Proceedings**

 

Neither UbiquiTel nor Operating Company is a partyto any pending legal proceedings that either UbiquiTel or Operating Companybelieves would, if adversely determined, individually or in the aggregate, havea material adverse effect on our financial condition or results of operations.

 

**Item 2. Unregistered Sales of EquitySecurities and Use of Proceeds**

 

None.

 

**Item 3. Defaults Upon SeniorSecurities**

 

None.

 

**Item 4. Submission of Matters to aVote of Security Holders**

 

None.

 

**Item 5. Other Information**

 

None.

 

**Item 6. Exhibits**

 

**Exhibits:**

 
| **Exhibit  No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                  |
|------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1             |       | Registration  Rights Agreement dated as of October 14, 2004 among UbiquiTel Operating  Company, UbiquiTel Inc., Bear, Stearns & Co. Inc. and Banc of America  Securities LLC.                                                                                                                                |
|             |       |                                                                                                                                                                                                                                                                                                             |
| 10.2             |       | Supplemental  Indenture dated as of October 14, 2004 to the Indenture for UbiquiTel  Operating Company’s 14% Senior Discount Notes Due 2010 dated as of February  26, 2003 among UbiquiTel Operating Company, UbiquiTel Inc. and The Bank of  New York, as trustee.                                         |
|             |       |                                                                                                                                                                                                                                                                                                             |
| 10.3             |       | Second  Supplemental Indenture dated as of October 14, 2004 to the Indenture for  UbiquiTel Operating Company’s 14% Senior Subordinated Discount Notes Due 2010  dated as of April 11, 2000 among UbiquiTel Operating Company, UbiquiTel Inc.  and American Stock Transfer & Trust Company, as trustee. |
|             |       |                                                                                                                                                                                                                                                                                                             |
| 10.4             |       | Form  of 9.875% Senior Note Due 2011 issued October 14, 2004 by UbiquiTel Operating  Company to the purchasers thereof.                                                                                                                                                                                          |
|             |       |                                                                                                                                                                                                                                                                                                             |
| 10.5             |       | Form  of Note Guarantee for 9.875% Senior Notes Due 2011 issued October 14, 2004 by  UbiquiTel Inc. to the purchasers thereof.                                                                                                                                                                                   |

 

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| 31.1   |   | Certification Pursuant to Item 601(b)(31) of  Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002.                                                 |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                 |
| 31.2   |   | Certification Pursuant to Item 601(b)(31) of  Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002.                                                 |
|   |   |                                                                                                                                                                                 |
| 32.1   |   | Certification Pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 9.06 of the Sarbanes-Oxley Act of 2002 (furnished  pursuant to Item 601(b)(32) of Regulation S-K). |
|   |   |                                                                                                                                                                                 |
| 32.2   |   | Certification Pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 9.06 of the Sarbanes-Oxley Act of 2002 (furnished  pursuant to Item 601(b)(32) of Regulation S-K). |

 

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**SIGNATURES**

 

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

 
|             | CO-REGISTRANTS:             |
|------------------|-----------------------------|
|             |                        |
|             | UBIQUITEL INC.              |
|             | UBIQUITEL OPERATING COMPANY |
|             |                        |
|             | By:                         | /s/ DONALD A. HARRIS |   |
|             |                        | Donald A. Harris |   |
|             |                        | Chairman of the Board, President |   |
|             |                        | and Chief Executive Officer |   |
|             |                        | (Principal Executive Officer) |   |
|             |                        |   |   |
|             |                        |   |   |
|             | By:                         | /s/ JAMES J. VOLK |   |
|             |                        | James J. Volk |
|             |                        | Chief Financial Officer |
|             |                        | (Principal Financial  and Accounting Officer) |
|             |                        |
|             |                        |
| November 5, 2004 |                        |

 

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