Tableof Contents

 

 

 

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**WASHINGTON, D.C. 20549

** **

**FORM 10-Q**

 
| **(Mark One)** | ** **                                                                                           |
|----------------|------------------------------------------------------------------------------------------------------|
| **x**          | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT  OF 1934** |

 

**For the quarterly period ended September 30, 2008**

 

**Or**

 
| o | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT  OF 1934** |
|---|-------------------------------------------------------------------------------------------------------|

 

**For the transition periodfrom                to                **

 

**CommissionFile Number 000-51844**

 

----

 

**iPCS, INC.**(Exact name of registrant as specified in itscharter)

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

 

**(847)885-2833**(Registrant’s telephone number, including zip code)

 

----

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 
|   | Yes x  No o |
|--------|---------------------------------|

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer, ora smaller reporting company. See the definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of theExchange Act. (Check one):

 
| Large accelerated filer o                      |   | Accelerated filer x         |
|------------------------------------------------|--------|-----------------------------|
|                                           |   |                        |
| Non-accelerated filer o                        |   | Smaller reporting company o |
| (Do not check if a smaller reporting  company) |   |                        |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

 
|   | Yes o  No x |
|--------|---------------------------------|

 

Indicate by check markwhether the registrant has filed all documents and reports required to be filedby Section 12, 13 or 15(d) of the Securities Exchange Act of 1934subsequent to the distribution of securities under a plan confirmed by a court.

 
|   | Yes x  No o |
|--------|---------------------------------|

 

As of October 31,2008, there were 17,166,967 shares of common stock, $0.01 par value per share,outstanding.

 

 

 

----

Table of Contents

 

**TABLE OF CONTENTS**

** **
| PART I    | FINANCIAL INFORMATION                                                                                                    | 3      |
|----------------|--------------------------------------------------------------------------------------------------------------------------|--------|
|           |                                                                                                                     |   |
| ITEM 1.        | FINANCIAL STATEMENTS                                                                                                     | 3      |
|           | CONSOLIDATED  BALANCE SHEETS AS OF SEPTEMBER 30, 2008 AND DECEMBER 31, 2007 (UNAUDITED)                                  | 3      |
|           | CONSOLIDATED  STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED  SEPTEMBER 30, 2008 AND 2007 (UNAUDITED) | 4      |
|           | CONSOLIDATED  STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008  AND 2007 (UNAUDITED)           | 5      |
|           | NOTES TO  UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS                                                                    | 6      |
| ITEM 2.        | MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS                              | 19     |
| ITEM 3.        | QUANTITATIVE AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK                                                              | 37     |
| ITEM 4.        | CONTROLS AND PROCEDURES                                                                                                  | 37     |
|           |                                                                                                                     |   |
| PART II   | OTHER INFORMATION                                                                                                        | 38     |
|           |                                                                                                                     |   |
| ITEM 1.        | LEGAL PROCEEDINGS                                                                                                        | 38     |
| ITEM 1A.       | RISK FACTORS                                                                                                             | 38     |
| ITEM 2.        | UNREGISTERED SALES OF EQUITY SECURITIES AND  USE OF PROCEEDS                                                             | 38     |
| ITEM 3.        | DEFAULTS UPON SENIOR SECURITIES                                                                                          | 38     |
| ITEM 4.        | SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS                                                                     | 38     |
| ITEM 5.        | OTHER INFORMATION                                                                                                        | 38     |
| ITEM 6.        | EXHIBITS                                                                                                                 | 39     |
|           |                                                                                                                     |   |
| SIGNATURES     | 40                                                                                                                       |
|           |                                                                                                                     |
| CERTIFICATIONS |                                                                                                                     |

 

2

----

Tableof Contents

 

**PART I. FINANCIAL INFORMATION**

** **

**Item 1. Financial Statements.**

 

**iPCS, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**(UNAUDITED)**(Inthousands, except share and per share amounts)

 
| ** **                                                                                                                                   | ** ** | **September 30,  2008** | ** ** | **December 31,  2007 (a)** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|--------------------------------------|------------|
|                                                                                                                                         |       |                         |       |                                 |       |
| **Assets**                                                                                                                                   | ** ** | ** **                   | ** ** | ** **                           | ** ** |
| Current Assets:                                                                                                                              |       |                         |       |                                 |       |
| Cash and cash equivalents                                                                                                                    |       | $                            | 69,866     |                                 | $          | 77,599 |   |
| Accounts receivable, net of allowance for doubtful accounts of $8,633  and $9,635, respectively                                              |       | 35,378                       |       | 29,774                               |       |
| Receivable from Sprint  (Note 3)                                                                                                             |       | 31,623                       |       | 41,509                               |       |
| Inventories, net                                                                                                                             |       | 8,753                        |       | 5,277                                |       |
| Assets held for sale (Note  4)                                                                                                               |       | 389                          |       | 2,680                                |       |
| Prepaid expenses                                                                                                                             |       | 7,066                        |       | 6,792                                |       |
| Other current assets                                                                                                                         |       | 110                          |       | 81                                   |       |
| Total current assets                                                                                                                         |       | 153,185                      |       | 163,712                              |       |
| Property and equipment, net  (Note 4)                                                                                                        |       | 160,233                      |       | 128,677                              |       |
| Financing costs, net                                                                                                                         |       | 6,763                        |       | 7,794                                |       |
| Deferred customer  activation costs                                                                                                          |       | 4,146                        |       | 4,728                                |       |
| Intangible assets, net  (Note 5)                                                                                                        |       | 92,896                       |       | 99,777                               |       |
| Goodwill (Note 5)                                                                                                                            |       | 141,783                      |       | 141,783                              |       |
| Other assets                                                                                                                                 |       | 421                          |       | 353                                  |       |
| Total assets                                                                                                                                 |       | $                            | 559,427    |                                 | $          | 546,824 |   |
|                                                                                                                                         |       |                         |       |                                 |       |
| **Liabilities and Stockholders’ Deficiency**                                                                                            | ** ** | ** **                   | ** ** | ** **                           | ** ** |
| Current Liabilities:                                                                                                                         |       |                         |       |                                 |       |
| Accounts payable                                                                                                                             |       | $                            | 19,615     |                                 | $          | 6,136 |   |
| Accrued expenses                                                                                                                             |       | 19,159                       |       | 14,791                               |       |
| Payable to Sprint (Note 3)                                                                                                                   |       | 48,391                       |       | 49,205                               |       |
| Deferred revenue                                                                                                                             |       | 12,839                       |       | 11,176                               |       |
| Accrued interest                                                                                                                             |       | 5,590                        |       | 6,216                                |       |
| Current maturities of  long-term debt and capital lease obligations (Note 6)                                                                 |       | 33                           |       | 30                                   |       |
| Total current liabilities                                                                                                                    |       | 105,627                      |       | 87,554                               |       |
| Deferred customer  activation fee revenue                                                                                                    |       | 4,146                        |       | 4,728                                |       |
| Interest rate swap (Note 7)                                                                                                                  |       | 10,970                       |       | 11,607                               |       |
| Other long-term liabilities                                                                                                                  |       | 6,840                        |       | 7,331                                |       |
| Long-term debt and capital  lease obligations, excluding current maturities (Note 6)                                                         |       | 475,412                      |       | 475,438                              |       |
| Total liabilities                                                                                                                            |       | 602,995                      |       | 586,658                              |       |
|                                                                                                                                         |       |                         |       |                                 |       |
| Commitments and  contingencies (Note 13)                                                                                                     |       |                         |       |                                 |       |
|                                                                                                                                         |       |                         |       |                                 |       |
| Stockholders’ Deficiency:                                                                                                               |       |                         |       |                                 |       |
| Preferred stock, par value  $.01 per share; 25,000,000 shares authorized; none issued                                                        |       | —                       |       | —                               |       |
| Common stock, par value $.01 per share; 75,000,000 shares authorized, 17,166,967  and 17,112,244 shares issued and outstanding, respectively |       | 172                          |       | 171                                  |       |
| Additional paid-in-capital                                                                                                                   |       | 166,446                      |       | 161,072                              |       |
| Accumulated deficiency                                                                                                                       |       | (199,216                     | )          | (189,470                             | )          |
| Accumulated other  comprehensive loss (Note 11)                                                                                              |       | (10,970                      | )          | (11,607                              | )          |
| Total stockholders’  deficiency                                                                                                         |       | (43,568                      | )          | (39,834                              | )          |
| Total liabilities and  stockholders’ deficiency                                                                                         |       | $                            | 559,427    |                                 | $          | 546,824 |   |

 

----

(a)             Derivedfrom the Company’s audited financial statements as of December 31, 2007.

 

See Notes tounaudited consolidated financial statements.

 

3

----

Table of Contents

 

**iPCS, INC.AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

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

 
| ** **                                                                                            | ** ** | **For the Three Months Ended** | ** ** | **For the Nine Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                            | ** ** | **September 30,   2008**                 | ** ** | **September 30,   2007**                | ** ** | **September 30,   2008** | ** ** | **September 30,   2007** | ** ** |
| ** **                                                                                            | ** ** | ** **                                         | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenue:**                                                                                          | ** ** | ** **                                         | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service revenue                                                                                       |       | $                                                  | 96,097     |                                              | $          | 92,129 |   | $ | 282,370 |   | $ | 267,074 |   |
| Roaming revenue                                                                                       |       | 32,282                                             |       | 46,287                                            |       | 94,083 |   | 119,284 |   |
| Equipment and other                                                                                   |       | 3,678                                              |       | 3,661                                             |       | 10,633 |   | 9,805 |   |
| Total revenue                                                                                         |       | 132,057                                            |       | 142,077                                           |       | 387,086 |   | 396,163 |   |
| **Operating Expense:**                                                                                | ** ** | ** **                                         | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost of service and  roaming (exclusive of depreciation and amortization, as shown separately  below) |       | 74,520                                             |       | 79,534                                            |       | 213,167 |   | 231,688 |   |
| Cost of equipment                                                                                     |       | 15,905                                             |       | 12,880                                            |       | 40,442 |   | 38,829 |   |
| Selling and marketing                                                                                 |       | 18,091                                             |       | 17,785                                            |       | 52,394 |   | 57,467 |   |
| General and  administrative                                                                           |       | 10,028                                             |       | 5,678                                             |       | 25,108 |   | 21,275 |   |
| Depreciation (Note 4)                                                                                 |       | 10,592                                             |       | 10,775                                            |       | 33,809 |   | 34,644 |   |
| Amortization of  intangible assets (Note 5)                                                           |       | 2,295                                              |       | 8,794                                             |       | 6,882 |   | 23,982 |   |
| Loss on disposal of  property and equipment, net                                                      |       | 71                                                 |       | 65                                                |       | 329 |   | 130 |   |
| Total operating expense                                                                               |       | 131,502                                            |       | 135,511                                           |       | 372,131 |   | 408,015 |   |
| **Operating income (loss)**                                                                           |       | 555                                                |       | 6,566                                             |       | 14,955 |   | (11,852 | ) |
| Interest income                                                                                       |       | 316                                                |       | 886                                               |       | 1,420 |   | 3,984 |   |
| Interest expense                                                                                      |       | (8,320                                             | )          | (9,853                                            | )          | (25,456 | ) | (26,951 | ) |
| Debt extinguishment  costs (Note 6)                                                                   |       | —                                             |       | —                                            |       | — |   | (30,501 | ) |
| Other income (loss), net                                                                              |       | 63                                                 |       | (3                                                | )          | 93 |   | 129 |   |
| **Loss before provision for  income tax**                                                             |       | (7,386                                             | )          | (2,404                                            | )          | (8,988 | ) | (65,191 | ) |
| Provision for income  tax (Note 8)                                                                    |       | 108                                                |       | —                                            |       | 758 |   | — |   |
| **Net loss**                                                                                          |       | $                                                  | (7,494     | )                                                 | $          | (2,404 | ) | $ | (9,746 | ) | $ | (65,191 | ) |
|                                                                                                  |       |                                               |       |                                              |       |   |   |   |   |
| **Basic and diluted loss per share of common stock:**                                                 |       |                                               |       |                                              |       |   |   |   |   |
| Loss available to  common stockholders                                                                |       | $                                                  | (0.44      | )                                                 | $          | (0.14 | ) | $ | (0.57 | ) | $ | (3.84 | ) |
|                                                                                                  |       |                                               |       |                                              |       |   |   |   |   |
| Weighted average basic  and diluted common shares outstanding                                         |       | 17,159,794                                         |       | 17,038,040                                        |       | 17,150,061 |   | 16,969,488 |   |

 

See Notes to unauditedconsolidated financial statements.

 

4

----

Tableof Contents

 

**iPCS, INC.AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(UNAUDITED)**(In thousands)

 
| ** **                                                                                                               | ** ** | **For the Nine Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **September 30,  2008**                      | ** ** | **September 30,  2007** | ** ** |
| **Cash flows from operating  activities:**                                                                               | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net loss                                                                                                                 |       | $                                                 | (9,746     | ) | $ | (65,191 | ) |
| Adjustments to  reconcile net loss to net cash flows provided by operating activities:                                   |       |                                              |       |   |   |
| Loss on disposal of  property and equipment, net                                                                         |       | 329                                               |       | 130 |   |
| Depreciation and  amortization                                                                                           |       | 40,691                                            |       | 58,626 |   |
| Non-cash interest  expense, net of amortization of debt fair value adjustment                                            |       | 1,032                                             |       | 362 |   |
| Debt extinguishment  costs                                                                                               |       | —                                            |       | 30,501 |   |
| Stock-based  compensation expense                                                                                        |       | 4,778                                             |       | 8,130 |   |
| Provision for doubtful  accounts                                                                                         |       | 15,791                                            |       | 14,311 |   |
| Changes in assets and  liabilities:                                                                                      |       |                                              |       |   |   |
| Accounts receivable                                                                                                      |       | (21,395                                           | )          | (14,974 | ) |
| Receivable from Sprint                                                                                                   |       | 9,885                                             |       | (3,522 | ) |
| Inventories, net                                                                                                         |       | (3,476                                            | )          | 277 |   |
| Prepaid expenses, other  current and long term assets                                                                    |       | 206                                               |       | (332 | ) |
| Accounts payable,  accrued expenses and other long term liabilities                                                      |       | 5,753                                             |       | (6,785 | ) |
| Payable to Sprint                                                                                                        |       | (815                                              | )          | (6,066 | ) |
| Deferred revenue                                                                                                         |       | 1,081                                             |       | 1,466 |   |
| Net cash flows provided  by operating activities                                                                         |       | 44,114                                            |       | 16,933 |   |
| **Cash flows from investing  activities:**                                                                               | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Purchases of property  and equipment                                                                                     |       | (52,435                                           | )          | (25,499 | ) |
| Proceeds from  disposition of property and equipment                                                                     |       | 156                                               |       | 552 |   |
| Net cash flows used in  investing activities                                                                             |       | (52,279                                           | )          | (24,947 | ) |
| **Cash flows from financing  activities:**                                                                               | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Proceeds from senior  secured notes                                                                                      |       | —                                            |       | 475,000 |   |
| Repayments of senior  notes                                                                                              |       | —                                            |       | (290,000 | ) |
| Tender premium on  senior notes                                                                                          |       | —                                            |       | (34,155 | ) |
| Payments on capital  lease obligations                                                                                   |       | (22                                               | )          | (18 | ) |
| Debt financing costs                                                                                                     |       | —                                            |       | (8,475 | ) |
| Proceeds from the  exercise of stock options                                                                             |       | 582                                               |       | 3,445 |   |
| Payment of special cash  dividend (Note 10)                                                                              |       | (109                                              | )          | (186,508 | ) |
| Other                                                                                                                    |       | (19                                               | )          | — |   |
| Net cash flows provided  by (used in) financing activities                                                               |       | 432                                               |       | (40,711 | ) |
| Net decrease in cash  and cash equivalents                                                                               |       | (7,733                                            | )          | (48,725 | ) |
| **Cash and cash equivalents at  beginning of period**                                                                    |       | 77,599                                            |       | 120,499 |   |
| **Cash and cash equivalents at  end of period**                                                                          |       | $                                                 | 69,866     |   | $ | 71,774 |   |
|                                                                                                                     |       |                                              |       |   |   |
| **Supplemental disclosure of cash  flow information- cash paid for interest**                                            |       | $                                                 | 26,278     |   | $ | 30,462 |   |
| **Supplemental disclosure for non-cash  investing activities:**                                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Capitalized interest                                                                                                     |       | $                                                 | 1,300      |   | $ | 549 |   |
| Accounts payable and  accrued expenses incurred for the acquisition of property, equipment and  construction in progress |       | 12,070                                            |       | 3,224 |   |
| Capital lease  obligations incurred for the acquisition of property and equipment                                        |       | —                                            |       | 161 |   |
| **Supplemental disclosure for  non-cash financing activities:**                                                          |       |                                              |       |   |   |
| Dividends declared, but  not paid                                                                                        |       | $                                                 | —     |   | $ | 507 |   |

 

See Notes tounaudited consolidated financial statements.

 

5

----

Table of Contents

 

**iPCS, INC.AND SUBSIDIARIES**

**NOTES TOUNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

 

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

** **

iPCS, Inc. (the “Company” or “iPCS”) is a holding company thatoperates as a PCS Affiliate of Sprint through three wholly owned subsidiaries:iPCS Wireless, Inc., Horizon Personal Communications, Inc., andBright Personal Communications Services, LLC. Each of these subsidiariesis a party to separate affiliation agreements with Sprint PCS, the operator ofa 100% digital personal communications service (“PCS”) wireless network withlicenses to provide voice and data service to the entire United Statespopulation.  These affiliationagreements, as amended, grant iPCS the exclusive right to sell wirelessmobility communications network products and services under the Sprint brand in81 markets, including markets in Illinois, Indiana, Iowa, Michigan,Pennsylvania, Ohio, Maryland, Nebraska, New York, New Jersey, Tennessee andWest Virginia.

 

The unaudited consolidated balance sheets as of September 30, 2008 andDecember 31, 2007, the unaudited consolidated statements of operations forthe three and nine months ended September 30, 2008 and 2007, the unauditedconsolidated statements of cash flows for the nine months ended September 30,2008 and 2007 and related footnotes have been prepared in accordance withaccounting principles generally accepted in the United States of America forinterim financial information and Rule 10-01 of Regulation S-X.Accordingly, they do not include all of the information and footnotes requiredby accounting principles generally accepted in the United States for completefinancial statements. The financial information presented herein should be readin conjunction with the Company’s 2007 Annual Report on Form 10-K whichincludes information and disclosures not presented herein. All significantintercompany accounts and transactions have been eliminated in consolidation.In the opinion of management, the unaudited consolidated financial statementscontain all of the adjustments, consisting of normal recurring adjustments,necessary to present fairly, in summarized form, the consolidated financialposition, results of operations and cash flows of the Company. The results ofoperations for the three and nine months ended September 30, 2008 are notindicative of the results that may be expected for the full year 2008.

 

**(2)  Summary of Significant AccountingPolicies**

 

*Loss Per Share*

 

Basic and diluted loss per share for the Company are calculated bydividing the net loss by the weighted average number of shares of common stockof the Company. The calculation was made in accordance with SFAS No. 128,“Earnings Per Share.” The basic and diluted loss per share are the same becausethe inclusion of the incremental potential shares of common stock from anyassumed exercise of stock options is antidilutive. Potential shares of commonstock excluded from the loss per share computations for both of the three and ninemonths ended September 30, 2008 and 2007 were 1,406,094 and 895,331,respectively.

 

*New Accounting Pronouncements*

 

In September 2006, the FASB issued Statement No. 157, “FairValue Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes aframework and gives guidance regarding the methods used for measuring fairvalue, and expands disclosures about fair value measurements. InFebruary 2008, the FASB released FASB Staff Position, (FSP) SFAS157-2—Effective Date of FASB Statement No. 157, which delays the effectivedate of SFAS 157 for all non-financial assets and non-financial liabilities,except those that are recognized or disclosed at fair value in the financialstatements on a recurring basis (at least annually) to fiscal years beginningafter November 15, 2008.  TheCompany adopted SFAS 157 as it applies to financial assets and liabilities asof January 1, 2008.  The Companydoes not anticipate that the implementation of SFAS 157, as it relates tonon-financial assets and liabilities will have a material impact on itsfinancial position, results of operations and cash flows.  See Note 12 for further discussion of fairvalue measurements.

 

In December 2007, the FASB issued Statement No. 141 (revised2007), “Business Combinations” (“SFAS 141R”). SFAS 141R significantlychanges the way companies account for business combinations and will generallyrequire more assets acquired and liabilities assumed to be measured at theiracquisition-date fair value. Under SFAS 141R, legal fees and othertransaction-related costs are expensed as incurred and are no longer includedin goodwill as a cost of acquiring the business. SFAS 141R also requires,among other things, acquirers to estimate the acquisition-date fair value ofany contingent consideration and to recognize any subsequent changes in thefair value of contingent consideration in earnings. In addition, SFAS 141Ramends FASB SFAS No. 109, Accounting for Income Taxes, to require theacquirer to recognize changes in the amount of its deferred tax benefits thatare recognizable because of a business combination either in income fromcontinuing operations in the period of the combination or directly incontributed capital, depending on the circumstances. SFAS 141R is effectivefor fiscal years beginning after December 15, 2008 with early adoptionprohibited. SFAS 141R is effective for the Company for any businesscombinations with an acquisition date on or after January 1, 2009. TheCompany will apply the provisions of SFAS 141R to any business combinationswithin the scope of SFAS 141R after its effective date.

 

6

----

Table of Contents

 

In May 2008, theFASB issued Statement No. 162, *TheHierarchy of Generally Accepted Accounting Principles*(GAAP) (“SFAS162”).  SFAS 162 provides a consistentframework for determining which accounting principles should be used whenpreparing U.S. GAAP financial statements. SFAS 162 will be effective 60 daysfollowing the Securities and Exchange Commission’s approval of the PublicCompany Accounting Oversight Board amendments to AU Section 411, *The Meaning of Present Fairly in Conformity WithGenerally Accepted Accounting Principles.*The adoption of SFAS 162is not expected to have a material effect on the Company’s consolidatedfinancial statements.

 

**(3)  Sprint Agreements**

 

Each of iPCS Wireless, Inc., Horizon PersonalCommunications, Inc. and Bright Personal Communications Services, LLChas entered into affiliation agreements with Sprint. Under these agreements,which have been amended from time to time, most recently on March 3, 2008,Sprint provides the Company significant support services such as customerservice, billing, long distance transport services, national network operationssupport, national pricing plans, inventory logistics support, use of the Sprintand Sprint PCS brand names, national advertising, national distribution andproduct development.

 

The costs incurred by the Company for the support services provided bySprint are determined on a per average monthly cash cost per user (“CCPU”) rateand on a monthly cost per gross addition (“CPGA”) rate. For 2007, the CCPU ratewas $7.50 and the CPGA rate was $20.00. For 2008, the CCPU rate is $6.50,subject to adjustment as described below, and the CPGA rate is $19.00.

 

The CCPU rate in effect from 2008 through 2010 is to be reduced fromthe then current rate by $0.15 if the Company hits certain milestones withrespect to its voluntary deployment of EV-DO Rev. A, the most recent version ofthe further evolution of code division multiple access (“CDMA”) high-speed datatechnology called Evolution Data Optimized (“EV-DO”). Specifically, the CCPUrates set forth above are reduced by $0.15 from the then current rate when theCompany’s EV-DO Rev. A deployment covers at least 6.0 million inpopulation (“POPs”); by another $0.15 from the then current rate when theCompany covers at least 7.0 million POPs; and by another $0.15 from thethen current rate when the Company covers at least 9.0 million POPs.  The Company’s EV-DO Rev. A deployment exceeded6.0 million POPs during June 2008 and exceeded 7.0 million POPs during July2008.  As a result, the CCPU rate wasreduced to $6.35 starting July 1, 2008, was further reduced to $6.20 startingAugust 1, 2008 for the remainder of 2008, and will be further reduced to $5.85and $5.55 for 2009 and 2010, respectively, subject to any further adjustmentsrelated to incremental EV-DO Rev. A coverage.

 

The Company receives roaming revenue when subscribers of Sprint andother PCS Affiliates of Sprint incur minutes of use in the Company’sterritories, and the Company incurs expense payable to Sprint and to other PCSAffiliates of Sprint when the Company’s subscribers incur minutes of use in theterritories of Sprint and other PCS Affiliates of Sprint. Prior toJanuary 1, 2008, the Company settled voice and 2G data roaming and 3G dataroaming separately with Sprint and the other remaining PCS Affiliates ofSprint.  Effective January 1, 2008,3G data roaming is no longer settled separately with Sprint; however, theCompany continues to settle 3G data roaming separately with the other remainingPCS Affiliates of Sprint. For 2007, reciprocal roaming rates were $0.0403 perminute for voice and 2G data, excluding certain markets as described below, and$0.0010 per kilobyte for 3G data. For 2008, reciprocal roaming rates are$0.0400 per minute for voice and 2G data, excluding certain markets asdescribed below, and $0.0003 per kilobyte for 3G data.

 

With respect to certain of the Company’s markets in western and easternPennsylvania, the Company receives the benefit of a special reciprocal rate forvoice and 2G data of $0.10 per minute. This special rate will terminate, withrespect to each of these two sets of markets, on the earlier ofDecember 31, 2011 or the first day of the calendar month which follows thefirst calendar quarter during which the Company achieves a subscriberpenetration rate of at least 7% of the Company’s covered populations in thosemarkets.  The Company does not anticipatereaching a 7% subscriber penetration rate in these markets in the foreseeablefuture.

 

The Company’s affiliation agreements with Sprint also provide theCompany with protective rights to decline to implement certain future programrequirement changes that Sprint proposes that would adversely affect theCompany’s business. The Company also has a right of first refusal to build outnew coverage within the Company’s territory. If the Company does not exercisethis right, then Sprint may build out the new coverage, or may allow anotherPCS affiliate of Sprint to do so, in which case Sprint has the right to managethe new coverage.

 

Roaming expense is recorded in cost of service and roaming within thestatements of operations. Cost of service and roaming transactions with Sprintinclude the 8% affiliation fee, long distance, roaming expense and Sprint’sCCPU charges for support services. Cost of equipment relates to inventory soldby the Company that was purchased from Sprint under the Company’s affiliationagreements with Sprint. Selling and marketing transactions relate to subsidizedcosts on wireless handsets and commissions under Sprint’s national distributionprogram.

 

For the three and nine months ended September 30, 2008, approximately97% of the Company’s revenue was derived from data provided by Sprint, comparedto 97% and 98% for the three and nine months ended September 30, 2007,respectively.  For each of the three and ninemonths ended September 30, 2008, approximately 58% of the Company’s cost ofservice and roaming was derived from data provided by Sprint.  For the three and nine months ended September30, 2007, approximately 64% and 66%, respectively, of the Company’s cost ofservice and roaming was derived from data provided by Sprint.  The Company reviews all charges from Sprintand can dispute certain of these charges in cases where the Company does notreceive enough supporting detail to validate the charges or it does not believeSprint can charge the Company for certain expenses under the terms of theSprint affiliation 

 

7

----

Tableof Contents

 

agreements.  Under the disputeprovisions of its affiliation agreements with Sprint, the Company is currentlyrequesting additional information related to various amounts charged to theCompany by Sprint, including amounts for customer credits, late fees and baddebt recoveries, for which third quarter amounts differ from historical trends.  With the exception of Sprint acknowledgederrors, the Company has recorded in its financial statements the amounts assessedby Sprint.  The outcome of the Company’sreview of this information is unknown at this time.

 

Amounts relating to the Sprint affiliation agreements for the three and nine months ended September30, 2008 and 2007 and as of September 30, 2008 and December 31, 2007 areas follows (in thousands):

 
| ** **                                                          | ** ** | **For the Three Months Ended** | ** ** | **For the Nine months Ended** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                          | ** ** | **September 30,  2008**                            | ** ** | **September 30,  2007**                      | ** ** | **September 30,  2008** | ** ** | **September 30,  2007** | ** ** |
| **Amounts  included in the Consolidated Statements of Operations:** | ** ** | ** **                                         | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service revenue                                                     |       | $                                                  | 96,097     |                                         | $          | 92,129 |   | $ | 282,370 |   | $ | 267,074 |   |
| Roaming revenue                                                     |       | $                                                  | 32,282     |                                         | $          | 46,287 |   | $ | 94,083 |   | $ | 119,284 |   |
| Cost of service and roaming:                                        |       |                                               |       |                                         |       |   |   |   |   |
| Roaming                                                             |       | $                                                  | 19,318     |                                         | $          | 24,911 |   | $ | 54,148 |   | $ | 74,846 |   |
| Customer service                                                    |       | 13,959                                             |       | 14,886                                       |       | 40,798 |   | 44,047 |   |
| Affiliation fees                                                    |       | 7,705                                              |       | 7,126                                        |       | 22,071 |   | 21,135 |   |
| Long distance and other                                             |       | 1,945                                              |       | 3,189                                        |       | 7,004 |   | 11,862 |   |
| Total cost of service and roaming                                   |       | $                                                  | 42,927     |                                         | $          | 50,112 |   | $ | 124,021 |   | $ | 151,890 |   |
| Cost of equipment                                                   |       | $                                                  | 15,905     |                                         | $          | 12,880 |   | $ | 40,442 |   | $ | 38,829 |   |
| Selling and marketing                                               |       | $                                                  | 2,266      |                                         | $          | 3,478 |   | $ | 7,311 |   | $ | 13,969 |   |

 
| ** **                                               | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **Amounts included in the Consolidated Balance Sheets:** | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Receivable from Sprint                                   |       | $                       | 31,623     |                        | $          | 41,509 |   |
| Payable to Sprint                                        |       | 48,391                  |       | 49,205                      |       |
|                                                          |            |                         |            |                             |            |  |  |

 

**(4)  Property and Equipment**

 

Property and equipment consists of the following at September 30, 2008and December 31, 2007 (in thousands):

 
| ** **                                     | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Network assets                                 |       | $                       | 265,862    |                        | $          | 232,874 |   |
| Land                                           |       | 114                     |       | 114                         |       |
| Building                                       |       | 1,566                   |       | 1,566                       |       |
| Computer equipment                             |       | 6,111                   |       | 5,043                       |       |
| Furniture, fixtures, and office equipment      |       | 8,576                   |       | 8,086                       |       |
| Vehicles                                       |       | 2,513                   |       | 2,167                       |       |
| Construction in progress                       |       | 44,460                  |       | 16,983                      |       |
| Total property and equipment                   |       | 329,202                 |       | 266,833                     |       |
| Less accumulated depreciation and amortization |       | (168,969                | )          | (138,156                    | )          |
| Total property and equipment, net              |       | $                       | 160,233    |                        | $          | 128,677 |   |

 

The Company currently has for sale its remaining Motorola equipmentwhich was replaced with Nortel equipment. The Company classifies these assetsas Assets held for sale.  During the threeand nine months ended September 30, 2008, the Company recognized impairmentcharges of $1.9 million and $2.2 million, respectively, related to these assetsto reduce the carrying value in accordance with SFAS No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets.” The impairment chargesare included in depreciation and the reduction in carrying value records theseassets at fair value less costs to sell in anticipation of their future sale.

 

8

----

Table of Contents

 

**(5)  Intangible Assets and Goodwill**

 

Goodwill, totaling $141.8 million, represents the excess of purchaseprice over the fair value of the net assets acquired, including identifiableintangible assets.  Goodwill is notdeductible for income taxes.

 

Intangible assets represent the values assigned to the Company’scustomer base, the right to provide service under the Sprint affiliationagreements and an FCC license for a small market in Ohio.

 

The intangible assets relating to the customer base were amortized overthe estimated average life of a customer of 30 months.  The intangible assets related to customerbases were fully amortized as of December 31, 2007.  The intangible assets relating to the rightto provide service under the Sprint affiliation agreements are being amortizedover the remaining term of the respective agreements. The FCC license wasdetermined to have an indefinite life as it is expected to be renewed withminimal effort and cost.  

 

The Company recognized a $1.2 million impairment charge related to itsFCC license in the three months ended September 30, 2007 and such amount isincluded in amortization of intangible assets. This FCC license is for sale; however, the Company believes the sale ofthis asset is unlikely within the next year.

 

The weighted average amortization period, gross carrying amount,accumulated amortization and net carrying amount of intangible assets at September30, 2008 and December 31, 2007 are as follows (in thousands):

 
| ** **                                                        | ** ** | **September 30, 2008**                     | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                        | ** ** | **Weighted Average  Amortization  Period** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Value** | ** ** |
| **Non-amortized intangible asset:**                               | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| FCC license                                                       |       | —                                          |       | $ | 300 |   | $ | — |   | $ | 300 |   |
| **Amortized intangible assets:**                                  | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Right to provide service under the Sprint  affiliation agreements |       | 167 months                                      |       | 126,521 |   | (33,925 | ) | 92,596 |   |
| Customer base                                                     |       | 30 months                                       |       | 71,956 |   | (71,956 | ) | — |   |
|                                                              |       | 117 months                                      |       | $ | 198,777 |   | $ | (105,881 | ) | $ | 92,896 |   |

 
| ** **                                                        | ** ** | **December 31, 2007**                 | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                        | ** ** | **Weighted Average  Amortization  Period** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Value** | ** ** |
| **Non-amortized intangible asset:**                               | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| FCC license                                                       |       | —                                          |       | $ | 300 |   | $ | — |   | $ | 300 |   |
| **Amortized intangible assets:**                                  | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Right to provide service under the Sprint  affiliation agreements |       | 167 months                                      |       | 126,521 |   | (27,044 | ) | 99,477 |   |
| Customer base                                                     |       | 30 months                                       |       | 71,956 |   | (71,956 | ) | — |   |
|                                                              |       | 117 months                                      |       | $ | 198,777 |   | $ | (99,000 | ) | $ | 99,777 |   |

 

Amortization expense for the three months ended September30, 2008 and 2007 was $2.3 million and $8.8 million, respectively.  Amortization expense for the nine monthsended September 30, 2008 and 2007 was approximately $6.9 million and $24.0million, respectively.  Aggregateamortization expense relative to existing intangible assets for the periodsshown is currently estimated to be as follows:

 
| **Year Ended December 31** | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|------------|------------|
| 2008                                      |       | $          | 9,176      |   |
| 2009                                      |       | 9,176      |       |
| 2010                                      |       | 9,176      |       |
| 2011                                      |       | 9,176      |       |
| 2012                                      |       | 9,176      |       |
| Thereafter                                |       | 53,597     |       |
| Total                                     |       | $          | 99,477     |   |

 

9

----

Tableof Contents

 

**(6)  Long-Term Debt**

 

Long-term debt consists of the following at September 30, 2008 andDecember 31, 2007 (in thousands):

 
| ** **                                                                  | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| First lien senior secured floating rate notes                               |       | $                       | 300,000    |                        | $          | 300,000 |   |
| Second lien senior secured floating rate notes                              |       | 175,000                 |       | 175,000                     |       |
| Capital lease obligations                                                   |       | 445                     |       | 468                         |       |
| Total long-term debt and capital lease obligations                          |       | 475,445                 |       | 475,468                     |       |
| Less: current maturities                                                    |       | (33                     | )          | (30                         | )          |
| Long-term debt and capital lease obligations, excluding current  maturities |       | $                       | 475,412    |                        | $          | 475,438 |   |

 

***First Lien andSecond Lien Senior Secured Floating Rate Notes***

 

The Company has outstanding $475.0 million in aggregate principalamount of senior secured notes, consisting of $300.0 million in aggregateprincipal amount of First Lien Senior Secured Floating Rate Notes due 2013(“First Lien Notes”) and $175.0 million in aggregate principal amount ofSecond Lien Senior Secured Floating Rate Notes due 2014 (“Second Lien Notes”and together with the First Lien Notes, the “Secured Notes”).  The offering of the Secured Notes closedApril 23, 2007.

 

The Secured Notes are senior secured obligations of the Company and areunconditionally guaranteed on a senior secured basis by all the Company’sexisting and future domestic restricted subsidiaries. The First Lien Notes aresecured by a first priority security interest, subject to permitted liens, insubstantially all of the Company and its subsidiary guarantor assets, including,but not limited to: (1) all the capital stock of each restrictedsubsidiary owned by the Company, or any subsidiary guarantor; (2) alldeposit accounts, security accounts, accounts receivable, inventory, investmentproperty, inter-company notes, general intangible assets, equipment,instruments, contract rights, chattel paper, promissory notes and leases;(3) all fixtures; (4) patents, trademarks, copyrights and otherintellectual property; and (5) all proceeds of, and all other amountsarising from, the collection, sale, lease, exchange, assignment, licensing, orother disposition or realization of the foregoing assets (collectively the“Collateral”); provided that the security documents provide that a portion ofthe capital stock of any subsidiary shall automatically be deemed releasedfrom, and not to have been a part of, the Collateral to the extent necessary soas not to require the preparation and filing with the SEC of separate auditedfinancial statements of such subsidiary pursuant to Rule 3-16 of the SEC’saccounting rules and regulations. The Second Lien Notes are secured by asecond priority security interest, subject to permitted liens, in theCollateral.

 

The indentures governing the Secured Notes contain covenants whichrestrict the Company’s and its restricted subsidiaries’ ability to incuradditional indebtedness, merge, pay dividends, dispose of its assets, andcertain other matters as defined in the indentures.

 

Interest on the First Lien Notes accrues at an annual rate equal tothree-month LIBOR plus 2.125% and is payable quarterly in cash onFebruary 1, May 1, August 1 and November 1 of each year.Interest on the Second Lien Notes accrues at an annual rate equal tothree-month LIBOR plus 3.25% and is payable quarterly on February 1, May 1,August 1 and November 1 of each year. The Company may elect to payinterest on the Second Lien Notes entirely in cash or entirely by increasingthe principal amount of the Second Lien Notes (“PIK Interest”). PIK Interest onthe Second Lien Notes accrues at an annual rate equal to three-month LIBOR plus4.0%. Since issuance, the Company has paid all of its interest relating to theSecond Lien Notes in cash. Three-month LIBOR for the Secured Notes resets onFebruary 1, May 1, August 1 and November 1 of each year andwas 2.80% on September 30, 2008. On November 3, 2008, three-month LIBORfor the Secured Notes was 3.19%.

 

TheCompany used a portion of the proceeds of the Secured Notes offering torepurchase all of its outstanding 111/2% notes and 113/8% notes (see below), as well as to pay therelated fees and expenses of the offering. The Company also used the remainingnet proceeds from the Secured Notes offering, together with approximately$58.0 million of its available cash, to pay a special cash dividend tocommon stockholders (see Note 10).  Inconnection with the Secured Notes offering, for the nine months ended September30, 2007, the Company recorded debt extinguishment costs as follows (dollars inthousands):

 
| Tender offer premium and consent costs                                                                           |   | $       | 34,155 |   |
|------------------------------------------------------------------------------------------------------------------|--------|---------|--------|--------|
| Write off of remaining deferred financing costs of  11-1/2% and 11-3/8%  senior notes                            |   | 7,284   |   |
| Acceleration of the unamortized balance of the  purchase price fair value adjustment to the 11-3/8% senior notes |   | (10,938 | )      |
| Total debt extinguishment costs                                                                                  |   | $       | 30,501 |   |

 

10

----

Tableof Contents

 

***$165.0 Million11******1/******2% Senior Notes***

 

The offering of 111/2%senior notes closed on April 30, 2004 in connection with the Company’sreorganization in that same year. As discussed above, the Company repurchasedall of its outstanding 111/2% senior notes with theproceeds of its Secured Notes offering in April 2007.

 

***$125.0 Million11******3/******8% Senior Notes***

 

In connection with the merger with Horizon PCS in 2005, iPCS, Inc.assumed the obligations for the $125.0 million of 113/8% senior notes previously issued byHorizon PCS as part of Horizon PCS’s plan of reorganization. The allocation ofthe purchase price resulted in an increase of the value of the 113/8%senior notes of approximately $14.7 million, which was recorded aslong-term debt in the Consolidated Balance Sheet. This amount was to beamortized over the remaining life of the senior notes as a reduction tointerest expense. For the three and nine months ended September 30, 2007, thereduction to interest expense was approximately $0.0 million and$0.6 million, respectively. This amortization did not increase theprincipal amount due to the senior note holders or reduce the amount ofinterest owed to the senior note holders.

 

With the proceeds of its Secured Notes offering in April 2007, theCompany repurchased all of its outstanding 113/8%senior notes and reduced the unamortized balance of the fair value adjustmentfor the 113/8% senior notes to zero.

 

***Capital LeaseObligations***

 

Interest on capital lease obligations are all at fixed rates, which, ona weighted average basis, approximated 12.4% per annum at September 30, 2008.

 

**(7)  Interest Rate Swap**

 

On July 20, 2007, the Company entered into an interest rate swapagreement for a notional amount of $300.0 million associated with theinterest on the Company’s First Lien Notes effective August 1, 2007 for aperiod of three years. Under this agreement, the Company receives interest at afloating rate of three-month LIBOR and pays interest at a fixed rate of 5.34%,resulting in an effective rate for the First Lien Notes of 7.47% throughout theterm of the swap. The interest rate swap has been designated as a cash flowhedge. The fair value of the interest rate swap is recorded in Stockholders’Deficiency under Accumulated other comprehensive loss, net of applicable incometaxes.

 

As of September 30, 2008 and December 31, 2007, the fair value of theswap was approximately $11.0 million and $11.6 million, respectively, andis recorded on the Consolidated Balance Sheet as a long-term liability and in Accumulatedother comprehensive loss. The change in fair value of the swap for the three andnine months ended September 30, 2008 was a decrease to the liability of $0.1million and $0.6 million, respectively.  The change in fair value of the swap for thethree and nine months ended September 30, 2007 was $6.1 million.  No component of the interest rate swap isexcluded from the assessment of effectiveness and no ineffectiveness has beenrecognized on the swap since inception.

 

The amount of loss recorded in Accumulated other comprehensive loss at September30, 2008 that is expected to be reclassified to interest expense in the nexttwelve months if interest rates underlying the Company’s fair valuecalculations remain unchanged is approximately $6.4 million.

 

**(8)  Income Taxes**

 

The Company’s effective income tax rate for the interim periodspresented is based on management’s estimate of the Company’s effective tax ratefor the applicable year and differs from the federal statutory income tax rateprimarily due to nondeductible permanent differences, state income taxes andchanges in the valuation allowance for deferred income taxes. In assessing therealizability of deferred tax assets, management considers whether it is morelikely than not that some portion or all of the deferred tax assets will not berealized. The ultimate realization of deferred tax assets is dependent upon thegeneration of future taxable income during the periods in which those temporarydifferences become deductible. No net benefit for federal income taxes has beenrecorded for the three and nine months ended September 30, 2008 and 2007 as thenet deferred tax asset generated, primarily from temporary differences relatedto the net operating loss, was offset by a valuation allowance because it isconsidered more likely than not that these benefits will not be realized due tothe Company’s losses since inception. The current year tax provision relates to state income taxes which areestimated based upon the taxable income generated in each state.

 

11

----

Tableof Contents

 

**(9)  Stock-Based Compensation**

 

The Company has two long-term incentive plans.  The iPCS 2004 long-term incentive plan, asamended (the “iPCS Plan”), was approved by the Company’s board of directors asprovided by the Company’s plan of reorganization. The Horizon PCS 2004 stockincentive plan, as amended (the “Horizon Plan”), was assumed by the Company inits merger with Horizon PCS in 2005. Both plans have been approved by the Company’s stockholders.

 

**iPCS Plan. **Under the iPCS Plan, the Company may grant toemployees, directors and consultants of the Company or its subsidiariesincentive and non-qualified stock options, stock appreciation rights,restricted and unrestricted stock awards and cash incentive awards.  The stock options awarded to date under theiPCS Plan have a ten-year term with vesting on a quarterly basis over fouryears for employees and quarterly over one year for directors.  Restricted stock awards granted to date underthe iPCS Plan vest on a quarterly basis over four years for employees, vest quarterlyover one year for directors, and, with respect to the 2008 award of restrictedstock to certain employees, vest entirely at the end of three years.  On May 22, 2008, the Company’s stockholdersapproved the Second Amended and Restated iPCS Plan, which included an increase of600,000 in the number of shares available for issuance.  Giving effect to this amendment, the totalnumber of shares that may be awarded under the iPCS Plan is 2,692,630 shares ofcommon stock, of which amount, 637,806 shares remain available for awards as ofSeptember 30, 2008.

 

**Horizon Plan. **Under the Horizon Plan, the Company may grantto employees, directors and consultants of the Company or its subsidiariesincentive or non-qualified stock options or stock appreciation rights. All ofthe stock options issued to date under the Horizon Plan have a ten-year lifeand vest equally in six-month increments over three years from the respective dateof grant. The total number of shares that may be granted under the Horizon Planis 558,602 shares of the Company’s common stock, which equals the number ofshares underlying awards previously made under the Horizon Plan.

 

During the three and nine months ended September 30, 2008, the Companyawarded 45,000 and 673,500 stock options to management and the board ofdirectors at exercise prices between $16.77 and $26.98, which were the closingprices on the date of grants.  The fairvalue of each grant is estimated at the grant date using the Black Scholesoption pricing method.  The table belowoutlines the assumptions used for the options granted during the three and ninemonths ended September 30, 2008:

 
| ** **                             | ** ** | **For the Three Months Ended  September 30, 2008** | ** ** | **For the Nine Months Ended  September 30, 2008** | ** ** |
|----------------------------------------|------------|----------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                             | ** ** | **Range**                                                                        | ** ** | **Weighted Average**                                                       | ** ** | **Range** | ** ** | **Weighted Average** | ** ** |
| Risk free interest rate |       | 4.17% to 4.17                                                                    | %          | 4.17                                                                            | %          | 2.62% to 4.17 | % | 3.30 | % |
| Volatility                             |       |                                                                             |       | 38.00                                                                           | %          |   |   | 38.00 | % |
| Dividend yield                         |       |                                                                             |       | 0.00                                                                            | %          |   |   | 0.00 | % |
| Expected life in years                 |       |                                                                             |       | 5.98                                                                            |       |   |   | 5.96 |   |
| Fair value price                       |       |                                                                             |       | $                                                                               | 8.84       |   |   |   | $ | 10.42 |   |
|                                        |            |                                                                                  |            |                                                                                 |            |  |  |  |  |  |  |

 

The Company uses the simplified method for calculating the expectedlife for stock options in place of using historical exercise data.  The Company’s stock has been publicly tradedsince August 2004 and the Company cannot provide a reasonable basis uponwhich to estimate the expected term of options granted.  Additionally, the types of employees thatreceived stock option grants have varied during this same period and alsocannot provide a reasonable basis upon which to estimate the expected term ofoptions granted.  

 

The following table shows stock-based compensation expense by type ofshare-based award for the three and nine months ended September 30, 2008 and2007 included in the consolidated statements of operations (in thousands):

 
| ** **                                                                                   | ** ** | **For the Three Months Ended** | ** ** | **For the Nine months Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                                   | ** ** | **September 30, 2008**                        | ** ** | **September 30, 2007**                  | ** ** | **September 30, 2008** | ** ** | **September 30, 2007** | ** ** |
| Restricted stock                                                                             |       | $                                                  | 254        |                                         | $          | 243 |   | $ | 808 |   | $ | 645 |   |
| Amortization of deferred compensation of stock  option awards                                |       | —                                             |       | 28                                           |       | — |   | 265 |   |
| Fair value expense of stock option awards                                                    |       | 793                                                |       | 755                                          |       | 2,979 |   | 2,469 |   |
| Fair value expense of stock option modifications                                             |       | —                                             |       | —                                       |       | — |   | 643 |   |
| Fair value expense of stock option modifications  related to special cash dividend (Note 10) |       | 71                                                 |       | 374                                          |       | 991 |   | 4,108 |   |
| Total stock-based compensation                                                               |       | $                                                  | 1,118      |                                         | $          | 1,400 |   | $ | 4,778 |   | $ | 8,130 |   |

 

The following table shows the total remaining unrecognized compensationcost related to restricted stock grants and fair value expense of stock optionawards, as well as the weighted average remaining required service period overwhich such costs will be recognized:

 

12

----

Table of Contents

 
| ** **                                | ** ** | **Total Remaining  Unrecognized  Compensation Cost****(in millions)** | ** ** | **Weighted Average  Remaining Required  Service Period  (in years)** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| Restricted stock                          |       | $                                                                                    | 2.3        |                                                                                     | 2.37       |   |
| Fair value expense of stock option awards |       | 8.4                                                                                  |       | 2.93                                                                                     |       |
|                                           |            |                                                                                      |            |                                                                                          |            |  |

 

Stock-based compensation expense is included in the consolidatedstatements of operations as follows (in thousands):

 
| ** **                     | ** ** | **For the Three Months Ended** | ** ** | **For the Nine months Ended** | ** ** |
|--------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                     | ** ** | **September 30, 2008**                        | ** ** | **September 30, 2007**                  | ** ** | **September 30, 2008** | ** ** | **September 30, 2007** | ** ** |
| Cost of service and roaming    |       | $                                                  | 116        |                                         | $          | 120 |   | $ | 442 |   | $ | 499 |   |
| Selling and marketing          |       | 129                                                |       | 199                                          |       | 546 |   | 996 |   |
| General and administrative     |       | 873                                                |       | 1,081                                        |       | 3,790 |   | 6,635 |   |
| Total stock-based compensation |       | $                                                  | 1,118      |                                         | $          | 1,400 |   | $ | 4,778 |   | $ | 8,130 |   |

 

The following is asummary of options outstanding and exercisable at September 30, 2008:

 
| ** **                            | ** ** | **Number of Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted  Average  Remaining  Contractual Life  (in years)** | ** ** | **Aggregate  Intrinsic Value  (In thousands)** | ** ** |
|---------------------------------------|------------|--------------------------------|------------|------------------------------------------------|------------|--------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| Outstanding at December 31, 2007 |       | 851,431                        |       | $                                              | 22.01      |                                                                     |       |                                                     |       |   |
| Granted                               |       | 673,500                        |       | 24.85                                          |       |                                                                     |       |                                                     |       |
| Exercised                             |       | (37,823                        | )          | 15.38                                          |       |                                                                     |       |                                                     |       |
| Forfeited                             |       | (81,014                        | )          | 24.10                                          |       |                                                                     |       |                                                     |       |
| Outstanding at September 30, 2008     |       | 1,406,094                      |       | $                                              | 23.09      |                                                                     | 8.06       |                                                     | $          | 5,559 |   |
| Exercisable at September 30, 2008     |       | 756,469                        |       | $                                              | 19.20      |                                                                     | 7.10       |                                                     | $          | 5,425 |   |

 

The following is asummary of outstanding restricted shares for the nine months ended September 30,2008:

 
| ** **                                  | ** ** | **Shares** | ** ** | **Weighted Average  Fair Value Price** | ** ** |
|---------------------------------------------|------------|------------|------------|-------------------------------------------------------|------------|
| Restricted shares at December 31, 2007 |       | 62,836     |       | $                                                     | 43.47      |   |
| Granted                                     |       | 21,705     |       | 24.82                                                 |       |
| Vested                                      |       | (16,241    | )          | 41.63                                                 |       |
| Forfeited                                   |       | (4,067     | )          | 49.05                                                 |       |
| Restricted shares at September 30, 2008     |       | 64,233     |       | $                                                     | 37.28      |   |

 

**(10)  Special Cash Dividend**

 

OnApril 26, 2007, the Board of Directors declared a special cash dividend of$11.00 per share, approximately $187.0 million in the aggregate, payable to allholders of record of the Company’s common stock on May 8, 2007.  Of this amount, approximately $186.5 millionwas paid on May 16, 2007.  Theremaining unpaid dividends relate to restricted stock awards and are being paidout starting in July 2007 as these awards vest.  As of September 30, 2008, approximately $0.3million of this dividend remains to be paid.

 

OnMay 2, 2007, in connection with such dividend, the Compensation Committeeof the Board of Directors of the Company resolved that each stock option thatwas outstanding under the iPCS Plan and the Horizon Plan, on the trading dayimmediately preceding the trading day designated by the NASDAQ Stock Market asthe ex-dividend date (the “Adjustment Date”) would be adjusted as followseffective as of the opening of business on the Adjustment Date:

 

·                  The number of shares of stock then subject toeach option would be adjusted by dividing the number of shares of stock thensubject to the option by the Adjustment Factor; and

 

·                  The exercise price of each option would beadjusted by multiplying the exercise price by the Adjustment Factor.

 

13

----

Tableof Contents

 

The“Adjustment Factor” was 0.78282 which was equal to one minus the percentagereduction in the closing sale price of a share of stock on the Adjustment Datereported by the NASDAQ Stock Market at the regular hours closing price(“Closing Price”) as compared to the Closing Price of a share of stock on theAdjustment Date minus $11.00. In addition, on the Adjustment Date, the numberof shares under the iPCS Plan and the Horizon Plan was adjusted by dividing thenumber of shares of stock reserved for issuance by the Adjustment Factor;thereby increasing the number of shares reserved for issuance. The modificationresulted in an additional 184,537 shares to 72 employees anddirectors who had options outstanding on the modification date. With thismodification, the Company will record additional stock-based compensationexpense of approximately $6.5 million, of which approximately$3.2 million was recorded as of the date of modification and the remainderis being recognized over the remaining vesting period for the options, subjectto reduction for forfeitures. An additional $0.1 million and $1.0 millionof compensation expense related to the modification was recorded in the threeand nine months ended September 30, 2008, respectively, and an additional $0.4million and $4.1 million was recorded in the three and nine months endedSeptember 30, 2007, respectively, with the quarterly vesting of stockoptions.  As of September 30, 2008,approximately $0.6 million of additional stock-based compensation expenserelated to this modification remains to be recognized over the remainingvesting period of the options.

 

**(11)  Comprehensive Income (Loss)**

 

Comprehensive income (loss), which includes all changes in theCompany’s equity during the period except transactions with stockholders, consistedof the following for the three and nine months ended September 30, 2008 and2007 (in thousands):

 
| ** **                                         | ** ** | **For the Three Months Ended** | ** ** | **For the Nine months Ended** | ** ** |
|----------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                         | ** ** | **September 30,  2008**                            | ** ** | **September 30,  2007**                      | ** ** | **September 30,  2008** | ** ** | **September 30,  2007** | ** ** |
| Net loss                                           |       | $                                                  | (7,494     | )                                            | $          | (2,404 | ) | $ | (9,746 | ) | $ | (65,191 | ) |
| Other comprehensive income (loss) – Hedge (a) |       | 131                                                |       | (6,062                                       | )          | 637 |   | (6,062 | ) |
| Comprehensive loss                                 |       | $                                                  | (7,363     | )                                            | $          | (8,466 | ) | $ | (9,109 | ) | $ | (71,253 | ) |

 

----

(a)                                  Nonet benefit for income tax has been recorded for the three and nine monthsended September 30, 2008 and 2007, as the deferred asset generated, primarilyfrom the temporary differences relating to the Company’s net operating loss,was offset by a valuation allowance because it is considered more likely thannot that these benefits will not be recognized due to the Company’s lossessince inception.

 

**(12)  Fair Value Measurements**

 

SFAS 157 clarifies that fair value is an exit price, representing theamount that would be received to sell an asset or paid to transfer a liabilityin an orderly transaction between market participants. As such, fair value is amarket-based measurement that should be determined based on assumptions thatmarket participants would use in pricing an asset or liability. As a basis forconsidering such assumptions, SFAS 157 establishes a three-tier valuehierarchy, which prioritizes the inputs used in measuring fair value asfollows: Level 1 are observable inputs such as quoted prices in active markets;Level 2 are inputs other than the quoted prices in active markets that areobservable either directly or indirectly; and Level 3 are unobservable inputsin which there is little or no market data, which require the Company todevelop its own assumptions. This hierarchy requires the Company to use observablemarket data, when available, and to minimize the use of unobservable inputswhen determining fair value. On a recurring basis, the Company measures certainassets and liabilities at fair value, including certain of the Company’s moneymarket funds, commercial paper and interest rate swap.

 

The Company’s fair value measurements in connection with the Company’sadoption of SFAS 157 were as follows as of September 30, 2008 and are based onLevel 2 inputs (in thousands):

 
| Money market funds (a) |   | $ | 5,822  |   |
|------------------------|--------|---|--------|--------|
| Commercial paper (a)   |   | $ | 35,220 |   |
| Interest rate swap     |   | $ | 10,970 |   |
|                        |        |   |        |        |  |  |

 

----

(a)                                  Includedin Cash and cash equivalents on the Consolidated Balance Sheet.

 

14

----

Table of Contents

 

**(13)  Commitments and Contingencies**

 

*(a)  FCCLicenses*

 

Sprint PCS holds the licenses necessary to provide wireless services inthe Company’s territory. The FCC requires that licensees like Sprint PCSmaintain control of their licensed spectrums and not delegate control tothird-party operators or managers without FCC consent and are subject torenewal and revocation by the FCC.  TheFCC has adopted specific standards that apply to wireless personalcommunications services license renewals. Any failure by Sprint PCS or theCompany to comply with these standards could result in the non-renewal of theSprint PCS licenses for the Company’s territory. Additionally, if Sprint PCSdoes not demonstrate to the FCC that Sprint PCS has met the constructionrequirements for each of its wireless personal communications serviceslicenses, it can lose those licenses. If Sprint PCS loses its licenses in theCompany’s territory for any of these reasons, the Company would not be able toprovide wireless services without obtaining rights to other licenses.

 

If Sprint PCS loses its licenses in another territory, Sprint PCS orthe applicable PCS Affiliate or Sprint would not be able to provide wirelessservices without obtaining rights to other licenses and the Company’s abilityto offer nationwide calling plans would be diminished and potentially morecostly.

 

*(b)  Litigationand Arbitration*

 

*Sprint/Nextel Merger Litigation.*  On July 15, 2005, the Company’s whollyowned subsidiary, iPCS Wireless, Inc., filed a complaint against Sprintand Sprint PCS in the Circuit Court of Cook County, Illinois. The complaintalleged, among other things, that Sprint’s conduct following the consummationof the merger between Sprint and Nextel, would breach Sprint’s exclusivityobligations to iPCS Wireless under its affiliation agreements with Sprint PCS.On August 14, 2006, the Circuit Court issued its decision and onSeptember 20, 2006, the Circuit Court issued a final order effecting itsdecision. The final order provides that:

 

·                  Within180 days of the date of the final order, Sprint and those acting inconcert with it must cease owning, operating, and managing the Nextel wirelessnetwork in iPCS Wireless’s territory.

 

·                  Sprintshall continue to comply with all terms and conditions of the ForbearanceAgreement between us and Sprint setting forth certain limitations on Sprint’soperations post-merger with Nextel.

 

OnSeptember 28, 2006, Sprint appealed the ruling to the Appellate Court ofIllinois, First Judicial District, and, at Sprint’s request, the CircuitCourt’s ruling was stayed by the Appellate Court pending the appeal. OnMarch 31, 2008, the Appellate Court unanimously affirmed the 2006 CircuitCourt decision.  On May 5, 2008,Sprint filed a petition for leave to appeal with the Supreme Court of Illinois.On September 24, 2008, the Supreme Court of Illinois denied Sprint’s petitionfor leave to appeal the Appellate Court’s decision.  On October 15, 2008, Sprint filed a motionwith the Supreme Court of Illinois asking it to permit Sprint to file a motionto reconsider its decision only as it relates to the relief granted (i.e., theorder requiring Sprint to cease owning, operating, and managing the Nextelwireless network in iPCS Wireless’s territory within 180 days of the finalorder).  A decision is expected on thatmotion later this year. The Circuit Court’s final order remains stayed pendingthe conclusion of the appeals process. Sprint has also filed a motion with the Circuit Court seeking to vacatethat Court’s original order.

 

*Sprint Arbitration.*  In December 2006, the Company initiatedarbitration against Sprint with respect to Sprint’s proposed rates forproviding back-office services to the Company for the three-year periodcommencing on January 1, 2007. On March 3, 2008, pursuant to theamendments to the affiliation agreements signed between them, the Company andSprint PCS agreed to dismiss the ongoing arbitration between them relating tothese back-office services rates.

 

*****Sprint Nextel Litigation with respect to theSprint-Clearwire Transaction.*****  On May 7, 2008, Sprint Nextelannounced a transaction between itself, Clearwire Corporation, and certainother parties related to WiMax (the “Sprint-Clearwire Transaction”).  Thesame day, Sprint Nextel filed a complaint for declaratory judgment against theCompany and certain of its subsidiaries in the Court of Chancery of the Stateof Delaware.  In that lawsuit, Sprint Nextel seeks a declaration that theSprint-Clearwire Transaction would not constitute a breach of the Sprint Nextelagreements with the Company.

 

On May 12, 2008, certain of the Company’s subsidiaries (the “iPCSSubsidiaries”) filed a lawsuit against Sprint Nextel Corporation and certain ofits affiliates in the Circuit Court of Cook County, Illinois, seekingdeclaratory and injunctive relief with respect to the Sprint-ClearwireTransaction. In that case, the iPCS Subsidiaries seek a declaration that theSprint-Clearwire Transaction, if consummated, would constitute a breach of theSprint affiliation agreements with the iPCS Subsidiaries, and also seek aninjunction barring Sprint Nextel from closing on the Sprint-ClearwireTransaction, until it complies with the affiliation agreements. Trial on thismatter is currently scheduled to commence in December 2008.  On November 3, 2008, the iPCS Subsidiariesfiled an emergency motion for preliminary injunction in the Circuit Court ofCook County, Illinois seeking to prevent Sprint Nextel from consummating theSprint-Clearwire Transaction until such time that the Court can rule on themerits of the underlying litigation brought by the iPCS Subsidiaries againstSprint Nextel.

 

On July 14, 2008, the Court of Chancery of the State of Delawareissued an opinion related to the Sprint-Clearwire Transaction.  TheDelaware Court granted the motion to dismiss filed by two of the Company’ssubsidiaries, Horizon Personal Communications, Inc. and Bright PersonalCommunications Services, LLC and dismissed them from the Delaware litigation,and denied the motion to dismiss the Company and its subsidiary, iPCSWireless, Inc.  On July 28, 2008, the Company and iPCS Wireless, 

 

15

----

Table of Contents

 

Inc. filed a motion to dismiss the remainderof the case pending before it or, in the alternative, to transfer the case tothe Superior Court of the State of Delaware.  The Court denied the motionto dismiss and did not rule on the motion to transfer.  Pursuant to a motion filed by iPCSWireless, Inc. and the Company on October 8, 2008, the Delaware Court stayedall remaining Delaware litigation in favor of the lawsuit brought in Illinoisby the Company’s subsidiaries.

 

In addition to the foregoing, from time to time, the Company isinvolved in various legal proceedings relating to claims arising in theordinary course of business. The Company is not currently a party to any suchlegal proceedings, the outcome of which, individually or in the aggregate, isexpected to have a material adverse effect on the Company’s business, financialcondition or results of operations.

** **

**(14)  Consolidating FinancialInformation**

 

The Secured Notes are fully, unconditionally and joint and severallyguaranteed by the Company’s domestic restricted subsidiaries, including iPCSWireless, Inc., iPCS Equipment, Inc., Horizon PersonalCommunications, Inc., Bright PCS Holdings, Inc. and Bright Personal CommunicationsServices, LLC, which are 100% owned subsidiaries of iPCS, Inc (seeNote 6). The following consolidating financial information foriPCS, Inc. as of September 30, 2008 and December 31, 2007 and for thethree and nine months ended September 30, 2008 and 2007 is presented foriPCS, Inc. and the Company’s guarantor subsidiaries (in thousands):

 

**Condensed Consolidating Balance Sheet**

**As of September 30, 2008**

 
| ** **                                                   | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|--------------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|----------------------------|------------|
| Cash and cash equivalents                                    |       | $                  | —     |                        | $          | 69,866           |       | $                          | —     |   | $ | 69,866 |   |
| Other current assets                                         |       | 516,881            |       | 336,472                     |       | (770,034         | )          | 83,319                     |       |
| Total current assets                                         |       | 516,881            |       | 406,338                     |       | (770,034         | )          | 153,185                    |       |
| Property and equipment, net                                  |       | —             |       | 160,233                     |       | —           |       | 160,233                    |       |
| Intangible assets, net                                       |       | —             |       | 234,679                     |       | —           |       | 234,679                    |       |
| Other noncurrent assets                                      |       | 6,763              |       | 4,567                       |       | —           |       | 11,330                     |       |
| Investment in subsidiaries                                   |       | 178,336            |       | —                      |       | (178,336         | )          | —                     |       |
| Total assets                                                 |       | $                  | 701,980    |                        | $          | 805,817          |       | $                          | (948,370   | ) | $ | 559,427 |   |
| Current liabilities                                          |       | $                  | 259,381    |                        | $          | 616,280          |       | $                          | (770,034   | ) | $ | 105,627 |   |
| Long-term debt                                               |       | 475,000            |       | 412                         |       | —           |       | 475,412                    |       |
| Other long-term liabilities                                  |       | 11,167             |       | 10,789                      |       | —           |       | 21,956                     |       |
| Total liabilities                                            |       | 745,548            |       | 627,481                     |       | (770,034         | )          | 602,995                    |       |
| Stockholders’ equity (deficiency)                       |       | (43,568            | )          | 178,336                     |       | (178,336         | )          | (43,568                    | )          |
| Total liabilities and stockholders’ equity (deficiency) |       | $                  | 701,980    |                        | $          | 805,817          |       | $                          | (948,370   | ) | $ | 559,427 |   |

 

16

----

Tableof Contents

 

**Condensed Consolidating Balance Sheet**

**As of December 31, 2007**

 
| ** **                                                   | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|--------------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|----------------------------|------------|
| Cash and cash equivalents                                    |       | $                  | —     |                        | $          | 77,599           |       | $                          | —     |   | $ | 77,599 |   |
| Other current assets                                         |       | 484,914            |       | 310,653                     |       | (709,454         | )          | 86,113                     |       |
| Total current assets                                         |       | 484,914            |       | 388,252                     |       | (709,454         | )          | 163,712                    |       |
| Property and equipment, net                                  |       | —             |       | 128,677                     |       | —           |       | 128,677                    |       |
| Intangible assets, net                                       |       | —             |       | 241,560                     |       | —           |       | 241,560                    |       |
| Other noncurrent assets                                      |       | 7,794              |       | 5,081                       |       | —           |       | 12,875                     |       |
| Investment in subsidiaries                                   |       | 186,048            |       | —                      |       | (186,048         | )          | —                     |       |
| Total assets                                                 |       | $                  | 678,756    |                        | $          | 763,570          |       | $                          | (895,502   | ) | $ | 546,824 |   |
| Current liabilities                                          |       | $                  | 231,657    |                        | $          | 565,351          |       | $                          | (709,454   | ) | $ | 87,554 |   |
| Long-term debt                                               |       | 475,000            |       | 438                         |       | —           |       | 475,438                    |       |
| Other long-term liabilities                                  |       | 11,933             |       | 11,733                      |       | —           |       | 23,666                     |       |
| Total liabilities                                            |       | 718,590            |       | 577,522                     |       | (709,454         | )          | 586,658                    |       |
| Stockholders’ equity (deficiency)                       |       | (39,834            | )          | 186,048                     |       | (186,048         | )          | (39,834                    | )          |
| Total liabilities and stockholders’ equity (deficiency) |       | $                  | 678,756    |                        | $          | 763,570          |       | $                          | (895,502   | ) | $ | 546,824 |   |

 

**Condensed Consolidating Statement ofOperations**

**For the Three Months Ended September 30, 2008**

 
| ** **                                      | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|----------------------------|------------|
| Total revenue                                   |       | $                  | —     |                        | $          | 132,057          |       | $                          | —     |   | $ | 132,057 |   |
| Cost of revenue                                 |       | —             |       | 90,425                      |       | —           |       | 90,425                     |       |
| Selling and marketing                           |       | —             |       | 18,091                      |       | —           |       | 18,091                     |       |
| General and administrative                      |       | 558                |       | 9,470                       |       | —           |       | 10,028                     |       |
| Depreciation and amortization                   |       | —             |       | 12,887                      |       | —           |       | 12,887                     |       |
| Loss on disposal of property and equipment, net |       | —             |       | 71                          |       | —           |       | 71                         |       |
| Total operating expense                         |       | 558                |       | 130,944                     |       | —           |       | 131,502                    |       |
| Other, net                                      |       | (2,212             | )          | (5,729                      | )          | —           |       | (7,941                     | )          |
| Income in subsidiaries                          |       | (4,724             | )          | —                      |       | 4,724            |       | —                     |       |
| Income (loss) before provision for income tax   |       | (7,494             | )          | (4,616                      | )          | 4,724            |       | (7,386                     | )          |
| Provision for income tax                        |       | —             |       | 108                         |       | —           |       | 108                        |       |
| Net income (loss)                               |       | $                  | (7,494     | )                           | $          | (4,724           | )          | $                          | 4,724      |   | $ | (7,494 | ) |

 

**Condensed Consolidating Statement ofOperations**

**For the Three Months Ended September 30, 2007**

** **
| ** **                                      | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|----------------------------|------------|
| Total revenue                                   |       | $                  | —     |                        | $          | 142,077          |       | $                          | —     |   | $ | 142,077 |   |
| Cost of revenue                                 |       | —             |       | 92,414                      |       | —           |       | 92,414                     |       |
| Selling and marketing                           |       | —             |       | 17,785                      |       | —           |       | 17,785                     |       |
| General and administrative                      |       | 683                |       | 4,995                       |       | —           |       | 5,678                      |       |
| Depreciation and amortization                   |       | —             |       | 19,569                      |       | —           |       | 19,569                     |       |
| Loss on disposal of property and equipment, net |       | —             |       | 65                          |       | —           |       | 65                         |       |
| Total operating expense                         |       | 683                |       | 134,828                     |       | —           |       | 135,511                    |       |
| Other, net                                      |       | (10,008            | )          | 1,038                       |       | —           |       | (8,970                     | )          |
| Loss in subsidiaries                            |       | 8,287              |       | —                      |       | (8,287           | )          | —                     |       |
| Loss before provision for income tax            |       | (2,404             | )          | 8,287                       |       | (8,287           | )          | (2,404                     | )          |
| Benefit from income tax                         |       | —             |       | —                      |       | —           |       | —                     |       |
| Net loss                                        |       | $                  | (2,404     | )                           | $          | 8,287            |       | $                          | (8,287     | ) | $ | (2,404 | ) |

 

17

----

Tableof Contents

 

**Condensed Consolidating Statement ofOperations**

**For the Nine months Ended September 30, 2008**

 
| ** **                                      | ** ** | **iPCS Inc.** | ** **   | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** **   |
|-------------------------------------------------|------------|--------------------|--------------|-----------------------------|------------|------------------|------------|----------------------------|--------------|
| Total revenue                                   |       | $                  |  — |                        | $          |  387,086    |       | $                          |  — |   | $ |  387,086 |   |
| Cost of revenue                                 |       | —             |         | 253,609                     |       | —           |       | 253,609                    |         |
| Selling and marketing                           |       | —             |         | 52,394                      |       | —           |       | 52,394                     |         |
| General and administrative                      |       | 2,033              |         | 23,075                      |       | —           |       | 25,108                     |         |
| Depreciation and amortization                   |       | —             |         | 40,691                      |       | —           |       | 40,691                     |         |
| Loss on disposal of property and equipment, net |       | —             |         | 329                         |       | —           |       | 329                        |         |
| Total operating expense                         |       | 2,033              |         | 370,098                     |       | —           |       | 372,131                    |         |
| Other, net                                      |       | —             |         | (23,943                     | )          | —           |       | (23,943                    | )            |
| Loss in subsidiaries                            |       | (7,713             | )            | —                      |       | 7,713            |       | —                     |         |
| Loss before provision for income tax            |       | (9,746             | )            | (6,955                      | )          | 7,713            |       | (8,988                     | )            |
| Provision for income tax                        |       | —             |         | 758                         |       | —           |       | 758                        |         |
| Net loss                                        |       | $                  |  (9,746 | )                           | $          |  (7,713     | )          | $                          |  7,713  |   | $ |  (9,746 | ) |

 

**Condensed Consolidating Statement ofOperations**

**For the Nine months Ended September 30, 2007**

 
| ** **                                      | ** ** | **iPCS Inc.** | ** **    | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** **   |
|-------------------------------------------------|------------|--------------------|---------------|-----------------------------|------------|------------------|------------|----------------------------|--------------|
| Total revenue                                   |       | $                  |  —  |                        | $          |  396,163    |       | $                          |  — |   | $ |  396,163 |   |
| Cost of revenue                                 |       | —             |          | 270,517                     |       | —           |       | 270,517                    |         |
| Selling and marketing                           |       | —             |          | 57,467                      |       | —           |       | 57,467                     |         |
| General and administrative                      |       | 1,830              |          | 19,445                      |       | —           |       | 21,275                     |         |
| Depreciation and amortization                   |       | —             |          | 58,626                      |       | —           |       | 58,626                     |         |
| Loss on disposal of property and equipment, net |       | —             |          | 130                         |       | —           |       | 130                        |         |
| Total operating expense                         |       | 1,830              |          | 406,185                     |       | —           |       | 408,015                    |         |
| Other, net                                      |       | (46,757            | )             | (6,582                      | )          | —           |       | (53,339                    | )            |
| Loss in subsidiaries                            |       | (16,604            | )             | —                      |       | 16,604           |       | —                     |         |
| Loss before provision for income tax            |       | (65,191            | )             | (16,604                     | )          | 16,604           |       | (65,191                    | )            |
| Benefit from income tax                         |       | —             |          | —                      |       | —           |       | —                     |         |
| Net loss                                        |       | $                  |  (65,191 | )                           | $          |  (16,604    | )          | $                          |  16,604 |   | $ |  (65,191 | ) |

 

 

**Condensed Consolidating Statement of CashFlows**

**For the Nine months Ended September 30, 2008**

 
| ** **                                       | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** **   |
|--------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|----------------------------|--------------|
| Operating activities                             |       | $                  |  (454 | )                           | $          |  44,568     |       | $                          |  — |   | $ |  44,114 |   |
| Investing activities                             |       | —             |       | (52,279                     | )          | —           |       | (52,279                    | )            |
| Financing activities                             |       | 454                |       | (22                         | )          | —           |       | 432                        |         |
| Net decrease in cash and cash equivalents        |       | —             |       | (7,733                      | )          | —           |       | (7,733                     | )            |
| Cash and cash equivalents at beginning of period |       | —             |       | 77,599                      |       | —           |       | 77,599                     |         |
| Cash and cash equivalents at end of period       |       | $                  | —     |                        | $          | 69,866           |       | $                          | —       |   | $ | 69,866 |   |

 

**Condensed Consolidating Statement of CashFlows**

**For the Nine months Ended September 30, 2007**

 
| ** **                                       | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|----------------------------|------------|
| Operating activities                             |       | $                  | (99,725    | )                           | $          | 116,658          |       | $                          | —     |   | $ | 16,933 |   |
| Investing activities                             |       | —             |       | (24,947                     | )          | —           |       | (24,947                    | )          |
| Financing activities                             |       | 99,725             |       | (140,436                    | )          | —           |       | (40,711                    | )          |
| Net decrease in cash and cash equivalents        |       | —             |       | (48,725                     | )          | —           |       | (48,725                    | )          |
| Cash and cash equivalents at beginning of period |       | —             |       | 120,499                     |       | —           |       | 120,499                    |       |
| Cash and cash equivalents at end of period       |       | $                  | —     |                        | $          | 71,774           |       | $                          | —     |   | $ | 71,774 |   |

 

18

----

Table of Contents

 

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

 

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

 

Statements in this quarterly report on Form 10-Q regarding Sprintor Sprint PCS are derived from information contained in our affiliationagreements with Sprint PCS, periodic reports and other documents filed bySprint with the SEC. This quarterly report on Form 10-Q containstrademarks, service marks and trade names of companies and organizations otherthan us. Other than with respect to Sprint PCS, our use or display of otherparties’ trade names, trademarks or products is not intended to and does notimply a relationship with, or endorsement or sponsorship of us by, the tradename or trademark owners.

 

The following is an analysis of our results of operations, liquidityand capital resources and should be read in conjunction with the unauditedConsolidated Financial Statements and notes related thereto included in thisForm 10-Q. To the extent that the following Management’s Discussion andAnalysis contains statements which are not of a historical nature, suchstatements are forward-looking statements which involve risks anduncertainties. These risks include, but are not limited to the risk anduncertainties listed in the next section entitled “Forward-LookingStatements” and other factors discussed elsewhere herein and in our otherfilings with the SEC.

 

**Forward-Looking Statements**

 

This quarterly report on Form 10-Q contains statements aboutfuture events and expectations that are “forward-looking statements.” Thesestatements relate to future events or our future financial performance, andinvolve known and unknown risks, uncertainties and other factors that may causeour actual results, levels of activity, performance or achievements to bematerially different from any future results, levels of activity, performanceor achievements expressed or implied by these forward-looking statements. Insome cases, you can identify forward-looking statements by terminology such as“may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,”“believes,” “estimates,” “predicts,” “potential,” or the negative use of theseterms or other comparable terminology. Any statement in this report that is nota statement of historical fact may be deemed to be a forward-looking statementand subject to the safe harbor created by the Private Securities LitigationReform Act of 1995. These forward-looking statements include:

 

·                  statementsregarding our anticipated revenue, expense levels, capital expenditures,liquidity and capital resources, operating losses and operating cash flows; and

 

·                  statementsregarding expectations or projections about markets in our territory.

 

Although we believe that the expectations reflected in suchforward-looking statements are reasonable, we can give no assurance that suchexpectations will prove to be correct. Important factors with respect to anysuch forward-looking statements, including certain risks and uncertainties thatcould cause actual results to differ materially from our expectations, include,but are not limited to:

 

·                  ourdependence on our affiliation with Sprint, as well as its reputation andperformance in the marketplace;

 

·                  theimpact and final outcome of our litigation with Sprint regarding its mergerwith Nextel, including the scope of our exclusivity, and Sprint’s plans for theNextel business going forward;

 

·                  the impact andfinal outcome of our litigation with Sprint regarding Sprint’s proposed WiMax transaction with ****Clearwire, including thescope of our exclusivity, and Sprint’s plans for the Clearwire transactiongoing forward;****

 

·                  changesin Sprint’s affiliation strategy as a result of Sprint’s merger with Nextel andSprint’s acquisition of other PCS Affiliates of Sprint;

 

·                  theability of Sprint PCS to alter the terms of our affiliation agreements with it,including program requirements;

 

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

 

·                  changesor advances in technology in general, or specifically related to Sprint and itsaffiliates;

 

·                  competitionin the industry and markets in which we operate;

 

·                  ourability to attract and retain skilled personnel;

 

19

----

Tableof Contents

 

·                  ourpotential need for additional capital or the need for refinancing any existingindebtedness;

 

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

 

·                  changesin government regulation;

 

·                  changesin the relative attractiveness of Sprint PCS’s phones, pricing plans, customerservice and coverage as well as the market’s overall perception of the SprintPCS brand;

 

·                  oursubscriber credit quality;

 

·                  thepotential for us to experience a continued high rate of subscriber turnover;

 

·                  inaccuraciesor delays in our financial and other information provided to us by Sprint PCS,particularly in light of our recent migration to Sprint’s Ensemble platform;

 

·                  ourfailure to maintain effective internal controls to satisfy the requirements ofSection 404 of the Sarbanes-Oxley Act, which requires annual managementassessments of the effectiveness of internal control over financial reporting;

 

·                  ourrates of penetration in the wireless industry and in our territories;

 

·                  oursignificant level of indebtedness;

 

·                  adequacyof bad debt and other reserves;

 

·                  oursubscriber purchasing patterns;

 

·                  subscribersatisfaction with our network and operations, including with services providedto us by Sprint, such as billing and customer care;

 

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

 

·                  risksrelated to future growth and expansion, including subscriber growth;

 

·                  riskof a prolonged slowdown in general economic and business conditions fromrecession, the impact of elevated energy costs, including gas prices, to ourexisting and potential subscribers, terrorist attack or other macro economicand political events and its impact on our current and potential subscribers;and

 

·                  effectsof mergers, consolidations and joint ventures within the wirelesstelecommunications industry, including business combinations involving SprintNextel or affiliates of Sprint Nextel, and unexpected announcements ordevelopments from others in the wireless telecommunications industry.

 

**New Accounting Pronouncements**

 

See Note 2, Summary of Significant Accounting Policies, of the “Notesto Unaudited Consolidated Financial Statements” in this Quarterly Report onForm 10-Q for a discussion of new accounting pronouncements.

 

20

----

Tableof Contents

 

**Definitions of Operating Metrics**

 

In this “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” section, we provide certain financial measures thatare calculated in accordance with accounting principles generally accepted inthe United States (“GAAP”) and as adjusted to GAAP (“non-GAAP”) to assess ourfinancial performance. In addition, we use certain non-financial terms that arenot measures of financial performance under GAAP. Terms such as “grosssubscriber additions”, “net subscriber additions” and “churn” are terms used inthe wireless telecommunications industry. The non-GAAP financial measures ofaverage revenue per user (“ARPU”) and cost per gross addition (“CPGA”) reflectstandard measures of performance commonly used in the wirelesstelecommunications industry. The non-financial terms and the non-GAAP measuresreflect wireless telecommunications industry conventions and are commonly usedby the investment community for comparability purposes. The non-GAAP financialmeasures included in this “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” are reconciled below in “Reconciliation ofNon-GAAP Financial Measures” and, together with the non-financial terms, aresummarized as follows:

 

·                  Grosssubscriber additions for the period represent the number of new activationsduring the period (excluding transfers into our territory).

 

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

 

·                  Churnis a measure of the average monthly rate at which subscribers based in ourterritory deactivate service on a voluntary or involuntary (credit-related)basis. We calculate average monthly churn based on the number of subscribersdeactivated during the period (net of those who deactivated within 30 daysof activation and excluding transfers out of our territory) as a percentage ofour average monthly subscriber base during the period divided by the number ofmonths during the period.

 

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

 

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

 

·                  Licensedpopulation represents the number of residents in the markets in our territoryfor which we have an exclusive right to provide wireless mobilitycommunications services under the Sprint brand name. The number of residentslocated in our territory does not represent the number of wireless subscribersthat we serve or expect to serve in our territory.

 

·                  Coveredpopulation represents the number of residents covered by our portion of thewireless network of Sprint. The number of residents covered by our network doesnot represent the number of wireless subscribers that we serve or expect toserve in our territory.

 

In this “Management’s Discussion and Analysis of Financial Conditionand Results of Operations,” unless the context indicates otherwise, allreferences to “subscribers” or “customers” and other operating metrics meansubscribers or customers excluding subscribers of resellers known as MobileVirtual Network Operators, or MVNOs, that use our network and resell wirelessservice under private brands.

 

**Business Overview**

 

As a PCSAffiliate of Sprint, we have the exclusive right to provide digital wirelesspersonal communications services, or PCS, under the Sprint brand name in 81markets including markets in Illinois, Michigan, Pennsylvania, New York,Indiana, Iowa, Ohio and Tennessee. The territory includes key markets such asGrand Rapids (MI), Fort Wayne (IN), the Tri-Cities region of Tennessee (JohnsonCity, Kingsport and Bristol), Scranton (PA), Saginaw-Bay City (MI), and theQuad Cities region of Illinois and Iowa (Bettendorf and Davenport, IA, andMoline and Rock Island, IL). We own and are responsible for building, operatingand managing the portion of the 100% digital, 100% PCS wireless network ofSprint PCS located in our territory. We offer national calling plans designedby Sprint PCS as well as local plans tailored to our markets. Our PCS networkis designed to offer a seamless connection with the wireless network of SprintPCS. We market Sprint PCS products and services through a number ofdistribution outlets located in our territory, including our company-ownedretail stores, co-branded dealers, major national retailers and local third 

 

21

----

Table of Contents

 

party distributors. As of September30, 2008, our licensed territory had a total population of approximately15.1 million residents, of which our wireless network coveredapproximately 12.4 million residents, and we had approximately 674,400 subscribers.

 

***Relationship with Sprint***

 

Ourrelationship with Sprint is the most significant relationship we have. Theterms of our relationship are set forth in our affiliation agreements withSprint PCS. Pursuant to these affiliation agreements, we agreed to offer PCSservices using Sprint’s spectrum under the Sprint brand name on a wirelessnetwork built and operated at our own expense. We believe that our strategicrelationship with Sprint PCS provides significant competitive advantages. Inparticular, we believe that our affiliation agreements with Sprint PCS allow usto offer high quality, nationally branded wireless voice and data services forlower cost and lower capital requirements than would otherwise be possible.

 

We have been,and continue to be, engaged in litigation with Sprint regarding its merger withNextel and, more recently, its proposed Clearwire joint venture, which willcombine Sprint’s and Clearwire’s broadband businesses to offer a nationwidemobile WiMax network.  Sprint’s operationof the legacy Nextel business in our territory must comply with theAugust 2006 ruling of the Delaware Court of Chancery.  The favorable ruling we received from theIllinois Circuit Court requiring Sprint to cease owning, operating and managingthe Nextel wireless network in iPCS Wireless’s territory within 180 dayshas been “stayed” pending the completion of the appeals process initiated bySprint.  We do not know the final outcomeof our litigation against Sprint. If we do not prevail, Sprint may engage inconduct that has a material adverse effect on our business and operations. Ifwe do prevail, we do not know Sprint’s intentions for complying with theCircuit Court’s order, or any future ruling related to the proposed Clearwirejoint venture, and the impact on our business. We intend to continue to vigorouslyprotect and enforce our rights, but there is no assurance that we willprevail.  For a detailed discussion ofour litigation with Sprint, see “—Commitments and Contingencies” below.

 

On March 3,2008, we amended our affiliation agreements with Sprint PCS. These amendmentsresolve some of the ongoing operational disputes between the parties, includingour arbitration of Sprint’s proposed CCPU and CPGA fees and our disagreementwith respect to Sprint’s proposed reciprocal roaming rates, as well as disputedamounts related to the settlement of 3G data roaming expenses between theparties beginning in April 2007. The new rates provided for in theamendments were made effective January 1, 2008. The amendments do notaddress our ongoing Illinois litigation with Sprint, nor litigation related toSprint’s proposed WiMax transaction with Clearwire.

 

Under ouraffiliation agreements with Sprint PCS, the costs we incur for the supportservices provided by Sprint are determined on a per average monthly cash costper user (“CCPU”) rate and on a monthly cost per gross addition (“CPGA”) rate.Pursuant to the amendments of our affiliation agreements with Sprint PCS, therates through 2010 are as follows:

 
| **Year** | ** **             | **CCPU** | ** ** | **CPGA** | ** ** |
|----------|------------------------|----------|------------|----------|------------|
| 2007     |                   | $        | 7.50       |     | $          | 20.00 |   |
|     |                   |     |       |     |       |
| 2008     | January – June    |     | $          | 6.50     |       | $ | 19.00 |   |
|     | July                   |     | $          | 6.35     |       | $ | 19.00 |   |
|     | August – December |     | $          | 6.20     | *          | $ | 19.00 |   |
|     |                   |     |       |     |       |
| 2009     |                   | $        | 5.85       | *        | $          | 19.00 |   |
|     |                   |     |       |     |       |
| 2010     |                   | $        | 5.55       | *        | $          | 19.00 |   |

 

----

*                                          Subjectto further adjustment as described below.

 

Beginning on January 1,2011, the rates will be reset each year based on the amount necessary torecover Sprint PCS’s reasonable costs for providing these services to us andthe other PCS Affiliates of Sprint.

 

The CCPU ratein effect from 2008 through 2010 is to be reduced from the then current rate by$0.15 if we hit certain milestones with respect to our voluntary deployment ofEV-DO Rev. A, the most recent version of the further evolution of code divisionmultiple access (“CDMA”) high-speed data technology called Evolution DataOptimized (“EV-DO”). Specifically, the CCPU rates set forth above are reducedby $0.15 from the then current rate when our EV-DO Rev. A deployment covers atleast 6.0 million in population (“POPs”), by another $0.15 from the thencurrent rate when we cover at least 7.0 million POPs; and by another $0.15from the then current rate when we cover at least 9.0 million POPs.  Our EV-DO Rev. A deployment coverage exceeded6.0 million POPs during June 2008 and exceeded 7.0 million POPs duringJuly 2008.  As a result, our CCPU rate wasreduced to $6.35 starting July 1, 2008, was further reduced to $6.20 startingAugust 1, 2008 for the remainder of 2008 and will be further reduced to $5.85and $5.55 in 2009 and 2010, respectively. As of September 30, 2008, our EV-DO Rev. A deployment covered in excessof 7.0 million POPs.  Based on oursubscriber count of approximately 674,400 at September 30, 2008, each $0.15reduction in the CCPU rate will result in an approximate $1.2 million reductionto our annual operating expense.

 

We receiveroaming revenue when subscribers of Sprint and other PCS Affiliates of Sprintincur minutes of use in our territories, and we incur expense to Sprint and toother PCS Affiliates of Sprint when our subscribers incur minutes of use in theterritories of Sprint and other PCS Affiliates of Sprint. Prior to January 1,2008, we settled voice and 2G data roaming and 3G data roaming separately withSprint and the other remaining PCS Affiliates of Sprint.  Effective January 1, 2008 through December 31,2010, subject to adjustment as described below, 3G data roaming is no longersettled separately with Sprint; however, we continue to 

 

22

----

Table of Contents

 

settle 3G data roamingseparately with the other remaining PCS Affiliates of Sprint.  Pursuant to the amendments of our affiliationagreements with Sprint PCS, the reciprocal roaming rates through 2010 are asfollows:

 
| **Year** | ** ** | **Voice & 2G Data  Per Minute of Use** | ** ** | **3G Data  Per Kilobyte of Use** | ** ** |
|----------|------------|--------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| 2007     |       | $                                                                        | 0.0403     | *                                                    | $          | 0.0010 |   |
|     |       |                                                                     |       |                                                 |       |
| 2008     |       | $                                                                        | 0.0400     | *                                                    | $          | 0.0003 |   |
|     |       |                                                                     |       |                                                 |       |
| 2009     |       | $                                                                        | 0.0400     | *                                                    | $          | 0.0001 |   |
|     |       |                                                                     |       |                                                 |       |
| 2010     |       | $                                                                        | 0.0380     | *                                                    | $          | 0.0001 |   |

 

----

*                                          Excludingcertain markets as described below.

 

Beginning on January 1,2011, the rates will be reset each year to an amount equal to 90% of Sprint’saverage monthly retail yield for the first nine months of the immediatelypreceding calendar year; provided, however, that such amount for any periodwill not be less than our network costs.

 

With respectto certain of our markets in western and eastern Pennsylvania, we receive thebenefit of a special reciprocal rate for voice and 2G data of $0.10 per minute.This special rate will terminate, with respect to each of these two sets ofmarkets, on the earlier of December 31, 2011 or the first day of thecalendar month which follows the first calendar quarter during which we achievea subscriber penetration rate of at least 7% of our covered POPs in thosemarkets. We do not anticipate reaching a 7% subscriber penetration rate inthese markets in the foreseeable future.

 

Commencing on January 1,2010, either Sprint or we may initiate a review to determine whether the 3Gdata roaming ratio between us has changed by more than 20% from the calendaryear that is two years prior. If the ratio has changed by more than 20%, thenthe parties will commence discussions as to whether an appropriate adjustmentin other fees can be made to compensate for such change. If the parties cannotagree, then the parties will revert to settling 3G data roaming separatelyeffective January 1 of the year in which such review was initiated.

 

The followingtable sets forth the effect of the amended CCPU and CPGA rates and reciprocalroaming rates, including the provision providing for the elimination of 3G dataroaming settlement between the parties, had they been in effect for the threeand nine months ended September 30, 2007:

 
| ** **                                                                | ** ** | **For the Three Months September 30, 2007** | ** ** | **For the Nine months Ended September 30, 2007** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                                                                | ** ** | **As Reported**                                                 | ** ** | **Adjustments**                                                           | ** ** | **Pro Forma** | ** ** | **As Reported** | ** ** | **Adjustments** | ** ** | **Pro Forma** | ** ** |
| Total revenue                                                             |       | $                                                                    | 142.1      |                                                                      | $          | (12.8 | ) | $ | 129.3 |   | $ | 396.2 |   | $ | (29.7 | ) | $ | 366.5 |   |
| Cost of service and roaming (exclusive of  depreciation and amortization) |       | $                                                                    | 79.5       |                                                                      | (9.8       | ) | $ | 69.7 |   | $ | 231.7 |   | (30.6 | ) | $ | 201.1 |   |
| Selling and marketing                                                     |       | $                                                                    | 17.8       |                                                                      | (0.1       | ) | $ | 17.7 |   | $ | 57.5 |   | (0.2 | ) | $ | 57.3 |   |
|                                                                           |            |                                                                      |            |                                                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

In the threemonths ended September 30, 2007, 3G data roaming revenue from Sprint exceeded3G data roaming expense from Sprint by approximately $4.8 million.  In the nine months ended September 30, 2007,3G data roaming revenue from Sprint exceeded 3G data roaming expense fromSprint by approximately $4.4 million.

 

The effect ofthe amendments would have been to reduce revenue by $12.8 million and to reduceexpenses by $9.9 million for the three months ended September 30, 2007 and toreduce revenue by $29.7 million and to reduce expenses by $30.8 million for thenine months ended September 30, 2007.

 

23

----

Table of Contents

 

**Consolidated Results of Operations**

 

***Summary***

 

For the threeand nine months ended September 30, 2008 our net loss was $7.5 million and $9.7million, respectively, compared to a net loss of $2.4 million and $65.2 millionfor the same periods in 2007.  The highernet loss for the nine months ended September 30, 2007 included $30.5 million ofcosts related to the repurchase of our 11-1/2% and 11-3/8% senior notes (seeNote 6, Long-Term Debt, of the “Notes to Unaudited Consolidated FinancialStatements” in this Quarterly Report on Form 10-Q).  Additionally, amortization expense for thethree and nine months ended September 30, 2008 was $6.5 million and $17.1million lower than the comparative 2007 periods, primarily reflecting theDecember 31, 2007 completion of the amortization of the intangible assetrelated to our Horizon PCS acquired customer base.  Both the three and nine months endedSeptember 30, 2008 reflected higher subscriber revenue, primarily attributableto our larger subscriber base, as compared to the same periods in 2007.  Offsetting the increased subscriber revenuefor the three and nine months ended September 30, 2008 were higher costsrelated to servicing a larger network and larger subscriber base, higher Sprintlitigation related expenses and a deterioration of our roaming margin ascompared to 2007.  Acquisition costs fornew activations increased in the three months ended September 30, 2008,reflecting higher gross additions and higher commissions and subsidy peractivation compared to the 2007 period. Bad debt expense increased in the nine months ended September 30, 2008,reflecting an increase in uncollectable accounts and a reduction in recoveriesof written-off accounts compared to the 2007 period.  

 

Presentedbelow is more detailed comparative data and discussion regarding ourconsolidated results of operations for the three and nine months ended September30, 2008 compared to the three and nine months ended September 30, 2007.

 

***For the Three and Ninemonths Ended September 30, 2008 compared to the Three and Nine months Ended September30, 2007***

 

Results ofoperations for any period less than one year are not necessarily indicative ofresults of operations for a full year. Results for the three and nine monthsended September 30, 2008 give effect to the amendments to our Sprintaffiliation agreements and are not comparable to the prior periods.

 

***Key Performance Metrics.***

 

Managementuses several key performance metrics to analyze the operations of our business.Below is a table setting forth the metrics that we use for the relevant timeperiods:

 
| ** **                 | ** ** | **As of and for the Three Months   Ended September 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|----------------------------|------------|--------------------------------------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                 | ** ** | **2008**                                                                                         | ** ** | **2007**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Total Subscribers          |       | 674,400                                                                                          |       | 622,100       |       | 52,300         |       | 8.4 | % |
| Gross Subscriber Additions |       | 72,200                                                                                           |       | 68,400        |       | 3,800          |       | 5.6 |   |
| Net Subscriber Additions   |       | 20,400                                                                                           |       | 10,100        |       | 10,300         |       | 102.0 |   |
| Churn                      |       | 2.3                                                                                              | %          | 2.8           | %          | (0.5           | )pts       | (17.9 | ) |
| ARPU                       |       | $                                                                                                | 48.31      |          | $          | 49.78          |       | $ | (1.47 | ) | (3.0 | ) |
| CPGA                       |       | $                                                                                                | 374        |          | $          | 358            |       | $ | 16 |   | 4.5 |   |

 
| ** **                 | ** ** | **As of and for the Nine months   Ended September 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|----------------------------|------------|--------------------------------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                 | ** ** | **2008**                                                                                   | ** ** | **2007**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Total Subscribers          |       | 674,400                                                                                    |       | 622,100       |       | 52,300         |       | 8.4 | % |
| Gross Subscriber Additions |       | 193,200                                                                                    |       | 211,700       |       | (18,500        | )          | (8.7 | ) |
| Net Subscriber Additions   |       | 44,500                                                                                     |       | 60,800        |       | (16,300        | )          | (26.8 | ) |
| Churn                      |       | 2.3                                                                                        | %          | 2.4           | %          | (0.1           | )pts       | (4.2 | ) |
| ARPU                       |       | $                                                                                          | 48.39      |          | $          | 49.64          |       | $ | (1.25 | ) | (2.5 | ) |
| CPGA                       |       | $                                                                                          | 376        |          | $          | 365            |       | $ | 11 |   | 3.0 |   |

 

***SubscriberAdditions.***     Gross andnet subscriber additions grew in the three months ended September 30, 2008 ascompared to the three months ended September 30, 2007, reflecting significantincreases in gross and net additions coming from Nextel customers within ourterritory switching to Sprint.  Despite thisNextel related growth, gross and net subscriber additions slowed in the ninemonths ended September 30, 2008 as compared to the nine months ended September30, 2007.  This slowing of gross and net additionsin the nine month period can be attributed to tightened credit standards, anincreasingly competitive landscape, increased overall wireless penetration inour markets, issues related to the billing system conversion at Sprint and anoverall weakening economic environment.

 

***Churn.***     Churnfor the three and nine months ended September 30, 2008 was lower than the 2007periods reflecting improvements in churn from credit-related deactivations,particularly in the comparative three month period.   At September 30, 2008 approximately 84% ofour subscribers were under contract compared to 89% at September 30, 2007.

 

24

----

Table of Contents

 

***Average Revenue PerUser.***     ARPU wasnegatively impacted in the three and nine months ended September 30, 2008 byincreased credits provided by Sprint to customers in response to technicalchallenges related to its billing system conversion and for customer satisfactionpurposes.  Average monthly credits persubscriber, including promotional credits, were $7.66 and $6.92 for the threeand nine months ended September 30, 2008, respectively, as compared to $5.31and $5.76 for the three and nine months ended September 30, 2007, respectively. Additionally, ARPU was negativelyimpacted in 2008 by a reduction in revenue related to late fees Sprint chargesto customers on delinquent accounts.  Averagelate fee revenue per subscriber was $0.52 and $0.81 for the three and ninemonths ended September 30, 2008, respectively, as compared to $1.44 and $1.37for the three and nine months ended September 30, 2007, respectively.  Partially offsetting these downward pressures,ARPU was positively affected by an increase in monthly recurring revenue persubscriber for the three and nine months of 2008 compared to the 2007periods.  These increases reflect thegrowing popularity of Sprint’s  “SimplyEverything”, “Everything” and “Talk/Message” Plans.

 

***Cost Per GrossAddition.***     Fixed costsper gross addition remained flat in the three months ended September 30, 2008compared to the 2007 three month period reflecting an increase in grosssubscriber additions of 6%, offset by a larger sales force in the three monthsended September 30, 2008 compared to the same period in 2007.  Variable costs per gross addition increased$16 in the three months ended September 30, 2008 compared to the same period in2007, reflecting higher employee and agent commissions and higher handsetsubsidy costs.  Fixed costs per grossaddition increased $18 in the nine months ended September 30, 2008 compared tothe same period in 2007, due to a decrease in gross subscriber additions of 9%and a larger sales force in the nine months ended September 30, 2008 comparedto the same period of 2007.  Offsettingthis increase in fixed costs per gross addition, variable costs per grossaddition decreased by $7 in the nine months ended September 30, 2008 comparedto the same period in 2007, primarily reflecting lower handset subsidy costs inthe first half of 2008.  At September 30,2008, we operated 41 retail stores and managed 105 exclusive co-branded dealerscompared to 40 retail stores and 87 exclusive co-branded dealers at September30, 2007.

 

***Revenue.***

 

The followingtables set forth a breakdown of revenue by type:

 
| ** **                                                                         | ** ** | **For the Three Months Ended   September 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                                                                         | ** ** | **2008**                                                                | ** ** | **2007**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Service revenue                                                                    |       | $                                                                       | 96,097     |          | $          | 92,129         |       | $ | 3,968 |   | 4.3 | % |
| Roaming revenue from subscribers of Sprint  PCS and other PCS Affiliates of Sprint |       | 23,764                                                                  |       | 38,431        |       | (14,667        | )          | (38.2 | ) |
| Roaming revenue from other wireless carriers                                       |       | 4,619                                                                   |       | 3,983         |       | 636            |       | 16.0 |   |
| Reseller revenue                                                                   |       | 3,899                                                                   |       | 3,873         |       | 26             |       | 0.7 |   |
| Equipment and other revenue                                                        |       | 3,678                                                                   |       | 3,661         |       | 17             |       | 0.5 |   |
| Total revenue                                                                      |       | $                                                                       | 132,057    |          | $          | 142,077        |       | $ | (10,020 | ) | (7.1 | ) |

 
| ** **                                                                         | ** ** | **For the Nine months Ended   September 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                                                                         | ** ** | **2008**                                                          | ** ** | **2007**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Service revenue                                                                    |       | $                                                                 | 282,370    |          | $          | 267,074        |       | $ | 15,296 |   | 5.7 | % |
| Roaming revenue from subscribers of Sprint  PCS and other PCS Affiliates of Sprint |       | 69,916                                                            |       | 98,007        |       | (28,091        | )          | (28.7 | ) |
| Roaming revenue from other wireless carriers                                       |       | 12,375                                                            |       | 9,324         |       | 3,051          |       | 32.7 |   |
| Reseller revenue                                                                   |       | 11,792                                                            |       | 11,953        |       | (161           | )          | (1.3 | ) |
| Equipment and other revenue                                                        |       | 10,633                                                            |       | 9,805         |       | 828            |       | 8.4 |   |
| Total revenue                                                                      |       | $                                                                 | 387,086    |          | $          | 396,163        |       | $ | (9,077 | ) | (2.3 | ) |

 

·                    ***Service revenue.***Service revenue is comprised of the monthly recurring charges for voice anddata usage and the monthly non-recurring charges for voice and data minutesover plan, long distance, roaming usage charges, other feature revenue and latepayment fee and early cancellation fee revenues. Deductions for billingadjustments, promotional credits and certain customer care credits are recordedas a reduction to service revenue. Our service revenue growth over the threeand nine month periods consists of $6.9 million and $22.5 million,respectively, from additional subscribers, offset by decreases in ARPU of $3.0million and $7.2 million, respectively.

 

·                    ***Roaming revenue from subscribers ofSprint PCS and other PCS Affiliates of Sprint.*** We receiverevenue on a per minute basis for voice traffic when subscribers ofSprint PCS and other PCS Affiliates of Sprint use our network.  Through December 31, 2007, we similarlyreceived revenue on a per kilobyte basis for data traffic when subscribers ofSprint PCS and other PCS Affiliates of Sprint used our network.  In addition, we receive toll revenue for anylong distance calls made by these subscribers while roaming on our network.

 

For 2007, the reciprocal roaming rate was$0.0403 per minute for voice traffic ($0.10 per minute in certain markets ineastern and western Pennsylvania).  Effective January 1, 2008, these rates were reset to $0.0400 perminute for voice traffic (with certain markets in eastern and westernPennsylvania remaining at $0.10 per minute). For the three months ended September 30, 2008 compared to the threemonths ended September 30, 2007, voice roaming revenue from subscribers ofSprint and other PCS Affiliates of Sprint, including toll revenue, decreased by$2.0 million, reflecting a 

 

25

----

Tableof Contents

 

significant decrease in roaming toll minutes and the decrease in theper minute rate.  For the nine monthsended September 30, 2008 compared to the nine months ended September 30,2007, voice roaming revenue from subscribers of Sprint and other PCS Affiliatesof Sprint, including toll revenue, increased by $1.6 million, reflecting anincrease in roaming minutes, offset by the decrease in the per minute rate.

 

For 2007, the reciprocal roaming rate was$0.0010 per kilobyte for data traffic. Effective January 1, 2008 through December 31, 2010, dataroaming with Sprint is not settled separately, however, we continue to settleseparately 3G data roaming with the other remaining PCS Affiliates ofSprint.  Effective January 1, 2008,these rates were reset to $0.0003 per kilobyte for data traffic with the otherremaining PCS Affiliates of Sprint.  Thedecrease for the three and nine months ended September 30, 2008 reflects thecessation of settlement of data roaming with Sprint.  Data roaming revenue with Sprint totaled$12.6 million and $29.3 million for the three and nine months ended September30, 2007, respectively.

 

·                    ***Roaming revenue from other wirelesscarriers.*** We receive roaming revenue from wireless carriersother than Sprint and other PCS Affiliates of Sprint when subscribers of suchother wireless carriers roam in our territory. We do not have agreements with these other wireless carriers.  Instead, we rely on the roaming arrangementsSprint PCS has negotiated with these carriers and are unable to set terms andprices or otherwise monitor these relationships.  We are paid on a per minute and per kilobytebasis for voice traffic pursuant to these agreements.  For the three and ninemonths ended September 30, 2008, roaming minutes were 100.8 million and252.8 million compared to 66.7 million and 164.4 million for the same periodsin 2007, increases of 51% and 54%, respectively.  The average per minute rate decreased from$0.060 per minute and $0.057 per minute for the three and nine months ended September30, 2007, respectively, to $0.046 and $0.049 per minute for the three and ninemonths ended September 30, 2008, respectively. The majority of our roaming revenue from other wireless carriers isderived from customers of Alltel, which recently agreed to be acquired byVerizon Wireless. As a result, after the consummation of that transaction, weexpect a decrease in our roaming revenue from Alltel over time.

 

·                    ***Reseller revenue.***Through Sprint PCS we allow resellers, known as MVNOs, such as Virgin Mobile,to use our network. Pursuant to these arrangements, we are paid on a per minuteand per kilobyte basis. The slight increase in reseller revenue for the threemonths ended September 30, 2008 compared to the three months ended September 30,2007 reflects an increase in the average reseller subscribers between therespective periods.  The slight decreasein reseller revenue for the nine months ended September 30, 2008 compared tothe nine months ended September 30, 2007 reflects decreased ARPU, partiallyoffset by an increase in the average reseller subscribers between therespective periods.  For the three andnine months ended September 30, 2008, reseller ARPU was $5.19 and $5.32,respectively, compared to $5.20 and $5.43 for the three and nine months endedSeptember 30, 2007.  Average resellersubscribers were approximately 250,400 and 246,400 for the three and ninemonths ended September 30, 2008, compared to approximately 248,500 and 244,800for the three and nine months ended September 30, 2007.

 

·                     ***Equipment and other revenue.***Equipment and other revenue is derived primarily from the sale of handsets andaccessories to new customers and from current customers who upgrade theirhandsets through our retail and local distribution channels, in each case, netof sales incentives, rebates and an allowance for returns. The three monthsended September 30, 2008 remained flat as compared to three months endedSeptember 30, 2007, reflecting a similar number of new activations and upgradesas well as similar revenue per activated and upgraded handset during thecomparable periods.  The increase in thenine months ended September 30, 2008, as compared to the nine months endedSeptember 30, 2007, reflects higher revenue per new and upgraded handsets and aslightly higher number of upgrades. These increasing factors are offset by lower accessories sales and loweractivations.

 

26

----

Tableof Contents

 

***Operating Expense.***

 

The followingtables set forth a breakdown of operating expense by type (dollars inthousands):

 
| ** **                                      | ** ** | **For the Three Months  Ended September 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                                      | ** ** | **2008**                                                          | ** ** | **2007**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Cost of service and roaming                     |       | $                                                                 | 74,520     |          | $          | 79,534         |       | $ | (5,014 | ) | (6.3 | )% |
| Cost of equipment                               |       | 15,905                                                            |       | 12,880        |       | 3,025          |       | 23.5 |   |
| Selling and marketing                           |       | 18,091                                                            |       | 17,785        |       | 306            |       | 1.7 |   |
| General and administrative                      |       | 10,028                                                            |       | 5,678         |       | 4,350          |       | 76.6 |   |
| Depreciation and amortization                   |       | 12,887                                                            |       | 19,569        |       | (6,682         | )          | (34.1 | ) |
| Loss on disposal of property and equipment, net |       | 71                                                                |       | 65            |       | 6              |       | 9.2 |   |
| Total operating expense                         |       | $                                                                 | 131,502    |          | $          | 135,511        |       | $ | (4,009 | ) | (3.0 | ) |

 
| ** **                                      | ** ** | **For the Nine months  Ended September 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                                      | ** ** | **2008**                                                    | ** ** | **2007**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Cost of service and roaming                     |       | $                                                           | 213,167    |          | $          | 231,688        |       | $ | (18,521 | ) | (8.0 | )% |
| Cost of equipment                               |       | 40,442                                                      |       | 38,829        |       | 1,613          |       | 4.2 |   |
| Selling and marketing                           |       | 52,394                                                      |       | 57,467        |       | (5,073         | )          | (8.8 | ) |
| General and administrative                      |       | 25,108                                                      |       | 21,275        |       | 3,833          |       | 18.0 |   |
| Depreciation and amortization                   |       | 40,691                                                      |       | 58,626        |       | (17,935        | )          | (30.6 | ) |
| Loss on disposal of property and equipment, net |       | 329                                                         |       | 130           |       | 199            |       | 153.1 |   |
| Total operating expense                         |       | $                                                           | 372,131    |          | $          | 408,015        |       | $ | (35,884 | ) | (8.8 | ) |

 

***Cost of Service andRoaming.*** Cost of service and roaming includesnetwork operations expense, roaming expense relating to when our subscribersroam either on other Sprint PCS networks or other wireless carriers’ networks,back-office customer services provided by Sprint PCS, the provision fordoubtful accounts, long distance expense, the 8% affiliation fee due to SprintPCS for collected revenue and stock-based compensation expense. Networkoperations expense includes salaries and benefits for network personnel, cellsite rent, utilities and maintenance expenses, fees relating to the connectionof our cell sites to our switches and other transport and facility expenses.Roaming expense is our cost of our subscribers using Sprint PCS and otherwireless carriers’ networks. Roaming expense on the Sprint PCS network is atthe reciprocal rates as described above under “—Roaming revenue fromsubscribers of Sprint PCS and other PCS Affiliates of Sprint.” Roamingexpense when our subscribers use other wireless carriers networks is at ratesas determined by the roaming agreements signed by Sprint PCS with theseother wireless carriers. Effective January 1, 2008 through December 31,2010, data roaming with Sprint is not settled separately, however, we continueto settle separately 3G data roaming with the other remaining PCS Affiliates ofSprint.

 

The decrease incost of service and roaming for the three and nine months ended September 30,2008 primarily reflects the cessation of settlement of data roaming withSprint.  Data roaming expense with Sprinttotaled $7.8 million and $24.9 million for the three and nine months ended September30, 2007, respectively. Reflecting the decreases in our cash cost per user fee during2008, our cost of service and roaming was lowered by $2.5 million and $6.3million for the three and nine months ended September 30, 2008, respectively,as compared to the 2007 periods.  Offsettingthese decreases, roaming expense with wireless carriers other than Sprint increasedfrom $1.4 million and $3.9 million in the three and nine months ended September30, 2007, respectively, to $4.8 million and $9.8 million in the three and ninemonths ended September 30, 2008, respectively. In the three months ended September 30, 2008, bad debt decreased $1.7million from $7.3 million in the three months ended September 30, 2007 to $5.6million in the three months ended September 30, 2008.  This decrease in bad debt expense reflects animprovement in uncollectable accounts, partially offset by reduced recoveriesof written-off accounts in the three months ended September 30, 2008 ascompared to the 2007 period.  In the ninemonths ended September 30, 2008, bad debt expense increased $1.5 million from$14.3 million in the nine months ended September 30, 2007 to $15.8 million inthe nine months ended September 30, 2008. This increase in bad debt expense for the nine months ended September30, 2008 reflects an increase in uncollectable accounts and a reduction inrecoveries of written-off accounts in the nine months ended September 30, 2008compared to the same 2007 period.  Recoveriesof written-off accounts were $0.2 million and $2.1 million for the three andnine months ended September 30, 2008, respectively, as compared to $0.9 millionand $3.4 million for the three and nine months ended September 30, 2007,respectively.  The remaining increases inthe cost of service and roaming were due to the related costs of servicing alarger network and larger subscriber base.

 

At September30, 2008, our network consisted of 1,819 leased cell sites and fiveswitches.  At September 30, 2007, ournetwork consisted of 1,674 leased cell sites and five switches.

 

27

----

Tableof Contents

 

***Cost of Equipment.***Cost of equipment includes the cost of handsets and accessories sold orupgraded from our retail and local distribution channels. Cost of equipment fornew activations increased $2.0 million and $0.1 million, or 20% and 1%, in thethree and nine months ended September 30, 2008, compared to the three and ninemonths ended September 30, 2007, reflecting an increase in the average cost peractivated phone, partially offset by a decrease in new activations from ourretail and local distribution channels of 6% during the nine months endedSeptember 30, 2008.  Cost of equipmentrelated to upgrades increased $1.0 million and $1.5 million, or 36% and 15%,reflecting increases in handset upgrades from our retail and local distributionchannels of 20% during the nine months ended September and a significant increasein average cost per upgrade during the three months ended September 2008.

 

***Selling and Marketing.***Selling and marketing expense includes the coststo operate our retail stores, advertising and promotional expenses,commissions, equipment subsidies and rebate expenses relating to new subscriberadditions from national third parties and other Sprint-controlled channels andstock-based compensation expense.  Theslight increase in the three months ended September 30, 2008 reflects higheremployee and agent commissions and the cost of a larger sales force, offset bylower equipment subsidies and rebate expenses related to new activations fromSprint-controlled channels as well as fees paid to Sprint for newactivations.  The decrease in the ninemonths ended September 30, 2008 was due to lower costs related to commissionsand subsidies, as well as lower fees paid to Sprint for new activations, offsetby the impact of a larger sales force. Stock-based compensation expense included in selling and marketing totaledapproximately $0.1 million and $0.5 million in the three and nine months endedSeptember 30, 2008, respectively, compared to $0.2 million and $1.0 million inthe three and nine months ended September 30, 2007, respectively.

 

***General andAdministrative.***General and administrativeexpenses include administrative salaries and benefits, legal fees, insuranceexpense, other professional expenses and stock-based compensationexpense.  For the three and nine months ended September 30, 2008, generaland administrative expense included approximately $5.3 million and $7.4million, respectively, of Sprint litigation related expenses.  This compares to $0.4 million and $1.5million for the three and nine months ended September 30, 2007,respectively.  Stock-based compensationexpense included in general and administrative expense totaled approximately$0.9 million and $3.8 million for the three and nine months ended September 30,2008, compared to $1.0 million and $6.6 million for the three and nine monthsended September 30, 2007.  Additionally,the three months ended September 30, 2008 reflects lower bonus expense andprofessional fees as compared to the three months ended September 30, 2007.   The remaining period over period increasesreflect the costs of more employees to service our larger subscriber base.

 

***Depreciation andAmortization.***Amortization of intangible assetstotaled $2.3 million and $6.9 million for the three and nine months ended September30, 2008, respectively, compared to $8.8 million and $24.0 million for thethree and nine months ended September 30, 2007, respectively, decreases of $6.5million and $17.1 million for the three and nine month periods,respectively.  At December 31, 2007,the intangible asset related to the Horizon PCS acquired customer base wasfully amortized. During the third quarter of 2007 we recognized a $1.2 millionimpairment charge included in amortization of intangible assets related to ourFCC license in Ohio.  Depreciationexpense totaled $10.6 million and $33.8 million for the three and ninemonths ended September 30, 2008 compared to $10.8 million and $34.6 million forthe three and nine months ended September 30, 2007, decreases of $0.2 millionand $0.8 million, respectively. During the three and nine months ended September 30, 2008, we recognizedimpairment charges of $1.9 million and $2.2 million, respectively, included indepreciation, related to our assets held for sale to reduce their carryingvalue in accordance with SFAS No. 144, “Accounting for the Impairment orDisposal of Long-Lived Assets”.  Thereduction in carrying value records these assets at fair value less costs tosell in anticipation of their future sale.

 

28

----

Table of Contents

 

***Non-OperatingIncome and Expense.***

 

The followingtables set forth a breakdown of non-operating income and expense by type(dollars in thousands):

 
| ** **        | ** ** | **For the Three Months Ended  September 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|-------------------|------------|-------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **        | ** ** | **2008**                                                          | ** ** | **2007**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Interest income   |       | $                                                                 | 316        |          | $          | 886            |       | $ | (570 | ) | (64.3 | )% |
| Interest expense  |       | 8,320                                                             |       | 9,853         |       | (1,533         | )          | (15.6 | ) |
| Other income, net |       | 63                                                                |       | (3            | )          | 66             |       | — |   |
|                   |            |                                                                   |            |               |            |                |            |  |  |  |  |  |

 
| ** **                | ** ** | **For the Nine months Ended  September 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|---------------------------|------------|-------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                | ** ** | **2008**                                                    | ** ** | **2007**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Interest income           |       | $                                                           | 1,420      |          | $          | 3,984          |       | $ | (2,564 | ) | (64.4 | )% |
| Interest expense          |       | 25,456                                                      |       | 26,951        |       | (1,495         | )          | (5.5 | ) |
| Debt extinguishment costs |       | —                                                      |       | 30,501        |       | (30,501        | )          | (100.0 | ) |
| Other income, net         |       | 93                                                          |       | 129           |       | (36            | )          | (27.9 | ) |
|                           |            |                                                             |            |               |            |                |            |  |  |  |  |  |

 

***Interest Income.*** The decreases in interest income in the threeand nine months ended September 30, 2008 as compared to the three and ninemonths ended September 30, 2007 reflect lower average cash and cash equivalentsduring 2008 and lower average yields on these deposits and investments.

 

***Interest Expense.*** Interest expense consists of interest on ouroutstanding long-term debt (see Note 6, Long-Term Debt, of the “Notes toUnaudited Consolidated Financial Statements” in this Quarterly Report on Form 10-Q),including amortization of financing costs and net of capitalized interest.  Prior to April 23, 2007, interestexpense also included amortization of the fair value adjustment for the 11 3/8%senior notes.  Since August 1, 2007,interest expense also includes the effect of our interest rate swap (see Note7, Interest Rate Swap, of the “Notes to Unaudited Consolidated FinancialStatements” in this Quarterly Report on Form 10-Q).  The decrease in interest expense in the threeand nine months ended September 30, 2008 reflects a lower weighted averageinterest rate, net of our interest rate swap, of 6.96% and 7.10% on ouroutstanding long-term debt during the three and nine months ended September 30,2008 as compared to the weighted average interest rate of 7.90% and 9.36% onour outstanding long-term debt during the three and nine months ended September30, 2007.  The lower weighted averageinterest rate for the nine months ended September 30, 2008 was partially offsetby higher average borrowings in 2008 than during the comparative 2007 period.

 

In connection with our capital expenditures, we capitalized interest ofapproximately $0.5 million and $1.3 million in the three and nine months ended September30, 2008, respectively.  We capitalizedinterest of approximately $0.2 million and $0.5 million in the three and ninemonths ended September 30, 2007, respectively.

 

***Debt extinguishment costs.***  Debtextinguishment costs represent expense recognized during the nine months ended September30, 2007 in connection with the repurchase of our outstanding 111/2% and 113/8% notes (see Note 6, Long-Term Debt, of the “Notes to theUnaudited Consolidated Financial Statements” in this Quarterly Report on Form 10-Q).In the nine months ended September 30, 2007, we recorded approximately$34.2 million of expense related to the tender offer premium and consentpayments on the tender offering, approximately $7.3 million of expenserelated to the write off of the remaining deferred financing fees for therepurchased notes and approximately $11.0 million as a reduction tointerest expense to reflect the write-off of the remaining unamortized balanceof the purchase price fair value allocation to the 113/8% notes recorded in July 2005 related to the Horizon PCS merger.

 

29

----

Tableof Contents

 

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

 

We utilizecertain financial measures that are not calculated in accordance with GAAP toassess our financial performance. A non-GAAP financial measure is defined as anumerical measure of financial performance that (a) excludes amounts, oris subject to adjustments that have the effect of excluding amounts, that are includedin the comparable measure calculated and presented in accordance with GAAP inthe statement of income or statement of cash flows; or (b) includesamounts, or is subject to adjustments that have the effect of includingamounts, that are excluded from the comparable measure so calculated andpresented. The non-GAAP financial measures discussed in “—Results ofOperations” are ARPU and CPGA. A description of each of these non-GAAPfinancial measures is provided in “—Definition of Operating Metrics.” Thefollowing tables reconcile the non-GAAP financial measures with ourconsolidated financial statements presented in accordance with GAAP, excludingsubscriber data:

 
| ** **                     | ** ** | **For the Three Months Ended September 30,** | ** ** | **For the Nine months Ended September 30,** | ** ** |
|--------------------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                     | ** ** | **2008**                                                              | ** ** | **2007**                                                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| ***ARPU***                     |       |                                                                  |       |                                                            |       |   |   |   |   |
| Service revenue (in thousands) |       | $                                                                     | 96,097     |                                                            | $          | 92,129 |   | $ | 282,370 |   | $ | 267,074 |   |
| Average subscribers            |       | 663,100                                                               |       | 616,900                                                         |       | 648,300 |   | 597,800 |   |
| ARPU                           |       | $                                                                     | 48.31      |                                                            | $          | 49.78 |   | $ | 48.39 |   | $ | 49.64 |   |

 

ARPU, which isutilized by most wireless companies to determine recurring monthly revenue on aper subscriber basis, is used by analysts and investors to compare relativesubscriber revenue across the wireless industry. We use ARPU to assist inevaluating past selling performance and the success of specific rate planpromotions. We also use ARPU as a basis to forecast future service revenue.

 
| ** **                                      | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine months Ended  September 30,** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2008**                                                          | ** ** | **2007**                                                    | ** ** | **2008** | ** ** | **2007** | ** ** |
| ***CPGA***                                      |       |                                                              |       |                                                        |       |   |   |   |   |
| Selling and Marketing (in thousands):           |       | $                                                                 | 18,091     |                                                        | $          | 17,785 |   | $ | 52,394 |   | $ | 57,467 |   |
| plus: Equipment costs, net of cost of upgrades  |       | 12,008                                                            |       | 10,019                                                      |       | 29,369 |   | 29,238 |   |
| less: Equipment revenue, net of upgrade revenue |       | (2,991                                                            | )          | (3,124                                                      | )          | (8,499 | ) | (8,510 | ) |
| less: Stock-based compensation expense          |       | (129                                                              | )          | (199                                                        | )          | (546 | ) | (996 | ) |
| CPGA costs                                      |       | $                                                                 | 26,979     |                                                        | $          | 24,841 |   | 72,718 |   | 77,199 |   |
| Gross additions                                 |       | 72,200                                                            |       | 68,400                                                      |       | 193,200 |   | 211,700 |   |
| CPGA                                            |       | $                                                                 | 374        |                                                        | $          | 358 |   | $ | 376 |   | $ | 365 |   |

 

CPGA isutilized by most wireless companies to determine their cost to acquire a newsubscriber. CPGA is used by analysts and investors to compare us to otherwireless companies. We use CPGA to evaluate past selling performance, thesuccess of specific promotions and as a basis to determine the amount of timewe must retain a new subscriber before we recover this cost. In addition, weuse CPGA as a basis for budgeting.

 

30

----

Table of Contents

 

**Liquidity and Capital Resources**

 

We believe ourcash and cash equivalents and operating cash flow will be sufficient to operateour business and fund our capital needs for at least the next twelve months.Although we have certain limited additional borrowings allowed under ourcurrent debt agreements, we are dependent on cash and cash equivalents andoperating cash flow to operate our business and fund our capital needs.However, our future liquidity is dependent on a number of factors influencingour expected earnings and operating cash flows, including those discussed belowin —“Recent Trends, Risks and Uncertainties That May Affect OperatingResults, Liquidity and Capital Resources”.

 

***Significant Sourcesof Cash***

 

We generated$44.1 million in net cash flows from operating activities for the ninemonths ended September 30, 2008, compared to $16.9 million for the ninemonths ended September 30, 2007, an increase of $27.2 million. Excludingchanges in working capital, operating activities provided $52.9 million of cashfor the nine months ended September 30, 2008, compared to $46.9 million of cashfor the nine months ended September 30, 2007, generally reflecting increasedearnings from our larger subscriber base coupled with lower customer acquisitioncosts, offset by deterioration in our roaming margin.  Sprint related working capital, whichincludes fees and charges payable and receivable between us and Sprint, was asource of cash of $9.0 million for the nine months ended September 30, 2008compared to a use of cash of $9.6 million for the nine months ended September30, 2007, primarily due to the timing of cash payments both to and from Sprint.  For the nine months ended September 30, 2008,non-Sprint related working capital used cash of $17.8 million, reflectingcustomer account write-offs, increased accounts receivable during the period,offset by higher Sprint litigation related expense accruals.  For the nine months ended September 30, 2007,non-Sprint related working capital used cash of $20.4 million reflectingincreased accounts receivable due to increased sales, timing of interestpayments in connection with the repurchase of our senior notes as well as ageneral deterioration in our subscriber accounts receivable aging.  

 

We received $475.0 millionin gross proceeds from the Secured Notes offering during the nine months ended September30, 2007.

 

For the ninemonths ended September 30, 2008, we received $0.6 million from the exercise ofoptions representing approximately 37,800 shares.  This is compared to $3.4 million in proceedsfrom the exercise of options representing approximately 216,900 shares in the ninemonths ended September 30, 2007.  As of September30, 2008, there were 756,469 exercisable stock options outstanding with aweighted average exercise price of $19.20. We cannot predict at what level, if any, cash generated from stockoption exercises will continue in the future.

 

***Significant Uses ofCash***

 

Cash flowsused for investing activities for the nine months ended September 30, 2008included $52.4 million for capital expenditures.  Included in thistotal was $50.0 million for new cell site construction and othernetwork-related capital expenditures, of which $18.1 million was for EV-DO Rev.A equipment, and $2.4 million was for new stores, store improvements, ITand other corporate-related capital expenditures.

 

Cash flowsused for investing activities for the nine months ended September 30, 2007included $25.5 million for capital expenditures.  Included in thistotal was $22.3 million for new cell site construction and othernetwork-related capital expenditures including $9.5 million for EV-DO Rev. Aequipment, and $3.2 million for new stores, store improvements, IT andother corporate-related capital expenditures.

 

OnApril 26, 2007, our Board of Directors declared a special cash dividend of$11.00 per common share, approximately $187.0 million in the aggregate, payableto all holders of record of our common stock on May 8, 2007.  Of this, approximately $186.5 million waspaid on May 16, 2007.  The remainingunpaid dividends relate to restricted stock awards and are being paid outstarting in July 2007 as these awards vest.  During the nine months ended September 30,2008, we used approximately $109,000 to pay dividends related to theserestricted stock award vestings.

 

Our uses ofcash typically include providing for operating expenditures, debt servicerequirements and capital expenditures. We anticipate that total capital expenditures for 2008 will be between $70.0million and $75.0 million.  This includescash uses for new cell sites, new retail stores, information technology, andother network-related expenditures, including approximately $18.6 million forEV-DO Rev. A deployment. Because our long-term debt does not begin to mature until2013, we do not believe the current tightening of the credit markets, unlessprolonged, should have a significant impact on our ability to refinance ourdebt. 

 

We continuallyevaluate our capital and debt capacity and how to prioritize the use of anyexcess cash, including for any or a combination of the following strategicoptions:  increase capital expenditures,pursue strategic acquisitions, pay cash dividends or distributions, repurchaseof our stock, or payoff or repurchase of our debt.

 

31

----

Table of Contents

 

***Recent Trends, Risksand Uncertainties That May Affect Operating Results, Liquidity and CapitalResources***

 

We haveidentified the following important trends and factors (as well as risks anduncertainties associated with such items) that could impact our futurefinancial performance.  This section should be read in conjunctionwith the “Risks Related to Our Business, Strategy and Operations”section found in Item 1A of Part I of our annual report onForm 10-K, filed with the SEC on March 7, 2008.

 

·                  Despiteincreased gross additions coming from Nextel subscribers switching to Sprint inour territory, overall gross additions were lower in the first nine months of2008 reflecting tightened credit standards, issues related to the billingsystem conversion at Sprint and increased overall wireless penetration in ourmarkets. Additionally, gross additions were negatively impacted by theweakening economic environment, increased competitive advertising, the relativeattractiveness of competitors’ phones, pricing plans, coverage and customerservice, as well as continuing concerns about the strength of the “Sprint”brand.  We believe that these factorswill continue to negatively affect gross additions in the remainder of2008.  To the extent we are unable tomaintain, or choose to slow, our subscriber growth, it may make it more difficultfor us to obtain sufficient revenue to achieve and sustain profitability.

 

·                  Ourchurn may increase in the future or remain high due to the weakening economicenvironment.  We have and may continue totighten our credit policies.  However, ifchurn continues to remain high or increases over the long-term, we would losethe cash flows attributable to these subscribers and may incur higher netlosses.

 

·                  Competitionin the wireless industry remains intense as more competitors enter the marketvia relationships with existing carriers or through the acquisition of newwireless spectrum.  The introduction ofmore advanced handheld devices and new technologies and delivery channels, suchas Clearwire’s WiMax offering (and, together with Sprint Nextel, in a proposedjoint venture) further complicate the competitive environment.  In addition, prepaid plans, which we do notcurrently offer, and unlimited plans, including those offered by us, alsocontinue to increase in popularity, which may potentially put more downwardpressure on wireless service pricing as well as potentially, in the case ofunlimited plans, increase our expense of providing service. Incumbent carriersmay offer more aggressive rate plans in order to maintain or achieve subscribergrowth.  During 2008, we have receivedlower amounts from Sprint for late fees charged to customers in our territory.  Additionally, Sprint increased its use ofcustomer credits in their efforts to retain subscribers.  These trends of lower late fee revenue andhigher customer credits may continue or become more pronounced in the future.  In addition, the FCC and several state courtsare currently reviewing the industry’s practice related to early cancellationfees, the outcome of which, or the effect of Sprint’s recently announced changein its business practice related to early cancellation fees, may negativelyimpact our future results.  As a resultof these and other factors, we expect to see continued pressure on subscriberrevenue which will have a negative effect on our cash flow.

 

·                  Ourcost per gross addition, or CPGA, increased in the first nine months of 2008 ascompared to the first nine months of 2007. We may continue to experience higher costs to acquire subscribers in thefuture. To the extent that we increase our distribution infrastructure, we willincrease the fixed costs in our sales and marketing organization. Also, moreaggressive promotional efforts have historically led, and may continue to lead,to higher handset subsidies and rebates, especially as we increase the sale ofmore expensive handsets and smartphones. In addition, we may increase ourmarketing expenses and pay higher commissions in an effort to attract andacquire new subscribers. With a higher CPGA, subscribers must remain oursubscribers for a longer period of time at a stable ARPU for us to recoverthose acquisition costs.

 

·                  Certainportions of our operating expense continue to increase and may continue toincrease in the future due to, among other reasons:

 

·                  Higherbad debt expense due to higher write-offs, lower bad debt recoveries as apercentage of write-offs and a deteriorating economic environment. While baddebt recoveries, which were lower in the third quarter of 2008 compared torecent prior quarters, are being reviewed with Sprint, there can be noassurances that the recent negative trends will improve or worsen in the future.

 

·                  Higherroaming expense with wireless carriers other than Sprint as customersincreasingly choose roam inclusive rate plans and increase their use of theirdevices off the Sprint network.

 

·                  Higherhandset subsidies, rebates, commissions and other retention expenses forexisting subscribers who upgrade to a new handset as part of promotionalefforts to reduce churn;

 

·                  Higherback office and administrative expenses due to the larger number of subscribersserved;

 

·                  Highernetwork costs as we process increasing minutes and kilobytes on our network,and as a result of expanding our network infrastructure and increasing ourdeployment of EV-DO Rev. A.; and

 

·                  HigherSprint litigation related expenses, as a result of our ongoing defense of ourrights under our affiliation agreements.

 

Notwithstanding the foregoing, we have and expect to continue to see asignificant decrease in our roaming expense as a result of our change,effective January 1, 2008, to no longer settle 3G data roaming expense(and revenue) with Sprint separately. At the same time, a portion of ourongoing network and general and administrative expenses is fixed. We believethat we need to add more subscribers to recognize increased economies of scalein our business. If we are unable to add more subscribers or continue toimprove the efficiencies in our operating costs, results will be negativelyaffected.

 

·                  Asubstantial portion of our revenue is derived from roaming revenue, themajority of which comes when subscribers of Sprint incur minutes of use in ourterritories. The reciprocal voice roaming rate with Sprint for 2008 is lowerthan 2007 and, 

 

32

----

Tableof Contents

 

accordingly, the new rate has and will negatively impact our roamingrevenue.  Elevated energy prices andworsening economic conditions could result in decreased travel activity andalso have a negative impact on our roaming revenue.  Additionally, Sprint’s reciprocal roamingagreements with other carriers, such as its roaming agreement with Alltel, andour participation in those agreements, can change over time, potentiallyreducing the reciprocal rate or negatively affecting the level of roamingactivity related to those roaming partners. Since the ratio of inbound to outbound roaming fluctuates from period toperiod and year to year, the margin we earn from the difference between roamingrevenue and roaming expense is difficult to predict. If this roaming marginwith Sprint PCS or with other carriers declines due to less roaming revenue,more roaming expense, or both, our results of operations will be negativelyaffected.

 

·                  Aswe have added to the capacity, coverage and quality of our PCS network, we haveincurred significant capital expenditures. We incurred approximately $52.4 millionin capital expenditures in the nine months ended September 30, 2008, includingapproximately $18.1 million for EV-DO Rev. A deployment. We anticipatethat total capital expenditures for 2008 will be between $70.0 million and$75.0 million. These expenditures include a significant increase in thenumber of new cell sites for 2008 as compared to 2007, as well as an expansionof our EV-DO Rev. A deployment during 2008. As a result of our amendments withSprint PCS, our CCPU rates are reduced by $0.15 when we reach certain EV-DORev. A coverage levels.  DuringJuly 2008, our EV-DO Rev. A footprint coverage exceeded 7.0 millionresidents, which reduced our CCPU rate starting August 1, 2008 to $6.20 for theremainder of 2008, $5.85 in 2009 and $5.55 in 2010.  Our CCPU rate shall be reduced from the thencurrent rate if and when our EV-DO Rev. A coverage reaches at least 9.0 millionresidents.  In the future we may decideto further increase our cell site expansion or EV-DO Rev. A coverage, either orboth of which may increase our anticipated capital expenditures and operatingexpense beyond our current plans. Furthermore, unforeseen changes in technologyand changes in our plans to upgrade or expand our network may require us tospend more money than we expected and have a negative effect on our cash flow.

 

·                  Resellers,such as Virgin Mobile, are subject to a number of risks, including high churn,high bad debt expense, increased competition, dependence on fourth quartergross additions and reliance, in many cases, on specific segments of themarket, for example, the youth segment. In the past few years, a number ofresellers, including Disney Mobile and ESPN Mobile, ceased providing service,reflecting the increasingly competitive environment for resellers. We are notparty to the underlying agreements that the resellers have with Sprint Nexteland therefore are generally unable to set prices or otherwise monitor theperformance of the resellers. Additionally, the resellers using the Sprintnetwork change from time to time and such changes are outside of our control.If a reseller, particularly Virgin Mobile, has a disruption in its businessplan, experiences financial difficulties, ceases to grow or service itscustomer base or contracts with another wireless provider for its service, wemay lose the related revenue and it may make it more difficult for us to obtainsufficient revenue to achieve and sustain profitability.

 

·                  Effortsby Sprint to integrate the Sprint and Nextel businesses have had, and willcontinue to have, a negative impact on our business and prospects. With theintegration of the marketing and sales of Sprint products and services withlegacy Nextel products and services, conflicts continue to arise with how Sprintand we conduct business in our territory. Additionally, in 2008, subscribersbased in our territory were migrated to a new billing platform, Ensemble.  We believe challenges associated with Ensembleand the subscriber migrations have resulted in a number of issues, some of whichwe are currently reviewing with Sprint, which have had an adverse impact on oursubscriber activity and financial results. These issues include higher customer credits and lower late fee revenuewhich are markedly worse in the third quarter of 2008 compared to recent priorquarters and, while being reviewed with Sprint, there can be no assurances thatthe recent negative trends will improve or worsen in the future. As of September30, 2008, we have also not yet achieved the same level of visibility to oursubscriber information we previously had prior to the migration.  Any further delays in reestablishing thislevel of visibility into our subscriber information could make it moredifficult for us to effectively manage our business.  If continuing or future problems withEnsemble are not resolved in a timely manner, our business would continue to benegatively impacted.

 

·                  Our primarysubscriber base is composed of individual consumers.  The current overall weakness in the U.S.economy, particularly the turmoil in the credit markets, weakness in thehousing market, and volatile energy and commodity costs, have resulted inconsiderable negative pressure on consumer spending. As a result, we believethat these events have impacted consumers in our territories in ways that havenegatively affected our business.  In theevent the current economicdownturn in the United States continues or worsens, our current and potentialwireless subscribers, especially our sub-prime subscribers, may be unable orunwilling to purchase wireless services or pay their wireless bills, which maycontinue to negatively impact our business.

 

·      **Recent turmoil in the credit markets and thefinancial services industry may negatively impact Sprint’s or the Company’sbusiness, results of operations, financial condition or liquidity.  **The credit markets andthe financial services industry have been experiencing a period ofunprecedented turmoil characterized by the bankruptcy, failure, collapse orsale of various financial institutions and an unprecedented level ofintervention from the United States federal government. While the ultimateoutcome of these events cannot be predicted, such events may have a materialadverse effect on Sprint’s or our liquidity and financial condition.

 

·                  The finaloutcome of our Nextel litigation with Sprint is unknown.  As discussed below in “Commitments andContingencies”, on March 31, 2008, the Appellate Court of Illinois unanimouslyaffirmed the 2006 Circuit Court’s decision. On May 5, 2008, Sprint filed a petition of leave to appeal with theSupreme Court of Illinois. On September 24, 2008, the Supreme Court of Illinoisdenied Sprint’s petition for leave to appeal the Appellate Court’sdecision.  On October 15, 2008, Sprintfiled a motion with the Supreme Court of Illinois asking it to permit Sprint tofile a motion to reconsider its decision as it relates to the relief granted(i.e., the order requiring Sprint to cease owning, operating, and managing the 

 

33

----

Table of Contents

 

Nextelwireless network in iPCS Wireless’s territory within 180 days of the finalorder).  A decision is expected on thatpetition later this year.  The CircuitCourt’s final order remains stayed pending the conclusion of the appealsprocess.  Sprint has also filed a motionwith the Circuit Court to vacate that Court’s original order.  We cannot predict the outcome of the appealprocess. If we do not prevail, Sprint may be permitted to operate the legacyNextel business in our territory in a manner that adversely affects ourbusiness and operations.  If we doprevail, we do not know Sprint’s intentions for complying with the CircuitCourt’s order and its impact on our business. Similarly, we cannot predict the outcome of Sprint’s most recent motionfor relief with the Circuit Court.  Inaddition, as with any litigation, it is possible that the parties may settlethe dispute.  In that event, we cannotspeculate as to the terms and conditions of any such settlement, which couldinclude a material economic change in our relationship with Sprint.

 

·                  Thefinal outcome of our WiMax litigation with Sprint is unknown.  As discussed below in “Commitments andContingencies”, on May 7, 2008, Sprint Nextel filed a complaint fordeclaratory judgment in the Court of Chancery of the State of Delaware seekingto have that court rule that its proposed WiMax transaction is not aviolation of the Sprint Nextel agreements with iPCS.  On May 12, 2008, certain of oursubsidiaries filed a lawsuit against Sprint Nextel in the Circuit Court of CookCounty, Illinois, seeking declaratory and injunctive relief with respect toSprint Nextel’s proposed WiMax transaction. The litigation commenced by Sprint Nextel in Delaware is currentlystayed, in favor of the litigation brought by our subsidiaries inIllinois.  The trial in the Illinoislitigation is currently scheduled to start in December 2008. We cannot predictthe outcome of these legal proceedings. If we do not prevail, Sprint may bepermitted to operate, through its Clearwire joint venture, a mobile WiMaxnetwork that could adversely affect our business and operations by introducinga competitive product that may reduce demand for our products and services.  If we do prevail, we do not know Sprint’sintentions for complying with any ruling and its impact on our business.  In addition, as with any litigation, it ispossible that the parties may settle the dispute.  In that event, we cannot speculate as to theterms and conditions of any such settlement, which could include a materialeconomic change in our relationship with Sprint.

 

34

----

Tableof Contents

 

***Commitments andContingencies***

 

*Sprint/Nextel Merger Litigation.*  On July 15, 2005, our wholly ownedsubsidiary, iPCS Wireless, Inc., filed a complaint against Sprint andSprint PCS in the Circuit Court of Cook County, Illinois. The complaintalleged, among other things, that Sprint’s conduct following the consummationof the merger between Sprint and Nextel, would breach Sprint’s exclusivity obligationsto iPCS Wireless under its affiliation agreements with Sprint PCS. OnAugust 14, 2006, the Circuit Court issued its decision and onSeptember 20, 2006, the Circuit Court issued a final order effecting itsdecision. The final order provides that:

 

·                  Within180 days of the date of the final order, Sprint and those acting inconcert with it must cease owning, operating, and managing the Nextel wirelessnetwork in iPCS Wireless’s territory.

 

·                  Sprintshall continue to comply with all terms and conditions of the ForbearanceAgreement between us and Sprint setting forth certain limitations on Sprint’soperations post-merger with Nextel.

 

OnSeptember 28, 2006, Sprint appealed the ruling to the Appellate Court ofIllinois, First Judicial District, and, at Sprint’s request, the CircuitCourt’s ruling was stayed by the Appellate Court pending the appeal. OnMarch 31, 2008, the Appellate Court unanimously affirmed the 2006 CircuitCourt decision.  On May 5, 2008,Sprint filed a petition for leave to appeal with the Supreme Court of Illinois.On September 24, 2008, the Supreme Court of Illinois denied Sprint’s petitionfor leave to appeal the Appellate Court’s decision.  On October 15, 2008, Sprint filed a motionwith the Supreme Court of Illinois asking it to permit Sprint to file a motionto reconsider its decision only as it relates to the relief granted (i.e., theorder requiring Sprint to cease owning, operating and managing the Nextelwireless network in iPCS Wireless’s territory within 180 days of the finalorder).  A decision is expected on thatmotion later this year. The Circuit Court’s final order remains stayed pendingthe conclusion of the appeals process. Sprint has also filed a motion with the Circuit Court seeking to vacatethat Court’s original order. 

 

*Sprint Arbitration.*  Pursuant to the amendments of our affiliationagreements with Sprint PCS, we and Sprint agreed to dismiss thearbitration proceedings relating to Sprint’s proposed rates for providingback-office services to us for the three-year period commencing onJanuary 1, 2007.

 

*****Sprint Nextel Litigation with respect to theSprint-Clearwire Transaction.*****  On May 7, 2008, Sprint Nextelannounced a transaction between itself, Clearwire Corporation, and certainother parties (the “Sprint-Clearwire Transaction”).  The same day, SprintNextel filed a complaint for declaratory judgment against us and certain of oursubsidiaries in the Court of Chancery of the State of Delaware.  In thatlawsuit, Sprint Nextel seeks a declaration that the Sprint-ClearwireTransaction would not constitute a breach of the Sprint affiliation agreements ithas with us.

 

On May 12, 2008, certain of our subsidiaries filed alawsuit against Sprint Nextel Corporation and certain of its affiliates in theCircuit Court of Cook County, Illinois, seeking declaratory and injunctiverelief with respect to the Sprint-Clearwire Transaction. In that case, oursubsidiaries seek a declaration that the Sprint-Clearwire Transaction, ifconsummated, would constitute a breach of the Sprint affiliation agreements ithas with our subsidiaries, and also seek an injunction barring Sprint Nextelfrom closing on the Sprint-Clearwire Transaction, until it complies with theaffiliation agreements. Trial on this matter is currently scheduled to commencein December 2008. On November 3, 2008, our subsidiaries filed an emergencymotion for preliminary injunction in the Circuit Court of Cook County, Illinoisseeking to prevent Sprint Nextel from consummating the Sprint-ClearwireTransaction until such time that the Court can rule on the merits of theunderlying litigation brought by our subsidiaries against Sprint Nextel.

 

On July 14, 2008, the Court of Chancery of the State of Delawareissued an opinion in the case pending before it.  The Delaware Court grantedthe motion to dismiss filed by two of our subsidiaries, Horizon PersonalCommunications, Inc. and Bright Personal Communications Services, LLC anddismissed them from the Delaware litigation, and denied the motion to dismiss usand our subsidiary, iPCS Wireless, Inc. On July 28, 2008, we andiPCS Wireless, Inc. filed a motion to dismiss the remainder of the case pendingbefore it or, in the alternative, to transfer the case to the Superior Court ofthe State of Delaware.  The court denied the motion to dismiss and did notrule on the motion to transfer. Pursuant to a motion filed by iPCS Wireless,Inc. and us on October 8, 2008, the Delaware Court stayed allremaining Delaware litigation in favor of the lawsuit brought in Illinois byour subsidiaries.

 

In addition tothe foregoing, from time to time, we are involved in various legal proceedingsrelating to claims arising in the ordinary course of business. We are notcurrently a party to any such legal proceedings, the adverse outcome to which,individually or in the aggregate, is expected to have a material adverse effecton our business, financial condition or results of operations.

 

35

----

Table of Contents

 

**Contractual Obligations and Off-Balance SheetArrangements**

 

Forinformation regarding contractual obligations and off-balance sheetarrangements, see the captions “Contractual Obligations” and “Off-Balance SheetArrangements” in “Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operations” in the Company’s Annual Report onForm 10-K for the year ended December 31, 2007.  At September 30, 2008, there had not been amaterial change to the contractual obligations or off-balance sheetarrangements disclosed in the Company’s Annual Report on Form 10-K for theyear ended December 31, 2007 except as follows (in thousands):

 

·                  3-monthLIBOR decreased approximately 60 basis points, from approximately 4.7% atDecember 31, 2007 to approximately 4.1% at September 30, 2008.  Based on this reduction in LIBOR, cashinterest related to our long-term variable rate debt would decrease by $2,309,$2,805, $6,269 and $2,705 for 2008, 2009-2010, 2011-2012 and thereafter,respectively.

 

**Seasonality**

 

Our businessis subject to seasonality because the wireless telecommunications industryhistorically has been dependent on fourth calendar quarter results. Among otherthings, the industry relies on moderately higher subscriber additions andhandset sales in the fourth calendar quarter as compared to the other threecalendar quarters. A number of factors contribute to this trend, including: theuse of retail distribution, which is heavily dependent upon the year-endholiday shopping season; the timing of new product and service announcementsand introductions; competitive pricing pressures; and aggressive marketing andpromotions. In addition, our roaming revenue and roaming expense is subject toseasonality because of decreased travel of wireless subscribers into ourterritory during the winter months.

 

**Critical Accounting Policies**

 

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

 

We haveidentified the most critical accounting policies upon which our financialstatus depends.  The critical policies were determined by consideringaccounting policies that involve the most complex or subjective decisions orassessments. We also have other policies considered key accounting policies;however, these policies do not meet the definition of critical accounting policiesbecause they do not generally require us to make estimates or judgments thatare complex or subjective.  Our critical accounting policies include thefollowing:

 

·                    Revenuerecognition

 

·                    Allowancefor doubtful accounts

 

·                    Long-livedasset recovery

 

·                    Intangibleassets

 

·                    Interestrate swap

 

·                    Incometaxes

 

·                    Stock-basedcompensation

 

Additional information regarding these critical accounting policies canbe found in the “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” section of our Annual Report on Form 10-Kfor the year ended December 31, 2007, filed with the SEC on March 7,2008.

 

36

----

Tableof Contents

 

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

 

We do notengage in commodity futures trading activities. Although we entered into aderivative financial instrument transaction for hedging purposes as discussedbelow, we do not enter into derivative financial instrument transactions fortrading or other speculative purposes. We also do not engage in transactions inforeign currencies that could expose us to market risk. Our exposure to marketrisk is limited primarily to the fluctuating interest rates associated withvariable rate indebtedness.

 

In July 2007, we entered into an interest rate swap agreement thateffectively fixes the interest rate on $300.0 million of our variable rateindebtedness at 7.47% for three years starting August 1, 2007. The fairvalue of our interest rate swap was an $11.0 million liability at September 30,2008. A hypothetical increase of 100 basis points in average market interestrates would increase the fair value of our interest rate swap by approximately$6.0 million. A decrease of 100 basis points in average market interestrates would decrease the fair value of our interest rate swap by approximately$6.1 million. A prospective increase of 100 basis points in the interestrate applicable to the remaining $175.0 million of variable rateindebtedness would result in an increase of approximately $1.8 million inour annual interest expense. At September 30, 2008, after consideration of theinterest rate swap described above, approximately 37% of our debt is subject tovariable interest rates.

 

**Item 4. Controls and Procedures.**

 

Each of our Chief Executive Officer and Chief Financial Officer hasevaluated the effectiveness of our disclosure controls and procedures (as suchterm is defined in Rules 13a-15(e) and 15d-15(e) under theExchange Act) as of the end of the period covered by this quarterly report.Based on such evaluation, such officers have concluded that, as of the end ofthe period covered by this quarterly report, our disclosure controls and proceduresare effective in alerting them on a timely basis to material informationrelating to us (including our consolidated subsidiaries) required to beincluded in our reports filed or submitted under the Exchange Act.

 

We place reliance on Sprint PCS to adequately design its internalcontrols with respect to the processes established to provide financialinformation and other information to us and the other PCS Affiliates of Sprint.To address this issue, Sprint engages an independent registered public accountingfirm to perform a periodic evaluation of these controls and to provide a“Report on Controls Placed in Operation and Tests of Operating Effectivenessfor Affiliates” under guidance provided in Statement of Auditing StandardsNo. 70. This report is provided to us annually.

 

There have been no changes in our internal control over financialreporting (as such term is defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) during the quarter ended September 30,2008 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

37

----

Table of Contents

 

**PART II.OTHER INFORMATION**

 

**Item 1. Legal Proceedings.**

 

See  —“Management’s Discussion and Analysis of Financial Condition and Results ofOperations —Commitments and Contingencies” of this report.

 

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

 

**Item 1A. Risk Factors.**

 

You shouldcarefully consider the risks and uncertainties described in Part I, Item1A. Risk Factors in our Annual Report on Form 10-K for the year endedDecember 31, 2007 and the other information in our subsequent filings withthe SEC, including this Quarterly Report on Form 10-Q. Our business,financial condition, results of operations and stock price could be materiallyadversely affected by any of these risks. The risks described in our AnnualReport on Form 10-K are not the only ones facing us. Additional risks anduncertainties that are currently unknown to us or that we currently consider tobe immaterial may also impair our business or adversely affect our financialcondition, results of operations and stock price.

 

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

 

The followingtable provides information about shares of common stock the Company acquiredduring the third quarter of 2008:

 

Issuer Purchases of Equity Securities

 
| ** **                                         | ** ** | **Total number of shares  purchased (a)** | ** ** | **Average price paid  per share** | ** ** | **Total number of shares  purchased as part of publicly  announced plans or  programs (a)** | ** ** | **Maximum number (or  approximate dollar value) of  shares that may yet be purchased  under the plans or programs** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| July 1, 2008 to July 31, 2008            |       | —                                                        |       | —                                           |       | —                                                                                                                                        |       | —                                                                                                                                                                                    |       |
| August 1, 2008 to August 31, 2008        |       | —                                                        |       | —                                           |       | —                                                                                                                                        |       | —                                                                                                                                                                                    |       |
| September 1, 2008 to September 30,  2008 |       | 369                                                           |       | $                                                | 22.27      |                                                                                                                                          | —     |                                                                                                                                                                                      | —     |   |
| Total                                              |       | 369                                                           |       | $                                                | 22.27      |                                                                                                                                          | —     |                                                                                                                                                                                      | —     |   |

 

----

(a)          Representsshares withheld to satisfy certain tax withholding obligations in connectionwith vesting of restricted stock as permitted by the iPCS Second Amended andRestated 2004 Long-Term Incentive Plan,. 

 

**Item 3. Defaults Upon Senior Securities.**

 

None.

 

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

 

None.

 

**Item 5. Other Information.**

 

None.

 

38

----

Table of Contents

 

**Item 6. Exhibits.**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                 |       | Second Restated Certificate of Incorporation of iPCS, Inc.  (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed by  iPCS, Inc. on July 1, 2005)                                                                                                                                                                                                                                                                    |
| 3.2                 |       | Amended and Restated Bylaws of iPCS, Inc. (Incorporated by  reference to Exhibit 3.2 to the Form 10-QT filed by iPCS, Inc.  on February 14, 2006)                                                                                                                                                                                                                                                                              |
| 3.3                 |       | Amendment to the Amended and Restated Bylaws of iPCS, Inc.  (Incorporated by reference to Exhibit 99.1 to the Form 8- K filed  by iPCS, Inc. on January 4, 2008)                                                                                                                                                                                                                                                               |
| 3.4                 |       | Certificate of Incorporation of iPCS Wireless, Inc.  (Incorporated by reference to Exhibit 3.4 to the Form S-4 filed by  iPCS, Inc. on January 8, 2001)                                                                                                                                                                                                                                                                        |
| 3.5                 |       | Bylaws of iPCS Wireless, Inc. (Incorporated by reference to  Exhibit 3.5 to the Form S-4 filed by iPCS, Inc. on  January 8, 2001)                                                                                                                                                                                                                                                                                              |
| 3.6                 |       | Certificate of Incorporation of iPCS Equipment, Inc.  (Incorporated by reference to Exhibit 3.6 to the Form S-4 filed by  iPCS, Inc. on January 8, 2001)                                                                                                                                                                                                                                                                       |
| 3.7                 |       | Bylaws of iPCS Equipment, Inc. (Incorporated by reference to  Exhibit 3.7 to the Form S-4 filed by iPCS, Inc. on  January 8, 2001)                                                                                                                                                                                                                                                                                             |
| 3.8                 |       | Articles of Organization of Bright Personal Communications  Services, LLC (Incorporated by reference to Exhibit 3.7 to the  Form S-1 filed by iPCS, Inc. on August 11, 2005)                                                                                                                                                                                                                                                   |
| 3.9                 |       | Operating Agreement of Bright Personal Communications  Services, LLC (Incorporated by reference to Exhibit 3.8 to the  Form S-1 filed by iPCS, Inc. on August 11, 2005)                                                                                                                                                                                                                                                        |
| 3.10                |       | Articles of Incorporation of Horizon Personal  Communications, Inc. (Incorporated by reference to Exhibit 3.9 to  the Form S-1 filed by iPCS, Inc. on August 11, 2005)                                                                                                                                                                                                                                                         |
| 3.11                |       | Regulations of Horizon Personal Communications, Inc.  (Incorporated by reference to Exhibit 3.10 to the Form S-1 filed by  iPCS, Inc. on August 11, 2005)                                                                                                                                                                                                                                                                      |
| 4.1                 |       | Amended and Restated Common Stock Registration Rights Agreement,  dated as of June 30, 2005, by and among iPCS, Inc., affiliates of  Silver Point Capital, affiliates of AIG Global Investment Corp., the Timothy  M. Yager 2001 Trust, Apollo Investment Fund IV, L.P. and Apollo Overseas  Partners IV, L.P. (Incorporated by reference to Exhibit 99.1 to the  Form 8-K filed by iPCS, Inc. on July 1, 2005) |
| 4.2                 |       | First Lien Indenture, dated as of April 23, 2007, by and among  iPCS, Inc., the Guarantors and U.S. Bank National Association, as  trustee (Incorporated by reference to Exhibit 99.3 to the Form 8-K  filed by iPCS, Inc. on April 25, 2007)                                                                                                                                                                             |
| 4.3                 |       | Second Lien Indenture, dated as of April 23, 2007, by and among  iPCS, Inc., the Guarantors and U.S. Bank National Association, as  trustee (Incorporated by reference to Exhibit 99.4 to the Form 8-K  filed by iPCS, Inc. on April 25, 2007)                                                                                                                                                                            |
| 4.4                 |       | First Lien Security Agreement, dated as of April 23, 2007, made  by iPCS, Inc. and the Guarantors in favor of U.S. Bank National  Association, as collateral agent (Incorporated by reference to  Exhibit 99.7 to the Form 8-K filed by iPCS, Inc. on  April 25, 2007)                                                                                                                                                    |
| 4.5                 |       | Second Lien Security Agreement, dated as of April 23, 2007, made  by iPCS, Inc. and the Guarantors in favor of U.S. Bank National  Association, as collateral agent (Incorporated by reference to  Exhibit 99.8 to the Form 8-K filed by iPCS, Inc. on  April 25, 2007)                                                                                                                                                   |
| 4.6                 |       | Intercreditor Agreement, dated as of April 23, 2007, between  U.S. Bank National Association, as first lien collateral agent and U.S. Bank  National Association, as second lien collateral agent. (Incorporated by  reference to Exhibit 99.9 to the Form 8-K filed by iPCS, Inc.  on April 25, 2007)                                                                                                                         |
| 4.7                 |       | First Amendment to the First Lien Security Agreement, dated as of  October 10, 2007, made by iPCS, Inc. and the Guarantors in favor of  U.S. Bank National Association, as collateral agent (Incorporated by  reference to Exhibit 10.1 to the Form 10-Q filed by iPCS, Inc.  on November 8, 2007)                                                                                                                        |
| 4.8                 |       | First Amendment to the Second Lien Security Agreement, dated as of  October 10, 2007, made by iPCS, Inc. and the Guarantors in favor of  U.S. Bank National Association, as collateral agent (Incorporated by  reference to Exhibit 10.2 to the Form 10-Q filed by iPCS, Inc.  on November 8, 2007)                                                                                                                       |
| 31.1*               |       | Certification of Chief Executive Officer Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                |
| 31.2*               |       | Certification of Chief Financial Officer Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                |
| 32.1*               |       | Certification Pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                       |
|                     |            |                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |

 

----

*                                         Filedherewith.

 

39

----

Tableof Contents

 

**SIGNATURES**

 

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

 
|                        | iPCS, Inc. |
|-----------------------------|-----------------|
|                        |            |
|                        | By:             | /s/ TIMOTHY M. YAGER |
|                        |            | Timothy M. Yager |
|                        |            | President and Chief Executive Officer   (Principal Executive Officer) |
|                        |            |
| Date: November 4, 2008 |            |
|                        | By:             | /s/ STEBBINS B. CHANDOR, JR. |
|                        |            | Stebbins B. Chandor, Jr. |
|                        |            | Executive Vice President and  Chief Financial Officer  (Principal Financial Officer) |
|                        |            |
| Date: November 4, 2008 |            |

 

40

----