** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

** **

**FORM10-Q**

 

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

 

**For the quarterly period ended June30, 2005**

 

**CommissionFile Number**

**000-30761**

 

**UbiquiTelInc.**

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

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

 

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

 

**CommissionFile Number**

**333-39950**

 

**UbiquiTelOperating Company**

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

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

 

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

 

Indicate by check mark whether eachof the co-registrants (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that each co-registrant was required tofile such reports), and (2) has been subject to such filing requirements forthe past 90 days.

Yes ý        No o

 

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

Yes ý        No o

 

There were 93,593,140 shares of common stock, $0.0005 par value, of UbiquiTel Inc. outstanding at August 5,2005.

 

There were 1,000 shares of common stock, $0.01 par value, of UbiquiTelOperating Company outstanding at August 5, 2005, all of which were owned byUbiquiTel Inc.

 

 

----

 

**UbiquiTel Inc. and Subsidiaries**

 

**Form 10-Q for the Quarter EndedJune 30, 2005**

 

**INDEX**

 
| ** ** | ** **                                                                                                   | **Page** |
|------------|--------------------------------------------------------------------------------------------------------------|----------|
| PART I.    | FINANCIAL INFORMATION                                                                                        |     |
|       |                                                                                                         |     |
| Item 1.    | Financial Statements                                                                                         |     |
|       |                                                                                                         |     |
|       | Consolidated Balance Sheets  as of June 30, 2005 and December 31, 2004                                       | 4        |
|       |                                                                                                         |     |
|       | Consolidated  Statements of Operations for the three and six months ended June 30, 2005 and  2004 (restated) | 5        |
|       |                                                                                                         |     |
|       | Consolidated  Statements of Cash Flows for the six months ended June 30, 2005 and 2004  (restated)           | 6        |
|       |                                                                                                         |     |
|       | Notes to  Consolidated Financial Statements                                                                  | 7        |
|       |                                                                                                         |     |
| Item  2.   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                  | 16       |
|       |                                                                                                         |     |
| Item  3.   | Quantitative  and Qualitative Disclosures About Market Risk                                                  | 32       |
|       |                                                                                                         |     |
| Item 4.    | Controls and  Procedures                                                                                     | 32       |
|       |                                                                                                         |     |
| PART II.   | OTHER INFORMATION                                                                                            |     |
|       |                                                                                                         |     |
| Item 1.    | Legal Proceedings                                                                                            | 34       |
|       |                                                                                                         |     |
| Item  2.   | Unregistered  Sales of Equity Securities and Use of Proceeds                                                 | 34       |
|       |                                                                                                         |     |
| Item 3.    | Defaults Upon  Senior Securities                                                                             | 35       |
|       |                                                                                                         |     |
| Item  4.   | Submission  of Matters to a Vote of Security Holders                                                         | 35       |
|       |                                                                                                         |     |
| Item 5.    | Other Information                                                                                            | 35       |
|       |                                                                                                         |     |
| Item 6.    | Exhibits                                                                                                     | 35       |
|       |                                                                                                         |     |
| Signatures | 37                                                                                                           |

 

2

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**Explanatory Note:**

 

The Consolidated Financial Statements included hereinare those of UbiquiTel Inc. (“UbiquiTel”). The Co-Registrants are UbiquiTel and UbiquiTel Operating Company (“OperatingCompany”), which is a wholly-owned subsidiary of UbiquiTel and the issuer of9.875% senior notes due 2011.  UbiquiTelhas provided a full, unconditional, joint and several guaranty of OperatingCompany’s obligations under the 9.875% senior notes due 2011.  UbiquiTel has no operations separate from itsinvestment in Operating Company. Pursuant to Rule 12h-5 of the Securities Exchange Act, no separatefinancial statements and other disclosures concerning Operating Company otherthan narrative disclosures set forth in Notes 5 and 6 to the ConsolidatedFinancial Statements have been presented herein.  As used herein and except as the contextotherwise may require, the “Company,” “we,” “us,” “our” or “UbiquiTel” means,collectively UbiquiTel, Operating Company and their consolidated subsidiary,UbiquiTel Leasing Company.

 

3

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**PART I.FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements**

 

# **UbiquiTel Inc. and Subsidiaries**

# **ConsolidatedBalance Sheets**

# **(Unaudited)**

# **(In Thousands, Except Per Share Data)**

 
| ** **                                                                                                                                                                    | ** ** | **June 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **ASSETS**                                                                                                                                                                    |       |              |       |                  |       |
| CURRENT ASSETS:                                                                                                                                                               |       |              |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                    |       | $                 | 89,133     |                  | $          | 91,781 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $2,982 at June 30, 2005  and $3,358 at December 31, 2004                                                      |       | 28,688            |       | 22,609                |       |
| Inventory, net                                                                                                                                                                |       | 3,629             |       | 4,025                 |       |
| Prepaid expenses  and other assets                                                                                                                                            |       | 18,390            |       | 17,680                |       |
| Total current  assets                                                                                                                                                         |       | 139,840           |       | 136,095               |       |
| PROPERTY AND  EQUIPMENT, NET                                                                                                                                                  |       | 252,711           |       | 243,679               |       |
| CONSTRUCTION IN  PROGRESS                                                                                                                                                     |       | 3,234             |       | 1,867                 |       |
| DEFERRED  FINANCING COSTS, NET                                                                                                                                                |       | 10,070            |       | 10,868                |       |
| GOODWILL                                                                                                                                                                      |       | 38,138            |       | 38,138                |       |
| INTANGIBLES, NET                                                                                                                                                              |       | 62,413            |       | 64,565                |       |
| OTHER LONG-TERM  ASSETS                                                                                                                                                       |       | 2,241             |       | 2,595                 |       |
| Total assets                                                                                                                                                                  |       | $                 | 508,647    |                  | $          | 497,807 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                 |       |              |       |                  |       |
| CURRENT  LIABILITIES:                                                                                                                                                         |       |              |       |                  |       |
| Current  maturities of long-term debt                                                                                                                                         |       | $                 | 231        |                  | $          | 223 |   |
| Accounts payable                                                                                                                                                              |       | 6,628             |       | 3,124                 |       |
| Accrued expenses                                                                                                                                                              |       | 16,360            |       | 18,824                |       |
| Accrued  compensation and benefits                                                                                                                                            |       | 2,718             |       | 4,591                 |       |
| Interest payable                                                                                                                                                              |       | 13,825            |       | 13,825                |       |
| Taxes payable                                                                                                                                                                 |       | 2,694             |       | 2,672                 |       |
| Deferred revenue                                                                                                                                                              |       | 12,413            |       | 12,274                |       |
| Other                                                                                                                                                                         |       | 2,221             |       | 1,501                 |       |
| Total current  liabilities                                                                                                                                                    |       | 57,090            |       | 57,034                |       |
| LONG-TERM DEBT,  EXCLUDING CURRENT MATURITIES                                                                                                                                 |       | 423,659           |       | 423,893               |       |
| OTHER LONG-TERM  LIABILITIES                                                                                                                                                  |       | 13,483            |       | 11,462                |       |
| Total long-term  liabilities                                                                                                                                                  |       | 437,142           |       | 435,355               |       |
| Total  liabilities                                                                                                                                                            |       | 494,232           |       | 492,389               |       |
| COMMITMENTS AND  CONTINGENCIES                                                                                                                                                |       | —            |       | —                |       |
| STOCKHOLDERS’  EQUITY:                                                                                                                                                   |       |              |       |                  |       |
| Preferred stock,  par value $0.001 per share; 10,000 shares authorized; 0 shares issued and  outstanding at June 30, 2005 and December 31, 2004                               |       | —            |       | —                |       |
| Common stock,  par value $0.0005 per share; 240,000 shares authorized; 93,478 and 93,016  shares issued and outstanding at June 30, 2005 and December 31, 2004,  respectively |       | 47                |       | 46                    |       |
| Additional  paid-in-capital                                                                                                                                                   |       | 305,990           |       | 303,830               |       |
| Accumulated  deficit                                                                                                                                                          |       | (291,622          | )          | (298,458              | )          |
| Total stockholders’  equity                                                                                                                                              |       | 14,415            |       | 5,418                 |       |
| Total  liabilities and stockholders’ equity                                                                                                                              |       | $                 | 508,647    |                  | $          | 497,807 |   |

 

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

 

4

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**UbiquiTelInc. and Subsidiaries**

# **ConsolidatedStatements of Operations**

**(Unaudited)**

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

 
| ** **                                                                                                         | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| ** **                                                                                                         | ** ** | **2005**                        | ** ** | **2004**                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                         | ** ** | ** **                      | ** ** | **(Restated)**                | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| REVENUES:                                                                                                          |       |                            |       |                          |       |   |   |   |   |
| Subscriber  revenue                                                                                                |       | $                               | 69,895     |                          | $          | 61,974 |   | $ | 136,787 |   | $ | 118,545 |   |
| Roaming and  wholesale revenue                                                                                     |       | 31,613                          |       | 23,515                        |       | 61,219 |   | 44,382 |   |
| Service revenue                                                                                                    |       | 101,508                         |       | 85,489                        |       | 198,006 |   | 162,927 |   |
| Equipment  revenue                                                                                                 |       | 4,685                           |       | 3,192                         |       | 8,118 |   | 7,064 |   |
| Total revenues                                                                                                     |       | 106,193                         |       | 88,681                        |       | 206,124 |   | 169,991 |   |
| COSTS AND  EXPENSES:                                                                                               |       |                            |       |                          |       |   |   |   |   |
| Cost of service  and operations (exclusive of depreciation, amortization and accretion as  shown separately below) |       | 45,239                          |       | 42,030                        |       | 89,245 |   | 81,168 |   |
| Cost of products  sold                                                                                             |       | 9,922                           |       | 8,919                         |       | 20,307 |   | 18,134 |   |
| Selling and  marketing                                                                                             |       | 16,885                          |       | 15,852                        |       | 32,811 |   | 32,829 |   |
| General and  administrative                                                                                        |       | 4,953                           |       | 4,511                         |       | 9,941 |   | 8,894 |   |
| Non-cash  compensation                                                                                             |       | 1,603                           |       | 226                           |       | 1,082 |   | 226 |   |
| Depreciation,  amortization and accretion                                                                          |       | 12,878                          |       | 13,705                        |       | 25,035 |   | 26,635 |   |
| Total costs and  expenses                                                                                          |       | 91,480                          |       | 85,243                        |       | 178,421 |   | 167,886 |   |
| OPERATING INCOME                                                                                                   |       | 14,713                          |       | 3,438                         |       | 27,703 |   | 2,105 |   |
| INTEREST INCOME                                                                                                    |       | 619                             |       | 140                           |       | 1,145 |   | 275 |   |
| INTEREST EXPENSE                                                                                                   |       | (10,864                         | )          | (10,370                       | )          | (21,799 | ) | (18,800 | ) |
| GAIN ON DEBT RETIREMENTS                                                                                           |       | 40                              |       | —                        |       | 40 |   | 1,109 |   |
| INCOME (LOSS)  BEFORE INCOME TAXES                                                                                 |       | 4,508                           |       | (6,792                        | )          | 7,089 |   | (15,311 | ) |
| INCOME TAX  EXPENSE                                                                                                |       | (124                            | )          | (80                           | )          | (253 | ) | (152 | ) |
| NET INCOME  (LOSS)                                                                                                 |       | $                               | 4,384      |                          | $          | (6,872 | ) | $ | 6,836 |   | $ | (15,463 | ) |
|                                                                                                               |       |                            |       |                          |       |   |   |   |   |
| NET INCOME  (LOSS) PER SHARE:                                                                                      |       |                            |       |                          |       |   |   |   |   |
| BASIC                                                                                                              |       | $                               | 0.05       |                          | $          | (0.07 | ) | $ | 0.07 |   | $ | (0.17 | ) |
| DILUTED                                                                                                            |       | $                               | 0.04       |                          | $          | (0.07 | ) | $ | 0.07 |   | $ | (0.17 | ) |
|                                                                                                               |       |                            |       |                          |       |   |   |   |   |
| WEIGHTED AVERAGE  SHARES OUTSTANDING:                                                                              |       |                            |       |                          |       |   |   |   |   |
| BASIC                                                                                                              |       | 93,319                          |       | 92,717                        |       | 93,212 |   | 92,648 |   |
| DILUTED                                                                                                            |       | 98,820                          |       | 92,717                        |       | 98,680 |   | 92,648 |   |

 

*The accompanying notes are an integral part of theseconsolidated financial statements*.

 

5

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# **UbiquiTel Inc. and Subsidiaries**

# **ConsolidatedStatements of Cash Flows**

**(Unaudited)**

**(InThousands)**

 
| ** **                                                                                | ** ** | **Six Months Ended  June 30, 2005** | ** ** | **Six Months Ended  June 30, 2004** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                | ** ** | ** **                          | ** ** | **(Restated)**                      | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                    |       |                                |       |                                |       |
| Net income  (loss)                                                                        |       | $                                   | 6,836      |                                | $          | (15,463 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |                                |       |                                |       |
| Amortization of  deferred financing costs                                                 |       | 890                                 |       | 742                                 |       |
| Amortization of  debt discount                                                            |       | (62                                 | )          | 556                                 |       |
| Amortization of  intangible assets                                                        |       | 2,152                               |       | 2,152                               |       |
| Depreciation and  accretion                                                               |       | 22,883                              |       | 24,483                              |       |
| Interest accrued  on discount notes                                                       |       | —                              |       | 6,184                               |       |
| Non-cash  compensation from stock options granted to employees                            |       | 1,082                               |       | 226                                 |       |
| Deferred income  taxes                                                                    |       | 133                                 |       | 152                                 |       |
| (Gain) loss on  disposal of equipment                                                     |       | (207                                | )          | 81                                  |       |
| Gain on debt  retirement                                                                  |       | (40                                 | )          | (1,109                              | )          |
| Changes in  operating assets and liabilities exclusive of capital expenditures:           |       |                                |       |                                |       |
| Accounts  receivable                                                                      |       | (6,079                              | )          | (2,552                              | )          |
| Inventory                                                                                 |       | 396                                 |       | (10                                 | )          |
| Prepaid expenses  and other assets                                                        |       | (356                                | )          | (1,279                              | )          |
| Accounts payable  and accrued expenses                                                    |       | (1,021                              | )          | 9,162                               |       |
| Net cash  provided by operating activities                                                |       | 26,607                              |       | 23,325                              |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                    |       |                                |       |                                |       |
| Capital  expenditures                                                                     |       | (30,118                             | )          | (16,405                             | )          |
| Net cash used in  investing activities                                                    |       | (30,118                             | )          | (16,405                             | )          |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                    |       |                                |       |                                |       |
| Proceeds from  issuance of 9.875% senior notes                                            |       | —                              |       | 265,302                             |       |
| Repayments under  senior secured credit facility                                          |       | —                              |       | (230,000                            | )          |
| Repayment of 14%  Series B senior discount notes                                          |       | —                              |       | (12,478                             | )          |
| Purchase of 14%  senior discount notes                                                    |       | (14                                 | )          | (15,872                             | )          |
| Financing costs                                                                           |       | (92                                 | )          | (8,296                              | )          |
| Change in book  cash overdraft                                                            |       | —                              |       | (5,671                              | )          |
| Proceeds from  issuance of common stock                                                   |       | 202                                 |       | 72                                  |       |
| Proceeds from  exercise of stock options                                                  |       | 927                                 |       | 113                                 |       |
| Repayment of  capital lease obligations and other long-term debt                          |       | (111                                | )          | (178                                | )          |
| Repurchase of  common stock                                                               |       | (49                                 | )          | —                              |       |
| Net cash  provided by (used in) financing activities                                      |       | 863                                 |       | (7,008                              | )          |
| NET DECREASE IN  CASH AND CASH EQUIVALENTS                                                |       | (2,648                              | )          | (88                                 | )          |
| CASH AND CASH  EQUIVALENTS, beginning of period                                           |       | 91,781                              |       | 57,225                              |       |
| CASH AND CASH  EQUIVALENTS, end of period                                                 |       | $                                   | 89,133     |                                | $          | 57,137 |   |
| SUPPLEMENTAL  DISCLOSURE OF CASH FLOW INFORMATION:                                        |       |                                |       |                                |       |
| Cash paid for  interest                                                                   |       | $                                   | 20,901     |                                | $          | 3,573 |   |
| Cash paid for  taxes                                                                      |       | 142                                 |       | 25                                  |       |
| SUPPLEMENTAL  DISCLOSURE OF NON-CASH INVESTING ACTIVITY:                                  |       |                                |       |                                |       |
| Network  equipment acquired but not yet paid                                              |       | $                                   | 3,180      |                                | $          | — |   |

 

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

 

6

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**UbiquiTelInc. and Subsidiaries**

# **Notesto Consolidated Financial Statements**

**(Unaudited)**

 

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

 

**Basis of Presentation of Unaudited InterimFinancial Information**

 

The consolidated financial information as of June 30,2005 and for the three and six months ended June 30, 2005 and 2004 isunaudited, but has been prepared in accordance with generally acceptedaccounting principles for interim financial information and Article 10 ofRegulation S-X.  Accordingly, they do notinclude all the information and footnotes required annually by generallyaccepted accounting principles.  In theopinion of management, the interim data reflects all adjustments necessary fora fair statement of the Company’s results for the periods presented.  Operating results for the three and sixmonths ended June 30, 2005 are not necessarily indicative of results that maybe expected for the entire year.  Thisfinancial information should be read in conjunction with the auditedconsolidated financial statements and notes thereto for the year ended December31, 2004 of UbiquiTel which are included in its and Operating Company’s JointAnnual Report on Form 10-K for the year ended December 31, 2004.

 

**Principles of Consolidation and Use of Estimates**

 

The accompanying financialstatements include the accounts of UbiquiTel Inc. and its subsidiaries (seeNote 2).  All significant intercompanybalances and transactions have been eliminated. Certain prior year amounts have been reclassified to conform withcurrent year presentation.

 

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

 

**Restatementsof Prior Years’ Financial Statements**

 

As previously reported in UbiquiTel’s and OperatingCompany’s Joint Annual Report on Form 10-K for the year ended December 31,2004, the Company reviewed its accounting practices with respect to leasetransactions. As a result of this review and in consultation with the auditcommittee of UbiquiTel’s board of directors, UbiquiTel determined that it wasappropriate to restate its consolidated financial statements for the yearsended December 31, 2000 through December 31, 2003 and the nine months endedSeptember 30, 2004.  The Company did notamend its previously filed Annual Reports on Form 10-K or Quarterly Reports onForm 10-Q for the restatement, and the financial statements and relatedfinancial information contained in such reports should no longer be reliedupon.  Historically, when accounting fortower leases with renewal options, the Company recorded rent expense on astraight-line basis over the initial non-cancelable lease term, excluding anypotential renewal periods. The restatements recognized rent expense on astraight-line basis over the lease term (as defined in Statement of FinancialAccounting Standards No. 13, “Accounting for Leases,” as amended) of theCompany’s tower leases. Cell site assets associated with such leased towers aredepreciated over the shorter of the assets’ useful lives or the leaseterm.  These restatements resulted fromthe correction of accounting errors and were not attributable to any materialnon-compliance by the Company with any financial reporting requirements underthe federal securities laws. Amounts for prior periods presented in thesefinancial statements and the notes thereto reflect applicable balances andamounts on a restated basis.

 

7

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As a result of these restatements, certain previouslyreported amounts in the consolidated statements of operations for the three andsix months ended June 30, 2004 and consolidated balance sheet as of June 30,2004 have been restated in the following tables:

 
| ** **                                           | ** ** | **Three Months  Ended June 30, 2004**      | ** ** |
|------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                           | ** ** | **(In  thousands, except per share data)** | ** ** |
| ** **                                           | ** ** | **As  Originally  Reported**               | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
|                                                 |       |                                       |       |   |   |   |   |
| Cost of service and operations                       |       | $                                          | 41,995     |   | $ | 35 |   | $ | 42,030 |   |
| Total costs and expenses                             |       | 85,208                                     |       | 35 |   | 85,243 |   |
| Operating income                                     |       | 3,473                                      |       | (35 | ) | 3,438 |   |
| Loss before income taxes                             |       | (6,757                                     | )          | (35 | ) | (6,792 | ) |
| Net loss                                             |       | (6,837                                     | )          | (35 | ) | (6,872 | ) |
| Basic and diluted net loss per share of common stock |       | $                                          | (0.07      | ) | $ | (0.00 | ) | $ | (0.07 | ) |

 
| ** **                                           | ** ** | **Six Months  Ended June 30, 2004**        | ** ** |
|------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                           | ** ** | **(In  thousands, except per share data)** | ** ** |
| ** **                                           | ** ** | **As  Originally  Reported**               | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
|                                                 |       |                                       |       |   |   |   |   |
| Cost of service and operations                       |       | $                                          | 81,100     |   | $ | 68 |   | $ | 81,168 |   |
| Total costs and expenses                             |       | 167,818                                    |       | 68 |   | 167,886 |   |
| Operating income                                     |       | 2,173                                      |       | (68 | ) | 2,105 |   |
| Loss before income taxes                             |       | (15,243                                    | )          | (68 | ) | (15,311 | ) |
| Net loss                                             |       | (15,395                                    | )          | (68 | ) | (15,463 | ) |
| Basic and diluted net loss per share of common stock |       | $                                          | (0.17      | ) | $ | (0.00 | ) | $ | (0.17 | ) |

 
| ** **                      | ** ** | **As of June  30, 2004**     | ** ** |
|---------------------------------|------------|------------------------------|------------|
| ** **                      | ** ** | **(In  thousands)**          | ** ** |
| ** **                      | ** ** | **As  Originally  Reported** | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| Other long-term liabilities     |       | $                            | 9,393      |   | $ | 1,449 |   | $ | 10,842 |   |
| Total liabilities               |       | 470,196                      |       | 1,449 |   | 471,645 |   |
| Accumulated deficit             |       | (297,176                     | )          | (1,449 | ) | (298,625 | ) |
| Total stockholders’ equity |       | 3,236                        |       | (1,449 | ) | 1,787 |   |
|                                 |            |                              |            |  |  |  |  |  |  |  |

 

The amounts reflected in cost of service andoperations, as originally reported, included Sprint PCS management fee expensereclassified from general and administrative expenses totaling approximately$5.1 and $10.0 million for the three and six months ended June 30, 2004,respectively.

 

# **Recent AccountingPronouncements**

 

In March 2005, the Financial Accounting StandardsBoard (“FASB”) issued Interpretation Number 47, “Accounting for ConditionalAsset Retirement Obligations, an interpretation of FASB Statement No. 143” (“FIN47”).  FIN 47 clarifies the term “conditionalasset retirement obligation”**asused in Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accountingfor Asset Retirement Obligations,” and also clarifies when an entity would havesufficient information to reasonably estimate the fair value of an asset retirement.  FIN 47 is effective no later than the end offiscal years ending after December 15, 2005. The Company does not anticipate that the implementation of FIN 47 willhave a material impact on its consolidated financial position, results ofoperations or cash flows.

 

In December 2004, the FASB issued SFAS No. 123(revised 2004), “Share-Based Payments” (“SFAS No.

 

8

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123R”). SFAS No. 123R requires the recognition of the cost of employeeservices received in exchange for an award of equity instruments in thefinancial statements and measurement based on the grant-date fair value of theaward. It requires the cost to be recognized over the period during which anemployee is required to provide service in exchange for the award.  Additionally, compensation expense will berecognized over the remaining employee service period for the outstandingportion of any awards for which compensation expense had not been previouslyrecognized or disclosed under SFAS No. 123, “Accounting for Stock-BasedCompensation” (“SFAS No. 123”).  SFAS No.123R replaces SFAS No. 123 and supersedes Accounting Principles Board (“APB”)Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), andits related interpretations.

 

SFAS No. 123R was originally required to be adopted bythe Company beginning no later than the third quarter of 2005.  However, in April 2005, the Securities andExchange Commission announced the adoption of a new rule that amends thecompliance dates for SFAS No. 123R. Accordingly, the Company is required to adopt SFAS No. 123R no laterthan January 1, 2006.  The Company iscurrently assessing the timing and impact of adopting SFAS No. 123R.

 

In May 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections” (“SFAS No. 154”), which replaces APB Opinion No.20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes inInterim Financial Statements-An Amendment of APB Opinion No. 28.” SFAS No. 154provides guidance on the accounting for and reporting of accounting changes anderror corrections. It establishes retrospective application, or the latestpracticable date, as the required method for accounting for and reporting achange in accounting principle and a correction of an error. SFAS No. 154 iseffective for accounting changes and corrections of errors made in fiscal yearsbeginning after December 15, 2005 and is required to be adopted by the Companyno later than January 1, 2006.  TheCompany is currently evaluating the effect that the adoption of SFAS No. 154will have on its consolidated financial position, results of operations or cashflows but does not expect it to have a material impact.

 

# **Stock-Based Compensation**

# ** **

At June 30, 2005, UbiquiTel had two stock-based employeecompensation plans, an employee stock purchase plan and an equity incentiveplan.  The Company accounts for the plansin accordance with APB No. 25 and related interpretations.

 

In May 2002, 1,220,800 options previously issuedto employees and board members under the Company’s equity incentive plan weremodified to reduce the exercise price to $4.00, which was approximately $2.14per share above the fair market value on the date of modification.  The modification reducing the exercise priceresulted in variable accounting for these options from the date of modificationto the date the options are exercised, forfeited or expire unexercised.  Under variable accounting, non-cashcompensation expense is recognized for increases or decreases in the amount bywhich the fair market value of UbiquiTel’s common stock exceeds the exerciseprice of the modified options.  Non-cashcompensation expense totaled approximately $1.6 million and $0.2 million forthe three months ended June 30, 2005 and 2004, respectively, and approximately$1.1 million and $0.2 million for the six months ended June 30, 2005 and 2004,respectively.

 

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

 

9

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| ** **                                                                                                             | ** ** | **Three Months Ended June 30,**              | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                                                             | ** ** | **2005**                                     | ** ** | **2004**                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                             | ** ** | ** **                                   | ** ** | **(Restated)**                | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| ** **                                                                                                             | ** ** | **(In Thousands, Except Per Share Amounts)** | ** ** |
| ** **                                                                                                             | ** ** | ** **                                   | ** ** |
| Net income  (loss), as reported                                                                                        |       | $                                            | 4,384      |                          | $          | (6,872 | ) | $ | 6,836 |   | $ | (15,463 | ) |
| Add: stock-based  employee compensation included in reported net income (loss), net of related  tax                    |       | 1,603                                        |       | 226                           |       | 1,082 |   | 226 |   |
| Deduct: total  stock-based employee compensation expense determined under fair value-based  method, net of related tax |       | (447                                         | )          | (755                          | )          | (897 | ) | (1,119 | ) |
| Pro forma net  income (loss)                                                                                           |       | $                                            | 5,540      |                          | $          | (7,401 | ) | $ | 7,021 |   | $ | (16,356 | ) |
|                                                                                                                   |       |                                         |       |                          |       |   |   |   |   |
| Basic net income  (loss) per share:                                                                                    |       |                                         |       |                          |       |   |   |   |   |
| As reported                                                                                                            |       | $                                            | 0.05       |                          | $          | (0.07 | ) | $ | 0.07 |   | $ | (0.17 | ) |
| Pro forma                                                                                                              |       | $                                            | 0.06       |                          | $          | (0.08 | ) | $ | 0.08 |   | $ | (0.18 | ) |
|                                                                                                                   |       |                                         |       |                          |       |   |   |   |   |
| Diluted net  income (loss) per share:                                                                                  |       |                                         |       |                          |       |   |   |   |   |
| As reported                                                                                                            |       | $                                            | 0.04       |                          | $          | (0.07 | ) | $ | 0.07 |   | $ | (0.17 | ) |
| Pro forma                                                                                                              |       | $                                            | 0.06       |                          | $          | (0.08 | ) | $ | 0.07 |   | $ | (0.18 | ) |

 

**2. ORGANIZATION AND NATURE OF BUSINESS**

 

**Organization and Nature of Business**

 

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

 

In October 1998,UbiquiTel L.L.C. (a Washington state limited liability company) entered into amanagement agreement with Sprint PCS for the exclusive rights to market Sprint’s100% digital, 100% PCS products and services to the residents in theReno/Tahoe, Nevada market. UbiquiTel L.L.C. had no financial transactions fromits inception (August 24, 1998) to September 29, 1999.  On September 29, 1999,UbiquiTel Inc. (formerly, UbiquiTel Holdings, Inc.) was incorporatedin Delaware. In November 1999, UbiquiTel L.L.C. assigned all of itsmaterial contracts including the rights to the Sprint PCS agreements toUbiquiTel Inc.  On November 9,1999, UbiquiTel Operating Company (a Delaware corporation, formerly a Delawarelimited liability company) (“Operating Company”), was formed to serve as theoperating company for UbiquiTel Inc. Also, on March 17, 2000, UbiquiTel Leasing Company (a Delawarecorporation) was formed to serve as the leasing company for UbiquiTel Inc.UbiquiTel Inc. assigned the Sprint PCS agreements to Operating Companyfollowing its formation. On December 28, 1999, UbiquiTel amended itsmanagement agreement with Sprint PCS to expand its markets to include northernCalifornia, Spokane/Montana, southern Idaho/Utah/Nevada and southernIndiana/Kentucky/Tennessee. On February 21, 2001, in connection withUbiquiTel’s acquisition of VIA Wireless LLC, UbiquiTel amended its managementagreement with Sprint PCS to expand its markets effective at the closing inAugust 2001 to include the six VIA Wireless Basic Trading Areas covering the central valley ofCalifornia market.  OnAugust 13, 2001, upon the closing of the merger agreement, VIA Wirelessbecame a wholly owned subsidiary of Operating Company and was later merged intoOperating Company in June 2003.  OnJuly 31, 2003, Operating Company amended its management agreement withSprint PCS to eliminate the obligation to build out the state of Montana,thereby reducing its licensed resident population in its markets toapproximately 10.8 million.

 

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

 

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**3. BASIC AND DILUTED NET INCOME(LOSS) PER SHARE**

 

The Company computes net income (loss) per commonshare in accordance with SFAS No. 128, “Earnings per Share” (“SFAS No. 128”).  In accordance with SFAS No. 128, incrementalpotential common shares from stock options and warrants are excluded in thecalculation of diluted net income (loss) per share when the effect would beantidilutive.

 

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

 
| ** **                                                    | ** ** | **Three Months Ended June 30,**              | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------|------------|-------------------------------|------------|
| ** **                                                    | ** ** | **2005**                                     | ** ** | **2004**                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                    | ** ** | ** **                                   | ** ** | **(Restated)**                | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| ** **                                                    | ** ** | **(In Thousands, Except Per Share Amounts)** | ** ** |
| Basic                                                         |       |                                         |       |                          |       |   |   |   |   |
| Net income  (loss)                                            |       | $                                            | 4,384      |                          | $          | (6,872 | ) | $ | 6,836 |   | $ | (15,463 | ) |
| Weighted average  common shares outstanding                   |       | 93,319                                       |       | 92,717                        |       | 93,212 |   | 92,648 |   |
| Net income  (loss) per share                                  |       | $                                            | 0.05       |                          | $          | (0.07 | ) | $ | 0.07 |   | $ | (0.17 | ) |
|                                                          |       |                                         |       |                          |       |   |   |   |   |
| Diluted                                                       |       |                                         |       |                          |       |   |   |   |   |
| Net income  (loss)                                            |       | $                                            | 4,384      |                          | $          | (6,872 | ) | $ | 6,836 |   | $ | (15,463 | ) |
|                                                          |       |                                         |       |                          |       |   |   |   |   |
| Weighted average  common shares outstanding                   |       | 93,319                                       |       | 92,717                        |       | 93,212 |   | 92,648 |   |
| Effect of:                                                    |       |                                         |       |                          |       |   |   |   |   |
| Dilutive options                                              |       | 5,501                                        |       | —                        |       | 5,468 |   | — |   |
| Weighted average  common shares outstanding assuming dilution |       | 98,820                                       |       | 92,717                        |       | 98,680 |   | 92,648 |   |
| Net income  (loss) per share                                  |       | $                                            | 0.04       |                          | $          | (0.07 | ) | $ | 0.07 |   | $ | (0.17 | ) |

 

The following table summarizes the securities that areexcluded from the net income (loss) per share calculation, as amounts wouldhave an antidilutive effect.

 
| ** **    | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------|------------|---------------------------------|------------|-------------------------------|------------|
| ** **    | ** ** | **2005**                        | ** ** | **2004**                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Stock options |       | 774,600                         |       | 7,963,625                     |       | 774,600 |   | 7,963,625 |   |
| Warrants      |       | 3,665,183                       |       | 3,665,183                     |       | 3,665,183 |   | 3,665,183 |   |
| Total         |       | 4,439,783                       |       | 11,628,808                    |       | 4,439,783 |   | 11,628,808 |   |

 

**4. PROPERTY AND EQUIPMENT**

 

Property and equipmentconsisted of the following:

 
| ** **                       | ** ** | **June 30, 2005**  | ** ** | **December 31, 2004** | ** ** |
|----------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **(In Thousands)** | ** ** |
| Network  equipment               |       | $                  | 369,890    |                  | $          | 347,746 |   |
| Vehicles                         |       | 1,570              |       | 1,508                 |       |
| Furniture and  office equipment  |       | 5,411              |       | 5,211                 |       |
| Computer  equipment and software |       | 10,019             |       | 8,548                 |       |
| Leasehold  improvements          |       | 4,880              |       | 4,403                 |       |
| Land                             |       | 130                |       | 130                   |       |
| Buildings                        |       | 4,670              |       | 4,670                 |       |
|                             |       | 396,570            |       | 372,216               |       |
| Accumulated  depreciation        |       | (143,859           | )          | (128,537              | )          |
| Property and  equipment, net     |       | $                  | 252,711    |                  | $          | 243,679 |   |

 

 

Depreciation expense wasapproximately $11.7 million and $12.7 million for the three months ended June30,

 

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2005 and 2004,respectively, and approximately $22.8 million and $24.5 million for the sixmonths ended June 30, 2005 and 2004, respectively.

 

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

 

Long-term debt outstanding was as follows:

 
| ** **                                                                          | ** ** | **June 30, 2005**  | ** ** | **December 31, 2004** | ** ** |
|-------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                          | ** ** | **(In Thousands)** | ** ** |
| 9.875% senior  notes                                                                |       | $                  | 420,000    |                  | $          | 420,000 |   |
| Plus: premium                                                                       |       | 772                |       | 834                   |       |
| 14% senior  discount notes                                                          |       | 3⁄4             |       | 32                    |       |
| Less: discount                                                                      |       | 3⁄4             |       | (2                    | )          |
| Building  mortgage                                                                  |       | 3,118              |       | 3,228                 |       |
| Subtotal                                                                            |       | 423,890            |       | 424,092               |       |
| Future cash  flows associated with 14% senior discount notes for interest and other |       | 3⁄4             |       | 24                    |       |
| Total long-term  debt                                                               |       | 423,890            |       | 424,116               |       |
| Less: current  maturities                                                           |       | 231                |       | 223                   |       |
| Total long-term  debt, excluding current maturities                                 |       | $                  | 423,659    |                  | $          | 423,893 |   |

 

# **Notes**

 

In April 2000,Operating Company issued in a private placement $300.0 million aggregateprincipal amount of 14% senior subordinated discount notes due April 15,2010 (the “14% Subordinated Notes”) that were accreting in value until April15, 2005 with interest payable semiannually beginning on October 15, 2005.  The 14% Subordinated Notes were subsequently registeredunder the Securities Act of 1933, as amended. All outstanding 14% SubordinatedNotes were purchased by the Company in a series of transactions in 2003 and2004.

 

In February 2003, Operating Company consummatedcertain private placement transactions to reduce its long-term debtoutstanding, including an exchange of $48.2 million aggregate principalamount of 14% senior discount notes due May 15, 2010 (“14% Senior Notes”)and $9.6 million in cash for $192.7 million aggregate principalamount of its outstanding 14% Subordinated Notes, and a related financing of$12.8 million aggregate principal amount of 14% Series B seniordiscount notes due 2008 (“14% Series B Senior Notes”) and detachablewarrants for UbiquiTel’s common stock in which Operating Company received cashproceeds of $9.6 million to fund the cash portion of the exchange.  The 14% Senior Notes were accreting in valueuntil April 15, 2005 with interest payable semiannually beginning on October 15,2005. The 14% Senior Notes were subsequently registered under the SecuritiesAct.  The 14% Series B Senior Notes wereaccreting in value until April 15, 2005 with interest payable semiannuallybeginning on October 15, 2005. Operating Company issued an additionalapproximately $1.7 million aggregate principal amount of 14% Series B SeniorNotes in a series of financings in 2003. All but approximately $32,000 aggregate principal amount of outstanding14% Senior Notes were purchased by the Company and all outstanding 14% Series BSenior Notes were redeemed by the Company in a series of refinancingtransactions in 2004.

 

The Company followed theprovisions of SFAS No. 15, “Accounting by Debtors and Creditors forTroubled Debt Restructurings,” and Emerging Issues Task Force IssueNo. 02-04, “Determining Whether a Debtor’s Modification or Exchange ofDebt Instruments Is Within the Scope of FASB Statement No. 15,” inrecording the 2003 private placement exchange transaction.  These provisions required that the carryingvalue of the 14% Senior Notes be recorded at the total future cash payments(principal and interest) specified by the 14% Senior Notes; therefore, the 14%Senior Notes were classified on the Company’s balance sheet as long-termliabilities. As a result, no interest expense related to the 14% Senior Noteswas recognized in future periods.

 

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In February 2004, Operating Company issued in aprivate placement $270.0 million in aggregate principal amount of 9.875% seniornotes due March 1, 2011 (“9.875% Senior Notes”).  The 9.875% Senior Notes were issued at adiscount and generated approximately $265.3 million in proceeds.  The 9.875% Senior Notes were subsequentlyregistered under the Securities Act. Interest on the 9.875% Senior Notes becamepayable semiannually beginning on September 1, 2004.  The 9.875% Senior Notes are redeemable inwhole or in part on or after March 1, 2007. Prior to March 1, 2007, OperatingCompany may redeem up to 35% of the aggregate principal amount of the 9.875%Senior Notes with net cash proceeds of a sale of its equity or a contributionto its common equity capital, provided that at least 65% of the principalamount of 9.875% Senior Notes originally issued under the indenture remainsoutstanding after giving effect to such redemption and such redemption occurswithin 45 days of the date of such sale of equity interests orcontribution.  The indenture governingthe 9.875% Senior Notes contains customary covenants, including covenants limitingindebtedness, dividends and distributions on, and redemptions and repurchasesof, capital stock and other similar payments, the acquisition and dispositionof assets, and transactions with affiliates or related persons.  The indenture governing the 9.875% SeniorNotes provides for customary events of default, including cross defaults,judgment defaults and events of bankruptcy. Operating Company is permitted toissue additional 9.875% Senior Notes under the indenture from time to time.

 

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

 

In October 2004, Operating Company completed afinancing of an additional $150.0 million aggregate principal amount of 9.875%Senior Notes in a private placement at a price of 103.5% generating cashproceeds of approximately $155.3 million. These 9.875% Senior Notes are of the same class as the previouslyoutstanding $270.0 million aggregate principal amount of 9.875% Senior Notesand were subsequently registered under the Securities Act. Operating Companyused approximately $139.3 million of these cash proceeds to fund a cash tenderoffer and consent solicitation for its outstanding 14% Subordinated Notes and14% Senior Notes.  Approximately $100.4million aggregate principal amount of 14% Subordinated Notes, representing allof the then outstanding 14% Subordinated Notes, and approximately $31.4 millionaggregate principal amount of 14% Senior Notes were validly tendered andaccepted.  At December 31, 2004, therewere approximately $32,000 aggregate principal amount of 14% Senior Notes thatremained outstanding, which were redeemed in full by Operating Company in April2005.

 

The $420.0 million aggregate principal amount of9.875% Senior Notes outstanding as of June 30, 2005 will require cash paymentsof interest of $41.5 million in each of the years 2005 (of which approximately$20.7 million was paid on March 1, 2005) through 2011.

 

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

 

13

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The Company may from timeto time purchase outstanding 9.875% Senior Notes in the open market, inprivately negotiated transactions or otherwise in accordance with its debtinstruments and applicable law.

 

**Building Mortgage**

 

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

 

**6.**** WHOLLY-OWNED OPERATING SUBSIDIARY**

 

UbiquiTel has fully and unconditionally guaranteedOperating Company’s obligations under the 9.875% Senior Notes (seeNote 5).  UbiquiTel has noindependent assets or operations separate from its investment in OperatingCompany. UbiquiTel Leasing Company is a minor subsidiary.

 

**7.  SUBSEQUENT EVENT**

 

On December 15, 2004, Sprint Corporation and NextelCommunications, Inc. (“Nextel”) announced that they had entered into adefinitive agreement for a merger of equals. Nextel currently operates a wireless mobility communications network incertain territories in which the Company also provides digital wirelessmobility communications network services under the Sprint or affiliated brands.On July 13, 2005, Sprint Corporation and Nextel announced they had receivedshareholder approvals of their planned merger. Sprint Corporation announced onAugust 3, 2005 that the merger has received necessary regulatory approvals andis expected to be completed in August 2005.

 

The Company believes that, based on currentlyavailable information, and assuming that no changes are effected with respectto Sprint’s agreements with the Company, Sprint would be in violation of theexclusivity and confidentiality provisions of the parties’ management agreementat some point following completion of the Sprint-Nextel merger due to theoverlap between certain of the Company’s and Nextel’s territories and otheroperational aspects of Nextel’s wireless business following completion of themerger. The management agreement provides that the Company may seek specificperformance from Sprint to prevent breaches of the agreement.  The management agreement also provides theCompany with the option of electing alternative remedies in the event of amaterial breach by Sprint of such agreement.

 

The Company has had numerous discussions with Sprintregarding the potential impact on the Company of the pending Sprint-Nextelmerger, but to date has been unable to reach terms with Sprint with respect tomodified or new agreements that would encompass the post-merger operations ofSprint-Nextel in the Company’s territories.

 

On July 12, 2005, UbiquiTel Inc. and UbiquiTelOperating Company filed a Complaint (the “Complaint”) against SprintCorporation, Sprint Spectrum L.P., Wirelessco, L.P., Sprint CommunicationsCompany L.P., Sprint Telephony PCS, L.P., Sprint PCS License, L.L.C.(collectively, “Sprint”), and Nextel in the Delaware Chancery Court.  The Complaint alleges that, following theconsummation of the anticipated merger between Sprint Corporation and Nextel,Sprint will breach the exclusivity provisions of the management agreement andthat Nextel improperly interfered with the Company’s exclusive rights under themanagement agreement.  The Complaintfurther alleges that Sprint and Nextel conspired to deprive the Company of theexclusivity commitments in the management agreement and to use the Company’sconfidential business information to advantage Nextel’s business, which isdirectly competitive with UbiquiTel.  TheComplaint seeks, among other things, a court order requiring Sprint and Nextelto comply with the exclusivity provisions of the management agreement andprohibiting Sprint and Nextel from violating those provisions.  A copy of the Complaint was filed as Exhibit99.1 to UbiquiTel Inc.’s Current Report on Form 8-K dated July 12, 2005 filedwith the Securities and Exchange Commission.

 

On July 29, 2005, the Company entered into aforbearance agreement with Sprint relating to the ongoing

 

14

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litigation.  The forbearanceagreement sets forth the Company’s agreement not to seek certain injunctive orequitable relief in the ongoing litigation under certain circumstances andcontemplates the parties proceeding directly to a trial scheduled to beginDecember 19, 2005 relating to the Company’s request for a permanent injunctionand other relief.  The agreement alsosets forth Sprint’s agreement as to certain parameters for the operations ofNextel’s wireless business in the territories operated by the Company followingthe merger involving Sprint Corporation and Nextel, in each case during theperiod of time that the agreement remains in effect.  A copy of the forbearance agreement was filedas Exhibit 99.1 to UbiquiTel Inc.’s Current Report on Form 8-K dated July 29,2005 filed with the Securities and Exchange Commission.

 

The Company is in discussions with Sprint to reachmutually agreeable arrangements with respect to these matters. However, therecan be no assurances that the Company and Sprint will be able to reach mutuallybeneficial arrangements or as to the terms of any such arrangements or thepotential impact on the Company’s operations or the value of the Company’sbusiness of any such arrangements. There can be no assurance that if theCompany and Sprint fail to reach mutually beneficial arrangements, the Companywill have a successful outcome in the pending litigation with respect to itsclaims against Sprint to enforce specific contractual rights and its claimsagainst Sprint and Nextel seeking damages for specified injuries. Furthermore,the Company cannot currently assess the potential impact of the Sprint-Nextelbusiness combination on Sprint’s competitiveness in the wireless industry oneither a short-term or long-term basis.

 

15

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**Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

**Forward-Looking Statements**

 

This Joint Quarterly Report on Form 10-Q includesforward-looking statements that involve known and unknown risks, uncertaintiesand other factors.  Our actual resultscould differ materially from the results anticipated in these forward-lookingstatements.  Risk factors that couldcause actual results to differ from those contained in the forward-lookingstatements include, but are not limited to:

 

•                                          UbiquiTel’sdependence on its affiliation with Sprint;

 

•                                          thepotential impact of the pending Sprint-Nextel merger on UbiquiTel’s affiliationwith Sprint as well as Sprint’s competitiveness in the wireless industry;

 

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

 

•                                          changesin Sprint’s affiliation strategy as a result of the pending Sprint-Nextelmerger or any other merger involving Sprint;

 

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

 

•                                          increasedcompetition in UbiquiTel’s markets;

 

•                                          ratesof penetration in the wireless communications industry;

 

•                                          thepotential to experience a high rate of customer turnover;

 

•                                          customerquality;

 

•                                          potentialdeclines in roaming and wholesale revenue;

 

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

 

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

 

•                                          UbiquiTel’sdebt level;

 

•                                          adequacyof bad debt and other reserves;

 

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

 

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

 

•                                          changesin population;

 

•                                          changesor advances in technology;

 

•                                          effectsof mergers and consolidations within the wireless communications industry andunexpected

 

16

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announcements ordevelopments from others in the wireless communications industry; and

 

•                                          generaleconomic and business conditions.

 

These and other applicable risks are described underthe caption “Business3⁄4Risk Factors” andelsewhere in UbiquiTel’s and Operating Company’s Joint Annual Report on Form10-K for the fiscal year ended December 31, 2004 filed with the Securities andExchange Commission, and under the caption “Liquidity and Capital Resources” inthis Item 2 and elsewhere in this Joint Quarterly Report on Form 10-Q,including in Note 7 (Subsequent Event) to the Notes to Consolidated FinancialStatements in Part 1, Item 1, of this report. Investors are referred toUbiquiTel’s and Operating Company’s subsequent filings with the Securities andExchange Commission for other risk factors. We assume no obligation to publicly update or revise any forward-lookingstatement made in this report, whether as a result of new information, futureevents, changes in assumptions or otherwise, after the date of thisreport.  All written or oralforward-looking statements attributable to us are expressly qualified in theirentirety by these cautionary statements.

 

**Use of Certain Terms**

 

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

 

### **Overview**

 

UbiquiTel Inc. and Subsidiaries (“UbiquiTel” orthe “Company”) was formed for the purpose of becoming the exclusive provider ofSprint Personal Communications Services (“PCS”) in certain defined midsizemarkets in the western and midwestern United States.

 

In October 1998, UbiquiTel L.L.C. entered into amanagement agreement with Sprint PCS for the exclusive rights to market Sprint’s100% digital, 100% PCS products and services to the residents in theReno/Tahoe, Nevada market. UbiquiTel L.L.C. had no financial transactions fromits inception (August 24, 1998) to September 29, 1999. OnSeptember 29, 1999, UbiquiTel Inc. (formerly, UbiquiTelHoldings, Inc.) was incorporated in Delaware. In November 1999,UbiquiTel L.L.C. assigned all of its material contracts including the rights tothe Sprint PCS agreements to UbiquiTel Inc.  On November 9, 1999, UbiquiTel OperatingCompany (“Operating Company”) was formed to serve as the operating company forUbiquiTel Inc. Also, on March 17, 2000, UbiquiTel Leasing Company wasformed to serve as the leasing company for UbiquiTel Inc.UbiquiTel Inc. assigned the Sprint PCS agreements to Operating Companyfollowing its formation.  OnDecember 28, 1999, we amended our management agreement with Sprint PCS toexpand our markets to include northern California, Spokane/Montana, southernIdaho/Utah/Nevada and southern Indiana/Kentucky/Tennessee.  On February 21, 2001, in connection withour acquisition of VIA Wireless LLC, we amended our management agreement withSprint PCS to expand our markets effective at the closing in August 2001to include the six VIA Wireless Basic Trading Areas covering the central valleyof California market.  On August 13,2001, upon the closing of the merger agreement, VIA Wireless became a whollyowned subsidiary of Operating Company and was later merged into OperatingCompany in June 2003. On July 31, 2003, we amended our managementagreement with Sprint PCS to eliminate the obligation to build out the state ofMontana, thereby reducing our licensed resident population in our markets toapproximately 10.8 million.  SeeNote 7 (Subsequent Event) to the unaudited consolidated financial statementsincluded in this report with respect to Sprint’s proposed merger with NextelCommunications, Inc. and our litigation with Sprint and Nextel related to themerger.

 

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As of June 30, 2005, we had approximately 423,600subscribers excluding resellers and approximately 120,600 reseller subscribers,for a total subscriber base of approximately 544,200.  As of June 30, 2005, our network coveredapproximately 8.3 million residents, which represented approximately 77% of thelicensed population in our markets.

 

As a PCS affiliate of Sprint, we do not own thelicenses to operate our network and instead pay Sprint for, among other things,the use of its licenses.  Under ourmanagement agreement with Sprint PCS, Sprint is entitled to receive 8.0% ofbilled revenue from Sprint PCS subscribers based in our markets less currentperiod bad debts, net of bad debt recoveries, from Sprint PCS subscribers basedin our markets and fees from wireless service providers other than Sprint PCSwhen their subscribers roam into our network. We are entitled to 100% of revenues collected from the sale of handsetsand accessories from our stores and on roaming revenues received when SprintPCS customers from a different territory make a wireless call on our PCSnetwork and outbound non-Sprint PCS roaming billed to subscribers based in ourmarkets.  We are responsible forbuilding, owning and managing the portion of the PCS network located in ourmarkets under the Sprint brand name.  Ourresults of operations are dependent on Sprint PCS’ network and, to a lesserextent, on the networks of other PCS affiliates of Sprint.

 

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

 

**CriticalAccounting Policies and Estimates**

 

The preparation of our consolidated financialstatements requires us to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenues and expenses, and related disclosuresof contingent liabilities.  The methods,estimates and judgments we use in applying our accounting policies have asignificant impact on the results we report in our consolidated financialstatements. Some of our accounting policies require us to make subjectivejudgments, often as a result of the need to make estimates of matters that areinherently uncertain. On an ongoing basis, we evaluate our estimates,including, but not limited to, those related to long-lived assets, goodwill,lease transactions, property and equipment, bad debt, inventory valuation,income taxes, deferred revenue and contingencies.  We base our estimates on historical experienceand on various other assumptions we believe to be reasonable under thecircumstances, the results of which form the basis for making judgments aboutthe carrying values of assets and liabilities that are not readily apparentfrom other sources.  Actual results maydiffer from these estimates under different assumptions or conditions.  Some of the most critical accountingpolicies, including those that require a significant amount of estimation orjudgment in their application, include:

 

***Revenue Recognition:***

 

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

 

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

 

Roaming and wholesalerevenue includes reseller revenue, Sprint PCS travel revenue and non-Sprint PCSroaming revenue.  We record Sprint PCStravel revenue on a per minute rate for voice services and on a per kilobitrate for data services when Sprint PCS subscribers based outside our marketsuse our network.  We record non-SprintPCS roaming revenue when non-Sprint PCS subscribers use our network.  We record reseller revenue when resellersubscribers use our network.  Minutes andkilobytes are sold at wholesale rates.

 

Equipment revenueconsists of proceeds from sales of handsets and accessories, which are recordedat the time of sale.  Revenues from salesof handsets and accessories represent a separate earnings process from servicerevenues because sales of handsets and accessories do not require customers tosubscribe to wireless services. Equipment revenue also includes an allocationof the arrangement consideration from activation revenue received as part ofrevenue arrangements with multiple deliverables.

 

We participate in theSprint national and regional distribution programs in which national retailerssuch as RadioShack, Best Buy and Costco sell Sprint PCS products andservices.  In order to facilitate thesale of Sprint PCS products and services, national retailers purchase wirelesshandsets from Sprint for resale and receive compensation from Sprint for SprintPCS products and services sold.  Forindustry competitive reasons, Sprint subsidizes the price of these handsets byselling the handsets at a price below cost. Under our Sprint PCS agreements,when a national retailer sells a handset purchased from Sprint to a subscriberin our markets, we are obligated to reimburse Sprint for the handset subsidy.  We do not receive any revenues from sales ofhandsets and accessories by national retailers. For a new subscriber activationand a handset upgrade to an existing subscriber, we include these handsetsubsidy charges in cost of products sold in the consolidated statements ofoperations.

 

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

 

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

 

**Reservefor Obsolete/Excess Inventory**—We record a reserve forobsolete or excess handset and accessories inventory for models and accessoriesthat are no longer manufactured and defective models and accessories that havebeen returned by customers.  If theestimate of obsolete inventory is understated, our operating income would bereduced.

 

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

 

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

 

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

 

Intangible assets consist of the unamortized cost of aSprint PCS management agreement acquired in a business combination.  Intangible assets are amortized over theirestimated useful life.  As of December31, 2004, the remaining useful life of the acquired Sprint PCS managementagreement was approximately 15 years. If there was a reduction in the usefullife of this asset, our operating income would be reduced.

 

***Lease Transactions:***

 

We lease office space, retail stores, land for radiocommunications sites, leased space on radio communications sites and officeequipment under operating leases.  Ouraccounting for an operating lease transaction as of the lease’s inceptioninvolves judgments in determining the number of lease renewal periods to beincluded in the lease term, in addition to the initial non-cancelable term,used in recognizing rent expense on a straight-line basis.  This judgment considers various factors thatwe would consider at the time of opting to renew such leases, particularlywhether any nonrenewal could result in an economic detriment to us or theforgoing of an economic benefit available to us.  Additionally, the lease term can impact the determinationof the period over which depreciable assets associated with operating leasesare depreciated.

 

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

 

***Income Taxes:***

 

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

 

***Sprint Charges and Payments:***

 

We review all charges and payments from Sprint anddispute items if appropriate based upon our interpretation of our agreementswith Sprint and we record estimates primarily based on our historical trendsand our

 

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estimate of the amount which we believe we will remit to or receivefrom Sprint after the disputed item or items have been settled.

 

# **Recent AccountingPronouncements**

 

In March 2005, the Financial Accounting StandardsBoard (“FASB”) issued Interpretation Number 47, “Accounting for ConditionalAsset Retirement Obligations, an interpretation of FASB Statement No. 143” (“FIN47”).  FIN 47 clarifies the term “conditionalasset retirement obligation”**asused in SFAS No. 143, “Accounting for Asset Retirement Obligations,” and alsoclarifies when an entity would have sufficient information to reasonablyestimate the fair value of an asset retirement. FIN 47 is effective no later than the end of fiscal years ending afterDecember 15, 2005.  We do not anticipatethat the implementation of FIN 47 will have a material impact on ourconsolidated financial position, results of operations or cash flows.

 

In December 2004, the FASB issued SFAS No. 123(revised 2004), “Share-Based Payments” (“SFAS No. 123R”).  SFAS No. 123R requires the recognition of thecost of employee services received in exchange for an award of equityinstruments in the financial statements and measurement based on the grant-datefair value of the award. It requires the cost to be recognized over the periodduring which an employee is required to provide service in exchange for theaward.  Additionally, compensationexpense will be recognized over the remaining employee service period for theoutstanding portion of any awards for which compensation expense had not beenpreviously recognized or disclosed under SFAS No. 123, “Accounting forStock-Based Compensation” (“SFAS No. 123”). SFAS No. 123R replaces SFAS No. 123 and supersedes Accounting PrinciplesBoard (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APBNo. 25”), and its related interpretations.

 

SFAS No. 123R was originally required to be adopted byus beginning no later than the third quarter of 2005. However, in April 2005,the Securities and Exchange Commission announced the adoption of a new rulethat amends the compliance dates for SFAS No. 123R.  Accordingly, we are required to adopt SFASNo. 123R no later than January 1, 2006. We are currently assessing the timing and impact of adopting SFAS No.123R.

 

In May 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections” (“SFAS No. 154”), which replaces APB Opinion No.20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes inInterim Financial Statements-An Amendment of APB Opinion No. 28.” SFAS No. 154provides guidance on the accounting for and reporting of accounting changes anderror corrections. It establishes retrospective application, or the latestpracticable date, as the required method for accounting for and reporting achange in accounting principle and a correction of an error. SFAS No. 154 iseffective for accounting changes and corrections of errors made in fiscal yearsbeginning after December 15, 2005, and we are required to adopt SFAS No. 154 nolater than January 1, 2006.  We arecurrently evaluating the effect that the adoption of SFAS No. 154 will have onour consolidated financial position, results of operations or cash flows but donot expect it to have a material impact.

 

**Results of Operations**

 

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

 

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

 

***Customer Net Additions***

 

As of June 30, 2005, weprovided personal communications services to approximately 423,600 customerscompared to approximately 365,900 customers as of June 30, 2004.  As of April 1, 2005, we reclassifiedapproximately 3,900 customers to reseller subscribers.  During the three months ended June 30, 2005,we added 14,600 net new subscribers compared to 16,900 net new subscribers forthe three months ended June 30, 2004. The decrease was primarily attributable to slower than anticipated grosscustomer additions partially offset by lower churn.

 

# ***Churn***

 

Churn is the monthly rate of customer turnoverexpressed as the percentage of customers of the beginning customer base thatboth voluntarily and involuntarily discontinued service during the period.  Churn is computed by dividing the number ofcustomers that discontinued service during the month, net of 30 day returns, bythe beginning customer base for the period. Churn for the three months ended June 30, 2005 was approximately 2.3%compared to approximately 2.7% for the three months ended June 30, 2004.  Involuntary churn declined 0.1% due to theeffect of tighter credit policies in certain markets over the past twelvemonths.  Voluntary churn declined 0.3%due to an increased percentage of our customer base on two-year contracts andservice plans with lower overage charges. We expect churn to marginally increase in the near term due toseasonality.

 

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

 

Average revenue per user(ARPU) summarizes the average monthly subscriber revenue per customer.  ARPU is computed by dividing subscriberrevenue by the average subscribers for the period. During the three monthsended June 30, 2005 and 2004, our ARPU was approximately $56 and $58,respectively.  Voice ARPU declined $4primarily as a result of increased penetration of customers on fair andflexible and family plans and promotional credits, partially offset by anincrease in data ARPU of $2.  We expectARPU to trend between $55 and $56 throughout 2005.

 

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

 

Cost per gross addition(CPGA) summarizes the average cost to acquire new customers during the period.CPGA is computed by adding the statement of operations components of sellingand marketing expense and the cost of products sold, and reducing that amountby the equipment revenue recorded.  Thenet result of these components is then divided by the gross customers acquiredduring the period. CPGA was approximately $517 for the three months ended June30, 2005 compared to CPGA of approximately $471 for the three months ended June30, 2004. The increase in CPGA was primarily due to increased advertisingexpenses and fixed costs spread over lower gross additions.  We expect CPGA to decline marginally in thesecond half of 2005.

 

***Revenues***

 

•                  *Subscriber Revenue*. Subscriber revenue during the three months ended June 30, 2005 and 2004was approximately $69.9 million and $62.0 million, respectively.  Subscriber revenue consists of monthlyrecurring service charges for voice and data usage and monthly non-recurringcharges for local, long distance, travel and roaming airtime usage and datausage in excess of the pre-subscribed usage plan amount received from oursubscribers, cancellation and late fee revenues and surcharges, less reductionsfor billing adjustments and billing corrections.  Our customers’ charges are dependent on theirrate plans, based on the number of minutes and data usage included in theirplans.  The increase in subscriberrevenue was

 

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attributable to theeffect of the increase in our subscriber base of approximately $9.8 millionoffset by the effect of the decrease in our average revenue per user (ARPU) ofapproximately $1.9 million.

 

•                  *Roamingand Wholesale Revenue.* Roaming and wholesale revenue consists ofSprint PCS travel revenue, non-Sprint PCS roaming revenue and resellerrevenue.  Travel revenue is generated ona per minute rate for voice services or on a per kilobit rate for data serviceswhen a Sprint PCS subscriber based outside our markets uses our network.  An additional long distance rate per minuteis generated when that customer initiates a call from our network to calloutside the local calling area. Non-Sprint PCS roaming revenue is generated when a non-Sprint PCSsubscriber uses our network.  Resellerrevenue is generated when a reseller subscriber uses our PCS network.  We have reseller programs with severalcompanies, including Virgin Mobile USA and Qwest Communications.

 

Roaming and wholesale revenue during the three monthsended June 30, 2005 and 2004 was approximately $31.6 million and $23.5 million,respectively.  The increase in roamingand wholesale revenue was due to increases in Sprint PCS travel revenues forvoice and data services of approximately $4.2 million and $1.2 million,respectively, and an increase in reseller revenue of approximately $4.3 millionoffset by a decrease in non-Sprint PCS roaming revenue of approximately $1.6million.  The increase in Sprint PCStravel revenue was primarily due to increases in travel minutes of use and datausage of approximately 27% and 64%, respectively.  The increase in reseller revenue was due toincreases in reseller minutes of use primarily from a full quarter of Qwest resellerrevenue in 2005 as compared to a partial quarter of such revenue in 2004.  The decrease in non-Sprint PCS roamingrevenue was primarily due to reductions in roaming minutes of use and theroaming rates we receive of approximately $1.2 million and $0.4 million,respectively, both of which were primarily related to roaming activity with asignificant roaming partner of Sprint.

 

We expect the growth rate for Sprint PCS travelminutes and kilobytes in 2005 to remain stable relative to the growth rates duringthe first half of 2005.  During theremaining two quarters of 2005, we expect non-Sprint PCS roaming revenue andreseller revenue to stabilize sequentially as compared to the revenue recordedfor the three months ended June 30, 2005.

 

•                  *Equipment Revenue*. Equipment revenue is generated from the sale of handsets and accessoriesand is recorded at the time of sale.  Werecord and retain 100% of the revenue from the sale of handsets andaccessories, net of rebates, discounts and other sales incentives, as equipmentrevenue.  The amounts recorded during thethree months ended June 30, 2005 and 2004 from equipment revenue totaledapproximately $4.7 million and $3.2 million, respectively.  The increase was primarily due to sales ofcertain promotional products to a third party vendor totaling approximately$1.5 million.

 

***Cost of Service and Operations***

 

•*                  NetworkOperations Expenses*.  Networkoperations expenses include radio communications site lease costs, utilities,network control maintenance, network control site leases, engineeringpersonnel, transport facilities and interconnection charges, and totaledapproximately $16.0 million during the three months ended June 30, 2005compared to approximately $15.6 million during the three months ended June 30,2004.

 

•                  *Travel and Roaming Expenses*.  We pay Sprint PCS travel fees on a per minuterate for voice services or on a per kilobit rate for data services when ourcustomers use the Sprint PCS network outside our markets and we incuradditional long distance fees when our customers call long distance originatingin a Sprint PCS or PCS affiliate of Sprint territory.  We also pay roaming fees to other wirelessproviders when our customers use their network. Travel and roaming expense totaled approximately $14.0 million and $11.8million for the three months ended June 30, 2005 and 2004, respectively.  The increase in travel and roaming expenseswas primarily due to an increase in Sprint PCS travel expense for voiceservices resulting primarily from an

 

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increase in oursubscriber base.

 

•                  *Bad Debt Expense.*  Bad debt expense during the three monthsended June 30, 2005 and 2004 was approximately $0.6 million and $1.4 million,respectively.  The decrease in bad debt expensewas primarily attributable to the improvement in the credit quality of ourcustomer base and the improvement in involuntary churn.

 

•                  *Sprint Operating Expenses. *Sprintoperating expenses during the three months ended June 30, 2005 and 2004 wereapproximately $14.6 million and $13.2 million, respectively. Sprint operatingexpenses included Sprint PCS management fee expense and other fees we paid toSprint PCS for the use of its support services, including billing andcollections services and customer care. For the three months ended June 30, 2004, Sprint PCS management feeexpense of approximately $5.1 million was reclassified from general andadministrative expenses to cost of service and operations in the consolidatedstatements of operations to conform with current year presentation.  The increase in Sprint operating expenses wasprimarily attributable to the effect of the increase in our subscriber base ofapproximately $2.0 million, offset by savings of approximately $0.6 millionfrom service fee reductions related to 2004 amendments to our Sprintagreements.

 

***Cost of Products Sold***

 

The cost of products sold includes the costs ofhandsets and accessories and totaled approximately $9.9 million and $8.9million during the three months ended June 30, 2005 and 2004,respectively.  The cost of handsetsgenerally exceeds the sales price because we subsidize the cost of handsets tosubscribers, consistent with industry practice. Handset subsidies on units sold by third parties totaled approximately$1.7 million and $2.9 million for the three months ended June 30, 2005 and2004, respectively.  The increase in costof products sold was primarily due to the cost of certain promotional productssold to a third party vendor totaling approximately $1.7 million partiallyoffset by the effect of the decrease in customer gross additions.

 

***Selling and Marketing***

 

Selling and marketing expenses relate to ourdistribution channels, sales representatives, sales support personnel, retailstores, advertising programs and commissions. We incurred selling and marketing expenses of approximately $16.9million and $15.9 million during the three months ended June 30, 2005 and 2004,respectively. The increase in selling and marketing expenses was primarilyattributable to an increase in advertising expenses.

 

***General and Administrative***

 

Weincurred general and administrative expenses totaling approximately $5.0million and $4.5 million during the three months ended June 30, 2005 and 2004,respectively.  For the threemonths ended June 30, 2004, Sprint PCS management fee expense of approximately$5.1 million was reclassified from general and administrative expenses to costof service and operations in the consolidated statements of operations toconform with current year presentation.

 

***Non-CashCompensation***

 

During the three months ended June 30, 2005 and 2004,non-cash compensation expense totaled approximately $1.6 million and $0.2million, respectively

 

We apply the provisions of APB No. 25 and relatedinterpretations in accounting for our equity incentive plan.  In May 2002, we modified 1,220,800options previously issued to employees and board members under our

 

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equity incentive plan to reduce the exercise price to$4.00, which was approximately $2.14 per share above the fair market value onthe date of modification.  Themodification reducing the exercise price resulted in variable accounting forthese options from the date of modification to the date the options areexercised, forfeited or expire unexercised. The increase in non-cash compensation expense was due to a largerincrease in the fair market value of our common stock which resulted in ahigher expense under variable accounting.

 

***Depreciation, Amortization and Accretion***

 

Depreciation, amortization and accretion expense forthe three months ended June 30, 2005 and 2004 totaled approximately $12.9million and $13.7 million, respectively. We depreciate our property and equipment using the straight-line methodover two to 10 years.  A building ownedby us is being depreciated using the straight-line method over 30 years.  Amortization of intangible assets with finiteuseful lives is over 18 years.  Accretionexpense increases the asset retirement obligation associated with our towerleases, switch site and retail and administrative locations to its presentvalue.  The decrease in depreciation,amortization and accretion expense was primarily due to the impact ofaccelerated depreciation of our minicell base stations totaling approximately$2.4 million for the three months ended June 30, 2004 compared to approximately$0.2 million for the three months ended June 30, 2005.  The decrease was partially offset byincreases in depreciation expense resulting primarily from network equipmentadditions.

 

***Interest Income***

 

For the three months ended June 30, 2005 and 2004,interest income was approximately $0.6 million and $0.1 million,respectively.  Interest income wasgenerated from cash and cash equivalents and increased as a result ofmaintaining higher average cash balances and earning more interest due tohigher interest rates as compared to the same period in 2004.

 

***Interest Expense***

 

Interest expense totaled approximately $10.9 millionand $10.4 million during the three months ended June 30, 2005 and 2004,respectively.  Interest is accrued on ournotes on a per annum basis at the stated interest rate.  The increase in interest expense resultedprimarily from the effect of higher average debt levels of approximately $1.7million partially offset by the effect of the interest rate reduction throughrefinancing of our senior notes during 2004 of approximately $1.0 million.

 

Interest expense also included the amortized amount ofdeferred financing fees relating to various note offerings and our formersenior secured credit facility prior to any retirements of such debt.

 

***Gain on Debt Retirement***

 

During the three monthsended June 30, 2005, we redeemed the remaining $32,000 aggregate principalamount of 14% senior discount notes due May 15, 2010 (“14% Senior Notes”),thereby reducing the carrying value of the future cash payments associated withthe 14% Senior Notes to zero.  A gain ondebt retirement of approximately $40,000 was recognized.

 

***Income Taxes***

 

For the three months ended June 30, 2005 and 2004, werecognized income tax expense of approximately $124,000 and $80,000,respectively.  Income tax expense wascomprised primarily of deferred income taxes that resulted from an expectedincome tax deduction for amortization of goodwill, which is not amortizable toexpense for financial reporting purposes.

 

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***Net Income (Loss)***

 

For the three months ended June 30, 2005, our netincome was approximately $4.4 million and for the three months ended June 30,2004, our net loss was approximately $(6.9) million.

 

### **Analysis of thesix months ended June 30, 2005 compared to the six months ended June 30, 2004**

 

***Customer Net Additions***

 

During the six monthsended June 30, 2005, we added 29,000 net new subscribers compared to 38,200 netnew subscribers for the six months ended June 30, 2004.  The decrease was primarily attributable toslower than anticipated gross customer additions.  As of April 1, 2005, we reclassifiedapproximately 3,900 customers to reseller subscribers.

 

# ***Churn***

 

Churn for the six months ended June 30, 2005 wasapproximately 2.5% compared to approximately 2.9% for the six months ended June30, 2004.  Involuntary churn declined0.2% due to the effect of tighter credit policies in certain markets over thepast twelve months.  Voluntary churndeclined 0.2% due to an increased percentage of our customer base on two-yearcontracts and service plans with lower overage charges.

 

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

 

During the six monthsended June 30, 2005 and 2004, our ARPU was approximately $56 and $57,respectively.  Voice ARPU declined $3primarily as a result of increased penetration of customers on fair andflexible and family plans and promotional credits, partially offset by anincrease in data ARPU of $2.

 

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

 

CPGA was approximately$507 for the six months ended June 30, 2005 compared to CPGA of approximately$447 for the six months ended June 30, 2004. The increase in CPGA was primarily due to higher handset upgrade costsof approximately $10 per gross addition, the effect of increased handsetpromotion and subsidy costs of approximately $8 per gross addition, and theeffect of higher fixed costs spread over lower customer gross additions ofapproximately $40.

 

***Revenues***

 

•                       *Subscriber Revenue*. Subscriber revenue during the six months ended June 30, 2005 and 2004was approximately $136.8 million and $118.5 million, respectively.  The increase in subscriber revenue wasprimarily attributable to the effect of the increase in our subscriber base ofapproximately $20.7 million offset by the effect of the decrease in our averagerevenue per user (ARPU) of approximately $2.4 million.

 

•                       *Roaming and Wholesale Revenue*.  Roaming and wholesale revenue during the sixmonths ended June 30, 2005 and 2004 was approximately $61.2 million and $44.4million, respectively.  The increase inroaming and wholesale revenue was due to increases in Sprint PCS travelrevenues for voice and data services of approximately $8.1 million and $2.1million, respectively, and an increase in reseller revenue of approximately$8.4 million offset by a decrease in non-Sprint PCS roaming revenue of

 

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approximately $1.8million.  The increase in Sprint PCStravel revenue was primarily due to increases in travel minutes of use and datausage of 28% and 66%, respectively.  Theincrease in reseller revenue was due to a full six months of Qwest resellerrevenue in 2005 as compared to a partial quarter of such revenue in 2004.  The decrease in non-Sprint PCS roamingrevenue was primarily due to reductions in roaming minutes of use and theroaming rates we receive of approximately $1.0 million and $0.8 million,respectively, both of which were primarily related to roaming activity with asignificant roaming partner of Sprint.

 

•                       *Equipment Revenue*. Equipment revenue recorded during the six months ended June 30, 2005 and2004 totaled approximately $8.1 million and $7.1 million, respectively.  The increase was primarily due to sales ofcertain promotional products to a third party vendor totaling approximately$1.5 million, offset by lower customer gross additions in our controlled salesdistribution network.

 

***Cost of Service andOperations***

 

•                  *Network Operations Expenses*. Network operations expenses totaled approximately $32.5 millionduring the six months ended June 30, 2005 compared to approximately$31.1 million during the six months ended June 30, 2004.  The increase was primarily due to the effectof an increase in interconnection charges resulting from increased minutes ofuse of approximately $0.7 million and an increase in radio communications sitelease expense of approximately $0.6 million resulting from additional radiocommunications sites.

 

•                  *Travel and Roaming Expenses*.  Travel and roaming expense totaledapproximately $26.5 million and $22.3 million for the six months ended June 30,2005 and 2004, respectively.  Theincrease in travel and roaming expenses was primarily due to an increase inSprint PCS travel expense for voice services resulting primarily from anincrease in our subscriber base.

 

•                  *Bad Debt Expense.*  Bad debt expense during the six months endedJune 30, 2005 and 2004 was approximately $1.6 million and $2.2 million,respectively.  The decrease in bad debtexpense was primarily attributable to the improvement in the credit quality ofour customer base and lower customer write-offs.

 

•                  *Sprint Operating Expenses*.  Sprint operatingexpenses during the six months ended June 30, 2005 and 2004 were approximately$28.6 million and $25.6 million, respectively. For the six months ended June 30, 2004, Sprint PCS management feeexpense of approximately $10.0 million was reclassified from general andadministrative expenses to cost of service and operations in the consolidatedstatements of operations to conform with current year presentation.  The increase in Sprint operating expenses wasprimarily attributable to the effect of the increase in our subscriber base ofapproximately $4.3 million, offset by savings of approximately $1.3 millionfrom service fee reductions related to 2004 amendments to our Sprintagreements.

 

***Cost of Products Sold***

 

Cost of products sold totaled approximately $20.3million and $18.1 million during the six months ended June 30, 2005 and 2004,respectively.  Handset subsidies on unitssold by third parties totaled approximately $4.6 million and $5.7 million forthe six months ended June 30, 2005 and 2004, respectively.  The increase in cost of products sold wasprimarily due to the cost of certain promotional products sold to a third partyvendor totaling approximately $1.7 million, a $1.0 million increase resultingfrom sales of more expensive handset models, and a $0.4 million increaseresulting from a write-down of inventory to market value, partially offset bythe effect of the decrease in customer gross additions of approximately $1.5million.

 

27

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***Selling and Marketing***

 

We incurred selling and marketing expenses ofapproximately $32.8 million during each of the six months ended June 30, 2005and 2004.

 

***General andAdministrative***

 

We incurred general andadministrative expenses totaling approximately $9.9 million and $8.9 millionduring the six months ended June 30, 2005 and 2004, respectively.  For the six months ended June 30, 2004,Sprint PCS management fee expense of approximately $10.0 million wasreclassified from general and administrative expenses to cost of service andoperations in the consolidated statements of operations to conform with currentyear presentation.  The increase ingeneral and administrative expenses was primarily due to increases incompensation and benefit, charitable contributions and legal expenses.

 

***Non-CashCompensation***

 

During the six months ended June 30, 2005 and 2004,non-cash compensation expense totaled approximately $1.1 million and $0.2million, respectively.  The increase innon-cash compensation expense was due to a larger increase in the fair marketvalue of our common stock which resulted in a higher expense under variableaccounting.

 

***Depreciation, Amortization and Accretion***

 

Depreciation, amortization and accretion expense forthe six months ended June 30, 2005 and 2004 totaled approximately $25.0 millionand $26.6 million, respectively.  Thedecrease in depreciation, amortization and accretion expense was primarily dueto the impact of accelerated depreciation of our minicell base stationstotaling approximately $4.7 million for the six months ended June 30, 2004compared to approximately $0.4 million for the six months ended June 30,2005.  The decrease was partially offsetby increases in depreciation expense resulting primarily from network equipmentadditions.

 

***Interest Income***

 

For the six months ended June 30, 2005 and 2004,interest income was approximately $1.1 million and $0.3 million,respectively.  Interest income increasedas a result of maintaining higher average cash balances and earning moreinterest due to higher interest rates as compared to the same period in 2004.

 

***Interest Expense***

 

Interest expense totaled approximately $21.8 millionand $18.8 million during the six months ended June 30, 2005 and 2004,respectively.  The increase in interestexpense resulted primarily from the effect of higher average debt levels duringthe first six months of 2005 as compared to the same period in 2004.

 

Interest expense also included the amortized amount ofdeferred financing fees relating to our senior secured credit facility andvarious note offerings, prior to any retirements of such debt.

 

***Gain on Debt Retirement***

 

During the first quarterof 2004, Operating Company issued $270.0 million aggregate principal amount of9.875% senior notes due March 1, 2011 (the “9.875% Senior Notes”), in atransaction exempt from the registration

 

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requirements of theSecurities Act of 1933, as amended.  The9.875% Senior Notes were issued at a discount and generated approximately$265.3 million in proceeds.  Theproceeds were used to repay and terminate Operating Company’s senior securedcredit facility, including the repayment of $230.0 million in outstandingborrowings plus accrued interest and termination of its unused$47.7 million revolving line of credit, to redeem all of its outstanding14% Series B senior discount notes due 2008 (“14% Series B SeniorNotes”) ($14.5 million outstanding principal amount) for approximately$12.5 million, and to purchase $16.7 million principal amount of itsoutstanding 14% Senior Notes for approximately $15.9 million.  The repayments of the senior secured creditfacility and the 14% Series B Senior Notes and the purchase of the 14% SeniorNotes resulted in a net gain on debt retirements of approximately $1.1 million,consisting of a loss on the purchase of the 14% Senior Notes of approximately$1.6 million, the write-off of deferred financing fees related to the seniorsecured credit facility and the 14% Series B Senior Notes of approximately $7.7million, the write-off of unamortized debt discount for detachable warrantsassociated with the 14% Series B Senior Notes of approximately $3.6million and costs of approximately $0.1 million related to the termination ofthe senior secured credit facility, net of a gain of approximately $14.1million recognized on the reduction in carrying value of the future cashpayments associated with the purchased 14% Senior Notes.

 

During the six months ended June 30, 2005, we redeemedthe remaining $32,000 aggregate principal amount of 14% Senior Notes, therebyreducing the carrying value of the future cash payments associated with the 14%Senior Notes to zero.  A gain on debtretirement of approximately $40,000 was recognized.

 

***Income Taxes***

 

For the six months endedJune 30, 2005 and 2004, we recognized income tax expense of approximately $0.3million and $0.2 million, respectively. Income tax expense was comprised primarily of deferred income taxes thatresulted from an expected income tax deduction for amortization of goodwill,which is not amortizable to expense for financial reporting purposes.

 

***Net Income (Loss)***

 

For the six months ended June 30, 2005, our net incomewas approximately $6.8 million and for the six months ended June 30, 2004, ournet loss was approximately $(15.5) million. We recognized a gain on debt retirement of approximately $1.1 millionfor the six months ended June 30, 2004.

 

**Liquidity and Capital Resources**

 

From inception through December 31, 2002, weprincipally relied on the proceeds from equity and debt financings, and to alesser extent revenues, as our primary sources of capital. In 2003 and 2004, wegenerated cash flow from operating activities of approximately $14.5 millionand $55.4 million, respectively.  For thesix months ended June 30, 2005, we generated cash flow from operatingactivities of approximately $26.6 million.

 

Although we substantially completed our contractuallyrequired network coverage build-out in 2002, our business could requireadditional capital expenditures for capacity enhancements and coverageimprovements.  Capital expenditures forthe years ended December 31, 2003 and 2004 and for the six months ended June30, 2005 totaled approximately $25.9 million, $27.0 million and $30.1 million,respectively.  Since 2003, we have fundedand expect to fund all of our future capital expenditures through cash flowsfrom operating activities, cash and cash equivalent balances.

 

In February 2005, we announced a network coverageexpansion, which is expected to cost approximately $13 million and is expectedto be completed in 2006.  As part of thisexpansion, we entered into an agreement with an equipment vendor to acquirenetwork equipment.  The agreementprovides for a minimum purchase commitment of

 

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$18 million in each of the years 2005 through 2008 for all networkequipment and performance services that we purchase.

 

In mid-2004, Sprint announced its intention to deploythe next generation of CDMA technology known as EV-DO in a substantial portionof its network.  EV-DO technology isexpected to generate higher network data speeds and allow the introduction ofnew data products and features.  WhileSprint has not required the implementation of EV-DO by us or its other PCSaffiliates, we began deploying EV-DO in selected markets in the third quarter of2005 and expect to upgrade approximately half of our covered population toEV-DO by the end of 2006 at an estimated cost of $13 million.

 

On February 23, 2004, Operating Company issued $270.0million aggregate principal amount of the 9.875% Senior Notes at a discountgenerating approximately $265.3 million in proceeds, and on October 14,2004, Operating Company issued an additional $150.0 million aggregate principalamount of 9.875% Senior Notes of the same class at a price of 103.5% generatingcash proceeds of approximately $155.3 million, in transactions exempt from theregistration requirements of the Securities Act.  The 9.875% Senior Notes were subsequentlyregistered under the Securities Act. UbiquiTel has fully and unconditionallyguaranteed Operating Company’s obligations under the 9.875% Senior Notes.  The proceeds from these offerings in 2004were used to repay and terminate Operating Company’s senior secured creditfacility, to redeem all of its outstanding 14% Series B Senior Notes, torepurchase all of its outstanding 14% senior subordinated discount notes due2010 and to repurchase all but approximately $32,000 aggregate principal amountof 14% Senior Notes, which were subsequently redeemed in full by OperatingCompany in April 2005.

 

Under the indenture governing the 9.875% Senior Notes,Operating Company is permitted to issue additional notes from time to time.Prior to March 1, 2007, Operating Company may redeem up to 35% of the aggregateprincipal amount of the 9.875% Senior Notes with net cash proceeds of a sale ofits equity or a contribution to its common equity capital, provided that atleast 65% of the principal amount of 9.875% Senior Notes originally issuedunder the indenture remains outstanding after giving effect to such redemptionand such redemption occurs within 45 days of the date of such sale of equityinterests or contribution.  We do nothave any current plans to sell equity interests of Operating Company or makeany capital contributions to its common equity capital and, as such, do notcurrently anticipate exercising this optional redemption right.

 

The $420.0 millionaggregate principal amount of 9.875% Senior Notes outstanding as of June 30,2005 will require cash payments of interest of $41.5 million in each of theyears 2005 (of which approximately $20.7 million was paid on March 1, 2005)through 2011.  We presently are incompliance with all covenants in the indenture associated with the 9.875%Senior Notes.  We may from time to timepurchase outstanding 9.875% Senior Notes and/or shares of UbiquiTel commonstock in the open market, in privately negotiated transactions or otherwise inaccordance with our debt agreements and applicable law.

 

As of June 30, 2005, wehad approximately $82.8 million of working capital, including $89.1 million incash and cash equivalents.  Managementexpects cash and cash equivalents, combined with cash flow from operatingactivities, to be sufficient to meet capital expenditures needs and servicedebt requirements through June 30, 2006 and into the foreseeable future.

 

While management does not anticipate the need to raiseadditional capital to meet our operating or capital expenditure requirements inthe foreseeable future, our funding status is dependent on a number of factorsinfluencing projections of operating cash flows, including those related togross new customer additions, customer turnover, revenues, marketing costs, baddebt expense and roaming and reseller revenue. Management believes our financial position will be sufficient to meetthe cash requirements of the business including capital expenditures, cashinterest and working capital needs.  Wefrom time to time evaluate options for additional financings to supplement ourliquidity position and maintain maximum financial flexibility.  However, if actual results differsignificantly from these assumptions, our liquidity position could be adverselyaffected and we could be in a position

 

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that would require us to raise additional capital, which may not beavailable or may not be available on acceptable terms.

 

***Analysis of Cash Flows***

 

A significant portion of our revenues is generatedfrom customers who subscribe to PCS service from us or Sprint on contracts thatrange from one to two years.  Our cashflow from operating activities will fluctuate with the size of our subscriberbase and indirectly from the size of Sprint’s subscriber base and the recurringsubscriber and roaming revenue streams generated from these customers.  We expect cash flow from operating activitieswill continue to grow for the remainder of 2005 and in future periods as oursubscriber base continues to grow.

 

Net cash provided byoperating activities was approximately $26.6 million and $23.3 million for thesix months ended June 30, 2005 and 2004, respectively.  The increase in cash provided by operatingactivities was primarily due to the increase in operating income ofapproximately $25.6 million partially offset by the increase in cash paid forinterest of approximately $17.3 million.

 

Net cash used in investing activities wasapproximately $30.1 million and $16.4 million for the six months ended June 30,2005 and 2004, respectively.  Theincrease resulted primarily from higher capital expenditures for base stationsfor network coverage expansion and EVDO deployment.

 

Net cash provided by financing activities for the sixmonths ended June 30, 2005 was approximately $0.9 million, consisting primarilyof proceeds from the exercise of stock options.  Netcash used in financing activities for the six months ended June 30, 2004 wasapproximately $7.0 million, consisting primarily of the reduction in a bookcash overdraft of approximately $5.7 million and $1.0 million in net paymentsrelating to refinancing transactions that were completed in 2004.

 

***Reconciliation of non-GAAP financial measures***

 

We utilize certainfinancial measures that are not calculated in accordance with accountingprinciples generally accepted in the United States, or GAAP, to assess ourfinancial performance.  A non-GAAPfinancial measure is defined as a numerical measure of a company’s financialperformance that (a) excludes amounts, or is subject to adjustments thathave the effect of excluding amounts, that are included in the comparablemeasure calculated and presented in accordance with GAAP in the statement ofincome or statement of cash flows; or (b) includes amounts, or is subjectto adjustments that have the effect of including amounts, that are excludedfrom the comparable GAAP measure so calculated and presented.  The non-GAAP financial measures discussed in “—Resultsof Operations” are average revenue per user (ARPU) and cost per gross addition(CPGA).  Descriptions of these non-GAAPfinancial measures are provided where the particular measures are discussed in “—Resultsof Operations—Analysis of the three months ended June 30, 2005 compared to thethree months ended June 30, 2004,” and the following tables reconcile thenon-GAAP financial measures with our unaudited consolidated financial statementspresented in accordance with GAAP (excluding subscriber data).

 
| ** **                          | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| **Average revenue per user (ARPU)** | ** ** | **2005**                        | ** ** | **2004**                      | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                |       |                            |       |                          |       |   |   |   |   |
| Subscriber  revenue                 |       | $                               | 69,895,000 |                          | $          | 61,974,000 |   | $ | 136,787,000 |   | $ | 118,545,000 |   |
|                                |       |                            |       |                          |       |   |   |   |   |
| Average  subscribers                |       | 416,200                         |       | 357,800                       |       | 410,300 |   | 348,100 |   |
|                                |       |                            |       |                          |       |   |   |   |   |
| ARPU                                |       | $                               | 56         |                          | $          | 58 |   | $ | 56 |   | $ | 57 |   |

 

We believe ARPU, which calculates the average monthlyservice revenue per customer, is a useful measure

 

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to assist in evaluating our past and forecasting ourfuture subscriber revenue.  In addition,it provides a gauge to compare our subscriber revenue to that of other wirelesscommunications providers, although other wireless communications providers mayinclude or exclude certain items from their calculations which may make thecomparison less meaningful.

 
| ** **                         | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| **Cost per gross addition (CPGA)** | ** ** | **2005**                        | ** ** | **2004**                      | ** ** | **2005** | ** ** | **2004** | ** ** |
|                               |       |                            |       |                          |       |   |   |   |   |
| Selling and  marketing             |       | $                               | 16,885,000 |                          | $          | 15,852,000 |   | $ | 32,811,000 |   | $ | 32,829,000 |   |
| Add: Cost of  products sold        |       | 9,922,000                       |       | 8,919,000                     |       | 20,307,000 |   | 18,134,000 |   |
| Less: Equipment  revenue           |       | (4,685,000                      | )          | (3,192,000                    | )          | (8,118,000 | ) | (7,064,000 | ) |
| CPGA costs                         |       | $                               | 22,122,000 |                          | $          | 21,579,000 |   | $ | 45,000,000 |   | $ | 43,899,000 |   |
|                               |       |                            |       |                          |       |   |   |   |   |
| Gross additions                    |       | 42,800                          |       | 45,800                        |       | 88,800 |   | 98,300 |   |
|                               |       |                            |       |                          |       |   |   |   |   |
| CPGA                               |       | $                               | 517        |                          | $          | 471 |   | $ | 507 |   | $ | 447 |   |

 

We believe CPGA, whichmeasures the average cost to acquire new customers during the period, is auseful measure used to compare our average cost to acquire a new subscriber tothat of other wireless communication providers, although other wirelesscommunications providers may include or exclude certain items from theircalculations which may make the comparison less meaningful.  The inclusion of cost of products sold net ofthe equipment revenues earned is critical to our understanding of how much itcosts us to acquire a new customer.

 

***Inflation***

 

We believe that inflation has not had, and will nothave, a material adverse effect on our results of operations.

 

***Seasonality***

 

Our business is seasonal because the wireless industryis dependent on fourth quarter results. Among other things, the industry relies on higher customer additions andhandset sales in the fourth quarter as compared to the other three fiscalquarters.  The factors contributing tothis trend include the increasing use of retail distribution, which isdependent on year-end holiday shopping, the timing of new product and serviceofferings, competitive pricing pressures and aggressive marketing andpromotions during the holiday season. The increased level of activity requires a greater use of our availablefinancial resources during this period.

 

**Item 3.  Quantitative and Qualitative Disclosures AboutMarket Risk**

 

Market risk is the potential loss arising from adversechanges in market prices and rates, including interest rates.  The interest rate on our notes is fixed at9.875%.  We have not entered intoderivatives or other financial instruments for trading, speculative or hedgingpurposes, though we may do so from time to time if such instruments areavailable to us on acceptable terms and prevailing market conditions are accommodating.  No principal repayments on our notes are duewithin the next six years.

 

**Item 4.  Controls and Procedures**

 

**Evaluationof Disclosure Controls and Procedures**

 

Our management, under thesupervision and with the participation of our Chief Executive Officer and ChiefFinancial Officer (who serves as our principal financial and accountingofficer), conducted an evaluation of our “disclosure controls and procedures”(as defined in the Securities Exchange Act of 1934 (“Exchange Act”) Rules

 

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13a-15(e) or 15d-15(e)) as of June 30,2005.  Based on that evaluation, ourChief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective as of June 30, 2005.

 

**Changes in Internal Control Over FinancialReporting**

 

Therewere no changes in our internal control over financial reporting identified inconnection with the evaluation required by paragraph (d) of Exchange Act Rules13a-15 or 15d-15 that occurred during the three months ended June 30, 2005 thathave materially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

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

 

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**PARTII.  OTHER INFORMATION**

 

# **Item 1.  LegalProceedings**

 

On July 12, 2005, UbiquiTel filed a Complaint (the “Complaint”)against Sprint Corporation, Sprint Spectrum L.P., Wirelessco, L.P., SprintCommunications Company L.P., Sprint Telephony PCS, L.P., Sprint PCS License,L.L.C. (collectively, “Sprint”), and Nextel Communications, Inc. (“Nextel”) inthe Delaware Chancery Court.  TheComplaint alleges that, following the consummation of the anticipated mergerbetween Sprint Corporation and Nextel, Sprint will breach the exclusivityprovisions of the Management Agreement dated October 15, 1998 between UbiquiTeland Sprint (as amended, the “Management Agreement”) and that Nextel improperlyinterfered with UbiquiTel’s exclusive rights under the ManagementAgreement.  The Complaint further allegesthat Sprint and Nextel conspired to deprive UbiquiTel of the exclusivitycommitments in the Management Agreement and to use UbiquiTel’s confidentialbusiness information to advantage Nextel’s business, which is directlycompetitive with UbiquiTel.  TheComplaint seeks, among other things, a court order requiring Sprint and Nextelto comply with the exclusivity provisions of the Management Agreement and prohibitingSprint and Nextel from violating those provisions.  A copy of the Complaint was filed as Exhibit99.1 to UbiquiTel’s Current Report on Form 8-K dated July 12, 2005 filed withthe Securities and Exchange Commission. On July 29, 2005, UbiquiTel entered into a forbearance agreement withSprint relating to the ongoing litigation. The forbearance agreement sets forth UbiquiTel’s agreement not to seekcertain injunctive or equitable relief in the ongoing litigation under certaincircumstances and contemplates the parties proceeding directly to a trialrelating to UbiquiTel’s request for a permanent injunction and otherrelief.  The agreement also sets forthSprint’s agreement as to certain parameters for the operations of Nextel’swireless business in the territories operated by UbiquiTel following the mergerinvolving Sprint Corporation and Nextel Communications, Inc., in each caseduring the period of time that the agreement remains in effect.  A copy of the forbearance agreement was filedas Exhibit 99.1 to UbiquiTel’s Current Report on Form 8-K dated July 29, 2005filed with the Securities and Exchange Commission.  See Note 7 (Subsequent Events) to the Notesto Consolidated Financial Statements in Part 1, Item 1, of this Joint QuarterlyReport on Form 10-Q with respect to the litigation and related matters betweenUbiquiTel and Sprint regarding the pending Sprint-Nextel merger.

 

**Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds**

 

UbiquiTel’s Amended andRestated 2000 Equity Incentive Plan permits an optionholder to tender theexercise price for stock options in shares of UbiquiTel common stock held bythe optionholder.  In the quarter endedJune 30, 2005, UbiquiTel received the shares of common stock set forth in thefollowing table that were tendered by an optionholder as consideration for theexercise price in connection with the exercise of stock options, whichtransaction is deemed to be a repurchase of common stock by UbiquiTel; suchshares were retired effective as of their time of repurchase:

 

**ISSUERPURCHASES OF EQUITY SECURITIES**
| **Period**                          | ** ** | **(a) Total Number  of Shares (or  Units)  Purchased** | ** ** | **(b) Average Price  Paid per Share (or  Unit)** | ** ** | **(c) Total Number  of Shares (or  Units) Purchased  as Part of Publicly  Announced Plans  or Programs** | ** ** | **(d) Maximum  Number (or  Approximate Dollar  Value) of Shares (or  Units) that May Yet  Be Purchased Under  the Plans or  Programs** | ** ** |
|-------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------|------------|
| **April 1  through April 30, 2005** |       | —                                                 |       | —                                           |       | —                                                                                                   |       | —                                                                                                                                 |       |
| **May 1  through May 31, 2005**     |       | —                                                 |       | —                                           |       | —                                                                                                   |       | —                                                                                                                                 |       |
| **June 1  through June 30, 2005**   |       | 6,282                                                  |       |                                             | *          | N/A                                                                                                      |       | N/A                                                                                                                                    |       |

 

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* See description inparagraph preceding the table.

 

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**Item 3.  Defaults Upon Senior Securities**

 

None.

 

**Item 4.  Submission of Matters to a Vote of SecurityHolders**

 

UbiquiTel’s 2005 annual meeting ofshareholders was held on May 12, 2005 at its corporateoffices at One West Elm Street, Conshohocken, Pennsylvania to voteon (1) the election of three Class II directors, each for athree-year term ending in 2008 and (2) an amendment to UbiquiTel’s Amendedand Restated 2000 Equity Incentive Plan (the “Plan”) to increase the number ofshares of common stock authorized for issuance under the Planto 9,500,000 from 7,500,000.

 

Proxies for the annual meeting were solicitedpursuant to Regulation 14A under the Securities Exchange Act of 1934, asamended, and there was no solicitation in opposition to UbiquiTel’s solicitation.  The holders of record of an aggregateof 92,402,963 shares of UbiquiTel’s common stock, out of 93,183,785 sharesoutstanding on the record date (April 1, 2005) for the annual meeting, werepresent either in person or by proxy, and constituted a quorum for thetransaction of business at the annual meeting.

 

All nominees for Class II directorwere elected, while the amendment to the Plan was not approved byshareholders, with voting as detailed below:

 

1-Election of Class II Directors:

 
| **Director Nominee** | ** ** | **Votes For** | ** ** | **Votes Against** | ** ** |
|----------------------|------------|---------------|------------|-------------------|------------|
| Matthew J. Boos      |       | 67,404,436    |       | 24,998,527        |       |
| Eve M. Trkla         |       | 85,667,048    |       | 6,735,915         |       |
| Eric S.  Weinstein   |       | 89,820,990    |       | 2,581,973         |       |

 

2-Approval of the Amendment to the Plan:

 
| **Votes For** | ** ** | **Votes Against** | ** ** | **Votes Abstained** | ** ** |
|---------------|------------|-------------------|------------|---------------------|------------|
|          |       |              |       |                |       |
| 45,237,301    |       | 47,160,322        |       | 5,340               |       |

 

**Item 5.  Other Information**

 

None.

 

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

 

**Exhibits:**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                      |
|-----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|
| 31.1            |       | Certification Pursuant to Item 601(b)(31) of  Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002. |
| 31.2            |       | Certification Pursuant to Item 601(b)(31) of  Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002. |

 

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

 

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**SIGNATURES**

 

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

 
|           | CO-REGISTRANTS:             |
|----------------|-----------------------------|
|           |                        |
|           | UBIQUITEL INC.              |
|           | UBIQUITEL OPERATING COMPANY |
|           |                        |
|           |                        |
|           | By:                         |   /s/ DONALD A.  HARRIS |   |
|           |                        |   Donald A.  Harris |
|           |                        |   Chairman of  the Board, President |
|           |                        |   and Chief  Executive Officer |
|           |                        |   (Principal  Executive Officer) |
|           |                        |
|           |                        |
|           | By:                         |   /s/ JAMES J.  VOLK |   |
|           |                        |   James  J. Volk |
|           |                        |   Chief  Financial Officer |
|           |                        |   (Principal  Financial and Accounting Officer) |
|           |                        |
|           |                        |
| August 9, 2005 |                        |
|                |                             |  |  |  |

 

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