Table ofContents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

| **x**      | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                               |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                                                                                                                            |
| ** ** | **For the quarterly period ended  September 30, 2009**                                                                                                                                                                           |
| ** ** | ** **                                                                                                                                                                                                                            |
| ** ** | **Or**                                                                                                                                                                                                                                |
| ** ** | ** **                                                                                                                                                                                                                            |
| **o**      | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                              |
|       |                                                                                                                                                                                                                                  |
| ** ** | **For the transition period  from                to                ** |

 

**CommissionFile Number 000-51844**

 

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**iPCS, INC.**

(Exact name of registrant as specified in itscharter)

 

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

 

**(847)885-2833**

(Registrant’s telephone number, including zipcode)

 

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Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate website, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405of this chapter) during the preceding 12 months (or such shorter periodthat the registrant was required to submit and post such files). Yes o  No o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See the definitions of “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check one):

 

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

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes o  No x

 

As of October 27,2009, there were 16,539,190 shares of common stock, $0.01 par value per share,outstanding.

 

 

 

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Table ofContents

 

**TABLE OF CONTENTS**

 
| PART I    | FINANCIAL INFORMATION                                                                                                    | 3      |
|----------------|--------------------------------------------------------------------------------------------------------------------------|--------|
|           |                                                                                                                     |   |
| ITEM 1.        | FINANCIAL STATEMENTS                                                                                                     | 3      |
|           | CONSOLIDATED  BALANCE SHEETS AS OF SEPTEMBER 30, 2009 AND DECEMBER 31, 2008  (UNAUDITED)                            | 3      |
|           | CONSOLIDATED  STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED  SEPTEMBER 30, 2009 AND 2008 (UNAUDITED) | 4      |
|           | CONSOLIDATED  STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009  AND 2008 (UNAUDITED)           | 5      |
|           | NOTES  TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS                                                                    | 6      |
| ITEM  2.       | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                              | 25     |
| ITEM  3.       | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                              | 46     |
| ITEM  4.       | CONTROLS  AND PROCEDURES                                                                                                 | 46     |
|           |                                                                                                                     |   |
| PART II   | OTHER  INFORMATION                                                                                                       | 46     |
|           |                                                                                                                     |   |
| ITEM 1.        | LEGAL  PROCEEDINGS                                                                                                       | 46     |
| ITEM 1A.       | RISK FACTORS                                                                                                             | 46     |
| ITEM  2.       | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                             | 48     |
| ITEM  3.       | DEFAULTS  UPON SENIOR SECURITIES                                                                                         | 48     |
| ITEM  4.       | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                     | 48     |
| ITEM 5.        | OTHER  INFORMATION                                                                                                       | 48     |
| ITEM 6.        | EXHIBITS                                                                                                                 | 49     |
|           |                                                                                                                     |   |
| SIGNATURES     | 51                                                                                                                       |
|           |                                                                                                                     |   |
| CERTIFICATIONS |                                                                                                                     |

 

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Table ofContents

 

**PART I. FINANCIAL INFORMATION**

 

**Item 1. Financial Statements.**

 

**iPCS, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**(UNAUDITED)**

(In thousands, except share and per share amounts)

 
| ** **                                                                                                                    | ** ** | **September 30,  2009** | ** ** | **December 31,  2008 (a)** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|--------------------------------------|------------|
|                                                                                                                          |       |                         |       |                                 |       |
| **Assets**                                                                                                                    | ** ** | ** **                   | ** ** | ** **                           | ** ** |
| Current Assets:                                                                                                               |       |                         |       |                                 |       |
| Cash and cash equivalents                                                                                                     |       | $                            | 77,092     |                                 | $          | 55,940 |   |
| Accounts receivable, net  of allowance for doubtful accounts of $6,884 and $8,125, respectively                               |       | 44,922                       |       | 37,859                               |       |
| Receivable from Sprint  (Note 3)                                                                                              |       | 29,168                       |       | 25,623                               |       |
| Inventories, net                                                                                                              |       | 6,346                        |       | 5,465                                |       |
| Assets held for sale (Note  4)                                                                                                |       | —                       |       | 389                                  |       |
| Prepaid expenses                                                                                                              |       | 7,653                        |       | 7,223                                |       |
| Other current assets                                                                                                          |       | 34                           |       | 63                                   |       |
| Total current assets                                                                                                          |       | 165,215                      |       | 132,562                              |       |
| Property and equipment,  net (Note 4)                                                                                         |       | 159,726                      |       | 162,014                              |       |
| Financing costs, net                                                                                                          |       | 5,387                        |       | 6,419                                |       |
| Deferred customer  activation costs                                                                                           |       | 2,935                        |       | 3,816                                |       |
| Intangible assets, net  (Note 5)                                                                                         |       | 83,720                       |       | 90,602                               |       |
| Goodwill (Note 5)                                                                                                             |       | 141,783                      |       | 141,783                              |       |
| Other assets                                                                                                                  |       | 432                          |       | 416                                  |       |
| Total assets                                                                                                                  |       | $                            | 559,198    |                                 | $          | 537,612 |   |
|                                                                                                                          |       |                         |       |                                 |       |
| **Liabilities and Stockholders’ Deficiency**                                                                             | ** ** | ** **                   | ** ** | ** **                           | ** ** |
| Current Liabilities:                                                                                                          |       |                         |       |                                 |       |
| Accounts payable                                                                                                              |       | $                            | 5,044      |                                 | $          | 5,051 |   |
| Accrued expenses                                                                                                              |       | 19,848                       |       | 18,337                               |       |
| Payable to Sprint (Note 3)                                                                                                    |       | 49,709                       |       | 41,067                               |       |
| Deferred revenue                                                                                                              |       | 14,793                       |       | 13,410                               |       |
| Accrued interest                                                                                                              |       | 3,672                        |       | 5,519                                |       |
| Current maturities of  long-term debt and capital lease obligations (Note 6)                                                  |       | 42                           |       | 37                                   |       |
| Total current liabilities                                                                                                     |       | 93,108                       |       | 83,421                               |       |
| Deferred customer  activation fee revenue                                                                                     |       | 2,935                        |       | 3,816                                |       |
| Interest rate swap (Note  7)                                                                                                  |       | 11,749                       |       | 16,621                               |       |
| Other long-term  liabilities                                                                                                  |       | 6,761                        |       | 6,551                                |       |
| Long-term debt and capital  lease obligations, excluding current maturities (Note 6)                                          |       | 477,667                      |       | 475,401                              |       |
| Total liabilities                                                                                                             |       | 592,220                      |       | 585,810                              |       |
|                                                                                                                          |       |                         |       |                                 |       |
| Commitments and  contingencies (Note 15)                                                                                      |       |                         |       |                                 |       |
|                                                                                                                          |       |                         |       |                                 |       |
| Stockholders’ Deficiency:                                                                                                |       |                         |       |                                 |       |
| Preferred stock, par value  $.01 per share; 25,000,000 shares authorized, none issued                                         |       | —                       |       | —                               |       |
| Common stock, par value  $.01 per share; 75,000,000 shares authorized, 17,262,954 and 17,163,221  shares issued, respectively |       | 173                          |       | 172                                  |       |
| Additional paid-in-capital                                                                                                    |       | 171,021                      |       | 167,531                              |       |
| Accumulated deficiency                                                                                                        |       | (183,448                     | )          | (199,280                             | )          |
| Accumulated other  comprehensive loss (Note 7 and 12)                                                                         |       | (11,749                      | )          | (16,621                              | )          |
| Treasury stock, at cost;  658,863 and 0 shares, respectively (Note 13)                                                        |       | (9,019                       | )          | —                               |       |
| Total stockholders’  deficiency                                                                                          |       | (33,022                      | )          | (48,198                              | )          |
| Total liabilities and  stockholders’ deficiency                                                                          |       | $                            | 559,198    |                                 | $          | 537,612 |   |

 

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(a)             Derived from the Company’s auditedfinancial statements as of December 31, 2008.

 

See Notes to unauditedconsolidated financial statements.

 

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**iPCS, INC. ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTS OFOPERATIONS**

**(UNAUDITED)**

(Dollars in thousands,except share data)

 
| ** **                                                | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------|------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                | ** ** | **2009**                                                               | ** ** | **2008**                                                              | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                | ** ** | ** **                                                             | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenue:**                                              | ** ** | ** **                                                             | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service revenue                                           |       | $                                                                      | 108,480    |                                                                  | $          | 96,097 |   | $ | 319,600 |   | $ | 282,370 |   |
| Roaming revenue                                           |       | 27,783                                                                 |       | 32,282                                                                |       | 83,556 |   | 94,083 |   |
| Equipment and other                                       |       | 5,141                                                                  |       | 3,678                                                                 |       | 14,571 |   | 10,633 |   |
| Total revenue                                             |       | 141,404                                                                |       | 132,057                                                               |       | 417,727 |   | 387,086 |   |
| **Operating Expense:**                                    | ** ** | ** **                                                             | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost of service and  roaming                              |       | 74,038                                                                 |       | 74,520                                                                |       | 217,838 |   | 213,167 |   |
| Cost of equipment                                         |       | 18,497                                                                 |       | 15,905                                                                |       | 50,029 |   | 40,442 |   |
| Selling and marketing                                     |       | 17,542                                                                 |       | 18,091                                                                |       | 51,528 |   | 52,394 |   |
| General and administrative                                |       | 8,948                                                                  |       | 10,028                                                                |       | 25,565 |   | 25,108 |   |
| Gain on Sprint settlement  (Note 3)                       |       | —                                                                 |       | —                                                                |       | (4,273 | ) | — |   |
| Depreciation                                              |       | 8,986                                                                  |       | 10,592                                                                |       | 29,233 |   | 33,809 |   |
| Amortization of intangible  assets (Note 5)               |       | 2,294                                                                  |       | 2,295                                                                 |       | 6,882 |   | 6,882 |   |
| Loss on disposal of  property and equipment, net          |       | 113                                                                    |       | 71                                                                    |       | 629 |   | 329 |   |
| Total operating expense                                   |       | 130,418                                                                |       | 131,502                                                               |       | 377,431 |   | 372,131 |   |
| **Operating income**                                      |       | 10,986                                                                 |       | 555                                                                   |       | 40,296 |   | 14,955 |   |
| Interest income                                           |       | 47                                                                     |       | 316                                                                   |       | 211 |   | 1,420 |   |
| Interest expense                                          |       | (8,065                                                                 | )          | (8,320                                                                | )          | (24,096 | ) | (25,456 | ) |
| Other income, net                                         |       | 72                                                                     |       | 63                                                                    |       | 99 |   | 93 |   |
| **Income (loss) before provision  for income tax**        |       | 3,040                                                                  |       | (7,386                                                                | )          | 16,510 |   | (8,988 | ) |
| Provision for income tax  (Note 9)                        |       | 358                                                                    |       | 108                                                                   |       | 678 |   | 758 |   |
| **Net income (loss)**                                     |       | $                                                                      | 2,682      |                                                                  | $          | (7,494 | ) | $ | 15,832 |   | $ | (9,746 | ) |
|                                                      |       |                                                                   |       |                                                                  |       |   |   |   |   |
| **Income (loss) per share of  common stock:**             |       |                                                                   |       |                                                                  |       |   |   |   |   |
| Basic                                                     |       | $                                                                      | 0.16       |                                                                  | $          | (0.44 | ) | $ | 0.94 |   | $ | (0.57 | ) |
| Diluted                                                   |       | $                                                                      | 0.16       |                                                                  | $          | (0.44 | ) | $ | 0.93 |   | $ | (0.57 | ) |
|                                                      |       |                                                                   |       |                                                                  |       |   |   |   |   |
| **Weighted average shares of  common stock outstanding:** |       |                                                                   |       |                                                                  |       |   |   |   |   |
| Basic                                                     |       | 16,595,364                                                             |       | 17,159,794                                                            |       | 16,828,193 |   | 17,150,061 |   |
| Diluted                                                   |       | 16,917,497                                                             |       | 17,159,794                                                            |       | 16,994,820 |   | 17,150,061 |   |

 

See Notes to unaudited consolidated financialstatements.

 

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**iPCS, INC. ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTS OFCASH FLOWS**

**(UNAUDITED)**

(In thousands)

 
| ** **                                                                                                               | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **2009**                                                              | ** ** | **2008** | ** ** |
| **Cash Flows from Operating  Activities:**                                                                               | ** ** | ** **                                                            | ** ** | ** ** | ** ** |
| Net income (loss)                                                                                                        |       | $                                                                     | 15,832     |   | $ | (9,746 | ) |
| Adjustments to reconcile  net income (loss) to net cash flows from operating activities:                                 |       |                                                                  |       |   |   |
| Loss on disposal of  property and equipment                                                                              |       | 629                                                                   |       | 329 |   |
| Depreciation and  amortization                                                                                           |       | 36,115                                                                |       | 40,691 |   |
| Non-cash interest expense                                                                                                |       | 1,032                                                                 |       | 1,032 |   |
| Payment-in-kind interest                                                                                                 |       | 3,600                                                                 |       | — |   |
| Stock-based compensation  expense                                                                                        |       | 3,502                                                                 |       | 4,778 |   |
| Provision for doubtful  accounts                                                                                         |       | 8,044                                                                 |       | 15,791 |   |
| Changes in assets and  liabilities:                                                                                      |       |                                                                  |       |   |   |
| Accounts receivable                                                                                                      |       | (15,105                                                               | )          | (21,395 | ) |
| Receivable from Sprint                                                                                                   |       | (3,546                                                                | )          | 9,885 |   |
| Inventories, net                                                                                                         |       | (881                                                                  | )          | (3,476 | ) |
| Prepaid expenses, other  current and long-term assets                                                                    |       | 464                                                                   |       | 206 |   |
| Accounts payable, accrued  expenses and other long-term liabilities                                                      |       | (1,048                                                                | )          | 5,753 |   |
| Payable to Sprint                                                                                                        |       | 8,642                                                                 |       | (815 | ) |
| Deferred revenue                                                                                                         |       | 502                                                                   |       | 1,081 |   |
| Net cash flows provided by  operating activities                                                                         |       | 57,782                                                                |       | 44,114 |   |
| **Cash Flows from Investing  Activities:**                                                                               | ** ** | ** **                                                            | ** ** | ** ** | ** ** |
| Purchases of property and  equipment                                                                                     |       | (27,910                                                               | )          | (52,435 | ) |
| Proceeds from disposition  of property and equipment                                                                     |       | 248                                                                   |       | 156 |   |
| Net cash flows used in  investing activities                                                                             |       | (27,662                                                               | )          | (52,279 | ) |
| **Cash Flows from Financing  Activities:**                                                                               | ** ** | ** **                                                            | ** ** | ** ** | ** ** |
| Payments on capital lease  obligations                                                                                   |       | (27                                                                   | )          | (22 | ) |
| Proceeds from the exercise  of stock options                                                                             |       | 5                                                                     |       | 582 |   |
| Payment of special cash  dividend                                                                                        |       | (89                                                                   | )          | (109 | ) |
| Repurchase of common stock                                                                                               |       | (8,857                                                                | )          | (19 | ) |
| Net cash flows (used in)  provided by financing activities                                                               |       | (8,968                                                                | )          | 432 |   |
| Net increase (decrease) in  cash and cash equivalents                                                                    |       | 21,152                                                                |       | (7,733 | ) |
| **Cash and cash equivalents at  beginning of period**                                                                    |       | 55,940                                                                |       | 77,599 |   |
| **Cash and cash equivalents at  end of period**                                                                          |       | $                                                                     | 77,092     |   | $ | 69,866 |   |
|                                                                                                                     |       |                                                                  |       |   |   |
| **Supplemental disclosure of cash  flow information - cash paid for interest (net of amount capitalized)**               |       | $                                                                     | 21,254     |   | $ | 24,978 |   |
| **Supplemental disclosure for  non-cash investing activities:**                                                          | ** ** | ** **                                                            | ** ** | ** ** | ** ** |
| Accounts payable and  accrued expenses incurred for the acquisition of property, equipment and  construction in progress |       | $                                                                     | 1,552      |   | $ | 12,070 |   |

 

See Notes to unauditedconsolidated financial statements.

 

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**iPCS, INC. AND SUBSIDIARIES**

**NOTES TO UNAUDITED CONSOLIDATEDFINANCIAL STATEMENTS**

 

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

** **

iPCS, Inc. (the “Company” or “iPCS”) is a holding company thatoperates as a PCS Affiliate of Sprint through three wholly owned subsidiaries:iPCS Wireless, Inc., Horizon Personal Communications, Inc. and BrightPersonal Communications Services, LLC. Each of these subsidiaries is aparty to separate affiliation agreements with Sprint PCS, the operator of a100% digital wireless personal communications services (“PCS”) network withlicenses to provide voice and data service to the entire United Statespopulation. These affiliation agreements grant the iPCS subsidiaries theexclusive right to sell wireless mobility communications network products andservices under the Sprint brand in 81 markets, including markets in Illinois,Indiana, Iowa, Michigan, Pennsylvania, Ohio, Maryland, Nebraska, New York,New Jersey, Tennessee and West Virginia.

 

On October 18, 2009,the Company, Sprint and Ireland Acquisition Corporation (“the Purchaser”), awholly owned subsidiary of Sprint, entered into an Agreement and Plan of Merger(the “Merger Agreement”) pursuant to which Sprint agreed to acquire all of theCompany’s outstanding common stock for a cash price of $24 per share.  See Note 17 for a further discussion of theMerger Agreement.

 

Theunaudited consolidated balance sheets as of September 30, 2009 and December 31,2008, the unaudited consolidated statements of operations for the three andnine months ended September 30, 2009 and 2008, the unaudited consolidatedstatements of cash flows for the nine months ended September 30, 2009 and2008 and related footnotes have been prepared in accordance with accountingprinciples generally accepted in the United States of America for interimfinancial information and Rule 10-01 of Regulation S-X. Accordingly, theydo not include all of the information and footnotes required by accountingprinciples generally accepted in the United States for complete financialstatements. The financial information presented herein should be read inconjunction with the Company’s 2008 Annual Report on Form 10-K whichincludes information and disclosures not presented herein. All intercompanyaccounts and transactions have been eliminated in consolidation. Subsequentevents have been evaluated through November 3, 2009, the date thesefinancial statements were issued.  In theopinion of management, the unaudited consolidated financial statements containall of the adjustments, consisting of normal recurring adjustments as well asthose related to the Company’s settlement of certain disputes with Sprint,necessary to present fairly, in summarized form, the consolidated financialposition, results of operations and cash flows of the Company. The results ofoperations for the three and nine months ended September 30, 2009 are notindicative of the results that may be expected for the full year 2009.

 

**(2)  Per Share Data**

 

Basicincome (loss) per share for the Company is calculated by dividing net income(loss) by the weighted average number of shares of common stock of the Company,outstanding during the period, net of shares held in treasury.   Diluted income per share for the Company isbased upon the weighted average number of common and common equivalent sharesof common stock of the Company, outstanding during the period, net of sharesheld in treasury.

 

Netincome and a reconciliation of the weighted average number of sharesoutstanding, net of shares held in treasury, used in calculating diluted income(loss) per share are as follows (in thousands, except share data):

 
| ** **                                                  | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **2009**                                                               | ** ** | **2008**                                                         | ** ** | **2009** | ** ** | **2008** | ** ** |
| Net  income (loss)                                          |       | $                                                                      | 2,682      |                                                             | $          | (7,494 | ) | $ | 15,832 |   | $ | (9,746 | ) |
|                                                        |       |                                                                   |       |                                                             |       |   |   |   |   |
| Weighted  average shares outstanding - Basic                |       | 16,595,364                                                             |       | 17,159,794                                                       |       | 16,828,193 |   | 17,150,061 |   |
| Net  effect of dilutive stock options and restricted shares |       | 322,133                                                                |       | —                                                           |       | 166,627 |   | — |   |
| Weighted  average shares outstanding - Diluted              |       | 16,917,497                                                             |       | 17,159,794                                                       |       | 16,994,820 |   | 17,150,061 |   |
|                                                        |       |                                                                   |       |                                                             |       |   |   |   |   |
| Net  income (loss) per share:                               |       |                                                                   |       |                                                             |       |   |   |   |   |
| Basic                                                       |       | $                                                                      | 0.16       |                                                             | $          | (0.44 | ) | $ | 0.94 |   | $ | (0.57 | ) |
| Diluted                                                     |       | $                                                                      | 0.16       |                                                             | $          | (0.44 | ) | $ | 0.93 |   | $ | (0.57 | ) |

 

Forthe three and nine months ended September 30, 2008, basic and diluted lossper share are the same because the inclusion of the incremental potentialshares of common stock from any assumed exercise of stock options isanti-dilutive. Potential shares of common stock excluded from the income (loss)per share computations because their inclusion would be anti-dilutive were1,008,522 and 1,356,889 for the three and nine months ended September 30,2009, respectively, and were 1,406,094 for both the three and nine months endedSeptember 30, 2008.

 

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**(3)  Sprint Agreements**

 

On October 18, 2009,the Company, Sprint and Ireland Acquisition Corporation (“the Purchaser”), awholly owned subsidiary of Sprint, entered into the Merger Agreement pursuantto which Sprint agreed to acquire all of the Company’s outstanding common stockfor a cash price of $24 per share.  SeeNote 17 for a further discussion of the Merger Agreement.

 

Each of iPCS Wireless, Inc., Horizon Personal Communications, Inc.and Bright Personal Communications Services, LLC has entered intoaffiliation agreements with Sprint PCS. Under these agreements, which have beenamended from time to time, most recently on March 3, 2008, Sprint providesthe Company significant support services such as customer service, billing,long distance transport services, national network operations support, nationalpricing plans, inventory logistics support, use of the Sprint and Sprint PCSbrand names, national advertising, national distribution, product developmentand the supply of financial and operational data.

 

Thecosts incurred by the Company for the support services provided by Sprint aredetermined on a per average monthly cash cost per user (“CCPU”) rate and on amonthly cost per gross addition (“CPGA”) rate. For 2008 and 2009, the CCPU ratewas $6.50 and $5.85, respectively, as adjusted and subject to furtheradjustments as described below.  The CPGArate for each period was $19.00.

 

The CCPU rate in effect from 2008 through 2010 is to be reduced fromthe then current rate by $0.15 if the Company hits certain milestones withrespect to its voluntary deployment of EV-DO Rev. A, a recent version of thefurther evolution of code division multiple access (“CDMA”) high-speed datatechnology called Evolution Data Optimized (“EV-DO”). Specifically, the CCPUrates set forth above are to be reduced by $0.15 from the then current ratewhen the Company’s EV-DO Rev. A deployment covers at least 6.0 million inpopulation (“POPs”); by another $0.15 from the then current rate when theCompany covers at least 7.0 million POPs; and by another $0.15 from thethen current rate when the Company covers at least 9.0 million POPs.  The Company’s EV-DO Rev. A deploymentexceeded 6.0 million POPs during June 2008 and exceeded 7.0 million POPsduring July 2008.  As a result, theCCPU rate was reduced to $6.35 starting July 1, 2008, was further reducedto $6.20 starting August 1, 2008 for the remainder of 2008 and has beenreduced to $5.85 and $5.55 for 2009 and 2010, respectively, subject to anyfurther adjustments related to incremental EV-DO Rev. A coverage. On October31, 2009, in accordance with the Company’s affiliation agreements with Sprint, SprintPCS notified the Company of proposed CCPU and CPGA rates for the three yearperiod from 2011 through 2013. See Note 17 for a further discussion of theseproposed rates.

 

TheCompany receives roaming revenue when subscribers of Sprint and other PCSAffiliates of Sprint incur minutes of use in the Company’s territories, and theCompany incurs expense payable to Sprint and to other PCS Affiliates of Sprintwhen Sprint subscribers based in the Company’s territory incur minutes of usein the territories of Sprint and other PCS Affiliates of Sprint.  Effective January 1, 2008 through December 31,2010, subject to adjustment as described below, 3G data roaming is not settledseparately with Sprint; however, the Company does settle 3G data roamingseparately with the other PCS Affiliates of Sprint. For 2008, reciprocalroaming rates were $0.0400 per minute for voice and 2G data, excluding certainmarkets as described below, and $0.0003 per kilobyte for 3G data. For 2009,reciprocal roaming rates are $0.0400 per minute for voice and 2G data,excluding certain markets as described below, and $0.0001 per kilobyte for 3Gdata.

 

Withrespect to certain of the Company’s markets in western and eastern Pennsylvania,the Company receives the benefit of a special reciprocal rate for voice and 2Gdata of $0.1000 per minute. This special rate will terminate, with respect toeach of these two sets of markets, on the earlier of December 31, 2011 orthe first day of the calendar month which follows the first calendar quarterduring which the Company achieves a subscriber penetration rate of at least 7%of the Company’s covered populations in those markets.  The Company does not anticipate reaching a 7%subscriber penetration rate in these markets in the foreseeable future.

 

Commencing on January 1, 2010, and each January 1 thereafter,either Sprint or the Company may initiate a review to determine whether the 3Gdata roaming ratio between the two for the prior calendar year has changed bymore than 20% from the calendar year that is two years prior. If the ratio haschanged by more than 20%, then the parties will commence discussions as towhether an appropriate adjustment in other fees can be made to compensate for suchchanges. If the parties cannot agree, then the parties will revert to settling3G data roaming separately and any CCPU reductions related to incremental EV-DORev. A coverage, currently totaling $0.30, will be foregone effective January 1of the year in which such review was initiated.

 

TheCompany’s affiliation agreements with Sprint also provide the Company withprotective rights to decline to implement certain future program requirementchanges that Sprint proposes that would adversely affect the Company’sbusiness. The Company also has a right of first refusal to build out newcoverage within the Company’s territory. If the Company does not exercise thisright, then Sprint may build out the new coverage, or may allow another PCSAffiliate of Sprint to do so, in which case Sprint has the right to manage thenew coverage.

 

Roamingexpense is recorded in cost of service and roaming within the statements ofoperations. Cost of service and roaming transactions with Sprint include the 8%affiliation fee, long distance, roaming expense and Sprint’s CCPU charges forsupport services. Cost of equipment relates to inventory sold by the Companythat was purchased from Sprint under the Company’s affiliation 

 

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agreementswith Sprint. Selling and marketing transactions relate to subsidized costs onwireless handsets and commissions under Sprint’s national distribution program.

 

Forthe three and nine months ended September 30, 2009, approximately 96% and97%, respectively, of the Company’s revenue was derived from informationprovided by Sprint on the basis of data within Sprint’s possession andcontrol.  For each of the three and ninemonths ended September 30, 2008, approximately 97% of the Company’srevenue was derived from information provided by Sprint on the basis of datawithin Sprint’s possession and control. For the three and nine months ended September 30, 2009, approximately58% and 59%, respectively, of the Company’s cost of service and roaming wasderived from information provided by Sprint on the basis of data within Sprint’spossession and control.  For each of thethree and nine months ended September 30, 2008, approximately 58% of theCompany’s cost of service and roaming was derived from information provided bySprint on the basis of data within Sprint’s possession and control.  Subject to and in accordance with the termsof the Merger Agreement and related agreements described in Note 17, theCompany reviews all such amounts settled to and from Sprint and, in the eventthe Company believes any such amounts to be erroneous, it may dispute, and hasdisputed, such settlements in accordance with the procedures set forth in theaffiliation agreements with Sprint.  TheCompany has disputed certain items with Sprint which remain unresolved as of November 3,2009. The final outcome of these unresolved disputed items is unknown at thistime.

 

OnJanuary 22, 2009, the Company reached a settlement with Sprint related topreviously disputed 2008 items, which resulted in a Gain on Sprint settlementof $4.3 million being recorded in the Company’s consolidated statement ofoperations for the nine months ended September 30, 2009.

 

Amountsrelating to the Sprint affiliation agreements for the three and ninemonths ended September 30, 2009 and 2008 and as of September 30,2009 and December 31, 2008 are as follows (in thousands):

 
| ** **                                                          | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                          | ** ** | **2009**                                                               | ** ** | **2008**                                                              | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Amounts included in the Consolidated Statements  of Operations:** | ** ** | ** **                                                             | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service  revenue                                                    |       | $                                                                      | 108,480    |                                                                  | $          | 96,097 |   | $ | 319,600 |   | $ | 282,370 |   |
| Roaming  revenue                                                    |       | $                                                                      | 27,783     |                                                                  | $          | 32,282 |   | $ | 83,556 |   | $ | 94,083 |   |
| Cost  of service and roaming                                        |       | $                                                                      | 43,025     |                                                                  | $          | 42,927 |   | $ | 128,368 |   | $ | 124,021 |   |
| Cost  of equipment                                                  |       | $                                                                      | 18,497     |                                                                  | $          | 15,905 |   | $ | 50,029 |   | $ | 40,442 |   |
| Selling  and marketing                                              |       | $                                                                      | 3,582      |                                                                  | $          | 2,266 |   | $ | 9,127 |   | $ | 7,311 |   |

 
| ** **                                                | ** ** | **September 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|-----------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| **Amounts included in the  Consolidated Balance Sheets:** | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Receivable from Sprint                                    |       | $                            | 29,168     |                        | $          | 25,623 |   |
| Payable to Sprint                                         |       | 49,709                       |       | 41,067                      |       |
|                                                           |            |                              |            |                             |            |  |  |

 

**(4)  Property and Equipment, Net**

 

Propertyand equipment consists of the following at September 30, 2009 and December 31,2008 (in thousands):

 
| ** **                                     | ** ** | **September 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Network assets                                 |       | $                            | 325,696    |                        | $          | 295,550 |   |
| Land                                           |       | 114                          |       | 114                         |       |
| Building                                       |       | 1,566                        |       | 1,566                       |       |
| Computer equipment                             |       | 7,929                        |       | 6,773                       |       |
| Furniture, fixtures, and office equipment      |       | 9,939                        |       | 9,744                       |       |
| Vehicles                                       |       | 3,066                        |       | 2,540                       |       |
| Construction in progress                       |       | 14,408                       |       | 23,980                      |       |
| Total property and equipment                   |       | 362,718                      |       | 340,267                     |       |
| Less accumulated depreciation and amortization |       | (202,992                     | )          | (178,253                    | )          |
| Total property and equipment, net              |       | $                            | 159,726    |                        | $          | 162,014 |   |

 

Duringthe nine months ended September 30, 2009, the Company sold its remainingMotorola equipment, which was previously recorded as Assets held for sale,which was replaced by Nortel equipment. A loss of approximately $0.3 million was realized upon sale of theseassets during the nine months ended September 30, 2009.

 

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**(5)  Goodwill and Intangible Assets**

 

Goodwill,totaling $141.8 million, represents the excess of purchase price over the fairvalue of the net assets acquired, including identifiable intangibleassets.  Goodwill is not deductible forincome tax purposes.

 

Intangibleassets represent the values assigned to the Company’s customer base, the rightto provide service under the Sprint affiliation agreements and an FCC licensefor a small market in Ohio.

 

The intangible assetsrelating to the customer base were amortized over the estimated average life ofa customer of 30 months.  Theintangible assets relating to customer bases were fully amortized as of December 31,2007.  The intangible assets relating tothe right to provide service under the Sprint affiliation agreements are beingamortized over the remaining term of the respective agreements. The FCC licensewas determined to have an indefinite life as it is expected to be renewed withminimal effort and cost.  The FCC licenseis for sale, however the Company believes the sale of this asset is unlikelywithin the next year.  The MergerAgreement, dated October 18, 2009, provides that the Company shall obtainthe consent of Sprint for the sale of assets in which the aggregateconsideration exceeds $200,000.  OnOctober 26, 2009, the Company and the Purchaser filed an application with theFCC for the transfer of control of the FCC license in connection with theconsummation of the transactions contemplated by the Merger Agreement.

 

Theweighted average amortization period, gross carrying amount, accumulatedamortization and net carrying amount of intangible assets at September 30,2009 and December 31, 2008 are as follows (in thousands):

 
| ** **                                                        | ** ** | **September 30, 2009**                | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                        | ** ** | **Weighted Average  Amortization  Period** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Value** | ** ** |
| **Non-amortized intangible asset:**                               | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| FCC license                                                       |       | —                                          |       | $ | 300 |   | $ | — |   | $ | 300 |   |
| **Amortized intangible assets:**                                  | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Right to provide service under the Sprint  affiliation agreements |       | 167 months                                      |       | 126,521 |   | (43,101 | ) | 83,420 |   |
| Customer base                                                     |       | 30 months                                       |       | 71,956 |   | (71,956 | ) | — |   |
|                                                              |       | 117 months                                      |       | $ | 198,777 |   | $ | (115,057 | ) | $ | 83,720 |   |
| ** **                                                        | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                        | ** ** | **December 31, 2008**                 | ** ** |
| ** **                                                        | ** ** | **Weighted Average  Amortization  Period** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Value** | ** ** |
| **Non-amortized intangible asset:**                               | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| FCC license                                                       |       | —                                          |       | $ | 300 |   | $ | — |   | $ | 300 |   |
| **Amortized intangible assets:**                                  | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Right to provide service under the Sprint  affiliation agreements |       | 167 months                                      |       | 126,521 |   | (36,219 | ) | 90,302 |   |
| Customer base                                                     |       | 30 months                                       |       | 71,956 |   | (71,956 | ) | — |   |
|                                                              |       | 117 months                                      |       | $ | 198,777 |   | $ | (108,175 | ) | $ | 90,602 |   |

 

Amortization expense for the three months ended September 30,2009 and 2008 was $2.3 million for each period. Amortization expense for the nine months ended September 30, 2009and 2008 was $6.9 million for each period. Aggregate amortization expense relative to existing intangible assetsfor the periods shown is currently estimated to be as follows:

 
| **Year Ended December 31** | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|------------|------------|
| 2009                                      |       | $          | 9,176      |   |
| 2010                                      |       | 9,176      |       |
| 2011                                      |       | 9,176      |       |
| 2012                                      |       | 9,176      |       |
| 2013                                      |       | 9,176      |       |
| Thereafter                                |       | 44,422     |       |
| Total                                     |       | $          | 90,302     |   |

 

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**(6)  Long-Term Debt**

 

Long-termdebt consists of the following at September 30, 2009 and December 31,2008 (in thousands):

 
| ** **                                                                  | ** ** | **September 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| First lien senior secured floating rate notes                               |       | $                            | 300,000    |                        | $          | 300,000 |   |
| Second lien senior secured floating rate notes                              |       | 177,297                      |       | 175,000                     |       |
| Capital lease obligations                                                   |       | 412                          |       | 438                         |       |
| Total long-term debt and capital lease obligations                          |       | 477,709                      |       | 475,438                     |       |
| Less: current maturities                                                    |       | (42                          | )          | (37                         | )          |
| Long-term debt and capital lease obligations,  excluding current maturities |       | $                            | 477,667    |                        | $          | 475,401 |   |

 

***First Lien and Second Lien SeniorSecured Floating Rate Notes***

 

TheCompany has outstanding $477.3 million in aggregate principal amount ofsenior secured notes, consisting of $300.0 million in aggregate principalamount of First Lien Senior Secured Floating Rate Notes due 2013 (“First LienNotes”) and $177.3 million in aggregate principal amount of Second Lien SeniorSecured Floating Rate Notes due 2014 (“Second Lien Notes” and together with theFirst Lien Notes, the “Secured Notes”). The offering of the Secured Notes closed on April 23, 2007.

 

TheSecured Notes are senior secured obligations of the Company and areunconditionally guaranteed on a senior secured basis by all the Company’sexisting and future domestic restricted subsidiaries. The First Lien Notes aresecured by a first priority security interest, subject to permitted liens, insubstantially all of the assets of the Company and its subsidiary guarantors,including, but not limited to: (1) all the capital stock of eachrestricted subsidiary owned by the Company, or any subsidiary guarantor; (2) alldeposit accounts, security accounts, accounts receivable, inventory, investmentproperty, inter-company notes, general intangible assets, equipment,instruments, contract rights, chattel paper, promissory notes and leases; (3) allfixtures; (4) patents, trademarks, copyrights and other intellectualproperty; and (5) all proceeds of, and all other amounts arising from, thecollection, sale, lease, exchange, assignment, licensing, or other dispositionor realization of the foregoing assets (collectively the “Collateral”);provided that the security documents provide that a portion of the capitalstock of any subsidiary shall automatically be deemed released from, and not tohave been a part of, the Collateral to the extent necessary so as not torequire the preparation and filing with the SEC of separate audited financialstatements of such subsidiary pursuant to Rule 3-16 of the SEC’saccounting rules and regulations. The Second Lien Notes are secured by asecond priority security interest, subject to permitted liens, in theCollateral.

 

The indentures governing theSecured Notes contain covenants which restrict the Company’s and its restrictedsubsidiaries’ ability to incur additional indebtedness, merge, pay dividends,dispose of its assets, and certain other matters as defined in theindentures.  At September 30, 2009,the Company believes it was in compliance with these covenants.

 

Intereston the First Lien Notes accrues at an annual rate equal to three-month LIBORplus 2.125% and is payable quarterly in cash on February 1, May 1, August 1and November 1 of each year. Interest on the Second Lien Notes accrues atan annual rate equal to three-month LIBOR plus 3.25% and is payable quarterlyon February 1, May 1, August 1 and November 1 of each year.The Company may elect to pay interest on the Second Lien Notes entirely in cashor entirely by increasing the principal amount of the Second Lien Notes (“Payment-in-kindinterest” or “PIK Interest”).  PIKInterest on the Second Lien Notes accrues at an annual rate equal tothree-month LIBOR plus 4.0%. On August 3, 2009, the Company paid itsinterest payment in relation to its Second Lien Notes entirely by increasingthe principal amount of the outstanding Second Lien Notes by approximately $2.3million.  The Company has additionallyelected PIK Interest in relation to its November 1, 2009 and February 1,2010 interest payments on the Second Lien Notes. Accrued PIK Interest ofapproximately $1.3 million is reflected in Other long-term liabilities untilthe interest payment date, when it will be reflected as additional principal ofthe Second Lien Notes.  The Company hasmade no other decisions regarding the future election of PIK Interest.Three-month LIBOR for the Secured Notes resets on February 1, May 1, August 1and November 1 of each year and was 0.48% on September 30, 2009.

 

***Capital Lease Obligations***

 

Intereston capital lease obligations is all at fixed rates, which, on a weightedaverage basis, approximated 12.5% per annum at September 30, 2009.

 

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**(7)  Interest Rate Swap**

 

OnJuly 20, 2007, the Company entered into an interest rate swap to manageinterest rate risks associated with a portion of its variable rate debt.  The interest rate swap agreement is for anotional amount of $300.0 million associated with the interest on theCompany’s First Lien Notes effective August 1, 2007 for a period of threeyears. Under this agreement, the Company receives interest at a floating rateof three-month LIBOR and pays interest at a fixed rate of 5.34%, resulting inan effective interest rate for the First Lien Notes of 7.47% throughout theterm of the swap. The interest rate swap agreement qualifies and is designatedas a cash flow hedge under the requirements of the Financial AccountingStandards Board’s (“FASB”) Accounting Standards Codification (“ASC”)Derivatives and Hedging Topic (“ASC 815”). As such, the swap is accounted for as an asset or liability in theconsolidated balance sheets at fair value, including adjustment fornonperformance risk in accordance with ASC Topic 820, “Fair Value Measurementsand Disclosures” (“ASC 820”). Changes in fair value of the effective portion ofthe swap are recorded in Accumulated other comprehensive loss (“AOCL”), net ofincome taxes, until earnings are affected by the variability in cash flows ofthe designated hedged item. Any ineffective changes in the value of the swapare recognized currently as interest expense in the consolidated statements ofoperations.  No component of the interestrate swap is excluded from the assessment of effectiveness and noineffectiveness has been recognized on the swap since inception.

 

If, in the future, the swap is determined to no longer be effective asa hedge, is sold or terminated, or is de-designated from the hedgerelationship, any net gain or loss remaining in Accumulated other comprehensiveloss would be reclassified into earnings in the same periods during which thehedged debt payments affect earnings. If the cash flow hedge is discontinued inthe future because itbecomes probable that the hedged debt payments will not occur, the net gain orloss would be reclassified into earnings in that period.

 

See Note 8 forinformation regarding fair values of the interest rate swap as of September 30,2009 and December 31, 2008.

 

The followingtable presents the impact of our interest rate swap on our ConsolidatedStatements of Operations and Consolidated Balance Sheets for the three and ninemonths ended September 30, 2009 and 2008 (in thousands):

 
| ** **         | ** ** | **Amount of Loss  Recognized  in AOCL on the Interest Rate  Swap (Effective Portion)** | ** ** | **Amount of Loss Reclassified  into Interest Expense  (Effective Portion)** | ** ** | **Amount of (Gain) Loss  Recognized in Interest  Expense on the Interest Rate  Swap (Ineffective Portion)** | ** ** |
|--------------------|------------|----------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|
| ** **         | ** ** | **Three months ended  September 30,**                                             | ** ** | **Three months ended  September 30,**                                  | ** ** | **Three months ended  September 30,**                                                                  | ** ** |
| **Liabilities**    | ** ** | **2009**                                                                               | ** ** | **2008**                                                                    | ** ** | **2009**                                                                                                    | ** ** | **2008** | ** ** | **2009** | ** ** | **2008** | ** ** |
|               |       |                                                                                   |       |                                                                        |       |                                                                                                        |       |   |   |   |   |   |   |
| Interest rate swap |       | $                                                                                      | 1,728      |                                                                        | $          | 1,799                                                                                                       |       | $ | 3,575 |   | $ | 1,930 |   | $ | — |   | $ | — |   |
| ** **         | ** ** | ** **                                                                             | ** ** | ** **                                                                  | ** ** | ** **                                                                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **         | ** ** | **Amount of Loss Recognized  in AOCL on the Interest Rate  Swap (Effective Portion)**  | ** ** | **Amount of Loss Reclassified  into Interest Expense  (Effective Portion)** | ** ** | **Amount of (Gain) Loss  Recognized in Interest  Expense on the Interest Rate  Swap (Ineffective Portion)** | ** ** |
| ** **         | ** ** | **Nine months ended  September 30,**                                              | ** ** | **Nine months ended  September 30,**                                   | ** ** | **Nine months ended  September 30,**                                                                   | ** ** |
| **Liabilities**    | ** ** | **2009**                                                                               | ** ** | **2008**                                                                    | ** ** | **2009**                                                                                                    | ** ** | **2008** | ** ** | **2009** | ** ** | **2008** | ** ** |
|               |       |                                                                                   |       |                                                                        |       |                                                                                                        |       |   |   |   |   |   |   |
| Interest rate swap |       | $                                                                                      | 4,530      |                                                                        | $          | 4,237                                                                                                       |       | $ | 9,402 |   | $ | 4,874 |   | $ | — |   | $ | — |   |

 

The amount of lossrecorded in Accumulated other comprehensive loss at September 30, 2009that is expected to be reclassified to interest expense in the next twelvemonths if interest rates underlying the Company’s fair value calculationsremain unchanged is approximately $11.7 million.

 

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**(8)  Fair Value Measurements**

 

Fair value estimates and assumptions and methods used to estimate thefair value of the Company’s assets and liabilities are made in accordance withthe requirements of the ASC 820, “Financial Instruments and Fair ValueMeasurements and Disclosures”.

 

ASC 820 clarifies that fair value is an exit price, representing theamount that would be received to sell an asset or paid to transfer a liabilityin an orderly transaction between market participants. As such, fair value is amarket-based measurement that should be determined based on assumptions thatmarket participants would use in pricing an asset or liability. As a basis forconsidering such assumptions, ASC 820 establishes a three-tier value hierarchy,which prioritizes the inputs used in measuring fair value as follows:Level 1 are observable inputs such as quoted prices in active markets;Level 2 are inputs other than the quoted prices in active markets that areobservable either directly or indirectly; and Level 3 are unobservableinputs in which there is little or no market data, which require the Company todevelop its own assumptions. This hierarchy requires the Company to useobservable market data, when available, and to minimize the use of unobservableinputs when determining fair value. On a recurring basis, the Company measurescertain assets and liabilities at fair value, including the Company’s moneymarket funds, commercial paper and interest rate swap.

 

The following table presents the Company’s assets and liabilitiesmeasured at fair value on a recurring basis as of September 30, 2009 and December 31,2008 (in thousands):

 
| ** **                               | ** ** | **September 30, 2009** | ** ** | **December 31,** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|-----------------------|------------|
| ** **                               | ** ** | ** **                  | ** ** | **Level 1**      | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **2008** | ** ** |
| ** **                               | ** ** | **Fair Value**              | ** ** | **Inputs**            | ** ** | **Inputs** | ** ** | **Inputs** | ** ** | **Fair Value** | ** ** |
| Assets:                                  |       |                        |       |                  |       |   |   |   |   |   |   |
| Money market funds(a)                    |       | $                           | 64,503     |                  | $          | — |   | $ | 64,503 |   | $ | — |   | $ | 27,194 |   |
| Commercial paper(a)                      |       | —                      |       | —                |       | — |   | — |   | 14,117 |   |
| Total assets measured at fair value      |       | $                           | 64,503     |                  | $          | — |   | $ | 64,503 |   | $ | — |   | $ | 41,311 |   |
| Liabilities:                             |       |                        |       |                  |       |   |   |   |   |   |   |
| Interest rate swap(b)                    |       | $                           | 11,749     |                  | $          | — |   | $ | 11,749 |   | $ | — |   | $ | 16,621 |   |
| Total liabilities measured at fair value |       | $                           | 11,749     |                  | $          | — |   | $ | 11,749 |   | $ | — |   | $ | 16,621 |   |

 

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(a)                                  The fair valuesof the Company’s money market funds and commercial paper are based on thirdparty estimates using recent trading activity and other relevant marketinformation.

 

(b)                                 The fair valuesof the interest rate swap are derived from a discounted cash flow analysisbased on the terms of the contract and observable market data, includingadjustment for nonperformance risk.

 

Thefollowing table presents carrying value and estimated fair value of the Company’sfinancial instruments that are carried at historical cost (in thousands):

 
| ** **                                        | ** ** | **September 30, 2009** | ** ** | **December 31, 2008** | ** ** |
|---------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                                        | ** ** | **Carrying  amount**        | ** ** | **Estimated  fair value**  | ** ** | **Carrying  amount** | ** ** | **Estimated  fair value** | ** ** |
| First lien senior secured floating rate notes(a)  |       | $                           | 300,000    |                       | $          | 253,500 |   | $ | 300,000 |   | $ | 211,500 |   |
| Second lien senior secured floating rate notes(a) |       | 177,297                     |       | 134,746                    |       | 175,000 |   | 105,875 |   |
|                                                   |            |                             |            |                            |            |  |  |  |  |  |  |  |  |

 

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(a)                                  The fair valuesof the Company’s senior secured floating rate notes are based on third partyestimates using recent trading activity and other relevant market information.

 

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**(9)  Income Taxes**

 

TheCompany’s effective income tax rate for the interim periods presented is basedon management’s estimate of the Company’s effective tax rate for the applicableyear and differs from the federal statutory income tax rate primarily due tonondeductible permanent differences, federal alternative minimum taxes, stateincome taxes and changes in the valuation allowance for deferred income taxes.In assessing the realizability of deferred tax assets, management considerswhether it is more likely than not that some portion or all of the deferred taxassets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generationof future taxable income during the periods in which those temporarydifferences become deductible. There was no federal income tax expense recordedfor the three and nine months ended September 30, 2009, as incomegenerated is offset by the utilization of previously recorded net operatingloss carryforwards (“NOL’s”) and the reversal of the related valuationallowance.  No federal income tax benefithas been recorded for the three and nine months ended September 30, 2008,as the net deferred income tax asset generated, primarily from temporarydifferences related to the NOL, was offset by a full valuation allowancebecause it is considered more likely than not that these benefits will not berealized due to the Company’s history of net operating losses prior to January 1,2009. The income tax provision for each of the three and nine months ended September 30,2009 relate to federal alternative minimum tax as well as state income taxeswhich are estimated based upon the taxable income generated.  The income tax provision for each of thethree and nine months ended September 30, 2008 relate to state incometaxes which are estimated based upon the taxable income generated in eachstate.

 

In July 2009, inrelation to the built-in gain provisions of Internal Revenue Code Section 382,the five-year period subsequent to the ownership change that occurred in July 2004upon the Company’s emergence from bankruptcy lapsed; resulting in the Company’sinability to utilize NOL’s beyond the annual limitation and realized built-ingains.  Consequently, approximately $111 million of NOL’s, from a total ofapproximately $528 million of NOL’s, are no longer available to be realized bythe Company as of September 30, 2009. This had no impact on net income as these NOL’s were fully reserved witha valuation allowance.

 

**(10)  Stock-Based Compensation**

 

The Company has two long-term incentive plans. The Horizon PCS 2004stock incentive plan, as amended (the “Horizon Plan”), was assumed by theCompany in its merger with Horizon PCS, Inc. in 2005. The iPCS 2004long-term incentive plan, as amended (the “iPCS Plan”), was approved by theCompany’s Board of Directors as provided by the Company’s plan ofreorganization. Both plans have been approved by the Company’s stockholders.

 

**Horizon Plan.**  Under the Horizon Plan, the Company may grantto employees, directors and consultants of the Company or its subsidiariesincentive or non-qualified stock options or stock appreciation rights. All ofthe stock options issued to date under the Horizon Plan have a ten-year lifeand vest equally in six-month increments over three years from the respectivedate of grant. The Horizon Plan provides for the accelerated vesting of awardsin the event of a change in control (as defined in the Horizon Plan). The totalnumber of shares that may be granted under the Horizon Plan is 558,602 sharesof the Company’s common stock, which equals the number of shares underlyingawards previously made under the Horizon Plan.

 

**iPCSPlan.**  Under the iPCS Plan, the Company may grant toemployees, directors and consultants of the Company or its subsidiariesincentive and non-qualified stock options, stock appreciation rights,restricted and unrestricted stock awards and cash incentive awards. The stockoptions awarded to date under the iPCS Plan have a ten-year term with vestingon a quarterly basis over four years for employees and quarterly over one yearfor directors. Restricted stock awards granted to date to employees under theiPCS Plan vest over various periods ranging from a quarterly basis over fouryears to vesting entirely at the end of two or three years.  The iPCS Plan provides for the acceleratedvesting of awards in the event of a change in control (as defined in the iPCSPlan).  The total number of shares thatmay be awarded under the iPCS Plan is 4,592,630 shares of common stock, ofwhich amount, 2,066,390 shares remained available for awards as of September 30,2009.

 

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TheCompany did not award any stock options during the three months ended September 30,2009.  During the nine months ended September 30,2009, the Company awarded 332,452 stock options to management and the Board ofDirectors at an exercise price of $8.76, which was the closing price on thedate of grants.  The fair value of eachgrant is estimated at the grant date using the Black-Scholes option pricingmethod.  The table below outlines theassumptions used for the options granted during the nine months ended September 30, 2009:

 
| ** **              | ** ** | **For the Nine Months Ended  September 30, 2009** | ** ** |
|-------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **              | ** ** | **Range**                                                                       | ** ** | **Weighted Average** | ** ** |
| Risk-free interest rate |       | 2.50% to 2.66%                                                                  |       | 2.63 | % |
| Volatility              |       |                                                                            |       | 70.00 | % |
| Dividend yield          |       |                                                                            |       | 0.00 | % |
| Expected life in years  |       |                                                                            |       | 5.85 |   |
| Fair value price        |       |                                                                            |       | $ | 5.54 |   |
|                         |            |                                                                                 |            |  |  |  |

 

The risk-free interest rate was determined using the then implied yieldcurrently available for zero-coupon U.S. government issues with a remainingterm equal to the expected life of the stock options. The expected volatilityassumption used in the Black-Scholes option pricing models was based on thehistorical volatility of peer companies as adjusted for the Company’svolatility since its existence as a publicly traded company in 2004. TheCompany does not currently intend to pay cash dividends and thus has assumed a0% dividend yield. The Company uses the simplified method for calculating theexpected life for stock options in place of using historical exercise data. TheCompany’s stock has been publicly traded since August 2004 and the Companycannot provide a reasonable basis upon which to estimate the expected term ofoptions granted.

 

On May 2, 2007, inconnection with the $11.00 special cash dividend paid in 2007, the CompensationCommittee of the Board of Directors of the Company resolved that each stockoption that was outstanding under the iPCS Plan and the Horizon Plan, on thetrading day immediately preceding the trading day designated by the NASDAQStock Market as the ex-dividend date (the “Adjustment Date”) would be adjustedas follows effective as of the opening of business on the Adjustment Date:

 

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

 

·                  The exercise price of each option would be adjusted bymultiplying the exercise price by the Adjustment Factor.

 

The “Adjustment Factor”was 0.78282 which was equal to one minus the percentage reduction in theclosing sale price of a share of stock on the Adjustment Date reported by theNASDAQ Stock Market at the regular hours closing price (“Closing Price”) ascompared to the Closing Price of a share of stock on the Adjustment Date minus$11.00. In addition, on the Adjustment Date, the number of shares under theiPCS Plan and the Horizon Plan was adjusted by dividing the number of shares ofstock reserved for issuance by the Adjustment Factor; thereby increasing thenumber of shares reserved for issuance. The modification resulted in anadditional 184,537 shares to 72 employees and directors who hadoptions outstanding on the modification date. With this modification, theCompany will record additional stock-based compensation expense ofapproximately $6.5 million, of which approximately $3.2 million wasrecorded as of the date of modification and the remainder is being recognized overthe remaining vesting period for the options, subject to reduction forforfeitures. An additional $0.1 million and $0.2 million of compensationexpense related to the modification was recorded in the three and nine monthsended September 30, 2009, respectively, and an additional $0.1 million and$1.0 million was recorded in the three and nine months ended September 30,2008, respectively, with the quarterly vesting of stock options.  As of September 30, 2009, approximately$0.3 million of additional stock-based compensation expense related to thismodification remains to be recognized over the remaining vesting period of theoptions.

 

Thefollowing table shows stock-based compensation expense by type of share-basedaward for the three and nine months ended September 30, 2009 and 2008included in the consolidated statements of operations (in thousands):

 
| ** **                                                                                    | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                                                                    | ** ** | **2009**                                                               | ** ** | **2008**                                                         | ** ** | **2009** | ** ** | **2008** | ** ** |
| Restricted  stock                                                                             |       | $                                                                      | 322        |                                                             | $          | 254 |   | $ | 906 |   | $ | 808 |   |
| Fair  value expense of stock option awards                                                    |       | 800                                                                    |       | 793                                                              |       | 2,400 |   | 2,979 |   |
| Fair  value expense of stock option modifications related to special cash dividend  (Note 11) |       | 66                                                                     |       | 71                                                               |       | 196 |   | 991 |   |
| Total  stock-based compensation                                                               |       | $                                                                      | 1,188      |                                                             | $          | 1,118 |   | $ | 3,502 |   | $ | 4,778 |   |

 

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Thefollowing table shows the total remaining unrecognized compensation costrelated to restricted stock grants and fair value expense of stock optionawards, as well as the weighted average remaining required service period overwhich such costs will be recognized as of September 30, 2009:

 
| ** **                                | ** ** | **Total Remaining  Unrecognized  Compensation Cost** | ** ** | **Weighted Average  Remaining Required  Service Period** | ** ** |
|-------------------------------------------|------------|----------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                                | ** ** | **(in millions)**                                         | ** ** | **(in years)**                                                     | ** ** |
| Restricted stock                          |       | $                                                              | 1.9        |                                                                    | 1.59       |   |
| Fair value expense of stock option awards |       | 6.6                                                            |       | 2.28                                                                    |       |
|                                           |            |                                                                |            |                                                                         |            |  |

 

Stock-basedcompensation expense is included in the consolidated statements of operationsas follows (in thousands):

 
| ** **                      | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|---------------------------------|------------|------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                      | ** ** | **2009**                                                               | ** ** | **2008**                                                         | ** ** | **2009** | ** ** | **2008** | ** ** |
| Cost  of service and roaming    |       | $                                                                      | 89         |                                                             | $          | 116 |   | $ | 258 |   | $ | 442 |   |
| Selling  and marketing          |       | 141                                                                    |       | 129                                                              |       | 421 |   | 546 |   |
| General  and administrative     |       | 958                                                                    |       | 873                                                              |       | 2,823 |   | 3,790 |   |
| Total  stock-based compensation |       | $                                                                      | 1,188      |                                                             | $          | 1,118 |   | $ | 3,502 |   | $ | 4,778 |   |

 

The following is asummary of options outstanding and exercisable at September 30, 2009:

 
| ** **                             | ** ** | **Number of Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted  Average  Remaining  Contractual Life** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|----------------------------------------|------------|--------------------------------|------------|------------------------------------------------|------------|---------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                             | ** ** | ** **                     | ** ** | ** **                                     | ** ** | **(in years)**                                     | ** ** | **(in thousands)**             | ** ** |
| Outstanding at December 31, 2008  |       | 1,397,947                      |       | $                                              | 22.80      |                                                    |       |                                |       |   |
| Granted                                |       | 332,452                        |       | 8.76                                           |       |                                                    |       |                                |       |
| Exercised                              |       | (540                           | )          | 8.76                                           |       |                                                    |       |                                |       |
| Forfeited                              |       | (420                           | )          | 39.47                                          |       |                                                    |       |                                |       |
| Expired                                |       | (27,703                        | )          | 20.88                                          |       |                                                    |       |                                |       |
| Outstanding at September 30, 2009 |       | 1,701,736                      |       | $                                              | 20.09      |                                                    | 7.55       |                                | $          | 6,144 |   |
| Exercisable at September 30, 2009 |       | 1,038,864                      |       | $                                              | 20.07      |                                                    | 6.82       |                                | $          | 4,062 |   |

 

The following is asummary of activity for the nine months ended September 30, 2009 relatedto the Company’s restricted shares granted under its long-term incentive plans:

 
| ** **                                   | ** ** | **Shares** | ** ** | **Weighted Average  Grant Date  Fair Value** | ** ** |
|----------------------------------------------|------------|------------|------------|---------------------------------------------------|------------|
| Restricted shares at December 31, 2008  |       | 56,534     |       | $                                                 | 36.32      |   |
| Granted                                      |       | 101,200    |       | 8.76                                              |       |
| Vested                                       |       | (12,984    | )          | 43.23                                             |       |
| Forfeited                                    |       | (900       | )          | 8.76                                              |       |
| Restricted shares at September 30, 2009 |       | 143,850    |       | $                                                 | 16.48      |   |

 

The iPCS Plan permits, at the employee’s direction, the surrendering ofcommon shares to satisfy certain tax withholding obligations in connection withvesting of restricted stock.

 

**(11)  Special Cash Dividend**

 

On April 26, 2007,the Board of Directors declared a special cash dividend of $11.00 per share,approximately $187.0 million in the aggregate, payable to all holders of recordof the Company’s common stock on May 8, 2007.  Of this amount, approximately $186.5 millionwas paid on May 16, 2007.  Theremaining unpaid dividends relate to restricted stock awards and are being paidout starting in July 2007 as these awards vest.  As of September 30, 2009, approximately$0.2 million of this dividend remains to be paid.

 

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**(12)  Comprehensive Income (Loss)**

 

Comprehensiveincome (loss), which includes all changes in the Company’s equity during theperiod except transactions with stockholders, consisted of the following forthe three and nine months ended September 30, 2009 and 2008 (inthousands):

 
| ** **                                                                             | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                                                             | ** ** | **2009**                                                               | ** ** | **2008**                                                         | ** ** | **2009** | ** ** | **2008** | ** ** |
| Net income (loss)                                                                      |       | $                                                                      | 2,682      |                                                             | $          | (7,494 | ) | $ | 15,832 |   | $ | (9,746 | ) |
| Other comprehensive income — Unrealized income on  interest rate swap, net of tax |       | 1,847                                                                  |       | 131                                                              |       | 4,872 |   | 637 |   |
| Comprehensive income (loss)                                                            |       | $                                                                      | 4,529      |                                                             | $          | (7,363 | ) | $ | 20,704 |   | $ | (9,109 | ) |

 

**(13)  Stock Repurchase Plan**

 

OnJanuary 30, 2009, the Company’s Board of Directors authorized therepurchase of up to $15.0 million of the Company’s common stock in a stockrepurchase program during the 12-month period beginning on the date ofauthorization. The Company may purchase shares from time to time in open marketor privately negotiated transactions at prices deemed appropriate bymanagement, depending on market conditions, applicable laws and other factors.The stock repurchase program does not require the Company to repurchase any specificnumber of shares and may be discontinued at any time.  Pursuant to this stock repurchase program, during thenine months ended September 30, 2009, the Company purchased 658,863 sharesof its common stock at an average price of $13.69 per share for approximately$9.0 million, of which approximately $8.8 million had been settled in cashas of September 30, 2009.  Theserepurchased shares are reflected as Treasury stock, at cost in the ConsolidatedBalance Sheet as of September 30, 2009. As of September 30, 2009, approximately $6.0 million remainedavailable under the stock repurchase program.

 

Pursuant to the terms ofthe Merger Agreement discussed in Note 17, as of October 18, 2009, theCompany is not permitted to repurchase shares of its common stock on or aftersuch date.

 

**(14)  New Accounting Pronouncements**

 

Effective July 1,2009, the FASB Accounting Standards Codification (“ASC”) became the singleofficial source of authoritative, nongovernmental generally accepted accountingprinciples (“GAAP”) in the United States.  The historical GAAPhierarchy was eliminated and the ASC became the only level of authoritativeGAAP, other than guidance issued by the Securities and ExchangeCommission.  Our accounting policies were not affected by theconversion to ASC.  However, references to specific accountingstandards in the footnotes to our consolidated financial statements have beenchanged to refer to the appropriate section of ASC.

 

In September 2006, the FASB issued guidance which defines fairvalue, establishes a framework and gives guidance regarding the methods usedfor measuring fair value, and expands disclosures about fair valuemeasurements. This guidance is contained in ASC Topic 820, “Fair ValueMeasurements and Disclosures” (“ASC 820”). In February 2008, the FASB deferred the effective date of thisguidance for all non-financial assets and non-financial liabilities, exceptthose that are recognized or disclosed at fair value in the financialstatements on a recurring basis (at least annually) to fiscal years beginningafter November 15, 2008. The Company adopted the new standard included inASC 820 as it applies to financial assets and liabilities as of January 1,2008. The Company adopted the new standard included in ASC 820, as it relatesto non-financial assets and liabilities as of January 1, 2009. SeeNote 8 for further discussion of fair value measurements of financialinstruments.

 

InMarch 2008, the FASB issued guidance which amends and expands thedisclosure requirements of ASC Topic 815, “Derivatives and Hedging” (“ASC 815”),requiring enhanced disclosures about the Company’s hedging activities. TheCompany is required to provide enhanced disclosures about (a) how and whyit uses derivative instruments, (b) how derivative instruments and relatedhedged items are accounted for under ASC 815, and (c) how derivativeinstruments and related hedged items affect the Company’s financial position,results of operations, and cash flows. The new provisions of ASC 815 areeffective for fiscal years and interim periods beginning after December 15,2008, with comparative disclosures of earlier periods encouraged upon initialadoption. The Companyadopted the new provisions of ASC 815 effective January 1, 2009.  See Note 7 for the Company’s disclosuresabout its derivative instruments and hedging activities.

 

In April 2009, theFASB issued guidance requiring disclosures about fair value of financialinstruments in interim financial statements as well as in annual financialstatements.  This guidance is contained in ASC Topic 825, “FinancialInstruments” (“ASC 825”).  The newdisclosure standard included in ASC 825 is effective for interim periods ending after June 15,2009, but early adoption is permitted for interim periods ending after March 15,2009.  The Company adopted the new disclosure standard included inASC 825 effective for the interim period ended March 31, 2009.  See Note 8 for the Company’s disclosuresabout its fair values of financial instruments.

 

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In April 2009, theFASB issued additional guidance in determining whether a market for a financialasset is not active and a transaction is not distressed for fair valuemeasurement purposes.  This guidance is contained in ASC 820.  This new guidance included in ASC 820 is effective for interim periods endingafter June 15, 2009, but early adoption is permitted for interim periodsending after March 15, 2009.  The Company adopted the newguidance included in ASC 820 effective for the interim period ended March 31,2009.

 

In April 2009, theFASB issued guidance in determining whether impairments in debt securities areother than temporary, and modifies the presentation and disclosures surroundingsuch instruments.  This guidance is contained in ASC Topic 320, “Investments— Debt and Equity Securities” (“ASC 320”). This newguidance included in ASC 320 is effective for interim and annual periods endingafter June 15, 2009, but early adoption is permitted for interim periodsending after March 15, 2009.  The Company adopted the provisionsof this new guidance included in ASC 320 effective for the interim period endedMarch 31, 2009.

 

In May 2009, theFASB issued guidance which sets forth general standards of accounting for anddisclosure of events that occur after the balance sheet date but beforefinancial statements are issued or are available to be issued.  This guidance is contained in ASC Topic 855, “SubsequentEvents” (“ASC 855”).  This new guidancein ASC 855 is effective for interim periods ending after June 15,2009.  The Company adopted the newprovisions of ASC 855 for the interim period ended June 30, 2009.

 

In June 2009, theFASB issued guidance to address the elimination of the concept of a qualifyingspecial purpose entity.  This guidance iscontained in ASC Topic 810, “Consolidation” (“ASC 810”).  This new guidance included in ASC 810 alsoreplaces the quantitative-based risks and rewards calculation for determiningwhich enterprise has a controlling financial interest in a variable interestentity with an approach focused on identifying which enterprise has the powerto direct the activities of a variable interest entity and the obligation toabsorb losses of the entity or the right to receive benefits from the entity.Additionally, this new guidance included in ASC 810 provides more timely anduseful information about an enterprise’s involvement with a variable interestentity. This new guidance is effective for fiscal years beginning after November 15,2009.  The Company does not anticipatethat the implementation of this new guidance included in ASC 810 will have amaterial impact on its consolidated financial statements.

 

In September 2009,the FASB issued guidance which modifies the way companies allocate revenueamongst multiple deliverables in a contract. The new guidance, included in ASC Topic 605, “Revenue Recognition” (“ASC605”), allows companies to allocate consideration in a multiple elementarrangement in a manner that better reflects the transaction economics.  When vendor specific objective evidence orthird party evidence for deliverables in an arrangement cannot be determined,companies will now be allowed to develop a best estimate of the selling priceto separate deliverables and allocate arrangement consideration using therelative selling price method. Additionally this new guidance eliminates the use of the residualmethod.  This new guidance in ASC 605 iseffective for fiscal years beginning after June 15, 2010.  The Company is currently evaluating theimpact of this new guidance in ASC 605 on its consolidated financialstatements.

 

**(15)  Commitments and Contingencies**

 

*(a)  Commitments*

 

OnMarch 13, 2009, the Company signed a letter of agreement with NortelNetworks to purchase EV-DO Rev. A equipment and services totaling approximately$19.7 million in aggregate, consisting of a non-cancelable purchase ofapproximately $14.8 million of equipment and services and an option to purchaseup to an additional approximately $4.9 million of equipment and services.  Under this letter of agreement, the Companyagreed to return to Nortel Networks certain equipment replaced by the purchasedequipment by March 1, 2010.  TheCompany has submitted non-cancelable purchase orders for approximately $14.8million of equipment and services and therefore has no remaining commitmentunder this letter of agreement to submit additional non-cancelable purchaseorders.  As of September 30, 2009,the Company has received approximately $13.8 million and paid for approximately$13.1 million of equipment and services and has returned approximately half ofthe replaced equipment to Nortel. The remaining replaced equipment is expectedto be returned to Nortel by the end of 2009.

 

As discussed in Note 17,on October 18, 2009, the Company, Sprint and the Purchaser, a wholly ownedsubsidiary of Sprint, entered into the Merger Agreement pursuant to whichSprint agreed to acquire all of the Company’s outstanding common stock for acash price of $24 per share. The Merger Agreement provides for certaintermination rights for each of Sprint and the Company and further provides thatupon termination of the Merger Agreement under specified circumstances, theCompany will be required to pay Sprint a termination fee of $12.5 million.

 

*(b)  FCC Licenses*

 

SprintPCS holds the licenses necessary to provide wireless services in the Company’sterritory. The FCC requires that licensees like Sprint PCS maintain control oftheir licensed spectrums and not delegate control to third-party operators ormanagers without FCC consent and are subject to renewal and revocation by theFCC.  The FCC has adopted specificstandards that apply to wireless personal communications services license renewals.Any failure by Sprint PCS or the Company to comply with these standards couldresult in the non-renewal of the Sprint PCS licenses for the Company’sterritory. Additionally, if Sprint PCS does not 

 

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demonstrateto the FCC that Sprint PCS has met the construction requirements for each ofits wireless personal communications services licenses, it can lose those licenses.If Sprint PCS loses its licenses in the Company’s territory for any of thesereasons, or any other reason, the Company would not be able to provide wirelessservices without obtaining rights to other licenses.

 

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

 

*(c)  Other*

 

TheState of Michigan is currently auditing the Company’s sales and use tax returnsfor the years 2003 through 2006.  Theoutcome of this audit cannot be determined at this time.

 

*(d)  Litigation andArbitration*

 

As discussed in Note 17,in connection with the Merger Agreement, Sprint Nextel Corporation, WirelessCoL.P., Sprint Spectrum L.P., SprintCom, Inc., Sprint CommunicationsCompany, L.P., Nextel Communications, Inc., PhillieCo L.P. and APC PCS LLC(collectively, the “Sprint Parties”) and Horizon Personal Communications, Inc.,Bright Personal Communications Services, LLC, iPCS Wireless, Inc. and theCompany (collectively, the “iPCS Parties”) entered into a Settlement Agreementand Mutual Release, dated October 18, 2009 (the “Settlement Agreement”). Under the terms of the Settlement Agreement, the Sprint Parties and the iPCSParties have agreed to stay all pending litigation between them, subject tocertain exceptions and conditions, and not to sue each other during the pendencyof the transactions contemplated by the Merger Agreement, subject to certainexceptions.

 

*Sprint/Nextel Merger Litigation.*  On July 15, 2005, the Company’s whollyowned subsidiary, iPCS Wireless, Inc. (“iPCS Wireless”), filed a complaintagainst Sprint and Sprint PCS in the Circuit Court of Cook County, Illinois(the “Circuit Court”). The complaint alleged, among other things, that Sprint’sconduct following the consummation of the merger between Sprint and Nextelwould breach Sprint’s exclusivity obligations to iPCS Wireless under itsaffiliation agreements with Sprint PCS. On August 14, 2006, the CircuitCourt issued its decision and on September 20, 2006, the Circuit Courtissued a final order effecting its decision. The final order provided that:

 

·                  Within 180 days of thedate of the final order, Sprint and those acting in concert with it must ceaseowning, operating and managing the Nextel wireless network in iPCS Wireless’sterritory.

 

·                  Sprint shall continue tocomply with all terms and conditions of the Forbearance Agreement between iPCSWireless and Sprint setting forth certain limitations on Sprint’s operationspost-merger with Nextel.

 

On September 28, 2006, Sprint appealed the Circuit Court’s rulingto the Appellate Court of Illinois, First Judicial District (the “AppellateCourt”), and, at Sprint’s request, the Circuit Court’s ruling was stayed by theAppellate Court pending the appeal. On March 31, 2008, the Appellate Courtunanimously affirmed the 2006 Circuit Court decision. On May 5, 2008,Sprint filed a petition for leave to appeal with the Supreme Court of Illinois.On September 24, 2008, the Supreme Court of Illinois (the “Supreme Court”)denied Sprint’s petition for leave to appeal the Appellate Court’s decision.

 

On Sprint’s motion for reconsideration, the Supreme Court again deniedSprint’s petition for leave to appeal on November 12, 2008. The SupremeCourt at that time directed the Circuit Court to modify its order of September 20,2006, in the following manner:

 

·                  To grant Sprint360 days (rather than 180 days) to comply with the Circuit Court’s orderto cease owning, operating and managing the Nextel wireless network in iPCSWireless’s territory.

 

·                  To permit Sprint to seek anextension of the 360-day period upon a showing of good cause, with dueconsideration given to the hardship(s) imposed on iPCS Wireless by therequested extension.

 

On January 30, 2009, the Circuit Court entered its final order, asdirected by the Supreme Court, providing that:

 

·                  Sprint, and those acting inconcert with it, must cease owning, operating and managing the Nextel wirelessnetwork in iPCS Wireless’s service area.

 

·                  Sprint has until January 25,2010 (360 days from the date of the Circuit Court’s order) to comply withthe order. Sprint may seek an extension of such deadline upon a showing of goodcause, giving due consideration to the hardships that would be imposed on iPCSWireless if such extension were granted.

 

·                  Sprint must continue tocomply with all terms and conditions of the Forbearance Agreement between iPCSWireless and Sprint.

 

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On October 19, 2009, pursuant to the Settlement Agreement, theCircuit Court stayed this litigation, including Sprint’s obligations to complywith the Circuit Court’s final order by January 25, 2010.  If the stay is vacated for any reason, Sprintshall have until 120 days after the date on which the stay is vacated to complywith the requirements of the final order.

 

On September 22, 2008, Sprint also filed a petition with theCircuit Court seeking to vacate that Court’s original order. On January 20,2009, the Circuit Court denied Sprint’s petition with prejudice. On February 18,2009, Sprint appealed the decision of the Circuit Court denying Sprint’spetition to vacate to the Illinois Appellate Court.

 

On October 20, 2009, pursuant to the Settlement Agreement, theIllinois Appellate Court stayed Sprint’s appeal.  The stay will be automatically vacated if theMerger Agreement is terminated for any reason.

 

*Sprint/Clearwire Transaction Litigation.*  On May 7, 2008, Sprint announced aproposed transaction among itself, Clearwire Corporation, and certain other parties(the “Sprint-Clearwire Transaction”) to form a new competing network (“NewClearwire”), pursuant to which transaction Sprint transferred its nextgeneration of wireless technology (“4G”) to the New Clearwire. The same day,Sprint filed a complaint for declaratory judgment against iPCS and certain ofits subsidiaries, iPCS Wireless, Horizon Personal Communications, Inc. andBright Personal Communications Services, LLC (collectively, the “iPCSSubsidiaries”) in the Court of Chancery of the State of Delaware (the “DelawareChancery Court”). In that lawsuit, Sprint sought a declaration that theSprint-Clearwire Transaction would not constitute a breach of the Sprintaffiliation agreements it has with the iPCS Subsidiaries.

 

On May 12, 2008, the iPCS Subsidiaries filed a lawsuit againstSprint and certain of its affiliates in the Circuit Court, seeking declaratoryand injunctive relief with respect to the Sprint-Clearwire Transaction. In thatcase, the iPCS Subsidiaries are seeking a declaration that the Sprint-ClearwireTransaction constitutes a breach of Sprint’s affiliation agreements it has withthose subsidiaries, and also sought an injunction barring Sprint from closingthe Sprint-Clearwire Transaction until it complied with the affiliationagreements.

 

On July 14, 2008, the Delaware Chancery Court granted the motionto dismiss filed by our Bright and Horizon subsidiaries and dismissed them fromthe Delaware litigation. Pursuant to a motion filed by iPCS and iPCS Wireless,on October 8, 2008, the Delaware Chancery Court stayed all remainingDelaware litigation in favor of the lawsuit brought in Illinois by the iPCSSubsidiaries.

 

On November 3, 2008, the iPCS Subsidiaries filed a motion forpreliminary injunction in the Circuit Court seeking to prevent Sprint fromconsummating the Sprint-Clearwire Transaction until such time that the CircuitCourt could rule on the merits of the underlying litigation brought by theiPCS Subsidiaries against Sprint. On November 17, 2008, the iPCSSubsidiaries, Sprint, and New Clearwire reached a stipulation pursuant to whichthe iPCS Subsidiaries withdrew their motion for preliminary injunction withoutprejudice, and the Sprint-Clearwire Transaction closed on November 28,2008. In connection with the withdrawal of the preliminary injunction motion bythe iPCS Subsidiaries, the Circuit Court entered an Agreed Order andStipulation, dated November 17, 2008 (the “Agreed Order”) pursuant towhich: (i) New Clearwire stipulated that it did not presently intend tocommercially launch its 4G network, sell products or services, or promoteproducts or services that are available for sale in any part of the iPCSSubsidiaries’ territories prior to July 1, 2009, (ii) New Clearwirestipulated that it would give the iPCS Subsidiaries at least 60 daysadvance written notice before any commercial launch of its 4G network, any saleof products or services or any promotion of products or services that areoffered for sale in any part of the iPCS Subsidiaries service areas if it plansto do so before entry of a final and non-appealable judgment by the CircuitCourt in the underlying action brought by the iPCS Subsidiaries against Sprint,and (iii) New Clearwire and Sprint stipulated that neither of them nor anyof their controlled affiliates would raise the fact that the Sprint-ClearwireTransaction had closed as a basis for opposing any remedy proposed by the iPCSSubsidiaries or granted by the Circuit Court.

 

On December 30, 2008, the Circuit Court issued a decision on amotion for partial summary judgment filed by iPCS Wireless based on the 2006decision in the Illinois Sprint/Nextel Merger Litigation. The Circuit Courtspecifically recognized that pursuant to the 2006 decision, Sprint and thoseacting in concert with it cannot compete against iPCS Wireless in its exclusiveservice area, regardless of the radio frequency that they use to compete. TheCircuit Court held that Sprint cannot relitigate the issue of whether Sprintand those acting in concert with it may compete with iPCS Wireless in itsservice area by using a frequency other than 1900 MHz. The Circuit Courtgranted in part iPCS Wireless’s motion for partial summary judgment withrespect to these two issues and entered judgment thereon but stayed enforcementof the judgment pending a ruling on Sprint’s petition to vacate the originaljudgment in the Illinois Sprint/Nextel Merger Litigation, which petition tovacate was then dismissed with prejudice on January 20, 2009. The CircuitCourt also found in its December 30, 2008 ruling that some material issuesof fact remained and would be decided at trial including, but not limited to,whether New Clearwire is a “related party,” whether Sprint controls NewClearwire, whether the protections of exclusivity extend beyond the situationin which Sprint acts through a related party, and the question of whoconstitutes “those acting in concert” with Sprint.

 

On January 9, 2009, the Circuit Court denied Sprint’s motion forpartial summary judgment against Bright and Horizon. In that motion, Sprint hadsought to bar Bright and Horizon from litigating the issue of whether Sprintcould compete with Horizon and Bright outside the 1900 MHz spectrum range,based on a 2006 decision by the Delaware Chancery Court. The Circuit Courtdenied Sprint’s motion for partial summary judgment against Bright and Horizonand found that the Delaware Chancery Court did not actually decide that issue.

 

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On January 30, 2009, the iPCS Subsidiaries amended their originalcomplaint against Sprint. Under the amended complaint, the iPCS Subsidiariesincluded, among other things, a claim that Sprint is improperly withholdingadvanced technologies from the iPCS Subsidiaries and diverting thosetechnologies to their competitor in violation of the iPCS Subsidiaries’affiliation agreements with Sprint. The amended complaint also seeks monetaryrelief. On February 27, 2009, Sprint, in its response to the amendedcomplaint, asserted several counterclaims that essentially seek declaratoryrelief that the Clearwire transaction does not violate the affiliationagreements.

 

OnApril 30, 2009, the Circuit Court denied a motion brought by Sprint thatsought to dismiss the iPCS Subsidiaries’ claims as to whether Sprint improperlywithheld advanced technology from them in connection with the Clearwiretransaction.  The Circuit Court alsoruled that the iPCS Subsidiaries’ claims for relief could not include certaintypes of monetary relief but that, in addition to their existing claims forinjunctive relief, the iPCS Subsidiaries would not be prevented from making “aclaim for any actual or direct damages.”

 

OnOctober 19, 2009, pursuant to the Settlement Agreement, the Circuit Courtstayed this litigation.  Under the termsof the Settlement Agreement, the stay shall not affect any rights, duties orobligations under the Agreed Order issued by the Circuit Court on November 17,2008. The Settlement Agreement further provides that if New Clearwire takes anyaction that does not comply with the Agreed Order or if New Clearwire providesnotice pursuant to the Agreed Order ofits intention to launch a network or to promote or sell products or services inany part of the applicable iPCS Subsidiaries’ service areas, the stayshall be automatically vacated and the iPCS Subsidiaries shall be entitled topursue all available remedies.

 

*Sprint/Virgin Mobile Transaction Litigation.  *On July 28, 2009,Sprint announced it agreed to acquire Virgin Mobile USA, Inc., subject toVirgin Mobile USA stockholders’ and regulatory approvals (“the Sprint-VirginMobile Transaction”).  On September 10,2009, the iPCS Subsidiaries filed a lawsuit against Sprint and certain of itsaffiliates in the Circuit Court, seeking declaratory and injunctive relief withrespect to the Sprint-Virgin Mobile Transaction. In that case, the iPCSSubsidiaries are seeking a declaration that the Sprint-Virgin MobileTransaction constitutes a breach of Sprint’s affiliation agreements with the iPCSSubsidiaries, and also sought an injunction barring Sprint from closing theSprint-Virgin Mobile Transaction until it complied with the affiliationagreements.  On the same day, the iPCSSubsidiaries filed a motion for preliminary injunction, in which they seek toenjoin the closing of the Sprint-Virgin Mobile Transaction.  That motion is pending.  On September 22, 2009, the defendantsfiled a motion to dismiss the complaint. That motion is pending.  On October 19,2009, pursuant to the Settlement Agreement, the Circuit Court stayed thislitigation.  Under the terms of theSettlement Agreement, Sprint agreed that, so long as the stay was in effect, itwould not (i) reduce, directly or indirectly, or permit to be reduced, thereseller rates under the Virgin Mobile resale arrangement applicable to theiPCS Subsidiaries or (ii) claim or assert in any litigation proceeding orother action between Sprint and the Company or any of their respectiveaffiliates that the iPCS Subsidiaries or any of their affiliates has waived theright to challenge the permissibility of any prior direct or indirectreductions of such reseller rates.

 

The Company presently cannot determine the ultimate resolution of thematters described above. The results of litigation are inherently uncertainand, while the Company believes that it has meritorious claims in the mattersdescribed above, material adverse outcomes are possible.  Additionally, on October 18, 2009, theparties to the above-described lawsuits entered into the Settlement Agreement.Please see Note 17 for a more detailed description of the Settlement Agreement.

 

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

 

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**(16)  Consolidating Financial Information**

 

TheSecured Notes are fully, unconditionally and jointly and severally guaranteedby the Company’s domestic restricted subsidiaries, including iPCS Wireless, Inc.,iPCS Equipment, Inc., Horizon Personal Communications, Inc., BrightPCS Holdings, Inc. and Bright Personal Communications Services, LLC,which are 100% owned subsidiaries of iPCS, Inc. (see Note 6). Thefollowing consolidating financial information for iPCS, Inc. as of September 30,2009 and December 31, 2008 and for the three and nine months ended September 30,2009 and 2008 is presented for iPCS, Inc. and the Company’s guarantorsubsidiaries (in thousands):

 

**Condensed Consolidating Balance Sheet**

**As of September 30, 2009**

 
| ** **                                                    | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|---------------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|----------------------------|------------|
| Cash and cash equivalents                                     |       | $                  | —     |                        | $          | 77,092           |       | $                          | —     |   | $ | 77,092 |   |
| Intercompany receivable                                       |       | 554,594            |       | 295,601                     |       | (850,195         | )          | —                     |       |
| Other current assets                                          |       | 474                |       | 87,649                      |       | —           |       | 88,123                     |       |
| Total current assets                                          |       | 555,068            |       | 460,342                     |       | (850,195         | )          | 165,215                    |       |
| Property and equipment, net                                   |       | —             |       | 159,726                     |       | —           |       | 159,726                    |       |
| Intangible assets, net                                        |       | —             |       | 225,503                     |       | —           |       | 225,503                    |       |
| Other noncurrent assets                                       |       | 5,387              |       | 3,367                       |       | —           |       | 8,754                      |       |
| Investment in subsidiaries                                    |       | 196,535            |       | —                      |       | (196,535         | )          | —                     |       |
| Total assets                                                  |       | $                  | 756,990    |                        | $          | 848,938          |       | $                          | (1,046,730 | ) | $ | 559,198 |   |
| Intercompany payable                                          |       | $                  | 295,601    |                        | $          | 554,594          |       | $                          | (850,195   | ) | $ | — |   |
| Other current liabilities                                     |       | 4,003              |       | 89,105                      |       | —           |       | 93,108                     |       |
| Total current liabilities                                     |       | 299,604            |       | 643,699                     |       | (850,195         | )          | 93,108                     |       |
| Long-term debt                                                |       | 477,297            |       | 370                         |       | —           |       | 477,667                    |       |
| Other long-term liabilities                                   |       | 13,111             |       | 8,334                       |       | —           |       | 21,445                     |       |
| Total liabilities                                             |       | 790,012            |       | 652,403                     |       | (850,195         | )          | 592,220                    |       |
| Stockholders’ equity (deficiency)                        |       | (33,022            | )          | 196,535                     |       | (196,535         | )          | (33,022                    | )          |
| Total liabilities and stockholders’ equity  (deficiency) |       | $                  | 756,990    |                        | $          | 848,938          |       | $                          | (1,046,730 | ) | $ | 559,198 |   |

 

**Condensed Consolidating Balance Sheet**

**As of December 31, 2008**

 
| ** **                                                    | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|---------------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|----------------------------|------------|
| Cash and cash equivalents                                     |       | $                  | —     |                        | $          | 55,940           |       | $                          | —     |   | $ | 55,940 |   |
| Intercompany receivable                                       |       | 526,494            |       | 263,002                     |       | (789,496         | )          | —                     |       |
| Other current assets                                          |       | 615                |       | 76,007                      |       | —           |       | 76,622                     |       |
| Total current assets                                          |       | 527,109            |       | 394,949                     |       | (789,496         | )          | 132,562                    |       |
| Property and equipment, net                                   |       | —             |       | 162,014                     |       | —           |       | 162,014                    |       |
| Intangible assets, net                                        |       | —             |       | 232,385                     |       | —           |       | 232,385                    |       |
| Other noncurrent assets                                       |       | 6,419              |       | 4,232                       |       | —           |       | 10,651                     |       |
| Investment in subsidiaries                                    |       | 178,803            |       | —                      |       | (178,803         | )          | —                     |       |
| Total assets                                                  |       | $                  | 712,331    |                        | $          | 793,580          |       | $                          | (968,299   | ) | $ | 537,612 |   |
| Intercompany payable                                          |       | $                  | 263,001    |                        | $          | 526,495          |       | $                          | (789,496   | ) | $ | — |   |
| Other current liabilities                                     |       | 5,790              |       | 77,631                      |       | —           |       | 83,421                     |       |
| Total current liabilities                                     |       | 268,791            |       | 604,126                     |       | (789,496         | )          | 83,421                     |       |
| Long-term debt                                                |       | 475,000            |       | 401                         |       | —           |       | 475,401                    |       |
| Other long-term liabilities                                   |       | 16,738             |       | 10,250                      |       | —           |       | 26,988                     |       |
| Total liabilities                                             |       | 760,529            |       | 614,777                     |       | (789,496         | )          | 585,810                    |       |
| Stockholders’ equity (deficiency)                        |       | (48,198            | )          | 178,803                     |       | (178,803         | )          | (48,198                    | )          |
| Total liabilities and stockholders’ equity  (deficiency) |       | $                  | 712,331    |                        | $          | 793,580          |       | $                          | (968,299   | ) | $ | 537,612 |   |

 

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**Condensed Consolidating Statement of Operations**

**For the Three Months Ended September 30, 2009**

 
| ** **                                      | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|----------------------------|------------|
| Total revenue                                   |       | $                  | —     |                        | $          | 141,404          |       | $                          | —     |   | $ | 141,404 |   |
| Cost of revenue                                 |       | —             |       | 92,535                      |       | —           |       | 92,535                     |       |
| Selling and marketing                           |       | —             |       | 17,542                      |       | —           |       | 17,542                     |       |
| General and administrative                      |       | 581                |       | 8,367                       |       | —           |       | 8,948                      |       |
| Depreciation and amortization                   |       | —             |       | 11,280                      |       | —           |       | 11,280                     |       |
| Loss on disposal of property and equipment, net |       | —             |       | 113                         |       | —           |       | 113                        |       |
| Total operating expense                         |       | 581                |       | 129,837                     |       | —           |       | 130,418                    |       |
| Other, net                                      |       | —             |       | (7,946                      | )          | —           |       | (7,946                     | )          |
| Income in subsidiaries                          |       | 3,357              |       | —                      |       | (3,357           | )          | —                     |       |
| Income before provision for income tax          |       | 2,776              |       | 3,621                       |       | (3,357           | )          | 3,040                      |       |
| Provision for income tax                        |       | 94                 |       | 264                         |       | 0                |       | 358                        |       |
| Net income                                      |       | $                  | 2,682      |                        | $          | 3,357            |       | $                          | (3,357     | ) | $ | 2,682 |   |

 

**Condensed Consolidating Statement of Operations**

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

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

 

**Condensed Consolidating Statement of Operations**

**For the Nine Months Ended September 30, 2009**

 
| ** **                                      | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|----------------------------|------------|
| Total revenue                                   |       | $                  | —     |                        | $          | 417,727          |       | $                          | —     |   | $ | 417,727 |   |
| Cost of revenue                                 |       | —             |       | 267,867                     |       | —           |       | 267,867                    |       |
| Selling and marketing                           |       | —             |       | 51,528                      |       | —           |       | 51,528                     |       |
| General and administrative                      |       | 1,807              |       | 23,758                      |       | —           |       | 25,565                     |       |
| Gain on Sprint settlement                       |       | —             |       | (4,273                      | )          | —           |       | (4,273                     | )          |
| Depreciation and amortization                   |       | —             |       | 36,115                      |       | —           |       | 36,115                     |       |
| Loss on disposal of property and equipment, net |       | —             |       | 629                         |       | —           |       | 629                        |       |
| Total operating expense                         |       | 1,807              |       | 375,624                     |       | —           |       | 377,431                    |       |
| Other, net                                      |       | —             |       | (23,786                     | )          | —           |       | (23,786                    | )          |
| Income in subsidiaries                          |       | 17,733             |       | —                      |       | (17,733          | )          | —                     |       |
| Income before provision for income tax          |       | 15,926             |       | 18,317                      |       | (17,733          | )          | 16,510                     |       |
| Provision for income tax                        |       | 94                 |       | 584                         |       | —           |       | 678                        |       |
| Net income                                      |       | $                  | 15,832     |                        | $          | 17,733           |       | $                          | (17,733    | ) | $ | 15,832 |   |

 

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**Condensed Consolidating Statement of Operations**

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

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

 

**Condensed Consolidating Statement of Cash Flows**

**For the Nine Months Ended September 30, 2009**

 
| ** **                                       | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|----------------------------|------------|
| Operating activities                             |       | $                  | 8,941      |                        | $          | 48,841           |       | $                          | —     |   | $ | 57,782 |   |
| Investing activities                             |       | —             |       | (27,662                     | )          | —           |       | (27,662                    | )          |
| Financing activities                             |       | (8,941             | )          | (27                         | )          | —           |       | (8,968                     | )          |
| Net increase in cash and cash equivalents        |       | —             |       | 21,152                      |       | —           |       | 21,152                     |       |
| Cash and cash equivalents at beginning of period |       | —             |       | 55,940                      |       | —           |       | 55,940                     |       |
| Cash and cash equivalents at end of period       |       | $                  | —     |                        | $          | 77,092           |       | $                          | —     |   | $ | 77,092 |   |

 

**Condensed Consolidating Statement of Cash Flows**

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

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

 

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**(17)  SubsequentEvents**

 

On October 18, 2009,the Company, Sprint and Ireland Acquisition Corporation (the “Purchaser”), awholly owned subsidiary of Sprint, entered into an Agreement and Plan of Merger(the “Merger Agreement”) pursuant to which, among other things, the Purchasercommenced a tender offer (the “Offer”) on October 28, 2009 to acquire allof the Company’s outstanding shares of common stock, par value $0.01 per share(the “Shares”), at a price of $24.00 per share in cash (the “Offer Price”). TheMerger Agreement also provides that following the consummation of the Offer,the Purchaser will be merged with and into the Company (the “Merger”) with theCompany surviving the merger as a wholly owned subsidiary of Sprint. At theeffective time of the Merger, all remaining outstanding Shares not tendered inthe Offer (other than (1) Shares owned by Sprint, the Purchaser or theCompany and (2) Shares as to which appraisal rights have been perfected inaccordance with applicable law), will be converted into a cash amount of $24.00per share on the terms and conditions set forth in the Merger Agreement.  The Offer will expire on November 25,2009, unless extended in accordance with the terms of the Merger Agreement. TheMerger Agreement is subject to (i) the condition that the number of Sharesvalidly tendered and not withdrawn represents at least a majority of the totalnumber of Shares outstanding on a fully diluted basis and (ii) thesatisfaction or waiver of other customary closing conditions as set forth inthe Merger Agreement, including the receipt of necessary regulatory approvals(including the expiration or termination of the Hart-Scott-Rodino waitingperiod).

 

In connection with theMerger Agreement, Sprint, WirelessCo L.P., Sprint Spectrum L.P., SprintCom, Inc.,Sprint Communications Company, L.P., Nextel Communications, Inc.,PhillieCo L.P. and APC PCS LLC (collectively, the “Sprint Parties”) and HorizonPersonal Communications, Inc., Bright Personal Communications Services,LLC, iPCS Wireless, Inc. and the Company (collectively, the “iPCS Parties”)also entered into a Settlement Agreement and Mutual Release, dated October 18,2009 (the “Settlement Agreement”). Under the terms of the Settlement Agreement,the Sprint Parties and the iPCS Parties have agreed to stay all pendinglitigation between them, subject to certain exceptions and conditions, and notto sue each other during the pendency of the transactions contemplated by theMerger Agreement, subject to certain exceptions. The stays of litigation andcovenants not to sue will terminate if the Merger Agreement is terminated or ifthe Offer is not closed within the time period allowed by the Merger Agreementand the party seeking to terminate the Merger Agreement is unable to do so dueto a court order or injunction that prevents termination. In addition, underthe terms of the Settlement Agreement, effective upon the closing of theMerger, the Sprint Parties and the iPCS Parties will release each other fromall claims, except those arising under or relating to a breach of the MergerAgreement or the Settlement Agreement, and will jointly file all such documentsthat are necessary to effect the dismissal with prejudice of all court ordersand pending lawsuits between the Sprint Parties and the iPCS Parties.

 

Two putative class actionlawsuits have been filed in the Circuit Court of Cook County, Illinois. The complaints name as defendants the Company and its directors, among others,and generally allege that the consideration to be received by the Company’sstockholders in connection with the Merger Agreement is unfair andinadequate.  The complaints further allege that the Company’s directorsbreached their fiduciary duties by, among other things, approving the MergerAgreement and the other transactions contemplated by the Merger Agreement andthat such breaches were aided and abetted by Sprint Nextel Corporation. The lawsuits seek, among other things, preliminary injunctive relief andmonetary and attorneys’ fees.  The Company believes that these lawsuitsare without merit and intends to vigorously defend these actions.  As permitted under applicable law, each ofthe Company and certain of its subsidiaries indemnifies their directors andofficers for certain events or occurrences while the officer or director is, orwas, serving the Company or its subsidiaries in such a capacity.  The maximum potential amount of futurepayments the Company could be required to make under these indemnificationagreements is unlimited; however, the Company has a director and officerinsurance policy that should enable the Company to recover a portion of anyfuture amounts paid.

 

On October 31, 2009, perthe terms of the Company’s affiliation agreements with Sprint PCS, Sprint PCSnotified the Company of its proposed CCPU and CPGA rates for the three yearperiod from 2011 through 2013.  The proposed rates for CCPU services are$10.23, $10.04 and $10.00 for 2011, 2012 and 2013, respectively.  The proposedrates for CPGA services are $22.72, $22.58 and $23.23 for 2011, 2012 and 2013,respectively.  The Company expects to enter into discussions with SprintPCS regarding the proposed rates, which discussions are expected to commence inlate November and proceed in the event that the transactions contemplated bythe Merger Agreement discussed above are not consummated. These proposed ratesare significantly higher than the Company’s current rates and the Company expectsto strongly oppose them in the event that the transactions contemplated by theMerger Agreement discussed above are not consummated, including by submittingthe matter to arbitration or litigation, if necessary.  If the matter issubmitted to an arbitration panel and the panel has not yet imposed differentrates, the Company is required to pay the proposed rates as of January 1, 2011subject to retroactive adjustments if any.  Per the terms of ouraffiliation agreements, the Company has also been exploring the option ofself-providing or procuring these services through third party providers inorder to determine if the Company can provide or procure these services in amore cost-effective manner than Sprint can provide to the Company. 

 

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

 

Asused in this Quarterly Report on Form 10-Q, unless the context otherwiserequires: (i) “Sprint PCS” refers to the affiliated entities of SprintNextel Corporation that are covered by our affiliation agreements; (ii) “Sprint”refers to Sprint Nextel Corporation and its affiliates; (iii) a “PCSAffiliate of Sprint” is an entity that operates (directly or through one ormore subsidiaries) a personal communications services business pursuant toaffiliation agreements with Sprint PCS and/or its affiliates or theirsuccessors; (iv) “Sprint PCS products and services” refers to digitalwireless personal communications services, including wireless voice and dataservices, and related retail products, including handsets, in any case, offeredunder the Sprint brand name; and (v) “our subscribers” refers to SprintPCS subscribers who reside in our territory, excluding reseller subscribers.

 

Statementsin this Quarterly Report on Form 10-Q regarding Sprint or Sprint PCS arederived from information contained in our affiliation agreements with SprintPCS, periodic reports and other documents filed by Sprint with the SEC or pressreleases or other statements issued or made by Sprint or Sprint PCS. ThisQuarterly Report on Form 10-Q contains trademarks, service marks and tradenames of companies and organizations other than us. Other than with respect toSprint PCS, our use or display of other parties’ trade names, trademarks orproducts is not intended to and does not imply a relationship with, orendorsement or sponsorship of us by, the trade name or trademark owners.

 

Thefollowing is an analysis of our results of operations, liquidity and capitalresources and should be read in conjunction with the unaudited ConsolidatedFinancial Statements and notes related thereto included in this QuarterlyReport on Form 10-Q. To the extent that the following Management’sDiscussion and Analysis contains statements which are not of a historicalnature, such statements are forward-looking statements which involve risks anduncertainties. These risks include, but are not limited to, the risks anduncertainties listed in the next section entitled “Forward-LookingStatements” and other factors discussed elsewhere herein and in our otherfilings with the SEC.

 

**Forward-Looking Statements**

 

This Quarterly Report on Form 10-Q contains statements aboutfuture events and expectations that are “forward-looking statements.” Thesestatements relate to future events or our future financial performance, andinvolve known and unknown risks, uncertainties and other factors that may causeour actual results, levels of activity, performance or achievements to bematerially different from any future results, levels of activity, performanceor achievements expressed or implied by these forward-looking statements. Insome cases, you can identify forward-looking statements by terminology such as “may,”“will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,”“predicts,” “potential,” or the negative use of these terms or other comparableterminology. Any statement in this report that is not a statement of historicalfact may be deemed to be a forward-looking statement and subject to the safeharbor created by the Private Securities Litigation Reform Act of 1995. Theseforward-looking statements include:

 

·                  statements regarding ouranticipated revenue, expense levels, capital expenditures, securityrepurchases, liquidity and capital resources, operating losses and operatingcash flows and litigation results and prospects; and

 

·                  statements regardingexpectations or projections about developments in our industry and markets inour territory.

 

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

 

·                  the ability of Sprint and us to complete thetransactions contemplated by the Merger Agreement, the risk that a condition tothe completion of such transactions may not be satisfied, and developmentsregarding such transactions;

 

·                  the impact of the pendency of the transactionscontemplated by the Merger Agreement on our business generally, includingrelationships with our vendors and employees, particularly if the transactionscontemplated by the Merger Agreement are not consummated promptly;

 

·                  our dependence on ouraffiliation with Sprint, as well as its reputation and performance in themarketplace;

 

·                  the compliance by Sprintwith the judgment and orders of the Circuit Court of Cook County, Illinoisrequiring Sprint to cease owning and operating the Nextel network in iPCSWireless, Inc.’s territory, including Sprint’s plans for the Nextelbusiness going forward and its announcement of its intention to sell certain ofits Nextel assets in our territory in light of that judgment (and whether anysuch sale would be in compliance with the Circuit Court’s rulings);

 

·                  the impact and final outcomeof our litigation with Sprint regarding Sprint’s WiMax transaction withClearwire, including Sprint’s plans for the Sprint-Clearwire transaction goingforward in light of any future outcome;

 

·                  the impact and final outcomeof our litigation with Sprint regarding Sprint’s acquisition of Virgin MobileUSA, including Sprint’s plans for the Virgin Mobile business going forward inlight of any future outcome;

 

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·                  the risks of staying andthen resuming our litigation with Sprint regarding Sprint’s Nextel Merger, theSprint-Clearwire transaction and Sprint’s proposed acquisition of Virgin MobileUSA (which may have closed during the period of the stay) if the Merger withSprint is not consummated;

 

·                  the impact and final outcomeof our current and future disputes with Sprint under the affiliationagreements;

 

·                  changes in Sprint’saffiliation strategy;

 

·                  the ability of Sprint PCS toalter the terms of our affiliation agreements with it, including programrequirements;

 

·                  the ongoing effectiveness ofSprint’s network as a result of Sprint’s outsourcing of its network maintenanceand the effect of any network deterioration on our results of operations;

 

·                  our dependence on backoffice services, such as billing and customer care, as well as certainmarketing and operational services provided by Sprint PCS, and the costs weincur to obtain such services, and the effect on us of Sprint PCS notperforming these services adequately or of Sprint PCS devoting fewerresources to the provisioning of these services;

 

·                  changes or advances intechnology in general, or specifically related to Sprint and its affiliates,that may render our technology less desirable to our customers, or any failureby Sprint to share with us the benefits of any improved technologies;

 

·                  competition in the industryand markets in which we operate;

 

·                  our ability to attract andretain skilled personnel, especially in light of the proposed Merger withSprint;

 

·                  our potential need foradditional capital or the need for refinancing any of our existingindebtedness;

 

·                  our potential inability toprofitably expand existing products and services or launch new products andservices, including a prepaid offering;

 

·                  changes in governmentregulation;

 

·                  changes in the relativeattractiveness of Sprint PCS’s phones, pricing plans, customer service andcoverage as well as the market’s overall perception of the Sprint brand;

 

·                  our subscriber creditquality;

 

·                  the potential for us toexperience a continued high rate of subscriber turnover as compared to theindustry;

 

·                  changes in the amounts of,and the relationship between, roaming revenue we receive and roaming expenseswe pay;

 

·                  inaccuracies or delays inour financial and other information provided to us by Sprint, particularly inlight of our 2008 migration to Sprint’s “Ensemble” billing and customer careplatform;

 

·                  any failure to maintaineffective internal controls to satisfy the requirements of Section 404 ofthe Sarbanes-Oxley Act, which requires annual management assessments of theeffectiveness of internal control over financial reporting;

 

·                  our rates of penetration inthe wireless industry and in our territories;

 

·                  our significant level ofindebtedness;

 

·                  the adequacy of ourallowance for bad debt and other reserves;

 

·                  our subscriber purchasingpatterns;

 

·                  subscriber satisfaction withour network and operations, including with services provided to us by Sprint,such as billing and customer care;

 

·                  availability of an adequatesupply of subscriber equipment to Sprint PCS and to us and our distributorsspecifically;

 

·                  our dependence onindependent third parties for a sizable percentage of our distribution;

 

·                  risks related to futuregrowth and expansion, including subscriber growth;

 

·                  the risk of our workforcebecoming unionized, particularly in light of the potential adoption of theEmployee Free Choice Act;

 

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·                  depth and duration of theeconomic downturn in the United States and its effect on our vendors, distributionpartners and existing and potential subscribers;

 

·                  risk of terrorist attack orother macro economic and political events and their impact on our current andpotential subscribers;

 

·                  effects of mergers,consolidations and joint ventures within the wireless telecommunicationsindustry, including business combinations involving Sprint or affiliates ofSprint, and unexpected announcements or developments from others in thewireless telecommunications industry;

 

·                  our dependency on keyvendors such as Nortel for expansion or maintenance of our network, includingthe continued viability of these vendors; and

 

·                  other factors discussedunder “Recent Trends, Risks and Uncertainties That May Affect Operating Results,Liquidity and Capital Resources” below, elsewhere herein, and Item1A, “Risk Factors,” in our 2008 Annual Report on Form 10-K and thisQuarterly Report on Form 10-Q.

 

**New Accounting Pronouncements**

 

SeeNote 14, New Accounting Pronouncements, of the “Notes to Unaudited ConsolidatedFinancial Statements” in this Quarterly Report on Form 10-Q for adiscussion of new accounting pronouncements.

 

**Definitions of Operating Metrics**

 

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

 

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

 

·                  Net subscriberadditions for the period represented is calculated as the gross subscriberadditions in the period less the number of subscribers deactivated plus the netsubscribers transferred in or out of our markets during the period.

 

·                  Churn is ameasure of the average monthly rate at which subscribers based in our territorydeactivate service on a voluntary or involuntary (credit-related) basis. Wecalculate average monthly churn based on the number of subscribers deactivatedduring the period (net of those who deactivated within 30 days ofactivation and excluding transfers out of our territory) as a percentage of ouraverage monthly subscriber base during the period divided by the number ofmonths during the period.

 

·                  ARPU, oraverage revenue per user, is a measure of the average monthly service revenueearned from subscribers based in our territory. This measure is calculated bydividing subscriber revenue in our consolidated statement of operations by thenumber of our average monthly subscribers during the period divided by thenumber of months in the period.

 

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

 

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

 

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

 

Inthis “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations,” unless the context indicates otherwise, all references to “subscribers”or “customers” and other operating metrics mean subscribers or customersexcluding subscribers of resellers known as Mobile Virtual Network Operators,or MVNOs, that use our network and resell wireless service under privatebrands.

 

**Recent Developments — Proposed Merger**

 

On October 18, 2009,the Company, Sprint and Ireland Acquisition Corporation (the “Purchaser”) and awholly owned subsidiary of Sprint, entered into an Agreement and Plan of Merger(the “Merger Agreement”) pursuant to which, among other things, the Purchasercommenced a tender offer (the “Offer”) on October 28, 2009 to acquire allof the Company’s outstanding shares of common stock, par value $0.01 per share(the “Shares”), at a price of $24.00 per share in cash (the “Offer Price”). TheMerger Agreement also provides that following the consummation of the Offer,the Purchaser will be merged with and into the Company (the “Merger”) with theCompany surviving the Merger as a wholly owned subsidiary of Sprint. At theeffective time of the Merger, all remaining outstanding Shares not tendered inthe Offer (other than (1) Shares owned by Sprint, the Purchaser or theCompany and (2) Shares as to which appraisal rights have been perfected inaccordance with applicable law), will be converted into a cash amount of $24.00per share on the terms and conditions set forth in the Merger Agreement.  The Offer will expire on November 25,2009, unless extended in accordance with the terms of the Merger Agreement. TheMerger Agreement is subject to (i) the condition that the number of Sharesvalidly tendered and not withdrawn represents at least a majority of the totalnumber of Shares outstanding on a fully diluted basis and (ii) thesatisfaction or waiver of other customary closing conditions as set forth inthe Merger Agreement, including the receipt of necessary regulatory approvals(including the expiration or termination of the Hart-Scott-Rodino waitingperiod).

 

In connection with theMerger Agreement, Sprint, WirelessCo L.P., Sprint Spectrum L.P., SprintCom, Inc.,Sprint Communications Company, L.P., Nextel Communications, Inc., PhillieCoL.P. and APC PCS LLC (collectively, the “Sprint Parties”) and Horizon PersonalCommunications, Inc., Bright Personal Communications Services, LLC, iPCSWireless, Inc. and the Company (collectively, the “iPCS Parties”) alsoentered into a Settlement Agreement and Mutual Release, dated October 18,2009 (the “Settlement Agreement”). Under the terms of the Settlement Agreement,the Sprint Parties and the iPCS Parties have agreed to stay all pendinglitigation between them, subject to certain exceptions and conditions, and notto sue each other during the pendency of the transactions contemplated by theMerger Agreement, subject to certain exceptions. The stays of litigation andcovenants not to sue will terminate if the Merger Agreement is terminated or ifthe Offer is not closed within the time period allowed by the Merger Agreementand the party seeking to terminate the Merger Agreement is unable to do so dueto a court order or injunction that prevents termination. In addition, underthe terms of the Settlement Agreement, effective upon the closing of theMerger, the Sprint Parties and the iPCS Parties will release each other fromall claims, except those arising under or relating to a breach of the MergerAgreement or the Settlement Agreement, and will jointly file all such documentsthat are necessary to effect the dismissal with prejudice of all court ordersand pending lawsuits between the Sprint Parties and the iPCS Parties.

 

**Business Overview**

 

As a PCS Affiliate of Sprint, we have the exclusive right to providedigital wireless personal communications services, or PCS, under the Sprintbrand name in 81 markets including markets in Illinois, Michigan, Pennsylvania,New York, Indiana, Iowa, Ohio and Tennessee. Our territory includes key marketssuch as Grand Rapids (MI), Fort Wayne (IN), the Tri-Cities region of Tennessee(Johnson City, Kingsport and Bristol), Scranton (PA), Saginaw-Bay City (MI),Central Illinois (Peoria, IL, Springfield, IL, Decatur, IL and Champaign,IL), and the Quad Cities region of Illinois and Iowa (Bettendorf and Davenport,IA, and Moline and Rock Island, IL). We own and are responsible for building,operating and managing the portion of the 100% digital, 100% PCS wirelessnetwork of Sprint PCS located in our territory. We offer national calling plansdesigned by Sprint PCS as well as local plans tailored to our markets. Our PCSnetwork is designed to offer a seamless connection with the wireless network ofSprint PCS. We market Sprint PCS products and services through a number of distributionoutlets located in our territory, including our company-owned retail stores,co-branded dealers, major national retailers and local third partydistributors. As of September 30, 2009, our licensed territory had a totalpopulation of approximately 15.1 million residents, of which our wirelessnetwork covered approximately 12.7 million residents, and we hadapproximately 720,100 subscribers.

 

***Relationship with Sprint***

 

Our relationship with Sprint is the most significant relationship wehave and is essential to the current operation of our business. The terms ofour relationship are set forth in the affiliation agreements between certain ofour subsidiaries and Sprint PCS. Pursuant to these affiliation agreements, weagreed to offer CDMA services using Sprint’s spectrum under the Sprint brandname on a wireless network built and operated at our own expense. We believethat our strategic relationship with Sprint provides significant competitiveadvantages. In particular, we believe that our affiliation agreements withSprint allow us to offer high quality, nationally branded wireless voice anddata services for lower cost and lower capital requirements than wouldotherwise be possible.

 

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Wehave been, and continue to be, engaged in litigation with Sprint regarding (i) its2005 merger with Nextel, (ii) its Sprint-Clearwire transaction throughwhich Sprint and Clearwire are developing a nationwide mobile 4G WiMax networkand (iii) its proposed acquisition of Virgin Mobile. On October 18,2009, pursuant to the Settlement Agreement, the parties agreed to stay suchlitigation pending the completion of the Merger and subject to certain exceptionsand conditions.   Subject to the terms ofthe Settlement Agreement, we intend to continue to vigorously protect andenforce our rights, but there is no assurance that we will prevail. For adetailed discussion of our litigation with Sprint, see “—Commitments andContingencies” below.

 

Under our affiliation agreements with Sprint PCS, the costs we incurfor the support services provided by Sprint are determined on a per averagemonthly cash cost per user (“CCPU”) rate and on a monthly cost per grossaddition (“CPGA”) rate. Pursuant to our affiliation agreements with Sprint PCS,the currently applicable CCPU and CPGA rates through 2010, adjusted forachieved milestone reductions as described below, are as follows:

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

 

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*                                         Subject to furtheradjustments as described below.

 

Beginningon January 1, 2011, the rates will be reset each year based on the amountnecessary to recover Sprint PCS’s reasonable costs for providing these servicesto us and the other PCS Affiliates of Sprint. As discussed below, we expect that Sprint will assert that its costs aresubstantially greater than those reflected in the rates currently in effectthrough December 31, 2010.

 

The CCPU rate in effect from 2008 through 2010 is to be reduced fromthe then current rate by $0.15 if we hit certain milestones with respect to ourvoluntary deployment of EV-DO Rev. A, a version of the further evolution ofcode division multiple access (“CDMA”) high-speed data technology calledEvolution Data Optimized (“EV-DO”). Specifically, the CCPU rates set forthabove are to be reduced by $0.15 from the then-current rate when our EV-DO Rev.A deployment covers at least 6.0 million in population (“POPs”), byanother $0.15 from the then-current rate when we cover at least7.0 million POPs; and by another $0.15 from the then-current rate when wecover at least 9.0 million POPs. Our EV-DO Rev. A deployment coverageexceeded 6.0 million POPs during June 2008 and exceeded7.0 million POPs during July 2008. As a result, our CCPU rate wasreduced to $6.35 starting July 1, 2008, was further reduced to $6.20starting August 1, 2008 for the remainder of 2008 and has been reduced to$5.85 and $5.55 in 2009 and 2010, respectively, subject to any furtheradjustments related to incremental EV-DO Rev. A coverage. As of September 30,2009, our EV-DO Rev. A deployment covered approximately 7.9 million POPs.

 

On October 31, 2009, perthe terms of our affiliation agreements with Sprint PCS, Sprint PCS notified usof its proposed CCPU and CPGA rates for the three year period from 2011 through2013.  The proposed rates for CCPU services are $10.23, $10.04 and $10.00for 2011, 2012 and 2013, respectively.  The proposed rates for CPGAservices are $22.72, $22.58 and $23.23 for 2011, 2012 and 2013, respectively. We expect to enter into discussions with Sprint PCS regarding the proposedrates, which discussions are expected to commence in late November and proceedin the event that the transactions contemplated by the Merger Agreementdiscussed above are not consummated. These proposed rates are significantlyhigher than our current rates and we expect to strongly oppose them in theevent that the transactions contemplated by the Merger Agreement discussedabove are not consummated, including by submitting the matter to arbitration orlitigation, if necessary.  If the matter is submitted to an arbitrationpanel and the panel has not yet imposed different rates, we are required to paythe proposed rates as of January 1, 2011 subject to retroactive adjustments ifany.  Per the terms of our affiliation agreements, we have also beenexploring the option of self-providing or procuring these services throughthird party providers in order to determine if we can provide or procure theseservices in a more cost-effective manner than Sprint can provide to us. 

 

We receive roaming revenue when subscribers of Sprint and other PCSAffiliates of Sprint incur minutes of use in our territories, and we incurexpense to Sprint and to other PCS Affiliates of Sprint when our subscribersincur minutes of use in the territories of Sprint and other PCS Affiliates of Sprint.Effective January 1, 2008 through December 31, 2010, subject toadjustment as described below, 3G data roaming is not settled separately withSprint; however, we do settle 3G data roaming separately with the other PCSAffiliates of Sprint. Pursuant to our affiliation agreements with Sprint PCS,the reciprocal roaming rates through 2010 are as follows:

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

 

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*                                         Excluding certain markets asdescribed below.

 

Beginningon January 1, 2011, the rates will be reset each year to an amount equalto 90% of Sprint’s average monthly retail yield for the first nine months ofthe immediately preceding calendar year; provided, however, that such amountfor any period will not be less than our network costs.

 

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With respect to certain of our markets in western and easternPennsylvania, we receive the benefit of a special reciprocal rate for voice and2G data of $0.10 per minute. This special rate will terminate, with respect toeach of these two sets of markets, on the earlier of December 31, 2011 orthe first day of the calendar month which follows the first calendar quarterduring which we achieve a subscriber penetration rate of at least 7% of ourcovered POPs in those markets. We do not anticipate reaching a 7% subscriberpenetration rate in these markets in the foreseeable future.

 

Commencing on January 1, 2010, and each January 1 thereafter,either Sprint or we may initiate a review to determine whether the 3G dataroaming ratio between us for the prior calendar year has changed by more than20% from the calendar year that is two years prior. If the ratio has changed bymore than 20%, then the parties will commence discussions as to whether anappropriate adjustment in other fees can be made to compensate for such change.If the parties cannot agree, then the parties will revert to settling 3G dataroaming separately and any CCPU reductions related to incremental EV-DO Rev. Acoverage, currently totaling $0.30, will be foregone effective January 1of the year in which such review was initiated. Based on information currently available to us, we believe the 3G dataroaming ratio between us for the 2009 calendar year will have changed by morethan 20% in our favor from the 2008 calendar year ratio.  We intend to commence discussions with Sprintregarding this issue as soon as we are permitted to do so under our affiliationagreements with Sprint.  We believe thatthe favorable change in the 3G data roaming ratio will allow us to negotiatemore favorable CCPU rates than the current rate for 2010 or the initiallyproposed rates for 2011 and beyond.  Inthe absence of such agreed upon rates, our affiliation agreements provide thatthe parties will begin to settle 3G data roaming separately, which we believe maybe favorable to us in 2010.  Beginning in2011, the rates used to settle 3G data roaming will be recalculated under theterms of the agreements, the impact of which on us is uncertain at this time.

 

Themajority of our revenues and cost of service and roaming is derived from informationprovided by Sprint on the basis of data within Sprint’s possession andcontrol.  We review all such amountssettled to and from Sprint and, in the event we believe any such amounts to beerroneous, we may dispute, and have disputed, such settlements in accordancewith the procedures set forth in the affiliation agreements with Sprint.  Subject to and in accordance with the termsof the Merger Agreement and related agreements described above in “—RecentDevelopments – Proposed Merger,” we have disputed certain items with Sprintwhich remain unresolved as of November 3, 2009. The final outcome of theseunresolved disputed items is unknown at this time.

 

OnJanuary 22, 2009, we reached a settlement with Sprint related topreviously disputed 2008 items, which resulted in a Gain on Sprint settlementof $4.3 million being recorded in our consolidated statement of operations forthe nine months ended September 30, 2009.

 

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**Consolidated Results of Operations**

 

***Summary***

 

Forthe three and nine months ended September 30, 2009 our net income was $2.7million and $15.8 million, respectively, compared to net losses of $7.5 millionand $9.7 million for the three and nine months ended September 30,2008.  Net income for the nine monthsended September 30, 2009 includes a $4.3 million gain related to a Sprintsettlement. The three and nine months ended September 30, 2009 reflectedhigher subscriber revenue, attributable to our larger subscriber base andhigher ARPU, as compared to the same periods in 2008. Bad debt expensedecreased in the three and nine months ended September 30, 2009,reflecting an improvement in uncollectable accounts compared to the 2008periods. Offsetting the increased subscriber revenue and reduced bad debtexpense for the three and nine months ended September 30, 2009 were highercosts related to servicing a larger network and larger subscriber base, as wellas a decrease in our roaming margin as compared to the 2008 periods.  Net income was positively affected bydecreased Sprint related litigation expenses in the three months ended September 30,2009 and negatively affected by increased Sprint related litigation expenses inthe nine months ended September 30, 2009 as compared to the 2008periods.  Despite lower gross subscriberadditions, acquisition costs for new activations were flat for the three monthsended September 30, 2009, and increased in the nine months ended September 30,2009, reflecting higher commissions related to the sale of more expensive rateplans and an increase in the percentage of gross additions coming fromdistribution channels with higher commission structures, as well as higher handsetsubsidy costs as compared to the 2008 periods, offset by lower fixed costsrelated to company-owned retail stores.

 

Presentedbelow is a more detailed comparative data and discussion regarding ourconsolidated results of operations for the three and nine months ended September 30,2009 compared to the three and nine months ended September 30, 2008.

 

***For the Three and Nine Months Ended September 30,2009 compared to the Three and Nine Months Ended September 30, 2008***

 

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

 

***Key Performance Metrics.***

 

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

 
| ** **                 | ** ** | **As of and for the Three Months  Ended September 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|----------------------------|------------|-------------------------------------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                 | ** ** | **2009**                                                                                        | ** ** | **2008**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Total Subscribers          |       | 720,100                                                                                         |       | 674,400       |       | 45,700         |       | 6.8 | % |
| Gross Subscriber Additions |       | 68,300                                                                                          |       | 72,200        |       | (3,900         | )          | (5.4 | ) |
| Net Subscriber Additions   |       | 9,900                                                                                           |       | 20,400        |       | (10,500        | )          | (51.5 | ) |
| Churn                      |       | 2.4                                                                                             | %          | 2.3           | %          | 0.1            | pts        | n/a |   |
| ARPU                       |       | $                                                                                               | 50.45      |          | $          | 48.31          |       | $ | 2.14 |   | 4.4 |   |
| CPGA                       |       | $                                                                                               | 373        |          | $          | 374            |       | $ | (1 | ) | (0.3 | ) |

 
| ** **                 | ** ** | **As of and for the Nine Months  Ended September 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|----------------------------|------------|------------------------------------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                 | ** ** | **2009**                                                                                       | ** ** | **2008**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Total Subscribers          |       | 720,100                                                                                        |       | 674,400       |       | 45,700         |       | 6.8 | % |
| Gross Subscriber Additions |       | 184,200                                                                                        |       | 193,200       |       | (9,000         | )          | (4.7 | ) |
| Net Subscriber Additions   |       | 29,000                                                                                         |       | 44,500        |       | (15,500        | )          | (34.8 | ) |
| Churn                      |       | 2.2                                                                                            | %          | 2.3           | %          | (0.1           | )pts       | n/a |   |
| ARPU                       |       | $                                                                                              | 50.33      |          | $          | 48.39          |       | $ | 1.94 |   | 4.0 |   |
| CPGA                       |       | $                                                                                              | 400        |          | $          | 376            |       | $ | 24 |   | 6.4 |   |

 

***Subscriber Additions.***     Grosssubscriber additions decreased in the three and nine months ended September 30,2009 as compared to the three and nine months ended September 30, 2008,reflecting tightened credit standards and increased overall wirelesspenetration in our markets.  Netsubscriber additions for the three months ended September 30, 2009 werenegatively impacted by a slightly higher overall churn percentage, reflectingSprint’s third quarter 2009 elimination of the Sprint Wireless Advantage Club (“SWAC”)discount program for employee related accounts in our territories and therelated deactivations, and by the effect of churn on our larger averagesubscriber base as compared to the three months ended September 30,2008.  Net subscriber additions for thenine months ended September 30, 2009 were also negatively impacted by theeffect of churn on our larger average subscriber base, but was offset by alower overall churn percentage for the nine month period, as compared to thenine months ended September 30, 2008.

 

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***Churn.***     Churnfor the three months ended September 30, 2009 was higher than for thecomparable 2008 period reflecting the effect of Sprint’s third quarter 2009elimination of the SWAC discount program, offset by improvements in churn fromcredit-related deactivations.   Churn forthe nine months ended September 30, 2009 was lower than for the comparable2008 period reflecting improvements in churn from credit-related deactivations,partially offset by increased voluntary churn, including the discontinuation bySprint of its SWAC program.  At September 30,2009, approximately 81% of our subscribers were under contract compared to 84%at September 30, 2008.

 

***Average Revenue Per User.***  ARPU was positively affected by an increasein monthly recurring revenue per subscriber for the three and nine months endedSeptember 30, 2009 as compared to the three and nine months ended September 30,2008. These increases reflect the growing popularity of Sprint’s “SimplyEverything,” “Everything” and “Talk/Message” plans.  Additionally, ARPU was positively impacted inthe 2009 periods by moderating customer care related credits provided by Sprintto customers in our territory. Average monthly credits per subscriber,including promotional credits, were $5.79 for both for the three and ninemonths ended September 30, 2009, as compared to $7.66 and $6.92 for thethree and nine months ended September 30, 2008, respectively.  Partially offsetting these positive trends,ARPU was negatively affected by decreases in customer plan overage charges androaming charges for the three and nine months ended September 30, 2009 ascompared to the three and nine months ended September 30, 2008. Thesedecreases also reflect the growing popularity of Sprint’s all inclusive plans.

 

***Cost Per Gross Addition.***  Variable costs per gross addition increasedby $6 and $27 in the three and nine months ended September 30, 2009,respectively, as compared to the same periods in 2008, reflecting highercommission costs, related to the sale of more expensive rate plans and anincrease in the percentage of gross additions coming from distribution channelswith higher commission structures. Fixed costs per gross addition decreased $7and $3 in the three and nine months ended September 30, 2009 compared tothe three and nine months ended September 30, 2008, respectively,reflecting a reduction in our company-owned retail presence in favor of moreexclusive Sprint co-branded dealers as well as lower advertising expenses,offset by a decrease in gross subscriber additions of approximately 5% for bothcomparable periods.  At September 30,2009, we owned and operated 36 retail stores and contracted with 131 exclusiveSprint co-branded dealers compared to 41 retail stores and 105 exclusive Sprintco-branded dealers at September 30, 2008.

 

**Revenue.**

 

Thefollowing tables set forth a breakdown of revenue by type (dollars inthousands):

 
| ** **                                                                         | ** ** | **For the Three Months Ended  September 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                                                                         | ** ** | **2009**                                                               | ** ** | **2008**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Service  revenue                                                                   |       | $                                                                      | 108,480    |          | $          | 96,097         |       | $ | 12,383 |   | 12.9 | % |
| Roaming revenue from subscribers of Sprint PCS and  other PCS Affiliates of Sprint |       | 22,932                                                                 |       | 23,764        |       | (832           | )          | (3.5 | ) |
| Roaming revenue from other wireless carriers                                       |       | 1,827                                                                  |       | 4,619         |       | (2,792         | )          | (60.4 | ) |
| Reseller revenue                                                                   |       | 3,024                                                                  |       | 3,899         |       | (875           | )          | (22.4 | ) |
| Equipment and other revenue                                                        |       | 5,141                                                                  |       | 3,678         |       | 1,463          |       | 39.8 |   |
| Total revenue                                                                      |       | $                                                                      | 141,404    |          | $          | 132,057        |       | $ | 9,347 |   | 7.1 |   |

 
| ** **                                                                         | ** ** | **For the Nine Months Ended  September 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                                                                         | ** ** | **2009**                                                              | ** ** | **2008**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Service revenue                                                                    |       | $                                                                     | 319,600    |          | $          | 282,370        |       | $ | 37,230 |   | 13.2 | % |
| Roaming revenue from subscribers of Sprint PCS and  other PCS Affiliates of Sprint |       | 63,808                                                                |       | 69,916        |       | (6,108         | )          | (8.7 | ) |
| Roaming revenue from other wireless carriers                                       |       | 10,587                                                                |       | 12,375        |       | (1,788         | )          | (14.4 | ) |
| Reseller revenue                                                                   |       | 9,161                                                                 |       | 11,792        |       | (2,631         | )          | (22.3 | ) |
| Equipment and other revenue                                                        |       | 14,571                                                                |       | 10,633        |       | 3,938          |       | 37.0 |   |
| Total revenue                                                                      |       | $                                                                     | 417,727    |          | $          | 387,086        |       | $ | 30,641 |   | 7.9 |   |

 

·                     ***Service revenue.*** Service revenue iscomprised of the monthly recurring charges for voice and data usage and themonthly non-recurring charges for voice and data minutes and data kilobytesover plan, long distance, roaming usage charges, other feature revenue and latepayment fee and early cancellation fee revenues. Deductions for billingadjustments, promotional credits and certain customer care credits are recordedas a reduction to service revenue. Our service revenue growth in 2009 over theprior year three and nine month periods consists of $7.8 million and $24.9million, respectively, from a higher average subscriber base and $4.6 millionand $12.3 million, respectively, from increases in ARPU.

 

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·                     ***Roaming revenue from subscribers of Sprint PCS andother PCS Affiliates of Sprint.*** We receive revenue on a perminute basis for voice traffic when subscribers of Sprint PCS and other PCSAffiliates of Sprint use our network. We similarly receive revenue on a perkilobyte basis for data traffic when subscribers of other PCS Affiliates ofSprint use our network. In addition, we receive toll revenue for any longdistance calls made by these subscribers while roaming on our network.

 

For 2008 and 2009, the reciprocal roaming rate is$0.0400 per minute for voice traffic ($0.10 per minute in certain markets ineastern and western Pennsylvania).  Forthe three and nine months ended September 30, 2009 compared to the threeand nine months ended September 30, 2008, voice roaming revenue fromsubscribers of Sprint and other PCS Affiliates of Sprint, including tollrevenue, decreased by $0.9 million and $6.0 million, respectively, reflectingdecreases in roaming minutes and roaming toll minutes, as derived frominformation provided by Sprint.

 

For 2009 and 2008, the reciprocal roaming rate fordata traffic was $0.0001 per kilobyte and $0.0003 per kilobyte,respectively.  3G data roaming revenuefrom other PCS Affiliates of Sprint decreased by $0.1 million for the ninemonths ended September 30, 2009 as compared to the nine months ended September 30,2008 reflecting the decrease in the reciprocal rate, offset by increasedkilobyte traffic from subscribers of other PCS Affiliates of Sprint on ournetwork.

 

·                     ***Roaming revenue from other wireless carriers.*** We receiveroaming revenue from wireless carriers other than Sprint PCS and other PCSAffiliates of Sprint when subscribers of such other wireless carriers roam inour territory. We do not have agreements with these other wireless carriers.Instead, we rely on the roaming arrangements Sprint PCS has negotiated withthese carriers and are unable to set terms and prices or otherwise monitorthese relationships. We are paid on a per minute basis for voice and 2G dataand on a per kilobyte basis for 3G data traffic pursuant to these agreements.For the three and nine months ended September 30, 2009, roaming minuteswere 25.7 million and 148.9 million, respectively, compared to100.8 million and 252.8 million for the three and nine months ended September 30,2008, decreases of 75% and 41%, respectively, reflecting the impact of theacquisition of Alltel by Verizon. The average per minute rate, including toll,increased from $0.039 per minute for the three months ended September 30,2008 to $0.046 per minute for the three months ended September 30,2009.  The average per minute ratedecreased from $0.044 per minute for the nine months ended September 30,2008 to $0.042 per minute for the nine months ended September 30, 2009.Data roaming revenue from other wireless carriers totaled $0.6 million and$4.4 million for the three and nine months ended September 30, 2009compared with $0.7 million and $1.3 million for the three and nine monthsended September 30, 2008, reflecting a steep decline in data roamingrevenue from Alltel. The majority of our roaming revenue from other wirelesscarriers is derived from customers of Alltel, which was acquired by VerizonWireless in January 2009. As a result of the acquisition of Alltel, in2009 we have experienced and may continue to experience a decline in ourroaming revenue from Alltel.

 

·                    ***Reseller revenue.*** Through Sprint PCS we allowresellers, known as MVNOs, the largest of which is Virgin Mobile, to use ournetwork. Pursuant to these arrangements, we are paid on a per minute and perkilobyte basis. The decreases in reseller revenue for the three and nine monthsended September 30, 2009 compared to the three and nine months ended September 30,2008 reflect decreased reseller ARPU, partially offset by an increase in theaverage reseller subscribers between the respective periods. For the three andnine months ended September 30, 2009, reseller ARPU was $3.61 and $3.68,respectively, compared to $5.19 and $5.32 for the three and nine months ended September 30,2008, respectively. Average reseller subscribers were approximately 277,100 and275,800 for the three and nine months ended September 30, 2009 compared toapproximately 250,400 and 246,400 for the three and nine months ended September 30,2008. At September 30, 2009, we had approximately 273,300 resellersubscribers based in our territory. Sprint’s proposed acquisition of Virgin Mobile is the subject of pendinglitigation brought by us.  See “—Commitmentsand Contingencies” below for further discussion.

 

·                     ***Equipment and other revenue.*** Equipment andother revenue is derived primarily from the sale of handsets and accessories tonew customers and from current customers who upgrade their handsets through ourretail and local distribution channels, in each case, net of sales incentives,rebates and an allowance for returns. The increases in the three and ninemonths ended September 30, 2009, as compared to the three and nine monthsended September 30, 2008, reflect higher revenue per new and upgradedhandset and a larger number of upgrades. These increasing factors are offset bylower activations from our retail and local distribution channels.

 

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***Operating Expense.***

 

Thefollowing tables set forth a breakdown of operating expense by type (dollars inthousands):

 
| ** **                                      | ** ** | **For the Three Months  Ended September 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                                      | ** ** | **2009**                                                               | ** ** | **2008**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Cost of service and roaming                     |       | $                                                                      | 74,038     |          | $          | 74,520         |       | $ | (482 | ) | (0.6 | )% |
| Cost of equipment                               |       | 18,497                                                                 |       | 15,905        |       | 2,592          |       | 16.3 |   |
| Selling and marketing                           |       | 17,542                                                                 |       | 18,091        |       | (549           | )          | (3.0 | ) |
| General and administrative                      |       | 8,948                                                                  |       | 10,028        |       | (1,080         | )          | (10.8 | ) |
| Depreciation and amortization                   |       | 11,280                                                                 |       | 12,887        |       | (1,607         | )          | (12.5 | ) |
| Loss on disposal of property and equipment, net |       | 113                                                                    |       | 71            |       | 42             |       | 59.2 |   |
| Total operating expense                         |       | $                                                                      | 130,418    |          | $          | 131,502        |       | $ | (1,084 | ) | (0.8 | ) |

 
| ** **                                      | ** ** | **For the Nine Months  Ended September 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                                      | ** ** | **2009**                                                              | ** ** | **2008**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Cost of service and roaming                     |       | $                                                                     | 217,838    |          | $          | 213,167        |       | $ | 4,671 |   | 2.2 | % |
| Cost of equipment                               |       | 50,029                                                                |       | 40,442        |       | 9,587          |       | 23.7 |   |
| Selling and marketing                           |       | 51,528                                                                |       | 52,394        |       | (866           | )          | (1.7 | ) |
| General and administrative                      |       | 25,565                                                                |       | 25,108        |       | 457            |       | 1.8 |   |
| Gain on Sprint settlement                       |       | (4,273                                                                | )          | —        |       | (4,273         | )          | — |   |
| Depreciation and amortization                   |       | 36,115                                                                |       | 40,691        |       | (4,576         | )          | (11.2 | ) |
| Loss on disposal of property and equipment, net |       | 629                                                                   |       | 329           |       | 300            |       | 91.2 |   |
| Total operating expense                         |       | $                                                                     | 377,431    |          | $          | 372,131        |       | $ | 5,300 |   | 1.4 |   |

 

***Cost of service and roaming.***  Cost of service and roaming includes networkoperations expense, roaming expense relating to when our subscribers roameither on other Sprint PCS networks or other wireless carriers’ networks,back-office customer services provided by Sprint PCS, the provision fordoubtful accounts, long distance expense, the 8% affiliation fee due to SprintPCS for collected revenue and stock-based compensation expense. Networkoperations expense includes salaries and benefits for network personnel, cellsite rent, utilities and maintenance expenses, fees relating to the connectionof our cell sites to our switches and other transport and facility expenses.Roaming expense is our cost of our subscribers using Sprint PCS and otherwireless carriers’ networks. Roaming expense on the Sprint PCS network is atthe reciprocal rates as described above under “—Roaming revenue fromsubscribers of Sprint PCS and other PCS Affiliates of Sprint.” Roaming expensewhen our subscribers use other wireless carriers networks is at rates asdetermined by the roaming agreements signed by Sprint PCS with these otherwireless carriers. Effective January 1, 2008, data roaming with Sprint isnot settled separately, however, we continue to settle separately 3G dataroaming with the other PCS Affiliates of Sprint.

 

The decrease in cost of service and roaming for the three months ended September 30,2009 reflects lower bad debt expense and decreases in our monthly cash costsper user fee payable to Sprint, offset by the costs of servicing a largernetwork and larger subscriber base, such as higher cell site rent andinterconnect costs due to more cell sites, and by increases in roaming expensewith Sprint as well as carriers other than Sprint.

 

The increase in cost of service and roaming for the nine months ended September 30,2009 reflects the costs of servicing a larger network and larger subscriberbase, such as higher cell site rent and interconnect costs due to more cellsites, and increases in roaming expense with Sprint as well as carriers otherthan Sprint, offset by lower bad debt expense and decreases in our monthly cashcosts per user fee payable to Sprint.

 

Roaming expense with Sprint increased $1.3 million and $2.4million, from $14.5 million and $44.4 million in the three and nine monthsended September 30, 2008, respectively, to $15.8 million and $46.8million in the three and nine months ended September 30, 2009,respectively, due to higher minutes of use on Sprint’s networks.

 

Roaming expense with wireless carriers other than Sprint increased$0.5 million and $4.2 million, from $4.8 million and $9.8 million inthe three and nine months ended September 30, 2008, respectively, to$5.3 million and $14.0 million in the three and nine months ended September 30,2009, respectively, due to significantly higher minutes and kilobytes of use onSprint’s roaming partners’ networks.

 

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Bad debt expense decreased $2.4 million and $7.8 million from$5.6 million and $15.8 million in the three and nine months ended September 30,2008, respectively, to $3.2 million and $8.0 million in the three and ninemonths ended September 30, 2009, respectively. These decreases in bad debtexpense reflect tightened credit policies and increases in deposit requirementsin the three and nine months ended September 30, 2009 as compared to the2008 periods.

 

Additionally, due to decreases in our monthly cash cost per user feepayable to Sprint, our cost of service and roaming was lower by $1.4 millionand $4.1 million for the three and nine months ended September 30, 2009 ascompared to the three and nine months ended September 30, 2008,respectively.

 

AtSeptember 30, 2009, our network consisted of 1,981 leased cell sites andfive switches.  At September 30,2008, our network consisted of 1,819 leased cell sites and five switches.

 

***Cost of equipment.***  Cost of equipment includes the cost ofhandsets and accessories sold or upgraded from our retail and localdistribution channels. Cost of equipment related to upgrades increased $2.9million and $6.3 million, or 75% and 57%, in the three and nine months ended September 30,2009 as compared to the three and nine months ended September 30, 2008,reflecting increases in the number of subscribers receiving handset upgradesfrom our retail and local distribution channels and for the nine month period,an increase in the average handset cost per upgrade. Cost of equipment for newactivations decreased $0.4 million, or 3%, in the three months ended September 30,2009 as compared to the three months ended September 30, 2008, reflectinga decrease in new activations from our retail and local distribution channels,offset by an increase in the average cost per activated phone.  Cost of equipment for new activationsincreased $3.2 million, or 11%, in the nine months ended September 30,2009 as compared to the nine months ended September 30, 2008, reflectingan increase in the average cost per activated phone, partially offset by adecrease in new activations from our retail and local distributionchannels.  Handset costs have beenincreasing as demand has shifted toward more expensive smart phones.

 

***Selling and marketing.***  Selling and marketing expense includes thecosts to operate our owned retail stores, advertising and promotional expenses,commissions to our company-owned retail and local third party distributorchannels, subscriber acquisition costs from national third parties and otherSprint-controlled channels and stock-based compensation expense.  The decreases in the three and nine monthsended September 30, 2009 were due to lower costs associated with a smallercompany employed retail work force, lower advertising costs and lower costsrelated to promotional credits, offset by higher commissions and subscriberacquisition costs from our indirect channels.

 

***General and administrative.***  General and administrative expenses includeadministrative salaries and benefits, legal fees, insurance expense, otherprofessional expenses and stock-based compensation expense. For the three andnine months ended September 30, 2009, general and administrative expenseincluded approximately $3.0 million and $9.0 million, respectively, ofSprint litigation related expenses. This compares to $5.3 million and $7.4million for the three and nine months ended September 30, 2008,respectively. Stock-based compensation expense included in general andadministrative expense totaled approximately $1.0 million and $2.8 millionfor the three and nine months ended September 30, 2009, respectively,compared to $0.9 million and $3.8 million for the three and nine monthsended September 30, 2008, respectively.

 

***Gain on Sprint settlement.***** On January 22,2009, we reached a settlement with Sprint related to previously disputed 2008items, which resulted in a $4.3 million gain being recorded in ourconsolidated statement of operations for the nine months ended September 30,2009.

 

***Depreciation and amortization.***  Amortization of intangible assets totaled$2.3 million and $6.9 million for both the three and nine months ended September 30,2009 and 2008, respectively. Depreciation expense totaled $9.0 million and $29.2 million for thethree and nine months ended September 30, 2009 compared to$10.6 million and $33.8 million for the three and nine months ended September 30,2008, decreases of $1.6 million and $4.6 million for the three and ninemonth periods, respectively. These decreases reflect the full depreciation ofcertain assets during 2008 and 2009. During the three and nine months ended September 30,2008, we recognized impairment charges of $1.9 million and $2.2 million,respectively, included in depreciation, related to our assets held for sale toreduce their carrying value in accordance with the guidance included in theFinancial Accounting Standards Board’s Accounting Standards Codification Topic360, “Property, Plant and Equipment”.

 

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

 

Thefollowing tables set forth a breakdown of non-operating income and expense bytype (dollars in thousands):

 
| ** **        | ** ** | **For the Three Months Ended  September 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|-------------------|------------|------------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **        | ** ** | **2009**                                                               | ** ** | **2008**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Interest income   |       | $                                                                      | 47         |          | $          | 316            |       | $ | (269 | ) | (85.1 | )% |
| Interest expense  |       | 8,065                                                                  |       | 8,320         |       | (255           | )          | (3.1 | ) |
| Other income, net |       | 72                                                                     |       | 63            |       | 9              |       | 14.3 |   |
|                   |            |                                                                        |            |               |            |                |            |  |  |  |  |  |

 
| ** **        | ** ** | **For the Nine Months Ended  September 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|-------------------|------------|-----------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **        | ** ** | **2009**                                                              | ** ** | **2008**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Interest income   |       | $                                                                     | 211        |          | $          | 1,420          |       | $ | (1,209 | ) | (85.1 | )% |
| Interest expense  |       | 24,096                                                                |       | 25,456        |       | (1,360         | )          | (5.3 | ) |
| Other income, net |       | 99                                                                    |       | 93            |       | 6              |       | 6.5 |   |
|                   |            |                                                                       |            |               |            |                |            |  |  |  |  |  |

 

***Interest Income.*** The decrease in interest income in the threeand nine months ended September 30, 2009 as compared to the three and ninemonths ended September 30, 2008 reflects lower yields on our investmentsduring the three and nine months ended September 30, 2009 as compared tothe three and nine months ended September 30, 2008.

 

***Interest Expense.*** Interest expense consists of interest on ouroutstanding long-term debt (see Note 6, Long-Term Debt, of the “Notes toUnaudited Consolidated Financial Statements” in this Quarterly Report on Form 10-Q),including amortization of financing costs and net of capitalized interest andthe effect of our interest rate swap (see Note 7, Interest Rate Swap, of the “Notesto Unaudited Consolidated Financial Statements” in this Quarterly Report on Form 10-Q).  The decrease in interest expense in the threeand nine months ended September 30, 2009 reflects a lower weighted averageinterest rate, net of our interest rate swap, of 6.44% and 6.52% on ouroutstanding long-term debt during the three and nine months ended September 30,2009, respectively, as compared to the weighted average interest rate of 6.96%and 7.10% on our outstanding long-term debt during the three and nine monthsended September 30, 2008, respectively.

 

Inconnection with our capital expenditures, we capitalized interest ofapproximately $0.1 million and $0.5 million in the three and nine months ended September 30,2009, respectively.  We capitalizedinterest of approximately $0.5 million and $1.3 million in the three and ninemonths ended September 30, 2008, respectively.

 

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

 

Weutilize certain financial measures that are not calculated in accordance withGAAP to assess our financial performance. A non-GAAP financial measure isdefined as a numerical measure of financial performance that (a) excludesamounts, or is subject to adjustments that have the effect of excludingamounts, that are included in the comparable measure calculated and presentedin accordance with GAAP in the statement of income or statement of cash flows;or (b) includes amounts, or is subject to adjustments that have the effectof including amounts, that are excluded from the comparable measure socalculated and presented. The non-GAAP financial measures discussed in “—Resultsof Operations” are ARPU and CPGA. A description of each of these non-GAAPfinancial measures is provided in “—Definition of Operating Metrics.” Thefollowing tables reconcile the non-GAAP financial measures with ourconsolidated financial statements presented in accordance with GAAP, excludingsubscriber data:

 
| ** **                      | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|---------------------------------|------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                      | ** ** | **2009**                                                               | ** ** | **2008**                                                              | ** ** | **2009** | ** ** | **2008** | ** ** |
| ***ARPU***                      |       |                                                                   |       |                                                                  |       |   |   |   |   |
| Service  revenue (in thousands) |       | $                                                                      | 108,480    |                                                                  | $          | 96,097 |   | $ | 319,600 |   | $ | 282,370 |   |
| Average  subscribers            |       | 716,700                                                                |       | 663,100                                                               |       | 705,500 |   | 648,300 |   |
| ARPU                            |       | $                                                                      | 50.45      |                                                                  | $          | 48.31 |   | $ | 50.33 |   | $ | 48.39 |   |

 

ARPU,which is utilized by most wireless companies to determine recurring monthlyrevenue on a per subscriber basis, is used by analysts and investors to comparerelative subscriber revenue across the wireless industry. We use ARPU to assistin evaluating past selling performance and the success of specific rate planpromotions.

 

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| ** **                                       | ** **   | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------|--------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                       | ** **   | **2009**                                                               | ** ** | **2008**                                                              | ** ** | **2009** | ** ** | **2008** | ** ** |
| ***CPGA***                                       | *** *** | ** **                                                             | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** ** | *** *** |
| Selling  and Marketing (in thousands):           |         | $                                                                      | 17,542     |                                                                  | $          | 18,091 |   | $ | 51,528 |   | $ | 52,394 |   |
| plus:  Equipment costs, net of cost of upgrades  |         | 11,658                                                                 |       | 12,008                                                                |       | 32,617 |   | 29,369 |   |
| less:  Equipment revenue, net of upgrade revenue |         | (3,555                                                                 | )          | (2,991                                                                | )          | (10,123 | ) | (8,499 | ) |
| less:  Stock-based compensation expense          |         | (141                                                                   | )          | (129                                                                  | )          | (421 | ) | (546 | ) |
| CPGA  costs                                      |         | $                                                                      | 25,504     |                                                                  | $          | 26,979 |   | 73,601 |   | 72,718 |   |
| Gross  additions                                 |         | 68,300                                                                 |       | 72,200                                                                |       | 184,200 |   | 193,200 |   |
| CPGA                                             |         | $                                                                      | 373        |                                                                  | $          | 374 |   | $ | 400 |   | $ | 376 |   |

 

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

 

***Inflation***

 

We believe that inflation has not had a significant impact on ourrevenues or our results of operations in the three or nine months ended September 30,2009 and 2008, respectively.

 

**Liquidity and Capital Resources**

 

While we believe the Merger should be consummated later this year orearly next year, we also believe our cash and cash equivalents and operatingcash flow will be sufficient to operate our business and fund our capital needsfor at least the next twelve months. Although we have certain limitedadditional borrowings allowed under our current debt agreements, including butnot limited to PIK Interest (see Note 6, Long-Term Debt, of the “Notes toUnaudited Consolidated Financial Statements” in this Quarterly Report on Form 10-Q),we are dependent on cash and cash equivalents and operating cash flow tooperate our business and fund our capital needs. However, our future liquidityis dependent on a number of factors influencing our expected earnings andoperating cash flows, including those discussed below in “—Recent Trends, Risksand Uncertainties That May Affect Operating Results, Liquidity and CapitalResources.”

 

***Significant Sources of Cash***

 

Wegenerated $57.8 million in net cash flows from operating activities forthe nine months ended September 30, 2009, compared to $44.1 millionfor the nine months ended September 30, 2008, an increase of $13.7million. Excluding changes in working capital, operating activities provided$68.8 million of cash for the nine months ended September 30, 2009,compared to $52.9 million of cash for the nine months ended September 30,2008, generally reflecting increased earnings from our larger subscriber baseand cash received related to the settlement of 2008 disputes with Sprint,offset by a decrease in our roaming margin. The nine months ended September 30, 2009 also reflected increasedSprint related litigation expenses and higher customer acquisition costs.  Sprint related working capital, whichincludes fees and charges payable and receivable between us and Sprint, was asource of cash of $5.1 million for the nine months ended September 30,2009 compared to a source of cash of $9.0 million for the nine months ended September 30,2008, primarily due to the timing of cash payments both to and fromSprint.  For the nine months ended September 30,2009, non-Sprint related working capital used cash of $16.1 million, reflectingincreased accounts receivable related to a higher subscriber base during theperiod.  For the nine months ended September 30,2008, non-Sprint related working capital used cash of $17.8 million reflectingcustomer account write-offs and increased accounts receivable during theperiod, offset by higher Sprint litigation related expense accruals.

 

We received approximately $0.2 million primarily from the sale ofequipment during each of the nine months ended September 30, 2009 and2008.

 

For the nine months ended September 30, 2008, we received $0.6million from the exercise of options representing approximately 37,800shares.  As of September 30, 2009,there were 1,038,864 exercisable stock options outstanding with a weightedaverage exercise price of $20.07.  Wecannot predict at what level, if any, cash will be generated from stock optionexercises in the future. At September 30, 2009, the intrinsic value of allof our outstanding stock options was approximately $6.1 million.

 

***Significant Uses of Cash***

 

Cashflows used for investing activities for the nine months ended September 30,2009 included $27.9 million for capital expenditures.  Included inthis total was $24.8 million for new cell site construction and othernetwork-related capital expenditures, of which $11.9 million was for EV-DO Rev.A equipment, and $3.1 million was for store improvements, IT and othercorporate-related capital expenditures.

 

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

 

OnJanuary 30, 2009, our Board of Directors authorized the repurchase of upto $15.0 million of our common stock in a stock repurchase program duringthe 12-month period beginning on the date of authorization. We may purchaseshares from time to time in open market or privately negotiated transactions atprices deemed appropriate by management, depending on market conditions,applicable laws and other factors. The stock repurchase program does notrequire us to repurchase any specific number of shares and may be discontinuedat any time.  Pursuant to this stock repurchase program, during thenine months ended September 30, 2009, we purchased 658,863 shares of ourcommon stock at an average price of $13.69 per share for approximately$9.0 million, of which approximately $8.8 million had been settled in cashas of September 30, 2009.  Theserepurchased shares are reflected as Treasury stock, at cost in the ConsolidatedBalance Sheet as of September 30, 2009. As of September 30, 2009, approximately $6.0 million remainedavailable under the stock repurchase program.

 

Pursuant to the terms ofthe Merger Agreement discussed above in “—Recent Developments – Proposed Merger,”as of October 18, 2009, we are not permitted to repurchase shares of ourcommon stock on or after such date.

 

Our uses of cash typically include providing for operatingexpenditures, debt service requirements and capital expenditures. Because ourlong-term debt does not begin to mature until 2013, we do not believe thevolatility of the credit markets, unless prolonged, should have a significantimpact on our ability to refinance our debt. Pursuant to the terms of the Merger Agreement discussed above in “RecentDevelopments – Proposed Merger,” we have agreed that capital expenditures forthe remainder of 2009 will be consistent with our internal 2009 budget andthereafter will not exceed $3.0 million per month without Sprint’s priorwritten consent.  On August 3, 2009,we paid our interest payment in relation to our Second Lien Notes entirely byincreasing the principal amount of the outstanding Second Lien Notes.  To date, we have additionally elected to payour November 1, 2009 and February 1, 2010 interest payments inrelation to our Second Lien Notes entirely by increasing the principal amountof the outstanding Second Lien Notes (see Note 6, Long-Term Debt, of the “Notesto Unaudited Consolidated Financial Statements” in this Quarterly Report on Form 10-Q).We have made no other decisions regarding the future election ofPIK Interest.

 

Pursuant to the terms of the Merger Agreement, we have certainrestrictions on our ability to increase capital expenditures, pursue strategicacquisitions or new business opportunities, pay cash dividends ordistributions, repurchase our stock, incur new debt, or retire or repurchaseour debt.

 

***Recent Trends, Risks andUncertainties That May Affect Operating Results, Liquidity and CapitalResources***

 

Wehave identified the following important trends and factors (as well as risksand uncertainties associated with such items) that could impact our futurefinancial performance.  This section should be read in conjunctionwith the “Risks Related to Our Business, Strategy and Operations”section found in Item 1A of Part I of our Annual Report on Form 10-K,filed with the SEC on March 3, 2009.

 

·                  The ability of Sprint and us to complete thetransactions contemplated by the Merger Agreement, including the pending tenderoffer to acquire our shares, and the favorable resolution of litigationchallenging such transactions, the risk that a condition to the completion ofsuch transactions may not be satisfied, the terms and conditions on which suchtransactions are made and developments regarding such transactions.

 

·                  The impact of the pendency of the transactionscontemplated by the Merger Agreement on our business generally, includingrelationships with our vendors and employees, particularly if such transactionsare not consummated promptly.

 

·                  Gross additions slowed inthe first nine months of 2009, reflecting tightened credit standards andincreased overall wireless penetration in our markets.  The percentage of our gross additions comingfrom Nextel subscribers switching to Sprint in our territory has declined ineach of the 2009 quarters and has fallen significantly from levels weexperienced in the second half of 2008.  We expect this decline to continue. Additionally, gross additions were negatively impacted by the weakenedeconomic environment, increased competitive advertising, increased competitionand the relative attractiveness of competitors’ phones, pricing plans, coverageand customer service, as well as continuing concerns about the strength of the “Sprint”brand. We believe that these factors will continue to negatively affect grossadditions in the remainder of 2009. To the extent we are unable to maintain, orchoose to slow, our subscriber growth, it may make it more difficult for us toobtain sufficient revenue to achieve and sustain profitability.

 

·                  While our churn in the firstnine months of 2009 has improved as compared to the first nine months of 2008,it increased from the second quarter of 2009 to the third quarter of 2009 andit continues to be higher than the national industry average. 

 

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Our churn may increase in the future or remain high due to theweakening economic environment, increased competition or other factors. Ifchurn continues to remain high or increases over the long-term, we would losethe cash flows attributable to these subscribers and may incur higher netlosses or lower net profits.

 

·                  Despite our 2009increases in per subscriber revenue as compared to 2008 levels, competition in the wireless industry remainsintense and continues to put pressure on our per subscriber revenue.  The introduction of more advanced handhelddevices and new technologies and delivery channels, such as the WiMax offeringsof Sprint through the Sprint-Clearwire transaction, further complicate thecompetitive environment. In addition, prepaid plans (such as those offered bynew entrants into our markets like MetroPCS and existing competitors likeNextel through its Boost product), which we do not currently offer, andunlimited plans, including those offered by us, also continue to increase inpopularity, which may potentially put more downward pressure on wirelessservice pricing as well as potentially, in the case of unlimited plans,increase our cost of providing service. Incumbent carriers, including Sprint,have offered and may continue to offer more aggressive rate plans in order tomaintain or achieve subscriber growth. While customer care credits given to customers in our territory bySprint moderated in the first nine months of 2009 as compared to 2008 levels, customer care credits remain highand the future trend of these credits is unknown.  Asa result of these and other factors, we expect to see continued pressure onsubscriber revenue which will have a negative effect on our cash flow and ouroperating results.

 

·                  While our third quarter costper gross addition, or CPGA, was comparable to our CPGA for the 2008 thirdquarter, our CPGA continues to remain high as compared to historical levels. Wemay continue to experience higher costs to acquire subscribers in the future.In the event that we increase our distribution infrastructure, we will increasethe fixed costs in our sales and marketing organization. Also, more aggressivepromotional efforts in the future may lead to higher handset subsidies andrebates, as would increased sales of more expensive handsets and smart phones.In addition, we may increase our marketing expenses and pay higher commissionsin an effort to attract and acquire new subscribers. With a higher CPGA,subscribers must remain our subscribers for a longer period of time at a stableARPU for us to recover those acquisition costs.

 

·                  Certain portions of ouroperating expense continue to increase or remain high and may increase in thefuture due to, among other reasons:

 

·                  Bad debt expense, which increased from thesecond quarter of 2009 to third quarter of 2009, could potentially continue toincrease due to higher write-offs, lower bad debt recoveries as a percentage ofwrite-offs and a weakened economic environment;

 

·                  Trend toward higher roamingexpense as customers increasingly choose roam inclusive rate plans and increasetheir use of their handset and data devices off our network;

 

·                  Higher handset subsidies,rebates, commissions and other retention expenses for existing subscribers whoupgrade to a new handset as part of promotional efforts to reduce churn;

 

·                  Higher back office andadministrative expenses due to the larger number of subscribers served and theincreased CCPU fees proposed by Sprint for the three year period from 2011through 2013, if not reduced or mitigated (see “—Business Overview—Relationshipwith Sprint” above for further discussion of proposed CCPU fee increases);

 

·                  Higher network costs as weprocess increasing voice and data traffic on our network, including trafficfrom Sprint customers roaming in our territories, and as a result of expandingour network infrastructure and increasing our deployment of EV-DO Rev. A.; and

 

·                  If the litigation stays andcovenants not to sue granted pursuant to the Settlement Agreement are vacatedor terminate, higher Sprint litigation related expenses, as a result of ourongoing defense of our rights under our affiliation agreements, in particularrelating to the Sprint-Clearwire transaction announced in May of 2008, theVirgin Mobile transaction announced in July of 2009, and if any actionstaken by Sprint related to its announced plan to divest of the Nextel wirelessnetwork in our territory do not comply with the Circuit Court’s order.

 

·                  A substantialportion of our revenue is derived from roaming revenue, the majority of whichcomes when subscribers of Sprint incur minutes of use in our territories. Webelieve our markets have certain characteristics that have historically had afavorable effect on the level of roaming revenue from subscribers of Sprinttraveling in our markets.  Thesecharacteristics include being located near or around several large U.S. urbancenters and having significant distances of major and secondary highways comprisingprincipal travel corridors between these large urban centers.  In the first nine months of 2009, we haveseen a decrease in roaming revenue that Sprint reports to us for theirsubscribers’ activity in our territory which we believe reflects reduced travelinto our markets related to Sprint having less subscribers and thesesubscribers traveling less.  A continueddownturn in economic conditions could result in further decreased travelactivity and have a negative impact on 

 

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ourroaming revenue.  Similarly, if Sprintwere to continue to lose subscribers, particularly in markets adjacent to ourterritory, it could have a negative impact on our roaming revenue.  Additionally, Sprint’s reciprocal roamingagreements with other carriers, such as its roaming agreement with Alltel, andour participation in those agreements, can change over time, potentiallyreducing the reciprocal rate or negatively affecting the level of roamingactivity related to those roaming partners. The ratio between our roamingrevenue with wireless carriers other than Sprint and our roaming expense withwireless carriers other than Sprint continued to decline in the first ninemonths of 2009 and was significantly below one in the third quarter of 2009.For the three and nine months ended September 30, 2009, approximately $0.8million and $7.4 million, or 44% and 70%, respectively, of our roamingrevenue from wireless carriers other than Sprint was derived from customers ofAlltel, which was acquired by Verizon Wireless in January 2009. As aresult, in 2009, we have experienced and expect to continue to experience adecline in our roaming revenue from Alltel. Moreover, since the ratio ofinbound to outbound roaming fluctuates from period to period and year to year,the margin we earn from the difference between roaming revenue and roamingexpense is difficult to predict. If this roaming margin with Sprint PCS or withother carriers declines due to less roaming revenue, more roaming expense, orboth, our results of operations will be negatively affected.

 

·                  As we have added to thecapacity, coverage and quality of our PCS network, we have incurred significantcapital expenditures. We incurred approximately $27.9 million in capitalexpenditures in the nine months ended September 30, 2009, includingapproximately $11.9 million for continued expansion of our EV-DO Rev. Adeployment.  In the future we may decideto further increase our cell site expansion or EV-DO Rev. A coverage, either orboth of which may increase our anticipated capital expenditures and operatingexpense beyond our current plans. Furthermore, unforeseen changes in technologyand changes in our plans to upgrade or expand our network may require us tospend more money than we expected and have a negative effect on our cash flow.Notwithstanding the foregoing, pursuant to the terms of the Merger Agreement,we have certain restrictions on our ability to incur capital expenditures.

 

·                  We believe thatSprint’s integration of the Sprint and Nextel businesses has had, and willcontinue to have, a negative impact on our business and prospects. With theintegration of the marketing and sales of Sprint products and services withlegacy Nextel products and services, conflicts and disputes continue to arisewith how Sprint and we conduct business in our territory as well as with regardto Sprint’s commitment and level of service provided to the PCS Affiliateprogram and to us specifically, including the timeliness, completeness andlevel of insight into prospective and historical information provided to us torun our business. Additionally, we believe that changes in Sprint’s billingplatform, Ensemble, and related reporting systems during 2008 resulted in anumber of issues which have had an adverse impact on our subscriber activityand financial results, some of which we have formally disputed and continue todispute. As of September 30, 2009, we have also not yet achieved the samelevel of visibility to our subscriber information we previously had prior tothe migration. Further delays in reestablishing this level of visibility intoour subscriber information could continue to make it more difficult for us toeffectively manage our business. If continuing or future problems with Ensembleare not resolved in a timely manner for any reason, including Sprint’s inabilityor unwillingness to commit resources to such issues, our business wouldcontinue to be negatively impacted. There can be no assurances that we will nothave continued disputes with Sprint relating to these or other items pertainingto Sprint’s performance of its obligations under the affiliation agreements.

 

·                  Our primary subscriber baseis composed of individual consumers. The current overall weakness in the UnitedStates economy, particularly weakness in the credit and housing markets, risingunemployment and volatile energy and commodity costs, have resulted inconsiderable negative pressure on consumer confidence and spending. As aresult, we believe that these events have impacted consumers in our territoriesin ways that have negatively affected our business. In the event the currenteconomic downturn in the United States continues or worsens, our current andpotential wireless subscribers, especially our sub-prime subscribers, may beunable or unwilling to purchase wireless services or pay their wireless bills,which may continue to negatively impact our business, particularly as we do notyet offer a wireless prepaid plan.

 

·                  Turmoil in the creditmarkets and the financial services industry may negatively impact Sprint’s orour business, results of operations, financial condition or liquidity. Thecredit markets and the financial services industry have recently experienced aperiod of unprecedented turmoil characterized by the bankruptcy, failure,collapse or sale of various financial institutions and an unprecedented levelof intervention from the United States federal government. While the ultimateoutcome of these events cannot be predicted, such events may have a materialadverse effect on Sprint’s or our liquidity and financial condition.

 

·                  Pursuant to a final order of the CircuitCourt of Cook County, Illinois, Sprint and those acting in concert with it mustcease owning, operating and managing the Nextel wireless network in iPCSWireless’s territory. On October 19, 2009, pursuant to the SettlementAgreement, the Circuit Court stayed this litigation, including Sprint’sobligations to comply with the Circuit Court’s final order by January 25,2010.  If the stay is vacated for anyreason, Sprint shall have until 120 days after the date on which the stay isvacated to comply with the requirements of the final order.  Sprint previously announced that it intendsto sell certain of its Nextel assets located in iPCS Wireless’s territory in anattempt to comply with the Circuit Court’s order.  Such actions may or may not comply with theCircuit Court’s order.  In addition, wedo not know the impact on our business of 

 

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any such attempts by Sprint to comply. Subject to the terms of the Settlement Agreement, we intend todiligently monitor Sprint’s actions and take such steps as may be appropriateto ensure full compliance by Sprint with the Circuit Court’s order and theSettlement Agreement.  In addition, aswith any litigation, it is possible that the parties may otherwise settle thedispute. In that event, we cannot speculate as to the terms and conditions ofany such settlement, which could include a material economic change in ourrelationship with Sprint. See “—Commitments and Contingencies — Sprint/NextelMerger Litigation” below for further discussion.

 

·                  The final outcome of ourlitigation with Sprint regarding the Sprint-Clearwire WiMax transaction isunknown. As discussed more fully below in “—Commitments and Contingencies —Sprint/Clearwire Transaction Litigation,” on May 7, 2008, Sprint announceda transaction among itself, Clearwire Corporation, and certain other parties(the “Sprint-Clearwire Transaction”) to form a new competing 4G network (“NewClearwire”).

 

On May 12, 2008, the iPCS Subsidiaries filed a lawsuit againstSprint and certain of its affiliates in the Circuit Court of Cook County,Illinois, seeking declaratory and injunctive relief with respect to theSprint-Clearwire Transaction. In that case, the iPCS Subsidiaries are seeking adeclaration that the Sprint-Clearwire Transaction constitutes a breach ofSprint’s affiliation agreements it has with those subsidiaries.

 

We cannot predict the outcome of these legal proceedings. If we do notprevail, Sprint may be permitted to operate, through its Sprint-Clearwireventure, a mobile WiMax network that could adversely affect our business andoperations by introducing a competitive product that can be expected to reducedemand for our products and services. If we do prevail, we do not know Sprint’sintentions for complying with any ruling and its impact on our business. On October 19,2009, pursuant to the Settlement Agreement, the Circuit Court stayed thislitigation. In addition, as with any litigation, it is possible that theparties may otherwise settle the dispute. In that event, we cannot speculate asto the terms and conditions of any such settlement, which could include amaterial economic change in our relationship with Sprint. See “—Commitments andContingencies — Sprint/Clearwire Transaction Litigation” below for furtherdiscussion.

 

·                  On July 28,2009, Sprint announced it agreed to acquire Virgin Mobile USA, Inc.,subject to Virgin Mobile USA stockholders’ and regulatory approvals (“theSprint-Virgin Mobile Transaction”).  On September 10,2009, the iPCS Subsidiaries filed a lawsuit against Sprint and certain of itsaffiliates in the Circuit Court of Cook County, Illinois, seeking declaratoryand injunctive relief with respect to the Sprint-Virgin Mobile Transaction. Inthat case, the iPCS Subsidiaries are seeking a declaration that theSprint-Virgin Mobile Transaction constitutes a breach of Sprint’s affiliationagreements with the iPCS Subsidiaries, and also sought an injunction barringSprint from closing the Sprint-Virgin Mobile Transaction until it complied withthe affiliation agreements.  On the sameday, the iPCS Subsidiaries filed a motion for preliminary injunction, in whichthey seek to enjoin the closing of the Sprint-Virgin Mobile Transaction.  That motion is pending.  On September 22, 2009, the defendantsfiled a motion to dismiss the complaint. That motion is pending.  On October 19,2009, pursuant to the Settlement Agreement, the Circuit Court stayed thislitigation.

 

·                  Our PCS network equipment is supplied solelyby Nortel Networks. If additional equipment or support is needed for expansionor repair of our network, it generally must come from Nortel Networks in orderto be compatible with our existing network equipment. Nortel Networks filed forChapter 11 bankruptcy protection in January 2009.  In July 2009, Ericsson won an auction,subject to court approval in Canada and the United States, of Nortel’scarrier-network division and a wireless-research unit.  If Ericsson, or Nortel or another acquirer ifthis sale does not close, were to cease or delay supplying equipment or suspendwarranty coverage, we could be prevented or delayed in expanding, repairing orsupporting our network.  Any inability toexpand or repair our network could have a material effect on us.  In addition, Ericsson, Nortel, or anypotential successor, potentially could exert significant bargaining power overprice, quality, warranty claims or other terms relating to its equipment.

 

·                  As a PCS Affiliate of Sprint, we aredependent upon Sprint for many aspects of our business, including the brandname under which we operate, the spectrum that we use, technological advancesand the nationwide wireless network outside of our territory. From the subscribers’point of view, we are “Sprint” in our markets and they use our wireless networkand the rest of the Sprint PCS network as a unified network. Sprint’sperformance and brand reputation nationwide—over which we have nocontrol—impacts our performance. We believe many of Sprint’s operating metrics,including net subscriber additions and churn, have significantly underperformedrelative to industry averages over the last few years, reflecting deteriorationin the relative strength of the Sprint brand. If Sprint is unable to improveits operating metrics and brand image in the future, particularly in the faceof an economic downturn and an increasingly maturing industry, our businesswould likely suffer material adverse consequences.

 

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***Commitments and Contingencies***

 

*Proposed Merger*. As discussed above in “RecentDevelopments — Proposed Merger,” on October 18, 2009, the Company, Sprintand the Purchaser, a wholly owned subsidiary of Sprint, entered into the MergerAgreement pursuant to which Sprint agreed to acquire all of the Company’soutstanding common stock for a cash price of $24 per share. The MergerAgreement provides for certain termination rights for each of Sprint and theCompany and further provides that upon termination of the Merger Agreementunder specified circumstances, the Company will be required to pay Sprint atermination fee of $12.5 million.

 

In connection with theMerger Agreement, Sprint, WirelessCo L.P., Sprint Spectrum L.P., SprintCom, Inc.,Sprint Communications Company, L.P., Nextel Communications, Inc.,PhillieCo L.P. and APC PCS LLC (collectively, the “Sprint Parties”) and HorizonPersonal Communications, Inc., Bright Personal Communications Services,LLC, iPCS Wireless, Inc. and the Company (collectively, the “iPCS Parties”)also entered into a Settlement Agreement and Mutual Release, dated October 18,2009 (the “Settlement Agreement”). Under the terms of the Settlement Agreement,the Sprint Parties and the iPCS Parties have agreed to stay all pendinglitigation between them, subject to certain exceptions and conditions, and notto sue each other during the pendency of the transactions contemplated by theMerger Agreement, subject to certain exceptions. The stays of litigation andcovenants not to sue will terminate if the Merger Agreement is terminated or ifthe Offer is not closed within the time period allowed by the Merger Agreementand the party seeking to terminate the Merger Agreement is unable to do so dueto a court order or injunction that prevents termination. In addition, underthe terms of the Settlement Agreement, effective upon the closing of theMerger, the Sprint Parties and the iPCS Parties will release each other fromall claims, except those arising under or relating to a breach of the MergerAgreement or the Settlement Agreement, and will jointly file all such documentsthat are necessary to effect the dismissal with prejudice of all court ordersand pending lawsuits between the Sprint Parties and the iPCS Parties.

 

*Sprint/Nextel Merger Litigation.*  On July 15, 2005, our wholly ownedsubsidiary, iPCS Wireless, Inc. (“iPCS Wireless”), filed a complaintagainst Sprint and Sprint PCS in the Circuit Court of Cook County, Illinois(the “Circuit Court”). The complaint alleged, among other things, that Sprint’sconduct following the consummation of the merger between Sprint and Nextelwould breach Sprint’s exclusivity obligations to iPCS Wireless under itsaffiliation agreements with Sprint PCS. On August 14, 2006, the CircuitCourt issued its decision and on September 20, 2006, the Circuit Courtissued a final order effecting its decision. The final order provided that:

 

·                  Within 180 days of thedate of the final order, Sprint and those acting in concert with it must ceaseowning, operating and managing the Nextel wireless network in iPCS Wireless’sterritory.

 

·                  Sprint shall continue tocomply with all terms and conditions of the Forbearance Agreement between iPCSWireless and Sprint setting forth certain limitations on Sprint’s operationspost-merger with Nextel.

 

On September 28, 2006, Sprint appealed the Circuit Court’s rulingto the Appellate Court of Illinois, First Judicial District (the “AppellateCourt”), and, at Sprint’s request, the Circuit Court’s ruling was stayed by theAppellate Court pending the appeal. On March 31, 2008, the Appellate Courtunanimously affirmed the 2006 Circuit Court decision. On May 5, 2008,Sprint filed a petition for leave to appeal with the Supreme Court of Illinois.On September 24, 2008, the Supreme Court of Illinois (the “Supreme Court”)denied Sprint’s petition for leave to appeal the Appellate Court’s decision.

 

On Sprint’s motion for reconsideration, the Supreme Court again deniedSprint’s petition for leave to appeal on November 12, 2008. The SupremeCourt at that time directed the Circuit Court to modify its order of September 20,2006, in the following manner:

 

·                  To grant Sprint360 days (rather than 180 days) to comply with the Circuit Court’s orderto cease owning, operating and managing the Nextel wireless network in iPCSWireless’s territory.

 

·                  To permit Sprint to seek anextension of the 360-day period upon a showing of good cause, with dueconsideration given to the hardship(s) imposed on iPCS Wireless by therequested extension.

 

On January 30, 2009, the Circuit Court entered its final order, asdirected by the Supreme Court, providing that:

 

·                  Sprint, and those acting inconcert with it, must cease owning, operating and managing the Nextel wirelessnetwork in iPCS Wireless’s service area.

 

·                  Sprint has until January 25,2010 (360 days from the date of the Circuit Court’s order) to comply withthe order. Sprint may seek an extension of such deadline upon a showing of goodcause, giving due consideration to the hardships that would be imposed on iPCSWireless if such extension were granted.

 

·                  Sprint must continue tocomply with all terms and conditions of the Forbearance Agreement between iPCSWireless and Sprint.

 

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On October 19, 2009, pursuant to the Settlement Agreement, theCircuit Court stayed this litigation, including Sprint’s obligations to complywith the Court’s final order by January 25, 2010.  If the stay is vacated for any reason, Sprintshall have until 120 days after the date on which the stay is vacated to complywith the requirements of the final order.

 

On September 22, 2008, Sprint also filed a petition with theCircuit Court seeking to vacate that Court’s original order. On January 20,2009, the Circuit Court denied Sprint’s petition with prejudice. On February 18,2009, Sprint appealed the decision of the Circuit Court denying Sprint’spetition to vacate to the Illinois Appellate Court. The appeal process isongoing.

 

On October 20, 2009, pursuant to the Settlement Agreement, theIllinois Appellate Court stayed Sprint’s appeal.  The stay will be automatically vacated if theMerger Agreement is terminated for any reason.

 

*Sprint/Clearwire Transaction Litigation.*  On May 7, 2008, Sprint announced aproposed transaction among itself, Clearwire Corporation, and certain otherparties (the “Sprint-Clearwire Transaction”) to form a new competingnetwork (“New Clearwire”), pursuant to which transaction Sprint transferred its4G technology to the New Clearwire. The same day, Sprint filed a complaint fordeclaratory judgment against iPCS and certain of its subsidiaries, iPCSWireless, Horizon Personal Communications, Inc. and Bright PersonalCommunications Services, LLC (collectively, the “iPCS Subsidiaries”) inthe Court of Chancery of the State of Delaware (the “Delaware Chancery Court”).In that lawsuit, Sprint sought a declaration that the Sprint-ClearwireTransaction would not constitute a breach of the Sprint affiliation agreementsit has with the iPCS Subsidiaries.

 

On May 12, 2008, the iPCS Subsidiaries filed a lawsuit againstSprint and certain of its affiliates in the Circuit Court, seeking declaratoryand injunctive relief with respect to the Sprint-Clearwire Transaction. In thatcase, the iPCS Subsidiaries sought a declaration that the Sprint-Clearwire Transactionconstitutes a breach of Sprint’s affiliation agreements it has with thosesubsidiaries, and also sought an injunction barring Sprint from closing theSprint-Clearwire Transaction until it complied with the affiliation agreements.

 

On July 14, 2008, the Delaware Chancery Court granted the motionto dismiss filed by our Bright and Horizon subsidiaries and dismissed them fromthe Delaware litigation. Pursuant to a motion filed by iPCS and iPCS Wireless,on October 8, 2008, the Delaware Chancery Court stayed all remainingDelaware litigation in favor of the lawsuit brought in Illinois by the iPCSSubsidiaries.

 

On November 3, 2008, the iPCS Subsidiaries filed a motion forpreliminary injunction in the Circuit Court seeking to prevent Sprint from consummatingthe Sprint-Clearwire Transaction until such time that the Circuit Court could rule onthe merits of the underlying litigation brought by the iPCS Subsidiariesagainst Sprint. On November 17, 2008, the iPCS Subsidiaries, Sprint, andNew Clearwire reached a stipulation pursuant to which the iPCS Subsidiarieswithdrew their motion for preliminary injunction without prejudice, and theSprint-Clearwire Transaction closed on November 28, 2008. In connectionwith the withdrawal of the preliminary injunction motion by the iPCSSubsidiaries, the Circuit Court entered an Agreed Order and Stipulation, dated November 17,2008 (the “Agreed Order”) pursuant to which: (i) New Clearwire stipulatedthat it did not presently intend to commercially launch its 4G network, sellproducts or services, or promote products or services that are available forsale in any part of the iPCS Subsidiaries’ territories prior to July 1,2009, (ii) New Clearwire stipulated that it would give the iPCSSubsidiaries at least 60 days advance written notice before any commerciallaunch of its 4G network, any sale of products or services or any promotion ofproducts or services that are offered for sale in any part of the iPCSSubsidiaries service areas if it plans to do so before entry of a final andnon-appealable judgment by the Circuit Court in the underlying action broughtby the iPCS Subsidiaries against Sprint, and (iii) New Clearwire andSprint stipulated that neither of them nor any of their controlled affiliateswould raise the fact that the Sprint-Clearwire Transaction had closed as abasis for opposing any remedy proposed by the iPCS Subsidiaries or granted bythe Circuit Court.

 

On December 30, 2008, the Circuit Court issued a decision on amotion for partial summary judgment filed by iPCS Wireless that sought partialsummary judgment based on the 2006 decision in the Illinois Sprint/NextelMerger Litigation. The Circuit Court specifically recognized that pursuant tothe 2006 decision, Sprint and those acting in concert with it cannot competeagainst iPCS Wireless in its exclusive service areas, regardless of the radiofrequency that they use to compete. The Circuit Court held that Sprint cannotrelitigate the issue of whether Sprint and those acting in concert with it maycompete with iPCS Wireless in its service area by using a frequency other than1900 MHz. The Circuit Court granted in part iPCS Wireless’s motion for partialsummary judgment with respect to these two issues and entered judgment thereonbut stayed enforcement of the judgment pending a ruling on Sprint’s petition tovacate the original judgment in the Illinois Sprint/Nextel Merger Litigation,which petition to vacate was then dismissed with prejudice on January 20,2009. The Circuit Court also found in its December 30, 2008 ruling thatsome material issues of fact remained and would be decided at trial including,but not limited to, whether New Clearwire is a “related party,” whether Sprintcontrols New Clearwire, whether the protections of exclusivity extend beyond thesituation in which Sprint acts through a related party, and the question of whoconstitutes “those acting in concert” with Sprint.

 

On January 9, 2009, the Circuit Court denied Sprint’s motion forpartial summary judgment against Bright and Horizon. In that motion, Sprint hadsought to bar Bright and Horizon from litigating the issue of whether Sprintcould compete with Horizon and Bright outside the 1900 MHz spectrum range,based on a 2006 decision by the Delaware Chancery Court. The Circuit Court denied

 

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Sprint’smotion for partial summary judgment against Bright and Horizon and found thatthe Delaware Chancery Court did not actually decide that issue.

 

OnApril 30, 2009, the Circuit Court denied a motion brought by Sprint thatsought to dismiss the iPCS Subsidiaries’ claims as to whether Sprint improperlywithheld advanced technology from them in connection with the Clearwiretransaction.  The Circuit Court alsoruled that the iPCS Subsidiaries’ claims for relief could not include certaintypes of monetary relief but that, in addition to their existing claims forinjunctive relief, the iPCS Subsidiaries would not be prevented from making “aclaim for any actual or direct damages.”

 

OnOctober 19, 2009, pursuant to the Settlement Agreement, the Circuit Courtstayed this litigation.  Under the termsof the Settlement Agreement, the stay shall not affect any rights, duties orobligations under the Agreed Order issued by the Circuit Court on November 17,2008. The Settlement Agreement further provides that if New Clearwire takes anyaction that does not comply with the Agreed Order or if New Clearwire providesnotice pursuant to the Agreed Order ofits intention to launch a network or to promote or sell products or services inany part of the applicable iPCS Subsidiaries’ service areas, the stayshall be automatically vacated and the iPCS Subsidiaries shall be entitled topursue all available remedies.

 

*Sprint/Virgin Mobile Transaction Litigation.  *On July 28, 2009,Sprint announced it agreed to acquire Virgin Mobile USA, Inc., subject toVirgin Mobile USA stockholders’ and regulatory approvals (“the Sprint-VirginMobile Transaction”).  On September 10,2009, the iPCS Subsidiaries filed a lawsuit against Sprint and certain of itsaffiliates in the Circuit Court, seeking declaratory and injunctive relief withrespect to the Sprint-Virgin Mobile Transaction. In that case, the iPCSSubsidiaries are seeking a declaration that the Sprint-Virgin MobileTransaction constitutes a breach of Sprint’s affiliation agreements with theiPCS Subsidiaries, and also sought an injunction barring Sprint from closingthe Sprint-Virgin Mobile Transaction until it complied with the affiliationagreements.  On the same day, the iPCSSubsidiaries filed a motion for preliminary injunction, in which they seek toenjoin the closing of the Sprint-Virgin Mobile Transaction.  That motion is pending.  On September 22, 2009, the defendantsfiled a motion to dismiss the complaint. That motion is pending.  On October 19,2009, pursuant to the Settlement Agreement, the Circuit Court stayed thislitigation.  Under the terms of theSettlement Agreement, Sprint agreed that, so long as the stay was in effect, itwould not (i) reduce, directly or indirectly, or permit to be reduced, thereseller rates under the Virgin Mobile resale arrangement applicable to theiPCS Subsidiaries or (ii) claim or assert in any litigation proceeding orother action between Sprint and the Company or any of their respectiveaffiliates that the iPCS Subsidiaries or any of their affiliates has waived theright to challenge the permissibility of any prior direct or indirect reductionsof such reseller rates.

 

Two putative class actionlawsuits have been filed in the Circuit Court of Cook County, Illinois. The complaints name as defendants the Company and its directors, among others,and generally allege that the consideration to be received by the Company’sstockholders in connection with the Merger Agreement is unfair andinadequate.  The complaints further allege that the Company’s directorsbreached their fiduciary duties by, among other things, approving the MergerAgreement and the other transactions contemplated by the Merger Agreement andthat such breaches were aided and abetted by Sprint Nextel Corporation. The lawsuits seek, among other things, preliminary injunctive relief andmonetary and attorneys’ fees.  The Company believes that these lawsuitsare without merit and intends to vigorously defend these actions.  As permitted under applicable law, each ofthe Company and certain of its subsidiaries indemnifies their directors andofficers for certain events or occurrences while the officer or director is, orwas, serving the Company or its subsidiaries in such a capacity.  The maximum potential amount of futurepayments the Company could be required to make under these indemnification agreementsis unlimited; however, the Company has a director and officer insurance policythat should enable the Company to recover a portion of any future amounts paid.

 

We presently cannot determine the ultimate resolution of the mattersdescribed above. The results of litigation are inherently uncertain and, whilewe believe that we have meritorious claims in the matters described above,material adverse outcomes are possible. Additionally, on October 18, 2009, theparties to the above-described lawsuits entered into the Settlement Agreement.Please see above for a more detailed description of the Settlement.

 

In addition to the foregoing, from time to time, we are involved invarious legal proceedings relating to claims arising in the ordinary course ofbusiness. We are not currently a party to any such legal proceedings, theadverse outcome to which, individually or in the aggregate, is expected to havea material adverse effect on our business, financial condition or results ofoperations.

 

***Nortel Networks Equipment Agreement***

 

OnMarch 13, 2009, we signed a letter of agreement with Nortel Networks topurchase EV-DO Rev. A equipment and services totaling approximately $19.7million in aggregate, consisting of a non-cancelable purchase of approximately$14.8 million of equipment and services and an option to purchase up to anadditional approximately $4.9 million of equipment and services.  Under this letter of agreement, we agreed toreturn to Nortel Networks certain equipment replaced by the purchased equipmentby March 1, 2010.  We have submittednon-cancelable purchase orders for approximately $14.8 million of equipment andservices and therefore have no remaining commitment under this letter ofagreement to submit additional non-cancelable purchase orders.  As of September 30, 2009, we have receivedapproximately $13.8 million and paid for approximately $13.1 million ofequipment and services and have returned approximately half of the replacedequipment to Nortel.  The remainingreplaced equipment is expected to be returned to Nortel by the end of 2009.

 

***State of Michigan Sales and Use Tax Audit***

 

TheState of Michigan is currently auditing our sales and use tax returns for theyears 2003 through 2006. The outcome of this audit cannot be determined at thistime.

 

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**Contractual Obligations and Off-Balance Sheet Arrangements**

 

Forinformation regarding contractual obligations and off-balance sheetarrangements, see the captions “Contractual Obligations” and “Off-Balance SheetArrangements” in “Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operations” in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2008. At September 30, 2009, there had not been a material change to thecontractual obligations or off-balance sheet arrangements disclosed in theCompany’s Annual Report on Form 10-K for the year ended December 31,2008, except that at September 30, 2009, we have an off balance sheetobligation of approximately $1.0 million. See “—Nortel Networks Equipment Agreement” above for further discussionregarding this obligation.

 

**Seasonality**

 

Ourbusiness is subject to seasonality because the wireless telecommunicationsindustry historically has been dependent on fourth calendar quarter results.Among other things, the industry relies on moderately higher subscriberadditions and handset sales in the fourth calendar quarter as compared to theother three calendar quarters. A number of factors contribute to this trend,including: the use of retail distribution, which is heavily dependent upon theyear-end holiday shopping season; the timing of new product and serviceannouncements and introductions; competitive pricing pressures; and aggressivemarketing and promotions. In addition, our roaming revenue and roaming expenseis subject to seasonality because of decreased travel of wireless subscribersinto our territory during the winter months.

 

**Critical Accounting Policies**

 

Ourfinancial statements are prepared in conformity with accounting principlesgenerally accepted in the United States and require us to select appropriateaccounting policies.  The assumptions and judgments we use in applying ouraccounting policies have a significant impact on our reported amounts ofassets, liabilities, revenue and expenses.  While we believe that theassumptions and judgments used in our estimates are reasonable, actual resultsmay differ from these estimates under different assumptions or conditions.

 

Wehave identified the most critical accounting policies upon which our financialstatus depends.  The critical policies were determined by consideringaccounting policies that involve the most complex or subjective decisions or assessments.We also have other policies considered key accounting policies; however, thesepolicies do not meet the definition of critical accounting policies becausethey do not generally require us to make estimates or judgments that arecomplex or subjective.  Our critical accounting policies include thefollowing:

 

·                    Revenuerecognition

 

·                    Allowance fordoubtful accounts

 

·                    Long-livedasset recovery

 

·                    Intangibleassets

 

·                    Interest rateswap

 

·                    Income taxes

 

·                    Stock-basedcompensation

 

Additionalinformation regarding these critical accounting policies can be found in the “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”section of our Annual Report on Form 10-K for the year ended December 31,2008, filed with the SEC on March 3, 2009.

 

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**Item 3. Quantitative andQualitative Disclosures About Market Risk.**

 

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

 

In July 2007, we entered into an interest rateswap agreement that effectively fixes the interest rate on $300.0 millionof our variable rate indebtedness at 7.47% for three years starting August 1,2007. The fair value of our interest rate swap was a $11.7 million liability atSeptember 30, 2009. A hypothetical increase of 100 basis points in averagemarket interest rates would increase the fair value of our interest rate swapby approximately $3.0 million. A decrease of 100 basis points in averagemarket interest rates would decrease the fair value of our interest rate swapby approximately $3.0 million. A prospective increase of 100 basis pointsin the interest rate applicable to the remaining $175.0 million ofvariable rate indebtedness would result in an increase of approximately$1.8 million in our annual interest expense. At September 30, 2009,after consideration of the interest rate swap described above, approximately37% of our debt is subject to variable interest rates.

 

**Item 4. Controls and Procedures.**

 

Each of our Chief Executive Officer and ChiefFinancial Officer has evaluated the effectiveness of our disclosure controlsand procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) underthe Exchange Act) as of the end of the period covered by this quarterly report.Based on such evaluation, such officers have concluded that, as of the end ofthe period covered by this quarterly report, our disclosure controls andprocedures are effective.

 

We place reliance on Sprint PCS to adequately designits internal controls with respect to the processes established to providefinancial information and other information to us and the other PCS Affiliatesof Sprint. To address this issue, Sprint engages an independent registeredpublic accounting firm to perform a periodic evaluation of these controls andto provide a “Report on Controls Placed in Operation and Tests of OperatingEffectiveness for Affiliates” under guidance provided in Statement of AuditingStandards No. 70. This report is provided to us annually.

 

There have been no changes in our internal controlover financial reporting (as such term is defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) during the quarter ended September 30,2009 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**PART II.OTHER INFORMATION**

 

**Item 1. Legal Proceedings.**

 

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

 

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

 

**Item 1A. Risk Factors.**

 

You shouldcarefully consider the risks and uncertainties described in Part I, Item1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31,2008 and the updated risk factors below as well as the other information in oursubsequent filings with the SEC, including this Quarterly Report on Form 10-Q.Our business, financial condition, results of operations and stock price couldbe materially adversely affected by any of these risks. The risks described inour Annual Report on Form 10-K and below are not the only ones facing us.Additional risks and uncertainties that are currently unknown to us or that wecurrently consider to be immaterial may also impair our business or adverselyaffect our financial condition, results of operations and stock price.

 

**Risks Related to the Offer andrelated Merger with Sprint**

 

***The market price ofour common stock has been, and may continue to be, materially affected by theOffer.***

 

The current market price of our common stock reflects,among other things, the commencement and anticipated completion of the Offer.The current market price is higher than the price before the Offer wasannounced on October 19, 2009. To the extent that the current market priceof our common stock reflects market assumptions that the Offer will becompleted, it is possible that the price of our common stock could decline ifthese market assumptions are not realized. There are a number of conditionsprecedent to the completion of the Offer, and legal proceedings have beenbrought against the Company seeking to enjoin the closing of the Offer.  However, there can be no assurance in thisregard or as to any other forward-looking statements or matters relating to ourstock price 

 

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or otherwise, which are subject to numerousuncertainties and matters beyond the control of the Company, including theclosing conditions set forth in the Merger Agreement. In addition, please notethat the Company has published a Solicitation/Recommendation Statement onSchedule 14D-9 in accordance with the requirements of the Securities ExchangeAct of 1934 and filed such Schedule 14D-9 with the Securities and ExchangeCommission, which contains the recommendation of the board of directors of theCompany with respect to the Offer. The statements in this report are not asolicitation or recommendation of the Company to its stockholders in connectionwith the proposed Offer, and stockholders should carefully review theSolicitation/Recommendation Statement before making any decision as to theOffer.

 

***Uncertaintiesassociated with the proposed Offer may cause a loss of employees and mayotherwise materially adversely affect our business operations.***

 

Our future results of operations depend in large partupon our ability to retain our current skilled and qualified employees and toattract new employees. The failure to continue to attract and retain suchindividuals could materially adversely affect our ability to compete. Ourexecutive officers have employment agreements with change in control severanceprovisions.  We also have a special severanceprogram for employees and additional retention agreements with select employeesall with change in control severance provisions.  Despite this program and these agreements, itis uncertain whether we have provided our employees with sufficient financialincentives to continue their employment through the date of consummation of theMerger.  Employees may decide to seekemployment elsewhere on the assumption that the transactions contemplated bythe Merger Agreement will be consummated. In addition, our retention of current employees and ability to attractprospective employees may be adversely affected by their perception ofuncertainty about their continued roles with Sprint if the proposed Merger isconsummated. An inability to retain key personnel during the period of theOffer could have an adverse effect on our ability to continue to operate thebusiness as an independent entity in the event the proposed Merger is notconsummated.

 

***The MergerAgreement limits our ability to pursue an alternative acquisition proposal tothe Merger and requires the payment of a termination fee of $12.5 million if wedo so.***

 

The Merger Agreement prohibits us from soliciting,initiating, encouraging or facilitating certain alternative acquisitionproposals with any third party, subject to exceptions set forth in the MergerAgreement. The Merger Agreement also provides for the payment of a terminationfee of $12.5 million if the Merger Agreement is terminated in certaincircumstances in connection with a third party initiating a competingacquisition proposal for us, or in the event that a majority of our shares ofcommon stock are not tendered in the Offer. These provisions limit our abilityto pursue offers from third parties that could result in greater value to our stockholders.The obligation to pay the termination fee also may discourage a third partyfrom pursuing an alternative acquisition proposal. Should the Merger Agreementbe terminated in circumstances under which the termination fee is payable, thepayment could have material and adverse consequences to our financial conditionand operations after such time.

 

***The MergerAgreement contains restrictive covenants that may limit our ability to respondto changes in market conditions or pursue business opportunities.***

 

The Merger Agreement contains restrictive covenantsthat limit our ability to take certain significant actions during the periodprior to the completion of the proposed Offer. Although the Merger Agreementprovides that Sprint will not unreasonably withhold its consent to us takingotherwise prohibited actions, there can be no assurances that Sprint will grantsuch consent. These restrictions may materially adversely affect our ability toreact to changes in market conditions or take advantage of businessopportunities, either of which could have a material and adverse effect on theprospects of our business, which could be detrimental to our stockholders inthe event the proposed Merger is not completed.

 

***Before consummationof the Merger, Sprint may act in ways that are not in compliance with ouraffiliation agreements.***

 

Before the consummation of the Merger, Sprint may actin ways that are not in compliance with our affiliation agreements.  Although we intend to continue to seek Sprint’sfull compliance with these agreements through the completion of the Merger,Sprint may nevertheless attempt to cease providing certain contractuallyobligated services or otherwise cease to satisfy its responsibilities under theaffiliation agreements.  We rely onSprint to provide numerous services in the operation of our business.  In anticipation of the consummation of theMerger, Sprint may cease to provide its obligated services under theAffiliation Agreements, or it may reduce the level of resources it commits to theprovision of these services. Additionally, Sprint may breach the exclusivity provisions of ouraffiliation agreements in new and unforeseen ways before consummation of theMerger.  Any failure by Sprint to fullysatisfy its obligations as to services provided, exclusivity or otherwise underour affiliation agreements would have an adverse effect on our business andresults of operations, particularly if the Merger were not to consummate.

 

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**Item 2. Unregistered Sales ofEquity Securities and Use of Proceeds.**

 

Thefollowing table provides information about shares of common stock the Companyacquired during the third quarter of 2009:

 

Issuer Purchases of EquitySecurities

 
| ** **                                                  | ** ** | **Total number of shares**

**purchased (a)** | ** ** | **Average price paid  per share** | ** ** | **Total number of shares  purchased as part of publicly  announced plans or  programs (a)** | ** ** | **Maximum number (or  approximate dollar value) of  shares that may yet be purchased  under the plans or programs (a)** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| July 1,  2009 to July 31, 2009                    |       | 87,825                                                            |       | $                                                | 15.36      |                                                                                                                                          | 87,825     |                                                                                                                                                                                               | $          | 8,927,173 |   |
| August 1,  2009 to August 31, 2009                |       | 42,788                                                            |       | $                                                | 16.90      |                                                                                                                                          | 42,788     |                                                                                                                                                                                               | $          | 8,203,988 |   |
| September 1,  2009 to September 30, 2009 (b) |       | 127,720                                                           |       | $                                                | 17.45      |                                                                                                                                          | 127,351    |                                                                                                                                                                                               | $          | 5,981,314 |   |
| Total                                                       |       | 258,333                                                           |       | $                                                | 16.65      |                                                                                                                                          | 257,964    |                                                                                                                                                                                               | $          | 5,981,314 |   |

 

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(a)          On January 30,2009, the Company’s Board of Directors authorized the repurchase of up to$15.0 million of the Company’s common stock in a stock repurchase programduring the 12-month period beginning on the date of authorization. The Companymay purchase shares from time to time in open market or privately negotiatedtransactions at prices deemed appropriate by the management, depending onmarket conditions, applicable laws and other factors. The stock repurchaseprogram does not require the Company to repurchase any specific number ofshares and may be discontinued at any time.

 

Pursuant to the terms of the Merger Agreement discussed in “Item 2 — RecentDevelopments — Proposed Merger,” as of October 18, 2009, the Company isnot permitted to repurchase shares of its common stock on or after such date.

 

(b)         Includes369 shares withheld to satisfy certain tax withholding obligations inconnection with vesting of restricted stock as permitted by the iPCS ThirdAmended and Restated 2004 Long-Term Incentive Plan.

 

**Item 3. Defaults Upon SeniorSecurities.**

 

None.

 

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

 

None.

 

**Item 5. Other Information.**

 

None.

 

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**Item 6.  Exhibits.**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1                 |       | Agreement and Plan of Merger, dated as of  October 18, 2009, among Sprint Nextel Corporation, Ireland Acquisition  Corporation and iPCS, Inc. (Incorporated by reference to  Exhibit 2.1 to the Form 8-K filed by iPCS, Inc. on  October 19, 2009)                                                                                                                                                                                                                                                                    |
| 2.2                 |       | Stockholders Agreement, dated as of October 18,  2009, among Sprint Nextel Corporation, Apollo Investment Fund IV, L.P.,  Apollo Overseas Partners IV, L.P., Timothy M. Yager, Stebbins B.  Chandor, Jr., Timothy G. Biltz and Mikal J. Thomsen (Incorporated by  reference to Exhibit 2.2 to the Form 8-K filed by iPCS, Inc.  on October 19, 2009)                                                                                                                                                                  |
| 3.1                 |       | Second Restated Certificate of Incorporation of iPCS, Inc.  (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed by  iPCS, Inc. on July 1, 2005)                                                                                                                                                                                                                                                                                                                                                                |
| 3.2                 |       | Amended and Restated Bylaws of iPCS, Inc. (Incorporated by  reference to Exhibit 3.2 to the Form 10-QT filed by iPCS, Inc.  on February 14, 2006)                                                                                                                                                                                                                                                                                                                                                                          |
| 3.3                 |       | Amendment to the Amended and Restated Bylaws of iPCS, Inc.  (Incorporated by reference to Exhibit 99.1 to the Form 8- K filed  by iPCS, Inc. on January 4, 2008)                                                                                                                                                                                                                                                                                                                                                           |
| 3.4                 |       | Certificate of Incorporation of iPCS Wireless, Inc.  (Incorporated by reference to Exhibit 3.4 to the Form S-4 filed by  iPCS, Inc. on January 8, 2001)                                                                                                                                                                                                                                                                                                                                                                    |
| 3.5                 |       | Bylaws of iPCS Wireless, Inc. (Incorporated by reference to  Exhibit 3.5 to the Form S-4 filed by iPCS, Inc. on January 8,  2001)                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.6                 |       | Certificate of Incorporation of iPCS Equipment, Inc.  (Incorporated by reference to Exhibit 3.6 to the Form S-4 filed by  iPCS, Inc. on January 8, 2001)                                                                                                                                                                                                                                                                                                                                                                   |
| 3.7                 |       | Bylaws of iPCS Equipment, Inc. (Incorporated by reference to  Exhibit 3.7 to the Form S-4 filed by iPCS, Inc. on  January 8, 2001)                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.8                 |       | Articles of Organization of Bright Personal Communications  Services, LLC (Incorporated by reference to Exhibit 3.7 to the  Form S-1 filed by iPCS, Inc. on August 11, 2005)                                                                                                                                                                                                                                                                                                                                               |
| 3.9                 |       | Operating Agreement of Bright Personal Communications  Services, LLC (Incorporated by reference to Exhibit 3.8 to the  Form S-1 filed by iPCS, Inc. on August 11, 2005)                                                                                                                                                                                                                                                                                                                                                    |
| 3.10                |       | Articles of Incorporation of Horizon Personal  Communications, Inc. (Incorporated by reference to Exhibit 3.9 to  the Form S-1 filed by iPCS, Inc. on August 11, 2005)                                                                                                                                                                                                                                                                                                                                                     |
| 3.11                |       | Regulations of Horizon Personal Communications, Inc.  (Incorporated by reference to Exhibit 3.10 to the Form S-1 filed by  iPCS, Inc. on August 11, 2005)                                                                                                                                                                                                                                                                                                                                                                  |
| 4.1                 |       | Amended and Restated Common Stock Registration Rights Agreement,  dated as of June 30, 2005, by and among iPCS, Inc., affiliates of  Silver Point Capital, affiliates of AIG Global Investment Corp., the Timothy  M. Yager 2001 Trust, Apollo Investment Fund IV, L.P. and Apollo Overseas  Partners IV, L.P. (Incorporated by reference to Exhibit 99.1 to the  Form 8-K filed by iPCS, Inc. on July 1, 2005)                                                                                             |
| 4.2                 |       | First Lien Indenture, dated as of April 23, 2007, by and among  iPCS, Inc., the Guarantors and U.S. Bank National Association, as  trustee (Incorporated by reference to Exhibit 99.3 to the Form 8-K  filed by iPCS, Inc. on April 25, 2007)                                                                                                                                                                                                                                                                         |
| 4.3                 |       | Second Lien Indenture, dated as of April 23, 2007, by and among  iPCS, Inc., the Guarantors and U.S. Bank National Association, as  trustee (Incorporated by reference to Exhibit 99.4 to the Form 8-K  filed by iPCS, Inc. on April 25, 2007)                                                                                                                                                                                                                                                                        |
| 4.4                 |       | First Lien Security Agreement, dated as of April 23, 2007, made  by iPCS, Inc. and the Guarantors in favor of U.S. Bank National  Association, as collateral agent (Incorporated by reference to  Exhibit 99.7 to the Form 8-K filed by iPCS, Inc. on  April 25, 2007)                                                                                                                                                                                                                                                |
| 4.5                 |       | Second Lien Security Agreement, dated as of April 23, 2007, made  by iPCS, Inc. and the Guarantors in favor of U.S. Bank National  Association, as collateral agent (Incorporated by reference to  Exhibit 99.8 to the Form 8-K filed by iPCS, Inc. on  April 25, 2007)                                                                                                                                                                                                                                               |
| 4.6                 |       | Intercreditor Agreement, dated as of April 23, 2007, between  U.S. Bank National Association, as first lien collateral agent and U.S. Bank  National Association, as second lien collateral agent. (Incorporated by  reference to Exhibit 99.9 to the Form 8-K filed by iPCS, Inc.  on April 25, 2007)                                                                                                                                                                                                                     |
| 4.7                 |       | First Amendment to the First Lien Security Agreement, dated as of  October 10, 2007, made by iPCS, Inc. and the Guarantors in favor of  U.S. Bank National Association, as collateral agent (Incorporated by  reference to Exhibit 10.1 to the Form 10-Q filed by iPCS, Inc.  on November 8, 2007)                                                                                                                                                                                                                    |
| 4.8                 |       | First Amendment to the Second Lien Security Agreement, dated as of  October 10, 2007, made by iPCS, Inc. and the Guarantors in favor of  U.S. Bank National Association, as collateral agent (Incorporated by  reference to Exhibit 10.2 to the Form 10-Q filed by iPCS, Inc.  on November 8, 2007)                                                                                                                                                                                                                   |
| 10.1                |       | Settlement Agreement and Mutual Release, dated as of  October 18, 2009, among Sprint Nextel Corporation, WirelessCo L.P.,  Sprint Spectrum L.P., SprintCom, Inc., Sprint Communications Company,  L.P., Nextel Communications, Inc., PhillieCo L.P., APC PCS LLC, Horizon  Personal Communications, Inc., Bright Personal Communications Services,  LLC, iPCS Wireless, Inc. and iPCS, Inc. (Incorporated by reference  to Exhibit 10.1 to the Form 8-K filed by iPCS, Inc. on  October 19, 2009) |
| 31.1*               |       | Certification of Chief Executive Officer Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 31.2*               |       | Certification of Chief Financial Officer Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

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| **Exhibit  Number** | ** ** | **Description**                                                                                                                   |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------|
| 32.1*               |       | Certification Pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

 

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*                                         Filed herewith.

 

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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.

 
|                        | iPCS, Inc.       |
|-----------------------------|-----------------------|
|                        |                  |   |
|                        | By:    | /s/ TIMOTHY M. YAGER |
|                        |                  | Timothy M. Yager |
|                        |                  | President and Chief Executive Officer (Principal Executive Officer) |
|                        |                  |   |
| Date: November 3, 2009 |                  |   |
|                        | By:                   | /s/ STEBBINS B. CHANDOR, JR. |
|                        |                  | Stebbins B. Chandor, Jr. |
|                        |                  | Executive Vice President and Chief Financial Officer (Principal  Financial Officer) |
|                        |                  |   |
| Date: November 3, 2009 |                  |   |

 

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