** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**WASHINGTON, D.C.20549

** **

**FORM 10-Q**

 

** **

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

 

**For thequarterly period ended March 31, 2008**

** **

**Or**

** **

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

** **

**For thetransition periodfrom                to**                

** **

**Commission File Number 000-51844**

 

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**iPCS,INC.**(Exactname of registrant as specified in its charter)

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

 

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

 

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Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

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

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See the definitions of “large accelerated filer,” “accelerated filer”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) |   |                         |

 

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

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

 

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

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

 

As of May 2, 2008, there were 17,155,189 sharesof common stock, $0.01 par value per share, outstanding.

 

 

 

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**TABLE OF CONTENTS**

 
| PART I    | FINANCIAL INFORMATION                                                                                       | 3      |
|----------------|-------------------------------------------------------------------------------------------------------------|--------|
|           |                                                                                                        |   |
| ITEM 1.        | FINANCIAL STATEMENTS                                                                                        | 3      |
|           | CONSOLIDATED  BALANCE SHEETS AS OF MARCH 31, 2008 AND DECEMBER 31, 2007 (UNAUDITED)                    | 3      |
|           | CONSOLIDATED  STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND  2007 (UNAUDITED) | 4      |
|           | CONSOLIDATED  STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND  2007 (UNAUDITED) | 5      |
|           | NOTES TO  UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS                                                       | 6      |
| ITEM 2.        | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                 | 19     |
| ITEM 3.        | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                 | 35     |
| ITEM 4.        | CONTROLS AND  PROCEDURES                                                                                    | 35     |
|           |                                                                                                        |   |
| PART II   | OTHER INFORMATION                                                                                           | 36     |
|           |                                                                                                        |   |
| ITEM 1.        | LEGAL PROCEEDINGS                                                                                           | 36     |
| ITEM 1A.       | RISK FACTORS                                                                                                | 36     |
| ITEM 2.        | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                | 36     |
| ITEM 3.        | DEFAULTS UPON  SENIOR SECURITIES                                                                            | 36     |
| ITEM 4.        | SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS                                                        | 36     |
| ITEM 5.        | OTHER INFORMATION                                                                                           | 36     |
| ITEM 6.        | EXHIBITS                                                                                                    | 37     |
|           |                                                                                                        |   |
| SIGNATURES     | 39                                                                                                          |
|           |                                                                                                        |
| CERTIFICATIONS |                                                                                                        |

 

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** **

**PART I. FINANCIALINFORMATION**

** **

**Item 1. Financial Statements.**

 

**iPCS, INC. ANDSUBSIDIARIESCONSOLIDATED BALANCE SHEETS**

**(UNAUDITED)**(Dollarsin thousands, except share and per share amounts)

 
| ** **                                                                                                                                   | ** ** | **March 31,  2008** | ** ** | **December 31,  2007 (a)** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|--------------------------------------|------------|
|                                                                                                                                         |       |                     |       |                                 |       |
| **Assets**                                                                                                                                   | ** ** | ** **               | ** ** | ** **                           | ** ** |
| Current Assets:                                                                                                                              |       |                     |       |                                 |       |
| Cash and cash equivalents                                                                                                                    |       | $                        | 73,786     |                                 | $          | 77,599 |   |
| Accounts receivable, net of allowance for doubtful accounts of $8,779  and $9,635, respectively                                              |       | 28,566                   |       | 29,774                               |       |
| Receivable from Sprint  (Note 3)                                                                                                             |       | 38,557                   |       | 41,509                               |       |
| Inventories, net                                                                                                                             |       | 7,745                    |       | 5,277                                |       |
| Assets held for sale (Note  4)                                                                                                               |       | 2,350                    |       | 2,680                                |       |
| Prepaid expenses                                                                                                                             |       | 6,470                    |       | 6,792                                |       |
| Other current assets                                                                                                                         |       | 32                       |       | 81                                   |       |
| Total current assets                                                                                                                         |       | 157,506                  |       | 163,712                              |       |
| Property and equipment,  net (Note 4)                                                                                                        |       | 139,064                  |       | 128,677                              |       |
| Financing costs, net                                                                                                                         |       | 7,450                    |       | 7,794                                |       |
| Deferred customer  activation costs                                                                                                          |       | 4,658                    |       | 4,728                                |       |
| Intangible assets, net  (Note 5)                                                                                                        |       | 97,483                   |       | 99,777                               |       |
| Goodwill (Note 5)                                                                                                                            |       | 141,783                  |       | 141,783                              |       |
| Other assets                                                                                                                                 |       | 343                      |       | 353                                  |       |
| Total assets                                                                                                                                 |       | $                        | 548,287    |                                 | $          | 546,824 |   |
|                                                                                                                                         |       |                     |       |                                 |       |
| **Liabilities and Stockholders’ Deficiency**                                                                                            | ** ** | ** **               | ** ** | ** **                           | ** ** |
| Current Liabilities:                                                                                                                         |       |                     |       |                                 |       |
| Accounts payable                                                                                                                             |       | $                        | 4,913      |                                 | $          | 6,136 |   |
| Accrued expenses                                                                                                                             |       | 19,879                   |       | 14,791                               |       |
| Payable to Sprint (Note 3)                                                                                                                   |       | 46,874                   |       | 49,205                               |       |
| Deferred revenue                                                                                                                             |       | 11,588                   |       | 11,176                               |       |
| Accrued interest                                                                                                                             |       | 5,626                    |       | 6,216                                |       |
| Current maturities of  long-term debt and capital lease obligations (Note 6)                                                                 |       | 32                       |       | 30                                   |       |
| Total current liabilities                                                                                                                    |       | 88,912                   |       | 87,554                               |       |
| Deferred customer  activation fee revenue                                                                                                    |       | 4,658                    |       | 4,728                                |       |
| Interest rate swap (Note  7)                                                                                                                 |       | 19,526                   |       | 11,607                               |       |
| Other long-term  liabilities                                                                                                                 |       | 7,144                    |       | 7,331                                |       |
| Long-term debt and capital  lease obligations, excluding current maturities (Note 6)                                                         |       | 475,429                  |       | 475,438                              |       |
| Total liabilities                                                                                                                            |       | 595,669                  |       | 586,658                              |       |
|                                                                                                                                         |       |                     |       |                                 |       |
| Commitments and  contingencies (Note 11)                                                                                                     |       |                     |       |                                 |       |
|                                                                                                                                         |       |                     |       |                                 |       |
| 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,  17,145,045 and 17,112,244 shares issued and outstanding, respectively |       | 171                      |       | 171                                  |       |
| Additional paid-in-capital                                                                                                                   |       | 163,049                  |       | 161,072                              |       |
| Accumulated deficiency                                                                                                                       |       | (191,076                 | )          | (189,470                             | )          |
| Accumulated other  comprehensive loss                                                                                                        |       | (19,526                  | )          | (11,607                              | )          |
| Total stockholders’  deficiency                                                                                                         |       | (47,382                  | )          | (39,834                              | )          |
| Total liabilities and  stockholders’ deficiency                                                                                         |       | $                        | 548,287    |                                 | $          | 546,824 |   |

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

 

See Notes to unauditedconsolidated financial statements.

 

3

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**iPCS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS**

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

 
| ** **                                                                                           | ** ** | **For the Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                                           | ** ** | **March 31,  2008**                           | ** ** | **March 31,  2007** | ** ** |
| ** **                                                                                           | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| **Revenue:**                                                                                         | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Service revenue                                                                                      |       | $                                                  | 92,099     |   | $ | 85,021 |   |
| Roaming revenue                                                                                      |       | 30,144                                             |       | 32,961 |   |
| Equipment and other                                                                                  |       | 3,415                                              |       | 2,871 |   |
| Total revenue                                                                                        |       | 125,658                                            |       | 120,853 |   |
| **Operating Expense:**                                                                               | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Cost of service and roaming (exclusive of depreciation and  amortization, as shown separately below) |       | 68,184                                             |       | 73,415 |   |
| Cost of equipment                                                                                    |       | 11,663                                             |       | 13,179 |   |
| Selling and marketing                                                                                |       | 17,859                                             |       | 20,574 |   |
| General and administrative                                                                           |       | 7,088                                              |       | 6,927 |   |
| Depreciation (Note 4)                                                                                |       | 11,661                                             |       | 11,838 |   |
| Amortization of intangible assets (Note 5)                                                           |       | 2,294                                              |       | 7,594 |   |
| Loss on disposal of property and equipment                                                           |       | 10                                                 |       | 59 |   |
| Total operating expense                                                                              |       | 118,759                                            |       | 133,586 |   |
| **Operating income (loss)**                                                                          |       | 6,899                                              |       | (12,733 | ) |
| Interest income                                                                                      |       | 720                                                |       | 1,543 |   |
| Interest expense                                                                                     |       | (8,915                                             | )          | (7,970 | ) |
| Other income, net                                                                                    |       | 15                                                 |       | 17 |   |
| **Loss before provision for income  tax**                                                            |       | (1,281                                             | )          | (19,143 | ) |
| Provision for income tax  (Note 8)                                                                   |       | 325                                                |       | — |   |
| **Net loss**                                                                                         |       | $                                                  | (1,606     | ) | $ | (19,143 | ) |
|                                                                                                 |       |                                               |       |   |   |
| **Basic and diluted loss per  share of common stock:**                                               | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Loss available to common stockholders                                                                |       | $                                                  | (0.09      | ) | $ | (1.13 | ) |
|                                                                                                 |       |                                               |       |   |   |
| Weighted average common shares outstanding                                                           |       | 17,136,043                                         |       | 16,873,857 |   |

 

See Notes to unaudited consolidated financial statements.

 

4

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**iPCS, INC. AND SUBSIDIARIES****CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)(In thousands)**

 
| ** **                                                                                                              | ** ** | **For the Three Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                                                              | ** ** | **March 31,  2008**                           | ** ** | **March 31,  2007** | ** ** |
| **Cash Flows from Operating  Activities:**                                                                              | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Net loss                                                                                                                |       | $                                                  | (1,606     | ) | $ | (19,143 | ) |
| Adjustments to reconcile  net loss to net cash flows from operating activities:                                         |       |                                               |       |   |   |
| Loss on disposal of property and equipment                                                                              |       | 10                                                 |       | 59 |   |
| Depreciation and amortization                                                                                           |       | 13,955                                             |       | 19,432 |   |
| Non-cash interest expense, net of amortization of debt fair value  adjustment                                           |       | 344                                                |       | (162 | ) |
| Stock-based compensation expense                                                                                        |       | 1,841                                              |       | 1,913 |   |
| Provision for doubtful accounts                                                                                         |       | 5,384                                              |       | 2,651 |   |
| Changes in assets and liabilities:                                                                                      |       |                                               |       |   |   |
| Accounts receivable                                                                                                     |       | (4,176                                             | )          | (2,013 | ) |
| Receivable from Sprint                                                                                                  |       | 2,952                                              |       | 10,389 |   |
| Inventories, net                                                                                                        |       | (2,467                                             | )          | (1,068 | ) |
| Prepaid expenses, other current and long-term assets                                                                    |       | 451                                                |       | (1,235 | ) |
| Accounts payable, accrued expenses and other long-term liabilities                                                      |       | (4,218                                             | )          | (3,237 | ) |
| Payable to Sprint                                                                                                       |       | (2,331                                             | )          | (7,626 | ) |
| Deferred revenue                                                                                                        |       | 341                                                |       | 684 |   |
| Net cash flows provided by operating activities                                                                         |       | 10,480                                             |       | 644 |   |
| **Cash Flows from Investing  Activities:**                                                                              | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Purchases of property and equipment                                                                                     |       | (14,406                                            | )          | (7,262 | ) |
| Proceeds from disposition of property and equipment                                                                     |       | 19                                                 |       | 3 |   |
| Net cash flows used in investing activities                                                                             |       | (14,387                                            | )          | (7,259 | ) |
| **Cash Flows from Financing  Activities:**                                                                              | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Proceeds from the exercise of stock options                                                                             |       | 137                                                |       | 1,720 |   |
| Payments on capital lease obligations                                                                                   |       | (7                                                 | )          | (6 | ) |
| Payment of special cash dividend                                                                                        |       | (36                                                | )          | — |   |
| Net cash flows provided by financing activities                                                                         |       | 94                                                 |       | 1,714 |   |
| Net decrease in cash and cash equivalents                                                                               |       | (3,813                                             | )          | (4,901 | ) |
| **Cash and cash equivalents at  beginning of period**                                                                   |       | 77,599                                             |       | 120,499 |   |
| **Cash and cash equivalents at  end of period**                                                                         |       | $                                                  | 73,786     |   | $ | 115,598 |   |
|                                                                                                                    |       |                                               |       |   |   |
| **Supplemental disclosure of cash  flow information - cash paid for interest**                                          |       | $                                                  | 9,375      |   | $ | 7,109 |   |
| **Supplemental disclosure for  non-cash investing activities:**                                                         | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Capitalized interest                                                                                                    |       | $                                                  | 239        |   | $ | 196 |   |
| Accounts payable and accrued expenses incurred for the acquisition of  property, equipment and construction in progress |       | 8,542                                              |       | 1,631 |   |

 

See Notes to unauditedconsolidated financial statements.

 

5

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**iPCS, INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

 

**(1)  Business andBasis of Presentation**

** **

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

 

Theunaudited consolidated balance sheets as of March 31, 2008 and December 31,2007, the unaudited consolidated statements of operations for the three monthsended March 31, 2008 and 2007, the unaudited consolidated statements ofcash flows for the three months ended March 31, 2008 and 2007 and relatedfootnotes have been prepared in accordance with accounting principles generallyaccepted in the United States of America for interim financial information and Rule 10-01of Regulation S-X. Accordingly, they do not include all of the information andfootnotes required by accounting principles generally accepted in the UnitedStates for complete financial statements. The financial information presentedherein should be read in conjunction with the Company’s 2007 Annual Report on Form 10-Kwhich includes information and disclosures not presented herein. Allsignificant intercompany accounts and transactions have been eliminated inconsolidation. In the opinion of management, the unaudited consolidatedfinancial statements contain all of the adjustments, consisting of normalrecurring adjustments, necessary to present fairly, in summarized form, theconsolidated financial position, results of operations and cash flows of theCompany. The results of operations for the three months ended March 31,2008 are not indicative of the results that may be expected for the full year2008.

 

**(2)  Summary of Significant Accounting Policies**

 

*Loss Per Share*

 

Basicand diluted loss per share for the Company are calculated by dividing the netloss by the weighted average number of shares of common stock of the Company.The calculation was made in accordance with SFAS No. 128, “Earnings PerShare.” The basic and diluted loss per share are the same because the inclusionof the incremental potential shares of common stock from any assumed exerciseof stock options is antidilutive. Potential shares of common stock excludedfrom the loss per share computations for each of the three months ended March 31,2008 and 2007 were 1,464,919 and 742,616, respectively.

 

*New Accounting Pronouncements*

 

In September 2006, the FASB issued Statement No. 157, “Fair ValueMeasurements” (“SFAS 157”). SFAS 157 defines fair value, establishes aframework and gives guidance regarding the methods used for measuring fairvalue, and expands disclosures about fair value measurements. In February 2008,the FASB released FASB Staff Position, (FSP) SFAS 157-2—Effective Date of FASBStatement No. 157, which delays the effective date of SFAS 157 for allnon-financial assets and non-financial liabilities, except those that arerecognized or disclosed at fair value in the financial statements on arecurring basis (at least annually) to fiscal years beginning after November15, 2008.  The Company adopted SFAS 157as it applies to financial assets and liabilities as of January 1, 2008.  The Company does not anticipate that theimplementation of SFAS 157, as it relates to non-financial assets andliabilities will have a material impact on its financial position, results ofoperations and cash flows.

 

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

 

The Company’s fair value measurements in connection with the Company’sadoption of SFAS 157 were as follows as of March 31, 2008 and are based onLevel 2 inputs (in thousands):

 
| Money market funds |   | $ | 2,320  |   |
|--------------------|--------|---|--------|--------|
| Commercial paper   |   | $ | 53,155 |   |
| Interest rate swap |   | $ | 19,526 |   |

 

In December 2007, the FASB issued Statement No. 141 (revised2007), “Business Combinations” (“SFAS 141R”). SFAS 141R significantlychanges the way companies account for business combinations and will generallyrequire more assets acquired and liabilities assumed to be measured at theiracquisition-date fair value. Under SFAS 141R, legal fees and othertransaction-related costs are expensed as incurred and are no longer includedin goodwill as a cost of acquiring the 

 

6

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business.SFAS 141R also requires, among other things, acquirers to estimate theacquisition-date fair value of any contingent consideration and to recognizeany subsequent changes in the fair value of contingent consideration inearnings. In addition, SFAS 141R amends FASB SFAS No. 109, Accounting forIncome Taxes, to require the acquirer to recognize changes in the amount of itsdeferred tax benefits that are recognizable because of a business combinationeither in income from continuing operations in the period of the combination ordirectly in contributed capital, depending on the circumstances. SFAS 141Ris effective for fiscal years beginning after December 15, 2008 with earlyadoption prohibited. SFAS 141R is effective for the Company for any businesscombinations with an acquisition date on or after January 1, 2009. The Companywill apply the provisions of SFAS 141R to any business combinations within thescope of SFAS 141R after its effective date.

 

** (3) Sprint Agreements**

 

Each of iPCS Wireless, Inc., Horizon Personal Communications, Inc.and Bright Personal Communications Services, LLC has entered into a set ofaffiliation agreements with Sprint. 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,inventory logistics support, use of the Sprint and Sprint PCS brand names,national advertising, national distribution and product development.

 

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

 

The CCPU rate in 2008 will be reduced from the then current rate by$0.15 if the Company hits certain milestones with respect to its voluntarydeployment of EV-DO Rev. A, the most recent 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 will be reduced by $0.15 from the then current rate when the Company’sEV-DO Rev. A deployment covers at least 6.0 million in population (“POPs”);by another $0.15 from the then current rate when the Company covers at least7.0 million POPs; and by another $0.15 from the then current rate when theCompany covers at least 9.0 million POPs. As of March 31, 2008, theCompany’s EV-DO Rev. A deployment covered approximately 2.6 million POPs.

 

7

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

 

With respect to certain of the Company’s markets inwestern and eastern Pennsylvania, the Company receives the benefit of a specialreciprocal rate for voice and 2G data of $0.10 per minute. This special ratewill terminate, with respect to each of these two sets of markets, on theearlier of December 31, 2011 or the first day of the calendar month whichfollows the first calendar quarter during which the Company achieves asubscriber penetration rate of at least 7% of the Company’s covered populationsin those markets.  The Company does notanticipate reaching a 7% subscriber penetration rate in these markets in theforeseeable future.

 

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

 

Roaming expense is recorded in cost of service and roaming within thestatements of operations. Cost of service and roaming transactions with Sprintinclude the 8% affiliation fee, long distance, roaming expense, billing supportand customer care support. Cost of equipment relates to inventory sold by theCompany that was purchased from Sprint under the Company’s affiliation agreementswith Sprint. Selling and marketing transactions relate to subsidized costs onwireless handsets and commissions under Sprint’s national distribution program.

 

For the three months ended March 31, 2008 and 2007, approximately97% and 98%, respectively, of the Company’s revenue was derived from dataprovided by Sprint.  For the three monthsended March 31, 2008 and 2007, approximately 59% and 68%, respectively, ofthe Company’s cost of service and roaming was derived from data provided bySprint.  The Company reviews all chargesfrom Sprint and can dispute certain of these charges in cases where the Companydoes not receive enough supporting detail to validate the charges or it doesnot believe Sprint can charge the Company for certain expenses under the termsof the Sprint affiliation agreements.

 

8

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Amountsrelating to the Sprint affiliation agreements for the three months ended March 31,2008 and 2007 and as of March 31, 2008 and December 31, 2007 are asfollows (in thousands):

 

| ** **                                                          | ** ** | **For the Three Months Ended** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                          | ** ** | **March 31,  2008**                           | ** ** | **March 31,  2007** | ** ** |
| **Amounts included in the  Consolidated Statements of Operations:** | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Service revenue                                                     |       | $                                                  | 92,099     |   | $ | 85,021 |   |
| Roaming revenue                                                     |       | $                                                  | 30,144     |   | $ | 32,961 |   |
| Cost of service and  roaming:                                       |       |                                               |       |   |   |
| Roaming                                                             |       | $                                                  | 16,526     |   | $ | 24,204 |   |
| Customer service                                                    |       | 13,280                                             |       | 13,764 |   |
| Affiliation fees                                                    |       | 6,850                                              |       | 6,701 |   |
| Long distance                                                       |       | 3,334                                              |       | 3,249 |   |
| Other                                                               |       | (25                                                | )          | 1,756 |   |
| Total cost of service and  roaming                                  |       | $                                                  | 39,965     |   | $ | 49,674 |   |
| Cost of equipment                                                   |       | $                                                  | 11,663     |   | $ | 13,179 |   |
| Selling and marketing                                               |       | $                                                  | 2,525      |   | $ | 5,433 |   |

 
| ** **                                                | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-----------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **Amounts included in the  Consolidated Balance Sheets:** | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Receivable from Sprint                                    |       | $                        | 38,557     |                        | $          | 41,509 |   |
| Payable to Sprint                                         |       | 46,874                   |       | 49,205                      |       |
|                                                           |            |                          |            |                             |            |  |  |

 

**(4)  Property and Equipment**

 

Propertyand equipment consists of the following at March 31, 2008 and December 31,2007 (in thousands):

 
| ** **                                      | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Network assets                                  |       | $                        | 237,170    |                        | $          | 232,874 |   |
| Land                                            |       | 114                      |       | 114                         |       |
| Building                                        |       | 1,566                    |       | 1,566                       |       |
| Computer equipment                              |       | 5,348                    |       | 5,043                       |       |
| Furniture, fixtures, and  office equipment      |       | 8,200                    |       | 8,086                       |       |
| Vehicles                                        |       | 2,226                    |       | 2,167                       |       |
| Construction in progress                        |       | 33,842                   |       | 16,983                      |       |
| Total property and  equipment                   |       | 288,466                  |       | 266,833                     |       |
| Less accumulated  depreciation and amortization |       | (149,402                 | )          | (138,156                    | )          |
| Total property and  equipment, net              |       | $                        | 139,064    |                        | $          | 128,677 |   |

 

The Company has engaged independent agents to sell remaining Motorolaequipment which was replaced with Nortel equipment. The Company carries theseassets as Assets held for sale and, during the three months ended March 31,2008, recognized a $0.3 million impairment charge related to these assetsto reduce the carrying value in accordance with SFAS No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets.” The impairment charge isincluded in Depreciation and the reduction in carrying value records theseassets at fair value less costs to sell in anticipation of their future sale.

 

9

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**(5) Intangible Assets and Goodwill**

 

Goodwill, totaling $141.8million, represents the excess of purchase price over the fair value of the netassets acquired, including identifiable intangible assets.  Goodwill is not deductible for income taxes.

 

Intangible assetsrepresent the values assigned to the Company’s customer base, the right toprovide service under the Sprint affiliation agreements and an FCC license fora small market in Ohio.

 

The intangible assetsrelating to the customer base were amortized over the estimated average life ofa customer of 30 months.  Theintangible asset related to the iPCS Wireless customer base was fully amortizedas of December 31, 2006.  Theintangible asset related to the Horizon and Bright customer bases was fully amortizedas of December 31, 2007.  Theintangible assets relating to the right to provide service under the Sprintaffiliation agreements are being amortized over the remaining term of therespective agreements. The FCC license was determined to have an indefinitelife as it is expected to be renewed with minimal effort and cost.  This FCC license is for sale; however, theCompany believes the sale of this asset is unlikely within the next year.

 

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

 
| ** **                                                        | ** ** | **March 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 |   | (29,338 | ) | 97,183 |   |
| Customer base                                                     |       | 30 months                                       |       | 71,956 |   | (71,956 | ) | — |   |
|                                                              |       | 117 months                                      |       | $ | 198,777 |   | $ | (101,294 | ) | $ | 97,483 |   |

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

 

The amortization expense for the three months ended March 31,2008 and 2007 was $2.3 million and $7.6 million, respectively.  Aggregate amortization expense relative tointangible assets for the periods shown will be as follows:

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

 

10

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**(6) Long-TermDebt**

 

Long-termdebt consists of the following at March 31, 2008 and December 31,2007 (in thousands):

 
| ** **                                                                  | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| First lien senior secured floating rate notes                               |       | $                        | 300,000    |                        | $          | 300,000 |   |
| Second lien senior secured floating rate notes                              |       | 175,000                  |       | 175,000                     |       |
| Capital lease obligations                                                   |       | 461                      |       | 468                         |       |
| Total long-term debt and capital lease obligations                          |       | 475,461                  |       | 475,468                     |       |
| Less: current maturities                                                    |       | (32                      | )          | (30                         | )          |
| Long-term debt and capital lease obligations,  excluding current maturities |       | $                        | 475,429    |                        | $          | 475,438 |   |

 

***                                               ******FirstLien and Second Lien Senior Secured Floating Rate Notes***

 

The Company has outstanding$475.0 million in aggregate principal amount of senior secured notes,consisting of $300.0 million in aggregate principal amount of First LienSenior Secured Floating Rate Notes due 2013 (“First Lien Notes”) and$175.0 million in aggregate principal amount of Second Lien Senior SecuredFloating Rate Notes due 2014 (“Second Lien Notes” and together with the FirstLien Notes, the “Secured Notes”).

 

The Secured Notesare senior secured obligations of the Company and are unconditionallyguaranteed on a senior secured basis by all the Company’s existing and futuredomestic restricted subsidiaries. The First Lien Notes are secured by a firstpriority security interest, subject to permitted liens, in substantially all ofthe Company and its subsidiary guarantor assets, including, but not limited to:(1) all the capital stock of each restricted subsidiary owned by theCompany, or any subsidiary guarantor; (2) all deposit accounts, securityaccounts, accounts receivable, inventory, investment property, inter-companynotes, general intangible assets, equipment, instruments, contract rights,chattel paper, promissory notes and leases; (3) all fixtures; (4) patents,trademarks, copyrights and other intellectual property; and (5) allproceeds of, and all other amounts arising from, the collection, sale, lease,exchange, assignment, licensing, or other disposition or realization of theforegoing assets (collectively the “Collateral”); provided that the securitydocuments provide that a portion of the capital stock of any subsidiary shallautomatically be deemed released from, and not to have been a part of, theCollateral to the extent necessary so as not to require the preparation andfiling with the SEC of separate audited financial statements of such subsidiarypursuant to Rule 3-16 of the SEC’s accounting rules and regulations.The Second Lien Notes are secured by a second priority security interest,subject to permitted liens, in the Collateral.

 

The indenturesgoverning the Secured Notes contain covenants which restrict the Company’s andits restricted subsidiaries’ ability to incur additional indebtedness, merge,pay dividends, dispose of its assets, and certain other matters as defined inthe indentures.

 

Interest on theFirst Lien Notes accrues at an annual rate equal to three-month LIBOR plus2.125% 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 (“PIKInterest”). PIK Interest on the Second Lien Notes accrues at an annual rateequal to three-month LIBOR plus 4.0%. For the year ended December 31,2007, the Company paid all of its interest relating to the Second Lien Notes incash. Three-month LIBOR for the Secured Notes resets on February 1, May 1,August 1 and November 1 of each year and was 3.24% on March 31,2008. On May 1, 2008, three-month LIBOR for the Secured Notes was 2.87%.

 

***$165.0 Million111/2% Senior Notes***

 

The offering of 111/2%senior notes closed on April 30, 2004 in connection with the Company’sreorganization in that same year. The Company repurchased all of itsoutstanding 111/2% senior notes with the proceeds of itsSecured Notes offering in April 2007.

 

11

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***$125.0 Million113/8% Senior Notes***

 

In connection withthe merger with Horizon PCS in 2005, iPCS, Inc. assumed the obligationsfor the $125.0 million of 113/8% senior notespreviously issued by Horizon PCS as part of Horizon PCS’s plan ofreorganization. The allocation of the purchase price resulted in an increase ofthe value of the 113/8% senior notes of approximately$14.7 million, which was recorded as long-term debt in the ConsolidatedBalance Sheets. This amount was to be amortized over the remaining life of thesenior notes as a reduction to interest expense. For the three months ended March 31,2007, the reduction to interest expense was approximately $0.5 million.This amortization did not increase the principal amount due to the senior noteholders or reduce the amount of interest owed to the senior note holders.

 

With the proceedsof its Secured Notes offering in April 2007, the Company repurchased allof its outstanding 113/8% senior notes and reduced theunamortized balance of the fair value adjustment for the 113/8%senior notes to zero.

 

***                                               ******CapitalLease Obligations***

 

Interest oncapital lease obligations are all at fixed rates, which, on a weighted averagebasis, approximated 12.4% per annum at March 31, 2008.

 

** (7)  Interest Rate Swap**

 

On July 20,2007, the Company entered into an interest rate swap agreement for a notionalamount of $300.0 million associated with the interest on the Company’sFirst Lien Notes effective August 1, 2007 for a period of three years.Under this agreement, the Company receives interest at a floating rate ofthree-month LIBOR and pays interest at a fixed rate of 5.34%, resulting in aneffective rate in relation to the First Lien Notes of 7.47% throughout the termof the swap. The interest rate swap has been designated as a cash flow hedge.The fair value of the interest rate swap is recorded in Stockholders’Deficiency under Accumulated other comprehensive loss, net of applicable incometaxes.

 

As of March 31,2008 and December 31, 2007, the fair value of the swap was approximately$19.5 million and $11.6 million, respectively, and is recorded on theconsolidated balance sheet as a long-term liability and in Accumulated othercomprehensive loss. The change in fair value of the swap for the three monthsended March 31, 2008 was $7.9 million. No component of the interestrate swap is excluded from the assessment of effectiveness and noineffectiveness has been recognized on the swap since inception.

 

The amount of lossrecorded in Accumulated other comprehensive loss at March 31, 2008 that isexpected to be reclassified to interest expense in the next twelve months ifinterest rates underlying the Company’s fair value calculations remainunchanged is approximately $9.1 million.

 

** (8)  Income Taxes**

 

The Company’s effectiveincome tax rate for the interim periods presented is based on management’sestimate of the Company’s effective tax rate for the applicable year anddiffers from the federal statutory income tax rate primarily due tonondeductible permanent differences, state income taxes and changes in thevaluation allowance for deferred income taxes. In assessing the realizabilityof deferred tax assets, management considers whether it is more likely than notthat some portion or all of the deferred tax assets will not be realized. Theultimate realization of deferred tax assets is dependent upon the generation offuture taxable income during the periods in which those temporary differencesbecome deductible. No benefit for federal income taxes has been recorded forthe three months ended March 31, 2008 and 2007 as the net deferred taxasset generated, primarily from temporary differences related to the netoperating loss, was offset by a full valuation allowance because it isconsidered more likely than not that these benefits will not be realized due tothe Company’s losses since inception. The current year tax provision relates to state income taxes which areestimated based upon the taxable income generated in each state.

 

12

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**(9) Stock-Based Compensation**

 

The Company has twolong-term incentive plans.  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. The Horizon PCS 2004 stock incentive plan, as amended (the“Horizon Plan”), was assumed by the Company in its merger with Horizon PCS in2005.  Both plans have been approved bythe Company’s stockholders.

 

**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 and restricted stock awarded to date under the iPCS Plan have aten-year life with vesting on a quarterly basis over four years for employees,vesting over one year for directors, and, with respect to the 2008 award ofrestricted stock to certain employees, cliff vesting at the end of three years.  The total number of shares that may beawarded under the iPCS Plan is 2,092,630 shares of common stock, of whichamount, 3,225 shares remain available for awards as of March 31,2008.  The Company has submitted aproposal to stockholders to increase the number of shares available for grantunder the iPCS Plan by 600,000 shares to be voted on at the annualstockholders’ meeting on May 22, 2008.

 

**HorizonPlan. **Under the Horizon Plan, the Company may grant to employees,directors and consultants of the Company or its subsidiaries incentive ornon-qualified stock options or stock appreciation rights. All of the stockoptions issued to date under the Horizon Plan have a ten-year life and vestequally in six-month increments over three years from the date of grant. Thetotal number of shares that may be granted under the Horizon Plan is 558,602shares of common stock, which equals the number of shares underlying awardspreviously made under the Horizon Plan.

 

During the three monthsended March 31, 2008, the Company awarded 628,500 stock options tomanagement and the board of directors at exercise prices between $16.77 and$26.98, which were the closing prices on the date of grants.  The fair value of each grant is estimated atthe grant date using the Black Scholes option pricing method.  The table below outlines the assumptions usedfor the options granted during the three months ended March 31, 2008:

 
| ** **              | ** ** | **For the Three Months Ended  March 31, 2008** | ** ** |
|-------------------------|------------|------------------------------------------------------------------------------|------------|
| ** **              | ** ** | **Range**                                                                    | ** ** | **Weighted Average** | ** ** |
| Risk free interest rate |       | 2.62% to 3.27%                                                               |       | 3.24 | % |
| Volatility              |       |                                                                         |       | 38.00 | % |
| Dividend yield          |       |                                                                         |       | 0.00 | % |
| Expected life in years  |       |                                                                         |       | 5.95 |   |
| Fair value price        |       |                                                                         |       | $ | 10.53 |   |
|                         |            |                                                                              |            |  |  |  |

 

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

 

Thefollowing table shows stock-based compensation expense by type of share-basedaward for the three months ended March 31, 2008 and 2007 included in theconsolidated statements of operations (in thousands):

 

| ** **                                                                         | ** ** | **For the Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                         | ** ** | **March 31, 2008**                       | ** ** | **March 31, 2007** | ** ** |
| Restricted stock                                                                   |       | $                                                  | 280        |   | $ | 201 |   |
| Amortization of deferred compensation of stock  option awards                      |       | —                                             |       | 207 |   |
| Fair value of stock option awards                                                  |       | 1,099                                              |       | 862 |   |
| Fair value expense of stock option modifications                                   |       | —                                             |       | 643 |   |
| Fair value  expense of stock option modifications related to special cash dividend |       | 462                                                |       | — |   |
| Total stock-based compensation                                                     |       | $                                                  | 1,841      |   | $ | 1,913 |   |

 

13

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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:

 

| ** **                                | ** ** | **Total Remaining  Unrecognized  Compensation Cost****(in millions)** | ** ** | **Weighted Average  Remaining Required  Service Period  (in years)** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| Restricted stock                          |       | $                                                                                    | 2.9        |                                                                                     | 2.82       |   |
| Fair value expense of stock option awards |       | 11.4                                                                                 |       | 3.27                                                                                     |       |
|                                           |            |                                                                                      |            |                                                                                          |            |  |

 

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

 

| ** **                     | ** ** | **For the Three Months Ended** | ** ** |
|--------------------------------|------------|----------------------------------------------------|------------|
| ** **                     | ** ** | **March 31,  2008**                           | ** ** | **March 31,  2007** | ** ** |
| Cost of service and roaming    |       | $                                                  | 163        |   | $ | 88 |   |
| Selling and marketing          |       | 213                                                |       | 147 |   |
| General and administrative     |       | 1,465                                              |       | 1,678 |   |
| Total stock-based compensation |       | $                                                  | 1,841      |   | $ | 1,913 |   |

 

The following is asummary of options outstanding and exercisable at March 31, 2008:

 
| ** **                            | ** ** | **Number of Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted  Average  Remaining  Contractual Life  (in years)** | ** ** | **Aggregate  Intrinsic Value  (In thousands)** | ** ** |
|---------------------------------------|------------|--------------------------------|------------|------------------------------------------------|------------|--------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| Outstanding at December 31, 2007 |       | 851,431                        |       | $                                              | 22.01      |                                                                     |       |                                                     |       |   |
| Granted                               |       | 628,500                        |       | 25.18                                          |       |                                                                     |       |                                                     |       |
| Exercised                             |       | (13,096                        | )          | 10.45                                          |       |                                                                     |       |                                                     |       |
| Forfeited                             |       | (1,916                         | )          | 38.47                                          |       |                                                                     |       |                                                     |       |
| Outstanding at March 31, 2008    |       | 1,464,919                      |       | $                                              | 23.45      |                                                                     | 8.52       |                                                     | $          | 6,069 |   |
| Exercisable at March 31, 2008    |       | 616,412                        |       | $                                              | 18.26      |                                                                     | 7.25       |                                                     | $          | 5,378 |   |

 

The following is asummary of restricted shares for the three months ended March 31, 2008:

 
| ** **                                  | ** ** | **Shares** | ** ** | **Weighted Average  Fair Value Price** | ** ** |
|---------------------------------------------|------------|------------|------------|-------------------------------------------------------|------------|
| Restricted shares at December 31, 2007 |       | 62,836     |       | $                                                     | 43.47      |   |
| Granted                                     |       | 19,705     |       | 25.29                                                 |       |
| Vested                                      |       | (5,852     | )          | (40.71                                                | )          |
| Restricted shares at March 31, 2008    |       | 76,689     |       | $                                                     | 39.01      |   |

 

14

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**(10) Comprehensive Loss**

 

Comprehensiveloss, which includes all changes in the Company’s equity during the periodexcept transactions with stockholders, consisted of the following for the threemonths ended March 31, 2008 and 2007 (in thousands):

 
| ** **                                     | ** ** | **For the Three Months Ended  March 31,** | ** ** |
|------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                     | ** ** | **2008**                                                           | ** ** | **2007** | ** ** |
| Net loss                                       |       | $                                                                  | (1,606     | ) | $ | (19,143 | ) |
| Other comprehensive loss — Hedge loss (a) |       | (7,919                                                             | )          | — |   |
| Comprehensive loss                             |       | $                                                                  | (9,525     | ) | $ | (19,143 | ) |

----

(a)                                  No benefit for income tax has beenrecorded for the three months ended March 31, 2008, as the deferred assetgenerated, primarily from the temporary differences relating to the Company’snet operating loss, was offset by a full valuation allowance because it isconsidered more likely than not that these benefits will not be recognized dueto the Company’s losses since inception.

 

**(11) Commitments and Contingencies**

 

*(a)  Commitments*

 

On December 29,2006, the Company signed a letter of agreement with Nortel Networks to purchaseEV-DO Rev. A equipment and services totaling $17.1 million in aggregate.As of March 31, 2008, the Company has paid $12.0 million of the$17.1 million of commitments and has received equipment totaling$17.1 million. The remaining $5.1 million is expected to be paid inthe second quarter of 2008.

 

*(b)  FCC Licenses*

 

Sprint PCS holdsthe licenses necessary to provide wireless services in the Company’s territory.The FCC requires that licensees like Sprint PCS maintain control of theirlicensed 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 licenserenewals. Any failure by Sprint PCS or the Company to comply with thesestandards could result in the non-renewal of the Sprint PCS licenses for theCompany’s territory. Additionally, if Sprint PCS does not demonstrate to theFCC that Sprint PCS has met the construction requirements for each of itswireless personal communications services licenses, it can lose those licenses.If Sprint PCS loses its licenses in the Company’s territory for any of thesereasons, the Company would not be able to provide wireless services withoutobtaining rights to other licenses.

 

If Sprint PCSloses its licenses in another territory, Sprint PCS or the applicable PCSAffiliate or Sprint would not be able to provide wireless services withoutobtaining rights to other licenses and the Company’s ability to offernationwide calling plans would be diminished and potentially more costly.

 

*(c)  Litigation and Arbitration*

 

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

 

·                  Within 180 days of the date of thefinal order, Sprint and those acting in concert with it must cease owning,operating, and managing the Nextel wireless network in iPCS Wireless’sterritory.

 

15

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·                  Sprint shall continue to comply with allterms and conditions of the Forbearance Agreement between us and Sprint settingforth certain limitations on Sprint’s operations post-merger with Nextel.

 

On September 28,2006, Sprint appealed the ruling to the Appellate Court of Illinois, FirstJudicial District, and, at Sprint’s request, the Circuit Court’s ruling wasstayed by the Appellate Court pending the appeal. On March 31 2008, theAppellate Court unanimously affirmed the 2006 Circuit Court decision.  On May 5, 2008, Sprint filed a petitionfor leave to appeal with the Supreme Court of Illinois.  The Circuit Court’s final order remainsstayed pending the conclusion of the appeals process.

 

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

 

In addition to theforegoing, from time to time, the Company is involved in various legalproceedings relating to claims arising in the ordinary course of business. TheCompany is not currently a party to any such legal proceedings, the outcome ofwhich, individually or in the aggregate, is expected to have a material adverseeffect on the Company’s business, financial condition or results of operations.

 

** (12) Consolidating Financial Information**

 

The Secured Notesare fully, unconditionally and joint and severally guaranteed by the Company’sdomestic restricted subsidiaries, including iPCS Wireless, Inc., iPCSEquipment, Inc., Horizon Personal Communications, Inc., Bright PCSHoldings, Inc. and Bright Personal Communications Services, LLC,which are 100% owned subsidiaries of iPCS, Inc (see Note 6). The followingconsolidating financial information for iPCS, Inc. as of March 31,2008 and December 31, 2007 and for the three months ended March 31,2008 and 2007 is presented for iPCS, Inc. and the Company’s guarantorsubsidiaries (in thousands):

 

**CondensedConsolidating Balance Sheet**

**As of March 31, 2008**

 
| ** **                                                    | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|---------------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|-----------------------|------------|
| Cash and cash equivalents                                     |       | $                  | —     |                        | $          | 73,786           |       | $                     | —     |   | $ | 73,786 |   |
| Other current assets                                          |       | 498,220            |       | 318,520                     |       | (733,020         | )          | 83,720                |       |
| Total current assets                                          |       | 498,220            |       | 392,306                     |       | (733,020         | )          | 157,506               |       |
| Property and equipment, net                                   |       | —             |       | 139,064                     |       | —           |       | 139,064               |       |
| Intangible assets, net                                        |       | —             |       | 239,266                     |       | —           |       | 239,266               |       |
| Other noncurrent assets                                       |       | 7,450              |       | 5,001                       |       | —           |       | 12,451                |       |
| Investment in subsidiaries                                    |       | 182,943            |       | —                      |       | (182,943         | )          | —                |       |
| Total assets                                                  |       | $                  | 688,613    |                        | $          | 775,637          |       | $                     | (915,963   | ) | $ | 548,287 |   |
| Current liabilities                                           |       | $                  | 241,179    |                        | $          | 580,753          |       | $                     | (733,020   | ) | $ | 88,912 |   |
| Long-term debt                                                |       | 475,000            |       | 429                         |       | —           |       | 475,429               |       |
| Other long-term liabilities                                   |       | 19,816             |       | 11,512                      |       | —           |       | 31,328                |       |
| Total liabilities                                             |       | 735,995            |       | 592,694                     |       | (733,020         | )          | 595,669               |       |
| Stockholders’ equity (deficiency)                        |       | (47,382            | )          | 182,943                     |       | (182,943         | )          | (47,382               | )          |
| Total liabilities and stockholders’ equity  (deficiency) |       | $                  | 688,613    |                        | $          | 775,637          |       | $                     | (915,963   | ) | $ | 548,287 |   |

 

16

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**CondensedConsolidating Balance Sheet**

**As of December 31, 2007**

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

 

 

 

**CondensedConsolidating Statement of Operations**

**For the Three Months Ended March 31,2008**

 
| ** **                                              | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|---------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|-----------------------|------------|
| Total revenue                                           |       | $                  | —     |                        | $          | 125,658          |       | $                     | —     |   | $ | 125,658 |   |
| Cost of revenue                                         |       | —             |       | 79,847                      |       | —           |       | 79,847                |       |
| Selling and marketing                                   |       | —             |       | 17,859                      |       | —           |       | 17,859                |       |
| General and administrative                              |       | 712                |       | 6,376                       |       | —           |       | 7,088                 |       |
| Depreciation and amortization                           |       | —             |       | 13,955                      |       | —           |       | 13,955                |       |
| Gain (loss) on disposal of property and equipment,  net |       | —             |       | 10                          |       | —           |       | 10                    |       |
| Total operating  expense                                |       | 712                |       | 118,047                     |       | —           |       | 118,759               |       |
| Other, net                                              |       | 2,211              |       | (10,391                     | )          | —           |       | (8,180                | )          |
| Loss in subsidiaries                                    |       | (3,105             | )          | —                      |       | 3,105            |       | —                |       |
| Loss before provision for income tax                    |       | (1,606             | )          | (2,780                      | )          | 3,105            |       | (1,281                | )          |
| Provision for income tax                                |       | —             |       | 325                         |       | —           |       | 325                   |       |
| Net loss                                                |       | $                  | (1,606     | )                           | $          | (3,105           | )          | $                     | 3,105      |   | $ | (1,606 | ) |

 

17

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**CondensedConsolidating Statement of Operations**

**For the Three Months Ended March 31,2007**

** **

** **
| ** **                                              | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|---------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|-----------------------|------------|
| Total revenue                                           |       | $                  | —     |                        | $          | 120,853          |       | $                     | —     |   | $ | 120,853 |   |
| Cost of revenue                                         |       | —             |       | 86,594                      |       | —           |       | 86,594                |       |
| Selling and marketing                                   |       | —             |       | 20,574                      | )          | —           |       | 20,574                |       |
| General and administrative                              |       | 549                |       | 6,378                       |       | —           |       | 6,927                 |       |
| Depreciation and amortization                           |       | —             |       | 19,432                      |       | —           |       | 19,432                |       |
| Gain (loss) on disposal of property and equipment,  net |       | —             |       | 59                          |       | —           |       | 59                    |       |
| Total operating  expense                                |       | 549                |       | 133,037                     |       | —           |       | 133,586               |       |
| Other, net                                              |       | (4,968             | )          | (1,442                      | )          | —           |       | (6,410                | )          |
| Loss in subsidiaries                                    |       | (13,626            | )          | —                      |       | 13,626           |       | —                |       |
| Loss before provision for income tax                    |       | (19,143            | )          | (13,626                     | )          | 13,626           |       | (19,143               | )          |
| Provision for income tax                                |       | —             |       | —                      |       | —           |       | —                |       |
| Net loss                                                |       | $                  | (19,143    | )                           | $          | (13,626          | )          | $                     | 13,626     |   | $ | (19,143 | ) |

 

 

**CondensedConsolidating Statement of Cash Flows**

**For the Three Months Ended March 31,2008**

 
| ** **                                       | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|-----------------------|------------|
| Operating activities                             |       | $                  | (101       | )                           | $          | 10,581           |       | $                     | —     |   | $ | 10,480 |   |
| Investing activities                             |       | —             |       | (14,387                     | )          | —           |       | (14,387               | )          |
| Financing activities                             |       | 101                |       | (7                          | )          | —           |       | 94                    |       |
| Net decrease in cash and cash equivalents        |       | —             |       | (3,813                      | )          | —           |       | (3,813                | )          |
| Cash and cash equivalents at beginning of period |       | —             |       | 77,599                      |       | —           |       | 77,599                |       |
| Cash and cash equivalents at end of period       |       | $                  | —     |                        | $          | 73,786           |       | $                     | —     |   | $ | 73,786 |   |

 

 

**CondensedConsolidating Statement of Cash Flows**

**For the Three Months Ended March 31,2007**

 
| ** **                                       | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|-----------------------|------------|
| Operating activities                             |       | $                  | —     |                        | $          | 644              |       | $                     | —     |   | $ | 644 |   |
| Investing activities                             |       | —             |       | (7,259                      | )          | —           |       | (7,259                | )          |
| Financing activities                             |       | —             |       | 1,714                       |       | —           |       | 1,714                 |       |
| Net decrease in cash and cash equivalents        |       | —             |       | (4,901                      | )          | —           |       | (4,901                | )          |
| Cash and cash equivalents at beginning of period |       | —             |       | 120,499                     |       | —           |       | 120,499               |       |
| Cash and cash equivalents at end of period       |       | $                  | —     |                        | $          | 115,598          |       | $                     | —     |   | $ | 115,598 |   |

 

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**Item2. Management’s Discussion and Analysis of Financial Condition and Results ofOperations.**

 

As used in this quarterlyreport on Form 10-Q, unless the context otherwise requires: (i) “SprintPCS” refers to the affiliated entities of Sprint Nextel Corporation that areparty to our affiliation agreements; (ii) “Sprint” refers to Sprint NextelCorporation and its affiliates; (iii) a “PCS Affiliate of Sprint” is anentity whose sole or predominant business is operating (directly or through oneor more subsidiaries) a personal communications service business pursuant toaffiliation agreements with Sprint Spectrum L.P. 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.

 

Statements in thisquarterly report on Form 10-Q regarding Sprint or Sprint PCS are derivedfrom information contained in our affiliation agreements with Sprint PCS,periodic reports and other documents filed by Sprint with the SEC. 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.

 

The following is ananalysis of our results of operations, liquidity and capital resources andshould be read in conjunction with the unaudited Consolidated FinancialStatements and notes related thereto included in this Form 10-Q. To theextent that the following Management’s Discussion and Analysis containsstatements which are not of a historical nature, such statements areforward-looking statements which involve risks and uncertainties. These risksinclude, but are not limited to the risk and uncertainties listed in the nextsection entitled “Forward-Looking Statements” and other factors discussedelsewhere herein and in our other filings with the SEC.

 

**Forward-LookingStatements**

 

This quarterly report on Form 10-Qcontains statements about future events and expectations that are“forward-looking statements.” These statements relate to future events or ourfuture financial performance, and involve known and unknown risks,uncertainties and other factors that may cause our actual results, levels ofactivity, performance or achievements to be materially different from anyfuture results, levels of activity, performance or achievements expressed or impliedby these forward-looking statements. In some cases, you can identifyforward-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 our anticipatedrevenue, expense levels, capital expenditures, liquidity and capital resources,operating losses and operating cash flows; and

 

·                  statements regarding expectations or projections aboutmarkets in our territory.

 

Although webelieve that the expectations reflected in such forward-looking statements arereasonable, we can give no assurance that such expectations will prove to becorrect. Important factors with respect to any such forward-looking statements,including certain risks and uncertainties that could cause actual results todiffer materially from our expectations, include, but are not limited to:

 

·                  our dependence on our affiliation withSprint;

 

·                  the impact on our business of the March 2008amendments to our affiliation agreements with Sprint PCS, including the changeregarding data roaming settlement;

 

·                  the impact and final outcome of ourlitigation with Sprint regarding its merger with Nextel, including the scope ofour exclusivity, and Sprint’s plans for the Nextel business going forward;

 

·                  changes in Sprint’s affiliation strategyas a result of Sprint’s merger with Nextel and Sprint’s acquisition of otherPCS Affiliates of Sprint;

 

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

 

·                  our dependence on back office services,such as billing and customer care, provided by Sprint PCS, and the costs weincur to obtain such services;

 

·                  changes or advances in technology ingeneral, or specifically related to Sprint and its affiliates;

 

·                  competition in the industry and markets inwhich we operate;

 

·                  our ability to attract and retain skilledpersonnel;

 

·                  our potential need for additional capitalor the need for refinancing any existing indebtedness;

 

·                  our potential inability to expand ourservices and related products in the event of substantial increases in demandfor these services and related products;

 

·                  changes in government regulation;

 

·                  changes in the relative attractiveness ofSprint PCS’s phones, pricing plans, customer service and coverage as well asthe market’s overall perception of the Sprint PCS brand;

 

·                  our subscriber credit quality;

 

·                  the potential for us to experience acontinued high rate of subscriber turnover;

 

·                  inaccuracies or delays in our financialinformation provided to us by Sprint PCS;

 

·                  our failure to maintain effectiveinternal controls to satisfy the requirements of Section 404 of theSarbanes-Oxley Act, which requires annual management assessments of theeffectiveness of internal control over financial reporting;

 

·                  our rates of penetration in the wirelessindustry and in our territories;

 

·                  our significant level of indebtedness;

 

·                  adequacy of bad debt and other reserves;

 

·                  our subscriber purchasing patterns;

 

·                  subscriber satisfaction with our networkand operations, including with services provided to us by Sprint, such asbilling and customer care;

 

·                  availability of an adequate supply ofsubscriber equipment to Sprint PCS and to us specifically;

 

·                  risks related to future growth andexpansion, including subscriber growth;

 

·                  risk of a prolonged slowdown in generaleconomic and business conditions from recession, terrorist attack or othermacro economic and political events and its impact on our current and potentialsubscribers; and

 

·                  effects of mergers and consolidationswithin the wireless telecommunications industry, particularly businesscombinations involving Sprint Nextel or affiliates of Sprint Nextel, andunexpected announcements or developments from others in the wirelesstelecommunications industry.

 

20

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**NewAccounting Pronouncements**

 

SeeNote 2, Summary of Significant Accounting Policies, of the “Notes to UnauditedConsolidated Financial Statements” in this Quarterly Report on Form 10-Qfor a discussion of new accounting pronouncements.

 

**Definitionsof Operating Metrics**

 

In this “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”section, we provide certain financial measures that are calculated inaccordance with accounting principles generally accepted in the United States(“GAAP”) and as adjusted to GAAP (“non-GAAP”) to assess our financialperformance. In addition, we use certain non-financial terms that are notmeasures of financial performance under GAAP. Terms such as net subscriberadditions and churn are terms used in the wireless telecommunications industry.The non-GAAP financial measures of average revenue per user (“ARPU”) and costper gross addition (“CPGA”) reflect standard measures of performance commonlyused in the wireless telecommunications industry. The non-financial terms andthe non-GAAP measures reflect wireless telecommunications industry conventionsand are commonly used by the investment community for comparability purposes.The non-GAAP financial measures included in this “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” are reconciled belowin “Reconciliation of Non-GAAP Financial Measures” and, together with thenon-financial terms, are summarized as follows:

 

·                  Gross subscriber additions for the periodrepresent the number of new activations during the period.

 

·                  Net subscriber additions for the periodrepresented is calculated as the gross subscribers additions  in the period less the number of subscribersdeactivated plus the net subscribers transferred in or out of our marketsduring the period.

 

·                  Churn is a measure of the average monthlyrate at which subscribers based in our territory deactivate service on avoluntary or involuntary (credit-related) basis. We calculate average monthlychurn based on the number of subscribers deactivated during the period (net ofthose who deactivated within 30 days of activation and excluding transfersout of our territory) as a percentage of our average monthly subscriber baseduring the period divided by the number of months during the period.

 

·                  ARPU, or average revenue per user, is ameasure of the average monthly service revenue earned from subscribers based inour territory. This measure is calculated by dividing subscriber revenue in ourconsolidated statement of operations by the number of our average monthlysubscribers during the period divided by the number of months in the period.

 

·                  CPGA, or cost per gross addition, is ameasure of the average cost we incur to add a new subscriber in our territory.These costs include handset subsidies on new subscriber activations,commissions, rebates and other selling and marketing costs. We calculate CPGAby dividing (a) the sum of cost of products sold less product salesrevenue associated with transactions with new subscribers, and selling and marketingexpense, net of stock-based compensation expense, during the measurementperiod, by (b) the total number of subscribers activated in our territoryduring the period.

 

·                  Licensed population represents the numberof residents in the markets in our territory for which we have an exclusiveright to provide wireless mobility communications services under the Sprintbrand name. The number of residents located in our territory does not representthe number of wireless subscribers that we serve or expect to serve in ourterritory.

 

·                  Covered population represents the numberof residents covered by our portion of the wireless network of Sprint. Thenumber of residents covered by our network does not represent the number ofwireless subscribers that we serve or expect to serve in our territory.

 

In this “Management’sDiscussion and Analysis of Financial Condition and Results of Operations,”unless the context indicates otherwise, all references to “subscribers” or“customers” and other operating metrics mean subscribers or 

 

21

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customers excludingsubscribers of resellers known as Mobile Virtual Network Operators, or MVNOs,that use our network and resell wireless service under private brands.

 

**BusinessOverview**

 

As a PCS Affiliateof Sprint, we have the exclusive right to provide digital wireless personalcommunications services, or PCS, under the Sprint brand name in 81 marketsincluding markets in Illinois, Michigan, Pennsylvania, New York, Indiana, Iowa,Ohio and Tennessee. The territory includes key markets such as Grand Rapids(MI), Fort Wayne (IN), the Tri-Cities region of Tennessee (Johnson City,Kingsport and Bristol), Scranton (PA), Saginaw-Bay City (MI), and the QuadCities region of Illinois and Iowa (Bettendorf and Davenport, IA, and Molineand Rock Island, IL). We own and are responsible for building, operating andmanaging the portion of the 100% digital, 100% PCS wireless network of SprintPCS located in our territory. We offer national calling plans designed bySprint PCS as well as local plans tailored to our markets. Our PCS network isdesigned to offer a seamless connection with the wireless network of SprintPCS. We market Sprint PCS products and services through a number ofdistribution outlets located in our territory, including our company-ownedretail stores, co-branded dealers, major national retailers and local thirdparty distributors. As of March 31, 2008, our licensed territory had atotal population of approximately 15.1 million residents, of which ourwireless network covered approximately 12.0 million residents, and we hadapproximately 640,600 subscribers.

 

***Relationship withSprint***

 

Our relationshipwith Sprint is the most significant relationship we have. The terms of ourrelationship are set forth in our affiliation agreements with Sprint PCS.Pursuant to these affiliation agreements, we agreed to offer PCS services usingSprint’s spectrum under the Sprint brand name on a wireless network built andoperated at our own expense. We believe that our strategic relationship withSprint PCS provides significant competitive advantages. In particular, webelieve that our affiliation agreements with Sprint PCS allow us to offer highquality, nationally branded wireless voice and data services for lower cost andlower capital requirements than would otherwise be possible.

 

We have been, andcontinue to be, engaged in litigation with Sprint regarding its merger with Nextel.  Sprint’s operation of the legacy Nextelbusiness in our territory must comply with the ruling of the Delaware Court ofChancery.  The favorable ruling wereceived from the Illinois Circuit Court requiring Sprint to cease owning,operating and managing the Nextel wireless network in iPCS Wireless’s territoryhas been “stayed” pending Sprint’s appeal. We do not know the final outcome of our litigation against Sprint. If wedo not prevail, Sprint may engage in conduct that has a material adverse effecton our business and operations. If we do prevail, we do not know Sprint’sintentions for complying with the Circuit Court’s order and its impact on ourbusiness. We intend to continue to enforce our rights to the fullest extent,but there is no assurance that we will prevail. For a detailed discussion of our litigation with Sprint, see“—Commitments and Contingencies” below.

 

On March 3, 2008,we amended our affiliation agreements with Sprint PCS. These amendments resolvesome of the ongoing operational disputes between the parties, including ourarbitration of Sprint’s proposed CCPU and CPGA fees and our disagreement withrespect to Sprint’s proposed reciprocal roaming rates, as well as disputedamounts related to the settlement of 3G data roaming expenses between theparties beginning in April 2007. The new rates provided for in theamendments were made effective January 1, 2008. The amendments do not addressour ongoing Illinois litigation with Sprint.

 

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 the recent amendments of our affiliationagreements with Sprint PCS, the rates through 2010 are as follows:

 

| **Year** | ** ** | **CCPU** | ** ** | **CPGA** | ** ** |
|----------|------------|----------|------------|----------|------------|
| 2007     |       | $        | 7.50       |     | $          | 20.00 |   |
|     |       |     |       |     |       |
| 2008     |       | $        | 6.50       | *        | $          | 19.00 |   |
|     |       |     |       |     |       |
| 2009     |       | $        | 6.15       | *        | $          | 19.00 |   |
|     |       |     |       |     |       |
| 2010     |       | $        | 5.85       | *        | $          | 19.00 |   |

----

*                                          Subject to adjustment as described below.

 

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

 

The CCPU rate in2008 through 2010 will be reduced from the then current rate by $0.15 if we hitcertain milestones with respect to our voluntary deployment of EV-DO Rev. A, themost recent version of the further evolution of code division multiple access(“CDMA”) high-speed data technology called Evolution Data Optimized (“EV-DO”).Specifically, the CCPU rates set forth above will be reduced by $0.15 from thethen current rate when our EV-DO Rev. A deployment covers at least6.0 million in population (“POPs”), by another $0.15 from the then currentrate when we cover at least 7.0 million POPs; and by another $0.15 fromthe then current rate when we cover at least 9.0 million POPs. As of March 31,2008, our EV-DO Rev. A deployment covered approximately 2.6 million POPs.

 

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We receive roamingrevenue when subscribers of Sprint and other PCS Affiliates of Sprint incurminutes of use in our territories, and we incur expense to Sprint and to otherPCS Affiliates of Sprint when our subscribers incur minutes of use in theterritories of Sprint and other PCS Affiliates of Sprint. Prior to January 1,2008, we settled voice and 2G data roaming and 3G data roaming separately withSprint and the other remaining PCS Affiliates of Sprint.  Effective January 1, 2008 through December 31,2010, subject to potential change as described below, 3G data roaming is nolonger settled separately with Sprint; however, we will continue to settle 3Gdata roaming separately with the other remaining PCS Affiliates of Sprint.  Pursuant to the recent amendments of ouraffiliation agreements with Sprint PCS, the reciprocal roaming rates through2010 are as follows:

 

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

----

*                                         Excluding certain markets as describedbelow.

 

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

 

Withrespect to certain of the our markets in western and eastern Pennsylvania, wereceive the benefit of a special reciprocal rate for voice and 2G data of $0.10per minute. This special rate will terminate, with respect to each of these twosets of markets, on the earlier of December 31, 2011 or the first day ofthe calendar month which follows the first calendar quarter during which weachieve a subscriber penetration rate of at least 7% of our covered POPs inthose markets. We do not anticipate reaching a 7% subscriber penetration ratein these markets in the foreseeable future.

 

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

 

The followingtable sets forth the effect of these new CCPU and CPGA rates and reciprocalroaming rates, including the provision providing for the elimination of 3G dataroaming settlement between the parties, had they been in effect for the threemonths ended March 31, 2007:

 

| ** **                                                                | ** ** | **For the Three Months Ended March 31, 2007** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                | ** ** | **As Reported**                                    | ** ** | **Adjustments** | ** ** | **Pro Forma** | ** ** |
| Total revenue                                                             |       | $                                                  | 120.9      |   | $ | (6.6 | ) | $ | 114.3 |   |
| Cost of service  and roaming (exclusive of depreciation and amortization) |       | $                                                  | 73.4       |   | (10.1 | ) | $ | 63.3 |   |
| Selling and marketing                                                     |       | $                                                  | 20.6       |   | (0.1 | ) | $ | 20.5 |   |
|                                                                           |            |                                                    |            |  |  |  |  |  |  |  |

 

The effect was to reducerevenue by $6.6 million and to reduce expense by $10.2 million.

 

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**ConsolidatedResults of Operations**

 

***Summary***

 

Forthe three months ended March 31, 2008 and 2007, our net loss was $1.6million and $19.1 million, respectively. The lower net loss for the three months ended March 31, 2008reflected higher revenue, primarily attributable to our larger subscriber base,lower amortization expense and lower customer acquisition expenses.  Additionally contributing to our smaller netloss for the three months ended March 31, 2008 was our improved reciprocalroaming margin, reflecting improvement in our inbound to outbound ratio due to anincrease in inbound voice minutes of use on our network and the cessation ofdata roaming settlement with Sprint, offset by the impact of lower reciprocalroaming rates as compared to 2007.  Theseincreased revenues, decreased expenses and roaming margin improvements werepartially offset by increases in operating expenses, including bad debt, and anincrease in net interest expense.

 

Presentedbelow is more detailed comparative data and discussion regarding ourconsolidated results of operations for the three months ended March 31,2008 versus the three months ended March 31, 2007.

 

***For the Three Months Ended March 31, 2008 compared tothe Three Months Ended March 31, 2007***

 

Results of operations forany period less than one year are not necessarily indicative of results of operationsfor a full year. Results for the three months ended March 31, 2008 giveeffect to the new amendments and are not comparable to the prior year quarter.

 

***KeyPerformance Metrics.***

 

Management uses severalkey performance metrics to analyze the operations of our business. Below is atable setting forth the metrics that we use for the relevant time periods:

 

 

| ** **                 | ** ** | **As of and for the Three Months   Ended March 31,** | ** ** | ** ** | ** ** | ** **                | ** ** |
|----------------------------|------------|-----------------------------------------------------------|------------|------------|------------|---------------------------|------------|
| ** **                 | ** ** | **2008**                                                  | ** ** | **2007**   | ** ** | **Increase/  (Decrease)** | ** ** | **Percent  Change** | ** ** |
| Total Subscribers          |       | 640,600                                                   |       | 590,900    |       | 49,700                    |       | 8.4 | % |
| Gross Subscriber Additions |       | 59,200                                                    |       | 75,700     |       | (16,500                   | )          | (21.8 | ) |
| Net Subscriber Additions   |       | 10,700                                                    |       | 29,700     |       | (19,000                   | )          | (64.0 | ) |
| Churn                      |       | 2.3                                                       | %          | 2.3        | %          | —                    | pts        | — |   |
| ARPU                       |       | $                                                         | 48.44      |       | $          | 49.30                     |       | $ | (0.86 | ) | (1.7 | ) |
| CPGA                       |       | $                                                         | 399        |       | $          | 371                       |       | $ | 28 |   | 7.5 |   |

 

***Subscriber Additions.***     Gross subscriberadditions slowed in the three months ended March 31, 2008 as compared to the2007 quarter despite a growth in additions coming from Nextel customers withinour territory switching to Sprint.  Thisslowing of gross additions reflects reduced performance from all of our saleschannels, but primarily from our national third party and Sprint controlledchannels and can be attributed to tightened credit standards, issues related tothe billing system conversion at Sprint, increased overall wireless penetrationin our markets and an overall weakening economic environment.  Net subscriber additions were also negativelyimpacted by higher deactivations reflecting an equivalent overall churnpercentage on our larger average subscriber base in the three months ended March 31,2008 as compared to the three months ended March 31, 2007.

 

***Churn.***     Churn for the threemonths ended March 31, 2008 remained flat with the three months ended March 31,2007 as improvements in voluntary churn were offset by churn fromcredit-related deactivations. At March 31, 2008 approximately 88% of oursubscribers were under contract compared to 90% at March 31, 2007.

 

***Average Revenue Per User.***     ARPU continues to benegatively affected by our decreasing voice revenue per subscriber.  Average monthly voice revenue per subscriberwas $36.67 for the three months ended March 31, 2008 compared to $38.02for the same three months in 2007, a decrease of 4%.  This decrease can be largely attributed tothe continued growth of the family add-a-phone plans.  While these customers are not as likely toswitch to another wireless company, or churn, their ARPU is lower due to thelower monthly recurring charge on add-a-phone rate plans.  Average monthly data 

 

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revenue was $11.24 in thethree months ended March 31, 2008 compared to $11.12 for the three monthsended March 31, 2007.

 

***Cost Per Gross Addition.***     Fixed costs per grossaddition increased $36 in the three months ended March 31, 2008 comparedto the prior year quarter, due to a decrease in gross subscriber additions of22% in the three months ended March 31, 2008 compared to the same periodof 2007.  Offsetting this increase infixed costs per gross addition, the variable costs of commissions and handsetsubsidy costs decreased by $8 per gross addition in the three months ended March 31,2008 compared to the same period in 2007. At March 31, 2008, we operated 43 retail stores and managed 100exclusive co-branded dealers compared to 38 retail stores and 94 exclusiveco-branded dealers at March 31, 2007.

 

***Revenue.***

 

Thefollowing table sets forth a breakdown of revenue by type:

 
| ** **                                                                         | ** ** | **For the Three Months Ended   March 31,** | ** ** | ** ** | ** ** | ** **                | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|------------|------------|---------------------------|------------|
| ** **                                                                         | ** ** | **2008**                                        | ** ** | **2007**   | ** ** | **Increase/  (Decrease)** | ** ** | **Percent  Change** | ** ** |
| Service revenue                                                                    |       | $                                               | 92,099     |       | $          | 85,021                    |       | $ | 7,078 |   | 8.3 | % |
| Roaming revenue  from subscribers of Sprint PCS and other PCS Affiliates of Sprint |       | 22,622                                          |       | 26,518     |       | (3,896                    | )          | (14.7 | ) |
| Roaming revenue from other wireless carriers                                       |       | 3,540                                           |       | 2,336      |       | 1,204                     |       | 51.5 |   |
| Reseller revenue                                                                   |       | 3,982                                           |       | 4,107      |       | (125                      | )          | (3.0 | ) |
| Equipment and other revenue                                                        |       | 3,415                                           |       | 2,871      |       | 544                       |       | 18.9 |   |
| Total revenue                                                                      |       | $                                               | 125,658    |       | $          | 120,853                   |       | $ | 4,805 |   | 4.0 |   |

 

·                    ***Servicerevenue.***Service revenue is comprised of the monthly recurring charges for voice anddata usage and the monthly non-recurring charges for voice and data minutesover plan, long distance, roaming usage charges, other feature revenue and latepayment fee and early cancellation fee revenues. Deductions for billingadjustments and promotional credits are recorded as a reduction to servicerevenue. Our service revenue growth over the three month period consists of$8.7 million from additional subscribers, offset by a decrease in ARPU of $1.6million.

 

·                    ***Roamingrevenue from subscribers of Sprint PCS and other PCS Affiliates of Sprint.*** We receive revenue on a per minute basisfor voice traffic when subscribers of Sprint PCS and other PCS Affiliatesof Sprint use our network.  Through December 31,2007, we similarly received revenue on a per kilobyte basis for data trafficwhen subscribers of Sprint PCS and other PCS Affiliates of Sprint used ournetwork.  In addition, we receive tollrevenue for any long distance calls made by these subscribers while roaming onour network.

 

For2007, the reciprocal roaming rate was $0.0403 per minute for voice traffic($0.10 per minute in certain markets in eastern and western Pennsylvania).   Effective January 1, 2008, these rateswere reset to $0.0400 per minute for voice traffic (with certain markets ineastern and western Pennsylvania remaining at $0.10 per minute).  For the three months ended March 31,2008 compared to the three months ended March 31, 2007, voice roamingrevenue from subscribers of Sprint and other PCS Affiliates of Sprint,including toll revenue, increased by $2.8 million reflecting an increase inroaming minutes, offset by the decrease in the per minute rate.

 

For2007, the reciprocal roaming rate was $0.0010 per kilobyte for datatraffic.  Effective January 1, 2008through December 31, 2010, data roaming with Sprint is not settledseparately, however, we continue to settle separately 3G data roaming with theother remaining PCS Affiliates of Sprint. Effective January 1, 2008, these rates were reset to $0.0003 perkilobyte for data traffic with the other remaining PCS Affiliates ofSprint.  Data roaming revenue with Sprinttotaled $6.5 million for the three months ended March 31, 2007.

 

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·                    ***Roamingrevenue from other wireless carriers.*** We receive roaming revenue from wireless carriersother than Sprint and other PCS Affiliates of Sprint when subscribers of suchother wireless carriers roam in our territory. We do not have agreements with these other wireless carriers.  Instead, we rely on roaming arrangementsSprint PCS has negotiated with them.  Weare paid on a per minute and per kilobyte basis for voice traffic pursuant tothese agreements.  For the three months ended March 31, 2008, roamingminutes were 70.1 million compared to 42.3 million for the sameperiod in 2007, an increase of 66%.  Theaverage per minute rate decreased from $0.055 per minute for the three monthsended March 31, 2007 to $0.051 per minute for the three months ended March 31,2008.

 

·                    ***Resellerrevenue.***Through Sprint PCS we allow resellers, known as MVNOs, such as Virgin Mobile,to use our network. Pursuant to these arrangements, we are paid on a per minuteand per kilobyte basis. The slight decrease in reseller revenue for the threemonths ended March 31, 2008 compared to the three months ended March 31,2007 reflects decreased ARPU offset by an increase in resellersubscribers.  For the three months ended March 31,2008, reseller ARPU was $5.32 compared to $5.75 for the 2007 period.  Average reseller subscribers wereapproximately 249,500 for the three months ended March 31, 2008, comparedto approximately 238,000 for the three months ended March 31, 2007.

 

·                     ***Equipmentand other revenue.*** Equipment and other revenue is derived primarily from the sale ofhandsets and accessories to new customers and from current customers whoupgrade their handsets through our retail and local distribution channels, ineach case, net of sales incentives, rebates and an allowance for returns. Theincrease in the three months ended March 31, 2008 as compared to the 2007period reflects higher revenue per handset and a slightly higher number of upgrades.  These increasing factors are offset slightlyby lower activations.

 

***Operating Expense.***

 

The followingtable sets forth a breakdown of operating expense by type (dollars inthousands):

 
| ** **                                      | ** ** | **For the Three Months  Ended March 31,** | ** ** | ** ** | ** ** | ** **                | ** ** |
|-------------------------------------------------|------------|------------------------------------------------|------------|------------|------------|---------------------------|------------|
| ** **                                      | ** ** | **2008**                                       | ** ** | **2007**   | ** ** | **Increase/  (Decrease)** | ** ** | **Percent  Change** | ** ** |
| Cost of service and roaming                     |       | $                                              | 68,184     |       | $          | 73,415                    |       | $ | (5,231 | ) | (7.1 | )% |
| Cost of equipment                               |       | 11,663                                         |       | 13,179     |       | (1,516                    | )          | (11.5 | ) |
| Selling and marketing                           |       | 17,859                                         |       | 20,574     |       | (2,715                    | )          | (13.2 | ) |
| General and administrative                      |       | 7,088                                          |       | 6,927      |       | 161                       |       | 2.3 |   |
| Depreciation and amortization                   |       | 13,955                                         |       | 19,432     |       | (5,477                    | )          | (28.2 | ) |
| Loss on disposal of property and equipment, net |       | 10                                             |       | 59         |       | (49                       | )          | (83.1 | ) |
| Total operating  expense                        |       | $                                              | 118,759    |       | $          | 133,586                   |       | $ | (14,827 | ) | (11.1 | ) |

 

***Cost of Service and Roaming.*** Cost of service and roaming includesnetwork operations expense, roaming expense relating to when our subscribersroam either on other Sprint PCS networks or other wireless carriers’ networks,back-office customer services provided by Sprint PCS, the provision fordoubtful accounts, long distance expense, the 8% affiliation fee due to SprintPCS for collected revenue and stock-based compensation expense. Networkoperations expense includes salaries and benefits for network personnel, cellsite rent, utilities and maintenance expenses, fees relating to the connectionof our cell sites to our switches and other transport and facility expenses.Roaming expense is our cost of our subscribers using Sprint PCS and otherwireless carriers’ networks. Roaming expense on the Sprint PCS network is atthe reciprocal rates as described above under “—Roaming revenue fromsubscribers of Sprint PCS and other PCS Affiliates of Sprint.” Roamingexpense when our subscribers use other wireless carriers networks is at ratesas determined by the roaming agreements signed by Sprint PCS with theseother wireless carriers. Effective January 1, 2008 through December 31, 2010,data roaming with Sprint is not settled separately, however, we continue tosettle separately 3G data roaming with the other remaining PCS Affiliates of Sprint.The decrease for the three months ended March 31, 2008 reflects thecessation of settlement of data roaming with Sprint.  Data roaming expense with Sprint totaled $8.3million for the three months ended March 31, 2007.  Effective January 1, 2008, the rate forour cash cost per user fee decreased from $7.50 per subscriber per month to$6.50 per subscriber per month, lowering cost of service and roaming by $1.9million for the three months ended March 31, 2008 as compared to the 2007period.  Offsetting this decrease is the$1.3 million effect of higher average subscribers on which we incur Sprint’sCCPU and affiliation charges. In the 

 

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three months ended March 31,2008 compared to the comparable 2007 period, bad debt expense increased $2.7million from $2.7 million in the three months ended March 31, 2007 to $5.4million in the three months ended March 31, 2008.  This increase is due to higher averagewrite-offs per subscriber, lower recoveries as a percentage of write-offs andan overall deterioration of our customer accounts receivable aging.  The remaining increase was due to the relatedcosts of servicing a larger network and larger subscriber base.

 

At March 31, 2008,our network consisted of 1,696 leased cell sites and five switches.  At March 31, 2007, our network consistedof 1,621 leased cell sites and five switches.

 

***Cost of Equipment.*** Cost of equipment includes the cost of handsets andaccessories sold or upgraded from our retail and local distribution channels.Cost of equipment for new activations decreased $1.4 million, or 13%, in thethree months ended March 31, 2008, compared to the same period in 2007primarily reflecting a decrease of 5% in new activations from our retail andlocal distribution channels as well as a lower average cost per phone. Theremaining decrease was due to lower equipment costs related to upgrades.

 

***Selling and Marketing.***Selling and marketing expense includes the costs tooperate our retail stores, advertising and promotional expenses, commissions,equipment subsidies and rebate expenses relating to new subscriber additionsfrom national third parties and other Sprint-controlled channels andstock-based compensation expense.  Thedecrease in 2008 was due to lower variable costs related to commissions andfees paid to Sprint for each new activation, all of which totaled $2.9million.  This decrease was a directresult of a 22% decrease in subscriber additions in the three months ended March 31,2008 compared to 2007. For the three months ended March 31, 2008, comparedto the three months ended March 31, 2007, salaries and benefits increased$0.3 million due to an additional 26 average employees in the three monthsended March 2008 as compared to 2007 hired to support the growth in ourretail and exclusive branded dealer channels.

 

***General and Administrative.***General and administrative expensesinclude administrative salaries and benefits, legal fees, insurance expense,other professional expenses and stock-based compensation expense.  Theincrease for the three months ended March 31, 2008 generally reflects thecosts of more employees to service our larger subscriber base.  Offsetting this increase, Sprint litigationexpense decreased $0.4 million, from $0.7 million in the three months ended March 31,2007 to $0.3 million for the three months ended March 31, 2008.

 

***Depreciation and Amortization.***Amortizationof intangible assets totaled $2.3 million for the three months ended March 31,2008 compared to $7.6 million for the three months ended March 31, 2007, adecrease of $5.3 million for the period. At December 31, 2007, theintangible asset related to the Horizon PCS acquired customer base was fullyamortized. Depreciation expense totaled $11.7 million for the three monthsended March 31, 2008 compared to $11.8 million for the three months ended March 31,2007, a decrease of  $0.1 million.  The Company has engaged independent agents tosell remaining Motorola equipment which was replaced with Nortel equipment. TheCompany carries these assets as Assets held for sale and, during the threemonths ended March 31, 2008, recognized a $0.3 million impairmentcharge related to these assets to reduce the carrying value in accordance withSFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets.” The impairment charge is included in Depreciation and the reduction incarrying value records these assets at fair value less costs to sell inanticipation of their future sale.

 

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

 

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

 

 

| ** **        | ** ** | **For the Three Months Ended  March 31,** | ** ** | ** ** | ** ** | ** **                | ** ** |
|-------------------|------------|-------------------------------------------|------------|------------|------------|---------------------------|------------|
| ** **        | ** ** | **2008**                                  | ** ** | **2007**   | ** ** | **Increase/  (Decrease)** | ** ** | **Percent  Change** | ** ** |
| Interest income   |       | $                                         | 720        |       | $          | 1,543                     |       | $ | (823 | ) | (53.3 | )% |
| Interest expense  |       | 8,915                                     |       | 7,970      |       | 945                       |       | 11.9 |   |
| Other income, net |       | 15                                        |       | 17         |       | (2                        | )          | (11.8 | ) |
|                   |            |                                           |            |            |            |                           |            |  |  |  |  |  |

 

***Interest Income.*** The decrease ininterest income in the three months ended March 31, 2008 as compared tothe 2007 quarter reflects lower average cash and cash equivalents during 2008and lower average yields on these deposits and investments.

 

***Interest Expense.*** Interest expense consists of interest on ouroutstanding long-term debt (see Note 6, Long-Term Debt, of the “Notes toUnaudited Consolidated Financial Statements” in this Quarterly Report on Form 10-Q),including amortization of financing costs and net of capitalized interest.  Prior to April 23, 2007, interestexpense also included amortization of the fair value adjustment for the 11 3/8%senior notes.  Since August 1, 2007,interest expense also includes the effect of our interest rate swap (see Note7, Interest Rate Swap, of the “Notes to Unaudited Consolidated FinancialStatements” in this Quarterly Report on Form 10-Q).  The increase in interest expense in the threemonths ended March 31, 2008 primarily reflects higher borrowings ascompared to the 2007 period.  Thesehigher borrowings were partially offset by a lower weighted average interestrate, net of our interest rate swap, of 7.32% on our outstanding long-term debtduring the three months ended March 31, 2008 as compared to the weightedaverage interest rate of 11.34% on our outstanding long-term debt during thethree months ended March 31, 2007. We capitalized interest of approximately $0.2 million in both the threemonths ended March 31, 2008 and 2007.

 

 

***Reconciliation of Non-GAAP Financial Measures (All Revenuesand 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 excluding amounts,that are included in the comparable measure calculated and presented inaccordance with GAAP in the statement of income or statement of cash flows; or (b) includesamounts, or is subject to adjustments that have the effect of includingamounts, that are excluded from the comparable measure so calculated andpresented. The non-GAAP financial measures discussed in “—Results ofOperations” are ARPU and CPGA. A description of each of these non-GAAPfinancial measures is provided in “—Definition of Operating Metrics.” Thefollowing tables reconcile the non-GAAP financial measures with ourconsolidated financial statements presented in accordance with GAAP, excludingsubscriber data:

 
| ** **                     | ** ** | **For the Three Months Ended   March 31,** | ** ** |
|--------------------------------|------------|-------------------------------------------------|------------|
| ** **                     | ** ** | **2008**                                        | ** ** | **2007** | ** ** |
| ***ARPU***                     |       |                                            |       |   |   |
| Service revenue (in thousands) |       | $                                               | 92,099     |   | $ | 85,021 |   |
| Average subscribers            |       | 633,800                                         |       | 574,800 |   |
| ARPU                           |       | $                                               | 48.44      |   | $ | 49.30 |   |

 

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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. We also use ARPU as a basis to forecast future service revenue.

 

| ** **                                       | ** ** | **For the Three Months Ended   March 31,** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                       | ** ** | **2008**                                        | ** ** | **2007** | ** ** |
| ***CPGA***                                       |       |                                            |       |   |   |
| Selling and Marketing (in thousands):            |       | $                                               | 17,859     |   | $ | 20,574 |   |
| plus: Equipment  costs, net of cost of upgrades  |       | 8,893                                           |       | 10,250 |   |
| less: Equipment  revenue, net of upgrade revenue |       | (2,900                                          | )          | (2,577 | ) |
| less:  Stock-based compensation expense          |       | (213                                            | )          | (147 | ) |
| CPGA costs                                       |       | 23,639                                          |       | 28,100 |   |
| Gross additions                                  |       | 59,200                                          |       | 75,700 |   |
| CPGA                                             |       | $                                               | 399        |   | $ | 371 |   |

 

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

 

**Liquidity and Capital Resources**

 

We believe ourcash and cash equivalents and operating cash flow will be sufficient to operateour business and fund our capital needs for at least the next twelve months.Although we have certain limited additional borrowings allowed under our currentdebt agreements, we are dependent on cash and cash equivalents and operatingcash flow to operate our business and fund our capital needs. However, ourfuture liquidity is dependent on a number of factors influencing our expectedearnings and operating cash flows, including those discussed below in —“RecentTrends, Risks and Uncertainties That May Affect Operating Results,Liquidity and Capital Resources”.

 

***Significant Sourcesof Cash***

 

We generated $10.5 millionin net cash flows from operating activities for the three months ended March 31,2008, compared to $0.6 million for the three months ended March 31,2007, an increase of $9.9 million. For the three months ended March 31,2008, operating activities provided $19.9 million of cash, compared to $4.8million for the three months ended March 31, 2007, generally reflectingincreased earnings from our larger subscriber base, lower customer acquisitioncosts and an improved roaming margin. For the three months ended March 31, 2008, non-Sprint relatedworking capital used cash of $10.0 million, reflecting customer accountwrite-offs and an increased investment in inventory.  For the three months ended March 31,2007, non-Sprint related working capital used cash of $6.9 million generallyreflecting customer account write-offs. Sprint related working capital provided cash of $0.6 million and $2.8million for the three months ended March 31, 2008 and 2007, respectively.

 

For the three monthsended March 31, 2008, we received $0.1 million from the exercise ofoptions representing approximately 13,100 shares.  This is compared to $1.7 million in proceedsfrom the exercise of options representing approximately 108,500 shares in thethree months ended March 31, 2007.

 

***Significant Uses of Cash***

 

Cash flows used forinvesting activities for the three months ended March 31, 2008 included $14.4 millionfor capital expenditures.  Included in this total was $13.8 millionfor new cell site construction and other network-related capital 

 

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expenditures, of which$0.2 million was for EV-DO Rev. A equipment, and $0.6 million was for newstores, store improvements,  IT and othercorporate-related capital expenditures.

 

Cash flows used forinvesting activities for the three months ended March 31, 2007 included$7.3 million for capital expenditures.  Included in this total was$5.7 million for new cell site construction and other network-relatedcapital expenditures including $2.7 million for EV-DO Rev. A equipment, and$1.6 million for new stores, store improvements,  IT and other corporate-related capitalexpenditures.

 

On April 26, 2007,our Board of Directors declared a special cash dividend of $11.00 per commonshare, approximately $187.0 million in the aggregate, payable to all holders ofrecord of our common stock on May 8, 2007. Of this, approximately $186.5 million was paid on May 16,2007.  The remaining unpaid dividendsrelate to restricted stock awards and are being paid out starting in July 2007as these awards vest.  During the threemonths ended March 31, 2008, we used approximately $36,000 to paydividends related to these restricted stock award vestings.

 

Our uses of cashtypically include providing for operating expenditures, debt servicerequirements and capital expenditures. We anticipate that total capital expenditures for 2008 will be between$60.0 million and $65.0 million.  Thisincludes cash uses for new cell sites, new retail stores, informationtechnology, and other network-related expenditures, including approximately$17.0 million for EV-DO Rev. A deployment.

 

We continually evaluateour capital and debt capacity and how to prioritize the use of our excess cash,including for any or a combination of the following strategic options:  increase capital expenditures, pursue strategicacquisitions, pay cash dividends or distributions, repurchase of our stock, orpayoff or repurchase of our debt.

 

***Recent Trends, Risks and Uncertainties ThatMay Affect Operating Results, Liquidity and Capital Resources***

 

We have identified thefollowing important trends and factors (as well as risks and uncertaintiesassociated with such items) that could impact our future financialperformance.  This section should be read in conjunction with the“Risks Related to Our Business, Strategy and Operations” section found inItem 1A of Part I of our annual report on Form 10-K, filed with theSEC on March 7, 2008.

 

·                  Despite increased gross additions comingfrom Nextel subscribers switching to Sprint in our territory, overall grossadditions continued to slow in the first quarter of 2008 reflecting tightenedcredit standards, issues related to the billing system conversion at Sprint,and increased overall wireless penetration in our markets. Additionally, grossadditions were negatively impacted by the weakening economic environment,increased competitive advertising, the relative attractiveness of competitors’phones, pricing plans, coverage and customer service, as well as continuingconcerns about the strength of the “Sprint” brand.  We believe that these factors will continueto negatively affect gross additions in the remainder of 2008.  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.

 

·                  Our churn may increase in the future orremain high due to the weakening economic environment. If churn continues toremain high or increases over the long-term, we would lose the cash flowsattributable to these subscribers and may incur higher net losses.

 

·                  Competition in the wireless industryremains intense as more competitors enter the market via relationships withexisting carriers or through the acquisition of new wireless spectrum, such asthe FCC’s 700 MHz Band auction in early 2008 and additional auctions ofspectrum. Prepaid plans, which we do not currently offer, continue to increase inpopularity, offering consumers more alternatives. Similarly, unlimited minuteplans, including those offered by Sprint, us, and several other nationalwireless carriers, also continue to increase in popularity, which maypotentially put more downward pressure on wireless service pricing as well aspotentially increase our expense of providing service. Incumbent carriers,including us, may incur higher per subscriber acquisition expenses and/or offermore aggressive rate plans in order to maintain or achieve subscriber growth.We expect to see continued pressure in pricing in the future as a result ofthis increased competition and, among other things, continued focus onunlimited, family and bundled plans. Although we believe that these plansimprove churn, these plans tend to lower voice revenue on a per 

 

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subscriber basis.Declining voice ARPU resulting in lower overall ARPU will have a negativeeffect on our cash flow.

 

·                  Our cost per gross addition, or CPGA,increased in the first quarter of 2008 as compared to the previous fourquarters of 2007.  We may continue toexperience higher costs to acquire subscribers in the future. To the extentthat we increase our distribution infrastructure, we will increase the fixedcosts in our sales and marketing organization. Also, more aggressivepromotional efforts have historically led, and may continue to lead, to higherhandset subsidies and rebates. In addition, we may increase our marketingexpenses and pay higher commissions in an effort to attract and acquire newsubscribers. With a higher CPGA, subscribers must remain our subscribers for alonger period of time at a stable ARPU for us to recover those acquisitioncosts.

 

·                  Certain portions of our operating expensecontinue to increase and may continue to increase in the future due to, amongother reasons:

 

·                  Higher bad debt expense due to higheraverage write-offs per subscriber, lower recoveries as a percentage ofwrite-offs and an overall deterioration of our customer accounts receivableaging, reflecting a higher number of sub-prime credit subscribers anddeteriorating economic conditions;

 

·                  Higher handset subsidy and rebates andother retention expenses for existing subscribers who upgrade to a new handsetas part of our promotional efforts to reduce churn;

 

·                  Higher back office and administrativeexpenses due to the larger number of subscribers served; and

 

·                  Higher network costs as we processincreasing minutes and kilobytes on our network, and as a result of expandingour network infrastructure and increasing our deployment ofEV-DO Rev. A.

 

Notwithstandingthe foregoing, we have and expect to continue to see a significant decrease inour roaming expense as a result of our change, effective January 1, 2008,to no longer settle 3G data roaming expense (and revenue) with Sprintseparately. At the same time, a portion of our ongoing network and general andadministrative expenses is fixed. We believe that we need to add moresubscribers to recognize increased economies of scale in our business. If weare unable to add more subscribers or continue to improve the efficiencies inour operating costs, results will be negatively affected.

 

·                  A substantial portion of our revenue isderived from voice roaming revenue from subscribers of Sprint PCS and other PCSaffiliates of Sprint based outside our territory. The voice roaming rate for2008 is lower than 2007 and, accordingly, the new rate has and will negativelyimpact our roaming revenue. Since the ratio of inbound to outbound voiceroaming fluctuates from period to period and year to year, the margin we earnfrom the difference between voice roaming revenue and voice roaming expense isdifficult to predict. If this roaming margin with Sprint PCS declines due to lessroaming revenue, more roaming expense, or both, our results of operations willbe negatively affected.

 

·                  As we continue to add capacity andcoverage and to upgrade our PCS network, we will incur significant capitalexpenditures. We incurred approximately $14.4 million in capitalexpenditures in the three months ended March 31, 2008, includingapproximately $0.2 million for EV-DO Rev. A deployment. We anticipate thattotal capital expenditures for 2008 will be between $60.0 million and$65.0 million. These expenditures include a significant increase in thenumber of new cell sites for 2008 as compared to 2007. At the same time, weexpect to expand our EV-DO Rev. A deployment during 2008. As a result of ourrecent amendments with Sprint PCS, our CCPU rates are reduced by $0.15 when wereach certain EV-DO Rev. A coverage levels. Our EV-DO Rev. A footprint coversapproximately 2.6 million residents as of March 31, 2008 and we anticipateour EV-DO Rev. A footprint will cover approximately 6.0 million residents by September of2008. Lastly, we may decide to further increase our cell site expansion orEV-DO Rev. A coverage, either or both of which may increase ouranticipated capital expenditures and operating expense beyond our currentplans. Furthermore, unforeseen changes in technology and changes in our plansto upgrade or expand our network may require us to spend more money than weexpected and have a negative effect on our cash flow.

 

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·                  Resellers, such as Virgin, are subject toa number of risks, including high churn, high bad debt expense, increasedcompetition, dependence on fourth quarter gross additions and reliance, in manycases, on specific segments of the market, for example, the youth segment. In thepast few years, a number of resellers, including Disney Mobile and ESPN Mobile,ceased providing service, reflecting the increasingly competitive environmentfor resellers. We are not party to the underlying agreements that the resellershave with Sprint Nextel and therefore are unable to set prices or otherwisemonitor the performance of the resellers. Additionally, the resellers using theSprint network change from time to time and such changes are outside of ourcontrol. If a reseller, particularly Virgin, has a disruption in its businessplan, experiences financial difficulties, ceases to grow or service itscustomer base or contracts with another wireless provider for its service, wemay lose the related revenue and it may make it more difficult for us to obtainsufficient revenue to achieve and sustain profitability.

 

·                  Continuing efforts by Sprint to integratethe Sprint and Nextel businesses have had, and will continue to have, anegative impact on our business and prospects. As Sprint continues to integratethe marketing and sales of Sprint products and services with legacy Nextelproducts and services, more conflicts arise with how we conduct business in ourterritory. Additionally, Sprint is migrating its subscribers to a new billingplatform called Ensemble. Subscribers based in our territory began migrating toEnsemble in March of 2008 and, as of March 31, 2008, more than halfhave been migrated to Ensemble and all new subscribers are being added into thenew billing system.  We expect that all Sprintsubscribers based in our territory will be migrated by June 30, 2008.  Any problems associated with the migrationmay result in delays or inaccuracies in the financial or subscriber informationwe receive from Sprint, difficulty in gaining access to subscriber information,and increased customer dissatisfaction leading to increased churn and fewergross additions; each of which could have a material adverse effect on ourfinancial statements and operations.

 

We believe thatSprint PCS subscribers based in our territory who have not been migrated toEnsemble are not receiving the same level of customer support and care asSprint PCS subscribers who have been migrated to Ensemble. Consequently, webelieve that use of these two platforms has and will continue to increase ourchurn until this migration is complete.

 

·                  Our primary subscriber base is composedof individual consumers.  We believe thecurrent economic downturn in the United States has affected the behavior ofconsumers in our territories in ways that have negatively affected ourbusiness.  In the event of a prolongedeconomic downturn in the United States in which spending by individualconsumers drops significantly, our current and potential subscribers,especially our sub-prime subscribers, may be unable or unwilling to purchasewireless services or pay their wireless bills and our business may continue tobe negatively affected.

 

·                  The final outcome of our litigation withSprint is unknown.  As discussed below in“Commitments and Contingencies”, on March 31, 2008, the Appellate Court ofIllinois unanimously affirmed the 2006 Circuit Court’s decision.  On May 5, 2008, Sprint filed a petitionof leave to appeal with the Supreme Court of Illinois.  The Circuit Court’s final order remainsstayed pending the conclusion of the appeals process.  We cannot predict the outcome of the appealprocess. If we do not prevail, Sprint may be permitted to operate the legacyNextel business in our territory in a manner that adversely affects ourbusiness and operations.  If we doprevail, we do not know Sprint’s intentions for complying with the CircuitCourt’s order and its impact on our business.

 

***Commitments and Contingencies***

 

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

 

·                  Within 180 days of the date of thefinal order, Sprint and those acting in concert with it must cease owning, operating,and managing the Nextel wireless network in iPCS Wireless’s territory.

 

·                  Sprint shall continue to comply with allterms and conditions of the Forbearance Agreement between us and Sprint settingforth certain limitations on Sprint’s operations post-merger with Nextel.

 

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On September 28,2006, Sprint appealed the ruling to the Appellate Court of Illinois, FirstJudicial District, and, at Sprint’s request, the Circuit Court’s ruling wasstayed by the Appellate Court pending the appeal. On March 31 2008, theAppellate Court unanimously affirmed the 2006 Circuit Court decision.  On May 5, 2008, Sprint filed a petitionfor leave to appeal with the Supreme Court of Illinois.  The Circuit Court’s final order remainsstayed pending the conclusion of the appeals process.

 

*                                               **Sprint Arbitration.* Pursuant to the recent amendments of our affiliation agreements withSprint PCS, we and Sprint agreed to dismiss the arbitration proceedingsrelating to Sprint’s proposed rates for providing back-office services to usfor the three-year period commencing on January 1, 2007.

 

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

 

***Nortel Networks Equipment Agreements***

 

On December 29,2006, we signed a letter of agreement with Nortel Networks to purchase EV-DORev. A equipment and services totaling $17.1 million in aggregate. Asof March 31, 2008, we have paid $12.0 million of the$17.1 million of commitments and have received equipment totaling$17.1 million. The remaining $5.1 million is expected to be paid inthe second quarter of 2008.

 

**ContractualObligations 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, 2007. At March 31, 2008, 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 31,2007 except as follows (in thousands):

 

·                  3-month LIBOR decreased approximately 200basis points, from approximately 4.7% at December 31, 2007 to approximately2.7% at March 31, 2008.  Based on thisreduction in LIBOR, cash interest related to our long-term variable rate debt woulddecrease by $2,442, $8,693, $19,429 and $8,384 for 2008, 2009-2010, 2011-2012and thereafter, respectively.  

**Seasonality**

 

Our business is subjectto seasonality because the wireless telecommunications industry historicallyhas been dependent on fourth calendar quarter results. Among other things, theindustry relies on moderately higher subscriber additions and handset sales inthe fourth calendar quarter as compared to the other three calendar quarters. Anumber of factors contribute to this trend, including: the use of retaildistribution, which is heavily dependent upon the year-end holiday shoppingseason; the timing of new product and service announcements and introductions;competitive pricing pressures; and aggressive marketing and promotions. Inaddition, our roaming revenue and roaming expense is subject to seasonalitybecause of decreased travel of wireless subscribers into our territory duringthe winter months.

 

**CriticalAccounting Policies**

 

Our financial statementsare prepared in conformity with accounting principles generally accepted in theUnited States and require us to select appropriate accounting policies. The assumptions and judgments we use in applying our accounting policies have asignificant impact on our reported amounts of assets, liabilities, revenue andexpenses.  While we believe that the assumptions and judgments used in ourestimates are reasonable, actual results may differ from these estimates underdifferent assumptions or conditions.

 

We have identified themost critical accounting policies upon which our financial statusdepends.  The critical policies were determined by considering accountingpolicies that involve the most complex or subjective decisions or 

 

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assessments. We also haveother policies considered key accounting policies; however, these policies donot meet the definition of critical accounting policies because they do notgenerally require us to make estimates or judgments that are complex or subjective. Our critical accounting policies include the following:

 

·                    Revenue recognition

 

·                    Allowance for doubtful accounts

 

·                    Long-lived asset recovery

 

·                    Intangible assets

 

·                    Interest rate swap

 

·                    Income taxes

 

·                    Stock-based compensation

 

Additional informationregarding 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 31,2007, filed with the SEC on March 7, 2008.

 

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**Item3. Quantitative and Qualitative Disclosures About Market Risk.**

 

We do not engagein commodity futures trading activities. Although we entered into a derivativefinancial instrument transaction for hedging purposes as discussed below, we donot enter into derivative financial instrument transactions for trading orother speculative purposes. We also do not engage in transactions in foreigncurrencies that could expose us to market risk. Our exposure to market risk islimited primarily to the fluctuating interest rates associated with variablerate indebtedness.

 

In July 2007,we entered into an interest rate swap agreement that effectively fixes theinterest rate on $300.0 million of our variable rate indebtedness at 7.47%for three years starting August 1, 2007. The fair value of our interestrate swap was a $19.5 million liability at March 31, 2008. Ahypothetical increase of 100 basis points in average market interest rateswould increase the fair value of our interest rate swap by approximately$7.5 million. A decrease of 100 basis points in average market interestrates would decrease the fair value of our interest rate swap by approximately$7.7 million. A prospective increase of 100 basis points in the interestrate applicable to the remaining $175.0 million of variable rateindebtedness would result in an increase of approximately $1.8 million inour annual interest expense. At March 31, 2008, after consideration of theinterest rate swap described above, approximately 37% of our debt is subject tovariable interest rates.

 

**Item4. Controls and Procedures.**

 

Each of our ChiefExecutive Officer and Chief Financial Officer has evaluated the effectivenessof our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act) as of the end of the period covered bythis quarterly report. Based on such evaluation, such officers have concludedthat, as of the end of the period covered by this quarterly report, ourdisclosure controls and procedures are effective in alerting them on a timelybasis to material information relating to us (including our consolidatedsubsidiaries) required to be included in our reports filed or submitted underthe Exchange Act.

 

We place relianceon Sprint PCS to adequately design its internal controls with respect to theprocesses established to provide financial information and other information tous and the other PCS Affiliates of Sprint. To address this issue, Sprintengages an independent registered public accounting firm to perform a periodicevaluation of these controls and to provide a “Report on Controls Placed inOperation and Tests of Operating Effectiveness for Affiliates” under guidanceprovided in Statement of Auditing Standards No. 70. This report is providedto us annually.

 

There have been nochanges in our internal control over financial reporting (as such term isdefined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)during the quarter ended March 31, 2008 that have materially affected, orare reasonably likely to materially affect, our internal control over financialreporting.

 

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**PART II. OTHER INFORMATION**

 

**Item1. Legal Proceedings.**

 

See  — “Management’sDiscussion and Analysis of Financial Condition and Results of Operations—Commitments and Contingencies” of this report.

 

In addition to the above,from time to time, we are involved in various legal proceedings relating toclaims 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.

 

**Item1A. Risk Factors.**

 

You should carefully considerthe risks and uncertainties described in Part I, Item 1A. Risk Factors inour Annual Report on Form 10-K for the year ended December 31, 2007and the other information in our subsequent filings with the SEC, includingthis Quarterly Report on Form 10-Q. Our business, financial condition,results of operations and stock price could be materially adversely affected byany of these risks. The risks described in our Annual Report on Form 10-Kare not the only ones facing us. Additional risks and uncertainties that arecurrently unknown to us or that we currently consider to be immaterial may alsoimpair our business or adversely affect our financial condition, results ofoperations and stock price.

 

**Item2. Unregistered Sales of Equity Securities and Use of Proceeds.**

 

None.

 

**Item3. Defaults Upon Senior Securities.**

 

None.

 

**Item4. Submission of Matters to a Vote of Security Holders.**

 

None.

 

**Item5. Other Information.**

 

None.

 

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**Item6.  Exhibits.**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                 |       | Second Restated  Certificate of Incorporation of iPCS, Inc. (Incorporated by reference to  Exhibit 3.1 to the Form 8-K filed by iPCS, Inc. on  July 1, 2005)                                                                                                                                                                                                                                                                    |
| 3.2                 |       | Amended and Restated  Bylaws of iPCS, Inc. (Incorporated by reference to Exhibit 3.2 to  the Form 10-QT filed by iPCS, Inc. on February 14, 2006)                                                                                                                                                                                                                                                                               |
| 3.3                 |       | Amendment to the  Amended and Restated Bylaws of iPCS, Inc. (Incorporated by reference to  Exhibit 99.1 to the Form 8- K filed by iPCS, Inc. on  January 4, 2008)                                                                                                                                                                                                                                                               |
| 3.4                 |       | Certificate of  Incorporation of iPCS Wireless, Inc. (Incorporated by reference to  Exhibit 3.4 to the Form S-4 filed by iPCS, Inc. on  January 8, 2001)                                                                                                                                                                                                                                                                        |
| 3.5                 |       | Bylaws of iPCS  Wireless, Inc. (Incorporated by reference to Exhibit 3.5 to the  Form S-4 filed by iPCS, Inc. on January 8, 2001)                                                                                                                                                                                                                                                                                               |
| 3.6                 |       | Certificate of  Incorporation of iPCS Equipment, Inc. (Incorporated by reference to  Exhibit 3.6 to the Form S-4 filed by iPCS, Inc. on  January 8, 2001)                                                                                                                                                                                                                                                                       |
| 3.7                 |       | Bylaws of iPCS  Equipment, Inc. (Incorporated by reference to Exhibit 3.7 to the  Form S-4 filed by iPCS, Inc. on January 8, 2001)                                                                                                                                                                                                                                                                                              |
| 3.8                 |       | Articles of  Organization of Bright Personal Communications Services, LLC  (Incorporated by reference to Exhibit 3.7 to the Form S-1 filed by  iPCS, Inc. on August 11, 2005)                                                                                                                                                                                                                                                   |
| 3.9                 |       | Operating Agreement of  Bright Personal Communications Services, LLC (Incorporated by reference  to Exhibit 3.8 to the Form S-1 filed by iPCS, Inc. on  August 11, 2005)                                                                                                                                                                                                                                                        |
| 3.10                |       | Articles of  Incorporation of Horizon Personal Communications, Inc. (Incorporated by  reference to Exhibit 3.9 to the Form S-1 filed by iPCS, Inc.  on August 11, 2005)                                                                                                                                                                                                                                                         |
| 3.11                |       | Regulations of Horizon  Personal Communications, Inc. (Incorporated by reference to  Exhibit 3.10 to the Form S-1 filed by iPCS, Inc. on  August 11, 2005)                                                                                                                                                                                                                                                                      |
| 4.1                 |       | Amended and Restated  Common Stock Registration Rights Agreement, dated as of June 30, 2005,  by and among iPCS, Inc., affiliates of Silver Point Capital, affiliates  of AIG Global Investment Corp., the Timothy M. Yager 2001 Trust, Apollo  Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P.  (Incorporated by reference to Exhibit 99.1 to the Form 8-K filed by  iPCS, Inc. on July 1, 2005) |
| 4.2                 |       | First Lien Indenture,  dated as of April 23, 2007, by and among iPCS, Inc., the Guarantors  and U.S. Bank National Association, as trustee (Incorporated by reference to  Exhibit 99.3 to the Form 8-K filed by iPCS, Inc. on  April 25, 2007)                                                                                                                                                                             |
| 4.3                 |       | Second Lien Indenture,  dated as of April 23, 2007, by and among iPCS, Inc., the Guarantors  and U.S. Bank National Association, as trustee (Incorporated by reference to  Exhibit 99.4 to the Form 8-K filed by iPCS, Inc. on  April 25, 2007)                                                                                                                                                                            |
| 4.4                 |       | First Lien Registration  Rights Agreement, dated as of April 23, 2007, by and among  iPCS, Inc., the Guarantors, Banc of America Securities LLC, UBS  Securities LLC and Jefferies & Company, Inc. (Incorporated  by reference to Exhibit 99.5 to the Form 8-K filed by  iPCS, Inc. on April 25, 2007)                                                                                             |
| 4.5                 |       | Second Lien  Registration Rights Agreement, dated as of April 23, 2007, by and among  iPCS, Inc., the Guarantors, Banc of America Securities LLC, UBS  Securities LLC and Jefferies & Company, Inc. (Incorporated  by reference to Exhibit 99.6 to the Form 8-K filed by  iPCS, Inc. on April 25, 2007)                                                                                            |
| 4.6                 |       | 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)                                                                                                                                                     |
| 4.7                 |       | 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)                                                                                                                                                    |
| 4.8                 |       | 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)                                                                                                                         |
| 4.9                 |       | 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)                                                                                                                        |

 

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| 4.10       |   | 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† |   | Amendment to Employment  Agreement, dated as of February 22, 2008, between Timothy M. Yager and  iPCS, Wireless, Inc. (Incorporated by reference to Exhibit 10.47 to  the Form 10-K filed by iPCS, Inc. on March 7, 2008)                                                                                                                                                                                                                                                                  |
| 10.2† |   | Amendment to Employment  Agreement, dated as of February 22, 2008, between Stebbins B.  Chandor, Jr. and iPCS, Wireless, Inc. (Incorporated by reference to  Exhibit 10.48 to the Form 10-K filed by iPCS, Inc. on  March 7, 2008)                                                                                                                                                                                                                                                    |
| 10.3† |   | Amendment to Employment  Agreement, dated as of February 22, 2008, between Conrad J. Hunter and  iPCS, Wireless, Inc. (Incorporated by reference to Exhibit 10.49 to  the Form 10-K filed by iPCS, Inc. on March 7, 2008)                                                                                                                                                                                                                                                                  |
| 10.4† |   | Amendment to Employment  Agreement, dated as of February 22, 2008, between Edmund L.  Quatmann, Jr. and iPCS, Wireless, Inc. (Incorporated by reference  to Exhibit 10.50 to the Form 10-K filed by iPCS, Inc. on  March 7, 2008)                                                                                                                                                                                                                                                     |
| 10.5† |   | Amendment to Employment  Agreement, dated as of February 22, 2008, between John J. Peterman and  iPCS, Wireless, Inc. (Incorporated by reference to Exhibit 10.51 to  the Form 10-K filed by iPCS, Inc. on March 7, 2008)                                                                                                                                                                                                                                                                  |
| 10.6       |   | Addendum X to Sprint  PCS Management Agreement and Sprint PCS Services Agreement, dated  March 3, 2008, among Sprint Spectrum L.P., SprintCom, Inc.,  WirelessCo, L.P., Sprint Communications Company L.P and iPCS  Wireless, Inc. (Incorporated by reference to Exhibit 10.53 to the  Form 10-K filed by iPCS, Inc. on March 7, 2008)                                                                                                                                      |
| 10.7       |   | Addendum IX to Sprint  PCS Management Agreement and Sprint PCS Services Agreement, dated  March 3, 2008, among Sprint Spectrum L.P., SprintCom, Inc.,  WirelessCo, L.P., PhillieCo, L.P., APC PCS, LLC, Sprint  Communications Company L.P. and Horizon Personal  Communications, Inc. (Incorporated by reference to Exhibit 10.54 to  the Form 10-K filed by iPCS, Inc. on March 7, 2008)                                                                   |
| 10.8       |   | Addendum V to Sprint  PCS Management Agreement and Services Agreement, dated March 3, 2008,  among Sprint Spectrum L.P., SprintCom, Inc., WirelessCo, L.P.,  Sprint Communications Company L.P. and Bright Personal Communications  Services, LLC (Incorporated by reference to Exhibit 10.55 to the  Form 10-K filed by iPCS, Inc. on March 7, 2008)                                                                                                                  |
| 10.9       |   | Limited Waiver and Consent  Agerement, dated March 3, 2008, by and between Sprint Nextel  Corporation, Sprint Spectrum L.P., WirelessCo L.P., Sprint  Communications Company L.P., Sprint Telephony PCS, L.P., Sprint PCS  License, L.L.C., iPCS Wireless, Inc., Horizon Personal Communications, Inc.,  and Bright Personal Communications Services, L.L.C. (Incorporated by  reference to Exhibit 10.56 to the Form 10-K filed by  iPCS, Inc. on March 7, 2008) |
| 31.1*      |   | Certification of Chief  Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of  2002                                                                                                                                                                                                                                                                                                                                                                                                                |
| 31.2*      |   | Certification of Chief  Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of  2002                                                                                                                                                                                                                                                                                                                                                                                                                |
| 32.1*      |   | Certification Pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                       |

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*                                         Filed herewith.

 

†                                          Indicates management contract orcompensatory arrangement.

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|                   | iPCS, Inc. |
|------------------------|-----------------|
|                   |            |
|                   | By:             | /s/ TIMOTHY M. YAGER |
|                   |            | Timothy M. Yager |
|                   |            | President and Chief Executive Officer   (Principal Executive Officer) |
|                   |            |   |
| Date: May 7, 2008 |            |   |
|                   | By:             | /s/ STEBBINS B. CHANDOR, JR. |
|                   |            | Stebbins B. Chandor, Jr. |
|                   |            | Executive Vice President and   Chief Financial Officer   (Principal Financial Officer) |
|                   |            |   |
| Date: May 7, 2008 |            |   |

 

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