**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

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

 

**For the quarterly period endedMarch 31, 2006**

 

**Or**

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

 

**For the transition period       from to **

 

**Commission File Number 000-51844**

 

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**iPCS, INC.**

(Exact name of registrant as specified in itscharter)

 

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

 

**(847)885-2833**

(Registrant’s telephone number, including zipcode)

 

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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 ý  No o |
|--------------------------------------|

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 
| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer ý |
|---------------------------|--------|---------------------|--------|------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).
| Yes o  No ý |
|--------------------------------------|

 

Indicate by check markwhether the registrant has filed all documents and reports required to be filedby Section 12, 13 or 15(d) of the Securities Exchange Act of 1934subsequent to the distribution of securities under a plan confirmed by a court.
| Yes ý  No o |
|--------------------------------------|

 

As of May 9, 2006, therewere 16,700,750 shares of common stock, $0.01 par value per share, outstanding.

 

 

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**TABLE OF CONTENTS**

 
| PART I                |                                                                                                                       |   |
|----------------------------|----------------------------------------------------------------------------------------------------------------------------|--------|
|    ITEM 1.  | FINANCIAL INFORMATION                                                                                                      | 3      |
|                       | FINANCIAL STATEMENTS                                                                                                       | 3      |
|                       | CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2006  AND SEPTEMBER 30, 2005 (UNAUDITED)                             | 3      |
|                       | CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE  MONTHS ENDED  MARCH 31, 2006 AND MARCH 31, 2005 (UNAUDITED) | 4      |
|                       | CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE  MONTHS ENDED  MARCH 31, 2006 AND MARCH 31, 2005 (UNAUDITED)      | 5      |
|                       | NOTES TO UNAUDITED  CONSOLIDATED FINANCIAL STATEMENTS                                                                      | 6      |
|    ITEM 2.  | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS                                | 17     |
|    ITEM 3.  | QUANTITATIVE AND QUALITATIVE  DISCLOSURES ABOUT MARKET RISK                                                                | 32     |
|    ITEM 4.  | CONTROLS AND PROCEDURES                                                                                                    | 32     |
| PART II               | OTHER INFORMATION                                                                                                          | 33     |
|    ITEM 1.  | LEGAL PROCEEDINGS                                                                                                          | 33     |
|    ITEM 1A. | RISK FACTORS                                                                                                               | 33     |
|    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.AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**(UNAUDITED)**

**(Dollars inthousands, except share and per share amounts)**

 
| ** **                                                                                                                                    | ** ** | **March 31,  2006** | ** ** | **September 30,  2005 (a)** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|---------------------------------------|------------|
|                                                                                                                                          |       |                     |       |                                  |       |
| **Assets**                                                                                                                                    |       |                     |       |                                  |       |
| Current Assets:                                                                                                                               |       |                     |       |                                  |       |
| Cash and cash equivalents                                                                                                                     |       | $                        | 114,910    |                                  | $          | 98,107 |   |
| Investments                                                                                                                                   |       | —                   |       | 16,700                                |       |
| Accounts receivable, net of allowance for  doubtful accounts of $3,608 and $3,653, respectively                                               |       | 27,442                   |       | 25,601                                |       |
| Receivable from Sprint (Note 4)                                                                                                               |       | 36,150                   |       | 30,837                                |       |
| Inventories, net of reserves for  excess/obsolescence of $412 and $338, respectively (Note 4)                                                 |       | 3,325                    |       | 3,179                                 |       |
| Prepaid expenses                                                                                                                              |       | 6,345                    |       | 5,717                                 |       |
| Other current assets                                                                                                                          |       | 3,220                    |       | 4,092                                 |       |
| Total current assets                                                                                                                          |       | 191,392                  |       | 184,233                               |       |
| Property and equipment, net (Note 5)                                                                                                          |       | 138,774                  |       | 153,504                               |       |
| Financing costs                                                                                                                               |       | 8,791                    |       | 9,590                                 |       |
| Customer activation costs                                                                                                                     |       | 2,045                    |       | 1,003                                 |       |
| Intangible assets, net (Note 6)                                                                                                          |       | 159,821                  |       | 178,800                               |       |
| Goodwill (Note 6)                                                                                                                             |       | 146,391                  |       | 146,391                               |       |
| Other assets                                                                                                                                  |       | 432                      |       | 469                                   |       |
| Total assets                                                                                                                                  |       | $                        | 647,646    |                                  | $          | 673,990 |   |
|                                                                                                                                          |       |                     |       |                                  |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                |       |                     |       |                                  |       |
| Current Liabilities:                                                                                                                          |       |                     |       |                                  |       |
| Accounts payable                                                                                                                              |       | $                        | 5,595      |                                  | $          | 4,322 |   |
| Accrued expenses                                                                                                                              |       | 26,347                   |       | 33,275                                |       |
| Payable to Sprint (Note 4)                                                                                                                    |       | 50,783                   |       | 41,135                                |       |
| Deferred revenue                                                                                                                              |       | 10,882                   |       | 10,486                                |       |
| Current maturities of long-term debt and  capital lease obligations (Note 7)                                                                  |       | 12                       |       | 17                                    |       |
| Total current liabilities                                                                                                                     |       | 93,619                   |       | 89,235                                |       |
| Customer activation fee revenue                                                                                                               |       | 2,045                    |       | 1,003                                 |       |
| Other long-term liabilities                                                                                                                   |       | 9,009                    |       | 9,112                                 |       |
| Long-term debt and capital lease  obligations, excluding current maturities (Note 7)                                                          |       | 303,515                  |       | 304,558                               |       |
| Total liabilities                                                                                                                             |       | 408,188                  |       | 403,908                               |       |
| Commitments and contingencies (Note 10)                                                                                                       |       | —                   |       | —                                |       |
|                                                                                                                                          |       |                     |       |                                  |       |
| Stockholders’ Equity:                                                                                                                    |       |                     |       |                                  |       |
|                                                                                                                                          |       |                     |       |                                  |       |
| 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, 16,698,366 and 16,635,482 shares issued and  outstanding, respectively |       | 167                      |       | 166                                   |       |
| Additional paid-in-capital                                                                                                                    |       | 330,391                  |       | 328,202                               |       |
| Unearned compensation                                                                                                                         |       | —                   |       | (1,372                                | )          |
| Accumulated deficiency                                                                                                                        |       | (91,100                  | )          | (56,914                               | )          |
| Total stockholders’ equity                                                                                                               |       | 239,458                  |       | 270,082                               |       |
| Total liabilities and stockholders’ equity                                                                                               |       | $                        | 647,646    |                                  | $          | 673,990 |   |

 

See Notes to unaudited consolidated financialstatements.

 

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(a) Derived from the Company’s audited financialstatements as of September 30, 2005.

 

3

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**iPCS, INC.AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(UNAUDITED)**

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

 
| ** **                                                                          | ** ** | **For the Three Months Ended** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                          | ** ** | **March 31, 2006**                       | ** ** | **March 31, 2005** | ** ** |
| ** **                                                                          | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| **Revenues:**                                                                       |       |                                               |       |   |   |
| Service revenue                                                                     |       | $                                                  | 75,406     |   | $ | 39,094 |   |
| Roaming revenue                                                                     |       | 33,627                                             |       | 14,522 |   |
| Equipment and other                                                                 |       | 3,452                                              |       | 1,838 |   |
| Total revenues                                                                      |       | 112,485                                            |       | 55,454 |   |
| **Operating Expenses:**                                                             |       |                                               |       |   |   |
| Cost of service and roaming (exclusive of  depreciation, as shown separately below) |       | (65,021                                            | )          | (30,415 | ) |
| Cost of equipment                                                                   |       | (9,529                                             | )          | (6,158 | ) |
| Selling and marketing                                                               |       | (16,760                                            | )          | (8,308 | ) |
| General and administrative                                                          |       | (7,130                                             | )          | (2,014 | ) |
| Depreciation (Note 5)                                                               |       | (14,414                                            | )          | (15,302 | ) |
| Amortization of intangible assets (Note 6)                                          |       | (9,489                                             | )          | (3,050 | ) |
| Loss on disposal of property and equipment                                          |       | (237                                               | )          | (32 | ) |
| Total operating expenses                                                            |       | (122,580                                           | )          | (65,279 | ) |
| **Operating loss**                                                                  |       | (10,095                                            | )          | (9,825 | ) |
| Interest income                                                                     |       | 1,183                                              |       | 365 |   |
| Interest expense                                                                    |       | (8,121                                             | )          | (4,980 | ) |
| Other income                                                                        |       | 33                                                 |       | 4 |   |
| **Loss before benefit from income taxes**                                           |       | (17,000                                            | )          | (14,436 | ) |
| Benefit from income taxes                                                           |       | —                                             |       | — |   |
| **Net loss**                                                                        |       | $                                                  | (17,000    | ) | $ | (14,436 | ) |
| Basic and diluted loss per share of common  stock                                   |       |                                               |       |   |   |
| Loss available to common stockholders                                               |       | $                                                  | (1.02      | ) | $ | (1.56 | ) |
| Weighted average common shares outstanding                                          |       | 16,687,039                                         |       | 9,269,166 |   |

 

See Notes to unaudited consolidated financialstatements.

 

4

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**iPCS, INC.AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

**(Dollars inthousands)**

 
| ** **                                                                                                               | ** ** | **For the Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **March 31, 2006**                       | ** ** | **March 31, 2005** | ** ** |
| **Cash Flows from Operating Activities:**                                                                                |       |                                               |       |   |   |
| Net loss                                                                                                                 |       | $                                                  | (17,000    | ) | $ | (14,436 | ) |
| Adjustments to reconcile net loss to net  cash flows from operating activities:                                          |       |                                               |       |   |   |
| Loss on disposal of property and equipment                                                                               |       | 237                                                |       | 32 |   |
| Depreciation and amortization                                                                                            |       | 23,903                                             |       | 18,352 |   |
| Non-cash interest expense net of  amortization of debt fair value adjustment                                             |       | (162                                               | )          | 224 |   |
| Stock-based compensation expense                                                                                         |       | 463                                                |       | 23 |   |
| Provision for doubtful accounts                                                                                          |       | 1,391                                              |       | 439 |   |
| Changes in assets and liabilities:                                                                                       |       |                                               |       |   |   |
| Accounts receivable                                                                                                      |       | 2,282                                              |       | (949 | ) |
| Receivable from Sprint                                                                                                   |       | 8,044                                              |       | 554 |   |
| Inventories, net                                                                                                         |       | 258                                                |       | (81 | ) |
| Prepaid expenses, other current and long  term assets                                                                    |       | (550                                               | )          | (620 | ) |
| Accounts payable, accrued expenses and  other long term liabilities                                                      |       | 894                                                |       | 5,311 |   |
| Payable to Sprint                                                                                                        |       | (9,421                                             | )          | (1,266 | ) |
| Deferred revenue                                                                                                         |       | 935                                                |       | 481 |   |
| Net cash flows from operating activities                                                                                 |       | 11,274                                             |       | 8,064 |   |
| **Cash Flows from Investing Activities:**                                                                                |       |                                               |       |   |   |
| Purchases of property and equipment                                                                                      |       | (8,382                                             | )          | (4,182 | ) |
| Proceeds from disposition of fixed assets                                                                                |       | 194                                                |       | 646 |   |
| Net cash flows from investing activities                                                                                 |       | (8,188                                             | )          | (3,536 | ) |
| **Cash Flows from Financing Activities:**                                                                                |       |                                               |       |   |   |
| Proceeds from the exercise of stock options                                                                              |       | 990                                                |       | — |   |
| Payments on capital lease obligations                                                                                    |       | (3                                                 | )          | (2 | ) |
| Debt financing costs                                                                                                     |       | —                                             |       | (52 | ) |
| Net cash flows from financing activities                                                                                 |       | 987                                                |       | (54 | ) |
| Net increase in cash and cash equivalents                                                                                |       | 4,073                                              |       | 4,474 |   |
| **Cash and cash equivalents at beginning of  period**                                                                    |       | 110,837                                            |       | 59,958 |   |
| **Cash and cash equivalents at end of period**                                                                           |       | $                                                  | 114,910    |   | $ | 64,432 |   |
|                                                                                                                     |       |                                               |       |   |   |
| **Supplemental disclosure of cash flow  information- cash paid for interest**                                            |       | $                                                  | 7,109      |   | $ | — |   |
| **Supplemental disclosure for non-cash  investing activities:**                                                          |       |                                               |       |   |   |
| Capitalized interest                                                                                                     |       | $                                                  | 47         |   | $ | — |   |
| Accounts payable and accrued expenses  incurred for the acquisition of property, equipment and construction in  progress |       | 638                                                |       | 512 |   |

 

See Notes to unaudited consolidated financialstatements.

 

5

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**iPCS, INC. AND SUBSIDIARIES**

**NOTES TO UNAUDITEDCONSOLIDATED FINANCIAL STATEMENTS**

 

**(1)  Business and Basis ofPresentation**

 

iPCS, Inc.(the “Company” or “iPCS”) is a holding company that operates as a PCS Affiliateof Sprint through three wholly owned subsidiaries: iPCS Wireless, Inc.,Horizon Personal Communications, Inc. and Bright Personal CommunicationsServices, LLC. Each of these subsidiaries is a party to a separate affiliationagreement with Sprint PCS, the operator of a 100% digital personalcommunications service (“PCS”) wireless network with licenses to provide voiceand data service to the entire United States population using a singlefrequency band and a single technology.

 

iPCS, Inc. wasformed in March 2000 as a holding company for iPCS Wireless. iPCSWireless, as the successor to Illinois PCS, LLC, became a PCS affiliate ofSprint in 1999. Through this affiliation agreement, as amended, iPCS has theexclusive right to market and provide Sprint PCS products and services in 40markets in Illinois, Michigan, Iowa, and eastern Nebraska. On November 30,2001, the Company was acquired by AirGate PCS, Inc. (“AirGate”), anotherPCS Affiliate of Sprint. iPCS was designated as an unrestricted subsidiary ofAirGate and both companies operated as separate business entities. On February 23,2003, the Company and its subsidiaries filed for Chapter 11 bankruptcyprotection. On October 17, 2003, AirGate irrevocably transferred itsownership of iPCS to a trust, the beneficial owners of which trust were AirGate’sstockholders at the date of transfer. AirGate retained no ownership interest inthe trust or the Company. Upon the Company’s emergence from bankruptcy onJuly 20, 2004, iPCS’s common stock held by the trust was cancelled and thetrust terminated by its terms.

 

On July 1,2005, iPCS completed a merger with Horizon PCS, Inc. (“Horizon PCS”),another PCS Affiliate of Sprint, in which Horizon PCS merged with and into iPCS, Inc.,with iPCS, Inc. as the surviving corporation (see Note 3). Through its twoaffiliation agreements with Sprint PCS, two wholly owned subsidiaries ofHorizon PCS have the exclusive right to market and provide Sprint PCS productsand services in 40 markets in Ohio, Indiana, Tennessee, Michigan, New York, NewJersey, Maryland, Pennsylvania, and West Virginia.

 

In February2006, the Company changed its fiscal year-end from September 30 to December 31commencing in 2006. The Company’s 2005 fiscal year ended on September 30, 2005.

 

The unauditedconsolidated balance sheet as of March 31, 2006, the unaudited consolidatedstatements of operations for the three months ended March 31, 2006 and 2005,the unaudited consolidated statements of cash flows for the three months ended March31, 2006 and 2005 and related footnotes have been prepared in accordance withaccounting principles generally accepted in the United States of America forinterim financial information and Rule 10-01 of Regulation S-X. Accordingly,they do not include all of the information and footnotes required by accountingprinciples generally accepted in the United States for complete financialstatements. The financial information presented herein should be read inconjunction with the Company’s 2005 Annual Report on Form 10-K whichincludes information and disclosures not presented herein. All significantintercompany accounts and transactions have been eliminated in consolidation.In the opinion of management, the unaudited consolidated financial statementscontain all of the adjustments, consisting only of normal recurringadjustments, necessary to present fairly, in summarized form, the consolidatedfinancial position, results of operations and cash flows of the Company. Theresults of operations for the three months ended March 31, 2006, are notindicative of the results that may be expected for the full year 2006.

 

The PCS marketis characterized by significant risks as a result of rapid changes intechnology and increasing competition. The Company’s continuing operations aredependent upon Sprint’s ability to perform its obligations under theaffiliation agreements. In addition, the Company must be able to attract andmaintain a sufficient customer base and achieve satisfactory growth whilesuccessfully managing operations to generate enough cash from operations tomeet future obligations. Changes in technology, increased competition, or theinability to obtain required financing or achieve break-even operating cashflow, among other factors, could have an adverse effect on the Company’sfinancial position and results of operations.

 

Certainreclassifications have been made to the Consolidated Statement of Operationsfor the three months ended March 31, 2005 to conform to the current yearpresentation.

 

**(2)  Summary of SignificantAccounting Policies**

 

*Loss PerShare:*

 

Basic and diluted loss pershare for the Company are calculated by dividing the net loss available tocommon stockholders by

 

6

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the weighted average number ofshares of common stock of the Company. The calculation was made in accordancewith SFAS No. 128, “Earnings Per Share.” The basic and diluted loss pershare are the same because the inclusion of the incremental potential commonshares from any assumed exercise of stock options is antidilutive. Potentialcommon shares excluded from the loss per share computations for the threemonths ended March 31, 2006 and 2005 were 727,766 and 620,500, respectively.

 

**(3)  Merger with Horizon PCS**

 

On July 1, 2005, theCompany completed its tax-free stock for stock merger transaction with HorizonPCS in which Horizon PCS merged with and into iPCS, Inc. with iPCS, Inc.as the surviving corporation. Horizon PCS was a PCS Affiliate of Sprint whoseterritory included 40 markets in nine contiguous states. The transaction wasaccounted for under the purchase method and the results of Horizon PCS havebeen included in the Company’s consolidated financial statements since theacquisition date.

 

The unauditedpro forma condensed consolidated statement of operations for the three monthsended March 31, 2005, set forth below, present the results of operationsas if the merger had occurred on January 1, 2005 and are not necessarilyindicative of future results or actual results that would have been achievedhad the acquisition occurred as of the beginning of such period.

 
| ** **                                        | ** ** | **For the Three Months  Ended  March 31, 2005** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| ** **                                        | ** ** | ** **                                                               | ** ** |
| Total revenues (in thousands)                     |       | $                                                                        | 98,418     |   |
| Net loss (in thousands)                           |       | (26,468                                                                  | )          |
| Basic and diluted loss per share of common  stock |       | $                                                                        | (1.63      | ) |
| Weighted average shares outstanding               |       | 16,231,926                                                               |       |

 

**(4)  Sprint Agreements**

 

Under the Sprint agreements,Sprint provides the Company significant support services such as customerservice, billing, long distance transport services, national network operationssupport, inventory logistics support, use of the Sprint and Sprint PCS brandname, national advertising, national distribution and product development. Additionally,the Company derives substantial roaming revenue when wireless customers ofSprint and other PCS Affiliates of Sprint incur minutes of use in the Company’sterritories and incurs expense to Sprint and to other PCS Affiliates of Sprintwhen the Company’s customers incur minutes of use in the territories of Sprintand other PCS Affiliates of Sprint. Cost of service and roaming transactionswith Sprint include the 8% affiliation fee, long distance, roaming expenses,billing support and customer care support. Cost of equipment relates toinventory sold by the Company that was purchased from Sprint under the Sprintagreements. Selling and marketing transactions relate to subsidized costs onwireless handsets and commissions under Sprint’s national distribution program.

 

For both the three monthsended March 31, 2006 and 2005, approximately 97% of the Company’s revenuewas derived from data provided by Sprint. Of the Company’s cost of service androaming, approximately 68% and 69% for the three months ended March 31,2006, and 2005, respectively, was derived from data provided by Sprint. TheCompany reviews all charges from Sprint and disputes certain of these chargesin cases where the Company does not receive enough supporting detail tovalidate the charges or it does not believe Sprint can charge the Company forcertain expenses under the terms of the Sprint agreements. At March 31,2006 and September 30, 2005, the Company had approximately $0.1 million indisputed charges.

 

7

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Amounts relating to theSprint agreements for the three months ended March 31, 2006 and 2005 are as follows (inthousands):

 
| ** **                                                          | ** ** | **For the Three Months Ended** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                          | ** ** | **March 31, 2006**                       | ** ** | **March 31, 2005** | ** ** |
| **Amounts included in the Consolidated  Statements of Operations:** | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Service revenue                                                     |       | $                                                  | 75,406     |   | $ | 39,094 |   |
| Roaming revenue                                                     |       | $                                                  | 33,627     |   | $ | 14,522 |   |
| Cost of service and roaming:                                        |       |                                               |       |   |   |
| Roaming                                                             |       | $                                                  | 23,087     |   | $ | 10,174 |   |
| Customer service                                                    |       | 10,679                                             |       | 5,395 |   |
| Affiliation fees                                                    |       | 6,052                                              |       | 3,086 |   |
| Long distance                                                       |       | 2,962                                              |       | 1,541 |   |
| Other                                                               |       | 1,450                                              |       | 727 |   |
| Total cost of service and roaming                                   |       | $                                                  | 44,230     |   | $ | 20,923 |   |
| Cost of equipment                                                   |       | $                                                  | 9,529      |   | $ | 6,158 |   |
| Selling and marketing                                               |       | $                                                  | 5,157      |   | $ | 2,159 |   |

 
| ** **                                                | ** ** | **March 31, 2006** | ** ** | **September 30, 2005** | ** ** |
|-----------------------------------------------------------|------------|------------------------------|------------|----------------------------------|------------|
| **Amounts included in the Consolidated  Balance Sheets:** | ** ** | ** **                   | ** ** | ** **                       | ** ** |
| Receivable from Sprint                                    |       | $                            | 36,150     |                             | $          | 30,837 |   |
| Inventories, net                                          |       | 3,325                        |       | 3,179                            |       |
| Payable to Sprint                                         |       | 50,783                       |       | 41,135                           |       |
|                                                           |            |                              |            |                                  |            |  |  |

 

**(5)  Property and Equipment**

 

Property and equipmentconsists of the following at March 31, 2006 and September 30, 2005(in thousands):

 
| ** **                                      | ** ** | **March 31, 2006** | ** ** | **September 30, 2005** | ** ** |
|-------------------------------------------------|------------|------------------------------|------------|----------------------------------|------------|
| Network assets                                  |       | $                            | 185,585    |                             | $          | 177,200 |   |
| Computer equipment                              |       | 3,577                        |       | 1,603                            |       |
| Furniture, fixtures, and office equipment       |       | 6,368                        |       | 5,105                            |       |
| Vehicles                                        |       | 396                          |       | 396                              |       |
| Construction in progress                        |       | 10,039                       |       | 10,105                           |       |
| Total property and equipment                    |       | 205,965                      |       | 194,409                          |       |
| Less accumulated depreciation and  amortization |       | (67,191                      | )          | (40,905                          | )          |
| Total property and equipment, net               |       | $                            | 138,774    |                             | $          | 153,504 |   |

 

On March 21,2006, the Company amended the payment terms of the letter of agreement withNortel Networks to replace the Motorola equipment currently deployed in theCompany’s Pennsylvania, New York, New Jersey and Maryland markets with Nortelequipment (see Note 10). This amendment accelerated payments for equipmenttotaling $4.0 million from 2007 to 2006; thereby, reducing  the original timeline to complete thisproject. Because of this amendment, the estimated remaining useful life of theMotorola equipment was shortened by approximately nine months, resulting in additionaldepreciation expense of approximately $2.1 million recorded in the three monthsended March 31, 2006.

 

**(6)  Intangible Assets andGoodwill**

 

As a result of the Company’sreorganization in 2004 and in accordance with fresh-start accounting under SOP90-7, “Financial Reporting by Entities in Reorganization under the BankruptcyCode”, the Company revalued its assets to their estimated fair values and theCompany recorded intangible assets of $19.8 million relating to the fairvalue of the customer base and $62.1 million relating to the fair value ofthe right to provide service under the Sprint affiliation agreements.

 

In connectionwith the merger with Horizon PCS (see Note 3), the Company allocated portionsof the purchase price to identifiable intangible assets consisting of the rightto provide service under the Sprint affiliation agreements, the acquiredcustomer base, and an FCC license for a small market in Ohio. The amountallocated to the right to provide service under the Sprint affiliationagreements, the customer base and the FCC license was $67.0 million, $53.0million, and $1.5 million, respectively. In addition, the excess of thepurchase price over the fair value of the net assets acquired, including theseidentifiable intangible assets, which totaled $146.4 million was recorded asgoodwill. The goodwill is not deductible for income taxes.

 

8

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The intangible assetsrelating to the customer base are being amortized over the estimated averagelife of a customer of 30 months. The intangible assets for the right toprovide service under the Sprint affiliation agreements are being amortizedover the remaining term of the respective agreements. The FCC license has anindefinite life and is not being amortized.

 

The weighted averageamortization period, gross carrying amount, accumulated amortization and netcarrying amount of intangible assets at March 31, 2006 and September 30,2005 are as follows (in thousands):

 
| ** **                                                        | ** ** | **March 31, 2006**                    | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                        | ** ** | **Weighted Average  Amortization  Period** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Value** | ** ** |
| **Non-amortized intangible asset:**                               |       |                                            |       |   |   |   |   |   |   |
| FCC license                                                       |       |                                            |       | $ | 1,500 |   | $ | — |   | $ | 1,500 |   |
| **Amortized intangible assets:**                                  |       |                                            |       |   |   |   |   |   |   |
| Right to provide service under the Sprint  affiliation agreements |       | 167 months                                      |       | 126,521 |   | (10,987 | ) | 115,534 |   |
| Customer base                                                     |       | 30 months                                       |       | 71,956 |   | (29,169 | ) | 42,787 |   |
|                                                              |       | 117 months                                      |       | $ | 199,977 |   | $ | (40,156 | ) | $ | 159,821 |   |

 
| ** **                                                        | ** ** | **September 30, 2005**                | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                        | ** ** | **Weighted Average  Amortization  Period** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Value** | ** ** |
| **Non-amortized intangible asset:**                               |       |                                            |       |   |   |   |   |   |   |
| FCC license                                                       |       |                                            |       | $ | 1,500 |   | $ | — |   | $ | 1,500 |   |
| **Amortized intangible assets:**                                  |       |                                            |       |   |   |   |   |   |   |
| Right to provide service under the Sprint  affiliation agreements |       | 167 months                                      |       | 126,521 |   | (6,399 | ) | 120,122 |   |
| Customer base                                                     |       | 30 months                                       |       | 71,956 |   | (14,778 | ) | 57,178 |   |
|                                                              |       | 117 months                                      |       | $ | 199,977 |   | $ | (21,177 | ) | $ | 178,800 |   |

 

The amortization expense for the three monthsended March 31, 2006 and 2005 was $9.5 million and $3.1 million, respectively. Aggregateamortization expense relative to intangible assets for the periods shown willbe as follows:

 
| **Year Ended December 31** | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|------------|------------|
| 2006                                      |       | $          | 37,958     |   |
| 2007                                      |       | 30,376     |       |
| 2008                                      |       | 9,176      |       |
| 2009                                      |       | 9,176      |       |
| 2010                                      |       | 9,176      |       |
| Thereafter                                |       | 71,949     |       |
| Total                                     |       | $          | 167,811    |   |

 

9

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**(7)  Long-Term Debt**

 

Long-term debt consists ofthe following at March 31, 2006 and September 30, 2005 (in thousands):

 
| ** **                                                                  | ** ** | **March 31, 2006** | ** ** | **September 30, 2005** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------------|------------|----------------------------------|------------|
| Senior notes 111/2%  $165 million due 2012                                  |       | $                            | 165,000    |                             | $          | 165,000 |   |
| Senior notes 113/8%  $125 million due 2012                                  |       | 125,000                      |       | 125,000                          |       |
| Unamortized fair value adjustment for 113/8%  senior notes                  |       | 13,132                       |       | 14,169                           |       |
| Capital lease obligations                                                   |       | 395                          |       | 406                              |       |
| Total long-term debt and capital lease  obligations                         |       | 303,527                      |       | 304,575                          |       |
| Less: current maturities                                                    |       | (12                          | )          | (17                              | )          |
| Long-term debt and capital lease  obligations, excluding current maturities |       | $                            | 303,515    |                             | $          | 304,558 |   |

 

In connectionwith the merger of Horizon PCS (see Note 3), the allocation of the purchaseprice resulted in an increase of the value of the 113/8%senior notes of approximately $14.7 million, which is recorded as long-termdebt in the Consolidated Balance Sheets. This amount will be amortized over theremaining life of the 113/8% senior notes as a reductionto interest expense. For the three months ended March 31, 2006, thereduction to interest expense was approximately $0.5 million. This amortizationwill not increase the principal amount due to the 113/8%senior note holders or reduce the amount of interest owed to the 113/8%senior note holders.

 

The indenturesgoverning the $165.0 million in aggregate principal amount of 111/2%senior notes and the $125.0 million in aggregate principal amount of 113/8%senior notes contain covenants which restrict the Company’s ability to incuradditional indebtedness, merge, pay dividends, dispose of its assets, andcertain other matters as defined in the indentures. However, the senior notesare subordinated to all secured indebtedness of the Company to the extent ofthe assets securing such indebtedness, and to any indebtedness of subsidiariesof the Company that do not guarantee the senior notes. For the 111/2%senior notes, interest is payable semi-annually in arrears on May 1 and November 1to the holders of record on the immediately preceding April 15 and October 15.

 

For the 113/8%senior notes, interest is payable semi-annually in arrears on July 15 and January 15,to the holders of record on the immediately preceding July 1 and January 1.

 

**(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, 2006 and 2005 as the net deferred tax assetgenerated, primarily from temporary differences related to the net operatingloss, was offset by a full valuation allowance because it is not consideredmore likely than not that these benefits will be realized due to the Company’slosses since inception.

 

**(9) Stock-Based Compensation**

 

The Company has twolong-term incentive plans currently in place. The iPCS 2004 long-term incentiveplan, as amended, (the “iPCS Plan”) was approved by the Company’s board ofdirectors as provided by the Company’s plan of reorganization. Under the iPCSPlan, the Company may grant to employees, directors and consultants of theCompany incentive and non-qualified stock options, stock appreciation rights,restricted and unrestricted stock awards and cash incentive awards. The totalnumber of shares that may be awarded under this plan is 1.25 million shares ofcommon stock. All of the stock options issued to date under the iPCS Plan havea ten-year life with vesting on a quarterly basis over four years for employeesand over one year for directors. The Horizon PCS long-term incentive plan (the “HorizonPlan”) was assumed in connection with the merger with Horizon PCS (see Note 3).Under the Horizon Plan, the Company may grant options to employees anddirectors. All of the stock options issued under the Horizon Plan to date havea ten-year life and vest equally in six-month increments over three years fromthe date of grant. The total number of shares that may be granted under theHorizon Plan is 762,227 shares of common stock.

 

Effective October 1,2005, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R,“Share-Based Payment” utilizing the modified prospective method. Under SFAS No. 123Rcompanies are required to record

 

10

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compensation expense for all share basedpayment award transactions measured at fair value. Under the modifiedprospective method SFAS No. 123R requires compensation cost to berecognized for 1) all share-based compensation expense arrangements grantedafter the adoption date and 2) all remaining unvested share-based compensationarrangements granted prior to the adoption date. Prior periods have not beenrestated. The Company uses the Black-Scholes model to value its stock optiongrants; however, there have been  nostock option grants since the Company adopted SFAS No. 123R.

 

Prior to October 1,2005, the Company applied APB Opinion No. 25, “Accounting for Stock Issuedto Employees,” and related interpretations to account for its employee anddirector stock options. The Company did not record any stock-based compensationexpense for stock option grants prior to October 1, 2005 because all stockoption awards were granted at fair market value; however, there were no stockoption grants in the three months ended March 31, 2005. For the three monthsended March 31, 2005, the Company recognized $23,000 of stock-basedcompensation expense related to prior restricted stock grants.

 

The following table showsstock-based compensation expense by type of share-based award for the threemonths ended March 31, 2006 and 2005 included in the consolidatedstatements of operations (in thousands):

 
| ** **                                                    | ** ** | **For the Three Months Ended** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                    | ** ** | **March 31,  2006**                           | ** ** | **March 31,  2005** | ** ** |
| Restricted stock                                              |       | $                                                  | 25         |   | $ | 23 |   |
| Amortization of unearned compensation of  stock option awards |       | 91                                                 |       | — |   |
| Fair value expense of stock option awards                     |       | 347                                                |       | — |   |
| Total stock-based compensation                                |       | $                                                  | 463        |   | $ | 23 |   |

 

The following table showsthe total remaining unrecognized compensation cost related to: restricted stockgrants, unearned compensation of stock option awards, and fair value expense ofstock option awards; as well as the weighted average remaining required serviceperiod over which such costs will be recognized:

 
| ** **                                    | ** ** | **Total Remaining  Unrecognized  Compensation Cost  (in millions)** | ** ** | **Weighted Average  Remaining Required  Service Period (in  years)** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| Restricted stock                              |       | $                                                                                  | 0.2        |                                                                                     | 2.4        |   |
| Unearned compensation of stock option  awards |       | 0.5                                                                                |       | 1.5                                                                                      |       |
| Fair value expense of stock option awards     |       | 4.4                                                                                |       | 2.3                                                                                      |       |
|                                               |            |                                                                                    |            |                                                                                          |            |  |

 

Stock-based compensationexpense is included in the consolidated statements of operations as follows (inthousands):

 
| ** **                     | ** ** | **For the Three Months Ended** | ** ** |
|--------------------------------|------------|----------------------------------------------------|------------|
| ** **                     | ** ** | **March 31,  2006**                           | ** ** | **March 31,  2005** | ** ** |
| Cost of service and roaming    |       | $                                                  | 32         |   | $ | 8 |   |
| Sales and marketing            |       | 69                                                 |       | 5 |   |
| General and administrative     |       | 362                                                |       | 10 |   |
| Total stock-based compensation |       | $                                                  | 463        |   | $ | 23 |   |

 

The following is a summary of options activity under theCompany’s long-term incentive plans for the three months ended March 31, 2006:

 
| ** **                                     | ** ** | **Number of Options** | ** ** | **Weighted-Average  Exercise Price** | ** ** |
|------------------------------------------------|------------|---------------------------------|------------|-------------------------------------------|------------|
| Options outstanding as of December 31, 2005    |       | 773,086                         |       | $                                         | 16.73      |   |
| Exercised                                      |       | (43,056                         | )          | 23.00                                     |       |
| Forfeited                                      |       | (2,264                          | )          | 23.00                                     |       |
| Options outstanding as of March 31,  2006 |       | 727,766                         |       | $                                         | 16.34      |   |

 

11

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The following is a summaryof options outstanding and exercisable at March  31, 2006:

 
| ** **                              | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**                                             | ** ** |
|-----------------------------------------|------------|------------------------------|------------|--------------------------------------------------------------------------|------------|
| **Range of  Exercise Prices** | ** ** | **Number  Outstanding**      | ** ** | **Weighted  Average  Remaining  Contractual Life  (in years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Aggregate  Intrinsic  Value  (in  thousands)** | ** ** | **Number  Exercisable** | ** ** | **Weighted  Average  Remaining  Contractual  Life  (in years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Aggregate  Intrinsic  Value  (in  thousands)** | ** ** |
| $10.27                                  |       | 446,875                      |       | 8.30                                                                     |       | $ | 10.27 |   |   |   | 183,908 |   | 8.30 |   | $ | 10.27 |   |   |   |
| $19.00                                  |       | 47,000                       |       | 8.40                                                                     |       | 19.00 |   |   |   | 18,875 |   | 8.40 |   | 19.00 |   |   |   |
| $23.00-$25.60                           |       | 166,141                      |       | 8.55                                                                     |       | 23.57 |   |   |   | 52,049 |   | 8.46 |   | 23.28 |   |   |   |
| $35.00-$40.50                           |       | 67,750                       |       | 9.31                                                                     |       | 36.85 |   |   |   | 38,016 |   | 9.29 |   | 35.62 |   |   |   |
|                                    |       | 727,766                      |       | 8.46                                                                     |       | $ | 16.34 |   | $ | 22,310 |   | 292,848 |   | 8.47 |   | $ | 16.44 |   | $ | 8,951 |   |
|                                         |            |                              |            |                                                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Prior to the adoption of SFAS No. 123R, the Company providedthe disclosures required under SFAS No. 123 “Accounting for Stock-BasedCompensation.”  For the three monthsended March  31, 2005, if compensation expense for the stock option grantshad been determined on fair value at the grant date consistent with therequirements of SFAS No. 123, the Company’s net loss and net loss percommon share would have been the pro forma amounts below:

 
| ** **                                                             | ** ** | **Three Months Ended  March 31, 2005** | ** ** |
|------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| **Net loss (in thousands):**                                           | ** ** | ** **                                                 | ** ** |
| As reported                                                            |       | $                                                          | (14,436    | ) |
| Plus non-cash stock compensation in  accordance with SFAS No. 123 |       | (351                                                       | )          |
| Pro forma                                                              |       | $                                                          | (14,787    | ) |
| **Basic and diluted loss per common share:**                           | ** ** | ** **                                                 | ** ** |
| As reported                                                            |       | $                                                          | (1.56      | ) |
| Pro forma                                                              |       | $                                                          | (1.60      | ) |

 

**(10)  Commitments andContingencies**

 

*Commitments*

 

On November 22, 2004,the Company signed a letter of agreement with Nortel Networks to replace theCompany’s Lucent network equipment deployed in its Michigan markets with Nortelequipment including one switch, 232 base stations and various additionalcapacity and network equipment. Under the terms of the agreement, the Company isrequired to purchase equipment and services totaling approximately $15.2million and will receive special pricing on future purchases through December 31,2007. As of March 31, 2006, the Company had purchased the $15.2 million ofnetwork equipment required under this agreement. Accordingly, the Company isnot required to purchase additional equipment or services under this agreement.

 

In addition, in January 2005,Horizon PCS signed a letter of agreement for $14.0 million with Nortel Networksto replace the Motorola network equipment deployed in its Fort Wayne, Indiana,Chillicothe, Ohio, and Johnson City, Tennessee markets with Nortel equipmentincluding 390 base stations, various additional capacity growth and networkequipment. Under the terms of the agreement, the Company is required topurchase equipment and services totaling $13.0 million and will receivespecial pricing on future purchases through December 31, 2007. As of December 31,2005, the Company had purchased the $13.0 million of equipment required underthis agreement. Accordingly, the Company is not required to purchase additionalequipment or services under this agreement.

 

On December 31, 2005,the Company signed a letter of agreement with Nortel Networks to replace theCompany’s Motorola equipment currently deployed in its Pennsylvania, New York,New Jersey and Maryland markets with Nortel equipment. Under the terms of theagreement, the Company is required to purchase equipment necessary to replace425 existing base stations and related network infrastructure, plus variousadditional equipment to support future network footprint and capacityexpansion, totaling approximately $16.5 million, with an option to purchaseadditional network capacity equipment totaling $0.5 million. On March 21, 2006,the Company amended the terms of this agreement accelerating payments forequipment totaling $4.0 million from 2007 to 2006. As of March 31, 2006, theCompany had purchased $3.0 million of the required $16.5 million of equipment underthis agreement. Accordingly, the Company is required to purchase an additional$13.5 million of equipment under this agreement.

 

12

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*Litigation*

 

On December 15, 2004,Sprint Corporation and Nextel Communications, Inc. announced thatthey had signed a merger agreement pursuant to which they would merge andcombine their operations. Shortly after announcing the merger, Sprint alsoannounced that it would pursue discussions with the PCS Affiliates ofSprint – including the Company – directed toward a modification of theiraffiliation agreements to address the implications of its merger with Nextel. Althoughthe parties engaged in discussions with respect to such a modification, noagreement has been reached.

 

On July 15,2005, iPCS Wireless, Inc., a wholly owned subsidiary of iPCS, Inc.,filed a complaint against Sprint and Sprint PCS in the Circuit Court of CookCounty, Illinois. On July 22, 2005, Horizon Personal Communications, Inc.and Bright Personal Communications Services, LLC, wholly owned subsidiaries ofiPCS, Inc., filed a complaint against Sprint and Sprint PCS and NextelCommunications, Inc. in the Court of Chancery of the State of Delaware,New Castle County. The complaints are substantially similar and allege, among otherthings, that following the consummation of the merger between Sprint andNextel, Sprint will breach its exclusivity obligations under its affiliationagreements, as amended, with the Company (see Note 4). The Company sought,among other things, a temporary restraining order, a preliminary injunction anda permanent injunction enjoining Sprint and those acting in concert with itfrom engaging in certain conduct post-closing that would violate the Company’saffiliation agreements with Sprint PCS.

 

On July 18, 2005, inCook County Circuit Court the Company obtained a temporary restraining orderprohibiting Sprint from sharing its confidential information with Nextel inviolation of iPCS Wireless’s management agreement and the Company continued thehearing to hear further testimony on its request for additional injunctiverelief.

 

On July 28,2005, iPCS, Inc. and certain of its wholly owned subsidiaries entered intoa Forbearance Agreement (the “Agreement”) with Sprint relating to thecomplaints filed against Sprint. The Agreement sets forth the Company’sagreement that the Company’s subsidiaries would not seek a temporaryrestraining order or a preliminary injunction against Sprint so long as Sprintoperates the Nextel business subject to the limitations set forth in theAgreement. The Agreement contemplates that the parties will proceed as quicklyas possible to a full trial on the merits of the complaint seeking a permanentinjunction against Sprint. The Agreement expired on January 1, 2006 in theterritory managed by iPCS Wireless, Inc., but remains in effect in the legacyHorizon PCS territory until a ruling is issued in the Delaware Court ofChancery.

 

The trialrelating to the complaint filed by iPCS Wireless, Inc. against Sprint in CookCounty Circuit Court was originally set to commence on December 5, 2005. However,it was continued to early February 2006 and then to early March 2006. The trialin Cook County Circuit Court began on March 9, 2006 and, as of the date of thisfiling, is ongoing. The Company anticipates that the testimony in the trialwill conclude in late May/early June 2006 and it expects a ruling in the secondhalf of 2006.

 

On December28, 2005, the judge in Cook County Circuit Court denied the Company’s andSprint’s request for summary judgment; however he agreed with the Company thatiPCS Wireless’s management agreement with Sprint would be breached ifconfidential information were disclosed to any person or entity involved in theoperation of Nextel’s network. Accordingly, the judge entered a preliminarynon-appealable order of summary judgment as to that aspect of the complaint. Thejudge’s order is subject to reconsideration during the trial.

 

On January 4,2006, the judge in the Delaware Court of Chancery issued a memorandum opiniondenying the requests for summary judgment of both Sprint and Horizon PersonalCommunications and Bright Personal Communications Services; however the judge agreedwith Sprint that the Company’s claim for declaratory judgment as to the G-Blockwas not ripe for adjudication. Accordingly, that aspect of the complaint filedby Horizon Personal Communications and Bright Personal Communications Serviceswas dismissed without prejudice. The trial in the Delaware Court of Chancerybegan on January 9, 2006 and testimony concluded on January 23, 2006. Closingarguments were on April 4, 2006. The Company expects a ruling near the end of thequarter ended June 30, 2006.

 

In addition to theforegoing, from time to time, the Company is involved in various legal proceedingsrelating to claims arising in the ordinary course of business and in connectionwith the Company’s bankruptcy petition. The Company is not currently a party toany such legal proceedings, the outcome of which, individually or in theaggregate, is expected to have a material adverse effect on the Company’sbusiness, financial condition or results of operations.

 

13

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**(11)  ConsolidatingFinancial Information**

 

The 11 1/2% senior notes and the 113/8 % senior notes are fully,unconditionally and joint and severally guaranteed by the Company’s domesticunrestricted subsidiaries, including iPCS Wireless, Inc.,iPCS Equipment, Inc., Horizon Personal Communications, Inc., andBright Personal Communications Services, LLC, which are wholly ownedsubsidiaries of iPCS, Inc. The following consolidating financialinformation as of March 31, 2006 and September 30, 2005 and for the threemonths ended March 31, 2006 and 2005 is presented for iPCS, Inc., iPCSWireless, Inc., iPCS Equipment, Inc., Horizon Personal Communications, Inc.,and Bright Personal Communications Services, LLC (in thousands):

 

**iPCS, Inc.and Subsidiaries**

**CondensedConsolidating Balance Sheet**

**as of March31, 2006**

 
| ** **                                                         | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|--------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Cash and cash equivalents                                          |       | $                  | —     |               | $          | 76,975              |       | $                         | —     |       | $          | 37,464           |       | $                      | 471        |   | $ | — |   | $ | 114,910 |   |
| Other current assets                                               |       | 144,664            |       | 48,506             |       | 29,954              |       | 59,366                    |       | 48,045     |       | (254,053         | )          | 76,482                 |       |
| Total current assets                                               |       | 144,664            |       | 125,481            |       | 29,954              |       | 96,830                    |       | 48,516     |       | (254,053         | )          | 191,392                |       |
| Property and equipment, net                                        |       | —             |       | 68,174             |       | 11,682              |       | 42,813                    |       | 16,187     |       | (82              | )          | 138,774                |       |
| Goodwill and intangible assets, net                                |       | —             |       | 58,024             |       | —              |       | 185,029                   |       | 63,159     |       | —           |       | 306,212                |       |
| Other non-current assets                                           |       | 5,463              |       | 1,422              |       | —              |       | 3,292                     |       | 1,091      |       | —           |       | 11,268                 |       |
| Investment in subsidiaries                                         |       | 265,488            |       | —             |       | —              |       | —                    |       | —     |       | (265,488         | )          | —                 |       |
| Total assets                                                       |       | $                  | 415,615    |               | $          | 253,101             |       | $                         | 41,636     |       | $          | 327,964          |       | $                      | 128,953    |   | $ | (519,623 | ) | $ | 647,646 |   |
| Current liabilities                                                |       | $                  | 11,157     |               | $          | 219,748             |       | $                         | 62         |       | $          | 74,933           |       | $                      | 41,854     |   | $ | (254,135 | ) | $ | 93,619 |   |
| Long-term debt                                                     |       | 165,000            |       | 383                |       | —              |       | 105,589                   |       | 32,543     |       | —           |       | 303,515                |       |
| Other long-term liabilities                                        |       | —             |       | 3,477              |       | —              |       | 7,038                     |       | 539        |       | —           |       | 11,054                 |       |
| Total liabilities                                                  |       | 176,157            |       | 223,608            |       | 62                  |       | 187,560                   |       | 74,936     |       | (254,135         | )          | 408,188                |       |
| Stockholders’ equity (deficiency)                             |       | 239,458            |       | 29,493             |       | 41,574              |       | 140,404                   |       | 54,017     |       | (265,488         | )          | 239,458                |       |
| Total liabilities and stockholders’  equity (deficiency) |       | $                  | 415,615    |               | $          | 253,101             |       | $                         | 41,636     |       | $          | 327,964          |       | $                      | 128,953    |   | $ | (519,623 | ) | $ | 647,646 |   |

 

**iPCS, Inc. and Subsidiaries**

**Condensed Consolidating BalanceSheet**

**as of September 30, 2005**

 
| ** **                                                         | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|--------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Cash and cash equivalents                                          |       | $                  | —     |               | $          | 75,805              |       | $                         | —     |       | $          | 22,112           |       | $                      | 190        |   | $ | — |   | $ | 98,107 |   |
| Other current assets                                               |       | 150,398            |       | 41,314             |       | 24,967              |       | 49,848                    |       | 23,720     |       | (204,121         | )          | 86,126                 |       |
| Total current assets                                               |       | 150,398            |       | 117,119            |       | 24,967              |       | 71,960                    |       | 23,910     |       | (204,121         | )          | 184,233                |       |
| Property and equipment, net                                        |       | —             |       | 72,503             |       | 15,256              |       | 48,476                    |       | 17,363     |       | (94              | )          | 153,504                |       |
| Goodwill and intangible assets, net                                |       | —             |       | 63,868             |       | —              |       | 195,056                   |       | 66,267     |       | —           |       | 325,191                |       |
| Other non-current assets                                           |       | 5,912              |       | 1,033              |       | —              |       | 3,172                     |       | 945        |       | —           |       | 11,062                 |       |
| Investment in subsidiaries                                         |       | 288,666            |       | —             |       | —              |       | —                    |       | —     |       | (288,666         | )          | —                 |       |
| Total assets                                                       |       | $                  | 444,976    |               | $          | 254,523             |       | $                         | 40,223     |       | $          | 318,664          |       | $                      | 108,485    |   | $ | (492,881 | ) | $ | 673,990 |   |
| Current liabilities                                                |       | $                  | 9,894      |               | $          | 220,007             |       | $                         | 29         |       | $          | 42,372           |       | $                      | 21,148     |   | $ | (204,215 | ) | $ | 89,235 |   |
| Long-term debt                                                     |       | 165,000            |       | 389                |       | —              |       | 106,381                   |       | 32,788     |       | —           |       | 304,558                |       |
| Other long-term liabilities                                        |       | —             |       | 2,970              |       | —              |       | 6,946                     |       | 199        |       | —           |       | 10,115                 |       |
| Total liabilities                                                  |       | 174,894            |       | 223,366            |       | 29                  |       | 155,699                   |       | 54,135     |       | (204,215         | )          | 403,908                |       |
| Stockholders’ equity (deficiency)                             |       | 270,082            |       | 31,157             |       | 40,194              |       | 162,965                   |       | 54,350     |       | (288,666         | )          | 270,082                |       |
| Total liabilities and stockholders’  equity (deficiency) |       | $                  | 444,976    |               | $          | 254,523             |       | $                         | 40,223     |       | $          | 318,664          |       | $                      | 108,485    |   | $ | (492,881 | ) | $ | 673,990 |   |

 

14

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**iPCS, Inc.and Subsidiaries**

**CondensedConsolidating Statement of Operations**

**For theThree Months Ended March 31, 2006**

 
| ** **                                         | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|----------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Total revenues                                     |       | $                  | —     |               | $          | 63,735              |       | $                         | 1,279      |       | $          | 31,974           |       | $                      | 16,776     |   | $ | (1,279 | ) | $ | 112,485 |   |
| Cost of revenues                                   |       | —             |       | (42,741            | )          | —              |       | (22,685                   | )          | (10,403    | )          | 1,279            |       | (74,550                | )          |
| Selling and marketing                              |       | —             |       | (8,834             | )          | —              |       | (5,260                    | )          | (2,666     | )          | —           |       | (16,760                | )          |
| General and administrative                         |       | (554               | )          | (3,729             | )          | (1                  | )          | (2,673                    | )          | (173       | )          | —           |       | (7,130                 | )          |
| Depreciation and amortization                      |       | —             |       | (8,672             | )          | (1,395              | )          | (11,012                   | )          | (2,824     | )          | —           |       | (23,903                | )          |
| Gain (loss) on disposal of property and  equipment |       | —             |       | (205               | )          | 17                  |       | (55                       | )          | —     |       | 6                |       | (237                   | )          |
| Total operating expenses                           |       | (554               | )          | (64,181            | )          | (1,379              | )          | (41,685                   | )          | (16,066    | )          | 1,285            |       | (122,580               | )          |
| Other, net                                         |       | (4,968             | )          | 33                 |       | 794                 |       | (2,037                    | )          | (727       | )          | —           |       | (6,905                 | )          |
| Loss in subsidiaries                               |       | (11,484            | )          | —             |       | —              |       | —                    |       | —     |       | 11,484           |       | —                 |       |
| Net income (loss)                                  |       | $                  | (17,006    | )                  | $          | (413                | )          | $                         | 694        |       | $          | (11,748          | )          | $                      | (17        | ) | $ | 11,490 |   | $ | (17,000 | ) |

 

**iPCS, Inc. and Subsidiaries**

**Condensed Consolidating Statementof Operations**

**For the Three Months Ended March 31,2005**

 
| ** **                                         | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|----------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|------------------|------------|------------------------|------------|
| Total revenues                                     |       | $                  | —     |               | $          | 55,454              |       | $                | 1,340      |                   | $          | (1,340 | ) | $ | 55,454 |   |
| Cost of revenues                                   |       | —             |       | (37,913            | )          | —              |       | 1,340            |       | (36,573                | )          |
| Selling and marketing                              |       | —             |       | (8,308             | )          | —              |       | —           |       | (8,308                 | )          |
| General and administrative                         |       | (236               | )          | (1,777             | )          | (1                  | )          | —           |       | (2,014                 | )          |
| Depreciation and amortization                      |       | —             |       | (16,943            | )          | (1,409              | )          | —           |       | (18,352                | )          |
| Gain (loss) on disposal of property and  equipment |       | —             |       | (37                | )          | —              |       | 5                |       | (32                    | )          |
| Total operating expenses                           |       | (236               | )          | (64,978            | )          | (1,410              | )          | 1,345            |       | (65,279                | )          |
| Other, net                                         |       | (4,968             | )          | (274               | )          | 631                 |       | —           |       | (4,611                 | )          |
| Loss in subsidiaries                               |       | (9,237             | )          | —             |       | —              |       | 9,237            |       | —                 |       |
| Net income (loss)                                  |       | $                  | (14,441    | )                  | $          | (9,798              | )          | $                | 561        |                   | $          | 9,242 |   | $ | (14,436 | ) |

 

**iPCS, Inc.and Subsidiaries**

**CondensedConsolidating Statement of Cash Flows**

**For theThree Months Ended March 31, 2006**

 
| ** **                                             | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Operating activities                                   |       | $                  | —     |               | $          | 10,355              |       | $                         | 150        |       | $          | 326              |       | $                      | 443        |   | $ | — |   | $ | 11,274 |   |
| Investing activities                                   |       | —             |       | (3,360             | )          | (150                | )          | (3,961                    | )          | (717       | )          |             |       | (8,188                 | )          |
| Financing activities                                   |       | —             |       | 987                |       | —              |       | —                    |       | —     |       | —           |       | 987                    |       |
| Increase (decrease) in cash and cash  equivalents      |       | —             |       | 7,982              |       | —              |       | (3,635                    | )          | (274       | )          | —           |       | 4,073                  |       |
| Cash and cash equivalents at  beginning of period |       | —             |       | 68,993             |       | —              |       | 41,099                    |       | 745        |       | —           |       | 110,837                |       |
| Cash and cash equivalents at end of period             |       | $                  | —     |               | $          | 76,975              |       | $                         | —     |       | $          | 37,464           |       | $                      | 471        |   | $ | — |   | $ | 114,910 |   |

 

15

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**iPCS, Inc. and Subsidiaries**

**Condensed Consolidating Statementof Cash Flows**

**For the Three Months Ended March 31,2005**

 
| ** **                                             | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|------------------|------------|------------------------|------------|
| Operating activities                                   |       | $                  | 51         |               | $          | 7,893               |       | $                | 115        |                   | $          | 5 |   | $ | 8,064 |   |
| Investing activities                                   |       | —             |       | (3,416             | )          | (115                | )          | (5               | )          | (3,536                 | )          |
| Financing activities                                   |       | (51                | )          | (3                 | )          | —              |       | —           |       | (54                    | )          |
| Increase in cash or cash equivalents                   |       | —             |       | 4,474              |       | —              |       | —           |       | 4,474                  |       |
| Cash and cash equivalents at  beginning of period |       | —             |       | 59,958             |       | —              |       | —           |       | 59,958                 |       |
| Cash and cash equivalents at end of period             |       | $                  | —     |               | $          | 64,432              |       | $                | —     |                   | $          | — |   | $ | 64,432 |   |

 

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**ITEM 2. MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

** **

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

 

Statements inthis quarterly report on Form 10-Q regarding Sprint or Sprint PCS arederived from information contained in our affiliation agreements with SprintPCS, periodic reports and other documents filed by Sprint with the SEC or pressreleases issued by Sprint or Sprint PCS.

 

This quarterlyreport on Form 10-Q contains trademarks, service marks and trade names ofcompanies and organizations other than us. Other than with respect to SprintPCS, our use or display of other parties’ trade names, trademarks or productsis not intended to and does not imply a relationship with, or endorsement orsponsorship of us by, the trade name or trademark owners.

 

The followingis an analysis of our results of operations, liquidity and capital resourcesand should 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 next section entitled“Forward-Looking Statements” and other factors discussed elsewhere herein andin our other filings with the SEC.

 

## ***Forward-Looking Statements***

## *** ***

This quarterlyreport on Form 10-Q contains statements about future events andexpectations that are “forward-looking statements.” These statements relate tofuture events or our future financial performance, and involve known andunknown risks, uncertainties and other factors that may cause our actualresults, levels of activity, performance or achievements to be materiallydifferent from any future results, levels of activity, performance orachievements expressed or implied by these forward-looking statements. In somecases, you can identify forward-looking statements by terminology such as “may,”“will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,”“predicts,” “potential,” or the negative use of these terms or other comparableterminology. Any statement in this report that is not a statement of historicalfact may be deemed to be a forward-looking statement. These forward-lookingstatements include:

 

•      statements regarding our anticipatedrevenues, expense levels, liquidity and capital resources and operating losses;and

•      statements regarding expectations orprojections about markets 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 and outcome of our litigationagainst Sprint, Nextel and Sprint PCS, as well as the impact and outcome of theother litigation involving Sprint, Sprint PCS and various other PCS Affiliatesof Sprint;

•      changes in Sprint’s affiliation strategyas a result of the Sprint/Nextel merger and Sprint’s recent acquisitions andannounced acquisitions of other PCS Affiliates of Sprint;

•      the ability of Sprint PCS to alter theterms of our affiliation agreements with it, including fees paid or charged tous and other program requirements;

•      our dependence on back office services,such as billing and customer care, provided by Sprint PCS;

•      potential fluctuations in our operatingresults;

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

•      competition in the industry and markets inwhich we operate;

 

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•      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;

•      the competitiveness and impact of SprintPCS’s pricing plans and PCS products and services on us;

•      our subscriber credit quality;

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

•      inaccuracies in our financial informationprovided to us by Sprint PCS;

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

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

•      our significant level of indebtedness;

•      adequacy of bad debt and other reserves;

•      our anticipated future losses;

•      our subscriber purchasing patterns;

•      subscriber satisfaction with our networkand operations;

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

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

•      general economic and business conditions;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.

 

**NewAccounting Pronouncements**

 

Effective October 1,2005, we adopted Statement of Financial Accounting Standards No. 123R (“SFASNo. 123R”) using the modified prospective method. The adoption of thisstandard requires the recognition of compensation expense for all share basedpayment award transactions measured at fair value. Under the modified prospectivemethod, SFAS No. 123R requires compensation cost to be recognized for 1)all share-based compensation expense arrangements granted after the adoptiondate and 2) all remaining unvested share-based compensation arrangementsgranted prior to the adoption date. Results for prior periods have not beenrestated.

 

Prior to October 1,2005, we applied APB Opinion No. 25, “Accounting for Stock Issued toEmployees,” and related interpretations to account for our employee anddirector stock options. We did not record any stock-based compensation expensefor stock option grants prior to October 1, 2005 because all stock optionawards were granted at fair market value.

 

For the threemonths ended March 31, 2006, we recorded total stock-based compensation expenseof approximately $0.5 million compared to approximately $23,000 for the threemonths ended March 31, 2005. For more information regarding the impact of theadoption of SFAS No. 123R and the comparison of results of operations forthe three months ended March 31, 2006 and March 31, 2005, see Note 9, “Stock-basedCompensation” in the notes to our consolidated financial statements foundelsewhere in this quarterly report on Form 10-Q.

 

## ***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 financial performance. Inaddition, we use certain non-financial terms that are not measures of financialperformance under GAAP. Terms such as net subscriber additions and churn areterms used in the wireless telecommunications industry. The non-GAAP financialmeasures of average revenue per user (“ARPU”) and cost per gross addition (“CPGA”)reflect standard measures of performance commonly used in the wirelesstelecommunications industry. The non-financial terms and the non-GAAP measuresreflect wireless telecommunications industry conventions and are commonly usedby the investment community for comparability purposes. The non-GAAP financialmeasures included in this “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” are reconciled below in “Reconciliation ofNon-GAAP Financial Measures” and, together with the non-financial terms, aresummarized as follows:

 

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•      Net subscriber additions for the periodrepresented is calculated as the gross new subscribers acquired in the periodless the number of subscribers deactivated plus the net subscribers transferredin or out of our markets during the period.

•      Average monthly churn is a measure of therate at which subscribers based in our territory deactivate service on avoluntary or involuntary basis. We calculate average monthly churn based on thenumber of subscribers deactivated during the period (net of transfers out ofour territory and those who deactivated within 30 days of activation) as apercentage of our average monthly subscriber base during the period divided bythe 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 revenues inour consolidated 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 salesrevenues associated with transactions with new subscribers, and selling andmarketing expenses, net of stock-based compensation expense, during themeasurement period, by (b) the total number of subscribers activated inour territory during the period.

•      Licensed population represents the numberof residents (usually expressed in millions) in the markets in our territoryfor which we have an exclusive right to provide wireless mobilitycommunications services under the Sprint brand name. The number of residentslocated in our territory does not represent the number of wireless subscribersthat we serve or expect to serve in our territory.

•      Covered population represents the numberof residents (usually expressed in millions) covered by our portion of thewireless network of Sprint. The number of residents covered by our network doesnot represent the number of wireless subscribers that we serve or expect toserve in our territory.

 

In this “Management’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 customers excluding subscribersof resellers known as Mobile Virtual Network Operators, or MVNOs, that use ournetwork and resell wireless service under private brands.

 

**BusinessOverview**

 

As a PCS Affiliate ofSprint, we have the exclusive right to provide digital wireless personalcommunications services, or PCS, under the Sprint brand name in 80 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 portion of thePCS network of Sprint PCS is designed to offer a seamless connection with thewireless network of Sprint PCS. We market Sprint PCS products and servicesthrough a number of distribution outlets located in our territory, includingour company-owned retail stores, exclusive co-branded dealers, major nationalretailers and local third party distributors. Based on the 2000 populationcounts compiled by the U.S. Census Bureau adjusted by estimated growth ratesfrom third party proprietary demographic databases, as of March 31, 2006, ourlicensed territory had a total population of approximately 15.0 millionresidents, of which our wireless network covered approximately11.4 million residents. At March 31, 2006, we had approximately 508,300subscribers. We are headquartered in Schaumburg, Illinois.

 

We recognize revenuesfrom our subscribers for the provision of wireless telecommunications services,proceeds from the sale of handsets and accessories through channels controlledby us and fees from Sprint PCS and other wireless service providers andresellers when their subscribers roam onto our network. Sprint PCS retains 8%of all service revenue collected from our subscribers (not including productsales or roaming charges billed to our subscribers) and 8% of all feescollected from other wireless service providers and resellers when theirsubscribers roam onto our network. We report the amount retained by Sprint PCSas an operating expense. In addition, Sprint PCS bills our subscribers fortaxes, handset insurance and Universal Service Fund charges which we do notrecord. Sprint PCS collects these amounts from the subscribers and remits themto the appropriate entity.

 

19

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As part of ouraffiliation agreements with Sprint PCS, we have contracted with Sprint toprovide to us back-office services such as subscriber activation, handsetlogistics, billing, customer care and network monitoring services throughDecember 31, 2006. We elected to obtain these services from Sprint to takeadvantage of its economies of scale, to accelerate our build-out and marketlaunches and to lower our capital requirements. The cost for these services isprimarily on a per subscriber or per transaction basis and is recorded as anoperating expense. We have begun discussions with Sprint regarding the termsand conditions under which we would continue to purchase these services fromSprint after December 31, 2006, if at all.

 

***Reorganization***

 

On February 23,2003, while we were wholly owned by AirGate, we filed for bankruptcy underChapter 11 of the Bankruptcy Code. The decision to file was based on acombination of factors, including weakness in the wireless telecommunicationsindustry and the economy generally. In addition, we had experienced a declinein liquidity and cash flow, making it difficult for us to comply with our debtservice obligations. We believe that actions taken by Sprint—specifically,decreasing our roaming rate and imposing new and higher fees on us—were theprimary reason for the decline in our liquidity. Accordingly, in connectionwith our bankruptcy filing, we filed a complaint against Sprint and Sprint PCSalleging that Sprint breached its affiliation agreements with us.  As a part of our approved plan ofreorganization, all then existing claims against Sprint, including thoseincluded in this complaint, were settled.

 

During our bankruptcy weoperated our business and managed our assets as debtors-in-possession,subjectto the supervision of the bankruptcy court, without obtainingdebtor-in-possession financing. This relief provided us the time necessary toreorganize our business, which included slowing subscriber growth to reduce ouracquisition costs, increasing our focus on prime subscribers and aligning ouroperations through cost reductions to compete in our marketplace and to improveour financial results.

 

On July 9, 2004,the bankruptcy court confirmed our plan of reorganization and the plan ofreorganization became effective on July 20, 2004. On the effective date wepaid a portion of the net proceeds from the senior notes issued in connectionwith our emergence to satisfy in full in cash our obligations to each of thelenders under our then existing senior secured credit facility and topermanently retire the loans thereunder. The remaining net proceeds from thesenior notes was used to satisfy all other secured claims, administrative andother priority claims and unsecured convenience claims and to pay fees andexpenses related to the reorganization, as well as for general corporatepurposes. Additionally, all of our subordinated claims were discharged and allof our then existing capital stock was cancelled. As a result of theconsummation of our reorganization, our senior secured credit facility has beenrepaid in full in cash and terminated, and our senior discount notes have beencancelled and the holders have received shares of our common stock.

* *

***Mergerwith Horizon PCS, Inc.***

 

On July 1, 2005, wecompleted our tax-free stock for stock merger transaction with HorizonPCS, Inc., in which Horizon PCS, Inc. merged with and intoiPCS, Inc. with iPCS, Inc. as the surviving corporation. HorizonPCS, Inc. was a PCS Affiliate of Sprint whose territory covered 40 marketsin nine contiguous states.  Thetransaction nearly doubled the size of our operations, thereby providingsynergies in a number of operating and administrative areas.  Based on covered population and totalsubscribers, we are now the largest PCS Affiliate of Sprint. The transactionwas accounted for under the purchase method and the results of HorizonPCS, Inc. are included in our consolidated results of operations from thedate of acquisition.

 

***Relationshipwith Sprint***

 

Our relationship withSprint 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.

 

Sprint’s merger withNextel, which closed in August, 2005, has thrust our relationship with Sprintinto a state of uncertainty, the resolution of which may have a materiallyadverse effect on our business. On December 15, 2004, Sprint announcedthat it had signed a merger agreement with Nextel pursuant to which Sprint andNextel would merge and combine their operations. Shortly after announcing themerger, Sprint also announced that it would pursue discussions with the PCSAffiliates of Sprint—including us—directed toward a modification of theiraffiliation agreements to address the implications of its merger with Nextel.Although the parties engaged in discussions with respect to such amodification, no agreement has been reached.

 

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As discussed in “—Commitmentsand Contingencies” below, we filed lawsuits against Sprint, Sprint PCS andNextel in July 2005 and entered into a Forbearance Agreement with Sprintlater that same month. In addition to our complaints, a number of other PCSAffiliates of Sprint also filed complaints against Sprint, Sprint PCS andNextel, including AirGate PCS (a wholly owned subsidiary of Alamosa Holdings,Inc.), UbiquiTel, Inc., U.S. Unwired, Inc., Gulf Coast Wireless, Inc.,Enterprise Communications Partnership and Northern PCS Services, LLC. Sprinthas acquired, or signed an agreement to acquire, each of these other PCSAffiliates of Sprint, other than Northern PCS.

 

The ForbearanceAgreement expired on January 1, 2006 in the territory managed by iPCSWireless, and continues until a decision is rendered by the Delaware Court ofChancery in the territories managed by Horizon PCS.  To our knowledge, Sprint has not yet changedits operations in the territory managed by iPCS Wireless as a result of theexpiration of the Forbearance Agreement on January 1, 2006, and we do notknow when they will change, if at all. Similarly, we do not know how Sprint will operate in Horizon PCS’sterritory after the date that any decision is rendered from our trial in theDelaware Court of Chancery. Sprint may elect to operate the legacy Nextelbusiness in a manner that may have a material adverse effect on us. We do notknow whether we will ultimately reach agreement with Sprint on mutuallysatisfactory terms for revised affiliation agreements. If we are able to modifyour affiliation agreements with Sprint, it is likely that any such revisedaffiliation agreements would materially change our business and operations. Wedo not know the outcome of our pending litigation against Sprint. If we do notprevail, Sprint may engage in conduct that has a material adverse effect on ourbusiness and operations. We intend to continue to enforce our rights to thefullest extent, but there is no assurance that we will prevail.

 

# **Consolidated Results of Operations**

 

***For the Three Months Ended March 31, 2006 compared tothe Three Months Ended March 31, 2005***

 

Results ofoperations for any periods less than one year are not necessarily indicative ofresults of operations for a full year. In addition, results for the three months ended March 31, 2006 includeresults for the markets we acquired in our merger with Horizon PCS, Inc., whichclosed on July 1, 2005, and accordingly are not comparable to the results ofoperations for periods prior to July 1, 2005.

 

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, 2006** | ** ** | **As of and For the  Three Months Ended  March 31, 2005** | ** ** |
|--------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| Total Subscribers        |       | 508,300                                                        |       | 259,200                                                        |       |
| Net Subscriber Additions |       | 13,000                                                         |       | 10,000                                                         |       |
| Churn                    |       | 2.6                                                            | %          | 2.6                                                            | %          |
| ARPU                     |       | $                                                              | 50.10      |                                                           | $          | 51.42 |   |
| CPGA                     |       | $                                                              | 369        |                                                           | $          | 358 |   |

 

***NetSubscriber Additions.***     Net subscriber additions increased by3,000, or 30%, in the three months ended March 31, 2006 compared to thethree months ended March 31, 2005. The acquisition of Horizon PCScontributed net subscriber additions of approximately 8,500 for the quarter;however, in the legacy iPCS markets, net subscriber additions of approximately4,500 for the three months ended March 31, 2006 fell from approximately 10,000for the three months ended March 31, 2005. We believe that, across our territory, we are experiencing both anincrease in the number of subscribers deactivating service and a decrease ingross additions due to our recent effort to de-emphasize “family add-a-phone”plans, increased competitive advertising, the relative attractiveness ofcompetitors’ phones and pricing plans and continuing brand confusion related tothe Sprint Nextel merger. The decrease experienced in the legacy iPCS markets wasoffset by the net subscriber additions contributed by our acquisition ofHorizon PCS.

 

***Churn.***     Forthe three months ended March 31, 2006 compared to the same period in 2005,churn remained the same at 2.6%.  In thelegacy iPCS markets, churn was unchanged at 2.6%; however, in the legacyHorizon PCS markets — which results are not included in our results for thethree months ended March 31, 2005 — churn dropped from 2.9% to 2.6%. At bothMarch 31, 2006 and 2005, approximately 88% of our subscribers were undercontract.

 

***AverageRevenue Per User.***     Thedecrease in ARPU in the three months ended March 31, 2006 compared to the samethree months in 2005 is due to lower minutes over plan revenue and lowermonthly recurring charges, offset partially with higher data revenue.  The decreases in minutes over plan revenueand monthly recurring charges can be attributed to an expanded “PCS-to-PCS”program (now called “mobile-to-mobile”) which includes most Nextel subscribers,as well as to the popularity of “Fair and Flexible” plans and “familyadd-a-phone” plans, which, in each case,

 

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generate loweroverage charges and have lower monthly charges for the familyadd-a-phones.  For the three months endedMarch 31, 2006 our average monthly minutes over plan revenue per user was $2.03compared to $4.06 for the three months ended March 31, 2005.   Average monthly recurring charges droppedfrom $42.45 for the three months ended March 31, 2005 to $40.48 for the threemonths ended March 31, 2006.  Offsettingthese decreases was our average monthly data revenue which increased to $7.25for the three months ended March 31, 2006 compared to $5.51 for the threemonths ended March 31, 2005.  Datarevenue continues to increase due to the popularity of our various dataproducts, including text messaging, downloading ringers, taking and receivingpictures, playing games and browsing the Internet.

 

***CostPer Gross Addition.***     CPGA increased by $11, or 3%, for the threemonths ended March 31, 2006 compared to the three months ended March 31,2005.  In the three months ended March31, 2006 compared to the three months ended March 31, 2005, our retail storeand employee related expenses increased by approximately $19 per gross additiondue to the operation of significantly more retail stores and exclusiveco-branded dealers which have not yet reached mature levels of salesproductivity.  At March 31, 2006, weoperated 38 retail stores, including 15 stores in the legacy Horizon PCSterritory, and managed 65 exclusive co-branded dealers, including 18 dealers inthe legacy Horizon PCS territory. At March 31, 2005, we operated 18 retailstores and managed 28 exclusive co-branded dealers.

 

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

 

We utilize certainfinancial measures that are not calculated in accordance with GAAP to assessour financial performance. A non-GAAP financial measure is defined as anumerical measure of financial performance that (a) excludes amounts, oris subject to adjustments that have the effect of excluding amounts, that areincluded in the comparable measure calculated and presented in accordance withGAAP 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 of Operations”are ARPU and CPGA. A description of each of these non-GAAP financial measuresis provided in “—Definition of Operating Metrics.” The following tablesreconcile the non-GAAP financial measures with our consolidated financialstatements presented in accordance with GAAP, excluding subscriber data.

 
| ** **          | ** **   | **For the Three  Months Ended  March 31, 2006** | ** **   | **For the Three  Months Ended  March 31, 2005** | ** **   |
|---------------------|--------------|-------------------------------------------------|--------------|-------------------------------------------------|--------------|
| ***ARPU***          | *** *** | *** ***                                    | *** *** | *** ***                                    | *** *** |
| Service revenue     |         | $                                               | 75,406       |                                            | $            | 39,094 |   |
| Average subscribers |         | 501,705                                         |         | 253,407                                         |         |
| ARPU                |         | $                                               | 50.10        |                                            | $            | 51.42 |   |

 

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

 
| ** **                                       | ** **   | **For the Three  Months Ended  March 31, 2006** | ** **   | **For the Three  Months Ended  March 31, 2005** | ** **   |
|--------------------------------------------------|--------------|-------------------------------------------------|--------------|-------------------------------------------------|--------------|
| ***CPGA***                                       | *** *** | *** ***                                    | *** *** | *** ***                                    | *** *** |
| Selling and Marketing:                           |         | $                                               | 16,760       |                                            | $            | 8,308 |   |
| plus: Equipment costs, net of cost of  upgrades  |         | 6,905                                           |         | 4,718                                           |         |
| less: Equipment revenue, net of upgrade  revenue |         | (2,421                                          | )            | (1,307                                          | )            |
| less: Stock-based compensation expense           |         | (69                                             | )            | (5                                              | )            |
| CPGA costs                                       |         | $                                               | 21,175       |                                            | $            | 11,714 |   |
| Gross adds                                       |         | 57,385                                          |         | 32,707                                          |         |
| CPGA                                             |         | $                                               | 369          |                                            | $            | 358 |   |

 

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.

 

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***Revenues***

 

The following table setsforth a breakdown of revenues by type:

 
| ** **                                                                         | ** ** | **For the Three  Months Ended  March 31, 2006** | ** ** | **For the Three  Months Ended  March 31, 2005** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
|                                                                               |       |                                            |       |                                            |       |
| Service revenue                                                                    |       | $                                               | 75,406     |                                            | $          | 39,094 |   |
| Roaming revenue from subscribers of Sprint  PCS and other PCS affiliates of Sprint |       | 28,717                                          |       | 13,002                                          |       |
| Roaming revenue from other wireless  carriers                                      |       | 2,088                                           |       | 914                                             |       |
| Reseller revenue                                                                   |       | 2,822                                           |       | 606                                             |       |
| Equipment revenue                                                                  |       | 3,447                                           |       | 1,788                                           |       |
| Other revenue                                                                      |       | 5                                               |       | 50                                              |       |
| Total revenues                                                                     |       | $                                               | 112,485    |                                            | $          | 55,454 |   |

 

 

•      ***Service revenue.***   Service revenue is comprised of the monthly recurringcharges for voice and data usage and the monthly non-recurring charges forvoice and data minutes over plan, long distance, travel and roaming usagecharges, other feature revenues and late payment fee and early cancellation feerevenues. Deductions for billing adjustments and promotional credits arerecorded as a reduction to service revenue. For the three months ended March31, 2006 compared to the three months ended March 31, 2005, service revenueincreased by $36.3 million, or 93%, as a result of an increase of $37.3 milliondue to the increase in subscribers, primarily as a result of the subscribersacquired with the merger with Horizon PCS, offset with a decrease in servicerevenue of $1.0 million due to the drop in ARPU as described above.

 

•      ***Roaming revenue from subscribers of Sprint PCS andother PCS Affiliates of Sprint.*******We receive revenue on a per minute basis for voice trafficand per kilobyte basis for data traffic when subscribers of Sprint PCS andother PCS Affiliates of Sprint use our network. In addition, we receive toll revenue for any long distance calls made bythese subscribers while roaming on our network. The reciprocal roaming ratearrangement we have with Sprint PCS for inbound and outbound roaming for thethree months ended March 31, 2006 and 2005 was $0.058 per minute for voicetraffic ($0.10 per minute in certain markets in eastern and westernPennsylvania) and $0.0020 per kilobyte for data traffic. These rates areeffective through December 31, 2006 and will be reset effectiveJanuary 1, 2007; provided, however that the special rate for certain ofour Pennsylvania markets will terminate on the earlier to occur of December 31,2011 or the date that we achieve a subscriber penetration rate of at least 7%of our covered population.

 

Forthe three months ended March 31, 2006 compared to the three months ended March31, 2005, roaming revenue from subscribers of Sprint PCS and other PCSAffiliates of Sprint increased by $15.7 million, or 121%.  Of this increase, 16% was driven by increasedroaming minutes and kilobyte traffic in the legacy iPCS markets and theremaining 84% was due to our acquisition of the legacy Horizon PCS markets.  We continue to experience increased growth inkilobyte data usage from subscribers of Sprint PCS and other PCS Affiliates ofSprint. Roaming minutes and kilobytes from subscribers of Sprint PCS andother PCS Affiliates of Sprint for the three months ended March 31, 2006were 362 million and 2.5 billion, respectively, compared to184 million and 536 million for the three months ended March 31,2005, respectively.

 

•      ***Roaming revenue from other wireless carriers.*** We receiveroaming revenue from wireless carriers other than Sprint and other PCSAffiliates of Sprint when subscribers of such other wireless carriers roam inour territory. We do not have agreements with these other wireless carriers.Instead, we rely on roaming arrangements Sprint PCS has negotiated with them.We are paid on a per minute basis for voice traffic pursuant to theseagreements.  For the three months endedMarch 31, 2006 compared to the three months ended March 31, 2005, roamingrevenue from other wireless carriers increased by $1.2 million, or 128%.  The increase in roaming revenue was due tothe acquisition of the legacy Horizon PCS markets, which historically hadstronger roaming revenues than the legacy iPCS markets.  Roaming revenue in the legacy iPCS markets,excluding the legacy Horizon PCS markets, decreased 26% in the three monthsended March 31, 2006 compared to the three months ended March 31,2005 due to a 10% reduction in roaming minutes as carriers continue thebuild-out of their own coverage, thereby reducing the need for roaming, and a$0.02 decrease in the average per minute rate. For the three months ended March 31, 2006, roaming minutes were19.0 million compared to 7.1 million for the same period in 2005. Forthese same periods, the average per minute rates were $0.11 and $0.13,respectively.

 

•      ***Reseller revenue.*** Through Sprint PCS we allow resellers, known as MVNOs, suchas Virgin Mobile, to use our network. Pursuant to these arrangements, we arepaid on a per minute basis. For the three months ended March 31, 2006 comparedto the three months ended March 31, 2005, reseller revenue increased $2.2million.  The increase in resellerrevenue was due to

 

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an increase in thenumber of reseller subscribers in our territory, primarily as a result of ourmerger with Horizon PCS. For the legacy iPCS markets alone, reseller revenueincreased 132% in the three months ended March 31, 2006 compared to thethree months ended March 31, 2005. At March 31, 2006, we had approximately 185,500 resellersubscribers, of which approximately 101,000 reseller subscribers were acquiredin the Horizon PCS merger on July 1, 2005. At March 31, 2005, we hadapproximately 35,900 reseller subscribers.

 

•      ***Equipment revenue.*******Equipment revenue is derived from the sale of handsets andaccessories to new customers and from current customers who upgrade theirhandsets through our retail and local distribution channels, in each case, netof sales incentives, rebates and an allowance for returns. Our handset returnpolicy allows customers to return their handsets for a full refund within14 days after the date of purchase. When handsets are returned to us, weare sometimes able to reissue the handsets to customers at little additionalcost to us.  However, if we are unable toreissue the handsets, we return them to Sprint PCS for refurbishing. Prior toFebruary 1, 2005, in exchange for each returned handset, we received acredit from Sprint PCS which was less than what we originally paid for thehandset. Subsequent to February 1, 2005, we receive an allocation ofrefurbished handsets that we can purchase from Sprint PCS at a reduced price.For the three months ended March 31, 2006 compared to the three monthsended March 31, 2005, equipment revenue increased by $1.7 million, or 93%.  For the three months ended March 31, 2006compared to the three months ended March 31, 2005, equipment revenue in thelegacy iPCS markets increased approximately 17% despite lower gross adds, asmentioned previously.  This increase inrevenue was due to higher phone prices, net of discounts and rebates offeredduring the first quarter of 2006 compared to the same period in 2005.  The remaining increase is due to equipmentrevenue from the legacy Horizon PCS markets.

 

•      ***Other revenue.*** For thethree months ended March 31, 2005, other revenue consisted of tower leasingrevenue. During fiscal year 2005, we sold all of our towers in the iPCSmarkets, which eliminated this revenue stream. For the three months ended March 31, 2006, other revenue consisted ofrestocking fees for handsets returned by our exclusive co-branded dealers.

 

***Costof Service and Roaming.***    Cost of serviceand roaming includes network operations expense, roaming expense relating towhen our subscribers roam either on other Sprint PCS networks or other wirelesscarriers’ networks, back-office customer services provided by Sprint PCS, theprovision for doubtful accounts, long distance expense and the 8% affiliationfee due to Sprint PCS for collected revenues. Network operations expensesinclude salaries and benefits for network personnel, cell site rent, utilitiesand maintenance expenses, fees relating to the connection of our cell sites toour switches and other transport and facility expenses. Roaming expense is ourcost of our subscribers using Sprint PCS and other wireless carriers’networks. Roaming expense on the Sprint PCS network is at the reciprocal ratesas described above under “—Roaming revenue from subscribers of Sprint PCSand other PCS Affiliates of Sprint.” Roaming expense when our subscribers useother wireless carriers networks is at rates as determined by the roamingagreements signed by Sprint PCS with these other wireless carriers. Forthe three months ended March 31, 2006 and the three months endedMarch 31, 2005, cost of service and roaming was $65.0 million and$30.4 million, respectively. Of this increase, 16% was from the legacyiPCS markets mainly due to a larger number of subscribers served, the increasedsize of the network and a 28% increase in travel and roaming expenses.   The remaining increase was due to theincreased costs associated with the acquired Horizon PCS markets. With theadoption of SFAS No. 123R, stock-based compensation expense included incost of service and roaming totaled approximately $32,000 for the three monthsended March 31, 2006 compared to approximately $8,000 for the three monthsended March 31, 2005.

 

At March 31, 2006, ournetwork consisted of 1,515 leased cell sites, including 804 in the acquiredHorizon PCS markets, and five switches, including three switches in the legacyHorizon PCS markets. At March 31, 2005, our network consisted of 679 cellsites and we had two switches in operation.

 

***Costof Equipment.***    Cost of equipment includes the cost ofhandsets and accessories sold or upgraded from our retail and localdistribution channels. Cost of equipment for the three months ended March 31,2006 and the three months ended March 31, 2005 was $9.5 million and$6.2 million, respectively, an increase of $3.3 million which was theresult of cost of equipment in the legacy Horizon PCS markets.  Cost of equipment in the legacy iPCS marketsremained constant, despite the decrease in gross adds due mainly to highercosts associated with equipment upgrades in the three months ended March 31,2006 compared to the three months ended March 31, 2005.

 

***Sellingand Marketing.***    Selling and marketing expense includesthe costs to operate our retail stores, advertising and promotional expenses,commissions, equipment subsidies and rebate expenses relating to new subscriberadditions from national third parties and other Sprint-controlled channels.Selling and marketing expense for the three months ended March 31, 2006 was$16.8 million compared to $8.3 million for the three months ended March31, 2005, an increase of $8.5 million. Of this increase, 94% was due to sellingand marketing expenses from the legacy Horizon PCS markets. With the adoptionof SFAS No. 123R, stock-based compensation expense included in selling andmarketing totaled approximately $69,000 for the three months ended March 31,2006 compared to approximately $5,000 for the three months ended March 31,2005.

 

***Generaland Administrative.***    General and administrative expensesinclude administrative salaries and benefits, legal fees,

 

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insurance expense and other professionalexpenses.  For the three months endedMarch 31, 2006, general and administrative expenses totaled $7.1 millioncompared to $2.0 million for the three months ended March 31, 2005, an increaseof $5.1 million. Approximately $1.5 million of this increase is attributable togeneral and administrative costs related to the legacy Horizon PCS markets.During the three months ended March 31, 2006, we incurred approximately $3.1million of costs related to our litigation with Sprint and approximately $0.1million of integration expenses related to the merger with Horizon PCS. Withthe adoption of SFAS No. 123R, stock-based compensation expense includedin general and administrative totaled approximately $0.4 million for the threemonths ended March 31, 2006 compared to approximately $10,000 for thethree months ended March 31, 2005.

 

***Depreciationand Amortization.***    For the three months ended March 31, 2006and March 31, 2005, depreciation and amortization expense totaled$23.9 million and $18.4 million, respectively. Of these amounts,amortization of intangibles totaled $9.5 million and $3.1 million forthese same periods, respectively.

 

For the three months endedMarch 31, 2006 compared to the three months ended March 31, 2005, depreciationin the legacy iPCS markets decreased by approximately $8.2 million due to thecompletion of the Nortel swap in the Michigan markets in June 2005.  The decrease in depreciation in the threemonths ended March 31, 2006 compared to 2005 is due to 1) lower original costsfor the new Nortel equipment compared to the replaced Lucent equipment and 2)acceleration of depreciation expense beginning January 1, 2005 for the reducedestimated useful lives of the Lucent assets. During the three months ended March 31, 2006, we recorded additionaldepreciation expense of approximately $2.1 million due to a reduction in theremaining useful lives of Motorola equipment being replaced in thePennsylvania, Maryland, New York and New Jersey markets of the legacy HorizonPCS territory.   The remaining increasein depreciation and amortization relates to the property, plant, equipment andintangibles recorded as a result of the merger with Horizon PCS.

 

***InterestIncome.***    For the three months ended March 31, 2006and the three months ended March 31, 2005, interest income totaled $1.2 millionand $0.4 million, respectively. The increase was due to a 19% higheraverage cash balance from the legacy iPCS markets for the three months ended March31, 2006 compared to the same three months ended March 31, 2005 coupled withinterest earned on the cash balance acquired in the merger with Horizon PCS onJuly 1, 2005.

 

***InterestExpense.***    For the three months ended March 31,2006, interest expense was $8.1 million compared to $5.0 million for thethree months ended March 31, 2005. Interest expense consists of interest on our 111/2% seniornotes and 113/8% senior notes.  The increase was attributable to the interestexpense associated with the 113/8% seniornotes assumed with the merger of Horizon PCS on July 1, 2005.

 

***NetLoss.******    ******Our net loss was $17.0 million for the threemonths ended March 31, 2006 compared to a net loss of $14.4 million for thethree months ended March 31, 2005.***

## *** ***

## ***Liquidityand Capital Resources***

 

***Significant Sources of Cash***

 

We generated$11.3 million in operating cash flows for the three months ended March 31,2006, compared to $8.1 million for the three months ended March 31, 2005. Theincrease in operating cash flows was due to lower net operating losses afteradjustments for non-cash items of approximately $4.2 million offset with adecrease in net working capital owed to Sprint of approximately $0.7 million.

 

During the three monthsended March 31, 2006, we received approximately $0.1 million from the saleof used equipment which was replaced with equipment we purchased from NortelNetworks as described below in “—Contractual Obligations”  and approximately $0.1 million from the saleof other equipment disposed of during the quarter.  During the three months ended March 31, 2005,we received approximately $0.6 million for remaining amounts owed for towerssold in the previous quarter.

 

For the three monthsended March 31, 2006, we received a total of $1.0 million in proceeds fromthe exercise of options representing approximately 43,100 shares.

 

***Significant Uses of Cash***

 

Cash flows used forinvesting activities for the three months ended March 31, 2006 included$8.4 million for capital expenditures. Included in this total was $5.1 million for the Nortel swap in ourHorizon PCS markets, $1.5 million for new cell site construction and otherrelated network capital expenditures, $0.8 million for new store and storeimprovements and $1.0 million for IT and other corporate-related capitalexpenditures.

 

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Cash flows used forinvesting activities for the three months ended March 31, 2005 included$4.2 million for capital expenditures, of which $3.6 million related tothe Nortel swap project in the legacy iPCS markets as described below in “—ContractualObligations,”.  The remaining capitalexpenditures related mostly to new cell site construction and other networkrelated capital expenditures.

 

Principal payments onour long-term debt, other than capital leases, are not due until 2012.  During the three months ended March 31, 2006,we made one semi-annual interest payment on our 11 3/8% senior notes ofapproximately $7.1 million.  The interestrates on our senior notes are fixed and therefore the amount of our interestpayments would not be impacted by a change in the overall interest rateenvironment.

 

***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 beread in conjunction with the “Risks Related to Our Business, Strategy andOperations” section found in Item 1A of Part I of our annual reporton Form 10-K, filed with the SEC on December 23, 2005.

 

•   *Continuingfocus on subscriber additions.    * During the last year we increasedour distribution and marketing efforts, including the opening of new retailstores and exclusive co-branded dealers, to accelerate our subscriberadditions. To the extent that we continue to seek to accelerate our subscriberadditions, we will incur significant upfront subscriber acquisition expenses(including the customer handset subsidy, commissions and promotional expenses)that initially will result in increased losses and reduced levels of cash flowsfrom operating activities. At the same time, competition in the wirelessindustry remains intense as more competitors enter the market via MVNOrelationships and as unlimited minute and pre-paid plans, neither of which wecurrently offer, increase in popularity. Accordingly, we may incur higher per subscriber acquisition expenses and/oroffer more aggressive rate plans in order to maintain or achieve our plannedgrowth.  Alternatively, we may not beable to maintain or achieve our planned growth in subscribers or obtainsufficient revenue to achieve and sustain profitability. If we are not able toachieve our planned subscriber growth, it will lengthen the amount of time itwill take for us to reach a sufficient number of subscribers to achievepositive free cash flow, which in turn will have a negative effect on capitalresources.

 

•   *Increasingchurn.   *We may experience a higher churn rate in the future. Inaddition, to the extent our subscriber growth includes a higher percentage ofsub-prime credit subscribers, our churn and bad debt expense may increase. Ifchurn increases over the long-term, we would lose the cash flows attributableto these subscribers and have greater than projected losses.

 

•   *Declining voice revenue persubscriber.    *In the threemonths ended March 31, 2006, our minutes over plan voice revenue decreased 8% overthe prior quarter. The wireless industry is very competitive and continuedpressure in pricing is expected in the future as a result of, among otherthings, increased focus on family plans and overage protection plans. Althoughwe expect that family plans and overage protection plans will improve churn,these plans tend to lower voice revenue on a per subscriber basis. Although thedata portion of ARPU is expected to continue to increase, declining voice ARPUresulting in lower overall ARPU will make it more difficult to obtainsufficient revenue to achieve or sustain profitability.

 

•   *Highersubscriber acquisition costs.    *We maycontinue to experience higher costs to acquire subscribers. As we continue toincrease our distribution, we will increase the fixed costs in our sales andmarketing organization. In addition, we may increase our marketing expenses inan effort to attract and acquire new subscribers. Also, more aggressivepromotional efforts may lead to higher handset subsidies. With a higher CPGA,subscribers must remain our subscribers for a longer period of time at a stableARPU for us to recover those acquisition costs.

 

•   *Higheroperating costs.    *In the three months ended March 31, 2006,our operating costs increased significantly due to our largernumber of subscribers served, the increased size of our network, increases inroaming expense and an increase in collected revenue, upon which our 8%affiliation fee is calculated. If our subscriber base continues to increase,our operating costs will continue to increase. Inaddition, we may incur significant wireless handset subsidy costs forexisting subscribers who upgrade to a new handset. As our subscriber basematures and technological innovations occur, more existing subscribers maybegin to upgrade to new wireless handsets for which we subsidize the cost tothe subscriber. We also expect to continue to incur costs related to ourlitigation with Sprint. At the same time, a large portion of our ongoing network and general andadministrative expenses are 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 to our network or continue to improve theefficiencies in our operating costs, results will be negatively affected.

 

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•   *Roamingrevenue.    *A substantial portion of our revenue isderived from roaming revenue from Sprint PCS and other PCS Affiliates ofSprint. The increase in roaming revenue during the three months ended March 31,2006 was due to an increase in roaming minutes and increased kilobyte traffic. Theroaming rate paid to us by Sprint PCS and other PCS Affiliates of Sprint for voicewas set at $0.058 per minute of use for the majority of our markets, and fordata was set at $0.002 per kilobyte in all of our markets. These rates are fixedthrough December 31, 2006. Thereafter, the rate will change, based on anagreed-upon formula that may have an adverse effect on us. In addition, if wereceive fewer roaming minutes or kilobyte traffic on our network, our resultsof operations will be negatively affected.

 

•   *Increasing capitalexpenditures.    *As wecontinue to add capacity and coverage to our wireless network, we will incursignificant capital expenditures. We currently anticipate that capitalexpenditures for 2006 will be between $42.0 million and $48.0 million.  We have replaced our equipment in a number ofour markets with Nortel equipment pursuant to two agreements with Nortel and wehave recently started the replacement activity in our remainingmarkets.Changes and upgrades in technology, like EV-DO, may require additionalexpenditures. Sprint PCS has begun to deploy EV-DO technology in portions ofits service area and has stated its intent to cover 190 million people by theend of 2006. To date, we have deployed EV-DO technology in a small portion ofour service area. We may elect to deploy EV-DO technology in additionalportions of our service area which may significantly increase our capitalexpenditures and operating expenses. We have not yet determined when, and towhat extent, we may further deploy EV-DO throughout our territory. Unforeseenchanges in technology and changes in our plans to upgrade or expand our networkmay require us to spend more money than we expected and have a negative effecton our cash flow.

 

•   *Ongoing Sprint Relationship andLitigation.    *We rely onSprint for a number of important functions, including but not limited to,customer service, billing, long-distance transport services, national networkoperations, support, inventory logistics support, national advertising, productdevelopment, and financial information. Failure of Sprint to provide these andother services on a timely and cost efficient manner would negatively impactour results of operations. Sprint PCS may also make decisions that could reduceour revenues, increase our expenses and/or our capital expenditure requirementsand make our affiliate relationships with Sprint less advantageous thanexpected. In addition, we filed complaints against Sprint alleging that, amongother things, Sprint will breach the exclusivity provisions of our managementagreements. An adverse outcome to our proceedings will have a negative effecton our results of operations and our stock price.

 

•   *Capital MarketsAvailability.    *We may notbe able to access the credit or equity markets for additional capital if theliquidity discussed above is not sufficient for the cash needs of our business.We continually evaluate options for additional sources of capital to supplementour liquidity position and maintain maximum financial flexibility. If the needfor additional capital arises due to our actual results differing significantlyfrom our business plan or for any other reason, we may be unable to raise additionalcapital.

 

***Commitments and Contingencies***

 

The costs for theservices provided by Sprint PCS under our service agreements with Sprint PCSrelative to billing, customer care and other back-office functions for thethree months ended March 31, 2006 and 2005 were approximately $10.7 million and$5.4 million, respectively.  Becausewe incur the majority of these costs on a per subscriber basis, which is fixeduntil the end of December 2006, we expect the aggregate cost for suchservices to increase as the number of our subscribers increases.  Beginning in 2007, the monthly rates forthese services will be reset to mutually acceptable amounts based on the amountnecessary to recover Sprint PCS’s reasonable costs for providing suchservices.  Sprint has proposed to usmonthly rates that would begin on January 1, 2007 that are higher than therates we currently pay.  We have begundiscussions with Sprint regarding the terms and conditions under which we wouldcontinue to purchase these services from Sprint after December 31, 2006,if at all. If we cannot agree with Sprint PCS on new rates beyond 2006, we havethe option to continue to purchase the Sprint services at Sprint’s proposedrates until an arbitrator resolves the dispute regarding the new rates, or toself-provision or to procure those services elsewhere.

 

In addition, Sprint PCSmay terminate any service provided under our services agreements upon ninemonths’ prior written notice, but if we would like to continue receiving suchservice, Sprint PCS has agreed that it will assist us in developing thatfunction internally or locating a third-party vendor that will provide thatservice. Although Sprint PCS has agreed in such an event to reimburse us forexpenses we incur in transitioning to any service internally or to athird-party, if Sprint PCS terminates a service for which we have not developedor are unable to develop a cost-effective alternative, our operating costs mayincrease beyond our expectations and our operations may be interrupted or restricted.We do not currently have a contingency plan if Sprint PCS terminates a servicewe currently receive from it.

 

Variable interest ratesmay increase substantially. At March 31, 2006 we have only fixed rateindebtedness under our existing capital leases and the senior notes. To theextent that we incur any floating rate financing in the future, we would beexposed to interest rate risk on such indebtedness.

 

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On December 15,2004, Sprint Corporation and Nextel Communications, Inc. announced thatthey had signed a merger agreement pursuant to which they would merge andcombine their operations. Shortly after announcing the merger, Sprint alsoannounced that it would pursue discussions with the PCS Affiliates ofSprint—including us—directed toward a modification of their affiliationagreements to address the implications of its merger with Nextel. Although theparties engaged in discussions with respect to such a modification, noagreement has been reached.

 

When it became evidentto us that Sprint intended to close its merger with Nextel prior to reachingagreement with us on necessary modifications to our affiliation agreements, wefiled two complaints against Sprint. On July 15, 2005, we caused our whollyowned subsidiary, iPCS Wireless, to file a complaint against Sprint andSprint PCS in the Circuit Court of Cook County, Illinois, and on July 22,2005, we caused our wholly owned subsidiaries, Horizon Personal Communicationsand Bright Personal Communications Services, to file a complaint againstSprint, Sprint PCS and Nextel in the Court of Chancery of the State ofDelaware, New Castle County. The complaints are substantially similar andallege, among other things, that following the consummation of the mergerbetween Sprint and Nextel, Sprint will breach its exclusivity obligations to usunder our management agreements. Our complaints seek, among other things, atemporary restraining order, a preliminary injunction and a permanentinjunction enjoining Sprint and those acting in concert with it from engagingin certain conduct following the closing of their merger that would violate ouraffiliation agreements with Sprint PCS. In addition to our complaints, a numberof other PCS Affiliates of Sprint also filed complaints against Sprint, SprintPCS and Nextel, including AirGate PCS (a wholly owned subsidiary of AlamosaHoldings, Inc.), UbiquiTel, Inc., U.S. Unwired, Inc., Gulf CoastWireless, Inc., Enterprise Communications Partnership and Northern PCSServices, LLC.

 

On July 18, 2005,in Cook County Circuit Court we obtained a temporary restraining orderprohibiting Sprint from sharing our confidential information with Nextel inviolation of iPCS Wireless’s management agreement and we continued our hearingto hear further testimony on our request for additional injunctive relief.

 

However, onJuly 28, 2005, prior to reconvening in Cook County Circuit Court, weentered into a Forbearance Agreement with Sprint. The Forbearance Agreementsets forth our agreement that we will not seek a temporary restraining order ora preliminary injunction against Sprint so long as Sprint operates the Nextelbusiness in our territory subject to the limitations set forth in theagreement. The Forbearance Agreement contemplates that the parties will proceedas quickly as possible to a full trial on the merits of our complaint seeking apermanent injunction against Sprint.

 

On August 12, 2005,Sprint and Nextel closed their merger. In July and August 2005 Sprintacquired three PCS Affiliates of Sprint, two of whom—U.S. Unwired and GulfCoast Wireless—had also filed suit against Sprint. In January andFebruary 2006, Sprint acquired two more PCS Affiliates of Sprint,Enterprise Communications and Alamosa Holdings. With the acquisition of these PCS Affiliates of Sprint,  the complaints filed by them or theirsubsidiaries were discontinued.

 

OnDecember 28, 2005, the judge in Cook County Circuit Court denied our andSprint’s requests for summary judgment; provided, however, that he agreed withus that iPCS Wireless’s management agreement with Sprint would be breached ifconfidential information were disclosed to any person or entity involved in theoperation of Nextel’s network. Accordingly, he entered a preliminary non-appealable order of summaryjudgment as to that aspect of our complaint.  The judge’s order is subject to reconsideration during the trial. Thetrial relating to the complaint filed by our wholly owned subsidiary, iPCSWireless, in Cook County Circuit Court was originally set to commence onDecember 5, 2005. However, it was continued to early February 2006 andthen to early March 2006. The trial in Cook County Circuit Court began on March9, 2006 and, as of the date of this filing, is ongoing.  We anticipate that the testimony in the trialwill conclude in late May / early June 2006 and we expect a ruling in thesecond half of 2006.

 

The trial relating tothe complaint filed by our wholly owned subsidiaries, Horizon PersonalCommunications and Bright Personal Communications Services, against Sprint andNextel in the Delaware Court of Chancery was consolidated with the trialrelating to the complaint filed by UbiquiTel against Sprint and Nextel in thatsame court. On January 14, 2006, the judge in the Delaware Court of Chanceryissued a memorandum opinion denying our and Sprint’s request for summaryjudgment; however, he agreed with Sprint that our claim for declaratoryjudgment as to the G-Block was not ripe for adjudication.  Accordingly, that aspect of our complaint wasdismissed without prejudice.  Theconsolidated trial began on January 9, 2006, and the testimony concludedon January 23, 2006. Closing arguments were on April 4, 2006.  We expect the judge to issue a ruling nearthe end of our quarter ended June 30, 2006.

 

In connection with theconsolidation of the trials in the Delaware Court of Chancery, Sprint agreed toextend the Forbearance Agreement in the territories managed by Horizon PersonalCommunications and Bright Personal Communications Services until the date thatany decision after trial is rendered by the Delaware Court of Chancery inconnection with the merits of the complaint, with certain limited exceptionsthat would require approval by the Delaware Court of Chancery. The ForbearanceAgreement expired on January 1, 2006 in the territory managed by iPCSWireless.

 

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In April 2006, Sprintagreed to acquire UbiquiTel, Inc. — another PCS Affiliate of Sprint and ourco-plaintiff in the Delaware Court of Chancery — and Sprint and UbiquiTelentered into a settlement agreement and requested that the judge stay thelitigation initiated by UbiquiTel in the Delaware Chancery Court.  It is our understanding that the settlementagreement would resolve the dispute between UbiquiTel and Sprint afterconsummation of the merger.  Sprint andUbiquiTel’s request for a stay does not apply to the proceedings in the actionbrought by our wholly owned subsidiaries, Horizon Personal Communications andBright Personal Communications Services, in the Delaware Court ofChancery.  As such, we took no positionregarding the request to stay the UbiquiTel action.

 

**Contractual Obligations**

 

We are obligated to makefuture payments under various contracts we have entered into, including amountspursuant to the senior notes, capital leases and non-cancelable operating leaseagreements for office space, cell sites, vehicles and office equipment. Futureminimum contractual cash obligations for the next five years and in theaggregate at September 30, 2005, are as follows (dollars in thousands):

 
| ** **                | ** ** | ** ** | ** ** | **Payments Due by Period  Year Ended September 30,** | ** ** |
|---------------------------|------------|------------|------------|------------------------------------------------------------------------------------|------------|
| ** **                | ** ** | **Total**  | ** ** | **2006**                                                                           | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Thereafter** | ** ** |
| Long-term debt            |       | $          | 290,000    |                                                                               | $          | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 290,000 |   |
| Cash interest             |       | 232,304    |       | 33,194                                                                             |       | 33,194 |   | 33,194 |   | 33,194 |   | 33,194 |   | 66,334 |   |
| Operating leases(1)       |       | 103,121    |       | 28,284                                                                             |       | 21,428 |   | 19,368 |   | 18,271 |   | 11,175 |   | 4,595 |   |
| Capital lease obligations |       | 805        |       | 68                                                                                 |       | 63 |   | 66 |   | 69 |   | 71 |   | 468 |   |
| Purchase obligations (2)  |       | 8,350      |       | 8,350                                                                              |       | — |   | — |   | — |   | — |   | — |   |
| Total                     |       | $          | 634,580    |                                                                               | $          | 69,896 |   | $ | 54,685 |   | $ | 52,628 |   | $ | 51,534 |   | $ | 44,440 |   | $ | 361,397 |   |

 

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(1)           Does notinclude payments due under renewals to the original lease terms.

 

(2)           Does notinclude commitments totaling $16.5 million to Nortel Networks for agreementsigned December 31, 2005, as discussed below under “Nortel NetworksEquipment Agreements”.

 

Both of our senior notescontain covenants which restrict our ability to incur additional indebtedness,merge, pay dividends, dispose of our assets, and certain other matters asdefined in the indentures. In addition, the senior notes:

•        rank *pari passu* in right of payment with allour existing and future unsecured senior indebtedness;

•        rank seniorin right of payment to all our future subordinated indebtedness; and

•        areunconditionally guaranteed by our domestic unrestricted subsidiaries, includingiPCS Wireless, Inc., iPCS Equipment, Inc., Horizon PersonalCommunications, Inc. and Bright Personal Communication Services, LLC andany new domestic restricted subsidiaries of ours.

 

However, the senior notes aresubordinated to all our secured indebtedness to the extent of the assetssecuring such indebtedness, and to any indebtedness of our subsidiaries that donot guarantee the new senior notes.

 

Upon a change of controlas defined in the indentures, we will be required to make an offer to purchasethe senior notes at a price equal to 101% of the aggregate principal amount ofsenior notes repurchased plus accrued and unpaid interest and liquidateddamages, if any, to the date of purchase.

 

*111/2**% SeniorNotes:**   *Interest onour 111/2% senior notes is payable semi-annuallyin arrears on May 1 and November 1, commencing on November 1,2004 to the holders of record on the immediately preceding April 15 andOctober 15. At any time prior to May 1, 2007, we may redeem up to 35%of the aggregate principal amount of the 111/2% seniornotes at a redemption price of 111.50% of the principal amount thereof, plusaccrued and unpaid interest, and liquidated damages (as defined in theindenture), if applicable, to the redemption date with the net cash proceeds ofa sale of our equity interests or a contribution to our common equity capital;provided that:

•        at least 65%of aggregate principal amount of senior notes originally issued remainsoutstanding immediately after the redemption; and

•        theredemption occurs within 90 days of the date of the closing of such saleof equity interests or contribution.

Exceptpursuant to the preceding paragraph, the senior notes will not be redeemable atour option prior to May 1, 2008.

 

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On or after May 1,2008, we may redeem all or a part of the senior notes issued under theindenture upon not less than 30 nor more than 60 days’ notice, at theredemption prices (expressed as percentages of principal amount) set forthbelow plus accrued and unpaid interest and liquidated damages, if any, on thesenior notes redeemed, to the applicable redemption date, if redeemed duringthe twelve-month period beginning on May 1 of the years indicated below,subject to the rights of holders of senior notes on the relevant record date toreceive interest on the relevant interest payment date:

 
| **Year**            | ** ** | **Percentage** | ** ** |
|---------------------|------------|----------------|------------|
| 2008                |       | 105.750        | %          |
| 2009                |       | 102.875        | %          |
| 2010 and thereafter |       | 100.000        | %          |

 

*113/8**% SeniorNotes:*   Interest on our 113/8% seniornotes is payable semi-annually in arrears on July 15 and January 15,commencing on January 15, 2005 to the holders of record on the immediatelypreceding July 1 and January 1. At any time prior to July 15,2007, we may redeem up to 35% of the aggregate principal amount of the 113/8% seniornotes at a redemption price of 111.375% of the principal amount thereof, plusaccrued and unpaid interest, and liquidated damages (as defined in theindenture), if applicable, to the redemption date with the net cash proceeds ofa sale of our equity interests or a contribution to our common equity capital;provided that:

 

•   at least 65% of aggregate principalamount of senior notes originally issued remains outstanding immediately afterthe redemption; and

 

•   the redemption occurs within 90 daysof the date of the closing of such sale of equity interests or contribution.

 

Exceptpursuant to the preceding paragraph, the senior notes will not be redeemable atour option prior to July 15, 2008.

 

On or afterJuly 15, 2008, we may redeem all or a part of the senior notes issuedunder the indenture upon not less than 30 nor more than 60 days’ notice,at the redemption prices (expressed as percentages of principal amount) setforth below plus accrued and unpaid interest and liquidated damages, if any, onthe senior notes redeemed, to the applicable redemption date, if redeemedduring the twelve-month period beginning on May 1 of the years indicatedbelow, subject to the rights of holders of senior notes on the relevant recorddate to receive interest on the relevant interest payment date:

 
| **Year**            | ** ** | **Percentage** | ** ** |
|---------------------|------------|----------------|------------|
| 2008                |       | 105.688        | %          |
| 2009                |       | 102.844        | %          |
| 2010 and thereafter |       | 100.000        | %          |

 

***Nortel Networks Equipment Agreements***

 

On November 22,2004, we signed a letter of agreement with Nortel Networks to replace theLucent network equipment then deployed in our Michigan markets with Nortelequipment including one switch, 232 base stations, various additional capacitygrowth and network equipment. Under the terms of the agreement, we are requiredto purchase equipment and services totaling $15.2 million and will receivespecial pricing on future purchases through December 31, 2007. As of March31, 2005, we had purchased the $15.2 million of network equipment required underthis agreement.  Accordingly, we are notrequired to purchase additional equipment or services under this agreement.

 

In addition, inJanuary 2005, Horizon PCS signed a $14.0 million letter of agreement withNortel Networks to replace the Motorola network equipment currently deployed inits Fort Wayne, Indiana, Chillicothe, Ohio, and Johnson City, Tennessee marketswith Nortel equipment including 390 base stations, various additional capacitygrowth and network equipment. Under the terms of the agreement, we are requiredto purchase equipment and services totaling $13.0 million and will receivespecial pricing on future purchases through December 31, 2007. As ofDecember  31, 2005, we had purchased the$13.0 million of equipment required under this agreement.  Accordingly, we are not required to purchaseadditional equipment or services under this agreement.

 

On December 31, 2005, we signed a letter of agreement with NortelNetworks to replace the Motorola equipment currently deployed in ourPennsylvania, New York, New Jersey and Maryland markets with Nortelequipment.  Under the terms of theagreement, we are required to purchase equipment necessary to replace 425existing base stations and related network infrastructure, plus variousadditional equipment to support future network footprint and capacityexpansion, totaling approximately $16.5 million, with an option to purchaseadditional network enhancement equipment totaling $0.5 million.  On March 21, 2006, we amended the terms ofthis agreement accelerating payments for equipment totaling $4.0 million from2007 to 2006.  As of March 31, 2006, wehad purchased $3.0 million of the required $16.5 of equipment under thisagreement.  Accordingly, we are requiredto purchase an additional $13.5 million of equipment under this agreement.

 

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***Off-BalanceSheet Arrangements***

 

***Other than the operating leasecommitments included above, we have no off-balance sheet arrangements thatwould have a current or future material effect on the financial condition,changes in financial condition, revenues, expenses, results of operations,liquidity, capital expenditures or capital resources.***

 

***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.

 

**Critical Accounting Policies**

 

Our financial statements are prepared inconformity with accounting principles generally accepted in the United Statesand require us to select appropriate accounting policies.  The assumptions and judgments we use inapplying our accounting policies have a significant impact on our reportedamounts of assets, liabilities, revenue and expenses.  While we believe that the assumptions andjudgments used in our estimates are reasonable, actual results may differ fromthese estimates under different assumptions or conditions.

 

We have identified themost critical accounting policies upon which our financial status depends.  The critical policies were determined byconsidering accounting policies that involve the most complex or subjectivedecisions or assessments. We also have other policies considered key accountingpolicies; however, these policies do not meet the definition of criticalaccounting policies because they do not generally require us to make estimatesor 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

•      Income taxes

 

In light ofthe adoption of SFAS No. 123R — discussed in Item 2 of Part I of thisquarterly report on Form 10-Q — we have also included our stock-basedcompensation policy as a critical accounting policy.  SFAS No. 123R requires significantjudgment and the use of estimates in the assumptions for the model used tovalue the share-based payment awards, including stock price volatility, andexpected option terms.  In addition,expected forfeiture rates for the share-based awards must be estimated.  Because of our small number of option grants,the relatively short period of time that we have operated as a public company,and the limited trading of our stock, we are limited in our historicalexperience to use as a basis for these assumptions.  While we believe that the assumptions andjudgments used in our estimates are reasonable, actual results may differ fromthese estimates under different assumptions or conditions.

 

Additionalinformation regarding these critical accounting policies can be found in the “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”section of our Annual Report on Form 10-K for the year endedSeptember 30, 2005, filed with the SEC on December 23, 2005.

 

***Inflation***

 

We believe thatinflation has not had a significant impact in the past and is not likely tohave a significant impact in the foreseeable future on our results ofoperations.

 

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**ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

We do not engage incommodity futures trading activities and do not enter into derivative financialinstrument transactions for trading or other speculative purposes. We also donot engage in transactions in foreign currencies that could expose us to marketrisk.

 

**ITEM 4.CONTROLS AND PROCEDURES**

 

(a)   Evaluation of Disclosure Controls andProcedures. Each of our Chief Executive Officer and Chief Financial Officer hasevaluated the effectiveness of our disclosure controls and procedures (as suchterm is defined in Rules 13a-14(c) and 15d-14(c) under theExchange Act) as of the end of the period covered by this quarterly report.Based on such evaluation, such officers have concluded that, as of the end ofthe period covered by this quarterly report, our disclosure controls andprocedures are effective in alerting them on a timely basis to materialinformation relating to us (including our consolidated subsidiaries) requiredto be included in our reports filed or submitted under the Exchange Act.

 

(b)   Changes in Internal Controls overFinancial Reporting. There have not been any changes in our internal controlover financial reporting (as such term is defined inRules 13a-15(f) and 15d-15(f) under the Exchange Act) during thethree months ended March 31, 2006 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

(c)   We place reliance on Sprint PCS toadequately design its internal controls with respect to the processesestablished to provide financial information and other information to us andthe other PCS Affiliates of Sprint. To address this issue, Sprint engagesan 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 isprovided bi-annually to us.

** **

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**PART II.. OTHER INFORMATION**

 

**ITEM 1.LEGAL PROCEEDINGS**

 

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

 

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 and in connection with ourbankruptcy petition. We are not currently a party to any such legalproceedings, the adverse outcome to 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 consider the risks anduncertainties described in Part I, Item 1A. Risk Factors in our AnnualReport on Form 10-K for the fiscal year ended September 30, 2005 andthe other information in our subsequent filings with the SEC, including thisQuarterly Report on Form 10-Q. Our business, financial condition, resultsof operations and stock price could be materially adversely affected by any ofthese risks. The risks described in our Annual Report on Form 10-K and asset forth below are not the only ones facing us. Additional risks anduncertainties that are currently unknown to us or that we currently consider tobe immaterial may also impair our business or adversely affect our financialcondition, results of operations and stock price.

 

Set forth below are updates to the followingthree risk factors that were included in our Annual Report on Form 10-K:

 

•      “*The loss of the officers and skilled employees upon whom we depend tooperate our business could adversely affect our operating results.*”

 

•      “*Problems with Sprint PCS’s internal support systems could lead tocustomer dissatisfaction or increase our costs.*”

 

•      “*The merger between Sprint and Nextel and the outcome of our litigationrelating thereto may have an adverse effect on us in ways that would be beyondour control.*”

 

***The loss of the officers and skilledemployees upon whom we depend to operate our business could adversely affectour operating results.***

 

Our business is managed by a small number ofexecutive officers on whom we depend to operate our business. We believe thatour future success will depend in part on our continued ability to retain theseexecutive officers and to attract and retain other highly qualified technicaland management personnel. Notwithstanding our employment agreements withcertain of our executives, we may not be successful in retaining key personnelor in attracting and retaining other highly qualified technical and managementpersonnel. Moreover, our past inability to meet our obligations that resultedin our bankruptcy filing, or the perception that we may not be able to meet ourobligations following the reorganization, could adversely affect our ability toretain or attract high-quality personnel. As a result of the merger between Sprint and Nextel and Sprint’sacquisition of (or agreement to acquire) six other PCS Affiliates of Sprintsince August 2005, it is more difficult for us to retain our existingemployees and more difficult and expensive to fill vacancies.  The loss of the officers and skilledemployees upon whom we depend to operate our business could adversely affectoperating results.

 

***Problems with Sprint PCS’s internal supportsystems could lead to customer dissatisfaction or increase our costs.***

 

We rely on Sprint PCS’s internal supportsystems, including customer care, billing and back office support. Sprint PCShas entered into business process outsourcing agreements with third parties toprovide these services. Sprint PCS may not be able to successfully add system

 

33

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capacity, its internal supportsystems may not be adequate and the third parties that Sprint PCS hascontracted with may not perform their obligations. Problems with Sprint PCS’internal support systems could cause:

 

•               delays or problems in ouroperations or services;

 

•               delays or difficulty in gainingaccess to subscriber and financial information;

 

•               a loss of subscribers; and

 

•              an increase in the costs ofcustomer care, billing and back-office services.

 

Additionally, Sprint has acquired (or agreedto acquire) six PCS Affiliates of Sprint. Giving effect to these acquisitions,there will be four remaining PCS Affiliates of Sprint. As a result of theseacquisitions, Sprint may not devote as much of its personnel and resources tothe remaining PCS Affiliates of Sprint, which may have a material adverseeffect on our operations.

 

As a result of the merger between Sprint andNextel, we expect that the combined company will integrate the internal supportsystems of Sprint and Nextel, which could include the migration of certaincustomers onto different systems, for example, billing.  Customer migrations or systems conversions,or any delay or problems associated with these changes, may result indifficulty in gaining access to subscriber and financial information, increasedcustomer dissatisfaction leading to increased churn, and increased costs inproviding such internal support systems; each of which could have a materialadverse effect on our operations.

 

Should Sprint PCS fail to deliver timely andaccurate information, this may lead to adverse short-term decisions andinaccurate assumptions in our business plan. It could also adversely affect ourcash flows, because Sprint PCS collects our receivables and remits to us a netamount that is based on the financial information it produces for us.

 

***The merger between Sprint and Nextel and theoutcome of our litigation relating thereto may have an adverse effect on us inways that would be beyond our control.***

 

As discussed in “—Commitments andContingencies” above, we have filed two complaints against Sprint relating tothe merger between Sprint and Nextel and we have entered into a ForbearanceAgreement with Sprint.

 

We do not know if, when or how Sprint willchange its operations in the legacy iPCS territory as a result of the January 1,2006 expiration of the Forbearance Agreement as it relates to that territory.  We also do not know if or how Sprint willchange its operations in the legacy Horizon PCS territory when the ForbearanceAgreement expires as it relates to that territory after the judge rules inour case pending in the Delaware Court of Chancery. After expiration, Sprintmay operate the legacy Nextel business in a manner that would have a materialadverse effect on us. For example, Sprint may:

 

•      shareour confidential information with persons at Sprint outside of the groupresponsible for managing Sprint’s relationship with the PCS Affiliates ofSprint;

 

34

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•      engagein conduct designed to induce and facilitate existing customers of Sprint PCSin our territory to transition their service to Nextel (e.g., direct marketing,local advertising and waiver of early termination fees);

•      selldual-mode handsets in our territory that are pre-programmed to travel on thelegacy Nextel network as opposed to the portion of the Sprint PCS network inour territory;

•      changethe branding on legacy Nextel stores in our territory;

•      co-brandlegacy Nextel products and services as Sprint in national third party retailersin our territory.

 

Notwithstanding the Forbearance Agreement, Sprint’s ownership andoperation of the legacy Nextel business in our territory has, among otherthings, caused customer confusion in our territory that is having an adverseeffect on our business and operations.

 

We cannot predict the outcome of ourlitigation against Sprint. If we do not prevail, Sprint may be permitted tooperate the legacy Nextel business in our territory in a manner that has anadverse effect on our business and operations, including by engaging in conductexpressly prohibited by the Forbearance Agreement, examples of which are setforth above. If we do not prevail, our stock price may be adversely affected.

 

We do not know whether it is possible toreach agreement on mutually satisfactory terms for revised affiliationagreements. Any such revised affiliation agreements may require us to modifyour exclusivity, make significant payments to lease or acquire assets relatingto the legacy Nextel network in our territory, purchase legacy Nextelsubscribers in our territory and/or commit to a further build-out and expansionof our network beyond what is required under our existing affiliationagreements with Sprint PCS. There is no assurance that we will have adequatefunds on hand or the ability to borrow such funds in order to acquire thenetwork assets or subscribers or to otherwise modify our network. In addition,any borrowing would increase our existing substantial leverage.

 

We believe that our stock price has been, andcontinues to be, affected by market speculation involving potential changes inour relationship with Sprint as a result of the Sprint/Nextel merger and theoutcome of our litigation against Sprint. We believe that the marketspeculation has been further fueled by changes in the relationships betweenSprint and other PCS Affiliates of Sprint, including Sprint’s acquisition of(or agreement to acquire) six other PCS Affiliates of Sprint since August 2005.  Accordingly, the price of our common stockhas been, and may continue to be, volatile.

 

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# **ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS**

 

None.

 

# **ITEM 3. DEFAULTS UPON SENIOR SECURITIES**

# ** **

# **None.**

 

# **ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

# **None.**

 

# **ITEM 5. OTHER INFORMATION**

 

None

 

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**ITEM 6. EXHIBITS**

 
| 2.1    |   | Agreement  and Plan of Merger, dated as of March 17, 2005, by and between  iPCS, Inc. and Horizon PCS, Inc. (Incorporated by reference to  Exhibit 2.1 to the current report on Form 8-K filed by  iPCS, Inc. on March 18, 2005 (SEC File No. 333-32064))                                                                                                                                                                                                                                                                 |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 2.2    |   | Second  Amended and Restated Joint Plan of Reorganization for iPCS, Inc., iPCS  Wireless, Inc. and iPCS Equipment, Inc., dated as of May 26,  2004 (Incorporated by reference to Exhibit 2.1 to the registration  statement on Form S-4 filed by iPCS, Inc. on August 5, 2004  (SEC File No. 333-117942))                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 2.3    |   | Technical  Amendment to Second Amended and Restated Joint Plan of Reorganization for  iPCS, Inc., iPCS Wireless, Inc. and iPCS Equipment, Inc.,  dated as of July 8, 2004 (Incorporated by reference to Exhibit 2.2  to the registration statement on Form S-4 filed by iPCS, Inc. on  August 5, 2004 (SEC File No. 333-117942))                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 2.4    |   | Modification  to Second Amended and Restated Joint Plan of Reorganization for  iPCS, Inc., iPCS Wireless Inc. and iPCS Equipment, Inc., dated as  of July 8, 2004 (Incorporated by reference to Exhibit 2.3 to the  registration statement on Form S-4 filed by iPCS, Inc. on  August 5, 2004 (SEC File No. 333-117942))                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 2.5    |   | Findings  of Fact, Conclusions of Law and Order under U.S.C.  Section 1129(a) and (b) and Federal Rules of Bankruptcy  Procedure 3020 confirming the Second Amended Joint Plan of Reorganization of  iPCS, Inc., iPCS Wireless, Inc. and iPCS Equipment, Inc.,  Debtors and Debtors In Possession, as modified, dated as of July 8, 2004  (Incorporated by reference to Exhibit 2.4 to the registration statement  on Form S-4 filed by iPCS, Inc. on August 5, 2004 (SEC File  No. 333-117942)) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 2.6    |   | Joint  Plan of Reorganization of Horizon PCS, Inc., Horizon Personal  Communications, Inc. and Bright Personal Communications Services, LLC,  dated as of September 20, 2004 (Incorporated by reference to  Exhibit 2.2 to the registration statement on Form S-4 filed by  Horizon PCS, Inc. on March 17, 2005 (SEC File No. 333-123383))                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.1    |   | Second  Restated Certificate of Incorporation of iPCS, Inc. (Incorporated by  reference to Exhibit 3.1 to the current report on Form 8-K filed by  iPCS, Inc. on July 1, 2005 (SEC File No. 333-32064))                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.2    |   | Amended  and Restated Bylaws of iPCS, Inc. (Incorporated by reference to Exhibit  3.2 to the transition report on Form 10-Q filed by iPCS, Inc. on February 14,  2006 (SEC File No. 333-32064))                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.3    |   | Certificate  of Incorporation of iPCS Wireless, Inc. (Incorporated by reference to  Exhibit 3.4 to the registration statement on Form S-4 filed by  iPCS, Inc. on January 8, 2001 (SEC File No. 333-47688))                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.4    |   | Bylaws  of iPCS Wireless, Inc. (Incorporated by reference to Exhibit 3.5 to  the registration statement on Form S-4 filed by iPCS, Inc. on  January 8, 2001 (SEC File No. 333-47688))                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.5    |   | Certificate  of Incorporation of iPCS Equipment, Inc. (Incorporated by reference to  Exhibit 3.6 to the registration statement on Form S-4 filed by  iPCS, Inc. on January 8, 2001 (SEC File No. 333-47688))                                                                                                                                                                                                                                                                                                                        |
| 3.6    |   | Bylaws  of iPCS Equipment, Inc. (Incorporated by reference to Exhibit 3.7  to the registration statement on Form S-4 filed by iPCS, Inc. on  January 8, 2001 (SEC File No. 333-47688))                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.7    |   | Articles  of Incorporation of Bright Personal Communications Services, LLC. (Incorporated  by reference to Exhibit 3.7 to the registration statement on  Form S-1 filed by iPCS, Inc. on August 11, 2005 (SEC File  No. 333-117944))                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.8    |   | Bylaws  of Bright Personal Communications Services, LLC (Incorporated by reference to  Exhibit 3.8 to the registration statement on Form S-1 filed by  iPCS, Inc. on August 11, 2005 (SEC File No. 333-117944))                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.9    |   | Articles  of Incorporation of Horizon Personal Communications, Inc. (Incorporated  by reference to Exhibit 3.9 to the registration statement on Form S-1  filed by iPCS, Inc. on August 11, 2005 (SEC File  No. 333-117944))                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.10   |   | Bylaws  of Horizon Personal Communications, Inc. (Incorporated by reference to  Exhibit 3.10 to the registration statement on Form S-1 filed by  iPCS, Inc. on August 11, 2005 (SEC File No. 333-117944))                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 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                                                                                                                                                                                                           |

 

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|   |   | Exhibit 99.1  to the current report on Form 8-K filed by iPCS, Inc. with the SEC  on July 1, 2005 (SEC File No. 333-32064))                                                                                                                                                                                                                                                                         |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.2    |   | Indenture  dated as of April 30, 2004, by and among, iPCS Escrow Company,  iPCS, Inc., iPCS Wireless, Inc., iPCS Equipment, Inc. and U.S.  Bank National Association (Incorporated by reference to Exhibit 4.1 to  the registration statement on Form S-4 filed by iPCS, Inc. with the  SEC on August 5, 2004 (SEC File No. 333-117942))                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.3    |   | Indenture,  dated as of July 19, 2004, by and among Horizon PCS Escrow Company,  Horizon PCS, certain subsidiary guarantors and U.S. Bank National  Association, as Trustee (Incorporated by reference to Exhibit 4.1 to the  registration statement on Form S-4 filed by Horizon PCS, Inc. with  the SEC on March 19, 2005 (SEC File No. 333-123383))                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.4    |   | First  Supplemental Indenture, dated as of June 30, 2005, by and between U.S.  Bank National Association, as Trustee, and iPCS, Inc. (Incorporated by  reference to Exhibit 4.2 to the current report on Form 8-K filed by  iPCS, Inc. with the SEC on July 1, 2005 (SEC File No. 333-117942))                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.5    |   | Second  Supplemental Indenture, dated as of July 15, 2005, by and among  iPCS, Inc., iPCS Wireless, Inc., iPCS Equipment, Inc., Bright  PCS Holdings, Inc. and U.S. Bank National Association, as Trustee (Incorporated  by reference to Exhibit 4.5 to the transition report on Form 10-Q  filed by iPCS, Inc. on February 14, 2006 (SEC File No. 333-32064))             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.6    |   | First  Supplemental Indenture, dated as of July 15, 2005, by and among  iPCS, Inc., Bright Personal Communications Services, LLC, Horizon  Personal Communications, Inc., Bright PCS Holdings, Inc. and U.S.  Bank National Association, as Trustee (Incorporated by reference to Exhibit  4.6 to the transition report on Form 10-Q filed by iPCS, Inc. on February 14,  2006 (SEC File No. 333-32064)) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.1   |   | Letter  Agreement, dated as of February 6, 2006, by and between iPCS  Wireless, Inc. and Timothy M. Yager amending Mr. Yager’s employment  agreement (Incorporated by reference to Exhibit 99.1 to the current  report on Form 8-K filed by iPCS, Inc. on February 7, 2006  (SEC File No. 333-32064))                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.2   |   | Letter  Agreement, dated as of February 6, 2006, by and between iPCS  Wireless, Inc. and Stebbins B. Chandor, Jr. amending  Mr. Chandor’s employment agreement (Incorporated by reference to  Exhibit 99.2 to the current report on Form 8-K filed by  iPCS, Inc. on February 7, 2006 (SEC File No. 333-32064))                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.1   |   | Certification  of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of  the Securities Exchange Act of 1934, as amended                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.2   |   | Certification  of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of  the Securities Exchange Act of 1934, as amended                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 32.1   |   | Certification  Pursuant to 18 U.S.C. Section 1350                                                                                                                                                                                                                                                                                                                                                                       |

 

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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 12, 2006 |            |                                                                                                               |
|   |                |            |                                                                                                               |
|   |                | By:             |                                                                                                               | /s/  STEBBINS B. CHANDOR, JR. |
|   |                |            | Stebbins  B. Chandor, Jr.*Executive Vice President and  Chief Financial Officer*(Principal Financial Officer) |
|   | Date:  May 12, 2006 |            |                                                                                                               |

 

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