**UNITED STATESSECURITIES 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 ended: March 31, 2005** |
| ** **                                               | ** ** | ** ** |
| **or**                                                   |
| ** **                                               | ** ** | ** ** |
| **o**                                                    | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT  OF 1934** |

 

**For the transition period from        to        **

 

**CommissionFile Numbers 333-32064**

 

----

 

**iPCS,INC.**

(Exact Name of Registrant as Specified in Its Charter)

 
| **Delaware**                                                    | ** ** | **36-4350876**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or  Organization) |       | (I.R.S. Employer Identification No.) |
|                                                            |       |                                 |
| **1901 N. Roselle Road, Schaumburg, Illinois**                  | ** ** | **60195**                            |
| (Address of Principal Executive Offices)                        |       | (Zip Code)                           |

 

----

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past90 days. Yes ýNo o

 

Indicate by check mark whether the registrantis an accelerated filer (as defined in Rule 12b-2 of theAct). Yes o  No ý

 

Indicate by check mark whether the registranthas filed all documents and reports required to be filed by Section 12, 13or 15(d) of the Securities Exchange Act of 1934 subsequent to thedistribution of securities under a plan confirmed by a court. Yes ý  No o

 

As of May 13, 2005, there were 8,877,079shares of common stock, $0.01 par value per share, outstanding.

 

 

----

 

**TABLE OFCONTENTS**

 
| PART I    | FINANCIAL INFORMATION                                                                                                                                                               | 3  |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----|
| ITEM 1.        | FINANCIAL STATEMENTS                                                                                                                                                                | 3  |
|           | CONSOLIDATED BALANCE SHEETS AS OF  MARCH 31, 2005 AND SEPTEMBER 30, 2004 (SUCCESSOR COMPANY)  (UNAUDITED)                                                                 | 3  |
|           | CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND SIX  MONTHS ENDED MARCH 31, 2005 (SUCCESSOR COMPANY) AND MARCH 31, 2004  (PREDECESSOR COMPANY) (UNAUDITED) | 4  |
|           | CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED  MARCH 31, 2005 (SUCCESSOR COMPANY) AND MARCH 31, 2004 (PREDECESSOR  COMPANY (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 2.        | UNREGISTERED SALES OF EQUITY SECURITIES AND  USE OF PROCEEDS                                                                                                                        | 33 |
| ITEM 3.        | DEFAULTS UPON SENIOR SECURITIES                                                                                                                                                     | 33 |
| ITEM 4.        | SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS                                                                                                                                | 33 |
| ITEM 5.        | OTHER INFORMATION                                                                                                                                                                   | 33 |
| ITEM  6.       | EXHIBITS                                                                                                                                                                            | 33 |
| SIGNATURES     |                                                                                                                                                                                | 34 |
| CERTIFICATIONS |                                                                                                                                                                                |

 

2

----

 

**PART I****. FINANCIAL INFORMATION**

 

**ITEM 1****. FINANCIAL STATEMENTS**

 

**iPCS, INC. AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**(UNAUDITED)**

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

 
| ** **                                                                                                                                  | ** ** | **Successor  Company**   | ** ** | **Successor  Company**       | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                  | ** ** | **March 31,  2005** | ** ** | **September 30,  2004** | ** ** |
|                                                                                                                                        |       |                     |       |                         |       |
| **Assets**                                                                                                                                  |       |                     |       |                         |       |
| Current Assets:                                                                                                                             |       |                     |       |                         |       |
| Cash and cash equivalents                                                                                                                   |       | $                        | 64,432     |                         | $          | 57,760 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $1,764 and $1,217, respectively                                             |       | 14,685                   |       | 14,772                       |       |
| Receivable from Sprint (Note 6)                                                                                                             |       | 12,086                   |       | 13,264                       |       |
| Inventories, net of reserves for  excess/obsolescence of $147 and $50, respectively (Note 6)                                                |       | 1,738                    |       | 1,310                        |       |
| Prepaid expenses                                                                                                                            |       | 3,974                    |       | 3,127                        |       |
| Other current assets                                                                                                                        |       | 24                       |       | 21                           |       |
| Total current assets                                                                                                                        |       | 96,939                   |       | 90,254                       |       |
| Property and equipment, net (Note 7)                                                                                                        |       | 108,241                  |       | 134,931                      |       |
| Financing costs                                                                                                                             |       | 6,362                    |       | 6,497                        |       |
| Customer activation costs                                                                                                                   |       | 759                      |       | 451                          |       |
| Intangible assets, net of accumulated  amortization of $9,149 and $3,051, respectively (Note 8)                                        |       | 72,763                   |       | 78,861                       |       |
| Other assets                                                                                                                                |       | 1,155                    |       | 1,314                        |       |
| Total assets                                                                                                                                |       | $                        | 286,219    |                         | $          | 312,308 |   |
|                                                                                                                                        |       |                     |       |                         |       |
| **Liabilities  and Stockholders’ Equity (Deficiency)**                                                                                 |       |                     |       |                         |       |
| Current Liabilities:                                                                                                                        |       |                     |       |                         |       |
| Accounts payable                                                                                                                            |       | $                        | 4,386      |                         | $          | 2,742 |   |
| Accrued expenses                                                                                                                            |       | 18,929                   |       | 20,880                       |       |
| Payable to Sprint (Note 6)                                                                                                                  |       | 21,360                   |       | 24,404                       |       |
| Deferred revenue                                                                                                                            |       | 6,235                    |       | 5,764                        |       |
| Current maturities of long-term debt and  capital lease obligations (Note 9)                                                                |       | 8                        |       | 7                            |       |
| Total current liabilities                                                                                                                   |       | 50,918                   |       | 53,797                       |       |
| Customer activation fee revenue                                                                                                             |       | 759                      |       | 451                          |       |
| Other long-term liabilities                                                                                                                 |       | 2,208                    |       | 3,614                        |       |
| Long-term debt and capital lease  obligations, excluding current maturities (Note 9)                                                        |       | 165,395                  |       | 165,400                      |       |
| Total liabilities                                                                                                                           |       | 219,280                  |       | 223,262                      |       |
|                                                                                                                                        |       |                     |       |                         |       |
| Commitments and contingencies (Note 14)                                                                                                     |       | —                   |       | —                       |       |
|                                                                                                                                        |       |                     |       |                         |       |
| Stockholders’ Equity (Deficiency):                                                                                                     |       |                     |       |                         |       |
| Preferred stock, par value $.01 per share;  25,000,000 shares authorized; none issued                                                       |       | —                   |       | —                       |       |
| Common stock, par value $.01 per share;  75,000,000 shares authorized, 8,827,619 and 8,744,164 shares issued and  outstanding, respectively |       | 88                       |       | 87                           |       |
| Additional paid-in-capital                                                                                                                  |       | 95,274                   |       | 95,275                       |       |
| Unearned compensation                                                                                                                       |       | (294                     | )          | (340                         | )          |
| Accumulated deficiency                                                                                                                      |       | (28,129                  | )          | (5,976                       | )          |
| Total stockholders’ equity                                                                                                             |       | 66,939                   |       | 89,046                       |       |
| Total liabilities and stockholders’ equity                                                                                             |       | $                        | 286,219    |                         | $          | 312,308 |   |

 

See notes to unaudited consolidated financial statements.

 

3

----

 

**iPCS, INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(UNAUDITED)**

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

 
| ** **                                                                                                                                                                                                           | ** ** | **Successor Company**                                | ** ** | **Predecessor Company**                              | ** ** | **Successor Company**                              | ** ** | **Predecessor Company**                            | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                                                                                                                                                           | ** ** | **For the Three Months  Ended March 31,  2005** | ** ** | **For the Three Months  Ended March 31,  2004** | ** ** | **For the Six Months  Ended March 31,  2005** | ** ** | **For the Six Months  Ended March 31,  2004** | ** ** |
| ** **                                                                                                                                                                                                           | ** ** | ** **                                           | ** ** | ** **                                           | ** ** | ** **                                         | ** ** | ** **                                         | ** ** |
| **Revenues:**                                                                                                                                                                                                        |       |                                                 |       |                                                 |       |                                               |       |                                               |       |
| Service revenue                                                                                                                                                                                                      |       | $                                                    | 39,094     |                                                 | $          | 35,294                                             |       | $                                                  | 77,679     |   | $ | 69,922 |   |
| Roaming revenue                                                                                                                                                                                                      |       | 14,522                                               |       | 9,054                                                |       | 30,270                                             |       | 21,134                                             |       |
| Equipment and other                                                                                                                                                                                                  |       | 1,838                                                |       | 1,442                                                |       | 3,502                                              |       | 2,794                                              |       |
| Total revenues                                                                                                                                                                                                       |       | 55,454                                               |       | 45,790                                               |       | 111,451                                            |       | 93,850                                             |       |
| **Operating Expenses:**                                                                                                                                                                                              |       |                                                 |       |                                                 |       |                                               |       |                                               |       |
| Cost of service and roaming (exclusive of  depreciation, as shown separately below)                                                                                                                                  |       | (30,374                                              | )          | (25,306                                              | )          | (59,976                                            | )          | (53,776                                            | )          |
| Cost of equipment                                                                                                                                                                                                    |       | (6,157                                               | )          | (3,767                                               | )          | (11,877                                            | )          | (8,830                                             | )          |
| Selling and marketing                                                                                                                                                                                                |       | (8,435                                               | )          | (6,722                                               | )          | (18,461                                            | )          | (12,884                                            | )          |
| General and administrative                                                                                                                                                                                           |       | (1,906                                               | )          | (1,070                                               | )          | (3,899                                             | )          | (1,974                                             | )          |
| Reorganization expense (Note 5)                                                                                                                                                                                      |       | —                                               |       | (3,243                                               | )          | —                                             |       | (5,031                                             | )          |
| Non-cash stock compensation expense (In  2005, $8 and $16 related to cost of service and roaming, $10 and $20 related  to general and administrative and $5 and $10 related to selling and  marketing, respectively) |       | (23                                                  | )          | —                                               |       | (46                                                | )          | —                                             |       |
| Depreciation                                                                                                                                                                                                         |       | (15,302                                              | )          | (9,532                                               | )          | (23,761                                            | )          | (19,057                                            | )          |
| Amortization of intangible assets (Note  8)                                                                                                                                                                     |       | (3,050                                               | )          | —                                               |       | (6,098                                             | )          | —                                             |       |
| Gain (loss) on disposal of property and  equipment                                                                                                                                                                   |       | (32                                                  | )          | 3                                                    |       | (45                                                | )          | 5                                                  |       |
| Total operating expenses                                                                                                                                                                                             |       | (65,279                                              | )          | (49,637                                              | )          | (124,163                                           | )          | (101,547                                           | )          |
| **Operating loss**                                                                                                                                                                                                   |       | (9,825                                               | )          | (3,847                                               | )          | (12,712                                            | )          | (7,697                                             | )          |
| Interest income                                                                                                                                                                                                      |       | 365                                                  |       | 35                                                   |       | 502                                                |       | 62                                                 |       |
| Interest expense                                                                                                                                                                                                     |       | (4,980                                               | )          | (2,291                                               | )          | (9,955                                             | )          | (4,620                                             | )          |
| Other income                                                                                                                                                                                                         |       | 4                                                    |       | 2                                                    |       | 12                                                 |       | 4                                                  |       |
| **Net loss**                                                                                                                                                                                                         |       | $                                                    | (14,436    | )                                                    | $          | (6,101                                             | )          | $                                                  | (22,153    | ) | $ | (12,251 | ) |
|                                                                                                                                                                                                                 |       |                                                 |       |                                                 |       |                                               |       |                                               |       |
| Basic and diluted loss per share of common  stock                                                                                                                                                                    |       |                                                 |       |                                                 |       |                                               |       |                                               |       |
| Loss available to common stockholders                                                                                                                                                                                |       | $                                                    | (1.56      | )                                                    | n/a        |                                               | $          | (2.39                                              | )          | n/a |   |
|                                                                                                                                                                                                                 |       |                                                 |       |                                                 |       |                                               |       |                                               |       |
| Weighted average common shares outstanding                                                                                                                                                                           |       | 9,269,166                                            |       | n/a                                                  |       | 9,269,166                                          |       | n/a                                                |       |

 

See notes to unuadited consolidated financial statements .

 

4

----

 

**iPCS, INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

**(In thousands)**

 
| ** **                                                                                         | ** ** | **Successor Company**                              | ** ** | **Predecessor Company**                            | ** ** |
|----------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                                         | ** ** | **For the Six Months  Ended March 31,  2005** | ** ** | **For the Six Months  Ended March 31,  2004** | ** ** |
| **Cash Flows from Operating Activities:**                                                          |       |                                               |       |                                               |       |
| Net loss                                                                                           |       | $                                                  | (22,153    | )                                                  | $          | (12,251 | ) |
| Adjustments to reconcile net loss to net  cash flows from operating activities:                    |       |                                               |       |                                               |       |
| (Gain) loss on disposal of property and  equipment                                                 |       | 45                                                 |       | (5                                                 | )          |
| Depreciation                                                                                       |       | 23,761                                             |       | 19,057                                             |       |
| Amortization of intangible assets                                                                  |       | 6,098                                              |       | —                                             |       |
| Amortization of financing costs                                                                    |       | 441                                                |       | 288                                                |       |
| Reorganization expense                                                                             |       | —                                             |       | 228                                                |       |
| Non-cash stock compensation                                                                        |       | 46                                                 |       | —                                             |       |
| Provision for doubtful accounts                                                                    |       | 1,259                                              |       | 9                                                  |       |
| Changes in assets and liabilities:                                                                 |       |                                               |       |                                               |       |
| Accounts receivable                                                                                |       | (1,181                                             | )          | 947                                                |       |
| Receivable from Sprint                                                                             |       | 1,178                                              |       | 1,105                                              |       |
| Inventories, net                                                                                   |       | (428                                               | )          | (323                                               | )          |
| Prepaid expenses, other current and long  term assets                                              |       | (1,089                                             | )          | 507                                                |       |
| Accounts payable, accrued expenses and  other long term liabilities                                |       | (1,563                                             | )          | (548                                               | )          |
| Payable to Sprint                                                                                  |       | (3,045                                             | )          | 3,152                                              |       |
| Deferred revenue                                                                                   |       | 780                                                |       | (668                                               | )          |
| Net cash flows from operating activities                                                           |       | 4,149                                              |       | 11,498                                             |       |
| **Cash Flows from Investing Activities:**                                                          |       |                                               |       |                                               |       |
| Purchases of property and equipment                                                                |       | (9,953                                             | )          | (5,446                                             | )          |
| Proceeds from disposition of property and  equipment                                               |       | 12,785                                             |       | 58                                                 |       |
| Net cash flows from investing activities                                                           |       | 2,832                                              |       | (5,388                                             | )          |
| **Cash Flows from Financing Activities:**                                                          |       |                                               |       |                                               |       |
| Repayments under senior credit facilities                                                          |       | —                                             |       | (1,137                                             | )          |
| Debt financing and other                                                                           |       | (309                                               | )          | (2                                                 | )          |
| Net cash flows from financing activities                                                           |       | (309                                               | )          | (1,139                                             | )          |
| Net increase in cash and cash equivalents                                                          |       | 6,672                                              |       | 4,971                                              |       |
| **Cash and cash equivalents at beginning of  period**                                              |       | 57,760                                             |       | 17,654                                             |       |
| **Cash and cash equivalents at end of period**                                                     |       | $                                                  | 64,432     |                                               | $          | 22,625 |   |
| **Supplemental disclosure of cash flow  information - cash paid for interest**                     |       | $                                                  | 9,540      |                                               | $          | 5,467 |   |
| **Supplemental disclosure for non-cash  investing activities:**                                    |       |                                               |       |                                               |       |
| Accounts payable incurred for the  acquisition of property, equipment and construction in progress |       | 512                                                |       | 2,774                                              |       |

 

See notes to unaudited consolidated financial statements.

 

5

----

 

**iPCS, INC.AND SUBSIDIARIES**

**NOTES****TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

 

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

 

iPCS, Inc. and subsidiaries(collectively, the “Company” or “iPCS”) were created for the purpose ofbecoming a leading provider of wireless Personal Communication Services (“PCS”).On January 22, 1999, the Company entered into a management and relatedagreements with Sprint Corporation (“Sprint”) whereby it became a networkpartner of Sprint (a “PCS Affiliate of Sprint”) with the exclusive right tomarket and provide Sprint PCS products and services under the Sprint and SprintPCS brand names in 16 markets in Illinois and Iowa. The Sprint agreements weresubsequently amended in March 2000, February 2001, April 2004, July 2004and November 2004. With these five amendments, the number of marketsincreased to forty and the size of the Company’s territory was increased from atotal population of 2.8 million residents to 7.8 million residents.On November 30, 2001, AirGate PCS, Inc. (“AirGate”), a PCS Affiliateof Sprint providing service in North Carolina, South Carolina, and Georgia,acquired iPCS in a tax-free stock transaction. iPCS was designated as anunrestricted subsidiary of AirGate and both companies operated as separatebusiness entities. Due to restrictions in AirGate’s indenture governing itsoutstanding notes, AirGate was not permitted to provide funding or financialsupport to iPCS. On February 23, 2003, the Company and its subsidiariesfiled for Chapter 11 bankruptcy protection (the “Filing”) in the United StatesBankruptcy Court for the Northern District of Georgia (the “Bankruptcy Court”)(see Note 4). On March 31, 2004, the Company and its subsidiariesfiled its Joint Plan of Reorganization (the “Plan of Reorganization”) with theBankruptcy Court and subsequently amended it on April 16, 2004 and May 25,2004. On July 9, 2004, the Plan of Reorganization was approved by theBankruptcy Court and was declared effective on July 20, 2004.  On March 17, 2005, the Company enteredinto an agreement and Plan of Merger with Horizon PCS, Inc. (See Note 3).

 

The unaudited condensed consolidatedfinancial statements included herein include the accounts of iPCS, Inc.and its subsidiaries, iPCS Wireless, Inc. and iPCS Equipment, Inc. Inaccordance with the American Institute of Certified Public AccountantsStatement of Position 90-7, Financial Reporting by Entities inReorganization under the Bankruptcy Code, the Company adopted fresh-start accountingas of July 1, 2004, and the Company’s emergence from Chapter 11 resultedin a new reporting entity. The periods as of and prior to July 1, 2004have been designated “Predecessor Company” and the periods subsequent to July 1,2004 have been designated as “Successor Company.” Under fresh-start accounting,the reorganization equity value of the company was allocated to the assets andliabilities based on their respective fair values and was in conformity withSFAS No. 141 “Business Combinations.” As a result of the implementation offresh-start accounting, the financial statements of the Company after theeffective date are not comparable to the Company’s financial statements forprior periods. The unaudited consolidated balance sheet as of March 31, 2005,the unaudited consolidated statements of operations for the three months andsix months ended March 31, 2005 and 2004, the unaudited consolidatedstatements of cash flows for the six months ended March 31, 2005 and 2004and related footnotes have been prepared in accordance with accountingprinciples generally accepted in the United States of America for interimfinancial information and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States for complete financial statements. The financialinformation presented herein should be read in conjunction with the Company’s2004 Annual Report on Form 10-K. All significant intercompany accounts and transactions have beeneliminated in consolidation. In the opinion of management, the unauditedconsolidated financial statements contain all of the adjustments, consistingonly of normal recurring adjustments, necessary to present fairly, in summarizedform, the consolidated financial position, results of operations and cash flowsof the Company.  The results ofoperations for the three months and six months ended March 31, 2005, arenot indicative of the results that may be expected for the full fiscal 2005.

 

The wireless market is characterized bysignificant risks as a result of rapid changes in technology, increasingcompetition and the cost associated with continued upgrades to, and maintenanceof, the portion of the Sprint PCS network in our territory. The Company’scontinuing operations are dependent upon Sprint’s ability to perform itsobligations under the Sprint Agreements. In addition, the Company must be ableto attract and maintain a sufficient customer base and achieve satisfactorygrowth while successfully managing operations to generate enough cash fromoperations to meet future obligations. Changes in technology, increasedcompetition, or the inability to obtain required financing or achievebreak-even operating cash flow, among other factors, could have an adverseeffect on the Company’s financial position and results of operations.  With the net proceeds from the offering ofthe senior notes approved by the Plan of Reorganization and subject to theCompany’s ability to manage subscriber growth and achieve operatingefficiencies, cash and cash equivalents, combined with cash flows fromoperations, are expected to be sufficient to fund any operating losses and meetworking capital needs, capital expenditure needs and debt service requirementsfor the foreseeable future.

 

6

----

 

**(2)  Summary of Significant AccountingPolicies**

 

*Loss Per Share:*

 

Basic and diluted loss per share for theSuccessor Company are calculated by dividing the net loss available to commonstockholders by the weighted average number of shares of common stock of theCompany. Pursuant to the Company’s Plan of Reorganization, 8.7 millionshares have been distributed to claimants from the effective date of the Planof Reorganization through March 31, 2005 and the remaining0.3 million shares held in reserve will be distributed upon resolution ofdisputed claims. The full nine million shares were used in the calculation ofweighted average shares. The calculation was made in accordance with SFAS No. 128,“Earnings Per Share.” The basic and diluted loss per share are the same becausethe inclusion of the incremental potential common shares from any assumedexercise of stock options is antidilutive. Per share information is notpresented for the Predecessor Company as it is not meaningful.

 

Potential common shares excluded from theloss per share computations totaled 620,500 stock options because they wereantidilutive.

 

*New Accounting Pronouncements*

* *

In March 2005, the FASB issued Interpretation No. 47 “Accountingfor Conditional Asset Retirement Obligations, an interpretation of FASBStatement No. 143” (“FIN 47”).  FIN47 clarifies the recognition and measurement provisions of SFAS No. 143 “Accountingfor Asset Retirement Obligations” that apply to asset retirement obligations inwhich the timing and/or method of settlement may be conditional on a futureevent.  FIN 47 is effective for fiscalyears ending after December 15, 2005. The Company does not anticipate that the implementation of FIN 47 willhave a material impact on its financial position, results of operations or cashflows.

 

In December 2004, the FASB issued SFAS No. 123(Revised 2004) “Share-Based Payment” (“SFAS No. 123R”) that addresses theaccounting for share-based payment transactions in which a Company receivesemployee services in exchange for (a) equity instruments of the Company or(b) liabilities that are based on the fair value of the Company’s equityinstruments or that may be settled by the issuance of such equity instruments.SFAS No. 123R addresses all forms of share-based payment awards, includingshares issued under employee stock purchase plans, stock options, restrictedstock and stock appreciation rights. SFAS No. 123R eliminates the abilityto account for share-based compensation transactions using APB Opinion No. 25,“Accounting for Stock Issued to Employees”, that was provided in Statement 123as originally issued. Under SFAS No. 123R companies are required to recordcompensation expense for all share based payment award transactions measured atfair value. This statement is effective for fiscal years starting after June 15,2005. The Company has not yet determined the impact of applying the variousprovisions of SFAS No. 123R.

 

(3)             **Mergerwith Horizon PCS**

 

On March 17, 2005, the Company entered into anAgreement and Plan of Merger (the “Merger Agreement”) with Horizon PCS, Inc.,another PCS Affiliate of Sprint (“Horizon PCS”).  Pursuant to the terms of the MergerAgreement, Horizon PCS will be merged with and into iPCS with iPCS as thesurviving corporation.  Horizon PCSstockholders will receive 0.7725 shares of iPCS common stock for each share ofHorizon PCS common stock they hold, subject to adjustment for certain increasesor decreases in the outstanding number of shares or options of Horizon PCS orthe Company.  Each outstanding option topurchase shares of Horizon PCS common stock will be converted into an option topurchase a number of shares of iPCS common stock equal to the number of sharesof Horizon PCS common stock for which such option may be exercised multipliedby 0.7725, at an exercise price equal to the original exercise price divided by0.7725.

 

The board of directors of the Company,following the merger will consist of seven directors, three designated by iPCS,three designated by Horizon PCS, and Timothy M. Yager, who will also continueas president and chief executive officer of the Company.

 

The merger is subject to various customaryclosing conditions, including obtaining approval of iPCS’ and Horizon PCS’stockholders, the expiration of the applicable waiting period under theHart-Scott-Rodino Antitrust Improvements Act of 1976, Federal CommunicationsCommission approval, and the consent of Sprint. The Merger Agreement containscertain termination rights for each of iPCS and Horizon PCS and furtherprovides that in the event of termination of the Merger Agreement under certaincircumstances, iPCS and Horizon PCS may be required to pay the other atermination fee of $7.0 million.

 

7

----

 

(4) **Plan of Reorganization**

 

On February 23, 2003, the Company andits subsidiaries made the Filing in the Bankruptcy Court. On this same date,the Company filed an action against Sprint alleging that Sprint had breachedits agreements with the Company, causing it severe financial damage. TheCompany continued to operate as a debtor-in-possession.  As part of the Plan of Reorganization, on March 22,2004, the Bankruptcy Court authorized the Company to proceed with an offeringof new senior notes and the execution of related agreements, to issue apreliminary and final offering memorandum, and to use cash collateral to payexpenses and interest to be funded into escrow related to the new senior notes.

 

The Bankruptcy Court confirmed the Plan ofReorganization on July 9, 2004 and it was declared effective on July 20,2004. The significant terms of the Plan of Reorganization are as follows:

 

•                  The net proceeds from the offering of $165.0 millionin aggregate principal amount of 11.5% senior notes were used to pay off infull the balance outstanding under the Company’s then existing senior creditfacility. The remaining net proceeds were used by the Company to satisfy allother secured claims, administrative and other priority claims and unsecuredconvenience claims and will be used in the future for general corporatepurposes.

 

•                  All of the Company’s subordinated claims weredischarged and all of its existing capital stock was cancelled.

 

•                  The Company issued 8.6 million shares of newcommon stock to the Company’s general unsecured creditors in satisfaction andretirement of their claims as of the effective date.  An additional 0.1 million shares have beendistributed subsequent to the effective date through March 31, 2005, insatisfaction of twenty previously disputed claims.  The remaining 0.3 million shares held inreserve will be issued upon resolution of the remaining outstanding disputedclaims. The Company believes that the resolution of the disputed claims willnot have a material effect on the Company’s consolidated financial statements.An additional 1.0 million shares were reserved for issuance to certain membersof the Company’s management, directors and other employees through the Company’sAmended and Restated 2004 Long-Term Incentive Plan.

 

•                  The Company assumed its affiliation agreements, asamended, with Sprint; settled all claims by and between the Company and Sprint,which resulted in the write-off of all pre-petition claims, as set forth in thesettlement agreement and mutual release; and paid Sprint approximately$5.1 million in full and complete satisfaction of the Company’s obligationto cure defaults under its affiliation agreements with Sprint.

 

•                  The Company assumed all contracts and leases thathad not been previously rejected.

 

•                  Timothy M. Yager was appointed as president andchief executive officer.

 

•                  Four new directors were appointed to the Company’sboard of directors.

 

•                  The Plan of Reorganization released (a) all ofthe Company’s officers, directors and employees, in each case, as of the dateof the commencement of the hearing on the disclosure statement; (b) theCompany’s creditors’ committee and all of its members, in their respectivecapacities as such; (c) the trustee under the indenture for the Company’sthen existing senior discount notes, in its capacity as such; (d) thelenders under the Company’s senior credit facility, in their capacities assuch; (e) the agent for the lenders under the Company’s then existingsenior credit facility, in its capacity as such; (f) the holders of thethen existing senior discount notes, in their capacity as such; and (g) withrespect to each of the above-named persons, such person’s present affiliates,principals, employees, agents, officers, directors, financial advisors,attorneys and other professionals, in their capacities as such.

 

The Company’s emergence from Chapter 11proceedings resulted in a new reporting entity with the adoption of fresh-startaccounting in accordance with the SOP 90-7. Pursuant to SOP 90-7,the accounting for the effects of the reorganization occurred as of theconfirmation date because there were no remaining conditions precedent to theeffectiveness of the plan as of the July 9, 2004 confirmation date. Foraccounting purposes, the Company applied fresh-start accounting as of July 1,2004, because the results of operations for the eight days through July 9,2004 did not have a material impact on the reorganized company’s financialposition,

 

8

----

 

results of operations and cash flows. The estimated reorganizationequity value of the Company of $95.0 million, which served as the basisfor the Plan of Reorganization approved by the Bankruptcy Court, was used todetermine the value allocated to the assets and liabilities of the ReorganizedCompany in proportion to their fair values and is in conformity with SFAS No. 141“Business Combinations.” The reorganization equity value was determinedutilizing appraisals, commonly used discounted cash flow valuation methods andselected price earnings multiples of publicly-traded companies similar to theCompany to determine the relative fair values of the Company’s assets andliabilities. Factors taken into consideration included projected revenue growth,market and industry growth rates, competition and general economic conditions,working capital and capital expenditure requirements. Changes to the valuesallocated to the assets and liabilities of the Reorganized Company are notexpected to be material.

 

**(5)  Reorganization Expense**

 

The following expenses are included inreorganization expense in the consolidated statement of operations for thethree months and six months ended March 31, 2004 (in thousands):

 
| ** **                                                          | ** ** | **Predecessor Company**                              | ** ** |
|---------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                          | ** ** | **For the Three Months  Ended March 31,  2004** | ** ** | **For the Six Months  Ended March 31,  2004** | ** ** |
| Professional fees and other costs related  to the Reorganization    |       | $                                                    | 2,916      |   | $ | 4,704 |   |
| Costs related to the closing of retail  stores and rejecting leases |       | 327                                                  |       | 327 |   |
|                                                                |       | $                                                    | 3,243      |   | $ | 5,031 |   |

 

**(6)  Sprint Agreements**

 

Under the Sprint agreements, Sprint providesthe Company significant support services such as customer service, billing,long distance transport services, national network operations support,inventory logistics support, use of the Sprint and Sprint PCS brand name,national advertising, national distribution and product development.Additionally, the Company derives substantial roaming revenue when wirelesscustomers of Sprint and other PCS Affiliates of Sprint incur minutes of use inthe Company’s territories and incurs expense to Sprint and to other PCSAffiliates of Sprint when the Company’s customers incur minutes of use in theterritories of Sprint and other PCS Affiliates of Sprint. The expense isrecorded in the cost of service and roaming and in the selling and marketingdetail lines within the statement of operations. Cost of service and roamingtransactions with Sprint include the 8% affiliation fee, long distance, roamingexpenses, billing support and customer care support. Cost of equipment relatesto inventory sold by the Company that was purchased from Sprint under theSprint agreements. Selling and marketing transactions relate to subsidizedcosts on wireless handsets and commissions under Sprint’s national distributionprogram.  In addition, Sprint collectspayments from customers, and according to the terms of the Sprint agreements,remits to the Company its percentage of these revenues, net of the 8%affiliation fee. Because the Company derives substantial revenues and expensesfrom Sprint and Sprint PCS, should Sprint be unable to provide these services,the Company could be negatively impacted.

 

For both the three and six months ended March 31,2005 and the three and six months ended March 31, 2004, approximately 97%of the Company’s revenue was derived from data provided by Sprint. Of theCompany’s cost of service and roaming, approximately 69% and 65% for the threemonths ended March 31, 2005, and 2004, respectively, was derived from dataprovided by Sprint.  For the six monthsended March 31, 2005 and 2004, approximately 69% and 65% of cost ofservice and roaming, respectively, was derived from Sprint data. The Companyreviews all charges from Sprint and disputes certain of these charges in caseswhere the Company does not receive enough supporting detail to validate thecharges or it does not believe Sprint can charge the Company for certainexpenses under the terms of the Sprint agreements.  At March 31, 2005 and September 30,2004, the Company had approximately $0.1 million in disputed charges.

 

9

----

 

Amounts relating to the Sprint agreements forthe three months and six months ended March 31, 2005 and 2004 are asfollows (in thousands):

 

 
| ** **                                                          | ** ** | **Successor  Company**                       | ** ** | **Predecessor  Company**                     | ** ** | **Successor  Company**                     | ** ** | **Predecessor  Company**                   | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                          | ** ** | **Three Months  Ended  March 31, 2005** | ** ** | **Three Months  Ended  March 31, 2004** | ** ** | **Six Months  Ended  March 31, 2005** | ** ** | **Six Months  Ended  March 31, 2004** | ** ** |
| **Amounts included in the Consolidated  Statements of Operations:** | ** ** | ** **                                   | ** ** | ** **                                   | ** ** | ** **                                 | ** ** | ** **                                 | ** ** |
| Service revenue                                                     |       | $                                            | 39,094     |                                         | $          | 35,294                                     |       | $                                          | 77,679     |   | $ | 69,922 |   |
| Roaming revenue                                                     |       | $                                            | 14,522     |                                         | $          | 9,054                                      |       | $                                          | 30,270     |   | $ | 21,134 |   |
| Cost of service and roaming:                                        |       |                                         |       |                                         |       |                                       |       |                                       |       |
| Roaming                                                             |       | $                                            | 10,174     |                                         | $          | 6,604                                      |       | $                                          | 20,012     |   | $ | 14,008 |   |
| Customer service                                                    |       | 5,395                                        |       | 3,676                                        |       | 10,983                                     |       | 7,683                                      |       |
| Affiliation fees                                                    |       | 3,086                                        |       | 2,745                                        |       | 6,140                                      |       | 5,632                                      |       |
| Long distance                                                       |       | 1,541                                        |       | 2,074                                        |       | 3,121                                      |       | 4,149                                      |       |
| Other                                                               |       | 727                                          |       | 1,449                                        |       | 1,403                                      |       | 3,564                                      |       |
| Total cost of service and roaming                                   |       | $                                            | 20,923     |                                         | $          | 16,548                                     |       | $                                          | 41,659     |   | $ | 35,036 |   |
| Cost of equipment                                                   |       | $                                            | 6,157      |                                         | $          | 3,767                                      |       | $                                          | 11,877     |   | $ | 8,830 |   |
| Selling and marketing                                               |       | $                                            | 2,159      |                                         | $          | 2,992                                      |       | $                                          | 5,541      |   | $ | 5,283 |   |

 
| ** **                                                | ** ** | **Successor  Company**  | ** ** | **Successor  Company**      | ** ** |
|-----------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                | ** ** | **March 31, 2005** | ** ** | **September 30, 2004** | ** ** |
| **Amounts included in the Consolidated  Balance Sheets:** | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Receivable from Sprint                                    |       | $                       | 12,086     |                        | $          | 13,264 |   |
| Inventories                                               |       | 1,738                   |       | 1,310                       |       |
| Payable to Sprint                                         |       | 21,360                  |       | 24,404                      |       |
|                                                           |            |                         |            |                             |            |  |  |

 

**(7)****         Property and Equipment**

 

Property and equipment consists of thefollowing at March 31, 2005 and September 30, 2004 (in thousands):

 
| ** **                                      | ** ** | **Successor Company**   | ** ** | **Successor Company**       | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                      | ** ** | **March 31, 2005** | ** ** | **September 30, 2004** | ** ** |
| Network assets                                  |       | $                       | 125,505    |                        | $          | 134,552 |   |
| Computer equipment                              |       | 1,040                   |       | 874                         |       |
| Furniture, fixtures, and office equipment       |       | 3,694                   |       | 2,935                       |       |
| Vehicles                                        |       | 443                     |       | 530                         |       |
| Construction in progress                        |       | 9,564                   |       | 4,830                       |       |
| Total property and equipment                    |       | 140,246                 |       | 143,721                     |       |
| Less accumulated depreciation and  amortization |       | (32,005                 | )          | (8,790                      | )          |
| Total property and equipment, net               |       | $                       | 108,241    |                        | $          | 134,931 |   |

 

On July 1, 2004, as a result of theCompany’s reorganization and in accordance with fresh-start accounting underSOP 90-7, the Company reduced its property and equipment by $9.1 millionto their estimated fair values.  Noadditional impairment was necessary at September 30, 2004.

 

The Company’s decision to replace the Lucent equipment in its Michiganmarkets with Nortel equipment (See Note 14) will result in retiring existingassets before the end of their estimated useful life.  Upon determination of the schedule toreplace the Lucent equipment, the estimated useful life was reduced to theremaining number of months such assets will be in use prior to being replaced,thereby accelerating depreciation.  Inaddition, based on an agreement, negotiated in principle as of March 31,2005, (See Note 16) for the sale of the Lucent equipment, the salvage value ofthe Lucent equipment to be replaced was also adjusted.  The effect of this change increaseddepreciation expense approximately $6.8 million for the three months ended March 31,2005, and is expected to increase depreciation expense approximately $13.6million for the fiscal year ending September 30, 2005.

 

10

----

 

**(8)  Intangible Assets**

 

On July 1, 2004, as a result of theCompany’s reorganization and in accordance with fresh-start accounting underSOP 90-7, the Company revalued its assets to their estimated fair values.With the implementation of fresh-start accounting, the Company recordedintangible assets of $19.8 million relating to the fair value of thecustomer base and $62.1 million relating to the fair value of the right toprovide service under the Sprint agreements. The customer base is beingamortized over the estimated average life of a customer, or 30 months. Theright to provide service under the Sprint agreements is being amortized overthe remaining term of the agreement or 14.5 years.

 

The amortization period, gross carryingamount, accumulated amortization and net carrying amount of intangible assetsat March 31, 2005 and September 30, 2004 are as follows (inthousands):

 
| ** **                                            | ** ** | **Successor Company**    | ** ** |
|-------------------------------------------------------|------------|--------------------------|------------|
| ** **                                            | ** ** | **March 31, 2005**  | ** ** |
| ** **                                            | ** ** | **Amortization  Period** | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net Carrying  Value** | ** ** |
| Amortized intangible assets:                          |       |                     |       |   |   |   |   |   |   |
| Right to provide service under the Sprint  agreements |       | 174 months               |       | $ | 62,127 |   | $ | (3,213 | ) | $ | 58,914 |   |
| Customer base                                         |       | 30 months                |       | 19,785 |   | (5,936 | ) | 13,849 |   |
|                                                  |       |                     |       | $ | 81,912 |   | $ | (9,149 | ) | $ | 72,763 |   |

 
| ** **                                            | ** ** | **Successor Company**       | ** ** |
|-------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                            | ** ** | **September 30, 2004** | ** ** |
| ** **                                            | ** ** | **Amortization  Period**    | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net Carrying  Value** | ** ** |
| Amortized intangible assets:                          |       |                        |       |   |   |   |   |   |   |
| Right to provide service under the Sprint  agreements |       | 174 months                  |       | $ | 62,127 |   | $ | (1,072 | ) | $ | 61,055 |   |
| Customer base                                         |       | 30 months                   |       | 19,785 |   | (1,979 | ) | 17,806 |   |
|                                                  |       |                        |       | $ | 81,912 |   | $ | (3,051 | ) | $ | 78,861 |   |

 

The amortization of intangible assets for the three months and sixmonths ended March 31, 2005 was $3.0 million and $6.1 million,respectively.  There was no amortizationexpense during the three months or six months ended March 31, 2004.  Aggregate amortization expense relative tointangible assets for the periods shown will be as follows:

 
| **Year Ended September 30,** | ** ** | ** ** | ** ** |
|-----------------------------------|------------|------------|------------|
| 2005                              |       | $          | 12,199     |   |
| 2006                              |       | 12,199     |       |
| 2007                              |       | 6,263      |       |
| 2008                              |       | 4,285      |       |
| 2009                              |       | 4,285      |       |
| Thereafter                        |       | 39,630     |       |
| Total                             |       | $          | 78,861     |   |

 

**(9) Long-Term Debt**

 

Long-term debt consists of the following at March 31, 2005 and September 30,2004 (in thousands):

 
| ** **                                                                  | ** ** | **Successor Company**   | ** ** | **Successor Company**       | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                  | ** ** | **March 31, 2005** | ** ** | **September 30, 2004** | ** ** |
| Senior notes due 2012                                                       |       | $                       | 165,000    |                        | $          | 165,000 |   |
| Capital lease obligations                                                   |       | 403                     |       | 407                         |       |
| Total long-term debt and capital lease  obligations                         |       | 165,403                 |       | 165,407                     |       |
| Less: current portion                                                       |       | 8                       |       | 7                           |       |
| Long-term debt and capital lease  obligations, excluding current maturities |       | $                       | 165,395    |                        | $          | 165,400 |   |

 

The indenture governing the$165.0 million in aggregate principal amount of 11.5% senior notescontains covenants which restrict the Company’s ability to incur additionalindebtedness, merge, pay dividends, dispose of its assets, and certain othermatters as defined in

 

11

----

 

the indenture. However, the seniornotes are subordinated to all secured indebtedness of the Company to the extentof the assets securing such indebtedness, and to any indebtedness ofsubsidiaries of the Company that do not guarantee the senior notes. Interest ispayable semi-annually in arrears on May 1 and November 1, commencingon November 1, 2004 to the holders of record on the immediately preceding April 15and October 15.  On November 1,2004, the Company made its first interest payment totaling $9.5 million.

 

**(10)  Income Taxes**

 

The Company’s effective income tax rate forthe interim periods presented is based on management’s estimate of the Company’seffective tax rate for the applicable year and differs from the federal statutoryincome tax rate primarily due to nondeductible permanent differences, stateincome taxes and changes in the valuation allowance for deferred incometaxes.  In assessing the realizability ofdeferred 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 differences becomedeductible. No benefit for federal income taxes has been recorded for the threemonths or six months ended March 31, 2005 and 2004 as the net deferred taxasset generated, primarily from temporary differences related to the netoperating loss, was offset by a full valuation allowance because it is notconsidered more likely than not that these benefits will be realized due to theCompany’s losses since inception.

 

**(11) Stock Compensation**

 

The Company applies APB Opinion No. 25, “Accountingfor Stock Issued to Employees,” and related interpretations to account for itsemployee and director stock options. Compensation expense is determined as theexcess of the fair value of the Company’s common stock at date of grant overthe exercise price. On July 15, 2004, the Company’s board of directorsapproved the 2004 Long-Term Incentive Plan, as provided under the Plan ofReorganization (see Note 4) which plan was amended and restated in January 2005.Under the Amended and Restated 2004 Long-Term Incentive Plan, the Company maygrant to employees, directors and consultants of the Company incentive andnon-qualified stock options, stock appreciation rights (SARs), restricted andunrestricted stock awards and cash incentive awards. The maximum number ofshares of stock that may be awarded to participants is one million. Up to500,000 shares may be issued in conjunction with awards other than options andSARs.

 

If compensation expense for the stock optiongrants had 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** | ** ** | **Six Months Ended  March 31, 2005** | ** ** |
|------------------------------------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|
| **Net loss (in thousands):**                                           | ** ** | ** **                                  | ** ** | ** **                                | ** ** |
| As reported                                                            |       | $                                           | (14,436    | )                                         | $          | (22,153 | ) |
| Plus non-cash stock compensation in  accordance with SFAS No. 123 |       | (351                                        | )          | (702                                      | )          |
| Pro forma                                                              |       | $                                           | (14,787    | )                                         | $          | (22,855 | ) |
| **Basic and diluted loss per common share:**                           | ** ** | ** **                                  | ** ** | ** **                                | ** ** |
| As reported                                                            |       | $                                           | (1.56      | )                                         | $          | (2.39 | ) |
| Pro forma                                                              |       | $                                           | (1.60      | )                                         | $          | (2.47 | ) |

 

There were no outstanding stock options during the three months or sixmonths ended March 31, 2004.

 

**(12) Related Party Transactions**

 

Prior to the Company’s Chapter 11 filing, and**atthe request of the senior lenders and the majority holders of the then existingsenior discount notes, on January 27, 2003, the Company signed arestructuring management services agreement with YMS Management, L.L.C.  (“YMS”) to perform restructuring managementservices for the Company and to appoint a Chief Restructuring Officer (“CRO”).The Company appointed Timothy M. Yager as CRO at the time the agreement wassigned. Under terms of this agreement, YMS received a weekly fee of $15,000,reimbursement of reasonable administrative expenses plus a success fee, asdefined in the agreement. During the three months and six months ended March 31,2004, the Company incurred expenses of $0.2 million and $0.4 million,respectively, to YMS.

 

**(13)**  **Tower Sales**

 

On September 4, 2004, theCompany signed an agreement with TCP Communications, LLC (“TCP”) whereby theCompany agreed to sell up to 92 of its owned towers to TCP. The towers arepriced individually and the sale of all 92 towers would provide the Companywith gross proceeds of approximately $16.5 million. After the sale, theCompany will lease space on the towers sold to TCP

 

12

----

 

at rates and terms consistent with that of the Company’sexisting leases. The transaction is expected to close in several installmentsduring fiscal year 2005 and is subject to exclusion of towers by TCP based onits due diligence and other customer closing conditions (See Note 16).

 

On November 9, 2004 and December 29, 2004, the Company sold51 and 17 towers, respectively, to TCP for gross proceeds net of broker’s feestotaling approximately $12.8 million. Because the cost basis of these towers was adjusted to fair value aspart of fresh-start accounting, no gain or loss on the sales was recorded.

 

**(14)  Commitments and Contingencies**

 

*Commitments*

 

On November 22, 2004, the Company signed a letter of agreementwith Nortel Networks to replace the Company’s Lucent network equipmentcurrently deployed in its Michigan markets with Nortel equipment including oneswitch, 232 base stations and various additional capacity and networkequipment. Under the terms of the agreement, the Company has agreed to purchaseequipment totaling approximately $15.2 million and will receive special pricingon future purchases through December 31, 2007.  As of March 31, 2005, the Company hadpurchased approximately $8.0 million of network equipment under the agreement.

 

*Litigation*

 

On October 1, 2003,AT&T filed an administrative proof of claim and a pre-petition proof ofclaim against the Company, both of which claims the Company disputes. Inconnection with the Company’s Plan of Reorganization, the Company deposited$0.7 million in escrow pending resolution of both of these disputedclaims.  On August 31, 2004,AT&T filed a cure claim against the Company, contending that a portion ofthe amount set forth in the pre-petition proof of claim, and a portion of theamount set forth in the administrative proof of claim are presently due in cashas cure amounts, which is also in dispute. Also on August 31, 2004,AT&T amended its administrative proof of claim originally filed on October 1,2003. If all of AT&T’s claims are allowed as valid, AT&T would have a$0.2 million pre-petition claim payable in stock under our Plan ofReorganization, with the remaining claims (both cure and administrative)payable in $6.6 million of cash. Both the administrative and pre-petitionclaims between AT&T and the Company have been consolidated in claimsproceedings pending before the Bankruptcy Court. On September 30, 2004,the Company filed a response to the cure claim requesting that the dispute onthe cure claim be consolidated with the administrative and pre-petition claimdispute. The Company is currently in the discovery stage of the proceedingswith respect to the administrative and pre-petition claims. If the Companycannot reach a settlement regarding these disputes after discovery, theBankruptcy Court will determine the outcome. In the event that the Company’sresponse to the cure claim is denied or that the Bankruptcy Court does not findin the Company’s favor if a settlement is not reached with AT&T, theCompany believes it has sufficient resources to fund any potential claim. TheCompany believes the accompanying consolidated financial statements adequatelyreflect its obligations to AT&T for these services provided.

 

**(15) Consolidating Financial Information**

 

The senior notes are fully, unconditionallyand joint and severally guaranteed by iPCS Wireless, Inc. and iPCSEquipment, Inc., which are wholly owned subsidiaries of the Company. Thefollowing unaudited condensed consolidating financial information as of March 31,2005 and September 30, 2004 and for the three months and six months ended March 31,2005 and 2004 is presented for the Company, iPCS Wireless, Inc. and iPCSEquipment, Inc. (in thousands):

 

13

----

 

**iPCS, Inc. and Subsidiaries**

**Condensed Consolidating Balance Sheet**

**as of March 31, 2005**

 
| ** **                                                    | ** ** | **Successor Company** | ** ** |
|---------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                    | ** ** | **iPCS Inc.**         | ** ** | **iPCS Wireless** | ** ** | **iPCS Equipment** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
| Cash and cash equivalents                                     |       | $                     | —     |   | $ | 64,432 |   | $ | — |   | $ | — |   | $ | 64,432 |   |
| Other current assets                                          |       | 155,979               |       | 43,224 |   | 20,877 |   | (187,573 | ) | 32,507 |   |
| Total current assets                                          |       | 155,979               |       | 107,656 |   | 20,877 |   | (187,573 | ) | 96,939 |   |
| Property and equipment, net                                   |       | —                |       | 90,226 |   | 18,120 |   | (105 | ) | 108,241 |   |
| Intangible assets, net                                        |       | —                |       | 72,763 |   | — |   | — |   | 72,763 |   |
| Other noncurrent assets                                       |       | 6,362                 |       | 1,914 |   | — |   | — |   | 8,276 |   |
| Investment in subsidiaries                                    |       | 77,725                |       | — |   | — |   | (77,725 | ) | — |   |
| Total assets                                                  |       | $                     | 240,066    |   | $ | 272,559 |   | $ | 38,997 |   | $ | (265,403 | ) | $ | 286,219 |   |
|                                                          |       |                  |       |   |   |   |   |   |   |   |   |
| Current liabilities                                           |       | $                     | 8,127      |   | $ | 230,419 |   | $ | 50 |   | $ | (187,678 | ) | 50,918 |   |
| Long-term debt                                                |       | 165,000               |       | 395 |   | — |   | — |   | 165,395 |   |
| Other long-term liabilities                                   |       | —                |       | 2,967 |   | — |   | — |   | 2,967 |   |
| Total liabilities                                             |       | 173,127               |       | 233,781 |   | 50 |   | (187,678 | ) | 219,280 |   |
| Stockholders’ equity (deficiency)                        |       | 66,939                |       | 38,778 |   | 38,947 |   | (77,725 | ) | 66,939 |   |
| Total liabilities and stockholders’ equity  (deficiency) |       | $                     | 240,066    |   | $ | 272,559 |   | $ | 38,997 |   | $ | (265,403 | ) | $ | 286,219 |   |

 

**iPCS, Inc. and Subsidiaries**

**Condensed Consolidating Balance Sheet**

**as of September 30, 2004**

 
| ** **                                                    | ** ** | **Successor  Company** | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                    |       | **iPCS  Inc.**         | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** |   |
| Cash and cash equivalents                                     |       | $                      | —     |   | $ | 57,760 |   | $ | — |   | $ | — |   | $ | 57,760 |   |
| Other current assets                                          |       | 166,126                |       | 32,276 |   | 16,387 |   | (182,295 | ) | 32,494 |   |
| Total current assets                                          |       | 166,126                |       | 90,036 |   | 16,387 |   | (182,295 | ) | 90,254 |   |
| Property and equipment, net                                   |       | —                 |       | 113,394 |   | 21,647 |   | (110 | ) | 134,931 |   |
| Intangible assets, net                                        |       | —                 |       | 78,861 |   | — |   | — |   | 78,861 |   |
| Other noncurrent assets                                       |       | 6,497                  |       | 1,765 |   | — |   | — |   | 8,262 |   |
| Investment in subsidiaries                                    |       | 89,578                 |       | — |   | — |   | (89,578 | ) | — |   |
| Total assets                                                  |       | $                      | 262,201    |   | $ | 284,056 |   | $ | 38,034 |   | $ | (271,983 | ) | $ | 312,308 |   |
|                                                          |       |                   |       |   |   |   |   |   |   |   |   |
| Current liabilities                                           |       | $                      | 8,155      |   | $ | 227,892 |   | $ | 155 |   | $ | (182,405 | ) | 53,797 |   |
| Long-term debt                                                |       | 165,000                |       | 400 |   | — |   | — |   | 165,400 |   |
| Other long-term liabilities                                   |       | —                 |       | 4,065 |   | — |   | — |   | 4,065 |   |
| Total liabilities                                             |       | 173,155                |       | 232,357 |   | 155 |   | (182,405 | ) | 223,262 |   |
| Stockholders’ equity (deficiency)                        |       | 89,046                 |       | 51,699 |   | 37,879 |   | (89,578 | ) | 89,046 |   |
| Total liabilities and stockholders’ equity  (deficiency) |       | $                      | 262,201    |   | $ | 284,056 |   | $ | 38,034 |   | $ | (271,983 | ) | $ | 312,308 |   |

 

14

----

 

**iPCS, Inc. and Subsidiaries**

**Condensed Consolidating Statement ofOperations**

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

 
| ** **                                         | ** ** | **Successor Company** | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **iPCS Inc.**         | ** ** | **iPCS Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
| Total revenues                                     |       | $                     | —     |   | $ | 55,454 |   | $ | 1,340 |   | $ | (1,340 | ) | $ | 55,454 |   |
| Cost of revenues                                   |       | —                |       | (37,871 | ) | — |   | 1,340 |   | (36,531 | ) |
| Selling and marketing                              |       | —                |       | (8,435 | ) | — |   | — |   | (8,435 | ) |
| General and administrative                         |       | (236                  | )          | (1,692 | ) | (1 | ) | — |   | (1,929 | ) |
| 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**

**Condensed Consolidating Statement ofOperations**

**For the Three Months Ended March 31,2004**

 
| ** **                                         | ** ** | **Predecessor  Company** | ** ** |
|----------------------------------------------------|------------|--------------------------|------------|
|                                               |       | **iPCS Inc.**            | ** ** | **iPCS Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** |   |
| Total revenues                                     |       | $                        | —     |   | $ | 45,790 |   | $ | 1,469 |   | $ | (1,469 | ) | $ | 45,790 |   |
| Cost of revenues                                   |       | —                   |       | (30,211 | ) | (330 | ) | 1,468 |   | (29,073 | ) |
| Selling and marketing                              |       |                     |       | (6,722 | ) | — |   | — |   | (6,722 | ) |
| General and administrative                         |       | (35                      | )          | (1,034 | ) | (1 | ) | — |   | (1,070 | ) |
| Depreciation and amortization                      |       | —                   |       | (8,364 | ) | (1,168 | ) | — |   | (9,532 | ) |
| Gain (loss) on disposal of property and  equipment |       | —                   |       | — |   | — |   | 3 |   | 3 |   |
| Reorganization expense                             |       | —                   |       | (3,239 | ) | (4 | ) | — |   | (3,243 | ) |
| Total operating expenses                           |       | (35                      | )          | (49,570 | ) | (1,503 | ) | 1,471 |   | (49,637 | ) |
| Other, net                                         |       | 7,138                    |       | (8,737 | ) | (655 | ) | — |   | (2,254 | ) |
| Loss in subsidiaries                               |       | (13,206                  | )          | — |   | — |   | 13,206 |   | — |   |
| Net income (loss)                                  |       | $                        | (6,103     | ) | $ | (12,517 | ) | $ | (689 | ) | $ | 13,208 |   | $ | (6,101 | ) |

 

**iPCS, Inc. and Subsidiaries**

**Condensed Consolidating Statement ofOperations**

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

 
| ** **                                         | ** ** | **Successor Company** | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **iPCS Inc.**         | ** ** | **iPCS Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
| Total revenues                                     |       | $                     | —     |   | $ | 111,451 |   | $ | 3,592 |   | $ | (3,592 | ) | $ | 111,451 |   |
| Cost of revenues                                   |       | —                |       | (74,502 | ) | (938 | ) | 3,587 |   | (71,853 | ) |
| Selling and marketing                              |       | —                |       | (18,461 | ) | — |   | — |   | (18,461 | ) |
| General and administrative                         |       | (375                  | )          | (3,569 | ) | (1 | ) | — |   | (3,945 | ) |
| Depreciation and amortization                      |       | —                |       | (27,061 | ) | (2,798 | ) | — |   | (29,859 | ) |
| Gain (loss) on disposal of property and  equipment |       | —                |       | (55 | ) | — |   | 10 |   | (45 | ) |
| Total operating expenses                           |       | (375                  | )          | (123,648 | ) | (3,737 | ) | 3,597 |   | (124,163 | ) |
| Other, net                                         |       | (9,929                | )          | (725 | ) | 1,213 |   | — |   | (9,441 | ) |
| Loss in subsidiaries                               |       | (11,854               | )          | — |   | — |   | 11,854 |   | — |   |
| Net income (loss)                                  |       | $                     | (22,158    | ) | $ | (12,922 | ) | $ | 1,068 |   | $ | 11,859 |   | $ | (22,153 | ) |

 

15

----

 

**iPCS, Inc. and Subsidiaries**

**Condensed Consolidating Statement ofOperations**

**For the Six Months Ended March 31, 2004**

 
| ** **                                 | ** ** | **Predecessor Company** | ** ** |
|--------------------------------------------|------------|-------------------------|------------|
| ** **                                 | ** ** | **iPCS Inc.**           | ** ** | **iPCS Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
| Total revenues                             |       | $                       | —     |   | $ | 93,850 |   | $ | 4,311 |   | $ | (4,311 | ) | $ | 93,850 |   |
| Cost of revenues                           |       | —                  |       | (64,875 | ) | (2,032 | ) | 4,301 |   | (62,606 | ) |
| Selling and marketing                      |       | —                  |       | (12,884 | ) | — |   | — |   | (12,884 | ) |
| General and administrative                 |       | (66                     | )          | (1,907 | ) | (1 | ) | — |   | (1,974 | ) |
| Depreciation and amortization              |       | —                  |       | (16,727 | ) | (2,330 | ) | — |   | (19,057 | ) |
| Gain on disposal of property and equipment |       | —                  |       | — |   | — |   | 5 |   | 5 |   |
| Reorganization expense                     |       | —                  |       | (5,022 | ) | (9 | ) | — |   | (5,031 | ) |
| Total operating expenses                   |       | (66                     | )          | (101,415 | ) | (4,372 | ) | 4,306 |   | (101,547 | ) |
| Other, net                                 |       | 14,356                  |       | (17,546 | ) | (1,364 | ) | — |   | (4,554 | ) |
| Loss in subsidiaries                       |       | (26,536                 | )          | — |   | — |   | 26,536 |   | — |   |
| Net income (loss)                          |       | $                       | (12,246    | ) | $ | (25,111 | ) | $ | (1,425 | ) | $ | 26,531 |   | $ | (12,251 | ) |

 

**iPCS, Inc. and Subsidiaries**

**Condensed Consolidating Statement of CashFlows**

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

 
| ** **                                        | ** ** | **Successor Company** | ** ** |
|---------------------------------------------------|------------|-----------------------|------------|
| ** **                                        | ** ** | **iPCS Inc.**         | ** ** | **iPCS Wireless** | ** ** | **iPCS Equipment** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
| Operating activities                              |       | $                     | 306        |   | $ | 4,482 |   | $ | (644 | ) | $ | 5 |   | $ | 4,149 |   |
| Investing activities                              |       | —                |       | 2,193 |   | 644 |   | (5 | ) | 2,832 |   |
| Financing activities                              |       | (306                  | )          | (3 | ) | — |   | — |   | (309 | ) |
| Increase in cash and cash equivalents             |       | —                |       | 6,672 |   | — |   | — |   | 6,672 |   |
| Cash and cash equivalents at beginning of  period |       | —                |       | 57,760 |   | — |   | — |   | 57,760 |   |
| Cash and cash equivalents at end of period        |       | $                     | —     |   | $ | 64,432 |   | $ | — |   | $ | — |   | $ | 64,432 |   |

 

**iPCS, Inc. and Subsidiaries**

**Condensed Consolidating Statement of CashFlows**

**For the Six Months Ended March 31, 2004**

 
| ** **                                        | ** ** | **Predecessor Company** | ** ** |
|---------------------------------------------------|------------|-------------------------|------------|
| ** **                                        | ** ** | **iPCS Inc.**           | ** ** | **iPCS Wireless** | ** ** | **iPCS Equipment** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
| Operating activities                              |       | $                       | 14,458     |   | $ | (3,862 | ) | $ | 908 |   | $ | (6 | ) | $ | 11,498 |   |
| Investing activities                              |       | —                  |       | (4,522 | ) | (872 | ) | 6 |   | (5,388 | ) |
| Financing activities                              |       | (14,458                 | )          | 12,841 |   | 478 |   | — |   | (1,139 | ) |
| Increase in cash and cash equivalents             |       | —                  |       | 4,457 |   | 514 |   | — |   | 4,971 |   |
| Cash and cash equivalents at beginning of  period |       | —                  |       | 18,169 |   | (515 | ) | — |   | 17,654 |   |
| Cash and cash equivalents at end of period        |       | $                       | —     |   | $ | 22,626 |   | $ | (1 | ) | $ | — |   | $ | 22,625 |   |

 

16

----

 

**(16)  Subsequent Events**

** **

On April 5, 2005, the Company signed an agreement with TeltechCommunications, L.L.C. (“Teltech”) to sell the Company’s Lucent equipment inits Michigan markets currently being replaced with Nortel equipment (See Note14) for approximately $4.3 million.  Aninitial down payment totaling approximately $0.9 million was received in April andthe remainder of the deferred amount owed will be paid in installments, but nolater than July 1, 2006.   Thepurchase price may be reduced if the Company does not meet certain dates for thetransfer of title of the Lucent equipment to Teltech.

 

On April 11, 2005, Horizon PCS received Sprint PCS’ consent to themerger with the Company.

 

On April 27, 2005, TCP (See Note 13) notified the Company that ithas elected to exclude 16 towers based on its due diligence and other customaryclosing conditions and that it is prepared to purchase between 6 and 8 towerson or before June 30, 2005.

 

On May 5, 2005, the Board of Directors of the Company approved anamendment to the Company’s Amended and Restated 2004 Long-Term Incentive Plan(the “Plan”) and recommended that the stockholders of the Company vote toapprove the Plan at the annual meeting on June 30, 2005.  The amendment provides for the reservation ofan additional 250,000 shares of the Company’s common stock that may be issuedunder the Plan.

 

The Company and Horizon PCS have been notified that the Federal TradeCommission has granted early termination of the waiting period period under theHart-Scott-Rodino Antitrust Improvements Act of 1976.

 

On May 12, 2005, the Federal Communication Commission consented tothe transfer of control that would result from the merger of the Company andHorizon PCS.

 

**ITEM 2**. MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

# **Forward-Looking Statements**

 

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

 

•                  statements about the benefits of the proposed mergerbetween us and Horizon PCS, including future financial and operating results.

 

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

 

•                  statements regarding expectations or projectionsabout markets in our territory.

 

Although we believe that theexpectations reflected in such forward-looking statements are reasonable, wecan give no assurance that such expectations will prove to be correct.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, are further discussed in our annualreport on Form 10-K for the period ended September 30,2004.  Important factors that could causeactual results to differ materially from those in the forward-lookingstatements include, but are not limited to:

 

•                  the businesses of iPCS and Horizon PCS may not beintegrated successfully or such integration may be more difficult,time-consuming or costly than expected;

 

•                  the failure of Horizon PCS stockholders or iPCSstockholders to adopt the merger agreement and/or the failure to obtainapprovals from regulators or other groups;

 

•                  disruption from the merger impacting the ability ofthe combined entity to maintain relationships with subscribers, employees orsuppliers;

 

•                  iPCS’ and Horizon PCS’ dependence on theiraffiliation with Sprint, including the competitiveness of Sprint PCS pricingplans and PCS services in the markets in which they operate;

 

•                  the ability of Sprint PCS to alter the terms of itsaffiliation agreements with iPCS and Horizon PCS, including fees paid orcharged and other program requirements;

 

17

----

 

•                  the dependence of iPCS and Horizon PCS on backoffice services provided by Sprint PCS, such as billing and customer care;

 

•                  changes or advances in technology, in general and asspecifically related to Sprint and its affiliates;

 

•                    competitionin the industry and in the markets in which iPCS and Horizon PCS operate;

 

•                  changes in government regulation;

 

•                  the credit quality and turnover rate of iPCS’ andHorizon PCS’ subscribers;

 

•                  the significant level of indebtedness of thecombined entity;

 

•                  the effect of mergers and consolidations within thewireless telecommunications industry, particularly business combinationsinvolving Sprint or affiliates of Sprint, and unexpected announcements ordevelopments from others in the wireless telecommunications industry;

 

•                    theability of Sprint PCS to meet increased demand for product and services and toprovide equipment to affiliates on a timely basis;

 

•                  the impact of general economic conditions on thefinancial position, condition and results of operations of the combined entity;

 

•                  the impact of the proposed merger of Sprint andNextel; and

 

•                  possible risks associated with compliance with Section 404of the Sarbanes-Oxley Act.

 

**Business**

 

*Overview*

 

Weare a PCS affiliate of Sprint, the operator of a 100% digital personalcommunications service, or PCS, wireless network with licenses to provide voiceand data service to the entire United States population using a singlefrequency band and a single technology. As a PCS Affiliate of Sprint, we havethe exclusive right to provide wireless mobility communications services andproducts under the Sprint brand name in the territory licensed to us by SprintPCS. We own and are responsible for building, operating and managing theportion of the PCS wireless network of Sprint PCS located in our territory. Ournetwork is designed to offer a seamless connection with the wireless network ofSprint PCS and uses the same technology as Sprint PCS to transmit wirelesscalls. We have completed the required build-out of our portion of the PCSwireless network of Sprint PCS, although we may elect to build-out additionalmarkets in our territory. We offer national calling plans designed by SprintPCS, as well as local plans tailored to the markets within our territory. Wemarket Sprint PCS products and services through a number of distributionoutlets located in our territory, including our own retail stores, majornational retailers (including RadioShack and Best Buy stores) and localthird-party distributors.  Our territoryconsists of 40 markets – known as “basic trading areas” or BTAs – located inIllinois, Michigan, Iowa and eastern Nebraska. Based on the 2000 populationcounts compiled by the U.S. Census Bureau and adjusted by estimated growthrates from third party proprietary demographic databases, at March 31,2005, our licensed territory had a total population of approximately7.8 million residents, of which our wireless network covered approximately5.9 million residents. At March 31, 2005, we had approximately259,200 subscribers in all our markets.

 

We recognize revenues from oursubscribers for the provision of wireless telecommunications services, proceedsfrom the sale of handsets and accessories through distribution channelscontrolled by us and fees from Sprint PCS and other wireless service providersand resellers when their subscribers roam onto our network. Sprint PCS retains8% of all service revenue collected from our subscribers (not including productsales or roaming charges billed to our subscribers) and 8% of all fees collectedfrom non-Sprint wireless service providers and resellers when their subscribersroam onto our network. We report the amount retained by Sprint PCS as anoperating expense. In addition, Sprint PCS bills our subscribers for taxes,handset insurance and Universal Service Fund charges which we do not record.Sprint collects these amounts from the subscribers and remits them to theappropriate entity.

 

18

----

 

As part of our affiliationagreements with Sprint PCS, we have contracted with Sprint PCS to receiveback-office services such as subscriber activation, handset logistics, billing,customer care and network monitoring services. We initially elected to delegatethe performance of these services to Sprint PCS to take advantage of itseconomies of scale, to accelerate our build-out and market launches and tolower our initial capital requirements. Under the terms of the amendment to ouraffiliation agreements we have contracted with Sprint PCS for these servicesthrough December 31, 2006. The cost for these services is primarily on aper subscriber or per transaction basis and is recorded as an operatingexpense.

 

As we do not own any PCSlicenses to operate a wireless network, our operations and revenues aresubstantially dependent on the continuation of our affiliation with Sprint PCS.Additionally, our affiliation agreements with Sprint PCS give Sprint PCS asubstantial amount of control over factors that significantly affect theconduct of our business.

 

*Reorganization*

 

We filed a voluntary petitionin bankruptcy court pursuant to Chapter 11 of the Bankruptcy Code on February 23,2003.  From the date of our bankruptcyfiling through the effective date of our plan of reorganization, we operatedour business and managed our assets as debtors-in-possession, subject to thesupervision of the bankruptcy court, without obtaining debtor-in-possessionfinancing. On April 30, 2004, we, through a newly formed special purposeentity, issued $165.0 million in aggregate principal amount of 11.5%senior notes, the net proceeds of which offering were deposited into an escrowaccount to be used in accordance with our plan of reorganization uponconfirmation by the bankruptcy court and effectiveness.

 

On July 9, 2004, thebankruptcy court confirmed our plan of reorganization and declared it effectiveas of July 20, 2004. Pursuant to the terms of our plan of reorganization,on the effective date we paid a portion of the net proceeds from the seniornotes offering to satisfy in full the balance outstanding under ourthen-existing senior secured credit facility and to permanently retire theloans thereunder.  The remaining netproceeds from the senior notes were used to satisfy all other secured claims,administrative and other priority claims and unsecured convenience claims andto pay fees and expenses related to the reorganization, as well as for generalcorporate purposes. Additionally, all of our subordinated claims were dischargedand all of our then existing capital stock was cancelled.

 

Our plan of reorganizationauthorized us to issue ten million shares of our common stock upon ouremergence from bankruptcy. On the effective date of our plan of reorganization,we issued 8.6 million shares of common stock to our general unsecuredcreditors who held undisputed claims, including holders of our then-existingsenior discount notes, in satisfaction and retirement of their claims. We alsoreserved 400,002 shares of our common stock for future issuances to our generalunsecured creditors upon resolution of their disputed claims. From theeffective date through April 29, 2005, we have distributed an additional132,915 shares of common stock from the reserve and still have 267,087 sharesreserved for our remaining disputed claims.  Accordingly, our former general unsecured creditors are now ourprincipal equity holders. The remaining one million shares were reserved forissuance to certain members of our management, directors and other employeesthrough our Amended and Restated 2004 Long-Term Incentive Plan.

 

With respect to Sprint, ourplan of reorganization provided for the following:

 

•                  theassumption of our affiliation agreements with Sprint PCS, as amended to provideus a number of benefits;

 

•                  thesettlement of all claims by and between us and Sprint which resulted in ourwrite-off of all pre-petition claims, as set forth in the settlement agreementand mutual release; and

 

•                  thepayment to Sprint, in cash, of approximately $5.1 million in full andcomplete satisfaction of our obligation to cure defaults under our affiliationagreements with Sprint PCS.

 

Our plan of reorganization also provided forvarious other matters relating to our operations post-reorganization, includingthe following:

 

•                  ourassumption of all contracts and leases that have not been previously rejected;

 

•                  theappointment of Timothy M. Yager as president and chief executive officer anddirector;

 

•                  theappointment of four new directors to the iPCS board of directors as selected bythe committee of unsecured creditors; and

 

19

----

 

•                  ourrelease of any and all claims against: (i) all of our officers, directorsand employees, in each case, as of the date of the commencement of the hearingon the disclosure statement; (ii) our creditors’ committee and all of itsmembers, in their respective capacities as such; (iii) trustee under theindenture for our existing senior discount notes, in its capacity as such;(iv) the lenders under our senior secured credit facility, in theircapacities as such; (v) the agent for the lenders under our senior securedcredit facility, in its capacity as such; (vi) the holders of the newnotes offered hereby, in their capacity as such; and (vii) with respect toeach of the above-named persons, such person’s present affiliates, principals,employees, agents, officers, directors, financial advisors, attorneys and otherprofessionals, in their capacities as such.

 

*Proposed Merger with Horizon PCS, Inc.*

* *

On March 17, 2005, we entered into anAgreement and Plan of Merger (“Merger Agreement”) with Horizon PCS, Inc. (“HorizonPCS”), another PCS Affiliate of Sprint. Under the Merger Agreement, Horizon PCSwill merge with and into iPCS, Inc. with iPCS, Inc. as the survivingcorporation.  Horizon PCS stockholderswill receive 0.7725 shares of our common stock for each share of Horizon PCScommon stock they hold, subject to adjustment for certain increases ordecreases in the outstanding number of shares or options of Horizon PCS or us.  Each outstanding option to purchase shares ofHorizon PCS common stock will be converted into an option to purchase a numberof shares of our common stock equal to the number of options to purchase sharesof Horizon PCS common stock multiplied by 0.7725, at an exercise price equal tothe option exercise price divided by 0.7725.

 

Our board of directors, following the merger,will consist of seven directors, three designated by us, three designated byHorizon PCS, and Timothy M. Yager, who will also continue as our president andchief executive officer.

 

The merger is subject to various customaryclosing conditions, including approval of ours and Horizon PCS’ stockholders,the expiration of the applicable waiting period under the Hart-Scott-RodinoAntitrust Improvements Act of 1976 (the “HSR Act”), Federal CommunicationsCommission (the “FCC”) approval, and the consent of Sprint.  On April 11, 2005, Horizon PCS receivedSprint PCS’ consent to the merger.  Weand Horizon PCS have been notified that the Federal Trade Commission hasgranted early termination of the waiting period under the HSR Act.  On May 12, 2005, the FCC consented to thetransfer of control that would result from the merger.  The Merger Agreement contains certaintermination rights for each of iPCS and Horizon PCS and further provides thatin the event of termination of the Merger Agreement under certaincircumstances, we and Horizon PCS may be required to pay the other atermination fee of $7.0 million.

 

*Proposed Sprint/NextelMerger*

* *

On December 15, 2004, Sprint Corporationand Nextel Communications, Inc. announced that they had signed a mergeragreement, pursuant to which they would merge and combine their operations.Nextel Communications, Inc. and an affiliated company, Nextel Partners, Inc.,operate wireless telecommunications networks in portions of our service areas.

 

Pursuant to our affiliation agreements withSprint PCS, Sprint PCS has granted us certain exclusivity rights within ourservice areas.  The pending mergerbetween Sprint and Nextel and the operation of the combined company after themerger may result in a breach of the exclusivity provisions of our affiliationagreements with Sprint PCS, among others. Sprint has announced that it will pursue discussions with the PCSAffiliates of Sprint directed toward a modification of our affiliationagreements as a result of the Sprint/Nextel merger.  We do not know the terms of Sprint’sproposal, or whether we will ultimately reach agreement with Sprint on mutuallysatisfactory terms for a revised affiliation agreement.  It is likely that such a revised affiliationagreement would materially change our business and operations and may result inus making significant payments to lease or acquire network assets andsubscribers or to otherwise modify our network and marketing plans.  There is no assurance that we will haveadequate funds on hand or the ability to borrow such funds in order to acquirethe network assets and subscribers or to otherwise modify our network.  In addition, any borrowing would increase ourexisting substantial leverage.  Theannouncement and closing of the Sprint/Nextel merger may give rise to anegative reaction by our existing and potential customers and a diminution inbrand recognition or loyalty, which may have an adverse effect on ourrevenues.  If necessary, we intend toenforce our rights, whether through seeking injunctive relief or otherwise, tothe extent that Sprint violates or threatens to violate the terms of ouraffiliation agreements with Sprint PCS. In the event that the Sprint/Nextel merger, or any other businesscombination involving Sprint, is consummated, we may also incur significantcosts associated with integrating Sprint’s merger partner onto our network. Inaddition, the proposed Sprint/Nextel merger, or any other such businesscombination involving Sprint, imposes a degree of uncertainty on the future ofour business and operations insofar as it may lead to a change in Sprint PCS’affiliate strategy, which may have an adverse effect on our share price.

 

20

----

 

**Definitions of 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 subscriber additions and churn are termsused 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 liquidity, profitability or performance commonlyused in the wireless telecommunications industry. The non-financial terms andthe non-GAAP measures reflect wireless telecommunications industry conventionsand are commonly used by the investment community for comparability purposes.The non-GAAP measures included in this “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” are reconciled below in “—ConsolidatedResults of Operations—Reconciliation of Non-GAAP Financial Measures” and aresummarized as follows:

 

 

•                  Churn is a measure of the rate at which subscribersbased in our territory deactivate service on a voluntary or involuntary basis.We calculate average monthly churn based on the number of subscribersdeactivated during the period (net of transfers out of our territory and thosewho deactivated within 30 days of activation) as a percentage of ouraverage monthly subscriber base during the period divided by the number ofmonths during the period.

 

•                  ARPU, or average revenue per user, is a measure ofthe average monthly service revenue earned from subscribers based in ourterritory, excluding roaming revenue. This measure is calculated by dividingsubscriber revenues in our consolidated statement of operations by the numberof our average monthly subscribers during the period divided by the number ofmonths in the period.

 

•                  CPGA, or cost per gross addition, is a measure ofthe average cost we incur to add a new subscriber in our territory. These costsinclude handset subsidies on new subscriber activations, commissions, rebatesand other selling and marketing costs. We calculate CPGA by dividing(a) the sum of cost of products sold and selling and marketing expensesassociated with transactions with new subscribers during the measurementperiod, less product sales revenues associated with transactions with newsubscribers during the measurement period, by (b) the total number ofsubscribers activated in our territory during the period.

 

•                  Licensed population represents the number ofresidents in the markets in our territory for which we have an exclusive rightto provide wireless mobility communications services under the Sprint brandname. The number of residents located in our territory does not represent thenumber of wireless subscribers that we serve or expect to serve in ourterritory.

 

•                  Covered population represents the number ofresidents covered by our network in our territory. The number of residentscovered by our network does not represent the number of wireless subscribersthat we serve or expect to serve in our territory.

 

**Critical Accounting Policies**

 

The fundamental objective offinancial reporting is to provide useful information that allows a reader tocomprehend the business activities of an entity. To aid in that understanding,we have identified our “critical accounting policies.” These policies have thepotential to have a significant impact on our consolidated financialstatements, either because of the significance of the financial statement itemto which they relate or because they require judgment and estimation due to theuncertainty involved in measuring, at a specific point in time, events whichare continuous in nature.

 

***Revenue recognition.***  We recognize revenues when persuasiveevidence of an arrangement exists, services have been rendered, the price tothe buyer is fixed or determinable, and collectibility is reasonably assured.We recognize service revenue from our subscribers as they use the service. Wepro-rate monthly subscriber revenue over the billing period and record airtimeusage in excess of the pre-subscribed usage plan. Our subscribers pay anactivation fee when they initiate service. We reduce recorded service revenuefor billing adjustments, and estimated uncollectible fees for late payments andearly cancellation. We also reduce service revenue for rebates and discountsgiven to subscribers on wireless handset sales in accordance with the EmergingIssues Task Force (“EITF”), EITF 01-09 “Accounting for Consideration Given by aVendor to a Customer (Including a Reseller of the Vendor’s Products).”Effective July 1, 2003, we adopted EITF No. 00-21, “Accounting forRevenue Arrangements with Multiple Deliverables.” This EITF guidance addressesaccounting for arrangements that involve multiple revenue-generatingactivities. In applying this

 

21

----

 

guidance, separate contracts with the sameparty, entered into at or near the same time, will be presumed to be a bundledtransaction, and the consideration will be measured and allocated to theseparate units of the arrangement based on their relative fair values. Theguidance in EITF 00-21 became effective for revenue arrangements entered intofor quarters beginning after June 15, 2003. We have elected to apply thisguidance prospectively from July 1, 2003. Prior to the adoption of EITF00-21, under the provisions of SAB No. 101, we accounted for the sale ofour handsets and our subsequent service to the customer as a single unit ofaccounting because our wireless service is essential to the functionality ofour handsets. Accordingly, we deferred all activation fee revenue and itsassociated direct costs and amortized these revenues and costs over the averagelife of our subscribers which we estimate to be 30 months. Under EITF00-21 we no longer need to consider whether customers can use their handsetswithout our wireless service provided to them. Because we meet the criteriastipulated in EITF 00-21, the adoption of EITF 00-21 requires us to account forthe sale of the handset as a separate unit of accounting from the subsequentservice to the customer. With the adoption of EITF 00-21, we now recognizeactivation fee revenue generated from our retail stores as equipment revenue.In addition, we recognize the portion of the direct activation fee costsrelated to the handsets sold in our retail stores. Subsequent to July 1,2003, we have continued to apply the provisions of SAB No. 101 and havedeferred and amortized activation fee revenue and costs generated bysubscribers activated through channels other than through our retail stores.

 

We participate in the SprintPCS national and regional distribution program in which national retailers suchas RadioShack and Best Buy sell Sprint PCS products and services. In order tofacilitate the sale of Sprint PCS products and services, national retailerspurchase wireless handsets from Sprint for resale and receive compensation fromSprint PCS for products and services sold. For industry competitive reasons,Sprint PCS subsidizes the price of these handsets by selling the handsets at aprice below cost. Under our affiliation agreements with Sprint PCS, when anational retailer sells a handset purchased from Sprint PCS to a subscriber inour territory, we are obligated to reimburse Sprint PCS for the handset subsidythat Sprint originally incurred. The national retailers sell Sprint wirelessservices under the Sprint and Sprint PCS brands and marks. We do not receiveany revenues from the sale of wireless handsets by national retailers. Weclassify these Sprint PCS wireless handset subsidy charges as a sales andmarketing expense for a wireless handset sale to a new subscriber and classifythese subsidies as a cost of service for a wireless handset upgrade to anexisting subscriber.

 

Sprint PCS retains 8% ofservice revenues collected from our subscribers and from non-Sprint subscriberswho roam onto our network. The amount retained by Sprint PCS is recorded ascost of service and roaming. Revenues generated from the sale of handsets andaccessories and from roaming services provided to Sprint PCS and other SprintPCS affiliate subscribers who are not based in our markets are not subject tothe 8% affiliation fee for Sprint PCS.

 

***Allowance for doubtfulaccounts.*** Estimates are used in determining our allowance for doubtful accountsand are based on our historical write-off experience, and the uncollectibilityof accounts receivable by aging category, as well as current information regardingthe credit quality of our subscribers. Using this historical information, weestimate allowances for uncollectibility relative to the aging categories. Ifour estimates are insufficient for any reason, our operating losses andavailable cash would be negatively impacted.

 

***Long-lived asset recovery.***  Long-lived assets, consisting primarily ofproperty and equipment and intangibles, comprise approximately 63% of our totalassets, at March 31, 2005. Changes in technology or in our intended use ofthese assets may cause the estimated period of use or the value of these assetsto be reduced. In addition, changes in general industry conditions could causethe value of certain of these assets to be reduced. We monitor theappropriateness of the estimated useful lives of these assets. Whenever eventsor changes in circumstances indicate that the carrying amounts of these assetsmay not be recoverable, we review the respective assets for impairment. As partof our reorganization, our assets and liabilities were revalued to their fairvalue. Estimates and assumptions used in both the estimated useful life andevaluating potential impairment issues require a significant amount ofjudgment.

 

***Income taxes.***  As part of the process of preparing ourconsolidated financial statements we are required to estimate our taxes in eachof the jurisdictions of our operations. This process involves managementestimating the actual current tax expense together with assessing temporarydifferences resulting from differing treatment of items for tax and accountingpurposes. These differences result in deferred tax assets and liabilities,which are included within the consolidated balance sheets. We must then assessthe likelihood that the deferred tax assets will be recovered from futuretaxable income and to the extent recovery is not likely, we must establish avaluation allowance. Future taxable income depends on the ability to generateincome in excess of allowable deductions. To the extent we establish avaluation allowance or increase this allowance in a period, an expense isrecorded within the tax provision in the consolidated statement of operations.Significant management judgment is required in determining our provision forincome taxes, our deferred tax assets and liabilities and any valuationallowance recorded against net deferred tax assets. In the event that actualresults differ from these estimates or we adjust these estimates in futureperiods, we may need to establish an additional valuation allowance that couldmaterially impact our financial condition and results of operations.

 

22

----

 

**Recent Accounting Pronouncements**

 

In March 2005, the FASB issuedInterpretation No. 47 “Accounting for Conditional Asset Retirement Obligations,an interpretation of FASB Statement No. 143” (“FIN 47”).  FIN 47 clarifies the recognition andmeasurement provisions of SFAS No. 143 “Accounting for Asset RetirementObligations” that apply to asset retirement obligations in which the timingand/or method of settlement may be conditional on a future event.  FIN 47 is effective for fiscal years endingafter December 15, 2005.  We do notanticipate that the implementation of FIN 47 will have a material impact on ourfinancial position, results of operations or cash flows.

 

In December 2004, the FASB issued SFASNo. 123 (Revised 2004) “Share-Based Payment” (“SFAS No. 123R”) thataddresses the accounting for share-based payment transactions in which aCompany receives employee services in exchange for (a) equity instrumentsof the Company or (b) liabilities that are based on the fair value of theCompany’s equity instruments or that may be settled by the issuance of suchequity instruments. SFAS No. 123R addresses all forms of share-basedpayment awards, including shares issued under employee stock purchase plans,stock options, restricted stock and stock appreciation rights. SFASNo. 123R eliminates the ability to account for share-based compensationtransactions using APB Opinion No. 25, “Accounting for Stock Issued toEmployees”, that was provided in Statement 123 as originally issued. Under SFASNo. 123R companies are required to record compensation expense for allshare based payment award transactions measured at fair value. This statementis effective for fiscal years starting after June 15, 2005. The Companyhas not yet determined the impact of applying the various provisions of SFASNo. 123R.

 

**Consolidated Results of Operations**

 

***For the three months ended March 31,2005 compared to the three months ended March 31, 2004***

 

In accordance with the AmericanInstitute of Certified Public Accountants Statement of Position 90-7, “FinancialReporting by Entities in Reorganization under the Bankruptcy Code”, we adoptedfresh-start accounting as of July 1, 2004, and our emergence from Chapter11 resulted in a new reporting entity. The periods as of and prior to July 1,2004 have been designated “Predecessor Company” and the periods subsequent to July 1,2004 have been designated as “Successor Company”. Under fresh-start accounting,our reorganization equity value was allocated to the assets and liabilitiesbased on their respective fair values and was in conformity with SFASNo. 141 “Business Combinations”. As a result of the implementation offresh-start accounting, our financial statements after July 1, 2004 arenot comparable to our financial statements for prior periods.

 

***Subscriber Additions.***  As of March 31, 2005, we hadapproximately 259,200 subscribers in all our markets compared toapproximately 227,400 as of March 31, 2004.  For the three months ended March 31,2005, we added approximately 10,000 net subscribers in all our markets comparedto approximately 6,900 for the three months ended March 31, 2004.  The increase in subscriber growth can beattributed to the increase in our distribution outlets, primarily from ourretail and branded dealers in our territory, and to our increased sales andpromotional efforts to attract new subscribers.

 

***Churn.***  Churn for the three months ended March 31,2005, was 2.6% versus 2.7% for the three months ended March 31, 2004.

 

***AverageRevenue Per User.*** ARPU was $51.42 for the three months ended March 31, 2005 comparedto $52.75 for the three months ended March 31, 2004.  The decrease in ARPU is attributable to lowerminutes over plan revenue and lower activation fee revenue due to the effectsof fresh-start accounting.  Thesedecreases are being partially offset with increased data revenue.  This is discussed in more detail under “ServiceRevenue” below.

 

***CostPer Gross Addition.***  CPGA was $358 for the three months ended March 31,2005 compared to $340 for the three months ended March 31, 2004.  The increased CPGA was due to higher costsassociated with an increased sales and promotional effort, which included thecosts related to the opening of eight new retail stores and twenty-eightbranded dealers since March 31, 2004.

 

***Revenues.***

 

•                  ***Service Revenue.***  Service revenue is comprised ofthe monthly recurring charges for voice and data usage and the monthlynon-recurring charges for voice and data minutes over plan, long distance,travel and roaming usage charges, other feature revenues and late payment feeand early cancellation fee revenues. Deductions for billing adjustments andpromotional credits are recorded as a reduction to service revenue. For thethree months ended March 31, 2005, service revenues totaled$39.1 million compared to $35.3 million for the three months ended March 31,2004. As a result of a higher number of subscribers, monthly recurring chargesincreased by $3.8 million from $28.5 in the three months ended March 31,2004 to $32.3 million in the three months ended March 31, 2005.  Offsetting this increase was a decrease inminutes over plan revenue of $0.8 million. With the popularity of

 

23

----

 

Sprint’sFair and Flexible plans and other plans that include larger amounts of planminutes, we anticipate monthly recurring revenues to continue to increase whileour minutes over plan revenue continues to decrease.  Also offsetting the monthly recurring revenueincrease was a drop in activation fee revenue of $0.8 million due to theeffects of fresh-start accounting where our deferred activation fee revenue waswritten off in the revaluation of our assets and liabilities.  Our data products continue to gain popularitywith our customers and contributed higher revenues of $2.1 million for thethree months ended March 31, 2005 compared to the same three-month periodin 2004.

 

•                  ***Roaming Revenue.***  Roaming revenue is comprised ofrevenue we receive from Sprint and other wireless subscribers that roam ontoour network. We receive revenue on a per minute basis for voice traffic and perkilobyte basis for data traffic when subscribers other than ours use ournetwork. We also receive toll revenue for any roaming long distance calls madeon our network. The reciprocal roaming rate arrangement we have with Sprint forinbound and outbound roaming relative to Sprint subscribers was $0.058 perminute for voice charges effective January 1, 2003, and dropped to $0.041per minute effective January 1, 2004. Effective April 1, 2004, thisrate returned to $0.058 per minute.  Thisrate is effective through December 31, 2006.  For data traffic, this rate was $0.0013 perkilobyte in 2003 and $0.0020 in 2004. The 2004 rate is also effective through December 31, 2006.  For the three months ended March 31,2005, roaming revenue from Sprint and the other PCS Affiliates of Sprinttotaled $13.0 millioncompared to $7.7 million for the three months ended March 31, 2004.  The increase in roaming revenue is dueprimarily to an increase in roaming minutes at the favorable rate of $0.058 perminute versus $0.041, and increased kilobyte traffic.  As we have seen in our own customer usage, weare also experiencing increased growth in kilobyte data usuage from othercustomers of Sprint and the other PCS affiliates of Sprint.  Roaming minutes and kilobytes from Sprint andthe other PCS Affiliates of Sprint for the three months ended March 31,2005 were 184.2 million and 535.9 million, respectively, compared to 142.9million and 247.3 million for the three months ended March 31, 2004,respectively.  Roaming revenue from otherwireless subscribers including reseller revenue was $1.5 million and $1.4 millionfor the three months ended March 31, 2005 and March 31, 2004,respectively.  We signed our firstreseller agreement in April 2004, therefore, there was no reseller revenuein the three months ended March 31, 2004 compared to $0.6 million ofreseller revenue in the three months ended March 31, 2005.  Excluding reseller revenue, the net decreaseof $0.5 million of roaming revenue from other wireless subscribers was due toboth lower minutes and a lower average per minute rate.  Roaming minutes and the per minute rate forthe three months ended March 31, 2005 were 7.1 million and $0.13,respectively.   For the three monthsended March 31, 2004, the roaming minutes and per minute rate were 9.8million and $0.14, respectively.

 

•                  ***Equipment andOther Revenue.******* Equipmentrevenue is derived from the sale of handsets and accessories to our subscribersfrom our retail and local distribution channels, net of sales incentives,rebates and an allowance for returns. Our handset return policy allowscustomers to return their handsets for a full refund within 14 days afterthe date of purchase. When handsets are returned to us, we may be able toreissue the handsets to customers at little additional cost to us; however,when used handsets are returned to Sprint PCS for refurbishing, we receivea credit from Sprint PCS which is less than what we originally paid forthe handset. This return policy changed effective February 1, 2005.  We no longer receive a credit for thereturned handset.  Instead, we receive arefurbished handset at a reduced cost. For the three months ended March 31,2005 and 2004, handset revenues were $1.8 millionand $1.3****million,respectively.  Other revenues were $0.1 million for both the threemonths ended March 31, 2005 and 2004. The increase in handset revenues for the three months ended March 31,2005 was due to increased sales for new activations and upgrades for currentsubscribers.

 

***Costof Service and Roaming.***  Cost of service and roaming include networkoperations expense, roaming expense relating to when our subscribers roameither on other Sprint PCS networks or other wireless carriers’ networks,back-office customer services provided by Sprint PCS, the provision fordoubtful accounts, long distance expense and the 8% affiliation fee due toSprint PCS for collected revenues. Network operations expenses includesalaries and benefits for network personnel, cell site rent, utilities andmaintenance expenses, fees relating to the connection of our cell sites to ourswitches and other transport and facility expenses. Roaming expense is our costof our subscribers using Sprint and other wireless carriers’ networks. Roamingexpense on the Sprint PCS network is at the reciprocal rates as described aboveunder “Roaming Revenue”. Roaming expense when our subscribers use otherwireless carriers networks is at rates as determined by the roaming agreementssigned by Sprint PCS with these other wireless carriers. For the threemonths ended March 31, 2005 cost of service and roaming was$30.4 million compared to $25.3 million for the three months ended March 31,2004.  For the three months ended March 31,2005 compared to March 31, 2004, roaming expense increased $3.6 milliondue to the higher rate from Sprint as discussed under “Service Revenue”.  In addition, travel and roaming minutes persubscriber increased from 166 minutes for the three months ended March 31,2004 to 185 minutes for the three months ended March 31, 2005.  Affiliation fees increased $0.3 million forthe three months ended March 31, 2005 compared to March 31, 2004 duemainly to higher service revenues.  Weincurred higher rent expense from network operations of $0.6 million in thethree months ended March 31, 2005 compared to the same period in 2004,because of additional cell sites and the revaluation effects of fresh-startaccounting which eliminated a deferred liability which reduced rent expense inthe three months ended March 31, 2004. Bad debt expense increased $0.9million as a result of an increase in our sub-prime customer base.  Offsetting these increases were lower networkoperations expenses of $1.0 million in facilities, transport and tollexpense.  These lower costs were theresult of savings from rejected agreements and other initiatives we were ableto take advantage of through the bankruptcy process.   At March 31, 2005 our network consistedof 679 cell sites and two switches compared to 652 cell sites and threeswitches at March 31, 2004.

 

24

----

 

***Costof Equipment.*** Cost of equipment includes the cost of handsets and accessories sold orupgraded from our retail and local distribution channels. For the three monthsended March 31, 2005, cost of equipment totaled $6.2 million compared to$3.8 million for the three months ended March 31, 2004.  The increase is due primarily to higher grossadds and increased costs for customer upgrades. The cost of equipment for upgrades totaled $1.4 million in the threemonths ended March 31, 2005 compared to $0.7 million in the same period in2004 due mainly to a change in policy for rebates on upgrades.  During the three months ended March 31,2004, we switched to mail-in rebates from instant rebates for upgrades.  Mail-in rebates reduce the number ofcustomers that upgrade their phones.  Forcompetitive reasons, we reverted back to instant rebates in late 2004 so thatduring the three months ended March 31, 2005, the number of customersupgrading their phone increased over the same three-month period in 2004.

 

*** Selling and Marketing.***  Selling and marketing costs include the coststo operate our retail stores, advertising and promotional expenses, commissionsand 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, 2005was $8.4 million compared to $6.7 million for the three months ended March 31,2004.    The increase was due to a 22%increase in gross adds in the three months ended March 31, 2005 comparedto the three months ended March 31, 2004 as we expanded our distributionchannels and increased our promotional and advertising spending. Advertisingexpense increased by $1.1 million for the three months ended March 31,2005 compared to the three months ended March 31, 2004.

 

***Generaland Administrative.***  General and administrative expenses includeadministrative salaries and benefits, legal fees, insurance expense and otherprofessional expenses.******Forthe three months ended March 31, 2005, general and administrative expenseswere $1.9 million compared to $1.1 million in the three months ended March 31,2004. The increase was due to higher legal, audit and other professional feescoupled with salaries for the senior management team that was hired in 2004 inpreparation for our emergence from bankruptcy.

 

***ReorganizationExpense.*** Reorganization expenses consist of expenses incurred or accrued as adirect result of our Chapter 11 filing. Reorganization expenses totaling $3.2 million for the three months endedMarch 31, 2004 consisted of $2.9 million of professional fees and otherreorganization expenses and $0.3 million of costs related to rejected leasesand closing stores.  We emerged frombankruptcy in July 2004 and incurred no reorganization expenses in thethree months ended March 31, 2005.

 

***Non-CashStock Compensation Expense***.  For the three months ended March 31,2005, we recorded $23,000 of non-cash stock compensation expense related to therestricted stock grants to employees under our long-term incentive plan. Therewas no non-cash stock compensation expense for the three months ended March 31,2004.

 

***Depreciationand Amortization.*** For the three months ended March 31, 2005 depreciation expensetotaled $15.3 million compared to $9.5 million for the three months ended March 31,2004.  The increase in depreciationexpense in the three months ended March 31, 2005 was the result ofaccelerating depreciation expense due to a reduction in the estimated economicuseful life of Lucent network equipment. We signed an agreement with Nortel Networks to replace the existingLucent network equipment in our Michigan markets in late 2004.  The effect of this change increaseddepreciation expense approximately $6.8 million for the three months ended March 31,2005.  Amortization of intangiblestotaled $3.0 million and $0 for the three months ended March 31, 2005 and2004, respectively.  As a result offresh-start accounting, all our assets were revalued and we recorded $81.9million of new intangibles that are being amortized over their remaininglives.  For the three months ended March 31,2004, the remaining value of our intangible assets at that time was fullyamortized.

 

***InterestIncome.* **Interestincome totaled $0.4 million for the three months ended March 31, 2005compared to $35,000 for the three months ended March 31, 2004.  The increase was due to a higher cash balanceas a result of the net proceeds from the senior notes offering completed in April 2004.

 

***InterestExpense.*** For the three months ended March 31, 2005 interest expense was$5.0 million compared to $2.3 million for the three months ended March 31,2004.  Higher interest expense in thethree months ended March 31, 2005 related to the 11.5% interest on the$165.0 million in aggregate principal amount of senior notes issued in April 2004.  For the three months ended March 31,2004, interest expense on our then outstanding senior credit facility accruedat the prime interest rate under the Bankruptcy Court’s cash collateral order.

 

***NetLoss.***  Netloss for the three months ended March 31, 2005 was $14.4 million comparedto the net loss at March 31, 2004 of $6.1 million.   The increase in our net loss of $8.3 millionwas due mainly to increased depreciation and amortization expense, cost ofservice and cost of equipment expenses, and interest expense offset with higherrevenues.

 

25

----

 

***For the six months ended March 31, 2005compared to the six months ended March 31, 2004***

 

***SubscriberAdditions.*** As of March 31, 2005, we had approximately 259,200 subscribersin all our markets compared to approximately 227,400 as of March 31,2004.  For the six months ended March 31,2005, we added approximately 18,600 net subscribers in all our markets comparedto approximately 7,300 for the six months ended March 31, 2004.  The increase in subscriber growth can beattributed to the increase in our distribution outlets, primarily from ourretail and branded dealers in our territory and to our increased sales andpromotional efforts to attract new subscribers.

 

***Churn.***  Churn for both the six months ended March 31,2005 and March 31, 2004 was 2.8%.

 

***AverageRevenue Per User.*** ARPU was $52.03 for the six months ended March 31, 2005 compared to$52.69 for the six months ended March 31, 2004.  The decrease in ARPU is due to lower minutesover plan revenue and activation fee revenue offset with increased monthlyrecurring revenue and data revenue.  Thisis discussed in more detail under “Service Revenue” below.

 

***CostPer Gross Addition.***  CPGA was $382 for the six months ended March 31,2005 compared to $365 for the six months ended March 31, 2004.  The $17 increase in CPGA was due to highercosts associated with an increased sales and promotional effort, which includedthe costs of opening eight new retail stores and twenty-eight branded dealerssince March 31, 2004.

 

***Revenues.***

 

•                  ***Service Revenue.***  For the six months ended March 31,2005, service revenues totaled $77.7 million compared to $69.9 million forthe six months ended March 31, 2004. As a result of both more subscribersand more subscribers activating or converting to service plans with moreminutes at a higher monthly recurring charge, our service revenue derived fromminutes over plan decreased $1.0 million, but was offset with higher monthly recurringcharges of $7.8 million. Also offsetting the monthly recurring revenue increasewas a drop in activation fee revenue of $1.8 million due to the effects offresh-start accounting where our deferred activation fee revenue was writtenoff in the revaluation of our assets and liabilities.  In addition, because the usage of our dataproducts continues to gain popularity with our subscriber base, data revenue of$7.8 million for the six months ended March 31, 2005 was $4.5 millionhigher than for the six months ended March 31, 2004.

 

•                  ***Roaming Revenue.***   For the six months ended March 31,2005, roaming revenue from Sprint and the other PCS Affiliates of Sprinttotaled $27.3 millioncompared to $17.9 million for the six months ended March 31, 2004. The increasein roaming revenue is due primarily to an increase in roaming minutes at thefavorable rate of $0.058 per minute for all of the six months ended March 31,2005 versus $0.041 for three of the six months ended March 31, 2004, andincreased kilobyte traffic.  As we haveseen in our own customer usage, we are also experiencing increased growth inkilobyte data usuage from other customers of Sprint and the other PCSaffiliates of Sprint.  Roaming minutesand kilobytes from Sprint and the other PCS affiliates of Sprint for the sixmonths ended March 31, 2005 were 386.3 million and 1.1 billion,respectively, compared to 295.3 million and 538.9 million for the six monthsended March 31, 2004, respectively. Roaming revenue from other wireless subscribers including resellerrevenue was $2.9 millionand $3.2 million for the sixmonths ended March 31, 2005 and March 31, 2004, respectively.  We signed our first reseller agreement in April 2004,therefore, there was no reseller revenue in the six months ended March 31,2004 compared to $0.9 million of reseller revenue in the six months ended March 31,2005.  Excluding reseller revenue, thenet decrease of $1.2 million of roaming revenue from other wireless subscriberswas due to both lower minutes and a lower average per minute rate.  Roaming minutes and the per minute rate forthe six months ended March 31, 2005 were 16.4 million and $0.12,respectively.  For the six months ended March 31,2004, the roaming minutes and per minute rate were 22.8 million and $0.14, respectively.

 

•                  ***Equipment andOther Revenue.******* For the sixmonths ended March 31, 2005 and 2004, handset revenues were $3.3 million and $2.5****million,respectively.   Other revenues were $0.2 million and $0.3 million forthe six months ended March 31, 2005 and 2004, respectively.  The increase in handset revenues for the sixmonths ended March 31, 2005 was due to increased sales for new activationsand upgrades for current subscribers.

 

***Costof Service and Roaming.***  For the six months ended March 31, 2005cost of service and roaming was $60.0 million compared to $53.8 million for thesix months ended March 31, 2004. For the six months ended March 31, 2005 compared to March 31,2004, roaming expense increased $6.0 million due to the change in the ratementioned above under “Roaming Revenue” coupled with a higher subscriber baseand higher usage.  Travel and roamingminutes per subscriber increased from 163 minutes for the six months ended March 31,2004 to 185 minutes for the six months ended March 31, 2005.  Affiliation fees increased $0.5 million forthe six months ended March 31, 2005 compared to March 31, 2004 duemainly to higher service revenues. We incurred higher rent expense in networkoperations of $1.1 million for the six months ended March 31, 2005 comparedto the same period in 2004, because of additional cell sites and therevaluation effects of fresh-start accounting which eliminated a deferredliability which reduced rent

 

26

----

 

expense in the six months ended March 31, 2004. Bad debt expenseincreased $1.3 million as a result of an increase in our sub-prime subscriberbase from March 31, 2004 to March 31, 2005.  Offsetting these increases were lower networkoperations expenses of $2.0 million in facilities, transport and toll expenseand $0.7 million in property taxes. These lower costs were the result of savings from rejected agreementsand other initiatives we were able to take advantage of through the bankruptcyprocess.

 

***Costof Equipment.*** For the six months ended March 31, 2005, cost of equipment totaled$11.9 million compared to $8.8 million for the six months ended March 31,2004.  The increase in 2005 is dueprimarily to higher gross adds.

 

***Sellingand Marketing*** Selling and marketing expense for the six months ended March 31,2005 was $18.5 million compared to $12.9 million for the six months ended March 31,2004. As part of our plan to grow our subscriber base once we emerged frombankruptcy in July 2004, we increased employee and store-related costs by$1.8 million to increase our distribution channels.  Since March 31, 2004, we opened eightnew retail stores and twenty-eight branded dealers which contributed to 33%higher gross adds in the six months ended March 31, 2005 compared to thesix months ended March 31, 2004. To drive the increase in gross adds,advertising and promotional expenses increased by $2.7 million for the sixmonths ended March 31, 2005 compared to the six months ended March 31,2004.

 

***Generaland Administrative.***  For the six months ended March 31, 2005,general and administrative expenses were $3.9 million compared to $2.0 millionin the six months ended March 31, 2004. The increase was due to higherlegal expense of $0.5 million, audit and other professional fees of $0.5 millioncoupled with $0.7 million in increased salaries for the senior management teamthat was hired in 2004 in preparation for our emergence from bankruptcy.

 

***ReorganizationExpense.***  Inthe six months ended March 31, 2004, we incurred $4.7 million in professionalfees related to our reorganization and $0.3 million costs related to storeclosings and rejected leases.  We emergedfrom bankruptcy in July 2004 and incurred no reorganization expenses inthe six months ended March 31, 2005.

 

***Non-CashStock Compensation Expense***.  For the six months ended March 31, 2005,we recorded $46,000 of non-cash stock compensation expense related to therestricted stock grants to employees under our long-term incentive plan. Therewas no non-cash stock compensation expense for the six months ended March 31,2004.

 

***Depreciationand Amortization.*** For the six months ended March 31, 2005 depreciation expensetotaled $23.8 million compared to $19.1 million for the six months ended March 31,2004.  The increase in depreciation expensein the six months ended March 31, 2005 was the result of acceleratingdepreciation expense due to a reduction in the estimated economic useful lifeof Lucent network equipment.  We signedan agreement with Nortel Networks to replace the existing Lucent networkequipment in our Michigan markets in late 2004. The effect of this change increased depreciation expense approximately$6.8 million for the six months ended March 31, 2005. Amortization ofintangibles totaled $6.1 million and $0 for the six months ended March 31,2005 and 2004, respectively.  As a resultof fresh-start accounting, all our assets were revalued and we recorded $81.9million of new intangibles that are being amortized over their remaining lives.  For the six months ended March 31, 2004,the remaining value of our intangible assets at that time was fully amortized.

 

***InterestIncome.* **Interestincome totaled $0.5 million for the six months ended March 31, 2005compared to $0.1 million for the six months ended March 31, 2004.  The increase was due to a higher cash balancein 2005 as a result of the net proceeds from the senior notes offeringcompleted in April 2004.

 

***InterestExpense.*** For the six months ended March 31, 2005 interest expense was$10.0 million compared to $4.6 million for the six months ended March 31,2004.  Higher interest expense in the sixmonths ended March 31, 2005 related to the 11.5% interest on the $165.0million in aggregate principal amount of senior notes issued in April 2004.  For the six months ended March 31, 2004,interest expense on our then outstanding senior credit facility accrued at theprime interest rate under the Bankruptcy Court’s cash collateral order.

 

***NetLoss.***  Netloss for the six months ended March 31, 2005 was $22.2 million compared tothe net loss at March 31, 2004 of $12.3 million.  The increase in our net loss of $9.9 millionwas due mainly to increased depreciation and amortization, cost of service,cost of equipment, and interest expense offset with higher revenues.

 

27

----

 

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

 

We utilize certain financialmeasures that are not calculated in accordance with GAAP to assess ourfinancial performance. A non-GAAP financial measure is defined as a numericalmeasure of financial performance that (a) excludes amounts, or is subjectto adjustments that have the effect of excluding amounts, that are included inthe comparable measure calculated and presented in accordance with GAAP in thestatement of income or statement of cash flows; or (b) includes amounts,or is subject to adjustments that have the effect of including amounts, thatare excluded from the comparable measure so calculated and presented. Thenon-GAAP financial measures discussed in “—Consolidated 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.

 

 
| ** **           | ** ** | **Successor Company**                                | ** ** | **Predecessor Company**                              | ** ** | **Successor Company**                              | ** ** | **Predecessor Company**                            | ** ** |
|----------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **           | ** ** | **For the Three Months  Ended  March 31, 2005** | ** ** | **For the Three Months  Ended  March 31, 2004** | ** ** | **For the Six Months  Ended  March 31, 2005** | ** ** | **For the Six Months  Ended  March 31, 2004** | ** ** |
| **ARPU**             |       |                                                 |       |                                                 |       |                                               |       |                                               |       |
| Service  revenue     |       | $                                                    | 39,094     |                                                 | $          | 35,294                                             |       | $                                                  | 77,679     |   | $ | 69,922 |   |
| Average  subscribers |       | 253,407                                              |       | 223,047                                              |       | 248,841                                            |       | 221,168                                            |       |
| ARPU                 |       | $                                                    | 51.42      |                                                 | $          | 52.75                                              |       | $                                                  | 52.03      |   | $ | 52.69 |   |

 

ARPU, which is utilized by mostwireless companies to determine recurring monthly revenue on a per subscriberbasis, is used by analysts and investors to compare relative subscriber revenueacross the wireless industry. We use ARPU to assist in evaluating past sellingperformance and the success of specific rate plan promotions. We also use ARPUas a basis to forecast future service revenues.

 

 
| ** **                                                      | ** ** | **Successor Company**                                | ** ** | **Predecessor Company**                              | ** ** | **Successor Company**                              | ** ** | **Predecessor Company**                            | ** ** |
|-----------------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                      | ** ** | **For the Three Months  Ended  March 31, 2005** | ** ** | **For the Three Months  Ended  March 31, 2004** | ** ** | **For the Six Months  Ended  March 31, 2005** | ** ** | **For the Six Months  Ended  March 31, 2004** | ** ** |
| **CPGA**                                                        |       |                                                 |       |                                                 |       |                                               |       |                                               |       |
| Selling and  Marketing:                                         |       | $                                                    | 8,435      |                                                 | $          | 6,722                                              |       | $                                                  | 18,461     |   | $ | 12,884 |   |
| Plus:  Activation costs included in cost of service and roaming |       | (131                                                 | )          | 405                                                  |       | (308                                               | )          | 871                                                |       |
| Plus:  Equipment costs, net of cost of upgrades                 |       | 4,718                                                |       | 3,101                                                |       | 9,330                                              |       | 6,317                                              |       |
| Less:  Equipment revenue, net of upgrade revenue                |       | (1,307                                               | )          | (1,141                                               | )          | (2,399                                             | )          | (2,061                                             | )          |
| CPGA costs                                                      |       | $                                                    | 11,715     |                                                 | $          | 9,087                                              |       | $                                                  | 25,084     |   | $ | 18,011 |   |
| Gross adds                                                      |       | 32,707                                               |       | 26,762                                               |       | 65,612                                             |       | 49,350                                             |       |
| CPGA                                                            |       | $                                                    | 358        |                                                 | $          | 340                                                |       | $                                                  | 382        |   | $ | 365 |   |

 

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 specific promotionsand as a basis to determine the amount of time we must retain a new subscriberbefore we recover this cost. In addition, we use CPGA as a basis for budgeting.

 

**Liquidity and Capital Resources**

 

As of March 31, 2005, wehad $64.4 million in cash and cash equivalents compared to$22.6 million at March 31, 2004.

 

With the net proceeds from theoffering of the senior notes and subject to our ability to manage subscribergrowth and achieve operating efficiencies, cash and cash equivalents, combinedwith cash flows from operations, are expected to be sufficient to fund anyoperating losses and working capital and to meet capital expenditure needs anddebt service requirements for the foreseeable future.

 

28

----

 

###### ***Net Cash Flows from Operating Activities***

###### *** ***

For the six months ended March 31,2005, cash flows from operations totaled $4.1 million compared to $11.5 milliongenerated for the six months ended March 31, 2004.  The decrease was mainly due to an increase inthe net loss and unfavorable working capital effects in the six months ended March 31,2005.  Those working capital effectsincluded $9.5 million in interest paid during the six months ended March 31,2005, compared to only $5.5 million paid during the six months ended March 31,2004.

 

***Net Cash Flows from Investing Activities***

 

For the six months ended March 31,2005, we generated $2.8 million in cash flows from investing activities.  Proceeds generated from the sale of 68 towersto TCP Communications as described below totaled $12.8 million.  Offsetting this were capital expenditurestotaling $10 million, which included $8.0 million for Nortel equipmentpurchased under the agreement with Nortel as described below in “-ContractualObligations”.

 

For the six months ended March 31,2004, cash flows used in investing activities totaled $5.4 million.  Included in this total were costs incurredfor the purchase and installation of equipment for our switching center at theDavenport, Iowa switch location.  Thisadditional equipment was necessary to add capacity in order to accommodate themovement of cell traffic away from our Gridley, Illinois switch which wedecommissioned in June 2004.  Inaddition, we incurred capital expenditures to add five additional cell sites toour network in the six months ended March 31, 2004.

 

***Net Cash Flows from Financing Activities***

 

Net cash used for financingactivities for the six months ended March 31, 2005 totaled $0.3 millionfor debt financing costs related to the 11.5% senior notes.

 

For the six months ended March 31,2004, cash flows used for financing activities totaled $1.1 million forprincipal payments made under the senior secured credit facility in place atthat time.

 

***Tower Sale Leasebacks***

 

On September 4, 2004, wesigned an agreement with TCP Communications, LLC whereby we agreed to sell upto 92 of our owned towers to TCP Communications. The towers are pricedindividually and subject to exclusion of towers by TCP Communications based onits due diligence and other customer closing conditions. After the sale, wewill lease space on the towers sold to TCP Communications at rates and termsconsistent with that of our existing leases. The transaction is expected toclose in several installments during fiscal year 2005.

 

On November 9, 2004 and December 29,2004, we sold 51 and 17 towers, respectively, to TCP Communications for grossproceeds, net of broker’s fees, totaling approximately $12.8 million.  Because the cost basis of these towers wasadjusted to fair value as part of fresh-start accounting, no gain or loss onthe sales was recorded.

 

As of April 27, 2005, TCP notified usthat it has elected to exclude 16 towers based on its due diligence and othercustomary closing conditions and that is prepared to purchase between 6 and 8towers on or before June 30, 2005. We anticipate selling the TCP-excluded towers to a third party duringfiscal year 2005.

 

***Commitments and Contingencies***

 

On October 1, 2003,AT&T filed an administrative proof of claim and a pre-petition proof ofclaim against us, both of which claims we dispute. In connection with our planof reorganization, we deposited $0.7 million in escrow pending resolutionof both of these disputed claims.  On August 31,2004, AT&T filed a cure claim against us, contending that a portion of theamount set forth in the pre-petition proof of claim, and a portion of theamount set forth in the administrative proof of claim are presently due in cashas cure amounts, which we also dispute. Also on August 31, 2004, AT&Tamended its administrative proof of claim originally filed on October 1,2003. If all of AT&T’s claims are allowed as valid, AT&T would have a$0.2 million pre-petition claim payable in stock under our plan ofreorganization, with the remaining claims (both cure and administrative)payable in $6.6 million of cash. Both the administrative and pre-petitionclaims between AT&T and us have been consolidated in claims proceedingspending before the Bankruptcy Court. On September 30, 2004, we filed aresponse to the cure claim requesting that our dispute on the cure claim beconsolidated with the administrative and pre-petition claim dispute. We arecurrently in the discovery stage of the proceedings with respect to theadministrative and pre-petition claims. If we cannot reach a settlementregarding these disputes after discovery, the

 

29

----

 

Bankruptcy Court will determine the outcome.In the event that our response to the cure claim is denied or that theBankruptcy Court does not find in our favor if a settlement is not reached withAT&T we believe we will have sufficient resources to fund any potentialclaim. We believe the accompanying consolidated financial statements adequatelyreflect our obligations to AT&T for these services provided.

 

The costs for the servicesprovided by Sprint PCS under our service agreements with Sprint PCS relative tobilling, customer care and other back-office functions for the three monthsended March 31, 2005 and 2004, totaled approximately $5.4 million and$3.7 million, respectively. For the six months ended March 31, 2005and 2004, we incurred approximately $11.0 million and $7.7 million,respectively, for these same services. Because we incur the majority of these costs on a per subscriber basiswhich is fixed until the end of December 2006 and after which will beadjusted by Sprint PCS based on a formula related to Sprint PCS’ costs toprovide the services, we expect the aggregate cost for such services toincrease as the number of our subscribers increases after December 2006.Sprint PCS may terminate any service provided under such 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 orrestricted. We do not currently have a contingency plan if Sprint PCSterminates a service we currently receive from it.

 

***Contractual Obligations***

 

We are obligated to make futurepayments 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, 2004, are as follows (dollars in thousands):

 
| ** **                 | ** ** | **Payments Due by Period**        | ** ** |
|----------------------------|------------|-----------------------------------|------------|
| ** **                 | ** ** | **Year Ended September 30,** | ** ** |
| ** **                 | ** ** | **Total**                         | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **Thereafter** | ** ** |
| Senior  notes(1)           |       | $                                 | 165,000    |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 165,000 |   |
| Operating  leases(2)       |       | 48,826                            |       | 12,118 |   | 9,401 |   | 7,258 |   | 6,498 |   | 5,947 |   | 7,604 |   |
| Capital  lease obligations |       | 858                               |       | 59 |   | 61 |   | 64 |   | 66 |   | 69 |   | 539 |   |
| Total                      |       | $                                 | 214,684    |   | $ | 12,177 |   | $ | 9,462 |   | $ | 7,322 |   | $ | 6,564 |   | $ | 6,016 |   | $ | 173,143 |   |

 

----

(1)                                  Doesnot include interest payment obligations.

 

(2)                                  Doesnot include payments due under renewals to the original lease terms.

 

The senior notes containcovenants which restrict our ability to incur additional indebtedness, merge,pay dividends, dispose of our assets, and certain other matters as defined inthe indenture. In addition, the senior notes:

 

•                  rank pari passu in right of payment with all ourexisting and future unsecured senior indebtedness;

 

•                  rank senior in right of payment to all our futuresubordinated indebtedness; and

 

•                  are unconditionally guaranteed by iPCSWireless, Inc., iPCS Equipment, Inc. and any new domestic restrictedsubsidiaries 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.

 

Interest is payablesemi-annually in arrears on May 1 and November 1, commencing on November 1,2004 to the holders of record on the immediately preceding April 15 and October 15.At any time prior to May 1, 2007, we may redeem up to 35% of the aggregateprincipal amount of the senior notes at a redemption price of 111.50% of the principalamount thereof, plus accrued and unpaid interest, and liquidated damages (asdefined in the indenture), if applicable, to the redemption date with the netcash proceeds of a sale of our equity interests or a contribution to our commonequity capital; provided that:

 

30

----

 

•                  at least 65% of aggregate principal amount of seniornotes originally issued remains outstanding immediately after the redemption;and

 

•                  the redemption occurs within 45 days of the dateof the closing of such sale of equity interests or contribution.

 

Except pursuant to the preceding paragraph,the senior notes will not be redeemable at our option prior to May 1,2008.

 

On or after May 1, 2008, we may redeemall or a part of the senior notes issued under the indenture upon not less than30 nor more than 60 days’ notice, at the redemption prices (expressed aspercentages of principal amount) set forth below plus accrued and unpaidinterest and liquidated damages, if any, on the senior notes redeemed, to theapplicable redemption date, if redeemed during the twelve-month periodbeginning on May 1 of the years indicated below, subject to the rights ofholders of senior notes on the relevant record date to receive interest on therelevant interest payment date:

 

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

 

 

Upon a change of control as defined in theindenture, we will be required to make an offer to purchase the senior notes ata price equal to 101% of the aggregate principal amount of senior notesrepurchased plus accrued and unpaid interest and liquidated damages, if any, tothe date of purchase.

 

*NortelNetworks Equipment Agreement*

 

On November 22, 2004, we signed a letterof agreement with Nortel Networks to replace our Lucent network equipmentcurrently deployed in our Michigan markets with Nortel equipment including oneswitch, 232 base stations, various additional capacity growth and networkequipment. Under the terms of the agreement, we have agreed to purchaseequipment totaling $15.2 million and will receive special pricing onfuture purchases through December 31, 2007.  Through March 31, 2005, we havepurchased approximately $8.0 million of equipment under this agreement.

 

***Seasonality***

 

Our business is subject to seasonalitybecause the wireless telecommunications industry historically has been heavilydependent on fourth calendar quarter results. Among other things, the industryrelies on significantly higher subscriber additions and handset sales in thefourth 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. Theincreased level of activity requires a greater use of available financialresources during this period.

 

***Inflation***

 

We believe that inflation has not had asignificant impact in the past and is not likely to have a significant impactin the foreseeable future on our results of operations.

 

***Future Trends That May Affect OperatingResults, Liquidity and Capital Resources***

 

During 2003 and into 2004 we experiencedoverall declining net subscriber growth compared to previous periods. Webelieve this trend was attributable to increased competition and slowingaggregate subscriber growth in the wireless telecommunications industry as wellas the implementation of a tighter credit policy that decreased the number ofsub-prime activations. In addition, as a means to conserve cash in 2003, weclosed 15 company-owned retail stores and cancelled 21 agreements with localthird party distributors, thereby reducing our retail presence in a number ofour markets.  We have seen improvementsin our net subscriber growth in our last four quarters; however, we still incurnet losses to acquire new subscribers. As we seek to accelerate our subscriber growth, we will incursignificant upfront subscriber acquisition expenses (including the customerhandset subsidy, commissions and promotional expenses) that initially willresult in increased losses and reduced levels of cash flows from operating activitiesas compared to our most recent prior periods. Alternatively, we may not be ableto sustain our planned growth in subscribers or obtain sufficient revenue toachieve and sustain profitability. Net subscriber growth was approximately18,600 subscribers in all our markets for the six months ended March 31,2005. For the six months ended March 31, 2004 we added approximately 7,300net subscribers in

 

31

----

 

all our markets.  If we are notable to achieve our planned subscriber growth, it will lengthen the amount oftime it will 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. In addition, to the extent our subscriber growth includes a higherpercentage of sub-prime credit subscribers, our churn and bad debt expense mayincrease.

 

We may continue to experience higher costs toacquire subscribers. For the six months ended March 31, 2005, our CPGA was$382 per activation compared to $365 per activation for the period ended March 31,2004.  To accelerate our subscribergrowth, we are offering more aggressive handset promotions and spending more inadvertising to acquire new customers than we did while we were in bankruptcyand trying to conserve cash.  With ahigher CPGA, subscribers must remain our subscribers for a longer period oftime at a stable ARPU for us to recover those acquisition costs.

 

We may experience a higher churn rate. Ouraverage subscriber monthly churn (net of deactivations that take place within30 days of the activation date) for the six months ended March 31,2005 and 2004 was 2.8%.  In our 2003fiscal year, our churn rate was the highest we had experienced to date due to asignificantly higher number of involuntary deactivations relating to sub-primecredit subscribers. A tighter credit policy implemented in mid-2003 decreasedthe number of sub-prime activations which helped to reduce churn but it alsocontributed to the overall smaller subscriber growth than we had experienced inthe past. If churn increases over the long-term, we would lose the cash flowsattributable to these subscribers and have greater-than-projected losses.

 

We may incur significant wireless handsetsubsidy costs for existing subscribers who upgrade to a new handset. As oursubscriber base matures and technological innovations occur, more existingsubscribers will begin to upgrade to new wireless handsets for which wesubsidize the cost to the subscriber. We incurred net upgrade costs ofapproximately $2.2 million and $3.1 million associated with wirelesshandset upgrade costs for the six months ended March 31, 2005 and 2004,respectively. We have limited historical experience regarding the adoption ratefor wireless handset upgrades. If more subscribers upgrade to new wirelesshandsets than we project, near term cash flows would be lower than projected.

 

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

 

We do not engage in commodity futures tradingactivities and do not enter into derivative financial instrument transactionsfor trading or other speculative purposes. We also do not engage intransactions in foreign currencies that could expose us to market risk.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

***Evaluation of Disclosure Controls andProcedures***

 

We maintain disclosure controls andprocedures that are designed to ensure that information required to bedisclosed in our Securities Exchange Act of 1934 reports is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms, and that such information is accumulated and communicated toour management, including our Chief Executive Officer and Chief FinancialOfficer, as appropriate, to allow timely decisions regarding requireddisclosure.

 

We place reliance on Sprint to adequatelydesign its internal controls with respect to the processes established toprovide financial information and other information to us and the other PCSAffiliates of Sprint.  To address thisissue, Sprint engages an independent registered public accounting firm toperform periodic evaluation of these controls and to provide a “Report onControls Placed in Operation and Tests of Operating Effectiveness forAffiliates” under guidance provided in Statement of Auditing Standards No.70.  This report is provided to usbi-annually.

 

As of March 31, 2005, we carried out anevaluation, under the supervision and with the participation of our management,including our Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures.  Based on the foregoing, ourChief Executive Officer and Chief Financial Officer concluded that the designand operation of the Company’s disclosure controls and procedures wereeffective as of March 31, 2005.

 

***Changes in Internal Controls over FinancialReporting***

 

During the fiscal quarter ended March 31,2005, there was no change in our internal control over financial reporting thathas materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

 

32

----

 

**PART II . OTHER INFORMATION**

** **

**ITEM 1. LEGAL PROCEEDINGS**

 

See Item 2 – “Management’s Discussion and Analysisof 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 to claims arising in theordinary course of business and in connection with our bankruptcy petition. Weare not currently a party to any such legal proceedings, the adverse outcome towhich, individually or in the aggregate, is expected to have a material adverseeffect on our business, financial condition or results of operations.

 

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

# ** **

During the quarter ended March 31, 2005,we issued 83,455 shares of common stock to creditors pursuant to our Plan ofReorganization.  The Company relied on theexemption from registration under the Securities Act of 1933 provided by Section 1145of the United States Bankruptcy Code.

 

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

# ** **

None.

 

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

# ** **

None.

 

# **ITEM 5. OTHER INFORMATION**

# ** **

Inconnection with the merger with Horizon PCS, certain members of our board ofdirectors will resign in order to create vacancies for the persons designatedby Horizon PCS to serve on our board of directors following consummation of themerger.  In March 2005, thecompensation committee of our board of directors approved with respect to suchresigning directors, that any remaining unvested options shall accelerate uponresignation and shall become immediately exercisable and remain exercisable for180 days post-resignation.

 

**ITEM 6. EXHIBITS**

 

See the Index to Exhibits following the signaturepage hereto for a list of the exhibits filed pursuant to Item 601 of RegulationS-K.

 

33

----

 

**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 
|                | iPCS, Inc. |
|---------------------|------------|
|                |       |
|                | By:        | /s/ TIMOTHY M. YAGER |   |
|                |       | Timothy M. Yager*President and Chief Executive Officer*(Principal Executive Officer) |
| Date: May 16,  2005 |       |   |
|                | By:        | /s/ STEBBINS B. CHANDOR, JR. |   |
|                |       | Stebbins B. Chandor, Jr.*Executive Vice President Operations and  Chief Financial Officer*(Principal Financial Officer) |
| Date: May 16, 2005  |       |   |

 

34

----

 

**INDEX TOEXHIBITS**

 
| **Exhibit  Number** | ** ** | **Exhibit Title**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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 Form 8-K filed by the Registrant with the SEC  on March 18, 2005 (SEC File No. 333-32064))                                                                                                                                                                                                                                                                                                        |
| 2.2                 |       | Support Agreement, dated as of March 17,  2005, by and among iPCS, Inc., Apollo Investment Fund IV, L.P. and certain of  its affiliates (Incorporated by reference to Exhibit 2.2 to the Form 8-K  filed by the Registrant with the SEC on March 18, 2005 (SEC File No.  333-32064))                                                                                                                                                                                                                                                                           |
| 2.3                 |       | Support Agreement, dated as of March 17,  2005, by and among Horizon PCS and certain affiliates of American  International Group, Inc (Incorporated by reference to Exhibit 2.3 to the  Form 8-K filed by the Registrant with the SEC on March 18, 2005 (SEC  File No. 333-32064))                                                                                                                                                                                                                                                                             |
| 2.4                 |       | Support Agreement, dated as of March 17,  2005, by and among iPCS, Inc., Horizon PCS, Inc. and certain affiliates of  Silver Point Capital L.P (Incorporated by reference to Exhibit 2.4 to the  Form 8-K filed by the Registrant with the SEC on March 18, 2005 (SEC  File No. 333-32064))                                                                                                                                                                                                                                                                    |
| 2.5                 |       | Ancillary Agreement, dated as of March 17,  2005, by and among iPCS, Inc., certain affiliates of American International  Group, Inc., certain affiliates of Silver Point Capital L.P., Apollo  Investment Fund IV, L.P. and certain of its affiliates, and the Timothy M.  Yager 2001 Trust (Incorporated by reference to Exhibit 2.5 to the Form 8-K  filed by the Registrant with the SEC on March 18, 2005 (SEC File No.  333-32064))                                                                                                                       |
| 2.6                 |       | 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  the Registrants with the SEC on August 5, 2004 (SEC File  No. 333-117942))                                                                                                                                                                                                           |
| 2.7                 |       | 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 the Registrants with the SEC on August 5, 2004 (SEC File  No. 333-117942))                                                                                                                                                                               |
| 2.8                 |       | 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 the Registrants with the SEC on August 5, 2004 (SEC File No.  333-117942))                                                                                                                                                                                                 |
| 2.9                 |       | 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 the Registrants with the SEC  on August 5, 2004 (SEC File No. 333-117942)) |
| 3.1                 |       | Restated Certificate of Incorporation of  iPCS, Inc. (Incorporated by reference to Exhibit 3.1 to the  registration statement on Form S-4 filed by the Registrants with the SEC  on August 5, 2004 (SEC File No. 333-117942))                                                                                                                                                                                                                                                                                                                        |
| 3.2                 |       | Amended and Restated Bylaws of  iPCS, Inc. (Incorporated by reference to Exhibit 3.2 to the  registration statement on Form S-4 filed by the Registrants with the SEC  on August 5, 2004 (SEC File No. 333-117942))                                                                                                                                                                                                                                                                                                                             |
| 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 the Registrants with the SEC  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 the Registrants with the SEC 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 the Registrants with the SEC  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 the Registrants with the SEC on January 8,  2001 (SEC File No. 333-47688))                                                                                                                                                                                                                                                                                                                                        |
| 4.1                 |       | Specimen Common Stock Certificate (filed as  an exhibit to the Registration Statement filed on August 5, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.2                 |       | Common Stock Registration Rights Agreement,  dated as of July 20, 2004, by and among iPCS, Inc., affiliates of  Silver Point Capital, affiliates of American International Group and the  Timothy M. Yager 2001 Trust (filed as an exhibit to the Registration  Statement filed on August 5, 2004)                                                                                                                                                                                                                                                   |
| 4.3                 |       | 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 the Registrants with the SEC on August 5, 2004 (SEC File  No. 333-117942)).                                                                                                                                                                                   |
| 4.4                 |       | Registration Rights Agreement, dated as of April 30,  2004, by and among, iPCS, Inc., iPCS Wireless, Inc., iPCS  Equipment, Inc., iPCS Escrow Company, Credit Suisse First Boston LLC and  Bear Stearns & Co. Inc. (Incorporated by reference to  Exhibit 4.2 to the registration statement on Form S-4 filed by the  Registrants with the SEC on August 5, 2004 (SEC File  No. 333-117942))                                                                                                                       |

 

35

----

 
|   | 10.1* |   | Sprint PCS Management Agreement dated as of  January 22, 1999 between WirelessCo, L.P., Sprint Spectrum, L.P.,  SprintCom, Inc., and Illinois PCS, L.L.C. (predecessor of iPCS  Wireless, Inc.) as amended by Addendum I through Addendum V  thereto (Incorporated by reference to Exhibit 10.1 to the registration  statement on Form S-4 filed by the Registrants with the SEC on January 9,  2001 (SEC File No. 333-47688)) |
|--------|-------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 10.2  |   | Addendum VI to Sprint PCS Management  Agreement (Incorporated by reference to Exhibit 10.40 to the annual  report on Form 10-K by the Registrants with the SEC on March 29,  2001))                                                                                                                                                                                                                                                                          |
|   | 10.3  |   | Addendum VII to Sprint PCS Management  Agreement (Incorporated by reference to Exhibit 10.3 to the registration  statement on Form S-4 filed by the Registrants with the SEC on August 5,  2004 (SEC File No. 333-117942))                                                                                                                                                                                                                              |
|   | 10.4  |   | Addendum VIII to Sprint PCS Management  Agreement (Incorporated by reference to Exhibit 10.4 to the registration  statement on Form S-4 filed by the Registrants with the SEC on August 5,  2004 (SEC File No. 333-117942))                                                                                                                                                                                                                             |
|   | 10.5  |   | Addendum IX to Sprint PCS Management  Agreement (Incorporated by reference to Exhibit 10.5 to the registration  statement on Form S-4 filed by the Registrants with the SEC on August 5,  2004 (SEC File No. 333-117942))                                                                                                                                                                                                                               |
|   | 10.6* |   | Sprint PCS Services Agreement dated as of January 22,  1999 by and between Sprint Spectrum, L.P. and Illinois PCS, L.L.C.  (predecessor of iPCS Wireless, Inc.) (Incorporated by reference to  exhibits to the registration statement on Form S-4 filed by the  Registrants with the SEC (SEC File No. 333-47688))                                                                                                                                      |
|   | 10.7* |   | Sprint Trademark and Service Mark License  Agreement dated as of January 22, 1999 between Sprint Communications  Company, L.L.C. and Illinois PCS, L.L.C. (predecessor of iPCS  Wireless, Inc.) (Incorporated by reference to Exhibit 10.3 to the  registration statement on Form S-4 filed by the Registrants with the SEC  on January 8, 2001 (SEC File No. 333-47688))                                                                     |
|   | 10.8* |   | Sprint Spectrum Trademark and Service Mark  License Agreement dated as of January 22, 1999 between Sprint Spectrum  L.P. and Illinois PCS, L.L.C. (predecessor of iPCS Wireless, Inc.)  (Incorporated by reference to Exhibit 10.4 to the registration statement  on Form S-4 filed by the Registrants with the SEC on January 8,  2001 (SEC File No. 333-47688))                                                                             |
|   | 10.9  |   | Master Lease Agreement dated as of August 31,  2000 between iPCS Wireless, Inc. and Trinity Wireless Towers, Inc.  (Incorporated by reference to Exhibit 10.43 to the annual report on  Form 10-K405 filed by the Registrants with the SEC on March 29,  2001)                                                                                                                                                                                |
|   | 10.10 |   | Master Tower Space Reservation and License  Agreement dated as of July 20, 2002 by and between American Tower, L.P.  and iPCS Wireless, Inc. (Incorporated by reference to Exhibit 10.10  to the registration statement on Form S-4 filed by the Registrants with  the SEC on August 5, 2004 (SEC File No. 333-117942))                                                                                                                       |
|   | 10.11 |   | Restructuring Management Services Agreement  between iPCS, Inc. and YMS Management LLC dated as of January 27,  2003, as amended. (Incorporated by reference to Exhibit 10.11 to the  registration statement on Form S-4 filed by the Registrants with the SEC  on August 5, 2004 (SEC File No. 333-117942))                                                                                                                                  |
|   | 10.12 |   | iPCS, Inc. Amended and Restated 2004  Long-Term Incentive Plan, (Incorporated by reference to Exhibit 99.1 to  the current report on Form 8-K filed by the Registrant with the SEC on  May 11, 2005)                                                                                                                                                                                                                                                         |
|   | 10.13 |   | Employment Agreement, dated as of July 20,  2004, by and between Timothy M. Yager and iPCS Wireless, Inc.  (Incorporated by reference to Exhibit 10.13 to the registration  statement on Form S-4 filed by the Registrants with the SEC on August 5,  2004 (SEC File No. 333-117942))                                                                                                                                                    |
|   | 10.14 |   | Employment Agreement, dated as of July 20,  2004, by and between Stebbins B. Chandor, Jr. and iPCS  Wireless, Inc. (Incorporated by reference to Exhibit 10.14 to the  registration statement on Form S-4 filed by the Registrants with the SEC  on August 5, 2004 (SEC File No. 333-117942))                                                                                                                                            |
|   | 10.15 |   | Employment Agreement, dated as of July 20,  2004, by and between Patricia M. Greteman and iPCS Wireless, Inc.  (Incorporated by reference to Exhibit 10.15 to the registration  statement on Form S-4 filed by the Registrants with the SEC on August 5,  2004 (SEC File No. 333-117942))                                                                                                                                                |
|   | 10.16 |   | Employment Agreement, dated as of July 20,  2004, by and between Craig A. Kinley and iPCS Wireless, Inc.  (Incorporated by reference to Exhibit 10.16 to the registration  statement on Form S-4 filed by the Registrants with the SEC on August 5,  2004 (SEC File No. 333-117942))                                                                                                                                                     |
|   | 10.17 |   | Form of Incentive Stock Option Agreement  (Incorporated by reference to Exhibit 10.17 to the registration statement  on Form S-4 filed by the Registrants with the SEC on August 5, 2004  (SEC File No. 333-117942))                                                                                                                                                                                                                                    |
|   | 10.18 |   | Form of Non-Qualified Stock Option  Agreement (Incorporated by reference to Exhibit 10.18 to the  registration statement on Form S-4 filed by the Registrants with the SEC  on August 5, 2004 (SEC File No. 333-117942))                                                                                                                                                                                                                                |
|   | 10.19 |   | Form of Director Non-Qualified Stock Option  Agreement (Incorporated by reference to Exhibit 10.19 to the  registration statement on Form S-4 filed by the Registrants with the SEC  on August 5, 2004 (SEC File No. 333-117942))                                                                                                                                                                                                                       |
|   | 10.20 |   | Timothy M. Yager’s Amended and Restated  Stock Unit Agreement, dated as of January 27, 2005 (Incorporated by  reference to Exhibit 99.3 to the current report on Form 8-K Filed by the  Registrant with the SEC on February 2, 2005)                                                                                                                                                                                                                         |
|   | 10.21 |   | Form of Restricted Stock Agreement (filed  as an exhibit to the Registration Statement filed on October 5, 2004)                                                                                                                                                                                                                                                                                                                                                       |
|   | 10.22 |   | Agreement of Purchase and Sale, dated September 8,  2004, between iPCS Wireless, Inc. and TCP Communications LLC  (Incorporated by reference to Exhibit 10.1 to the Form 8-K filed by  the Registrant with the SEC on September 14, 2004)                                                                                                                                                                                                          |
|   | 10.23 |   | Employment Agreement by and between iPCS  Wireless, Inc. and John J. Peterman, dated as of August 24, 2004  (Incorporated by reference to Exhibit 10.1 to the Form 8-K filed by  the Registrant with the SEC on September 14, 2004)                                                                                                                                                                                                                |
|   | 10.24 |   | Amended and Restated Addendum VIII to  Sprint PCS Management Agreement (Incorporated by reference to  Exhibit 10.1 to the Form 8-K filed by the Registrant with the SEC  on November 4, 2004)                                                                                                                                                                                                                                                                |

 

36

----

 
|   | 10.25 |   | Employment Agreement by and between iPCS  Wireless, Inc. and Edmund L. Quatmann, Jr. dated as of November 30,  2004 (Incorporated by reference to Exhibit 10.1 to the Form 8-K  filed by the Registrant with the SEC on December 3, 2004) |
|--------|-------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 10.26 |   | Form of Non-Qualified Stock Option  Agreement for Non-Employee Directors (Employing Stockholder version)  (Incorporated by reference to Exhibit 99.2 to the current report on Form 8-K  filed by the Registrant with the SEC on February 2, 2005)                  |
|   | 31.1  |   | Certification of Chief Executive Officer  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                |
|   | 31.2  |   | Certification of Chief Financial Officer  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                |
|   | 32.1  |   | Certification Pursuant to 18 U.S.C. Section 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                       |

 

----

*                                         Confidentialtreatment has been granted on portions of these documents.

 

37

----