Table of Contents

 

 

 

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**WASHINGTON, D.C. 20549

** **

**FORM 10-Q**

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

 

**For the quarterly period ended June 30, 2008**

 

**Or**

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

 

**For the transition periodfrom                to                **

 

**CommissionFile Number 000-51844**

 

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**iPCS, INC.**(Exact name of registrant as specified in itscharter)

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

 

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

 

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

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

 

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

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

 

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

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

 

Indicate by check markwhether the registrant has filed all documents and reports required to be filedby Section 12, 13 or 15(d) of the Securities Exchange Actof 1934 subsequent to the distribution of securities under a plan confirmed bya court.

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

 

As of July 31, 2008,there were 17,158,973 shares of common stock, $0.01 par value per share,outstanding.

 

 

 

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**TABLE OF CONTENTS**

** **
| PART I    | FINANCIAL INFORMATION                                                                                             | 3      |
|----------------|-------------------------------------------------------------------------------------------------------------------|--------|
|           |                                                                                                              |   |
| ITEM 1.        | FINANCIAL STATEMENTS                                                                                              | 3      |
|           | CONSOLIDATED BALANCE SHEETS AS OF JUNE 30,  2008 AND DECEMBER 31, 2007 (UNAUDITED)                                | 3      |
|           | CONSOLIDATED STATEMENTS OF OPERATIONS FOR  THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED) | 4      |
|           | CONSOLIDATED STATEMENTS OF CASH FLOWS FOR  THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)           | 5      |
|           | NOTES TO UNAUDITED CONSOLIDATED FINANCIAL  STATEMENTS                                                             | 6      |
| ITEM 2.        | MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS                       | 19     |
| ITEM 3.        | QUANTITATIVE AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK                                                       | 35     |
| ITEM 4.        | CONTROLS AND PROCEDURES                                                                                           | 35     |
|           |                                                                                                              |   |
| PART II   | OTHER INFORMATION                                                                                                 | 36     |
|           |                                                                                                              |   |
| ITEM 1.        | LEGAL PROCEEDINGS                                                                                                 | 36     |
| ITEM 1A.       | RISK FACTORS                                                                                                      | 36     |
| ITEM 2.        | UNREGISTERED SALES OF EQUITY SECURITIES AND  USE OF PROCEEDS                                                      | 36     |
| ITEM 3.        | DEFAULTS UPON SENIOR SECURITIES                                                                                   | 36     |
| ITEM 4.        | SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS                                                              | 37     |
| ITEM 5.        | OTHER INFORMATION                                                                                                 | 37     |
| ITEM 6.        | EXHIBITS                                                                                                          | 38     |
|           |                                                                                                              |   |
| SIGNATURES     | 40                                                                                                                |
|           |                                                                                                              |
| CERTIFICATIONS |                                                                                                              |

 

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**PART I. FINANCIAL INFORMATION**

** **

**Item 1. Financial Statements.**

 

**iPCS, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**(UNAUDITED)**(Inthousands, except share and per share amounts)

 
| ** **                                                                                                                                    | ** ** | **June 30,  2008** | ** ** | **December 31,  2007 (a)** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|--------------------------------------|------------|
|                                                                                                                                          |       |                    |       |                                 |       |
| **Assets**                                                                                                                                    | ** ** | ** **              | ** ** | ** **                           | ** ** |
| Current Assets:                                                                                                                               |       |                    |       |                                 |       |
| Cash and cash equivalents                                                                                                                     |       | $                       | 65,554     |                                 | $          | 77,599 |   |
| Accounts receivable, net of  allowance for doubtful accounts of $8,334 and $9,635, respectively                                               |       | 34,569                  |       | 29,774                               |       |
| Receivable from Sprint (Note 3)                                                                                                               |       | 39,484                  |       | 41,509                               |       |
| Inventories, net                                                                                                                              |       | 5,597                   |       | 5,277                                |       |
| Assets held for sale (Note 4)                                                                                                                 |       | 1,996                   |       | 2,680                                |       |
| Prepaid expenses                                                                                                                              |       | 6,062                   |       | 6,792                                |       |
| Other current assets                                                                                                                          |       | 221                     |       | 81                                   |       |
| Total current assets                                                                                                                          |       | 153,483                 |       | 163,712                              |       |
| Property and equipment, net (Note 4)                                                                                                          |       | 150,961                 |       | 128,677                              |       |
| Financing costs, net                                                                                                                          |       | 7,106                   |       | 7,794                                |       |
| Deferred customer activation costs                                                                                                            |       | 4,468                   |       | 4,728                                |       |
| Intangible assets, net (Note 5)                                                                                                          |       | 95,190                  |       | 99,777                               |       |
| Goodwill (Note 5)                                                                                                                             |       | 141,783                 |       | 141,783                              |       |
| Other assets                                                                                                                                  |       | 345                     |       | 353                                  |       |
| Total assets                                                                                                                                  |       | $                       | 553,336    |                                 | $          | 546,824 |   |
|                                                                                                                                          |       |                    |       |                                 |       |
| **Liabilities and Stockholders’  Deficiency**                                                                                            | ** ** | ** **              | ** ** | ** **                           | ** ** |
| Current Liabilities:                                                                                                                          |       |                    |       |                                 |       |
| Accounts payable                                                                                                                              |       | $                       | 5,874      |                                 | $          | 6,136 |   |
| Accrued expenses                                                                                                                              |       | 19,301                  |       | 14,791                               |       |
| Payable to Sprint (Note 3)                                                                                                                    |       | 50,015                  |       | 49,205                               |       |
| Deferred revenue                                                                                                                              |       | 12,154                  |       | 11,176                               |       |
| Accrued interest                                                                                                                              |       | 5,612                   |       | 6,216                                |       |
| Current maturities of long-term debt and capital lease obligations  (Note 6)                                                                  |       | 33                      |       | 30                                   |       |
| Total current liabilities                                                                                                                     |       | 92,989                  |       | 87,554                               |       |
| Deferred customer activation fee revenue                                                                                                      |       | 4,468                   |       | 4,728                                |       |
| Interest rate swap (Note 7)                                                                                                                   |       | 11,101                  |       | 11,607                               |       |
| Other long-term liabilities                                                                                                                   |       | 6,859                   |       | 7,331                                |       |
| Long-term debt and capital lease obligations, excluding current  maturities (Note 6)                                                          |       | 475,420                 |       | 475,438                              |       |
| Total liabilities                                                                                                                             |       | 590,837                 |       | 586,658                              |       |
|                                                                                                                                          |       |                    |       |                                 |       |
| Commitments and contingencies (Note 13)                                                                                                       |       |                    |       |                                 |       |
|                                                                                                                                          |       |                    |       |                                 |       |
| Stockholders’ Deficiency:                                                                                                                |       |                    |       |                                 |       |
| Preferred stock, par value $.01 per share; 25,000,000 shares  authorized; none issued                                                         |       | —                  |       | —                               |       |
| Common stock, par value  $.01 per share; 75,000,000 shares authorized, 17,155,685 and 17,112,244  shares issued and outstanding, respectively |       | 171                     |       | 171                                  |       |
| Additional paid-in-capital                                                                                                                    |       | 165,151                 |       | 161,072                              |       |
| Accumulated deficiency                                                                                                                        |       | (191,722                | )          | (189,470                             | )          |
| Accumulated other comprehensive loss (Note 11)                                                                                                |       | (11,101                 | )          | (11,607                              | )          |
| Total stockholders’ deficiency                                                                                                           |       | (37,501                 | )          | (39,834                              | )          |
| Total liabilities and stockholders’ deficiency                                                                                           |       | $                       | 553,336    |                                 | $          | 546,824 |   |

 

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

 

See Notes tounaudited consolidated financial statements.

 

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**iPCS, INC.AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

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

 
| ** **                                                                                            | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                            | ** ** | **June 30, 2008**                        | ** ** | **June 30, 2007**                      | ** ** | **June 30, 2008** | ** ** | **June 30, 2007** | ** ** |
| ** **                                                                                            | ** ** | ** **                                         | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenue:**                                                                                          | ** ** | ** **                                         | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service revenue                                                                                       |       | $                                                  | 94,174     |                                             | $          | 89,924 |   | $ | 186,273 |   | $ | 174,945 |   |
| Roaming revenue                                                                                       |       | 31,657                                             |       | 40,036                                           |       | 61,801 |   | 72,997 |   |
| Equipment and other                                                                                   |       | 3,540                                              |       | 3,273                                            |       | 6,955 |   | 6,144 |   |
| Total revenue                                                                                         |       | 129,371                                            |       | 133,233                                          |       | 255,029 |   | 254,086 |   |
| **Operating Expense:**                                                                                | ** ** | ** **                                         | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost of service and  roaming (exclusive of depreciation and amortization, as shown separately  below) |       | 70,463                                             |       | 78,739                                           |       | 138,647 |   | 152,154 |   |
| Cost of equipment                                                                                     |       | 12,874                                             |       | 12,770                                           |       | 24,537 |   | 25,949 |   |
| Selling and marketing                                                                                 |       | 16,444                                             |       | 19,108                                           |       | 34,303 |   | 39,682 |   |
| General and  administrative                                                                           |       | 7,992                                              |       | 8,670                                            |       | 15,080 |   | 15,597 |   |
| Depreciation (Note 4)                                                                                 |       | 11,556                                             |       | 12,031                                           |       | 23,217 |   | 23,869 |   |
| Amortization of  intangible assets (Note 5)                                                           |       | 2,293                                              |       | 7,594                                            |       | 4,587 |   | 15,188 |   |
| Loss on disposal of  property and equipment, net                                                      |       | 248                                                |       | 6                                                |       | 258 |   | 65 |   |
| Total operating expense                                                                               |       | 121,870                                            |       | 138,918                                          |       | 240,629 |   | 272,504 |   |
| **Operating income (loss)**                                                                           |       | 7,501                                              |       | (5,685                                           | )          | 14,400 |   | (18,418 | ) |
| Interest income                                                                                       |       | 384                                                |       | 1,555                                            |       | 1,104 |   | 3,098 |   |
| Interest expense                                                                                      |       | (8,221                                             | )          | (9,128                                           | )          | (17,136 | ) | (17,098 | ) |
| Debt extinguishment  costs (Note 6)                                                                   |       | —                                             |       | (30,501                                          | )          | — |   | (30,501 | ) |
| Other income, net                                                                                     |       | 15                                                 |       | 115                                              |       | 30 |   | 132 |   |
| **Loss before provision for  income tax**                                                             |       | (321                                               | )          | (43,644                                          | )          | (1,602 | ) | (62,787 | ) |
| Provision for income  tax (Note 8)                                                                    |       | 325                                                |       | —                                           |       | 650 |   | — |   |
| **Net loss**                                                                                          |       | $                                                  | (646       | )                                                | $          | (43,644 | ) | $ | (2,252 | ) | $ | (62,787 | ) |
|                                                                                                  |       |                                               |       |                                             |       |   |   |   |   |
| **Basic and diluted loss per share of common stock:**                                                 |       |                                               |       |                                             |       |   |   |   |   |
| Loss available to  common stockholders                                                                |       | $                                                  | (0.04      | )                                                | $          | (2.58 | ) | $ | (0.13 | ) | $ | (3.71 | ) |
|                                                                                                  |       |                                               |       |                                             |       |   |   |   |   |
| Weighted average basic  and diluted common shares outstanding                                         |       | 17,154,237                                         |       | 16,938,265                                       |       | 17,145,140 |   | 16,906,242 |   |

 

See Notes to unauditedconsolidated financial statements.

 

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**iPCS, INC.AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(UNAUDITED)**(In thousands)

 
| ** **                                                                                                               | ** ** | **For the Six Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **June 30,  2008**                          | ** ** | **June 30,  2007** | ** ** |
| **Cash flows from operating  activities:**                                                                               | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Net loss                                                                                                                 |       | $                                                | (2,252     | ) | $ | (62,787 | ) |
| Adjustments to  reconcile net loss to net cash flows provided by operating activities:                                   |       |                                             |       |   |   |
| Loss on disposal of  property and equipment, net                                                                         |       | 258                                              |       | 65 |   |
| Depreciation and  amortization                                                                                           |       | 27,804                                           |       | 39,057 |   |
| Non-cash interest  expense, net of amortization of debt fair value adjustment                                            |       | 688                                              |       | 35 |   |
| Debt extinguishment  costs                                                                                               |       | —                                           |       | 30,501 |   |
| Stock-based  compensation expense                                                                                        |       | 3,660                                            |       | 6,730 |   |
| Provision for doubtful  accounts                                                                                         |       | 10,149                                           |       | 6,975 |   |
| Changes in assets and  liabilities:                                                                                      |       |                                             |       |   |   |
| Accounts receivable                                                                                                      |       | (14,945                                          | )          | (8,844 | ) |
| Receivable from Sprint                                                                                                   |       | 2,025                                            |       | 5,504 |   |
| Inventories, net                                                                                                         |       | (319                                             | )          | 54 |   |
| Prepaid expenses, other  current and long term assets                                                                    |       | 1,068                                            |       | 448 |   |
| Accounts payable,  accrued expenses and other long term liabilities                                                      |       | (1,179                                           | )          | (5,955 | ) |
| Payable to Sprint                                                                                                        |       | 810                                              |       | (6,680 | ) |
| Deferred revenue                                                                                                         |       | 717                                              |       | 1,111 |   |
| Net cash flows provided  by operating activities                                                                         |       | 28,484                                           |       | 6,214 |   |
| **Cash flows from investing  activities:**                                                                               | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Purchases of property  and equipment                                                                                     |       | (40,990                                          | )          | (19,921 | ) |
| Proceeds from  disposition of property and equipment                                                                     |       | 163                                              |       | 300 |   |
| Net cash flows used in  investing activities                                                                             |       | (40,827                                          | )          | (19,621 | ) |
| **Cash flows from financing  activities:**                                                                               | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Proceeds from senior  secured notes                                                                                      |       | —                                           |       | 475,000 |   |
| Proceeds from the  exercise of stock options                                                                             |       | 396                                              |       | 3,064 |   |
| Repayments of senior  notes                                                                                              |       | —                                           |       | (290,000 | ) |
| Tender premium on  senior notes                                                                                          |       | —                                           |       | (34,155 | ) |
| Payments on capital  lease obligations                                                                                   |       | (15                                              | )          | (12 | ) |
| Debt financing costs                                                                                                     |       | —                                           |       | (7,977 | ) |
| Stock purchases and  retirements                                                                                         |       | (11                                              | )          | — |   |
| Payment of special cash  dividend (Note 10)                                                                              |       | (72                                              | )          | (186,471 | ) |
| Net cash flows provided  by (used in) financing activities                                                               |       | 298                                              |       | (40,551 | ) |
| Net decrease in cash  and cash equivalents                                                                               |       | (12,045                                          | )          | (53,958 | ) |
| **Cash and cash equivalents at  beginning of period**                                                                    |       | 77,599                                           |       | 120,499 |   |
| **Cash and cash equivalents at  end of period**                                                                          |       | $                                                | 65,554     |   | $ | 66,541 |   |
|                                                                                                                     |       |                                             |       |   |   |
| **Supplemental disclosure of cash  flow information- cash paid for interest**                                            |       | $                                                | 17,815     |   | $ | 20,046 |   |
| **Supplemental disclosure for  non-cash investing activities:**                                                          | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Capitalized interest                                                                                                     |       | $                                                | 811        |   | $ | 365 |   |
| Accounts payable and  accrued expenses incurred for the acquisition of property, equipment and  construction in progress |       | 5,326                                            |       | 4,409 |   |
| **Supplemental disclosure for  non-cash financing activities:**                                                          |       |                                             |       |   |   |
| Dividends declared, but  not paid                                                                                        |       | $                                                | —     |   | $ | 544 |   |

 

See Notes tounaudited consolidated financial statements.

 

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**iPCS, INC.AND SUBSIDIARIES**

**NOTES TOUNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

 

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

** **

iPCS, Inc. (the “Company” or “iPCS”) isa holding company that operates as a PCS Affiliate of Sprint through threewholly owned subsidiaries: iPCS Wireless, Inc., Horizon PersonalCommunications, Inc., and Bright Personal CommunicationsServices, LLC. Each of these subsidiaries is a party to separateaffiliation agreements with Sprint PCS, the operator of a 100% digital personalcommunications service (“PCS”) wireless network with licenses to provide voiceand data service to the entire United States population.  These affiliation agreements, as amended,grant iPCS the exclusive right to sell wireless mobility communications networkproducts and services under the Sprint brand in 81 markets, including marketsin Illinois, Indiana, Iowa, Michigan, Pennsylvania, Ohio, Maryland, Nebraska,New York, New Jersey, Tennessee and West Virginia.

 

The unaudited consolidated balance sheets as of June 30, 2008 and December 31,2007, the unaudited consolidated statements of operations for the three and sixmonths ended June 30, 2008 and 2007, the unaudited consolidated statementsof cash flows for the six months ended June 30, 2008 and 2007 and relatedfootnotes have been prepared in accordance with accounting principles generallyaccepted in the United States of America for interim financial information and Rule 10-01of Regulation S-X. Accordingly, they do not include all of the information andfootnotes required by accounting principles generally accepted in the UnitedStates for complete financial statements. The financial information presentedherein should be read in conjunction with the Company’s 2007 Annual Report on Form 10-Kwhich includes information and disclosures not presented herein. Allsignificant intercompany accounts and transactions have been eliminated inconsolidation. In the opinion of management, the unaudited consolidatedfinancial statements contain all of the adjustments, consisting of normalrecurring adjustments, necessary to present fairly, in summarized form, theconsolidated financial position, results of operations and cash flows of theCompany. The results of operations for the three and six months ended June 30,2008 are not indicative of the results that may be expected for the full year2008.

 

**(2)  Summary of Significant AccountingPolicies**

 

*Loss Per Share*

 

Basic and diluted loss per share for the Company are calculated bydividing the net loss by the weighted average number of shares of common stockof the Company. The calculation was made in accordance with SFAS No. 128, “EarningsPer Share.” The basic and diluted loss per share are the same because theinclusion of the incremental potential shares of common stock from any assumedexercise of stock options is antidilutive. Potential shares of common stockexcluded from the loss per share computations for both of the three and sixmonths ended June 30, 2008 and 2007 were 1,384,377 and 841,670,respectively.

 

*New Accounting Pronouncements*

 

In September 2006, the FASB issuedStatement No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157defines fair value, establishes a framework and gives guidance regarding themethods used for measuring fair value, and expands disclosures about fair valuemeasurements. In February 2008, the FASB released FASB Staff Position,(FSP) SFAS 157-2—Effective Date of FASB Statement No. 157, which delaysthe effective date of SFAS 157 for all non-financial assets and non-financialliabilities, except those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis (at least annually) to fiscal yearsbeginning after November 15, 2008. The Company adopted SFAS 157 as it applies to financial assets andliabilities as of January 1, 2008. The Company does not anticipate that the implementation of SFAS 157, asit relates to non-financial assets and liabilities will have a material impacton its financial position, results of operations and cash flows.  See Note 12 for further discussion of fairvalue measurements.

 

In December 2007, the FASB issuedStatement No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”).SFAS 141R significantly changes the way companies account for businesscombinations and will generally require more assets acquired and liabilitiesassumed to be measured at their acquisition-date fair value. Under SFAS 141R,legal fees and other transaction-related costs are expensed as incurred and areno longer included in goodwill as a cost of acquiring the business.SFAS 141R also requires, among other things, acquirers to estimate theacquisition-date fair value of any contingent consideration and to recognizeany subsequent changes in the fair value of contingent consideration inearnings. In addition, SFAS 141R amends FASB SFAS No. 109, Accounting forIncome Taxes, to require the acquirer to recognize changes in the amount of itsdeferred tax benefits that are recognizable because of a business combinationeither in income from continuing operations in the period of the combination ordirectly in contributed capital, depending on the circumstances. SFAS 141Ris effective for fiscal years beginning after December 15, 2008 with earlyadoption prohibited. SFAS 141R is effective for the Company for any businesscombinations with an acquisition date on or after January 1, 2009. TheCompany will apply the provisions of SFAS 141R to any business combinations withinthe scope of SFAS 141R after its effective date.

 

In May 2008, theFASB issued Statement No. 162, *TheHierarchy of Generally Accepted Accounting Principles*(GAAP) (“SFAS162”).  SFAS 162 provides a consistentframework for determining which accounting principles

 

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shouldbe used when preparing U.S. GAAP financial statements. SFAS 162 will be effective 60 days following theSecurities and Exchange Commission’s approval of the Public Company AccountingOversight Board amendments to AU Section 411, *The Meaning of Present Fairly in Conformity With Generally AcceptedAccounting Principles.*The adoption of SFAS 162 is not expected tohave a material effect on the Company’s consolidated financial statements.

 

**(3)  Sprint Agreements**

 

Each of iPCS Wireless, Inc., HorizonPersonal Communications, Inc. and Bright Personal CommunicationsServices, LLC has entered into affiliation agreements with Sprint. Underthese agreements, which have been amended from time to time, most recently on March 3,2008, Sprint provides the Company significant support services such as customerservice, billing, long distance transport services, national network operationssupport, inventory logistics support, use of the Sprint and Sprint PCS brandnames, national advertising, national distribution and product development.

 

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

 

The CCPU rate in 2008 through 2010 will bereduced from the then current rate by $0.15 if the Company hits certainmilestones with respect to its voluntary deployment of EV-DO Rev. A, the mostrecent version of the further evolution of code division multiple access (“CDMA”)high-speed data technology called Evolution Data Optimized (“EV-DO”).Specifically, the CCPU rates set forth above will be reduced by $0.15 from thethen current rate when the Company’s EV-DO Rev. A deployment covers at least6.0 million in population (“POPs”); by another $0.15 from the then currentrate when the Company covers at least 7.0 million POPs; and by another$0.15 from the then current rate when the Company covers at least 9.0 millionPOPs. During June 2008, the Company’s EV-DO Rev. A deployment exceeded 6.0 million POPs.  As a result, the CCPU rate will be reduced to$6.35 starting July 1, 2008 for the remainder of 2008, and will be reducedto $6.00 and $5.70 for 2009 and 2010, respectively subject to any furtheradjustments related to incremental EV-DO Rev. A coverage.

 

The Company receives roaming revenue whensubscribers of Sprint and other PCS Affiliates of Sprint incur minutes of usein the Company’s territories, and the Company incurs expense payable to Sprintand to other PCS Affiliates of Sprint when the Company’s subscribers incurminutes of use in the territories of Sprint and other PCS Affiliates of Sprint.Prior to January 1, 2008, the Company settled voice and 2G data roamingand 3G data roaming separately with Sprint and the other remaining PCSAffiliates of Sprint.  Effective January 1,2008, 3G data roaming is no longer settled separately with Sprint; however, theCompany continues to settle 3G data roaming separately with the other remainingPCS Affiliates of Sprint. For 2007, reciprocal roaming rates were $0.0403 perminute for voice and 2G data, excluding certain markets as described below, and$0.0010 per kilobyte for 3G data. For 2008, reciprocal roaming rates are$0.0400 per minute for voice and 2G data, excluding certain markets asdescribed below, and $0.0003 per kilobyte for 3G data.

 

With respect to certain of the Company’smarkets in western and eastern Pennsylvania, the Company receives the benefitof a special reciprocal rate for voice and 2G data of $0.10 per minute. Thisspecial rate will terminate, with respect to each of these two sets of markets,on the earlier of December 31, 2011 or the first day of the calendar monthwhich follows the first calendar quarter during which the Company achieves asubscriber penetration rate of at least 7% of the Company’s covered populationsin those markets.  The Company does notanticipate reaching a 7% subscriber penetration rate in these markets in theforeseeable future.

 

The Company’s affiliation agreements withSprint also provide the Company with protective rights to decline to implementcertain future program requirement changes that Sprint proposes that wouldadversely affect the Company’s business. The Company also has a right of firstrefusal to build out new coverage within the Company’s territory. If theCompany does not exercise this right, then Sprint may build out the newcoverage, or may allow another PCS affiliate of Sprint to do so, in which caseSprint has the right to manage the new coverage.

 

Roaming expense is recorded in cost ofservice and roaming within the statements of operations. Cost of service androaming transactions with Sprint include the 8% affiliation fee, long distance,roaming expense, billing support and customer care support. Cost of equipmentrelates to inventory sold by the Company that was purchased from Sprint underthe Company’s affiliation agreements with Sprint. Selling and marketingtransactions relate to subsidized costs on wireless handsets and commissionsunder Sprint’s national distribution program.

 

For the three and six months ended June 30,2008, approximately 97% of the Company’s revenue was derived from data providedby Sprint, compared to 98% for the comparative periods ended June 30,2007.  For each of the three and sixmonths ended June 30, 2008, approximately 58% of the Company’s cost ofservice and roaming was derived from data provided by Sprint.  For the three and six months ended June 30,2007, approximately 66% and 67%, respectively, of the Company’s cost of serviceand roaming was derived from data provided by Sprint.  The Company reviews all charges from Sprintand can dispute certain of these charges in cases where the Company does notreceive enough supporting detail to validate the charges or it does not believeSprint can charge the Company for certain expenses under the terms of theSprint affiliation agreements.

 

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Amounts relating to the Sprint affiliation agreements for the three and six months ended June 30,2008 and 2007 and as of June 30, 2008 and December 31, 2007 are asfollows (in thousands):

 
| ** **                                                          | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                          | ** ** | **June 30,  2008**                            | ** ** | **June 30,  2007**                          | ** ** | **June 30,  2008** | ** ** | **June 30,  2007** | ** ** |
| **Amounts  included in the Consolidated Statements of Operations:** | ** ** | ** **                                         | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service revenue                                                     |       | $                                                  | 94,174     |                                             | $          | 89,924 |   | $ | 186,273 |   | $ | 174,945 |   |
| Roaming revenue                                                     |       | $                                                  | 31,657     |                                             | $          | 40,036 |   | $ | 61,801 |   | $ | 72,997 |   |
| Cost of service and roaming:                                        |       |                                               |       |                                             |       |   |   |   |   |
| Roaming                                                             |       | $                                                  | 18,304     |                                             | $          | 25,731 |   | $ | 34,830 |   | $ | 49,935 |   |
| Customer service                                                    |       | 13,559                                             |       | 15,398                                           |       | 26,839 |   | 29,161 |   |
| Affiliation fees                                                    |       | 7,516                                              |       | 7,308                                            |       | 14,366 |   | 14,009 |   |
| Long distance and other                                             |       | 1,750                                              |       | 3,668                                            |       | 5,059 |   | 8,673 |   |
| Total cost of service and roaming                                   |       | $                                                  | 41,129     |                                             | $          | 52,105 |   | $ | 81,094 |   | $ | 101,778 |   |
| Cost of equipment                                                   |       | $                                                  | 12,874     |                                             | $          | 12,770 |   | $ | 24,537 |   | $ | 25,949 |   |
| Selling and marketing                                               |       | $                                                  | 2,521      |                                             | $          | 5,058 |   | $ | 5,045 |   | $ | 10,491 |   |

 
| ** **                                               | ** ** | **June 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **Amounts included in the Consolidated Balance Sheets:** | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Receivable from Sprint                                   |       | $                       | 39,484     |                        | $          | 41,509 |   |
| Payable to Sprint                                        |       | 50,015                  |       | 49,205                      |       |
|                                                          |            |                         |            |                             |            |  |  |

 

**(4)  Property and Equipment**

 

Property and equipment consists of the following at June 30, 2008and December 31, 2007 (in thousands):

 
| ** **                                     | ** ** | **June 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Network assets                                 |       | $                       | 245,323    |                        | $          | 232,874 |   |
| Land                                           |       | 114                     |       | 114                         |       |
| Building                                       |       | 1,566                   |       | 1,566                       |       |
| Computer equipment                             |       | 5,656                   |       | 5,043                       |       |
| Furniture, fixtures, and office equipment      |       | 8,083                   |       | 8,086                       |       |
| Vehicles                                       |       | 2,335                   |       | 2,167                       |       |
| Construction in progress                       |       | 48,260                  |       | 16,983                      |       |
| Total property and equipment                   |       | 311,337                 |       | 266,833                     |       |
| Less accumulated depreciation and amortization |       | (160,376                | )          | (138,156                    | )          |
| Total property and equipment, net              |       | $                       | 150,961    |                        | $          | 128,677 |   |

 

The Company has engaged independent agents tosell remaining Motorola equipment which was replaced with Nortel equipment. TheCompany classifies these assets as Assets held for sale.  During the six months ended June 30,2008, the Company recognized a $0.3 million impairment charge related tothese assets to reduce the carrying value in accordance with SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets.” Theimpairment charge is included in Depreciation and the reduction in carryingvalue records these assets at fair value less costs to sell in anticipation oftheir future sale.

 

**(5)  Intangible Assets and Goodwill**

 

Goodwill, totaling $141.8 million, represents the excess of purchaseprice over the fair value of the net assets acquired, including identifiable intangibleassets.  Goodwill is not deductible forincome taxes.

 

Intangible assets represent the values assigned to the Company’scustomer base, the right to provide service under the Sprint affiliationagreements and an FCC license for a small market in Ohio.

 

The intangible assets relating to the customer base were amortized overthe estimated average life of a customer of 30 months.  The intangible assets related to customerbases were fully amortized as of December 31, 2007.  The intangible assets relating to the rightto provide service under the Sprint affiliation agreements are being amortizedover the remaining term of the 

 

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respective agreements. The FCC license was determined to have anindefinite life as it is expected to be renewed with minimal effort andcost.  This FCC license is for sale;however, the Company believes the sale of this asset is unlikely within thenext year.

 

The weighted average amortization period, gross carrying amount,accumulated amortization and net carrying amount of intangible assets at June 30,2008 and December 31, 2007 are as follows (in thousands):

 
| ** **                                                        | ** ** | **June 30, 2008**                     | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                        | ** ** | **Weighted Average  Amortization  Period** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Value** | ** ** |
| **Non-amortized intangible asset:**                               | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| FCC license                                                       |       |                                            |       | $ | 300 |   | $ | — |   | $ | 300 |   |
| **Amortized intangible assets:**                                  | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Right to provide service under the Sprint  affiliation agreements |       | 167 months                                      |       | 126,521 |   | (31,631 | ) | 94,890 |   |
| Customer base                                                     |       | 30 months                                       |       | 71,956 |   | (71,956 | ) | — |   |
|                                                              |       | 117 months                                      |       | $ | 198,777 |   | $ | (103,587 | ) | $ | 95,190 |   |

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

 

Amortization expense for the three months ended June 30,2008 and 2007 was $2.3 million and $7.6 million, respectively.  Amortization expense for the six months endedJune 30, 2008 and 2007 was approximately $4.6 million and $15.2 million,respectively.  Aggregate amortizationexpense relative to existing intangible assets for the periods shown arecurrently estimated to be as follows:

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

 

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**(6)  Long-Term Debt**

 

Long-term debt consists of the following at June 30, 2008 and December 31,2007 (in thousands):

 
| ** **                                                                  | ** ** | **June 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| First lien senior secured floating rate notes                               |       | $                       | 300,000    |                        | $          | 300,000 |   |
| Second lien senior secured floating rate notes                              |       | 175,000                 |       | 175,000                     |       |
| Capital lease obligations                                                   |       | 453                     |       | 468                         |       |
| Total long-term debt and capital lease obligations                          |       | 475,453                 |       | 475,468                     |       |
| Less: current maturities                                                    |       | (33                     | )          | (30                         | )          |
| Long-term debt and capital lease obligations, excluding current  maturities |       | $                       | 475,420    |                        | $          | 475,438 |   |

 

***First Lien andSecond Lien Senior Secured Floating Rate Notes***

 

The Company has outstanding$475.0 million in aggregate principal amount of senior secured notes,consisting of $300.0 million in aggregate principal amount of First LienSenior Secured Floating Rate Notes due 2013 (“First Lien Notes”) and$175.0 million in aggregate principal amount of Second Lien Senior SecuredFloating Rate Notes due 2014 (“Second Lien Notes” and together with the FirstLien Notes, the “Secured Notes”).  Theoffering of the Secured Notes closed April 23, 2007.

 

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

 

The indentures governing the Secured Notescontain covenants which restrict the Company’s and its restricted subsidiaries’ability to incur additional indebtedness, merge, pay dividends, dispose of itsassets, and certain other matters as defined in the indentures.

 

Interest on the First Lien Notes accrues atan annual rate equal to three-month LIBOR plus 2.125% and is payable quarterlyin cash on February 1, May 1, August 1 and November 1 ofeach year. Interest on the Second Lien Notes accrues at an annual rate equal tothree-month LIBOR plus 3.25% and is payable quarterly on February 1, May 1,August 1 and November 1 of each year. The Company may elect to payinterest on the Second Lien Notes entirely in cash or entirely by increasingthe principal amount of the Second Lien Notes (“PIK Interest”). PIK Interest onthe Second Lien Notes accrues at an annual rate equal to three-month LIBOR plus4.0%. Since issuance, the Company has paid all of its interest relating to theSecond Lien Notes in cash. Three-month LIBOR for the Secured Notes resets on February 1,May 1, August 1 and November 1 of each year and was 2.87% on June 30,2008. On August 1, 2008, three-month LIBOR for the Secured Notes was 2.80%.

 

 The Company used a portion ofthe proceeds of the Secured Notes offering to repurchase all of its outstanding111/2% notes and 113/8% notes (see below), as well as to pay the related fees and expenses ofthe offering. The Company also used the remaining net proceeds from the SecuredNotes offering, together with approximately $58.0 million of its availablecash, to pay a special cash dividend to common stockholders (see Note 10).  In connection with the Secured Notesoffering, for the three months ended June 30, 2007, the Company recordeddebt extinguishment costs as follows (dollars in thousands):

 
| Tender offer premium and consent costs                                                                           |   | $       | 34,155 |   |
|------------------------------------------------------------------------------------------------------------------|--------|---------|--------|--------|
| Write off of remaining deferred financing costs of  11-1/2% and 11-3/8%  senior notes                            |   | 7,284   |   |
| Acceleration of the unamortized balance of the  purchase price fair value adjustment to the 11-3/8% senior notes |   | (10,938 | )      |
| Total debt extinguishment costs                                                                                  |   | $       | 30,501 |   |

 

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***$165.0 Million 11******1/******2% Senior Notes***

 

The offering of 111/2% senior notes closed on April 30,2004 in connection with the Company’s reorganization in that same year. Asdiscussed above, the Company repurchased all of its outstanding 111/2%senior notes with the proceeds of its Secured Notes offering in April 2007.

 

***$125.0 Million 11******3/******8% Senior Notes***

 

In connection with the merger with HorizonPCS in 2005, iPCS, Inc. assumed the obligations for the$125.0 million of 113/8%senior notes previously issued by Horizon PCS as part of Horizon PCS’s plan ofreorganization. The allocation of the purchase price resulted in an increase ofthe value of the 113/8% senior notes of approximately$14.7 million, which was recorded as long-term debt in the ConsolidatedBalance Sheet. This amount was to be amortized over the remaining life of thesenior notes as a reduction to interest expense. For the three and six monthsended June 30, 2007, the reduction to interest expense was approximately$0.1 million and $0.6 million, respectively. This amortization did notincrease the principal amount due to the senior note holders or reduce theamount of interest owed to the senior note holders.

 

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

 

***Capital Lease Obligations***

 

Interest on capital lease obligations are allat fixed rates, which, on a weighted average basis, approximated 12.4% perannum at June 30, 2008.

 

**(7)  Interest Rate Swap**

 

On July 20, 2007, the Company enteredinto an interest rate swap agreement for a notional amount of$300.0 million associated with the interest on the Company’s First LienNotes effective August 1, 2007 for a period of three years. Under thisagreement, the Company receives interest at a floating rate of three-monthLIBOR and pays interest at a fixed rate of 5.34%, resulting in an effectiverate for the First Lien Notes of 7.47% throughout the term of the swap. Theinterest rate swap has been designated as a cash flow hedge. The fair value ofthe interest rate swap is recorded in Stockholders’ Deficiency underAccumulated other comprehensive loss, net of applicable income taxes.

 

As of June 30, 2008 and December 31,2007, the fair value of the swap was approximately $11.1 million and $11.6million, respectively, and is recorded on the Consolidated Balance Sheet as along-term liability and in Accumulated other comprehensive loss. The change infair value of the swap for the three months ended June 30, 2008 was adecrease to the liability of $8.4 million. The change in fair value of the swap for the six months ended June 30,2008 was a decrease to the liability of $0.5 million.  No component of the interest rate swap isexcluded from the assessment of effectiveness and no ineffectiveness has beenrecognized on the swap since inception.

 

The amount of loss recorded in Accumulatedother comprehensive loss at June 30, 2008 that is expected to bereclassified to interest expense in the next twelve months if interest ratesunderlying the Company’s fair value calculations remain unchanged isapproximately $6.8 million.

 

**(8)  Income Taxes**

 

The Company’s effective income tax rate for the interim periodspresented is based on management’s estimate of the Company’s effective tax ratefor the applicable year and differs from the federal statutory income tax rateprimarily due to nondeductible permanent differences, state income taxes andchanges in the valuation allowance for deferred income taxes. In assessing therealizability of deferred tax assets, management considers whether it is morelikely than not that some portion or all of the deferred tax assets will not berealized. The ultimate realization of deferred tax assets is dependent upon thegeneration of future taxable income during the periods in which those temporarydifferences become deductible. No benefit for federal income taxes has beenrecorded for the three and six months ended June 30, 2008 and 2007 as thenet deferred tax asset generated, primarily from temporary differences relatedto the net operating loss, was offset by a valuation allowance because it isconsidered more likely than not that these benefits will not be realized due tothe Company’s losses since inception. The current year tax provision relates to state income taxes which areestimated based upon the taxable income generated in each state.

 

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**(9)  Stock-Based Compensation**

 

The Company has two long-term incentive plans.  The iPCS 2004 long-term incentive plan, asamended (the “iPCS Plan”), was approved by the Company’s board of directors asprovided by the Company’s plan of reorganization. The Horizon PCS 2004 stockincentive plan, as amended (the “Horizon Plan”), was assumed by the Company inits merger with Horizon PCS in 2005. Both plans have been approved by the Company’s stockholders.

 

**iPCS Plan. **Under the iPCS Plan, the Company may grant toemployees, directors and consultants of the Company or its subsidiaries incentiveand non-qualified stock options, stock appreciation rights, restricted andunrestricted stock awards and cash incentive awards. The stock options andrestricted stock awarded to date under the iPCS Plan have a ten-year life withvesting on a quarterly basis over four years for employees, vesting over oneyear for directors, and, with respect to the 2008 award of restricted stock tocertain employees, cliff vesting at the end of three years.  On May 22, 2008, the Company’sstockholders approved the Second Amended and Restated iPCS Plan, which includedan increase of 600,000 in the number of shares available for issuance.  Giving effect to this amendment, the totalnumber of shares that may be awarded under the iPCS Plan is 2,692,630 shares ofcommon stock, of which amount, 671,942 shares remain available for awards as ofJune 30, 2008.

 

**Horizon Plan. **Under the Horizon Plan, the Company may grantto employees, directors and consultants of the Company or its subsidiariesincentive or non-qualified stock options or stock appreciation rights. All ofthe stock options issued to date under the Horizon Plan have a ten-year lifeand vest equally in six-month increments over three years from the date ofgrant. The total number of shares that may be granted under the Horizon Plan is558,602 shares of common stock, which equals the number of shares underlyingawards previously made under the Horizon Plan.

 

The Company did not award any stock options during the three monthsended June 30, 2008.  During the sixmonths ended June 30, 2008, the Company awarded 628,500 stock options tomanagement and the board of directors at exercise prices between $16.77 and$26.98, which were the closing prices on the date of grants.  The fair value of each grant is estimated atthe grant date using the Black Scholes option pricing method.  The table below outlines the assumptions usedfor the options granted during the six months ended June 30, 2008:

 
| ** **                             | ** ** | **For the Six Months Ended  June 30, 2008** | ** ** |
|----------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                             | ** ** | **Range**                                                                 | ** ** | **Weighted Average** | ** ** |
| Risk free interest rate |       | 2.62% to 3.27                                                             | %          | 3.24 | % |
| Volatility                             |       |                                                                      |       | 38.00 | % |
| Dividend  yield                        |       |                                                                      |       | 0.00 | % |
| Expected  life in years                |       |                                                                      |       | 5.95 |   |
| Fair  value price                      |       |                                                                      |       | $ | 10.53 |   |
|                                        |            |                                                                           |            |  |  |  |

 

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

 

The following table shows stock-based compensation expense by type ofshare-based award for the three and six months ended June 30, 2008 and2007 included in the consolidated statements of operations (in thousands):

 
| ** **                                                                                   | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **June 30, 2008**                        | ** ** | **June 30, 2007**                      | ** ** | **June 30, 2008** | ** ** | **June 30, 2007** | ** ** |
| Restricted stock                                                                             |       | $                                                  | 274        |                                             | $          | 201 |   | $ | 554 |   | $ | 402 |   |
| Amortization of deferred compensation of stock  option awards                                |       | —                                             |       | 30                                               |       | — |   | 237 |   |
| Fair value expense of stock option awards                                                    |       | 1,087                                              |       | 853                                              |       | 2,186 |   | 1,715 |   |
| Fair value expense of stock option modifications                                             |       | —                                             |       | —                                           |       | — |   | 643 |   |
| Fair value expense of stock option modifications  related to special cash dividend (Note 10) |       | 458                                                |       | 3,733                                            |       | 920 |   | 3,733 |   |
| Total stock-based compensation                                                               |       | $                                                  | 1,819      |                                             | $          | 4,817 |   | $ | 3,660 |   | $ | 6,730 |   |

 

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The following table shows the total remaining unrecognized compensationcost related to restricted stock grants and fair value expense of stock optionawards, as well as the weighted average remaining required service period overwhich such costs will be recognized:

 
| ** **                                | ** ** | **Total Remaining  Unrecognized  Compensation Cost****(in millions)** | ** ** | **Weighted Average  Remaining Required  Service Period  (in years)** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| Restricted stock                          |       | $                                                                                    | 2.5        |                                                                                     | 2.60       |   |
| Fair value expense of stock option awards |       | 8.9                                                                                  |       | 3.15                                                                                     |       |
|                                           |            |                                                                                      |            |                                                                                          |            |  |

 

Stock-based compensation expense is included in the consolidatedstatements of operations as follows (in thousands):

 
| ** **                     | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|--------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                     | ** ** | **June 30, 2008**                        | ** ** | **June 30, 2007**                      | ** ** | **June 30, 2008** | ** ** | **June 30, 2007** | ** ** |
| Cost of service and roaming    |       | $                                                  | 163        |                                             | $          | 291 |   | $ | 326 |   | $ | 379 |   |
| Selling and marketing          |       | 204                                                |       | 650                                              |       | 417 |   | 797 |   |
| General and administrative     |       | 1,452                                              |       | 3,876                                            |       | 2,917 |   | 5,554 |   |
| Total stock-based compensation |       | $                                                  | 1,819      |                                             | $          | 4,817 |   | $ | 3,660 |   | $ | 6,730 |   |

 

The following is asummary of options outstanding and exercisable at June 30, 2008:

 
| ** **                            | ** ** | **Number of Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted  Average  Remaining  Contractual Life  (in years)** | ** ** | **Aggregate  Intrinsic Value  (In thousands)** | ** ** |
|---------------------------------------|------------|--------------------------------|------------|------------------------------------------------|------------|--------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| Outstanding at December 31, 2007 |       | 851,431                        |       | $                                              | 22.01      |                                                                     |       |                                                     |       |   |
| Granted                               |       | 628,500                        |       | 25.18                                          |       |                                                                     |       |                                                     |       |
| Exercised                             |       | (28,172                        | )          | 14.04                                          |       |                                                                     |       |                                                     |       |
| Forfeited                             |       | (67,382                        | )          | 29.36                                          |       |                                                                     |       |                                                     |       |
| Outstanding at June 30, 2008     |       | 1,384,377                      |       | $                                              | 23.26      |                                                                     | 8.25       |                                                     | $          | 11,268 |   |
| Exercisable at June 30, 2008     |       | 713,108                        |       | $                                              | 18.65      |                                                                     | 7.18       |                                                     | $          | 9,096 |   |

 

The following is asummary of restricted shares for the six months ended June 30, 2008:

 
| ** **                                  | ** ** | **Shares** | ** ** | **Weighted Average  Fair Value Price** | ** ** |
|---------------------------------------------|------------|------------|------------|-------------------------------------------------------|------------|
| Restricted shares at December 31, 2007 |       | 62,836     |       | $                                                     | 43.47      |   |
| Granted                                     |       | 19,705     |       | 25.29                                                 |       |
| Vested                                      |       | (11,544    | )          | 40.84                                                 |       |
| Forfeited                                   |       | (4,067     | )          | 49.05                                                 |       |
| Restricted shares at June 30, 2008     |       | 66,930     |       | $                                                     | 38.23      |   |

 

**(10)  Special Cash Dividend**

 

OnApril 26, 2007, the Board of Directors declared a special cash dividend of$11.00 per share, approximately $187.0 million in the aggregate, payable to allholders of record of the Company’s common stock on May 8, 2007.  Of this amount, approximately $186.5 millionwas paid on May 16, 2007.  Theremaining unpaid dividends relate to restricted stock awards and are being paidout starting in July 2007 as these awards vest.  On June 30, 2008, approximately $34,000of the remaining unpaid dividends was forfeited along with the relatedrestricted stock by a departing employee.

 

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

 

·                  The number of shares of stock then subject toeach option shall be adjusted by dividing the number of shares of stock thensubject to the option by the Adjustment Factor; and

 

·                  The exercise price of each option shall beadjusted by multiplying the exercise price by the Adjustment Factor.

 

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The“Adjustment Factor” was 0.78282 and is equal to one minus the percentagereduction in the closing sale price of a share of stock on the Adjustment Datereported by the NASDAQ Stock Market at the regular hours closing price (“ClosingPrice”) as compared to the Closing Price of a share of stock on the AdjustmentDate minus $11.00. In addition, on the Adjustment Date, the number of sharesunder the iPCS Plan and the Horizon Plan was adjusted by dividing the number ofshares of stock reserved for issuance by the Adjustment Factor; therebyincreasing the number of shares reserved for issuance. The modificationresulted in an additional 184,537 shares to 72 employees anddirectors who had options outstanding on the modification date. With thismodification, the Company will record additional stock-based compensationexpense of approximately $6.5 million, of which approximately$3.2 million was recorded as of the date of modification and the remainderwill be recognized over the remaining vesting period for the options, subjectto reduction for forfeitures. An additional $0.5 million and $0.9 millionof compensation expense related to the modification was recorded in the threeand six months ended June 30, 2008, respectively, and an additional $0.5million was recorded in the three and six months ended June 30, 2007 withthe quarterly vesting of stock options.

 

**(11)  Comprehensive Income (Loss)**

 

Comprehensive income (loss), which includes all changes in the Company’sequity during the period except transactions with stockholders, consisted ofthe following for the three and six months ended June 30, 2008 and 2007(in thousands):

 
| ** **                                       | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|--------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                       | ** ** | **June 30,  2008**                            | ** ** | **June 30,  2007**                          | ** ** | **June 30,  2008** | ** ** | **June 30,  2007** | ** ** |
| Net loss                                         |       | $                                                  | (646       | )                                                | $          | (43,644 | ) | $ | (2,252 | ) | $ | (62,787 | ) |
| Other comprehensive income – Hedge gain (a) |       | 8,425                                              |       | —                                           |       | 506 |   | — |   |
| Comprehensive income (loss)                      |       | $                                                  | 7,779      |                                             | $          | (43,644 | ) | $ | (1,746 | ) | $ | (62,787 | ) |

 

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(a)                                  Nobenefit for income tax has been recorded for the three and six months ended June 30,2008, as the deferred asset generated, primarily from the temporary differencesrelating to the Company’s net operating loss, was offset by a valuationallowance because it is considered more likely than not that these benefitswill not be recognized due to the Company’s losses since inception.

 

**(12)  Fair Value Measurements**

 

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

 

The Company’s fair value measurements in connection with the Company’sadoption of SFAS 157 were as follows as of June 30, 2008 and are based onLevel 2 inputs (in thousands):

 
| Money market funds (a) |   | $ | 6,256  |   |
|------------------------|--------|---|--------|--------|
| Commercial paper (a)   |   | $ | 39,539 |   |
| Interest rate swap     |   | $ | 11,101 |   |

 

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(a)                                  Includedin Cash and cash equivalents on the Consolidated Balance Sheet.

 

**(13)  Commitments and Contingencies**

 

*(a)  Commitments*

 

On December 29, 2006, the Company signed a letter of agreementwith Nortel Networks to purchase EV-DO Rev. A equipment and services totaling$17.1 million in aggregate. As of June 30, 2008, the Company has paidthe full $17.1 million of this commitment.

 

*(b)  FCCLicenses*

 

Sprint PCS holds the licenses necessary to provide wireless services inthe Company’s territory. The FCC requires that licensees like Sprint PCSmaintain control of their licensed spectrums and not delegate control tothird-party operators or managers without FCC consent and are subject torenewal and revocation by the FCC.  TheFCC has adopted specific standards that apply to wireless personalcommunications services license renewals. Any failure by Sprint PCS or theCompany to comply with these 

 

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standards could result in the non-renewal of the Sprint PCS licensesfor the Company’s territory. Additionally, if Sprint PCS does not demonstrateto the FCC that Sprint PCS has met the construction requirements for each ofits wireless personal communications services licenses, it can lose thoselicenses. If Sprint PCS loses its licenses in the Company’s territory for anyof these reasons, the Company would not be able to provide wireless serviceswithout obtaining rights to other licenses.

 

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

 

*(c)  Litigationand Arbitration*

 

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

 

·                  Within180 days of the date of the final order, Sprint and those acting inconcert with it must cease owning, operating, and managing the Nextel wirelessnetwork in iPCS Wireless’s territory.

 

·                  Sprintshall continue to comply with all terms and conditions of the ForbearanceAgreement between us and Sprint setting forth certain limitations on Sprint’soperations post-merger with Nextel.

 

On September 28, 2006, Sprint appealed the ruling to the AppellateCourt of Illinois, First Judicial District, and, at Sprint’s request, theCircuit Court’s ruling was stayed by the Appellate Court pending the appeal. OnMarch 31 2008, the Appellate Court unanimously affirmed the 2006 CircuitCourt decision.  On May 5, 2008,Sprint filed a petition for leave to appeal with the Supreme Court of Illinois.A decision on that petition is expected in the fall of 2008. The Circuit Court’sfinal order remains stayed pending the conclusion of the appeals process.

 

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

 

*****Sprint Nextel Litigation with respect to theSprint-Clearwire Transaction.*****  On May 7, 2008, Sprint Nextelannounced a transaction between itself, Clearwire Corporation, and certainother parties related to WiMax (the “Sprint-Clearwire Transaction”).  Thesame day, Sprint Nextel filed a complaint for declaratory judgment against theCompany and certain of its subsidiaries in the Court of Chancery of the Stateof Delaware.  In that lawsuit, Sprint Nextel seeks a declaration that theSprint-Clearwire Transaction would not constitute a breach of the Sprint Nextelagreements with the Company.

 

On May 12, 2008, the Company and certain of its subsidiaries filed a lawsuit against Sprint NextelCorporation and certain of its affiliates in the Circuit Court of Cook County,Illinois, seeking declaratory and injunctive relief with respect to theSprint-Clearwire Transaction.  In that case, the Company and itsaffiliates seek a declaration that the Sprint-Clearwire Transaction, ifconsummated, would constitute a breach of the Sprint affiliation agreementswith the Company, and also seek an injunction barring Sprint Nextel fromclosing on the Sprint-Clearwire Transaction, until it complies with theaffiliation agreements. The case is currently stayed pending certain events inthe Delaware litigation.  Sprint Nextel has moved to dismiss the case or,in the alternative, to continue the stay.  The Company has moved to liftthe stay in the case.  The court has not yet ruled on either motion, bothof which are currently scheduled to be heard on August 22, 2008.

 

OnJuly 14, 2008, the Court of Chancery of the State of Delaware issued anopinion related to the Sprint-Clearwire Transaction.  The Delaware Courtgranted the motion to dismiss filed by two of the Company’s subsidiaries, Horizon Personal Communications, Inc.and Bright Personal Communications Services, LLC and dismissed them from theDelaware litigation, and denied the motion to dismiss the Company and itssubsidiary, iPCS Wireless, Inc.

 

OnJuly 16, 2008, the Company filed an application to certify for appeal thatportion of the Delaware Court’s ruling in which the Delaware Court refused todismiss or stay the case in its entirety. On July 22, 2008, the Delaware Courtdenied that application. On July 23, 2008, the Company appealed that decisionto the Supreme Court of Delaware. OnJuly 28, 2008, iPCS Wireless, Inc. filed a counterclaim in the Delaware Courtin which it seeks a declaration that the Sprint-Clearwire Transaction, ifconsummated, would constitute a breach of the Sprint affiliationagreements.  The same day, the Company and iPCS Wireless, Inc. filed amotion to dismiss the remainder of the case pending before it or, in thealternative, to transfer the case to the Superior Court of the State ofDelaware.  The court has not yet ruled on that motion, which is currentlyscheduled to be heard on August 8, 2008.

 

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

** **

**(14)  Consolidating FinancialInformation**

 

The Secured Notes are fully, unconditionally and joint and severallyguaranteed by the Company’s domestic restricted subsidiaries, including iPCSWireless, Inc., iPCS Equipment, Inc., Horizon Personal Communications, Inc.,Bright PCS Holdings, Inc. 

 

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and Bright Personal Communications Services, LLC, which are 100%owned subsidiaries of iPCS, Inc (see Note 6). The following consolidatingfinancial information for iPCS, Inc. as of June 30, 2008 and December 31,2007 and for the three and six months ended June 30, 2008 and 2007 ispresented for iPCS, Inc. and the Company’s guarantor subsidiaries (inthousands):

 

**Condensed Consolidating Balance Sheet**

**As of June 30, 2008**

 
| ** **                                                   | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|--------------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|----------------------------|------------|
| Cash and cash equivalents                                    |       | $                  | —     |                        | $          | 65,554           |       | $                          | —     |   | $ | 65,554 |   |
| Other current assets                                         |       | 508,913            |       | 332,014                     |       | (752,998         | )          | 87,929                     |       |
| Total current assets                                         |       | 508,913            |       | 397,568                     |       | (752,998         | )          | 153,483                    |       |
| Property and equipment, net                                  |       | —             |       | 150,961                     |       | —           |       | 150,961                    |       |
| Intangible assets, net                                       |       | —             |       | 236,973                     |       | —           |       | 236,973                    |       |
| Other noncurrent assets                                      |       | 7,107              |       | 4,812                       |       | —           |       | 11,919                     |       |
| Investment in subsidiaries                                   |       | 183,059            |       | —                      |       | (183,059         | )          | —                     |       |
| Total assets                                                 |       | $                  | 699,079    |                        | $          | 790,314          |       | $                          | (936,057   | ) | $ | 553,336 |   |
| Current liabilities                                          |       | $                  | 250,246    |                        | $          | 595,741          |       | $                          | (752,998   | ) | $ | 92,989 |   |
| Long-term debt                                               |       | 475,000            |       | 420                         |       | —           |       | 475,420                    |       |
| Other long-term liabilities                                  |       | 11,334             |       | 11,094                      |       | —           |       | 22,428                     |       |
| Total liabilities                                            |       | 736,580            |       | 607,255                     |       | (752,998         | )          | 590,837                    |       |
| Stockholders’ equity (deficiency)                       |       | (37,501            | )          | 183,059                     |       | (183,059         | )          | (37,501                    | )          |
| Total liabilities and stockholders’ equity (deficiency) |       | $                  | 699,079    |                        | $          | 790,314          |       | $                          | (936,057   | ) | $ | 553,336 |   |

 

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**Condensed Consolidating Balance Sheet**

**As of December 31, 2007**

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

 

**Condensed Consolidating Statement ofOperations**

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

 
| ** **                                      | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|----------------------------|------------|
| Total revenue                                   |       | $                  | —     |                        | $          | 129,371          |       | $                          | —     |   | $ | 129,371 |   |
| Cost of revenue                                 |       | —             |       | 83,337                      |       | —           |       | 83,337                     |       |
| Selling and marketing                           |       | —             |       | 16,444                      |       | —           |       | 16,444                     |       |
| General and administrative                      |       | 763                |       | 7,229                       |       | —           |       | 7,992                      |       |
| Depreciation and amortization                   |       | —             |       | 13,849                      |       | —           |       | 13,849                     |       |
| Loss on disposal of property and equipment, net |       | —             |       | 248                         |       | —           |       | 248                        |       |
| Total operating expense                         |       | 763                |       | 121,107                     |       | —           |       | 121,870                    |       |
| Other, net                                      |       | 1                  |       | (7,823                      | )          | —           |       | (7,822                     | )          |
| Income in subsidiaries                          |       | 116                |       | —                      |       | (116             | )          | —                     |       |
| Income (loss) before provision for income tax   |       | (646               | )          | 441                         |       | (116             | )          | (321                       | )          |
| Provision for income tax                        |       | —             |       | 325                         |       | —           |       | 325                        |       |
| Net income (loss)                               |       | $                  | (646       | )                           | $          | 116              |       | $                          | (116       | ) | $ | (646 | ) |

 

**Condensed Consolidating Statement ofOperations**

**For the Three Months Ended June 30, 2007**

** **
| ** **                                      | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|----------------------------|------------|
| Total revenue                                   |       | $                  | —     |                        | $          | 133,233          |       | $                          | —     |   | $ | 133,233 |   |
| Cost of revenue                                 |       | —             |       | 91,509                      |       | —           |       | 91,509                     |       |
| Selling and marketing                           |       | —             |       | 19,108                      |       | —           |       | 19,108                     |       |
| General and administrative                      |       | 598                |       | 8,072                       |       | —           |       | 8,670                      |       |
| Depreciation and amortization                   |       | —             |       | 19,625                      |       | —           |       | 19,625                     |       |
| Loss on disposal of property and equipment, net |       | —             |       | 6                           |       | —           |       | 6                          |       |
| Total operating expense                         |       | 598                |       | 138,320                     |       | —           |       | 138,918                    |       |
| Other, net                                      |       | (31,780            | )          | (6,179                      | )          | —           |       | (37,959                    | )          |
| Loss in subsidiaries                            |       | (11,266            | )          | —                      |       | 11,266           |       | —                     |       |
| Loss before provision for income tax            |       | (43,644            | )          | (11,266                     | )          | 11,266           |       | (43,644                    | )          |
| Benefit from income tax                         |       | —             |       | —                      |       | —           |       | —                     |       |
| Net loss                                        |       | $                  | (43,644    | )                           | $          | (11,266          | )          | $                          | 11,266     |   | $ | (43,644 | ) |

 

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**Condensed Consolidating Statement ofOperations**

**For the Six Months Ended June 30, 2008**

 
| ** **                                      | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|----------------------------|------------|
| Total revenue                                   |       | $                  | —     |                        | $          | 255,029          |       | $                          | —     |   | $ | 255,029 |   |
| Cost of revenue                                 |       | —             |       | 163,184                     |       | —           |       | 163,184                    |       |
| Selling and marketing                           |       | —             |       | 34,303                      |       | —           |       | 34,303                     |       |
| General and administrative                      |       | 1,475              |       | 13,605                      |       | —           |       | 15,080                     |       |
| Depreciation and amortization                   |       | —             |       | 27,804                      |       | —           |       | 27,804                     |       |
| Loss on disposal of property and equipment, net |       | —             |       | 258                         |       | —           |       | 258                        |       |
| Total operating expense                         |       | 1,475              |       | 239,154                     |       | —           |       | 240,629                    |       |
| Other, net                                      |       | 2,212              |       | (18,214                     | )          | —           |       | (16,002                    | )          |
| Loss in subsidiaries                            |       | (2,989             | )          | —                      |       | 2,989            |       | —                     |       |
| Loss before provision for income tax            |       | (2,252             | )          | (2,339                      | )          | 2,989            |       | (1,602                     | )          |
| Provision for income tax                        |       | —             |       | 650                         |       | —           |       | 650                        |       |
| Net loss                                        |       | $                  | (2,252     | )                           | $          | (2,989           | )          | $                          | 2,989      |   | $ | (2,252 | ) |

 

**Condensed Consolidating Statement ofOperations**

**For the Six Months Ended June 30, 2007**

** **
| ** **                                      | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|----------------------------|------------|
| Total revenue                                   |       | $                  | —     |                        | $          | 254,086          |       | $                          | —     |   | $ | 254,086 |   |
| Cost of revenue                                 |       | —             |       | 178,103                     |       | —           |       | 178,103                    |       |
| Selling and marketing                           |       | —             |       | 39,682                      |       | —           |       | 39,682                     |       |
| General and administrative                      |       | 1,147              |       | 14,450                      |       | —           |       | 15,597                     |       |
| Depreciation and amortization                   |       | —             |       | 39,057                      |       | —           |       | 39,057                     |       |
| Loss on disposal of property and equipment, net |       | —             |       | 65                          |       | —           |       | 65                         |       |
| Total operating expense                         |       | 1,147              |       | 271,357                     |       | —           |       | 272,504                    |       |
| Other, net                                      |       | (36,749            | )          | (7,620                      | )          | —           |       | (44,369                    | )          |
| Loss in subsidiaries                            |       | (24,891            | )          | —                      |       | 24,891           |       | —                     |       |
| Loss before provision for income tax            |       | (62,787            | )          | (24,891                     | )          | 24,891           |       | (62,787                    | )          |
| Benefit from income tax                         |       | —             |       | —                      |       | —           |       | —                     |       |
| Net loss                                        |       | $                  | (62,787    | )                           | $          | (24,891          | )          | $                          | 24,891     |   | $ | (62,787 | ) |

 

**Condensed Consolidating Statement of CashFlows**

**For the Six Months Ended June 30, 2008**

 
| ** **                                       | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|----------------------------|------------|
| Operating activities                             |       | $                  | (312       | )                           | $          | 28,796           |       | $                          | —     |   | $ | 28,484 |   |
| Investing activities                             |       | —             |       | (40,827                     | )          | —           |       | (40,827                    | )          |
| Financing activities                             |       | 312                |       | (14                         | )          | —           |       | 298                        |       |
| Net decrease in cash and cash equivalents        |       | —             |       | (12,045                     | )          | —           |       | (12,045                    | )          |
| Cash and cash equivalents at beginning of period |       | —             |       | 77,599                      |       | —           |       | 77,599                     |       |
| Cash and cash equivalents at end of period       |       | $                  | —     |                        | $          | 65,554           |       | $                          | —     |   | $ | 65,554 |   |

 

**Condensed Consolidating Statement of CashFlows**

**For the Six Months Ended June 30, 2007**

 
| ** **                                       | ** ** | **iPCS Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **iPCS Consolidated** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|------------------|------------|----------------------------|------------|
| Operating activities                             |       | $                  | (99,877    | )                           | $          | 106,091          |       | $                          | —     |   | $ | 6,214 |   |
| Investing activities                             |       | —             |       | (19,621                     | )          | —           |       | (19,621                    | )          |
| Financing activities                             |       | 99,877             |       | (140,428                    | )          | —           |       | (40,551                    | )          |
| Net decrease in cash and cash equivalents        |       | —             |       | (53,958                     | )          | —           |       | (53,958                    | )          |
| Cash and cash equivalents at beginning of period |       | —             |       | 120,499                     |       | —           |       | 120,499                    |       |
| Cash and cash equivalents at end of period       |       | $                  | —     |                        | $          | 66,541           |       | $                          | —     |   | $ | 66,541 |   |

 

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**Item 2. Management’s Discussion and Analysisof Financial Condition and Results of Operations.**

 

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

 

Statements in this quarterly report on Form 10-Q regarding Sprintor Sprint PCS are derived from information contained in our affiliation agreementswith Sprint PCS, periodic reports and other documents filed by Sprint with theSEC. This quarterly report on Form 10-Q contains trademarks, service marksand trade names of companies and organizations other than us. Other than withrespect to Sprint PCS, our use or display of other parties’ trade names,trademarks or products is not intended to and does not imply a relationshipwith, or endorsement or sponsorship of us by, the trade name or trademarkowners.

 

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

 

**Forward-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 be materiallydifferent from any future results, levels of activity, performance orachievements expressed or implied by these forward-looking statements. In somecases, you can identify forward-looking statements by terminology such as “may,”“will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,”“predicts,” “potential,” or the negative use of these terms or other comparableterminology. Any statement in this report that is not a statement of historicalfact may be deemed to be a forward-looking statement and subject to the safeharbor created by the Private Securities Litigation Reform Act of 1995. Theseforward-looking statements include:

 

·                  statementsregarding our anticipated revenue, expense levels, capital expenditures,liquidity and capital resources, operating losses and operating cash flows; and

 

·                  statementsregarding expectations or projections about markets in our territory.

 

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

 

·                  ourdependence on our affiliation with Sprint;

 

·                  theimpact on our business of the March 2008 amendments to our affiliationagreements with Sprint PCS, including the change regarding data roamingsettlement;

 

·                  theimpact and final outcome of our litigation with Sprint regarding its mergerwith Nextel, including the scope of our exclusivity, and Sprint’s plans for theNextel business going forward;

 

·      the impact and final outcome of our litigationwith Sprint regarding Sprint’s proposed WiMaxtransaction with ****Clearwire, including the scape of our exclusivity, and Sprint’s plans forthe Clearwire transaction going forward;****

 

·                  changesin Sprint’s affiliation strategy as a result of Sprint’s merger with Nextel andSprint’s acquisition of other PCS Affiliates of Sprint;

 

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

 

·                  ourdependence on back office services, such as billing and customer care, providedby Sprint PCS, and the costs we incur to obtain such services;

 

·                  changesor advances in technology in general, or specifically related to Sprint and itsaffiliates;

 

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·                  competitionin the industry and markets in which we operate;

 

·                  ourability to attract and retain skilled personnel;

 

·                  ourpotential need for additional capital or the need for refinancing any existingindebtedness;

 

·                  ourpotential inability to expand our services and related products in the event ofsubstantial increases in demand for these services and related products;

 

·                  changesin government regulation;

 

·                  changesin the relative attractiveness of Sprint PCS’s phones, pricing plans, customerservice and coverage as well as the market’s overall perception of the SprintPCS brand;

 

·                  oursubscriber credit quality;

 

·                  thepotential for us to experience a continued high rate of subscriber turnover;

 

·                  inaccuraciesor delays in our financial and other information provided to us by Sprint PCS;

 

·                  ourfailure to maintain effective internal controls to satisfy the requirements of Section 404of the Sarbanes-Oxley Act, which requires annual management assessments of theeffectiveness of internal control over financial reporting;

 

·                  ourrates of penetration in the wireless industry and in our territories;

 

·                  oursignificant level of indebtedness;

 

·                  adequacyof bad debt and other reserves;

 

·                  oursubscriber purchasing patterns;

 

·                  subscribersatisfaction with our network and operations, including with services providedto us by Sprint, such as billing and customer care;

 

·                  availabilityof an adequate supply of subscriber equipment to Sprint PCS and to usspecifically;

 

·                  risksrelated to future growth and expansion, including subscriber growth;

 

·                  riskof a prolonged slowdown in general economic and business conditions fromrecession, the impact of elevated energy costs, including gas prices, to ourexisting and potential subscribers, terrorist attack or other macro economicand political events and its impact on our current and potential subscribers;and

 

·                  effectsof mergers, consolidations and joint ventures within the wirelesstelecommunications industry, including business combinations involving SprintNextel or affiliates of Sprint Nextel, and unexpected announcements ordevelopments from others in the wireless telecommunications industry.

 

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**New Accounting Pronouncements**

 

See Note 2, Summary of Significant Accounting Policies, of the “Notesto Unaudited Consolidated Financial Statements” in this Quarterly Report on Form 10-Qfor a discussion of new accounting pronouncements.

 

**Definitions of Operating Metrics**

 

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

 

·                  Grosssubscriber additions for the period represent the number of new activationsduring the period.

 

·                  Netsubscriber additions for the period represented is calculated as the grosssubscribers additions in the period less the number of subscribers deactivatedplus the net subscribers transferred in or out of our markets during theperiod.

 

·                  Churnis a measure of the average monthly rate at which subscribers based in ourterritory deactivate service on a voluntary or involuntary (credit-related)basis. We calculate average monthly churn based on the number of subscribersdeactivated during the period (net of those who deactivated within 30 daysof activation and excluding transfers out of our territory) as a percentage ofour average monthly subscriber base during the period divided by the number ofmonths during the period.

 

·                  ARPU,or average revenue per user, is a measure of the average monthly servicerevenue earned from subscribers based in our territory. This measure iscalculated by dividing subscriber revenue in our consolidated statement ofoperations by the number of our average monthly subscribers during the perioddivided by the number of months in the period.

 

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

 

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

 

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

 

In this “Management’s Discussion and Analysis of Financial Conditionand Results of Operations,” unless the context indicates otherwise, allreferences to “subscribers” or “customers” and other operating metrics meansubscribers or customers excluding subscribers of resellers known as MobileVirtual Network Operators, or MVNOs, that use our network and resell wirelessservice under private brands.

 

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**Business Overview**

 

As a PCSAffiliate of Sprint, we have the exclusive right to provide digital wirelesspersonal communications services, or PCS, under the Sprint brand name in 81markets including markets in Illinois, Michigan, Pennsylvania, New York,Indiana, Iowa, Ohio and Tennessee. The territory includes key markets such asGrand Rapids (MI), Fort Wayne (IN), the Tri-Cities region of Tennessee (JohnsonCity, Kingsport and Bristol), Scranton (PA), Saginaw-Bay City (MI), and theQuad Cities region of Illinois and Iowa (Bettendorf and Davenport, IA, andMoline and Rock Island, IL). We own and are responsible for building, operatingand managing the portion of the 100% digital, 100% PCS wireless network ofSprint PCS located in our territory. We offer national calling plans designedby Sprint PCS as well as local plans tailored to our markets. Our PCS networkis designed to offer a seamless connection with the wireless network of SprintPCS. We market Sprint PCS products and services through a number ofdistribution outlets located in our territory, including our company-ownedretail stores, co-branded dealers, major national retailers and local thirdparty distributors. As of June 30, 2008, our licensed territory had atotal population of approximately 15.1 million residents, of which ourwireless network covered approximately 12.2 million residents, and we hadapproximately 654,000 subscribers.

 

***Relationship with Sprint***

 

Ourrelationship with Sprint is the most significant relationship we have. Theterms of our relationship are set forth in our affiliation agreements withSprint PCS. Pursuant to these affiliation agreements, we agreed to offer PCSservices using Sprint’s spectrum under the Sprint brand name on a wirelessnetwork built and operated at our own expense. We believe that our strategicrelationship with Sprint PCS provides significant competitive advantages. Inparticular, we believe that our affiliation agreements with Sprint PCS allow usto offer high quality, nationally branded wireless voice and data services forlower cost and lower capital requirements than would otherwise be possible.

 

We have been,and continue to be, engaged in litigation with Sprint regarding its merger withNextel and, more recently, its proposed Clearwire joint venture, which willcombine Sprint’s and Clearwire’s broadband businesses to offer a nationwidemobile WiMax network.  Sprint’s operationof the legacy Nextel business in our territory must comply with theAugust 2006 ruling of the Delaware Court of Chancery.  The favorable ruling we received from theIllinois Circuit Court requiring Sprint to cease owning, operating and managingthe Nextel wireless network in iPCS Wireless’s territory has been “stayed”pending Sprint’s appeal.  We do not knowthe final outcome of our litigation against Sprint. If we do not prevail,Sprint may engage in conduct that has a material adverse effect on our businessand operations. If we do prevail, we do not know Sprint’s intentions forcomplying with the Circuit Court’s order, or any future ruling related to theproposed Clearwire joint venture, and the impact on our business. We intend tocontinue to enforce our rights to the fullest extent, but there is no assurancethat we will prevail.  For a detaileddiscussion of our litigation with Sprint, see “—Commitments and Contingencies”below.

 

On March 3,2008, we amended our affiliation agreements with Sprint PCS. These amendmentsresolve some of the ongoing operational disputes between the parties, includingour arbitration of Sprint’s proposed CCPU and CPGA fees and our disagreementwith respect to Sprint’s proposed reciprocal roaming rates, as well as disputedamounts related to the settlement of 3G data roaming expenses between theparties beginning in April 2007. The new rates provided for in theamendments were made effective January 1, 2008. The amendments do notaddress our ongoing Illinois litigation with Sprint, nor litigation related toSprint’s proposed WiMax transaction with Clearwire.

 

The costs weincur for the support services provided by Sprint are determined on a peraverage monthly cash cost per user (“CCPU”) rate and on a monthly cost pergross addition (“CPGA”) rate. Pursuant to the recent amendments of ouraffiliation agreements with Sprint PCS, the rates through 2010 are as follows:

 
| **Year** | ** ** | **CCPU** | ** ** | **CPGA** | ** ** |
|----------|------------|----------|------------|----------|------------|
| 2007     |       | $        | 7.50       |     | $          | 20.00 |   |
|     |       |     |       |     |       |
| 2008     |       | $        | 6.50/6.35  | *        | $          | 19.00 |   |
|     |       |     |       |     |       |
| 2009     |       | $        | 6.00       | *        | $          | 19.00 |   |
|     |       |     |       |     |       |
| 2010     |       | $        | 5.70       | *        | $          | 19.00 |   |

 

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*                                          Subjectto further adjustment as described below.

 

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

 

The CCPU ratein 2008 through 2010 will be reduced from the then current rate by $0.15 if wehit certain milestones with respect to our voluntary deployment of EV-DO Rev.A, the most recent version of the further evolution of code division multiple access(“CDMA”) high-speed data technology called Evolution Data Optimized (“EV-DO”).Specifically, the CCPU rates set forth above will be reduced by $0.15 from thethen current rate when our EV-DO Rev. A deployment covers at least6.0 million in 

 

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population (“POPs”), by another$0.15 from the then current rate when we cover at least 7.0 million POPs;and by another $0.15 from the then current rate when we cover at least9.0 million POPs.  Our EV-DO Rev. Adeployment coverage exceeded 6.0 million POPs during June 2008, therebyreducing our CCPU rate for the remainder of 2008 to $6.35 and to $6.00 and$5.70 in 2009 and 2010, respectively.  Asof June 30, 2008, our EV-DO Rev. A deployment covered approximately6.6 million POPs and we expect to exceed 7.0 million POPs during the thirdquarter of 2008, which would, if achieved, further reduce our CCPU rate to$6.20 in the fourth quarter of 2008, $5.85 in 2009 and $5.55 in 2010.  Based on our subscriber count of 654,000 at June 30,2008, each $0.15 reduction in the CCPU rate will result in an approximate $1.2million reduction to our annual operating expense.

 

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

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

 

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*                                          Excludingcertain markets as described below.

 

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

 

With respectto certain of our markets in western and eastern Pennsylvania, we receive thebenefit of a special reciprocal rate for voice and 2G data of $0.10 per minute.This special rate will terminate, with respect to each of these two sets ofmarkets, on the earlier of December 31, 2011 or the first day of thecalendar month which follows the first calendar quarter during which we achievea subscriber penetration rate of at least 7% of our covered POPs in thosemarkets. We do not anticipate reaching a 7% subscriber penetration rate inthese markets in the foreseeable future.

 

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

 

The followingtable sets forth the effect of these new CCPU and CPGA rates and reciprocalroaming rates, including the provision providing for the elimination of 3G dataroaming settlement between the parties, had they been in effect for the three andsix months ended June 30, 2007:

 
| ** **                                                                | ** ** | **For the Three Months June 30, 2007** | ** ** | **For the Six Months Ended June 30, 2007** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                                                                | ** ** | **As Reported**                                                 | ** ** | **Adjustments**                                                               | ** ** | **Pro Forma** | ** ** | **As Reported** | ** ** | **Adjustments** | ** ** | **Pro Forma** | ** ** |
| Total revenue                                                             |       | $                                                                    | 133.2      |                                                                          | $          | (10.3 | ) | $ | 122.9 |   | $ | 254.1 |   | $ | (16.9 | ) | $ | 237.2 |   |
| Cost of service and roaming (exclusive of  depreciation and amortization) |       | $                                                                    | 78.7       |                                                                          |       | (10.7 | ) | $ | 68.0 |   | $ | 152.2 |   | (20.8 | ) | $ | 131.4 |   |
| Selling and marketing                                                     |       | $                                                                    | 19.1       |                                                                          |       | — |   | $ | 19.1 |   | $ | 39.7 |   | (0.1 | ) | $ | 39.6 |   |
|                                                                           |            |                                                                      |            |                                                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

In the threemonths ended June 30, 2007, 3G data roaming revenue from Sprint exceeded 3Gdata roaming expense from Sprint by approximately $1.4 million.  In the six months ended June 30, 2007, 3Gdata roaming expense from Sprint exceeded 3G data roaming revenue from Sprintby approximately $0.4 million.

 

The effect ofthe amendments would have been to reduce revenue by $10.3 million and to reduceexpenses by $10.7 million for the three months ended June 30, 2007 and toreduce revenue by $16.9 million and to reduce expenses by $20.9 million for thesix months ended June 30, 2007.

 

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**Consolidated Results of Operations**

 

***Summary***

 

For the threeand six months ended June 30, 2008 our net loss was $0.6 million and $2.3million, respectively, compared to a net loss of $43.6 million and $62.8million for the same periods in 2007. The higher net loss for the three and six months ended June 30,2007 included $30.5 million of costs related to the repurchase of our 11-1/2%and 11-3/8% senior notes (see Note 6, Long-Term Debt, of the “Notes toUnaudited Consolidated Financial Statements” in this Quarterly Report on Form 10-Q).  The remaining lower net losses for the threeand six months ended June 30, 2008 reflected higher revenue, primarilyattributable to our larger subscriber base, lower amortization expense andlower customer acquisition expenses. Additionally contributing to our smaller net loss for the six monthsended June 30, 2008 was our improved reciprocal roaming margin, reflectingimprovement in our inbound to outbound ratio due to an increase in inboundvoice minutes of use on our network, offset by the impact of lower reciprocalroaming rates as compared to 2007.  Theseincreased revenues, decreased expenses and roaming margin improvements werepartially offset by increases in certain operating expenses, including baddebt.

 

Presentedbelow is more detailed comparative data and discussion regarding ourconsolidated results of operations for the three and six months ended June 30,2008 compared to the three and six months ended June 30, 2007.

 

***For the Three andSix Months Ended June 30, 2008 compared to the Three and Six Months Ended June 30,2007***

 

Results ofoperations for any period less than one year are not necessarily indicative ofresults of operations for a full year. Results for the three and six monthsended June 30, 2008 give effect to the amendments to our Sprintaffiliation agreements and are not comparable to the prior periods.

 

***Key Performance Metrics.***

 

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

 
| ** **                 | ** ** | **As of and for the Three Months   Ended June 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|----------------------------|------------|--------------------------------------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                 | ** ** | **2008**                                                                                         | ** ** | **2007**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Total Subscribers          |       | 654,000                                                                                          |       | 612,000       |       | 42,000         |       | 6.9 | % |
| Gross Subscriber Additions |       | 61,800                                                                                           |       | 67,700        |       | (5,900         | )          | (8.7 | ) |
| Net Subscriber Additions   |       | 13,400                                                                                           |       | 21,000        |       | (7,600         | )          | (36.2 | ) |
| Churn                      |       | 2.3                                                                                              | %          | 2.2           | %          | 0.1            | pts        | 4.5 |   |
| ARPU                       |       | $                                                                                                | 48.44      |          | $          | 49.80          |       | $ | (1.36 | ) | (2.7 | ) |
| CPGA                       |       | $                                                                                                | 358        |          | $          | 364            |       | $ | (6 | ) | (1.6 | ) |

 
| ** **                 | ** ** | **As of and for the Six Months   Ended June 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|----------------------------|------------|------------------------------------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                 | ** ** | **2008**                                                                                       | ** ** | **2007**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Total Subscribers          |       | 654,000                                                                                        |       | 612,000       |       | 42,000         |       | 6.9 | % |
| Gross Subscriber Additions |       | 121,000                                                                                        |       | 143,300       |       | (22,300        | )          | (15.6 | ) |
| Net Subscriber Additions   |       | 24,100                                                                                         |       | 50,700        |       | (26,600        | )          | (52.5 | ) |
| Churn                      |       | 2.3                                                                                            | %          | 2.2           | %          | 0.1            | pts        | 4.5 |   |
| ARPU                       |       | $                                                                                              | 48.44      |          | $          | 49.56          |       | $ | (1.12 | ) | (2.3 | ) |
| CPGA                       |       | $                                                                                              | 378        |          | $          | 368            |       | $ | 10 |   | 2.7 |   |

 

***SubscriberAdditions.***     Grosssubscriber additions slowed in the three and six months ended June 30,2008 as compared to the 2007 periods despite growth in additions coming fromNextel customers within our territory switching to Sprint.  This slowing of gross additions reflectsreduced performance from all of our sales channels and can be attributed totightened credit standards, an increasingly competitive landscape, increasedoverall wireless penetration in our markets, technical challenges related tothe billing system conversion at Sprint and an overall weakening economicenvironment.  Net subscriber additionswere also negatively impacted by higher deactivations reflecting a slightlyhigher overall churn percentage on our larger average subscriber base in thethree and six months ended June 30, 2008 as compared to the three and sixmonths ended June 30, 2007.

 

***Churn.***     Churnfor the three and six months ended June 30, 2008 was slightly higher thanthe 2007 periods as improvements in churn from credit-related deactivations weremore than offset by increased voluntary churn. At June 30, 2008approximately 87% of our subscribers were under contract compared to 90% at June 30,2007.

 

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***Average Revenue PerUser.***     ARPU wasnegatively affected by a decline in voice revenue per subscriber for the threeand six months of 2008 as compared to the 2007 periods.  Average monthly voice revenue per subscriberwas $37.72 and $37.20 for the three and six months ended June 30, 2008compared to $38.12 and $38.07 for the three and six months ended June 30,2007, decreases of 1% and 2%, respectively. This decrease can be largely attributed to the continued growth of thefamily add-a-phone plans.  While thesecustomers are not as likely to switch to another wireless company, or churn,their ARPU is lower due to the lower monthly recurring charge on add-a-phonerate plans.  Additionally, during thethree months ended June 30, 2008, Sprint provided increased credits tocustomers in response to technical challenges related to the billing systemconversion, which negatively impacted ARPU in 2008.  Average monthly data revenue was $11.49 and$11.37 in the three and six months ended June 30, 2008 compared to $10.75and $10.93 for the three and six months ended June 30, 2007, respectively.

 

***Cost Per GrossAddition.***     Fixed costsper gross addition increased $22 and $29 in the three and six months ended June 30,2008, respectively, compared to the same periods in 2007, due primarily todecreases in gross subscriber additions of 9% and 16% in the three and sixmonths ended June 30, 2008 compared to the same periods of 2007.  Offsetting this increase in fixed costs pergross addition, variable costs per gross addition decreased by $28 and $19 inthe three and six months ended June 30, 2008 compared to the same periodsin 2007, primarily reflecting lower handset subsidy costs.  At June 30, 2008, we operated 43 retail storesand managed 104 exclusive co-branded dealers compared to 38 retail stores and91 exclusive co-branded dealers at June 30, 2007.

 

***Revenue.***

 

The followingtables sets forth a breakdown of revenue by type:

 
| ** **                                                                         | ** ** | **For the Three Months Ended   June 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                                                                         | ** ** | **2008**                                                                | ** ** | **2007**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Service revenue                                                                    |       | $                                                                       | 94,174     |          | $          | 89,924         |       | $ | 4,250 |   | 4.7 | % |
| Roaming revenue from subscribers of Sprint  PCS and other PCS Affiliates of Sprint |       | 23,530                                                                  |       | 33,059        |       | (9,529         | )          | (28.8 | ) |
| Roaming revenue from other wireless carriers                                       |       | 4,216                                                                   |       | 3,004         |       | 1,212          |       | 40.3 |   |
| Reseller revenue                                                                   |       | 3,911                                                                   |       | 3,973         |       | (62            | )          | (1.6 | ) |
| Equipment and other revenue                                                        |       | 3,540                                                                   |       | 3,273         |       | 267            |       | 8.2 |   |
| Total revenue                                                                      |       | $                                                                       | 129,371    |          | $          | 133,233        |       | $ | (3,862 | ) | (2.9 | ) |

 
| ** **                                                                         | ** ** | **For the Six Months Ended   June 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                                                                         | ** ** | **2008**                                                              | ** ** | **2007**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Service revenue                                                                    |       | $                                                                     | 186,273    |          | $          | 174,945        |       | $ | 11,328 |   | 6.5 | % |
| Roaming revenue from subscribers of Sprint  PCS and other PCS Affiliates of Sprint |       | 46,152                                                                |       | 59,576        |       | (13,424        | )          | (22.5 | ) |
| Roaming revenue from other wireless carriers                                       |       | 7,756                                                                 |       | 5,341         |       | 2,415          |       | 45.2 |   |
| Reseller revenue                                                                   |       | 7,893                                                                 |       | 8,080         |       | (187           | )          | (2.3 | ) |
| Equipment and other revenue                                                        |       | 6,955                                                                 |       | 6,144         |       | 811            |       | 13.2 |   |
| Total revenue                                                                      |       | $                                                                     | 255,029    |          | $          | 254,086        |       | $ | 943 |   | 0.4 |   |

 

·                    ***Service revenue.***Service revenue is comprised of the monthly recurring charges for voice anddata usage and the monthly non-recurring charges for voice and data minutesover plan, long distance, roaming usage charges, other feature revenue and latepayment fee and early cancellation fee revenues. Deductions for billingadjustments and promotional credits are recorded as a reduction to servicerevenue. Our service revenue growth over the three and six month periodsconsists of $6.9 million and $15.6 million, respectively, from additionalsubscribers, offset by decreases in ARPU of $2.6 million and $4.3 million,respectively.

 

·                    ***Roaming revenue from subscribers ofSprint PCS and other PCS Affiliates of Sprint.*** We receiverevenue on a per minute basis for voice traffic when subscribers ofSprint PCS and other PCS Affiliates of Sprint use our network.  Through December 31, 2007, we similarlyreceived revenue on a per kilobyte basis for data traffic when subscribers ofSprint PCS and other PCS Affiliates of Sprint used our network.  In addition, we receive toll revenue for anylong distance calls made by these subscribers while roaming on our network.

 

For 2007, the reciprocal roaming rate was$0.0403 per minute for voice traffic ($0.10 per minute in certain markets ineastern and western Pennsylvania).  Effective January 1, 2008, these rates were reset to $0.0400 perminute for voice 

 

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traffic (with certain markets in eastern and western Pennsylvaniaremaining at $0.10 per minute).  For thethree and six months ended June 30, 2008 compared to the three and sixmonths ended June 30, 2007, voice roaming revenue from subscribers ofSprint and other PCS Affiliates of Sprint, including toll revenue, increased by$0.7 million and $3.5 million, respectively, reflecting an increase in roamingminutes, offset by the decrease in the per minute rate.

 

For 2007, the reciprocal roaming rate was$0.0010 per kilobyte for data traffic. Effective January 1, 2008 through December 31, 2010, dataroaming with Sprint is not settled separately, however, we continue to settleseparately 3G data roaming with the other remaining PCS Affiliates of Sprint.  Effective January 1, 2008, these rateswere reset to $0.0003 per kilobyte for data traffic with the other remainingPCS Affiliates of Sprint.  The decreasefor the three and six months ended June 30, 2008 reflects the cessation ofsettlement of data roaming with Sprint. Data roaming revenue with Sprint totaled $10.2 million and $16.7 millionfor the three and six months ended June 30, 2007, respectively.

 

·                    ***Roaming revenue from other wirelesscarriers.*** We receive roaming revenue from wireless carriersother than Sprint and other PCS Affiliates of Sprint when subscribers of suchother wireless carriers roam in our territory. We do not have agreements with these other wireless carriers.  Instead, we rely on the roaming arrangementsSprint PCS has negotiated with these carriers and are unable to set terms andprices or otherwise monitor these relationships.  We are paid on a per minute and per kilobytebasis for voice traffic pursuant to these agreements.  For the three andsix months ended June 30, 2008, roaming minutes were 81.9 million and152.0 million compared to 55.4 million and 97.7  million for the same periods in 2007,increases of 48% and 56%, respectively. The average per minute rate decreased from $0.054 per minute and $0.055per minute for the three and six months ended June 30, 2007, respectivelyto $0.051 per minute for the three and six months ended June 30, 2008.  The majority of our roaming revenue fromother wireless carriers is derived from customers of Alltel, which recentlyagreed to be acquired by Verizon Wireless. As a result, after the consummationof that transaction, we expect a decrease in our roaming revenue from Alltelover time.

 

·                    ***Reseller revenue.***Through Sprint PCS we allow resellers, known as MVNOs, such as Virgin Mobile,to use our network. Pursuant to these arrangements, we are paid on a per minuteand per kilobyte basis. The slight decrease in reseller revenue for the three monthsended June 30, 2008 compared to the three months ended June 30, 2007reflects a decrease in the average reseller subscribers between the respectiveperiods, offset by increased ARPU.  Theslight decrease in reseller revenue for the six months ended June 30, 2008compared to the six months ended June 30, 2007 reflects a decrease in ARPUbetween the two periods.  For the threeand six months ended June 30, 2008, reseller ARPU was $5.50 and $5.41,respectively, compared to $5.34 and $5.54 for the three and six months ended June 30,2007.  Average reseller subscribers wereapproximately 236,800 and 243,200 for the three and six months ended June 30,2008, compared to approximately 247,900 and 243,000 for the three and sixmonths ended June 30, 2007.

 

·                     ***Equipment and other revenue.***Equipment and other revenue is derived primarily from the sale of handsets andaccessories to new customers and from current customers who upgrade theirhandsets through our retail and local distribution channels, in each case, netof sales incentives, rebates and an allowance for returns. The increases in thethree and six months ended June 30, 2008, as compared to the three and sixmonths ended June 30, 2007, reflect higher revenue per handset and aslightly higher number of upgrades. These increasing factors are offset by lower activations.

 

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***Operating Expense.***

 

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

 
| ** **                                      | ** ** | **For the Three Months  Ended June 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                                      | ** ** | **2008**                                                          | ** ** | **2007**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Cost of service and roaming                     |       | $                                                                 | 70,463     |          | $          | 78,739         |       | $ | (8,276 | ) | (10.5 | )% |
| Cost of equipment                               |       | 12,874                                                            |       | 12,770        |       | 104            |       | 0.8 |   |
| Selling and marketing                           |       | 16,444                                                            |       | 19,108        |       | (2,664         | )          | (13.9 | ) |
| General and administrative                      |       | 7,992                                                             |       | 8,670         |       | (678           | )          | (7.8 | ) |
| Depreciation and amortization                   |       | 13,849                                                            |       | 19,625        |       | (5,776         | )          | (29.4 | ) |
| Loss on disposal of property and equipment, net |       | 248                                                               |       | 6             |       | 242            |       | 4,033.3 |   |
| Total operating expense                         |       | $                                                                 | 121,870    |          | $          | 138,918        |       | $ | (17,048 | ) | (12.3 | ) |

 
| ** **                                      | ** ** | **For the Six Months  Ended June 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                                      | ** ** | **2008**                                                        | ** ** | **2007**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Cost of service and roaming                     |       | $                                                               | 138,647    |          | $          | 152,154        |       | $ | (13,507 | ) | (8.9 | )% |
| Cost of equipment                               |       | 24,537                                                          |       | 25,949        |       | (1,412         | )          | (5.4 | ) |
| Selling and marketing                           |       | 34,303                                                          |       | 39,682        |       | (5,379         | )          | (13.6 | ) |
| General and administrative                      |       | 15,080                                                          |       | 15,597        |       | (517           | )          | (3.3 | ) |
| Depreciation and amortization                   |       | 27,804                                                          |       | 39,057        |       | (11,253        | )          | (28.8 | ) |
| Loss on disposal of property and equipment, net |       | 258                                                             |       | 65            |       | 193            |       | 296.9 |   |
| Total operating expense                         |       | $                                                               | 240,629    |          | $          | 272,504        |       | $ | (31,875 | ) | (11.7 | ) |

 

***Cost of Service andRoaming.*** Cost of service and roaming includesnetwork operations expense, roaming expense relating to when our subscribersroam either on other Sprint PCS networks or other wireless carriers’ networks,back-office customer services provided by Sprint PCS, the provision fordoubtful accounts, long distance expense, the 8% affiliation fee due to SprintPCS for collected revenue and stock-based compensation expense. Networkoperations expense includes salaries and benefits for network personnel, cellsite rent, utilities and maintenance expenses, fees relating to the connectionof our cell sites to our switches and other transport and facility expenses.Roaming expense is our cost of our subscribers using Sprint PCS and otherwireless carriers’ networks. Roaming expense on the Sprint PCS network is atthe reciprocal rates as described above under “—Roaming revenue from subscribersof Sprint PCS and other PCS Affiliates of Sprint.” Roaming expense whenour subscribers use other wireless carriers networks is at rates as determinedby the roaming agreements signed by Sprint PCS with these other wirelesscarriers. Effective January 1, 2008 through December 31, 2010, dataroaming with Sprint is not settled separately, however, we continue to settleseparately 3G data roaming with the other remaining PCS Affiliates of Sprint.The decrease for the three and six months ended June 30, 2008 reflects thecessation of settlement of data roaming with Sprint.  Data roaming expense with Sprint totaled $8.8and $17.1 million for the three and six months ended June 30, 2007,respectively.  Effective January 1,2008, the rate for our cash cost per user fee decreased from $7.50 persubscriber per month to $6.50 per subscriber per month, lowering cost ofservice and roaming by $1.9 million and $3.8 million for the three and sixmonths ended June 30, 2008, respectively, as compared to the comparable2007 periods.  Offsetting these decreasesare the $1.1 million and $2.4 million effects of higher average subscribers onwhich we incur Sprint’s CCPU and affiliation charges.  In the three and six months ended June 30,2008 compared to the same 2007 periods, bad debt expense increased $0.4 millionand $3.1 million from $4.3 million and $7.0 million in the three and six monthsended June 30, 2007 to $4.7 million and $10.1 million in the three and sixmonths ended June 30, 2008.  Theseincreases in bad debt expense are due to an increase in uncollectible accountsin the current periods.  The remainingincreases were due to the related costs of servicing a larger network andlarger subscriber base.

 

At June 30,2008, our network consisted of 1,763 leased cell sites and five switches.  At June 30, 2007, our network consistedof 1,656 leased cell sites and five switches.

 

***Cost of Equipment.***Cost of equipment includes the cost of handsets and accessories sold orupgraded from our retail and local distribution channels. Cost of equipment fornew activations decreased $0.5 million and $1.9 million, or 6% and 10%, in thethree and six months ended June 30, 2008, compared to the three and sixmonths ended June 30, 2007, primarily reflecting decreases in newactivations from our retail and local distribution channels of 13% and 9%,respectively.  The decrease in newactivations in the three month period was partially offset by a higher averagecost per phone.  Cost of equipmentrelated to upgrades increased $0.6 million and $0.4 million, or 16% and 7%,reflecting higher increases in handset upgrades from our retail and localdistribution channels of 17% and 10%, respectively.

 

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***Selling andMarketing.***Selling and marketing expense includesthe costs to operate our retail stores, advertising and promotional expenses,commissions, equipment subsidies and rebate expenses relating to new subscriberadditions from national third parties and other Sprint-controlled channels andstock-based compensation expense.  Thedecreases in the 2008 periods were due to lower costs related to commissionsand subsidies, as well as fees paid to Sprint for each new activation.  These lower costs partly reflect thedecreases in subscriber additions during the three and six months ended June 30,2008 compared to the 2007 periods. Stock-based compensation expense included in selling and marketingtotaled approximately $0.2 million and $0.4 million in the three and six monthsended June 30, 2008, respectively, compared to $0.6 million and $0.8million in the three and six months ended June, 30, 2007, respectively.

 

***General andAdministrative.***General and administrativeexpenses include administrative salaries and benefits, legal fees, insuranceexpense, other professional expenses and stock-based compensationexpense.  For the three and six months ended June 30, 2008, generaland administrative expense included approximately $1.8 million and $2.1million, respectively, of Sprint litigation related expenses.  This compares to $0.4 million and $1.1million for the three and six months ended June 30, 2007,respectively.  Stock-based compensationexpense included in general and administrative expense totaled approximately$1.5 million and $2.9 million for the three and six months ended June 30,2008, compared to $3.9 million and $5.6 million for the three and six monthsended June 30, 2007.  The remainingperiod over period increases reflect the costs of more employees to service ourlarger subscriber base.

 

***Depreciation andAmortization.***Amortization of intangible assetstotaled $2.3 million and $4.6 million for the three and six months ended June 30,2008, respectively, compared to $7.6 million and $15.1 million for the threeand six months ended June 30, 2007, respectively, decreases of $5.3million and $10.5 million for the three and six month periods,respectively.  At December 31, 2007,the intangible asset related to the Horizon PCS acquired customer base wasfully amortized. Depreciation expense totaled $11.5 million and $23.2million for the three and six months ended June 30, 2008 compared to $12.0million and $23.9 million for the three and six months ended June 30,2007, decreases of $0.5 million and $0.7 million, respectively.

 

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

 

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

 
| ** **                | ** ** | **For the Three Months Ended  June 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|---------------------------|------------|-------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                | ** ** | **2008**                                                          | ** ** | **2007**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Interest income           |       | $                                                                 | 384        |          | $          | 1,555          |       | $ | (1,171 | ) | (75.3 | )% |
| Interest expense          |       | 8,221                                                             |       | 9,128         |       | (907           | )          | (9.9 | ) |
| Debt extinguishment costs |       | —                                                            |       | 30,501        |       | (30,501        | )          | (100.0 | ) |
| Other income, net         |       | 15                                                                |       | 115           |       | (100           | )          | (87.0 | ) |
|                           |            |                                                                   |            |               |            |                |            |  |  |  |  |  |

 
| ** **                | ** ** | **For the Six Months Ended  June 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|---------------------------|------------|-----------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                | ** ** | **2008**                                                        | ** ** | **2007**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Interest income           |       | $                                                               | 1,104      |          | $          | 3,098          |       | $ | (1,994 | ) | (64.4 | )% |
| Interest expense          |       | 17,136                                                          |       | 17,098        |       | 38             |       | 0.2 |   |
| Debt extinguishment costs |       | —                                                          |       | 30,501        |       | (30,501        | )          | (100.0 | ) |
| Other income, net         |       | 30                                                              |       | 132           |       | (102           | )          | (77.3 | ) |
|                           |            |                                                                 |            |               |            |                |            |  |  |  |  |  |

 

***Interest Income.*** The decreases in interest income in the threeand six months ended June 30, 2008 as compared to the three and six monthsended June 30, 2007 reflect lower average cash and cash equivalents during2008 and lower average yields on these deposits and investments.

 

***Interest Expense.*** Interest expense consists of interest on ouroutstanding long-term debt (see Note 6, Long-Term Debt, of the “Notes toUnaudited Consolidated Financial Statements” in this Quarterly Report on Form 10-Q),including amortization of financing costs and net of capitalized interest.  Prior to April 23, 2007, interestexpense also included amortization of the fair value adjustment for the 11 3/8%senior notes.  Since August 1, 2007,interest expense also includes the effect of our interest rate swap (see Note7, Interest Rate Swap, of the “Notes to Unaudited Consolidated FinancialStatements” in this Quarterly Report on Form 10-Q).  The decrease in interest expense in the threemonths ended June 30, 2008 primarily reflects a lower weighted averageinterest rate, net of our interest rate swap, of 7.02% on our outstandinglong-term debt during the three months ended June 30, 2008 as compared tothe weighted average interest rate of 8.76% on our outstanding long-term debtduring the three months ended June 30, 2007.  The lower weighted average interest rate waspartially offset by higher average borrowings as compared to the 2007period.  Interest expense for the sixmonths ended June 30, 2008 remained flat with the six months ended June 30,2007 as a lower weighted average interest rate, net of our interest rate swapof 7.17%, as compared to the weighted average interest rate of 10.09% in the2007 period was offset by higher borrowings in 2008.

 

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In connection with our capital expenditures, we capitalized interest ofapproximately $0.6 million and $0.8 million in the three and six months ended June 30,2008, respectively.  We capitalizedinterest of approximately $0.2 million and $0.4 million in the three and sixmonths ended June 30, 2007, respectively.

 

***Debt extinguishment costs.***  Debtextinguishment costs represent expense recognized during the three months endedJune 30, 2007 in connection with the repurchase of our outstanding 111/2% and 113/8% notes (see Note 6, Long-Term Debt, of the “Notes to theUnaudited Consolidated Financial Statements” in this Quarterly Report on Form 10-Q).In the three months ended June 30, 2007, we recorded approximately$34.2 million of expense related to the tender offer premium and consentpayments on the tender offering, approximately $7.3 million of expenserelated to the write off of the remaining deferred financing fees for therepurchased notes and approximately $11.0 million as a reduction tointerest expense to reflect the write-off of the remaining unamortized balanceof the purchase price fair value allocation to the 113/8% notes recorded in July 2005 related to the Horizon PCS merger.

 

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

 

We utilizecertain financial measures that are not calculated in accordance with GAAP toassess our financial performance. A non-GAAP financial measure is defined as anumerical measure of financial performance that (a) excludes amounts, oris subject to adjustments that have the effect of excluding amounts, that areincluded in the comparable measure calculated and presented in accordance withGAAP in the statement of income or statement of cash flows; or (b) includesamounts, or is subject to adjustments that have the effect of includingamounts, that are excluded from the comparable measure so calculated andpresented. The non-GAAP financial measures discussed in “—Results of Operations”are ARPU and CPGA. A description of each of these non-GAAP financial measuresis provided in “—Definition of Operating Metrics.” The following tablesreconcile the non-GAAP financial measures with our consolidated financialstatements presented in accordance with GAAP, excluding subscriber data:

 
| ** **                     | ** ** | **For the Three Months Ended June 30,** | ** ** | **For the Six Months Ended June 30,** | ** ** |
|--------------------------------|------------|-----------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                     | ** ** | **2008**                                                              | ** ** | **2007**                                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| ***ARPU***                     |       |                                                                  |       |                                                                |       |   |   |   |   |
| Service revenue (in thousands) |       | $                                                                     | 94,174     |                                                                | $          | 89,924 |   | $ | 186,273 |   | $ | 174,945 |   |
| Average subscribers            |       | 648,000                                                               |       | 601,900                                                             |       | 640,900 |   | 588,300 |   |
| ARPU                           |       | $                                                                     | 48.44      |                                                                | $          | 49.80 |   | $ | 48.44 |   | $ | 49.56 |   |

 

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

 
| ** **                                      | ** ** | **For the Three Months Ended  June 30,** | ** ** | **For the Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2008**                                                          | ** ** | **2007**                                                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| ***CPGA***                                      |       |                                                              |       |                                                            |       |   |   |   |   |
| Selling and Marketing (in thousands):           |       | $                                                                 | 16,444     |                                                            | $          | 19,108 |   | $ | 34,303 |   | $ | 39,682 |   |
| plus: Equipment costs, net of cost of upgrades  |       | 8,468                                                             |       | 8,968                                                           |       | 17,361 |   | 19,218 |   |
| less: Equipment revenue, net of upgrade revenue |       | (2,608                                                            | )          | (2,809                                                          | )          | (5,508 | ) | (5,386 | ) |
| less: Stock-based compensation expense          |       | (204                                                              | )          | (650                                                            | )          | (417 | ) | (797 | ) |
| CPGA costs                                      |       | $                                                                 | 22,100     |                                                            | $          | 24,617 |   | 45,739 |   | 52,717 |   |
| Gross additions                                 |       | 61,800                                                            |       | 67,700                                                          |       | 121,000 |   | 143,300 |   |
| CPGA                                            |       | $                                                                 | 358        |                                                            | $          | 364 |   | $ | 378 |   | $ | 368 |   |

 

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

 

**Liquidity and Capital Resources**

 

We believe ourcash and cash equivalents and operating cash flow will be sufficient to operateour business and fund our capital needs for at least the next twelve months.Although we have certain limited additional borrowings allowed under ourcurrent debt agreements, we are dependent on cash and cash equivalents andoperating cash flow to operate our business and fund our capital needs.However, our future liquidity is dependent on a number of factors influencingour expected earnings and operating cash flows, including those discussed belowin —“Recent Trends, Risks and Uncertainties That May Affect OperatingResults, Liquidity and Capital Resources”.

 

***Significant Sourcesof Cash***

 

We generated$28.5 million in net cash flows from operating activities for the sixmonths ended June 30, 2008, compared to $6.2 million for the sixmonths ended June 30, 2007, an increase of $22.3 million. Excluding changesin assets and liabilities, operating activities provided $40.3 million of cash forthe six months ended June 30, 2008, compared to $20.6 million of cash forthe six months ended June 30, 2007, generally reflecting increasedearnings from our larger subscriber base, lower customer acquisition costs andan improved roaming margin.  For the sixmonths ended June 30, 2008, non-Sprint related working capital used cashof $14.6 million, reflecting customer account write-offs and increased accountsreceivable during the period.  For thesix months ended June 30, 2007, non-Sprint related working capital usedcash of $13.2 million reflecting increased accounts receivable due to increasedsales, timing of interest payments in connection with the repurchase of oursenior notes as well as a general deterioration in our subscriber accountsreceivable aging.  Sprint related workingcapital provided cash of $2.8 million and used cash of $1.2 million for the sixmonths ended June 30, 2008 and 2007, respectively.

 

We received$475.0 million in gross proceeds from the Secured Notes offering duringthe six months ended June 30, 2007.

 

For the sixmonths ended June 30, 2008, we received $0.4 million from the exercise ofoptions representing approximately 28,200 shares.  This is compared to $3.1 million in proceedsfrom the exercise of options representing approximately 179,600 shares in thesix months ended June 30, 2007.  Asof June 30, 2008, there were 713,108 exercisable stock options outstandingwith a weighted average exercise price of $18.65.  We cannot predict at what level, if any, cashgenerated from stock option exercises will continue in the future.

 

***Significant Uses ofCash***

 

Cash flowsused for investing activities for the six months ended June 30, 2008included $41.0 million for capital expenditures.  Included in thistotal was $39.7 million for new cell site construction and othernetwork-related capital expenditures, of which $16.8 million was for EV-DO Rev.A equipment, and $1.3 million was for new stores, store improvements, ITand other corporate-related capital expenditures.

 

Cash flowsused for investing activities for the six months ended June 30, 2007included $19.9 million for capital expenditures.  Included in thistotal was $17.4 million for new cell site construction and othernetwork-related capital expenditures including $9.5 million for EV-DO Rev. Aequipment, and $2.5 million for new stores, store improvements, IT andother corporate-related capital expenditures.

 

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On April 26,2007, our Board of Directors declared a special cash dividend of $11.00 percommon share, approximately $187.0 million in the aggregate, payable to allholders of record of our common stock on May 8, 2007.  Of this, approximately $186.5 million waspaid on May 16, 2007.  The remainingunpaid dividends relate to restricted stock awards and are being paid outstarting in July 2007 as these awards vest.  During the six months ended June 30,2008, we used approximately $72,000 to pay dividends related to theserestricted stock award vestings.

 

Our uses ofcash typically include providing for operating expenditures, debt servicerequirements and capital expenditures. We anticipate that total capital expenditures for 2008 will be between $70.0million and $75.0 million.  This includescash uses for new cell sites, new retail stores, information technology, andother network-related expenditures, including approximately $18.2 million forEV-DO Rev. A deployment.

 

We continuallyevaluate our capital and debt capacity and how to prioritize the use of ourexcess cash, including for any or a combination of the following strategicoptions:  increase capital expenditures,pursue strategic acquisitions, pay cash dividends or distributions, repurchaseof our stock, or payoff or repurchase of our debt.

 

***Recent Trends, Risksand Uncertainties That May Affect Operating Results, Liquidity and CapitalResources***

 

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

 

·                  Despiteincreased gross additions coming from Nextel subscribers switching to Sprint inour territory, overall gross additions continued to slow in the first half of2008 reflecting tightened credit standards, issues related to the billingsystem conversion at Sprint, and increased overall wireless penetration in ourmarkets. Additionally, gross additions were negatively impacted by theweakening economic environment, increased competitive advertising, the relativeattractiveness of competitors’ phones, pricing plans, coverage and customerservice, as well as continuing concerns about the strength of the “Sprint”brand.  We believe that these factorswill continue to negatively affect gross additions in the remainder of2008.  To the extent we are unable tomaintain, or choose to slow, our subscriber growth, it may make it moredifficult for us to obtain sufficient revenue to achieve and sustainprofitability.

 

·                  Ourchurn may increase in the future or remain high due to the weakening economicenvironment. If churn continues to remain high or increases over the long-term,we would lose the cash flows attributable to these subscribers and may incurhigher net losses.

 

·                  Competitionin the wireless industry remains intense as more competitors enter the market viarelationships with existing carriers or through the acquisition of new wirelessspectrum.  The introduction of moreadvanced handheld devices, such as Apple’s iPhone, and new technologies anddelivery channels, such as Clearwire’s WiMax offering (and, together withSprint Nextel, in a proposed joint venture) further complicate the competitiveenvironment.  In addition, prepaid plans,which we do not currently offer, and unlimited plans, including those offeredby us, also continue to increase in popularity, which may potentially put moredownward pressure on wireless service pricing as well as potentially, in thecase of unlimited plans, increase our expense of providing service. Incumbentcarriers, including us, may offer more aggressive rate plans in order tomaintain or achieve subscriber growth. In addition, the FCC and several statecourts are currently reviewing the industry’s practice related to earlycancellation fees, the outcome of which, or the effect of any change inbusiness practice made by Sprint related to early cancellation fees, maynegatively impact our future results.  Asa result of these and other factors, we expect to see continued pressure onsubscriber revenue which will have a negative effect on our cash flow.

 

·                  Ourcost per gross addition, or CPGA, increased in the first half of 2008 ascompared to the first half of 2007.  Wemay continue to experience higher costs to acquire subscribers in the future.To the extent that we increase our distribution infrastructure, we willincrease the fixed costs in our sales and marketing organization. Also, moreaggressive promotional efforts have historically led, and may continue to lead,to higher handset subsidies and rebates, especially as we increase the sale ofmore expensive handsets such as the Samsung Instinct. In addition, we mayincrease our marketing expenses and pay higher commissions in an effort toattract and acquire new subscribers. With a higher CPGA, subscribers mustremain our subscribers for a longer period of time at a stable ARPU for us torecover those acquisition costs.

 

·                  Certainportions of our operating expense continue to increase and may continue toincrease in the future due to, among other reasons:

 

·                  Higherbad debt expense due to higher write-offs, lower recoveries as a percentage ofwrite-offs and a deteriorating economic environment.

 

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·                  Higherhandset subsidies, rebates, commissions and other retention expenses forexisting subscribers who upgrade to a new handset as part of our promotionalefforts to reduce churn;

 

·                  Higherback office and administrative expenses due to the larger number of subscribersserved; and

 

·                  Highernetwork costs as we process increasing minutes and kilobytes on our network,and as a result of expanding our network infrastructure and increasing ourdeployment of EV-DO Rev. A.

 

Notwithstanding the foregoing, we have and expect to continue to see asignificant decrease in our roaming expense as a result of our change,effective January 1, 2008, to no longer settle 3G data roaming expense(and revenue) with Sprint separately. At the same time, a portion of ourongoing network and general and administrative expenses is fixed. We believethat we need to add more subscribers to recognize increased economies of scalein our business. If we are unable to add more subscribers or continue toimprove the efficiencies in our operating costs, results will be negativelyaffected.

 

·                  Asubstantial portion of our revenue is derived from voice roaming revenue fromsubscribers of Sprint PCS and other PCS affiliates of Sprint based outside ourterritory. The voice roaming rate for 2008 is lower than 2007 and, accordingly,the new rate has and will negatively impact our roaming revenue.  In addition, elevated energy prices andworsening economic conditions could result in decreased travel activity andalso have a negative impact on our roaming revenue.  Since the ratio of inbound to outbound voiceroaming fluctuates from period to period and year to year, the margin we earnfrom the difference between voice roaming revenue and voice roaming expense isdifficult to predict. If this roaming margin with Sprint PCS declines due toless roaming revenue, more roaming expense, or both, our results of operationswill be negatively affected.

 

·                  Aswe continue to add capacity and coverage and to upgrade our PCS network, wehave incurred and will continue to incur significant capital expenditures. Weincurred approximately $41.0 million in capital expenditures in the sixmonths ended June 30, 2008, including approximately $16.8 million forEV-DO Rev. A deployment. We anticipate that total capital expenditures for 2008will be between $70.0 million and $75.0 million. These expendituresinclude a significant increase in the number of new cell sites for 2008 ascompared to 2007. At the same time, we expect to expand our EV-DO Rev. Adeployment during 2008. As a result of our recent amendments with Sprint PCS,our CCPU rates are reduced by $0.15 when we reach certain EV-DO Rev. A coveragelevels.  During June 2008, our EV-DORev. A footprint coverage exceeded 6.0 million residents, which will reduce ourCCPU rate to $6.35 for the remainder of 2008, and we anticipate our EV-DO Rev.A footprint will cover approximately 7.0 million residents during the thirdquarter of 2008, which would, if achieved, further reduce our CCPU rate to$6.20 in the fourth quarter of 2008, $5.85 in 2009 and $5.55 in 2010. Lastly,we may decide to further increase our cell site expansion or EV-DO Rev. Acoverage, either or both of which may increase our anticipated capitalexpenditures and operating expense beyond our current plans. Furthermore,unforeseen changes in technology and changes in our plans to upgrade or expandour network may require us to spend more money than we expected and have anegative effect on our cash flow.

 

·                  Resellers,such as Virgin, are subject to a number of risks, including high churn, highbad debt expense, increased competition, dependence on fourth quarter grossadditions and reliance, in many cases, on specific segments of the market, forexample, the youth segment. In the past few years, a number of resellers,including Disney Mobile and ESPN Mobile, ceased providing service, reflectingthe increasingly competitive environment for resellers. We are not party to theunderlying agreements that the resellers have with Sprint Nextel and thereforeare unable to set prices or otherwise monitor the performance of the resellers.Additionally, the resellers using the Sprint network change from time to timeand such changes are outside of our control. If a reseller, particularlyVirgin, has a disruption in its business plan, experiences financialdifficulties, ceases to grow or service its customer base or contracts withanother wireless provider for its service, we may lose the related revenue andit may make it more difficult for us to obtain sufficient revenue to achieveand sustain profitability.

 

·                  Continuingefforts by Sprint to integrate the Sprint and Nextel businesses have had, andwill continue to have, a negative impact on our business and prospects. AsSprint continues to integrate the marketing and sales of Sprint products andservices with legacy Nextel products and services, more conflicts arise withhow we conduct business in our territory. Additionally, in 2007, Sprint beganmigrating its subscribers to a new billing platform called Ensemble.Subscribers based in our territory began migrating to Ensemble in March of2008 and, as of June 30, 2008, all Sprint subscribers based in ourterritory have been migrated to the new system. We believe technical challenges associated with the migration resultedin increased churn, lower gross additions and additional credits provided tocustomers.  Additionally, during themigration we experienced delays and inaccuracies in the subscriber informationwe receive from Sprint.  As of June 30,2008, we have not yet gained access to the same level of subscriber informationwe previously had.  Any delays inreestablishing this level of visibility into our subscriber information could makeit more difficult for us to effectively manage our business.

 

·                  Ourprimary subscriber base is composed of individual consumers.  We believe the current economic downturn inthe United States and elevated energy prices have negatively affected thebehavior of consumers in our territories in ways that have negatively affectedour business.  In the 

 

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event of a prolonged economic downturn in the United States in whichspending by individual consumers drops significantly, our current and potentialsubscribers, especially our sub-prime subscribers, may be unable or unwillingto purchase wireless services or pay their wireless bills and our business maycontinue to be negatively affected.

 

·                  Thefinal outcome of our Nextel litigation with Sprint is unknown.  As discussed below in “Commitments andContingencies”, on March 31, 2008, the Appellate Court of Illinoisunanimously affirmed the 2006 Circuit Court’s decision.  On May 5, 2008, Sprint filed a petitionof leave to appeal with the Supreme Court of Illinois. A decision on thatpetition is expected in the fall of 2008. The Circuit Court’s final orderremains stayed pending the conclusion of the appeals process.  We cannot predict the outcome of the appealprocess. If we do not prevail, Sprint may be permitted to operate the legacyNextel business in our territory in a manner that adversely affects ourbusiness and operations.  If we doprevail, we do not know Sprint’s intentions for complying with the CircuitCourt’s order and its impact on our business. In addition, as with any litigation, it is possible that the parties maysettle the dispute.  In that event, wecannot speculate as to the terms and conditions of any such settlement, whichcould include a material economic change in our relationship with Sprint.

 

·                  Thefinal outcome of our WiMax litigation with Sprint is unknown.  As discussed below in “Commitments andContingencies”, on May 7, 2008, Sprint Nextel filed a complaint fordeclaratory judgment in the Court of Chancery of the State of Delaware seekingto have that court rule that its proposed WiMax transaction is not aviolation of the Sprint Nextel agreements with iPCS.  On May 12, 2008, certain of oursubsidiaries filed a lawsuit against Sprint Nextel in the Circuit Court of CookCounty, Illinois, seeking declaratory and injunctive relief with respect toSprint Nextel’s proposed WiMax transaction. We cannot predict the outcome of these legal proceedings. If we do notprevail, Sprint may be permitted to operate, through its Clearwire jointventure, a mobile WiMax network in our territory that could adversely affectour business and operations by introducing a competitive product that mayreduce demand for our products and services. If we do prevail, we do not know Sprint’s intentions for complying with anyruling and its impact on our business. In addition, as with any litigation, it is possible that the parties maysettle the dispute.  In that event, wecannot speculate as to the terms and conditions of any such settlement, whichcould include a material economic change in our relationship with Sprint.

 

***Commitments andContingencies***

 

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

 

·                  Within180 days of the date of the final order, Sprint and those acting inconcert with it must cease owning, operating, and managing the Nextel wirelessnetwork in iPCS Wireless’s territory.

 

·                  Sprintshall continue to comply with all terms and conditions of the ForbearanceAgreement between us and Sprint setting forth certain limitations on Sprint’soperations post-merger with Nextel.

 

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

 

*Sprint Arbitration.*  Pursuant to the recent amendments of ouraffiliation agreements with Sprint PCS, we and Sprint agreed to dismissthe arbitration proceedings relating to Sprint’s proposed rates for providingback-office services to us for the three-year period commencing on January 1,2007.

 

*****Sprint Nextel Litigation with respect to theSprint-Clearwire Transaction.*****  On May 7, 2008, Sprint Nextelannounced a transaction between itself, Clearwire Corporation, and certainother parties (the “Sprint-Clearwire Transaction”).  The same day, SprintNextel filed a complaint for declaratory judgment against us and certain of oursubsidiaries in the Court of Chancery of the State of Delaware.  In thatlawsuit, Sprint Nextel seeks a declaration that the Sprint-ClearwireTransaction would not constitute a breach of the Sprint affiliation agreements ithas with us.

 

OnMay 12, 2008, we and certain of our subsidiaries filed a lawsuit againstSprint Nextel Corporation and certain of its affiliates in the Circuit Court ofCook County, Illinois, seeking declaratory and injunctive relief with respectto the Sprint-Clearwire Transaction.  In that case, we and our affiliatesseek a declaration that the Sprint-Clearwire Transaction, if consummated, wouldconstitute a breach of the Sprint affiliation agreements it has with us, andalso seek an injunction barring Sprint Nextel from closing on the Sprint-ClearwireTransaction, until it complies with the affiliation agreements. The case is currently stayed pendingcertain events in the Delaware litigation.  Sprint Nextel has moved todismiss the case or, in the alternative, to continue the stay.  We have movedto lift the stay in the case.  The court has not yet ruled on eithermotion, both of which are currently scheduled to be heard on August 22, 2008.

 

On July 14, 2008, theCourt of Chancery of the State of Delaware issued an opinion in the casepending before it.  The Delaware Court granted the motion to dismiss filed by two of our subsidiaries, Horizon PersonalCommunications, Inc. and Bright Personal Communications Services, LLC anddismissed them from the Delaware litigation, and denied the motion to dismiss usand our subsidiary, iPCS Wireless, Inc.

 

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OnJuly 16, 2008, we filed an application to certify for appeal that portionof the Delaware Court’s ruling in which the Delaware Court refused to dismissor stay the case in its entirety. On July 22, 2008, the Delaware Court deniedthat application. On July 23, 2008, we appealed that decision to the SupremeCourt of Delaware. On July 28, 2008, iPCS Wireless, Inc. filed a counterclaimin the Delaware Court in which it seeks a declaration that the Sprint-ClearwireTransaction, if consummated, would constitute a breach of the Sprintaffiliation agreements.  The same day, we and iPCS Wireless, Inc. filed amotion to dismiss the remainder of the case pending before it or, in thealternative, to transfer the case to the Superior Court of the State ofDelaware.  The court has not yet ruled on that motion, which is currentlyscheduled to be heard on August 8, 2008.

 

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

 

***Nortel NetworksEquipment Agreements***

 

On December 29,2006, we signed a letter of agreement with Nortel Networks to purchase EV-DORev. A equipment and services totaling $17.1 million in aggregate. Asof June 30, 2008, we have paid the full $17.1 million of thiscommitment.

 

**Contractual Obligations and Off-Balance SheetArrangements**

 

Forinformation regarding contractual obligations and off-balance sheetarrangements, see the captions “Contractual Obligations” and “Off-Balance SheetArrangements” in “Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operations” in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2007. At June 30, 2008, there had not been a material change to thecontractual obligations or off-balance sheet arrangements disclosed in theCompany’s Annual Report on Form 10-K for the year ended December 31,2007 except as follows (in thousands):

 

·                  3-monthLIBOR decreased approximately 200 basis points, from approximately 4.7% at December 31,2007 to approximately 2.8% at June 30, 2008.  Based on this reduction in LIBOR, cashinterest related to our long-term variable rate debt would decrease by $2,316,$8,283, $18,513 and $7,989 for 2008, 2009-2010, 2011-2012 and thereafter,respectively.

 

**Seasonality**

 

Our businessis subject to seasonality because the wireless telecommunications industryhistorically has been dependent on fourth calendar quarter results. Among otherthings, the industry relies on moderately higher subscriber additions andhandset sales in the fourth calendar quarter as compared to the other three calendarquarters. A number of factors contribute to this trend, including: the use ofretail distribution, which is heavily dependent upon the year-end holidayshopping season; the timing of new product and service announcements andintroductions; competitive pricing pressures; and aggressive marketing andpromotions. In addition, our roaming revenue and roaming expense is subject toseasonality because of decreased travel of wireless subscribers into ourterritory during the winter months.

 

**Critical Accounting Policies**

 

Our financialstatements are prepared in conformity with accounting principles generallyaccepted in the United States and require us to select appropriate accountingpolicies.  The assumptions and judgments we use in applying our accountingpolicies have a significant impact on our reported amounts of assets,liabilities, revenue and expenses.  While we believe that the assumptionsand judgments used in our estimates are reasonable, actual results may differfrom these estimates under different assumptions or conditions.

 

We haveidentified the most critical accounting policies upon which our financialstatus depends.  The critical policies were determined by consideringaccounting policies that involve the most complex or subjective decisions orassessments. We also have other policies considered key accounting policies;however, these policies do not meet the definition of critical accountingpolicies because they do not generally require us to make estimates orjudgments that are complex or subjective.  Our critical accountingpolicies include the following:

 

·                    Revenuerecognition

 

·                    Allowancefor doubtful accounts

 

·                    Long-livedasset recovery

 

·                    Intangibleassets

 

·                    Interestrate swap

 

·                    Incometaxes

 

·                    Stock-basedcompensation

 

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Additional information regarding these critical accounting policies canbe found in the “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” section of our Annual Report on Form 10-Kfor the year ended December 31, 2007, filed with the SEC on March 7,2008.

 

**Item 3. Quantitative and QualitativeDisclosures About Market Risk.**

 

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

 

In July 2007, we entered into an interest rate swap agreement thateffectively fixes the interest rate on $300.0 million of our variable rateindebtedness at 7.47% for three years starting August 1, 2007. The fairvalue of our interest rate swap was a $11.1 million liability at June 30,2008. A hypothetical increase of 100 basis points in average market interestrates would increase the fair value of our interest rate swap by approximately$6.7 million. A decrease of 100 basis points in average market interestrates would decrease the fair value of our interest rate swap by approximately$6.8 million. A prospective increase of 100 basis points in the interestrate applicable to the remaining $175.0 million of variable rateindebtedness would result in an increase of approximately $1.8 million inour annual interest expense. At June 30, 2008, after consideration of theinterest rate swap described above, approximately 37% of our debt is subject tovariable interest rates.

 

**Item 4. Controls and Procedures.**

 

Each of our Chief Executive Officer and Chief Financial Officer hasevaluated the effectiveness of our disclosure controls and procedures (as suchterm is defined in Rules 13a-15(e) and 15d-15(e) under theExchange Act) as of the end of the period covered by this quarterly report. Basedon such evaluation, such officers have concluded that, as of the end of theperiod covered by this quarterly report, our disclosure controls and proceduresare effective in alerting them on a timely basis to material informationrelating to us (including our consolidated subsidiaries) required to beincluded in our reports filed or submitted under the Exchange Act.

 

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

 

There have been no changes in our internal control over financialreporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) underthe Exchange Act) during the quarter ended June 30, 2008 that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

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**PART II.OTHER INFORMATION**

 

**Item 1. Legal Proceedings.**

 

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

 

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

 

**Item 1A. Risk Factors.**

 

You shouldcarefully consider the risks and uncertainties described in Part I, Item1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31,2007 and the other information in our subsequent filings with the SEC,including this Quarterly Report on Form 10-Q. Our business, financialcondition, results of operations and stock price could be materially adverselyaffected by any of these risks. The risks described in our Annual Report on Form 10-Kare not the only ones facing us. Additional risks and uncertainties that arecurrently unknown to us or that we currently consider to be immaterial may alsoimpair our business or adversely affect our financial condition, results ofoperations and stock price.

 

**Item 2. Unregistered Sales of EquitySecurities and Use of Proceeds.**

 

The followingtable provides information about shares of common stock the Company acquiredduring the second quarter of 2008:

 

Issuer Purchases of Equity Securities

 
| ** **                                | ** ** | **Total number of shares  purchased (a)** | ** ** | **Average price paid  per share** | ** ** | **Total number of shares  purchased as part of publicly  announced plans or  programs (a)** | ** ** | **Maximum number (or  approximate dollar value) of  shares that may yet be purchased  under the plans or programs** | ** ** |
|-------------------------------------------|------------|---------------------------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| April 1, 2008 to April 30, 2008 |       | —                                                        |       | —                                           |       | —                                                                                                                                        |       | —                                                                                                                                                                                    |       |
| May 1, 2008 to May 31, 2008     |       | —                                                        |       | —                                           |       | —                                                                                                                                        |       | —                                                                                                                                                                                    |       |
| June 1, 2008 to June 30, 2008   |       | 369                                                           |       | $                                                | 29.63      |                                                                                                                                          | —     |                                                                                                                                                                                      | —     |   |
| Total                                     |       | 369                                                           |       | $                                                | 29.63      |                                                                                                                                          | —     |                                                                                                                                                                                      | —     |   |

 

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(a)          On June 30,2008, as allowed for under the iPCS Second Amended and Restated 2004 Long-TermIncentive Plan, shares were withheld from an employee to satisfy certain taxwithholding obligations in connection with vesting of restricted stock.

 

**Item 3. Defaults Upon Senior Securities.**

 

None.

 

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**Item 4. Submission of Matters to a Vote ofSecurity Holders.**

 

Atour Annual Meeting of Stockholders held on May 22, 2008, the stockholdersvoted on the following:

 

1.  The election of eight directors to our boardof directors:

 
| ** **             | ** ** | **For**    | ** ** | **Withheld** | ** ** |
|------------------------|------------|------------|------------|--------------|------------|
| Timothy M. Yager       |       | 13,029,283 |       | 26,266       |       |
| Timothy G. Biltz       |       | 13,046,283 |       | 9,266        |       |
| Jeffrey W. Jones       |       | 13,046,128 |       | 9,421        |       |
| Ryan L. Langdon        |       | 12,997,709 |       | 57,840       |       |
| Kevin M. Roe           |       | 13,046,128 |       | 9,421        |       |
| Mikal J. Thomsen       |       | 12,997,864 |       | 57,685       |       |
| Nicholas J. Vantzelfde |       | 13,046,283 |       | 9,266        |       |
| Eric L. Zinterhofer    |       | 12,996,564 |       | 58,985       |       |

 

2. The approval of the iPCS Second Amended and Restated 2004 Long-Term IncentivePlan, including the reservation of an additional 600,000 shares of common stockthat may be issued as awards under the plan:

 
| **For**   | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker Non-Votes** | ** ** |
|-----------|------------|-------------|------------|-------------|------------|---------------------------|------------|
| 8,790,235 |       | 2,035,131   |       | 9,000       |       | 2,221,184                 |       |

 

3.  The ratification of the appointment ofDeloitte & Touche LLP as our independent registered public accountingfirm for the year ending December 31, 2008:

 
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|------------|------------|-------------|------------|-------------|------------|
| 13,051,450 |       | 3,500       |       | 600         |       |

 

**Item 5. Other Information.**

 

None.

 

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**Item 6. Exhibits.**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                 |       | Second Restated Certificate of Incorporation of iPCS, Inc.  (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed by  iPCS, Inc. on July 1, 2005)                                                                                                                                                                                                                                                                    |
| 3.2                 |       | Amended and Restated Bylaws of iPCS, Inc. (Incorporated by  reference to Exhibit 3.2 to the Form 10-QT filed by iPCS, Inc.  on February 14, 2006)                                                                                                                                                                                                                                                                              |
| 3.3                 |       | Amendment to the Amended and Restated Bylaws of iPCS, Inc.  (Incorporated by reference to Exhibit 99.1 to the Form 8- K filed  by iPCS, Inc. on January 4, 2008)                                                                                                                                                                                                                                                               |
| 3.4                 |       | Certificate of Incorporation of iPCS Wireless, Inc.  (Incorporated by reference to Exhibit 3.4 to the Form S-4 filed by  iPCS, Inc. on January 8, 2001)                                                                                                                                                                                                                                                                        |
| 3.5                 |       | Bylaws of iPCS Wireless, Inc. (Incorporated by reference to  Exhibit 3.5 to the Form S-4 filed by iPCS, Inc. on  January 8, 2001)                                                                                                                                                                                                                                                                                              |
| 3.6                 |       | Certificate of Incorporation of iPCS Equipment, Inc.  (Incorporated by reference to Exhibit 3.6 to the Form S-4 filed by  iPCS, Inc. on January 8, 2001)                                                                                                                                                                                                                                                                       |
| 3.7                 |       | Bylaws of iPCS Equipment, Inc. (Incorporated by reference to  Exhibit 3.7 to the Form S-4 filed by iPCS, Inc. on  January 8, 2001)                                                                                                                                                                                                                                                                                             |
| 3.8                 |       | Articles of Organization of Bright Personal Communications  Services, LLC (Incorporated by reference to Exhibit 3.7 to the  Form S-1 filed by iPCS, Inc. on August 11, 2005)                                                                                                                                                                                                                                                   |
| 3.9                 |       | Operating Agreement of Bright Personal Communications  Services, LLC (Incorporated by reference to Exhibit 3.8 to the  Form S-1 filed by iPCS, Inc. on August 11, 2005)                                                                                                                                                                                                                                                        |
| 3.10                |       | Articles of Incorporation of Horizon Personal  Communications, Inc. (Incorporated by reference to Exhibit 3.9 to  the Form S-1 filed by iPCS, Inc. on August 11, 2005)                                                                                                                                                                                                                                                         |
| 3.11                |       | Regulations of Horizon Personal Communications, Inc.  (Incorporated by reference to Exhibit 3.10 to the Form S-1 filed by  iPCS, Inc. on August 11, 2005)                                                                                                                                                                                                                                                                      |
| 4.1                 |       | Amended and Restated Common Stock Registration Rights Agreement,  dated as of June 30, 2005, by and among iPCS, Inc., affiliates of  Silver Point Capital, affiliates of AIG Global Investment Corp., the Timothy  M. Yager 2001 Trust, Apollo Investment Fund IV, L.P. and Apollo Overseas  Partners IV, L.P. (Incorporated by reference to Exhibit 99.1 to the  Form 8-K filed by iPCS, Inc. on July 1, 2005) |
| 4.2                 |       | First Lien Indenture, dated as of April 23, 2007, by and among  iPCS, Inc., the Guarantors and U.S. Bank National Association, as  trustee (Incorporated by reference to Exhibit 99.3 to the Form 8-K  filed by iPCS, Inc. on April 25, 2007)                                                                                                                                                                             |
| 4.3                 |       | Second Lien Indenture, dated as of April 23, 2007, by and among  iPCS, Inc., the Guarantors and U.S. Bank National Association, as  trustee (Incorporated by reference to Exhibit 99.4 to the Form 8-K  filed by iPCS, Inc. on April 25, 2007)                                                                                                                                                                            |
| 4.4                 |       | First Lien Security Agreement, dated as of April 23, 2007, made  by iPCS, Inc. and the Guarantors in favor of U.S. Bank National  Association, as collateral agent (Incorporated by reference to  Exhibit 99.7 to the Form 8-K filed by iPCS, Inc. on  April 25, 2007)                                                                                                                                                    |
| 4.5                 |       | Second Lien Security Agreement, dated as of April 23, 2007, made  by iPCS, Inc. and the Guarantors in favor of U.S. Bank National  Association, as collateral agent (Incorporated by reference to  Exhibit 99.8 to the Form 8-K filed by iPCS, Inc. on  April 25, 2007)                                                                                                                                                   |
| 4.6                 |       | Intercreditor Agreement, dated as of April 23, 2007, between  U.S. Bank National Association, as first lien collateral agent and U.S. Bank  National Association, as second lien collateral agent. (Incorporated by  reference to Exhibit 99.9 to the Form 8-K filed by iPCS, Inc.  on April 25, 2007)                                                                                                                         |
| 4.7                 |       | First Amendment to the First Lien Security Agreement, dated as of  October 10, 2007, made by iPCS, Inc. and the Guarantors in favor of  U.S. Bank National Association, as collateral agent (Incorporated by  reference to Exhibit 10.1 to the Form 10-Q filed by iPCS, Inc.  on November 8, 2007)                                                                                                                        |

 

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| 4.8   |   | First Amendment to the Second Lien Security Agreement, dated as of  October 10, 2007, made by iPCS, Inc. and the Guarantors in favor of  U.S. Bank National Association, as collateral agent (Incorporated by  reference to Exhibit 10.2 to the Form 10-Q filed by iPCS, Inc.  on November 8, 2007) |
|-------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1  |   | iPCS Second Amended and Restated 2004 Long-Term Incentive Plan  (Incorporated by reference to Exhibit 99.1 to the Form 8-K filed by  iPCS, Inc. on May 23, 2008)                                                                                                                                              |
| 31.1* |   | Certification of Chief Executive Officer Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                          |
| 31.2* |   | Certification of Chief Financial Officer Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                          |
| 32.1* |   | Certification Pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                 |

 

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*                                         Filedherewith.

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|                      | iPCS, Inc. |
|---------------------------|-----------------|
|                      |            |
|                      | By:             | /s/ TIMOTHY M. YAGER |
|                      |            | Timothy M. Yager |
|                      |            | President and Chief Executive Officer   (Principal Executive Officer) |
|                      |            |
| Date: August 1, 2008 |            |
|                      | By:             | /s/ STEBBINS B. CHANDOR, JR. |
|                      |            | Stebbins B. Chandor, Jr. |
|                      |            | Executive Vice President and  Chief Financial Officer  (Principal Financial Officer) |
|                      |            |
| Date: August 1, 2008 |            |

 

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