10-Q 1 metropcs10-qx2011q2.htm FORM 10-Q MetroPCS 10-Q - 2011 Q2
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number
1-33409
METROPCS COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
20-0836269
(State or other jurisdiction
 
(I.R.S. Employer
of incorporation or organization)
 
Identification No.)
 
 
2250 Lakeside Boulevard
 
 
Richardson, Texas
 
75082-4304
(Address of principal executive offices)
 
(Zip Code)
(214) 570-5800
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
 
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
On July 29, 2011, there were 361,965,610 shares of the registrant’s common stock, $0.0001 par value, outstanding.


METROPCS COMMUNICATIONS, INC.
Quarterly Report on Form 10-Q
Table of Contents
 
Page
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
*
*
*
 ———————————— 
*
No reportable information under this item.


Part I.
FINANCIAL INFORMATION
Item 1. Financial Statements
MetroPCS Communications, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share information)
(Unaudited)
 
 
June 30,
2011
 
December 31,
2010
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents
 
$
1,855,994

 
$
796,531

Short-term investments
 
299,954

 
374,862

Inventories
 
140,048

 
161,049

Accounts receivable (net of allowance for uncollectible accounts of $494 and $2,494 at June 30, 2011 and December 31, 2010, respectively)
 
62,506

 
58,056

Prepaid expenses
 
64,982

 
50,477

Deferred charges
 
88,641

 
83,485

Deferred tax assets
 
6,290

 
6,290

Other current assets
 
49,887

 
63,135

Total current assets
 
2,568,302

 
1,593,885

Property and equipment, net
 
3,856,869

 
3,659,445

Restricted cash and investments
 
2,876

 
2,876

Long-term investments
 
8,035

 
16,700

FCC licenses
 
2,538,360

 
2,522,241

Other assets
 
126,585

 
123,433

Total assets
 
$
9,101,027

 
$
7,918,580

CURRENT LIABILITIES:
 
 
 
 
Accounts payable and accrued expenses
 
$
427,922

 
$
521,788

Current maturities of long-term debt
 
32,416

 
21,996

Deferred revenue
 
235,461

 
224,471

Other current liabilities
 
29,874

 
34,165

Total current liabilities
 
725,673

 
802,420

Long-term debt, net
 
4,714,512

 
3,757,287

Deferred tax liabilities
 
721,143

 
643,058

Deferred rents
 
109,237

 
101,411

Other long-term liabilities
 
80,744

 
72,828

Total liabilities
 
6,351,309

 
5,377,004

COMMITMENTS AND CONTINGENCIES (See Note 9)
 

 

STOCKHOLDERS’ EQUITY:
 
 
 
 
Preferred stock, par value $0.0001 per share, 100,000,000 shares authorized; no shares of preferred stock issued and outstanding at June 30, 2011 and December 31, 2010
 

 

Common stock, par value $0.0001 per share, 1,000,000,000 shares authorized, 361,574,806 and 355,318,666 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively
 
36

 
36

Additional paid-in capital
 
1,763,946

 
1,686,761

Retained earnings
 
998,822

 
858,108

Accumulated other comprehensive loss
 
(7,582
)
 
(1,415
)
Less treasury stock, at cost, 469,152 and 237,818 treasury shares at June 30, 2011 and December 31, 2010, respectively
 
(5,504
)
 
(1,914
)
Total stockholders’ equity
 
2,749,718

 
2,541,576

Total liabilities and stockholders’ equity
 
$
9,101,027

 
$
7,918,580

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


MetroPCS Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Income and Comprehensive Income
(in thousands, except share and per share information)
(Unaudited)
 
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
 
 
 
2011
 
2010
 
2011
 
2010
REVENUES:
 
 
 
 
 
 
 
 
Service revenues
 
$
1,113,292

 
$
922,137

 
$
2,163,509

 
$
1,775,420

Equipment revenues
 
96,161

 
90,399

 
240,320

 
207,619

Total revenues
 
1,209,453

 
1,012,536

 
2,403,829

 
1,983,039

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
Cost of service (excluding depreciation and amortization expense of $115,455, $95,883, $227,282 and $190,826 shown separately below)
 
366,030

 
308,168

 
707,447

 
592,820

Cost of equipment
 
342,534

 
235,354

 
751,796

 
549,092

Selling, general and administrative expenses (excluding depreciation and amortization expense of $19,070, $13,419, $35,937 and $26,276 shown separately below)
 
154,556

 
158,600

 
324,327

 
318,510

Depreciation and amortization
 
134,525

 
109,302

 
263,219

 
217,102

Loss on disposal of assets
 
1,553

 
2,700

 
1,448

 
1,872

Total operating expenses
 
999,198

 
814,124

 
2,048,237

 
1,679,396

Income from operations
 
210,255

 
198,412

 
355,592

 
303,643

OTHER EXPENSE (INCOME):
 
 
 
 
 
 
 
 
Interest expense
 
66,980

 
65,503

 
123,541

 
132,985

Interest income
 
(511
)
 
(392
)
 
(1,026
)
 
(856
)
Other (income) expense, net
 
(186
)
 
479

 
(442
)
 
934

Loss on extinguishment of debt
 
9,536

 

 
9,536

 

Total other expense
 
75,819

 
65,590

 
131,609

 
133,063

Income before provision for income taxes
 
134,436

 
132,822

 
223,983

 
170,580

Provision for income taxes
 
(50,101
)
 
(52,907
)
 
(83,269
)
 
(68,004
)
Net income
 
$
84,335

 
$
79,915

 
$
140,714

 
$
102,576

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized gains on available-for-sale securities, net of tax of $40, $58, $102 and $78, respectively
 
66

 
91

 
165

 
124

Unrealized losses on cash flow hedging derivatives, net of tax benefit of $8,299, $2,658, $7,923 and $6,437, respectively
 
(13,374
)
 
(4,191
)
 
(12,774
)
 
(10,218
)
Reclassification adjustment for gains on available-for-sale securities included in net income, net of tax of $57, $34, $122 and $83, respectively
 
(93
)
 
(53
)
 
(197
)
 
(133
)
Reclassification adjustment for losses on cash flow hedging derivatives included in net income, net of tax benefit of $2,319, $3,214, $4,118 and $7,436, respectively
 
3,762

 
5,071

 
6,639

 
11,805

Total other comprehensive (loss) income
 
(9,639
)
 
918

 
(6,167
)
 
1,578

Comprehensive income
 
$
74,696

 
$
80,833

 
$
134,547

 
$
104,154

Net income per common share:
 
 
 
 
 
 
 
 
Basic
 
$
0.23

 
$
0.22

 
$
0.39

 
$
0.29

Diluted
 
$
0.23

 
$
0.22

 
$
0.38

 
$
0.29

Weighted average shares:
 
 
 
 
 
 
 
 
Basic
 
360,226,487

 
353,278,423

 
358,616,324

 
353,032,030

Diluted
 
365,390,280

 
355,685,446

 
363,153,234

 
355,151,112


The accompanying notes are an integral part of these condensed consolidated financial statements.

2


MetroPCS Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 
 
For the Six Months Ended June 30,
 
 
 
 
2011
 
2010
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income
 
$
140,714

 
$
102,576

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
263,219

 
217,102

Provision for uncollectible accounts receivable
 
261

 
58

Deferred rent expense
 
7,832

 
10,915

Cost of abandoned cell sites
 
380

 
903

Stock-based compensation expense
 
22,244

 
23,333

Non-cash interest expense
 
4,015

 
6,412

Loss on disposal of assets
 
1,448

 
1,872

Loss on extinguishment of debt
 
9,536

 

Gain on sale of investments
 
(319
)
 
(217
)
Accretion of asset retirement obligations
 
2,762

 
1,285

Other non-cash expense
 

 
963

Deferred income taxes
 
81,395

 
65,700

Changes in assets and liabilities:
 
 
 
 
Inventories
 
21,001

 
(47,962
)
Accounts receivable, net
 
(4,710
)
 
3,692

Prepaid expenses
 
(14,512
)
 
(17,243
)
Deferred charges
 
(5,157
)
 
(5,374
)
Other assets
 
20,081

 
11,082

Accounts payable and accrued expenses
 
(85,346
)
 
(51,936
)
Deferred revenue
 
10,990

 
9,211

Other liabilities
 
6,266

 
5,079

Net cash provided by operating activities
 
482,100

 
337,451

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Purchases of property and equipment
 
(451,573
)
 
(315,337
)
Change in prepaid purchases of property and equipment
 
(17,691
)
 
(18,551
)
Proceeds from sale of property and equipment
 
603

 
6,356

Purchase of investments
 
(299,826
)
 
(312,225
)
Proceeds from maturity of investments
 
375,000

 
237,500

Change in restricted cash and investments
 

 
1,762

Acquisitions of FCC licenses and microwave clearing costs
 
(3,283
)
 
(1,976
)
Cash used in asset acquisitions
 
(7,495
)
 

Net cash used in investing activities
 
(404,265
)
 
(402,471
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Change in book overdraft
 
1,263

 
(80,337
)
Proceeds from debt issuance, net of discount
 
1,497,500

 

Debt issuance costs
 
(15,351
)
 

Repayment of debt
 
(11,598
)
 
(8,000
)
Retirement of senior secured credit facility debt
 
(535,792
)
 

Payments on capital lease obligations
 
(4,474
)
 
(1,224
)
Purchase of treasury stock
 
(3,591
)
 
(852
)
Proceeds from exercise of stock options
 
53,671

 
2,592

Net cash provided by (used in) financing activities
 
981,628

 
(87,821
)
INCREASE (DECREASE) CASH AND CASH EQUIVALENTS
 
1,059,463

 
(152,841
)
CASH AND CASH EQUIVALENTS, beginning of period
 
796,531

 
929,381

CASH AND CASH EQUIVALENTS, end of period
 
$
1,855,994

 
$
776,540


The accompanying notes are an integral part of these condensed consolidated financial statements.

3

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)



1.
Basis of Presentation:
The accompanying unaudited condensed consolidated interim financial statements include the balances and results of operations of MetroPCS Communications, Inc. (“MetroPCS”) and its consolidated subsidiaries (collectively, the “Company”).
The condensed consolidated balance sheets as of June 30, 2011 and December 31, 2010, the condensed consolidated statements of income and comprehensive income and cash flows for the periods ended June 30, 2011 and 2010, and the related footnotes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting of normal, recurring adjustments) which are, in the opinion of management, necessary to state fairly the results for the interim periods presented. Certain amounts reported in previous periods have been reclassified to conform to the current period presentation. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the fiscal year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company has thirteen operating segments based on geographic region within the United States: Atlanta, Boston, Dallas/Ft. Worth, Detroit, Las Vegas, Los Angeles, Miami, New York, Orlando/Jacksonville, Philadelphia, Sacramento, San Francisco and Tampa/Sarasota. In accordance with the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280 (Topic 280, “Segment Reporting”), the Company aggregates its thirteen operating segments into one reportable segment.
Federal Universal Service Fund (“FUSF”), E-911 and various other fees are assessed by various governmental authorities in connection with the services that the Company provides to its customers. The Company offers a family of service plans, which include all applicable taxes and regulatory fees (“tax inclusive plans”). The Company reports regulatory fees for the tax inclusive plans in cost of service on the accompanying condensed consolidated statements of income and comprehensive income. When the Company separately assesses these regulatory fees on its customers, the Company reports these regulatory fees on a gross basis in service revenues and cost of service on the accompanying condensed consolidated statements of income and comprehensive income. For the three months ended June 30, 2011 and 2010, the Company recorded $17.4 million and $21.5 million, respectively, of FUSF, E-911 and other fees on a gross basis. For the six months ended June 30, 2011 and 2010, the Company recorded $35.5 million and $44.6 million, respectively, of FUSF, E-911 and other fees on a gross basis. Sales, use and excise taxes for all service plans are reported on a net basis in selling, general and administrative expenses on the accompanying condensed consolidated statements of income and comprehensive income.
Recent Accounting Pronouncements
In May 2011, the FASB issued Accounting Standards Update ("ASU") 2011-04, "Fair Value Measurement - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs," addressing how to measure fair value and what disclosures to provide about fair value measurements. This amendment is largely consistent with the existing GAAP guidance, but aligned the international guidance and eliminated unnecessary wording differences between GAAP and International Financial Reporting Standards ("IFRS"). The amendment is effective for interim and annual periods beginning after December 15, 2011, and should be applied prospectively. The implementation of this standard will not affect the Company's financial condition, results of operations, or cash flows.
In June 2011, the FASB issued ASU 2011-05 "Statement of Comprehensive Income," which revises the manner in which entities present comprehensive income in their financial statements, requiring entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011 and should be applied retrospectively. The implementation of this standard will not affect the Company's financial condition, results of operations, or cash flows.

4

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


2.
Asset Acquisition:
In October 2010, the Company entered into an asset purchase agreement to acquire 10 MHz of AWS spectrum and certain related network assets adjacent to the Northeast metropolitan areas for a total purchase price of $49.2 million. In November 2010, the Company closed on the acquisition of the network assets and paid a total of $41.1 million in cash. In February 2011, the Company closed on the acquisition of the 10 MHz of AWS spectrum and paid $8.0 million in cash. In June 2011, the Company completed its final settlement of costs and received $0.5 million in cash as reimbursement for pre-acquisition payments made on behalf of the seller. The Company used the relative fair values of the assets acquired to allocate the purchase price, of which $35.6 million was allocated to property and equipment and $13.6 million was allocated to Federal Communications Commission (“FCC”) licenses.
 
3.
Short-term Investments:
The Company’s short-term investments consist of securities classified as available-for-sale, which are stated at fair value. The securities include U.S. Treasury securities with an original maturity of over 90 days. Unrealized gains, net of related income taxes, for available-for-sale securities are reported in accumulated other comprehensive income (loss), a component of stockholders’ equity, until realized. The estimated fair values of investments are based on quoted market prices as of the end of the reporting period. The U.S. Treasury securities reported as of June 30, 2011 have contractual maturities of less than one year.
Short-term investments, with an original maturity of over 90 days, consisted of the following (in thousands):
 
 
As of June 30, 2011
 
 
Amortized
Cost
 
Unrealized
Gain in
Accumulated
OCI
 
Unrealized
Loss in
Accumulated
OCI
 
Aggregate
Fair
Value
Equity securities
 
$
7

 
$

 
$
(5
)
 
$
2

U.S. Treasury securities
 
299,826

 
126

 

 
299,952

Total short-term investments
 
$
299,833

 
$
126

 
$
(5
)
 
$
299,954

 
 
 
As of December 31, 2010
 
 
Amortized
Cost
 
Unrealized
Gain in
Accumulated
OCI
 
Unrealized
Loss in
Accumulated
OCI
 
Aggregate
Fair
Value
Equity securities
 
$
7

 
$

 
$
(6
)
 
$
1

U.S. Treasury securities
 
374,681

 
180

 

 
374,861

Total short-term investments
 
$
374,688

 
$
180

 
$
(6
)
 
$
374,862


4.
Derivative Instruments and Hedging Activities:
In March 2009, MetroPCS Wireless, Inc. (“Wireless”) entered into three separate two-year interest rate protection agreements to manage the Company’s interest rate risk exposure under Wireless’ senior secured credit facility, as amended (the “Senior Secured Credit Facility”). These agreements were effective on February 1, 2010 and cover a notional amount of $1.0 billion and effectively convert this portion of Wireless’ variable rate debt to fixed rate debt at a weighted average annual rate of 5.927%. These agreements expire on February 1, 2012.
In October 2010, Wireless entered into three separate two-year interest rate protection agreements to manage its interest rate risk exposure under its Senior Secured Credit Facility. These agreements will be effective on February 1, 2012 and will cover a notional amount of $950.0 million and effectively convert this portion of Wireless’ variable rate debt to fixed rate debt at a weighted average annual rate of 4.933%. The monthly interest settlement periods will begin on February 1, 2012. These agreements expire on February 1, 2014.
In April 2011, Wireless entered into three separate three-year interest rate protection agreements to manage its interest rate risk exposure under its Senior Secured Credit Facility. These agreements were effective on April 15, 2011 and cover a notional amount of $450.0 million and effectively convert this portion of Wireless’ variable rate debt to fixed rate debt at a weighted average annual rate of 5.242%. The monthly interest settlement periods began on April 15, 2011. These agreements expire on April 15, 2014.

5

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


Interest rate protection agreements are entered into to manage interest rate risk associated with Wireless’ variable-rate borrowings under the Senior Secured Credit Facility. The interest rate protection agreements have been designated as cash flow hedges. If a derivative is designated as a cash flow hedge and the hedging relationship qualifies for hedge accounting under the provisions of ASC 815 (Topic 815, “Derivatives and Hedging”), the effective portion of the change in fair value of the derivative is recorded in accumulated other comprehensive income (loss) and reclassified to interest expense in the period in which the hedged transaction affects earnings. The ineffective portion of the change in fair value of a derivative qualifying for hedge accounting is recognized in earnings in the period of the change. For the three months ended June 30, 2011, the change in fair value did not result in ineffectiveness.
At the inception of the cash flow hedges and quarterly thereafter, the Company performs an assessment to determine whether changes in the fair values or cash flows of the derivatives are deemed highly effective in offsetting changes in the fair values or cash flows of the hedged transaction. If at any time subsequent to the inception of the cash flow hedges, the assessment indicates that the derivative is no longer highly effective as a hedge, the Company will discontinue hedge accounting and recognize all subsequent derivative gains and losses in results of operations. The Company estimates that approximately $18.5 million of net losses that are reported in accumulated other comprehensive loss at June 30, 2011 are expected to be reclassified into earnings within the next 12 months.
Cross-default Provisions
Wireless’ interest rate protection agreements contain cross-default provisions to its Senior Secured Credit Facility. Wireless’ Senior Secured Credit Facility allows interest rate protection agreements to become secured if the counterparty to the agreement is a current lender under the facility. If Wireless were to default on the Senior Secured Credit Facility, it would trigger these provisions, and the counterparties to the interest rate protection agreements could request immediate payment on interest rate protection agreements in net liability positions, similar to their existing rights as a lender. There are no collateral requirements in the interest rate protection agreements. The aggregate fair value of interest rate protection agreements with cross-default provisions that are in a net liability position on June 30, 2011 is $18.2 million.

Fair Values of Derivative Instruments
(in thousands)
 
Liability Derivatives
 
 
As of June 30, 2011
 
As of December 31, 2010
 
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Derivatives designated as hedging
instruments under ASC 815
 
 
 
 
 
 
 
 
Interest rate protection agreements
 
Long-term investments
 
$
1,716

 
Long-term investments
 
$
10,381

Interest rate protection agreements
 
Other current liabilities
 
(18,508
)
 
Other current liabilities
 
(17,508
)
Interest rate protection agreements
 
Other long-term liabilities
 
(1,457
)
 
Other long-term liabilities
 
(1,182
)
Total derivatives designated as
hedging instruments under ASC
815
 
 
 
$
(18,249
)
 
 
 
$
(8,309
)


The Effect of Derivative Instruments on the Condensed Consolidated Statement of Income and Comprehensive Income
For the Three Months Ended June 30,
Derivatives in ASC 815 Cash
Flow Hedging Relationships
 
Amount of Gain (Loss)
Recognized in OCI on Derivative
(Effective Portion)
 
Location of Gain (Loss) Reclassified from
Accumulated OCI into
Income (Effective Portion)
 
Amount of Gain (Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion)
 
2011
 
2010
 
2011
 
2010
Interest rate protection agreements
 
$
(21,673
)
 
$
(6,849
)
 
Interest expense
 
$
(6,081
)
 
$
(8,285
)


6

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


The Effect of Derivative Instruments on the Condensed Consolidated Statement of Income and Comprehensive Income
For the Six Months Ended June 30,
Derivatives in ASC 815 Cash
Flow Hedging Relationships
 
Amount of Gain (Loss)
Recognized in OCI on Derivative
(Effective Portion)
 
Location of Gain (Loss) Reclassified from
Accumulated OCI into
Income (Effective Portion)
 
Amount of Gain (Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion)
 
2011
 
2010
 
2011
 
2010
Interest rate protection agreements
 
$
(20,697
)
 
$
(16,655
)
 
Interest expense
 
$
(10,757
)
 
$
(19,241
)
  
5.
Intangible Assets:
The Company operates wireless broadband mobile networks under licenses granted by the Federal Communications Commission ("FCC") for a particular geographic area on spectrum allocated by the FCC for terrestrial wireless broadband services. The Company holds personal communications services (“PCS”) licenses, advanced wireless services (“AWS”) licenses, and 700 MHz licenses granted or acquired on various dates. The PCS licenses previously included, and the AWS licenses currently include, the obligation and resulting costs to relocate existing fixed microwave users of the Company’s licensed spectrum if the Company’s use of its spectrum interferes with their systems and/or reimburse other carriers (according to FCC rules) that relocated prior users if the relocation benefits the Company’s system. Accordingly, the Company incurs costs related to microwave relocation in constructing its PCS and AWS networks. FCC Licenses and related microwave relocation costs are recorded at cost.
The change in the carrying value of intangible assets during the six months ended June 30, 2011 is as follows (in thousands):
 
 
FCC Licenses
 
Microwave
Relocation
Costs
Balance at January 1, 2011
 
$
2,500,192

 
$
22,049

Additions
 
13,579

 
2,540

Disposals
 

 

Balance at June 30, 2011
 
$
2,513,771

 
$
24,589

Although PCS, AWS and 700 MHz licenses are issued with a stated term, ten years in the case of the PCS licenses, fifteen years in the case of the AWS licenses and approximately ten years for 700 MHz licenses, the renewal of PCS, AWS and 700 MHz licenses is generally a routine matter without substantial cost and the Company has determined that no legal, regulatory, contractual, competitive, economic, or other factors currently exist that limit the useful life of its PCS, AWS and 700 MHz licenses. As such, under the provisions of ASC 350, (Topic 350, “Intangibles-Goodwill and Other”), the Company does not amortize its PCS, AWS and 700 MHz licenses and microwave relocation costs (collectively, its “indefinite-lived intangible assets”) as they are considered to have indefinite lives and together represent the cost of the Company’s spectrum.
In accordance with the requirements of ASC 350, the Company performs its annual indefinite-lived intangible assets impairment test as of each September 30th or more frequently if events or changes in circumstances indicate that the carrying value of the indefinite-lived intangible assets might be impaired. The impairment test consists of a comparison of estimated fair value with the carrying value. An impairment loss would be recorded as a reduction in the carrying value of the related indefinite-lived intangible assets and charged to results of operations. No impairment was recognized as a result of the test performed at September 30, 2010. Further, there have been no subsequent indicators of impairment including those indicated in ASC 360 (Topic 360, “Property, Plant, and Equipment”). Accordingly, no subsequent interim impairment tests were performed. 

7

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


6.
Long-term Debt:
Long-term debt consisted of the following (in thousands):
 
 
June 30,
2011
 
December 31,
2010
Senior Secured Credit Facility
 
$
2,484,610

 
$
1,532,000

7 7/8% Senior Notes
 
1,000,000

 
1,000,000

5/8% Senior Notes
 
1,000,000

 
1,000,000

Capital Lease Obligations
 
271,442

 
254,336

Total long-term debt
 
4,756,052

 
3,786,336

Add: unamortized discount on debt
 
(9,124
)
 
(7,053
)
Total debt
 
4,746,928

 
3,779,283

Less: current maturities
 
(32,416
)
 
(21,996
)
Total long-term debt
 
$
4,714,512

 
$
3,757,287

7 7/8% Senior Notes due 2018
In September 2010, Wireless completed the sale of $1.0 billion of principal amount of 7 7/8% Senior Notes due 2018 (“7 7/8% Senior Notes”). The terms of the 7 7/8% Senior Notes are governed by the indenture, the first supplemental indenture, dated September 21, 2010, and the third supplemental indenture, dated December 23, 2010, among Wireless, the guarantors party thereto and the trustee. The net proceeds of the sale of the 7 7/8% Senior Notes were $974.0 million after underwriter fees, discounts and other debt issuance costs of $26.0 million.
6 5/8% Senior Notes due 2020
In November 2010, Wireless completed the sale of $1.0 billion of principal amount of 6 5/8% Senior Notes due 2020 (“6 5/8% Senior Notes”). The terms of the 6 5/8% Senior Notes are governed by the indenture, the second supplemental indenture, dated November 17, 2010, and the fourth supplemental indenture, dated December 23, 2010, among Wireless, the guarantors party thereto and the trustee. The net proceeds of the sale of the 6 5/8% Senior Notes were $988.1 million after underwriter fees, discounts and other debt issuance costs of approximately $11.9 million.
Senior Secured Credit Facility
In November 2006, Wireless entered into the Senior Secured Credit Facility, which consisted of a $1.6 billion term loan facility and a $100.0 million revolving credit facility. In November 2006, Wireless borrowed $1.6 billion under the Senior Secured Credit Facility. The term loan facility is repayable in quarterly installments in annual aggregate amounts equal to 1% of the initial aggregate principal amount of $1.6 billion. The term loan facility will mature in November 2013 and the revolving credit facility will mature in November 2011.
In July 2010, Wireless entered into an Amendment and Restatement and Resignation and Appointment Agreement (the “Amendment”) which amended and restated the Senior Secured Credit Facility. The Amendment amended the Senior Secured Credit Facility to, among other things, extend the maturity of $1.0 billion of existing term loans (“Tranche B-2 Term Loans”) under the Senior Secured Credit Facility to November 2016, increase the interest rate to LIBOR plus 3.50% on the extended portion only and reduce the revolving credit facility from $100.0 million to $67.5 million. The remaining term loans (“Tranche B-1 Term Loans”) under the Senior Secured Credit Facility will mature in November 2013 and the interest rate continues to be LIBOR plus 2.25%. This modification did not result in a loss on extinguishment of debt.
In March 2011, Wireless entered into an Amendment and Restatement Agreement (the “New Amendment”) which further amends and restates the Senior Secured Credit Facility. The New Amendment amended the Senior Secured Credit Facility to, among other things, provide for a new tranche of term loans in the amount of $500.0 million (“Tranche B-3 Term Loans”), with an interest rate of LIBOR plus 3.75% which will mature in March 2018, and increase the interest rate to LIBOR plus 3.821% on the existing Tranche B-1 and Tranche B-2 Term Loans. The Tranche B-3 Term Loans are repayable in quarterly installments of $1.25 million. In addition, the aggregate amount of the revolving credit facility was increased from $67.5 million to $100.0 million and the maturity of the revolving credit facility was extended to March 2016. The net proceeds from the Tranche B-3 Term Loans were $490.2 million after underwriter fees, discounts and other debt issuance costs of approximately $9.8 million.


8

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


In May 2011, Wireless entered into an Incremental Commitment Agreement (the “Incremental Agreement”) which supplements the New Amendment to provide for an additional $1.0 billion of Tranche B-3 Term Loans (the “Incremental Tranche B-3 Terms Loans”), which amount was borrowed on May 10, 2011. The Incremental Tranche B-3 Term Loans have an interest rate of LIBOR plus 3.75% and will mature in March 2018. The Incremental Tranche B-3 Term Loans are repayable in quarterly installments of $2.5 million. A portion of the proceeds from the Incremental Tranche B-3 Term Loans were used to prepay the $535.8 million in outstanding principal under the Tranche B-1 Term Loans, with the remaining proceeds to be used for general corporate purposes, including opportunistic spectrum acquisitions. The net proceeds from the Incremental Tranche B-3 Term Loans were $455.9 million after prepayment of the Tranche B-1 Term Loans, underwriter fees, and other debt issuance costs of approximately $8.3 million. The prepayment of the Tranche B-1 Term Loans resulted in a loss on extinguishment of debt in the amount of $9.5 million. The Incremental Agreement did not modify the interest rate, maturity date or any of the other terms of the New Amendment applicable to the Tranche B-2 Term Loans or the existing Tranche B-3 Term Loans.
The facilities under the Senior Secured Credit Facility are guaranteed by MetroPCS, MetroPCS, Inc. and each of Wireless’ direct and indirect present and future wholly-owned domestic subsidiaries. The Senior Secured Credit Facility contains customary events of default, including cross-defaults. The obligations under the Senior Secured Credit Facility are also secured by the capital stock of Wireless as well as substantially all of Wireless’ present and future assets and the capital stock and substantially all of the assets of each of its direct and indirect present and future wholly-owned subsidiaries (except as prohibited by law and certain permitted exceptions).
The New Amendment modified certain limitations under the Senior Secured Credit Facility, including limitations on Wireless' ability to incur additional debt, make certain restricted payments, sell assets, make certain investments or acquisitions, grant liens and pay dividends. In addition, Wireless is no longer subject to certain financial covenants, including maintaining a maximum senior secured consolidated leverage ratio, except under certain circumstances.
The interest rate on the outstanding debt under the Senior Secured Credit Facility is variable. The weighted average rate as of June 30, 2011 was 5.008%, which includes the impact of the interest rate protection agreements (See Note 4).
Capital Lease Obligations
The Company has entered into various non-cancelable capital lease agreements, with varying expiration terms through 2026. Assets and future obligations related to capital leases are included in the accompanying condensed consolidated balance sheets in property and equipment and long-term debt, respectively. Depreciation of assets held under capital leases is included in depreciation and amortization expense. As of June 30, 2011, the Company had $7.0 million and $264.4 million of capital lease obligations recorded in current maturities of long-term debt and long-term debt, respectively.
 
7.
Fair Value Measurements:
The Company follows the provisions of ASC 820 (Topic 820, “Fair Value Measurements and Disclosures”) which establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. The three levels of inputs are defined as follows:
 
Level 1 - Unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.
Level 3 - Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use.
ASC 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation. The Company’s financial assets and liabilities measured at fair value on a recurring basis include cash and cash equivalents, short and long-term investments securities and derivative financial instruments.
 

9

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


Included in the Company’s cash equivalents are investments in money market funds consisting of U.S. Treasury securities with an original maturity of 90 days or less. Included in the Company’s short-term investments are securities classified as available-for-sale, which are stated at fair value. These securities include U.S. Treasury securities with an original maturity of over 90 days. Fair value is determined based on observable quotes from banks and unadjusted quoted market prices from identical securities in an active market at the reporting date. Significant inputs to the valuation are observable in the active markets and are classified as Level 1 in the hierarchy.
Included in the Company’s long-term investments securities are certain auction rate securities, some of which are secured by collateralized debt obligations with a portion of the underlying collateral being mortgage securities or related to mortgage securities. Due to the lack of availability of observable market quotes on the Company’s investment portfolio of auction rate securities, the fair value was estimated based on valuation models that rely exclusively on unobservable Level 3 inputs including those that are based on expected cash flow streams and collateral values, including assessments of counterparty credit quality, default risk underlying the security, discount rates and overall capital market liquidity. The valuation of the Company’s investment portfolio is subject to uncertainties that are difficult to predict. Factors that may impact the Company’s valuation include changes to credit ratings of the securities as well as the underlying assets supporting those securities, rates of default of the underlying assets, underlying collateral values, discount rates, counterparty risk and ongoing strength and quality of market credit and liquidity. Significant inputs to the investments valuation are unobservable in the active markets and are classified as Level 3 in the hierarchy.
Included in the Company’s derivative financial instruments are interest rate swaps. Derivative financial instruments are valued in the market using discounted cash flow techniques. These techniques incorporate Level 1 and Level 2 inputs such as interest rates. These market inputs are utilized in the discounted cash flow calculation considering the instrument’s term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation for interest rate swaps are observable in the active markets and are classified as Level 2 in the hierarchy.
The following table summarizes assets and liabilities measured at fair value on a recurring basis at June 30, 2011, as required by ASC 820 (in thousands):
 
 
Fair Value Measurements
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
Cash equivalents
 
$
1,853,846

 
$

 
$

 
$
1,853,846

Short-term investments
 
299,954

 

 

 
299,954

Restricted cash and investments
 
2,876

 

 

 
2,876

Long-term investments
 

 

 
6,319

 
6,319

Derivative assets
 

 
1,716

 

 
1,716

Total assets measured at fair value
 
$
2,156,676

 
$
1,716

 
$
6,319

 
$
2,164,711

Liabilities
 

 

 

 

Derivative liabilities
 
$

 
$
19,965

 
$

 
$
19,965

Total liabilities measured at fair value
 
$

 
$
19,965

 
$

 
$
19,965

 

10

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


The following table summarizes assets and liabilities measured at fair value on a recurring basis at December 31, 2010, as required by ASC 820 (in thousands):
 
 
Fair Value Measurements
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
Cash equivalents
 
$
787,829

 
$

 
$

 
$
787,829

Short-term investments
 
374,862

 

 

 
374,862

Restricted cash and investments
 
2,876

 

 

 
2,876

Long-term investments
 

 

 
6,319

 
6,319

Derivative assets
 

 
10,381

 

 
10,381

Total assets measured at fair value
 
$
1,165,567

 
$
10,381

 
$
6,319

 
$
1,182,267

Liabilities
 

 

 

 

Derivative liabilities
 
$

 
$
18,690

 
$

 
$
18,690

Total liabilities measured at fair value
 
$

 
$
18,690

 
$

 
$
18,690

The following table summarizes the changes in fair value of the Company’s net derivative liabilities included in Level 2 assets (in thousands):
Fair Value Measurements of Net Derivative Liabilities Using Level 2 Inputs
 
Net Derivative Liabilities
 
 
Three Months Ended June 30,
 
 
2011
 
2010
Beginning balance
 
$
2,657

 
$
23,709

Total losses (realized or unrealized):
 

 

Included in earnings (1)
 
6,081

 
8,285

Included in accumulated other comprehensive income (loss)
 
(21,673
)
 
(6,849
)
Transfers in and/or out of Level 2
 

 

Purchases, sales, issuances and settlements
 

 

Ending balance
 
$
18,249

 
$
22,273

 ————————————
(1)
Losses included in earnings that are attributable to the reclassification of the effective portion of those derivative liabilities still held at the reporting date as reported in interest expense in the condensed consolidated statements of income and comprehensive income.

Fair Value Measurements of Net Derivative Liabilities Using Level 2 Inputs
 
Net Derivative Liabilities
 
 
Six Months Ended June 30,
 
 
2011
 
2010
Beginning balance
 
$
8,309

 
$
24,859

Total losses (realized or unrealized):
 

 

Included in earnings (2)
 
10,757

 
19,241

Included in accumulated other comprehensive income (loss)
 
(20,697
)
 
(16,655
)
Transfers in and/or out of Level 2
 

 

Purchases, sales, issuances and settlements
 

 

Ending balance
 
$
18,249

 
$
22,273

 ————————————
(2)
Losses included in earnings that are attributable to the reclassification of the effective portion of those derivative liabilities still held at the reporting date as reported in interest expense in the condensed consolidated statements of income and comprehensive income.

11

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


The following table summarizes the changes in fair value of the Company’s Level 3 assets (in thousands):
Fair Value Measurements of Assets Using Level 3 Inputs
 
Long-Term Investments
 
 
Three Months Ended June 30,
 
 
2011
 
2010
Beginning balance
 
$
6,319

 
$
6,319

Total losses (realized or unrealized):
 

 

Included in earnings
 

 

Included in accumulated other comprehensive income (loss)
 

 

Transfers in and/or out of Level 3
 

 

Purchases, sales, issuances and settlements
 

 

Ending balance
 
$
6,319

 
$
6,319


Fair Value Measurements of Assets Using Level 3 Inputs
 
Long-Term Investments
 
 
Six Months Ended June 30,
 
 
2011
 
2010
Beginning balance
 
$
6,319

 
$
6,319

Total losses (realized or unrealized):
 

 

Included in earnings
 

 

Included in accumulated other comprehensive income (loss)
 

 

Transfers in and/or out of Level 3
 

 

Purchases, sales, issuances and settlements
 

 

Ending balance
 
$
6,319

 
$
6,319

The carrying value of the Company’s financial instruments, with the exception of long-term debt including current maturities, reasonably approximate the related fair values as of June 30, 2011 and December 31, 2010. The fair value of the Company’s long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. As of June 30, 2011, the carrying value and fair value of long-term debt, including current maturities, were $4.5 billion and approximately $4.5 billion, respectively. As of December 31, 2010, the carrying value and fair value of long-term debt, including current maturities, were $3.5 billion and $3.5 billion, respectively.
 
Although the Company has determined the estimated fair value amounts using available market information and commonly accepted valuation methodologies, considerable judgment is required in interpreting market data to develop fair value estimates. The fair value estimates are based on information available at June 30, 2011 and December 31, 2010 and have not been revalued since those dates. As such, the Company’s estimates are not necessarily indicative of the amount that the Company, or holders of the instruments, could realize in a current market exchange and current estimates of fair value could differ significantly.

12

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


8.
Net Income Per Common Share:
The following table sets forth the computation of basic and diluted net income per common share for the periods indicated (in thousands, except share and per share data):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2011
 
2010
 
2011
 
2010
Basic EPS:
 
 
 
 
 
 
 
 
Net income applicable to common stock
 
$
84,335

 
$
79,915

 
$
140,714

 
$
102,576

Amount allocable to common shareholders
 
99.0
%
 
99.2
%
 
99.1
%
 
99.2
%
Rights to undistributed earnings
 
$
83,496

 
$
79,291

 
$
139,420

 
$
101,775

Weighted average shares outstanding—basic
 
360,226,487

 
353,278,423

 
358,616,324

 
353,032,030

Net income per common share—basic
 
$
0.23

 
$
0.22

 
$
0.39

 
$
0.29

Diluted EPS:
 

 

 

 

Rights to undistributed earnings
 
$
83,496

 
$
79,291

 
$
139,420

 
$
101,775

Weighted average shares outstanding—basic
 
360,226,487

 
353,278,423

 
358,616,324

 
353,032,030

Effect of dilutive securities:
 

 

 

 

Stock options
 
5,163,793

 
2,407,023

 
4,536,910

 
2,119,082

Weighted average shares outstanding—diluted
 
365,390,280

 
355,685,446

 
363,153,234

 
355,151,112

Net income per common share—diluted
 
$
0.23

 
$
0.22

 
$
0.38

 
$
0.29

In accordance with ASC 260 (Topic 260, “Earnings Per Share”), unvested share-based payment awards that contain rights to receive non-forfeitable dividends or dividend equivalents, whether paid or unpaid, are considered a “participating security” for purposes of computing earnings or loss per common share and the two-class method of computing earnings per share is required for all periods presented. During the three and six months ended June 30, 2011 and 2010, the Company issued restricted stock awards. Unvested shares of restricted stock are participating securities such that they have rights to receive non-forfeitable dividends. In accordance with ASC 260, the unvested restricted stock was considered a “participating security” for purposes of computing earnings per common share and was therefore included in the computation of basic and diluted earnings per common share.
Under certain of the Company's restricted stock award agreements, unvested shares of restricted stock have rights to receive non-forfeitable dividends. For the three and six months ended June 30, 2011 and 2010, the Company has calculated diluted earnings per share under both the treasury stock method and the two-class method. There was not a significant difference in the per share amounts calculated under the two methods, and the two-class method is disclosed. For the three and six months ended June 30, 2011, approximately 3.7 million and 3.4 million, respectively, of restricted common shares issued to employees have been excluded from the computation of basic net income per common share since the shares are not vested and remain subject to forfeiture. For the three and six months ended June 30, 2010, approximately 2.8 million of restricted common shares issued to employees have been excluded from the computation of basic net income per common share since the shares are not vested and remain subject to forfeiture.
For the three months ended June 30, 2011 and 2010, 10.3 million and 25.8 million, respectively, of stock options were excluded from the calculation of diluted net income per common share since the effect was anti-dilutive. For the six months ended June 30, 2011 and 2010, 14.4 million and 25.2 million, respectively, of stock options were excluded from the calculation of diluted net income per common share since the effect was anti-dilutive.
 
9.
Commitments and Contingencies:
The Company has entered into a pricing agreement with a handset manufacturer for the purchase of wireless handsets at specified prices. The term of this agreement expires on March 31, 2012. The total aggregate commitment outstanding under this pricing agreement is $15.8 million.
 
Litigation
The Company is involved in litigation from time to time, including litigation regarding intellectual property claims, that it considers to be in the normal course of business. The Company is not currently party to any pending legal proceedings that the Company believes could, individually or in the aggregate, have a material adverse effect on the Company's financial condition,

13

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


results of operations or liquidity. However, legal proceedings are inherently unpredictable, and the matters in which the Company is involved often present complex legal and factual issues. The Company intends to vigorously pursue defenses in litigation in which it is involved and engage in discussions where possible to resolve these matters on terms favorable to the Company. The Company believes that any amounts which parties to such litigation allege the Company is liable are not necessarily meaningful indicators of the Company’s potential liability. The Company determines whether it should accrue an estimated loss for a contingency in a particular legal proceeding by assessing whether a loss is probable and can be reasonably estimated. The Company reassesses its views on estimated losses on a quarterly basis to reflect the impact of any developments in the matters in which it is involved. It is possible, however, that the Company’s business, financial condition and results of operations in future periods could be materially adversely affected by increased expense, significant settlement costs and/or unfavorable damage awards relating to such matters.
 
10.
Supplemental Cash Flow Information:
 
 
Six Months Ended June 30,
 
 
2011
 
2010
 
 
(in thousands)
Cash paid for interest
 
$
113,313

 
$
134,690

Cash paid for income taxes
 
3,873

 
2,237

Non-cash investing and financing activities
The Company’s accrued purchases of property and equipment were $96.9 million and $81.8 million as of June 30, 2011 and 2010, respectively. Included within the Company’s accrued purchases are estimates by management for construction services received based on a percentage of completion.
Assets acquired under capital lease obligations were $20.3 million and $10.4 million for the six months ended June 30, 2011 and 2010, respectively.
During the six months ended June 30, 2010, the Company returned obsolete network infrastructure assets to one of its vendors in exchange for $17.8 million in credits towards the purchase of additional network infrastructure assets with the vendor.    

11.
Related-Party Transactions:
One of the Company’s current directors is a managing director of various investment funds affiliated with one of the Company’s greater than 5% stockholders. These funds own interest in a company that provides services to the Company’s customers, including handset insurance programs. Pursuant to the Company’s agreement with this related-party, the Company bills its customers directly for these services and remits the fees collected from its customers for these services to the related-party. In addition, the Company receives compensation for selling handsets to the related-party.
One of the Company’s current directors is the chairman of an equity firm that owns interest in a company that provides wireless caller ID with name services to the Company. Pursuant to an additional agreement with this related-party, the Company receives compensation for providing access to the Company’s line information database/calling name data storage to the related-party.
One of the Company’s current directors is a managing director of various investment funds affiliated with one of the Company’s greater than 5% stockholders. These funds own interest in a company that provides advertising services to the Company.
One of the Company’s current directors is a managing director of various investment funds affiliated with one of the Company’s greater than 5% stockholders. These funds own interest in a company that provides distributed antenna systems ("DAS") leases and maintenance to wireless carriers, including the Company. In addition, another of the Company’s current directors is a general partner of various investment funds which own interest in the same company. These DAS leases are accounted for as capital or operating leases in the Company’s financial statements.

14

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


Transactions associated with the related parties described above are included in various line items in the accompanying condensed consolidated balance sheets, condensed consolidated statements of income and comprehensive income, and condensed consolidated statements of cash flows. The following tables summarize the transactions with related-parties (in millions):
 
 
June 30,
2011
 
December 31,
2010
Network service fees included in prepaid expenses
 
$
1.5

 
$
1.5

Receivables from related-party included in other current assets
 
3.0

 
0.6

DAS equipment included in property and equipment, net
 
375.8

 
366.4

Deferred network service fees included in other assets
 
9.1

 
9.9

Payments due to related-party included in accounts payable and accrued expenses
 
9.4

 
7.8

Current portion of capital lease obligations included in current maturities of long-term debt
 
6.2

 
5.2

Non-current portion of capital lease obligations included in long-term debt, net
 
231.1

 
215.4

Deferred DAS service fees included in other long-term liabilities
 
1.3

 
1.2

 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2011
 
2010
 
2011
 
2010
Fees received by the Company as compensation included in service revenues
 
$
3.9

 
$
2.9

 
$
7.4

 
$
5.1

Fees received by the Company as compensation included in equipment revenues
 
6.7

 
6.8

 
11.3

 
9.9

Fees paid by the Company for services and related expenses included in cost of service
 
5.5

 
5.9

 
9.6

 
10.8

Fees paid by the Company for services included in selling, general and administrative expenses
 
0.9

 
1.0

 
2.6

 
2.8

DAS equipment depreciation included in depreciation expense
 
9.7

 
6.3

 
18.5

 
11.7

Capital lease interest included in interest expense
 
4.8

 
3.5

 
9.4

 
7.0


 
 
Six Months Ended June 30,
 
 
2011
 
2010
Capital lease payments included in financing activities
 
$
4.0

 
$
1.0


12.
Guarantor Subsidiaries:
In connection with Wireless’ 7 7/8% Senior Notes, 6 5/8% Senior Notes, and the Senior Secured Credit Facility, MetroPCS, together with its wholly owned subsidiaries, MetroPCS, Inc., and each of Wireless’ direct and indirect present and future wholly-owned domestic subsidiaries (the “guarantor subsidiaries”), provided guarantees which are full and unconditional as well as joint and several. Certain provisions of the Senior Secured Credit Facility, the indentures and the supplemental indentures relating to the 7 7/8% Senior Notes and 6 5/8% Senior Notes restrict the ability of Wireless to loan funds to MetroPCS or MetroPCS, Inc. However, Wireless is allowed to make certain permitted payments to MetroPCS under the terms of the Senior Secured Credit Facility, the indentures and the supplemental indentures.
Prior to December 2010, Royal Street Communications, LLC and its subsidiaries (“Royal Street Communications”) and MetroPCS Finance, Inc. (“MetroPCS Finance”) (collectively, the “non-guarantor subsidiaries”) were not guarantors of the 9 1/4% Senior Notes due 2014 , or 9 1/4% Senior Notes, 7 7/8% Senior Notes, 6 5/8% Senior Notes or the Senior Secured Credit Facility. In December 2010, Wireless completed the acquisition of the remaining limited liability company member interest in Royal Street Communications, making Royal Street Communications a wholly-owned subsidiary. In addition, MetroPCS Finance was merged with a subsidiary of Wireless. Therefore, the Company no longer had any non-guarantors of any of its outstanding debt as of December 31, 2010. As a result, the comparative historical condensed consolidating financial information has been revised to present this information as if the new guarantor structure existed for all periods presented with the results of Royal Street Communications and MetroPCS Finance being reported as guarantor subsidiaries.

15

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


The following information presents condensed consolidating balance sheets as of June 30, 2011 and December 31, 2010, condensed consolidating statements of income for the three and six months ended June 30, 2011 and 2010, and condensed consolidating statements of cash flows for the six months ended June 30, 2011 and 2010 of the parent company (MetroPCS), the issuer (Wireless), and the guarantor subsidiaries. Investments in subsidiaries held by the parent company and the issuer have been presented using the equity method of accounting.

Condensed Consolidated Balance Sheet
As of June 30, 2011
 
 
 
Parent
 
Issuer
 
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands)
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
1,603,172

 
$
252,200

 
$
622

 
$

 
$
1,855,994

Short-term investments
 
299,954

 

 

 

 
299,954

Inventories
 

 
124,947

 
15,101

 

 
140,048

Prepaid expenses
 
171

 
487

 
64,324

 

 
64,982

Deferred charges
 

 
94,931

 

 

 
94,931

Advances to subsidiaries
 

 
1,464,837

 

 
(1,464,837
)
 

Other current assets
 
94

 
71,812

 
40,487

 

 
112,393

Total current assets
 
1,903,391

 
2,009,214

 
120,534

 
(1,464,837
)
 
2,568,302

Property and equipment, net
 

 
31,234

 
3,825,635

 

 
3,856,869

Long-term investments
 
6,319

 
1,716

 

 

 
8,035

Investment in subsidiaries
 
1,139,888

 
4,344,422

 

 
(5,484,310
)
 

FCC licenses
 

 
3,800

 
2,534,560

 

 
2,538,360

Other assets
 

 
96,151

 
33,310

 

 
129,461

Total assets
 
$
3,049,598

 
$
6,486,537

 
$
6,514,039

 
$
(6,949,147
)
 
$
9,101,027

CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued expenses
 
$

 
$
78,511

 
$
349,411

 
$

 
$
427,922

Advances from subsidiaries
 
297,941

 

 
1,166,896

 
(1,464,837
)
 

Other current liabilities
 

 
90,123

 
207,628

 

 
297,751

Total current liabilities
 
297,941

 
168,634

 
1,723,935

 
(1,464,837
)
 
725,673

Long-term debt
 

 
4,450,097

 
264,415

 

 
4,714,512

Deferred credits
 
1,939

 
719,011

 
109,430

 

 
830,380

Other long-term liabilities
 

 
8,907

 
71,837

 

 
80,744

Total liabilities
 
299,880

 
5,346,649

 
2,169,617

 
(1,464,837
)
 
6,351,309

STOCKHOLDERS’ EQUITY:
 
 
 
 
 
 
 
 
 
 
Common stock
 
36

 

 

 

 
36

Other stockholders’ equity
 
2,749,682

 
1,139,888

 
4,344,422

 
(5,484,310
)
 
2,749,682

Total stockholders’ equity
 
2,749,718

 
1,139,888

 
4,344,422

 
(5,484,310
)
 
2,749,718

Total liabilities and stockholders’ equity
 
$
3,049,598

 
$
6,486,537

 
$
6,514,039

 
$
(6,949,147
)
 
$
9,101,027

 


16

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


Condensed Consolidated Balance Sheet
As of December 31, 2010
 
 
 
Parent
 
Issuer
 
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands)
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
507,849

 
$
287,942

 
$
740

 
$

 
$
796,531

Short-term investments
 
374,862

 

 

 

 
374,862

Inventories
 

 
145,260

 
15,789

 

 
161,049

Prepaid Expenses
 

 
249

 
50,228

 


 
50,477

Deferred charges
 

 
89,775

 

 

 
89,775

Advances to subsidiaries
 
647,701

 
462,518

 

 
(1,110,219
)
 

Other current assets
 
94

 
81,308

 
39,789

 

 
121,191

Total current assets
 
1,530,506

 
1,067,052

 
106,546

 
(1,110,219
)
 
1,593,885

Property and equipment, net
 

 
246,249

 
3,413,196

 

 
3,659,445

Long-term investments
 
6,319

 
10,381

 

 

 
16,700

Investment in subsidiaries
 
1,006,295

 
3,994,553

 

 
(5,000,848
)
 

FCC licenses
 

 
3,800

 
2,518,441

 

 
2,522,241

Other assets
 

 
75,085

 
51,224

 

 
126,309

Total assets
 
$
2,543,120

 
$
5,397,120

 
$
6,089,407

 
$
(6,111,067
)
 
$
7,918,580

CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued expenses
 
$

 
$
150,994

 
$
370,794

 
$

 
$
521,788

Advances from subsidiaries
 

 

 
1,110,219

 
(1,110,219
)
 

Other current liabilities
 

 
82,684

 
197,948

 

 
280,632

Total current liabilities
 

 
233,678

 
1,678,961

 
(1,110,219
)
 
802,420

Long-term debt
 

 
3,508,948

 
248,339

 

 
3,757,287

Deferred credits
 
1,544

 
639,766

 
103,159

 

 
744,469

Other long-term liabilities
 

 
8,433

 
64,395

 

 
72,828

Total liabilities
 
1,544

 
4,390,825

 
2,094,854

 
(1,110,219
)
 
5,377,004

STOCKHOLDERS’ EQUITY:
 
 
 
 
 
 
 
 
 
 
Common stock
 
36

 

 

 

 
36

Other stockholders’ equity
 
2,541,540

 
1,006,295

 
3,994,553

 
(5,000,848
)
 
2,541,540

Total stockholders’ equity
 
2,541,576

 
1,006,295

 
3,994,553

 
(5,000,848
)
 
2,541,576

Total liabilities and stockholders’ equity
 
$
2,543,120

 
$
5,397,120

 
$
6,089,407

 
$
(6,111,067
)
 
$
7,918,580

 


17

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


Condensed Consolidated Statement of Income
Three Months Ended June 30, 2011
 
 
 
Parent
 
Issuer
 
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands)
REVENUES:
 
 
 
 
 
 
 
 
 
 
Total Revenues
 
$

 
$
6,441

 
$
1,210,352

 
$
(7,340
)
 
$
1,209,453

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
 
Cost of revenues
 

 
5,907

 
709,997

 
(7,340
)
 
708,564

Selling, general and administrative expenses
 

 
528

 
154,028

 

 
154,556

Other operating expenses
 

 
60

 
136,018

 

 
136,078

Total operating expenses
 

 
6,495

 
1,000,043

 
(7,340
)
 
999,198

(Loss) income from operations
 

 
(54
)
 
210,309

 

 
210,255

OTHER EXPENSE (INCOME):
 
 
 
 
 
 
 
 
 
 
Interest expense
 

 
62,918

 
4,062

 

 
66,980

Non-operating expenses
 
(480
)
 
9,516

 
(197
)
 

 
8,839

Earnings from consolidated subsidiaries
 
(83,855
)
 
(207,631
)
 

 
291,486

 

Total other (income) expense
 
(84,335
)
 
(135,197
)
 
3,865

 
291,486

 
75,819

Income (loss) before provision for income taxes
 
84,335

 
135,143

 
206,444

 
(291,486
)
 
134,436

Provision for income taxes
 

 
(51,288
)
 
1,187

 

 
(50,101
)
Net income (loss)
 
$
84,335

 
$
83,855

 
$
207,631

 
$
(291,486
)
 
$
84,335


Condensed Consolidated Statement of Income
Three Months Ended June 30, 2010
 
 
 
Parent
 
Issuer
 
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands)
REVENUES:
 
 
 
 
 
 
 
 
 
 
Total Revenues
 
$

 
$
6,336

 
$
1,060,203

 
$
(54,003
)
 
$
1,012,536

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
 
Cost of revenues
 

 
6,004

 
591,521

 
(54,003
)
 
543,522

Selling, general and administrative expenses
 

 
331

 
158,269

 

 
158,600

Other operating expenses
 

 
35

 
111,967

 

 
112,002

Total operating expenses
 

 
6,370

 
861,757

 
(54,003
)
 
814,124

(Loss) income from operations
 

 
(34
)
 
198,446

 

 
198,412

OTHER EXPENSE (INCOME):
 
 
 
 
 
 
 
 
 
 
Interest expense
 

 
63,023

 
40,559

 
(38,079
)
 
65,503

Non-operating expenses
 
(367
)
 
(37,591
)
 
(34
)
 
38,079

 
87

Earnings from consolidated subsidiaries
 
(79,548
)
 
(157,921
)
 

 
237,469

 

Total other (income) expense
 
(79,915
)
 
(132,489
)
 
40,525

 
237,469

 
65,590

Income (loss) before provision for
income taxes
 
79,915

 
132,455

 
157,921

 
(237,469
)
 
132,822

Provision for income taxes
 

 
(52,907
)
 

 

 
(52,907
)
Net income (loss)
 
$
79,915

 
$
79,548