MetroPCS 10-Q - 2011 Q3
Table of Contents

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 September 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 October 28, 2011, there were 362,259,788 shares of the registrant’s common stock, $0.0001 par value, outstanding.
Table of Contents

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.
Table of Contents

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)
 
 
September 30,
2011
 
December 31,
2010
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents
 
$
1,840,761

 
$
796,531

Short-term investments
 
299,981

 
374,862

Inventories
 
147,002

 
161,049

Accounts receivable (net of allowance for uncollectible accounts of $611 and $2,494 at September 30, 2011 and December 31, 2010, respectively)
 
65,048

 
58,056

Prepaid expenses
 
66,763

 
50,477

Deferred charges
 
81,178

 
83,485

Deferred tax assets
 
6,290

 
6,290

Other current assets
 
42,795

 
63,135

Total current assets
 
2,549,818

 
1,593,885

Property and equipment, net
 
4,009,265

 
3,659,445

Restricted cash and investments
 
2,576

 
2,876

Long-term investments
 
6,319

 
16,700

FCC licenses
 
2,538,600

 
2,522,241

Other assets
 
173,023

 
123,433

Total assets
 
$
9,279,601

 
$
7,918,580

CURRENT LIABILITIES:
 
 
 
 
Accounts payable and accrued expenses
 
$
476,324

 
$
521,788

Current maturities of long-term debt
 
32,860

 
21,996

Deferred revenue
 
243,696

 
224,471

Other current liabilities
 
26,458

 
34,165

Total current liabilities
 
779,338

 
802,420

Long-term debt, net
 
4,710,992

 
3,757,287

Deferred tax liabilities
 
756,362

 
643,058

Deferred rents
 
114,766

 
101,411

Other long-term liabilities
 
92,673

 
72,828

Total liabilities
 
6,454,131

 
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 September 30, 2011 and December 31, 2010
 
—

 
—

Common stock, par value $0.0001 per share, 1,000,000,000 shares authorized, 362,219,229 and 355,318,666 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively
 
36

 
36

Additional paid-in capital
 
1,776,506

 
1,686,761

Retained earnings
 
1,068,148

 
858,108

Accumulated other comprehensive loss
 
(12,947
)
 
(1,415
)
Less treasury stock, at cost, 537,395 and 237,818 treasury shares at September 30, 2011 and December 31, 2010, respectively
 
(6,273
)
 
(1,914
)
Total stockholders’ equity
 
2,825,470

 
2,541,576

Total liabilities and stockholders’ equity
 
$
9,279,601

 
$
7,918,580

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

1
Table of Contents

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 September 30,
 
For the Nine Months Ended September 30,
 
 
 
 
 
2011
 
2010
 
2011
 
2010
REVENUES:
 
 
 
 
 
 
 
 
Service revenues
 
$
1,131,054

 
$
942,251

 
$
3,294,563

 
$
2,717,671

Equipment revenues
 
74,334

 
78,538

 
314,654

 
286,156

Total revenues
 
1,205,388

 
1,020,789

 
3,609,217

 
3,003,827

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
Cost of service (excluding depreciation and amortization expense of $120,362, $99,706, $347,645 and $290,532 shown separately below)
 
382,033

 
313,688

 
1,089,480

 
906,508

Cost of equipment
 
343,473

 
256,265

 
1,095,269

 
805,357

Selling, general and administrative expenses (excluding depreciation and amortization expense of $18,947, $14,098, $54,883 and $40,374 shown separately below)
 
162,459

 
147,431

 
486,786

 
465,940

Depreciation and amortization
 
139,309

 
113,804

 
402,528

 
330,906

Loss (gain) on disposal of assets
 
1,283

 
(18,333
)
 
2,731

 
(16,461
)
Total operating expenses
 
1,028,557

 
812,855

 
3,076,794

 
2,492,250

Income from operations
 
176,831

 
207,934

 
532,423

 
511,577

OTHER EXPENSE (INCOME):
 
 
 
 
 
 
 
 
Interest expense
 
69,511

 
65,726

 
193,051

 
198,710

Interest income
 
(531
)
 
(497
)
 
(1,557
)
 
(1,353
)
Other (income) expense, net
 
(93
)
 
462

 
(534
)
 
1,396

Loss on extinguishment of debt
 
—

 
15,590

 
9,536

 
15,590

Total other expense
 
68,887

 
81,281

 
200,496

 
214,343

Income before provision for income taxes
 
107,944

 
126,653

 
331,927

 
297,234

Provision for income taxes
 
(38,618
)
 
(49,366
)
 
(121,887
)
 
(117,370
)
Net income
 
$
69,326

 
$
77,287

 
$
210,040

 
$
179,864

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized gains on available-for-sale securities, net of tax of $25, $89, $127 and $167, respectively
 
40

 
137

 
204

 
261

Unrealized losses on cash flow hedging derivatives, net of tax benefit of $5,790, $2,237, $13,713 and $8,674, respectively
 
(9,286
)
 
(3,355
)
 
(22,060
)
 
(13,573
)
Reclassification adjustment for gains on available-for-sale securities included in net income, net of tax of $47, $49, $169 and $132, respectively
 
(75
)
 
(74
)
 
(272
)
 
(207
)
Reclassification adjustment for losses on cash flow hedging derivatives included in net income, net of tax benefit of $2,468, $1,884, $6,587 and $9,320, respectively
 
3,956

 
2,780

 
10,596

 
14,584

Total other comprehensive (loss) income
 
(5,365
)
 
(512
)
 
(11,532
)
 
1,065

Comprehensive income
 
$
63,961

 
$
76,775

 
$
198,508

 
$
180,929

Net income per common share:
 
 
 
 
 
 
 
 
Basic
 
$
0.19

 
$
0.22

 
$
0.58

 
$
0.51

Diluted
 
$
0.19

 
$
0.22

 
$
0.57

 
$
0.50

Weighted average shares:
 
 
 
 
 
 
 
 
Basic
 
362,019,205

 
353,954,532

 
359,763,082

 
353,342,910

Diluted
 
364,865,226

 
356,423,216

 
363,717,798

 
355,593,779


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

2
Table of Contents

MetroPCS Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 
 
For the Nine Months Ended September 30,
 
 
 
 
2011
 
2010
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income
 
$
210,040

 
$
179,864

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
402,528

 
330,906

Provision for uncollectible accounts receivable
 
382

 
38

Deferred rent expense
 
13,457

 
15,648

Cost of abandoned cell sites
 
650

 
1,450

Stock-based compensation expense
 
32,142

 
35,103

Non-cash interest expense
 
6,141

 
10,049

Loss (gain) on disposal of assets
 
2,731

 
(16,461
)
Loss on extinguishment of debt
 
9,536

 
15,590

Gain on sale of investments
 
(441
)
 
(340
)
Accretion of asset retirement obligations
 
4,198

 
2,772

Other non-cash expense
 
—

 
1,455

Deferred income taxes
 
119,290

 
114,105

Changes in assets and liabilities:
 
 
 
 
Inventories
 
14,047

 
21,199

Accounts receivable, net
 
(7,373
)
 
4,761

Prepaid expenses
 
(16,289
)
 
(11,885
)
Deferred charges
 
2,307

 
(4,263
)
Other assets
 
24,755

 
15,730

Accounts payable and accrued expenses
 
(90,087
)
 
(50,921
)
Deferred revenue
 
19,225

 
10,474

Other liabilities
 
6,421

 
4,117

Net cash provided by operating activities
 
753,660

 
679,391

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Purchases of property and equipment
 
(699,625
)
 
(547,943
)
Change in prepaid purchases of property and equipment
 
(65,241
)
 
60,348

Proceeds from sale of property and equipment
 
845

 
7,643

Purchase of investments
 
(462,289
)
 
(1,174,773
)
Proceeds from maturity of investments
 
537,500

 
387,500

Change in restricted cash and investments
 
300

 
1,262

Acquisitions of FCC licenses and microwave clearing costs
 
(4,003
)
 
(3,686
)
Cash used in asset acquisitions
 
(7,495
)
 
—

Net cash used in investing activities
 
(700,008
)
 
(1,269,649
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Change in book overdraft
 
14,081

 
(78,765
)
Proceeds from debt issuance, net of discount
 
1,497,500

 
992,770

Debt issuance costs
 
(15,351
)
 
(24,250
)
Repayment of debt
 
(17,945
)
 
(12,000
)
Retirement of long-term debt
 
(535,792
)
 
(327,529
)
Payments on capital lease obligations
 
(6,222
)
 
(2,923
)
Purchase of treasury stock
 
(4,359
)
 
(1,586
)
Proceeds from exercise of stock options
 
58,666

 
4,944

Net cash provided by financing activities
 
990,578

 
550,661

INCREASE (DECREASE) CASH AND CASH EQUIVALENTS
 
1,044,230

 
(39,597
)
CASH AND CASH EQUIVALENTS, beginning of period
 
796,531

 
929,381

CASH AND CASH EQUIVALENTS, end of period
 
$
1,840,761

 
$
889,784


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

3
Table of Contents
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 September 30, 2011 and December 31, 2010, the condensed consolidated statements of income and comprehensive income and cash flows for the periods ended September 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 September 30, 2011 and 2010, the Company recorded $16.8 million and $18.5 million, respectively, of FUSF, E-911 and other fees on a gross basis. For the nine months ended September 30, 2011 and 2010, the Company recorded $52.3 million and $63.1 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.
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 September 30, 2011 have contractual maturities of less than one year.

4
Table of Contents
MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


Short-term investments, with an original maturity of over 90 days, consisted of the following (in thousands):
 
 
As of September 30, 2011
 
 
Amortized
Cost
 
Unrealized
Gain in
Accumulated
OCI
 
Unrealized
Loss in
Accumulated
OCI
 
Aggregate
Fair
Value
Equity securities
 
$
7

 
$
—

 
$
(6
)
 
$
1

U.S. Treasury securities
 
299,910

 
70

 
—

 
299,980

Total short-term investments
 
$
299,917

 
$
70

 
$
(6
)
 
$
299,981

 
 
 
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.
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 and nine months ended September 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 $15.1 million of net losses that are reported in accumulated other comprehensive loss at September 30, 2011 are expected to be reclassified into earnings within the next 12 months.

5
Table of Contents
MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


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 September 30, 2011 is $26.9 million.

Fair Values of Derivative Instruments
(in thousands)
 
Liability Derivatives
 
 
As of September 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
 
$
—

 
Long-term investments
 
$
10,381

Interest rate protection agreements
 
Other current liabilities
 
(15,086
)
 
Other current liabilities
 
(17,508
)
Interest rate protection agreements
 
Other long-term liabilities
 
(11,815
)
 
Other long-term liabilities
 
(1,182
)
Total derivatives designated as
hedging instruments under ASC
815
 
 
 
$
(26,901
)
 
 
 
$
(8,309
)


The Effect of Derivative Instruments on the Condensed Consolidated Statement of Income and Comprehensive Income
For the Three Months Ended September 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
 
$
(15,076
)
 
$
(5,591
)
 
Interest expense
 
$
(6,424
)
 
$
(4,663
)


The Effect of Derivative Instruments on the Condensed Consolidated Statement of Income and Comprehensive Income
For the Nine Months Ended September 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
 
$
(35,774
)
 
$
(22,246
)
 
Interest expense
 
$
(17,182
)
 
$
(23,904
)
  
5.
Intangible Assets:

The Company operates wireless broadband mobile networks under licenses granted by the 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.

6
Table of Contents
MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


The change in the carrying value of intangible assets during the nine months ended September 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

 
2,780

Disposals
 
—

 
—

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

 
$
24,829


Although PCS, AWS and 700 MHz licenses are issued with a stated term between ten and fifteen years, 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's PCS, AWS and 700 MHz licenses and microwave relocation costs (collectively, the "indefinite-lived intangible assets") are not amortized because they are considered to have indefinite lives, but are tested at least annually for impairment.

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. The Company estimates the fair value of its indefinite-lived intangible assets using a direct value methodology. The direct value approach determines fair value using a discounted cash flow model. Cash flow projections involve assumptions by management that include a degree of uncertainty including future cash flows, long-term growth rates, appropriate discount rates, and other inputs. The Company believes that its estimates are consistent with assumptions that marketplace participants would use to estimate fair 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.

For the purpose of performing the annual impairment test as of September 30, 2011, the indefinite-lived intangible assets were aggregated and combined into a single unit of accounting, consistent with the management of the business on a national scope. No impairment was recognized as a result of the test performed at September 30, 2011 as the fair value of the indefinite-lived intangible assets was in excess of the carrying value. Although the Company does not expect its estimates or assumptions to change significantly in the future, the use of different estimates or assumptions within the discounted cash flow model when determining the fair value of the indefinite-lived intangible assets or using a methodology other than a discounted cash flow model could result in different values for the indefinite-lived intangible assets and may affect any related impairment charge. The most significant assumptions within the Company's discounted cash flow model are the discount rate, the projected growth rate, and projected cash flows. A one percent decline in annual revenue growth rates, a one percent decline in annual net cash flows or a one percent increase in discount rate would not result in an impairment as of September 30, 2011.

Furthermore, if any of the indefinite-lived intangible assets are subsequently determined to have a finite useful life, such assets would be tested for impairment in accordance with ASC 360 (Topic 360, “Property, Plant, and Equipment”), and the intangible assets would then be amortized prospectively over the estimated remaining useful life.

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Table of Contents
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):
 
 
September 30,
2011
 
December 31,
2010
Senior Secured Credit Facility
 
$
2,478,263

 
$
1,532,000

7 7/8% Senior Notes
 
1,000,000

 
1,000,000

6 5/8% Senior Notes
 
1,000,000

 
1,000,000

Capital Lease Obligations
 
274,451

 
254,336

Total long-term debt
 
4,752,714

 
3,786,336

Add: unamortized discount on debt
 
(8,862
)
 
(7,053
)
Total debt
 
4,743,852

 
3,779,283

Less: current maturities
 
(32,860
)
 
(21,996
)
Total long-term debt
 
$
4,710,992

 
$
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 was repayable in quarterly installments in annual aggregate amounts equal to 1% of the initial aggregate principal amount of $1.6 billion.
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 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.


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Table of Contents
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 September 30, 2011 was 5.028%, 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 September 30, 2011, the Company had $7.5 million and $267.0 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.
 

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Table of Contents
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 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 September 30, 2011, as required by ASC 820 (in thousands):
 
 
Fair Value Measurements
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
Cash equivalents
 
$
1,713,379

 
$
—

 
$
—

 
$
1,713,379

Short-term investments
 
299,981

 
—

 
—

 
299,981

Restricted cash and investments
 
2,576

 
—

 
—

 
2,576

Long-term investments
 
—

 
—

 
6,319

 
6,319

Total assets measured at fair value
 
$
2,015,936

 
$
—

 
$
6,319

 
$
2,022,255

Liabilities
 

 

 

 

Derivative liabilities
 
$
—

 
$
26,901

 
$
—

 
$
26,901

Total liabilities measured at fair value
 
$
—

 
$
26,901

 
$
—

 
$
26,901

 

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Table of Contents
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 September 30,
 
 
2011
 
2010
Beginning balance
 
$
18,249

 
$
22,273

Total losses (realized or unrealized):
 

 

Included in earnings (1)
 
6,424

 
4,663

Included in accumulated other comprehensive income (loss)
 
(15,076
)
 
(5,591
)
Transfers in and/or out of Level 2
 
—

 
—

Purchases, sales, issuances and settlements
 
—

 
—

Ending balance
 
$
26,901

 
$
23,201

 ————————————
(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
 
 
Nine Months Ended September 30,
 
 
2011
 
2010
Beginning balance
 
$
8,309

 
$
24,859

Total losses (realized or unrealized):
 

 

Included in earnings (2)
 
17,182

 
23,904

Included in accumulated other comprehensive income (loss)
 
(35,774
)
 
(22,246
)
Transfers in and/or out of Level 2
 
—

 
—

Purchases, sales, issuances and settlements
 
—

 
—

Ending balance
 
$
26,901

 
$
23,201

 ————————————
(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.

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Table of Contents
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 September 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
 
 
Nine Months Ended September 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 September 30, 2011 and December 31, 2010. The fair value of the Company’s long-term debt, excluding capital lease obligations, 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 September 30, 2011, the carrying value and fair value of long-term debt, including current maturities, were $4.5 billion and approximately $4.2 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 September 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
Table of Contents
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 September 30,
 
Nine Months Ended September 30,
 
 
2011
 
2010
 
2011
 
2010
Basic EPS:
 
 
 
 
 
 
 
 
Net income applicable to common stock
 
$
69,326

 
$
77,287

 
$
210,040

 
$
179,864

Amount allocable to common shareholders
 
99.1
%
 
99.2
%
 
99.1
%
 
99.2
%
Rights to undistributed earnings
 
$
68,686

 
$
76,695

 
$
208,106

 
$
178,482

Weighted average shares outstanding—basic
 
362,019,205

 
353,954,532

 
359,763,082

 
353,342,910

Net income per common share—basic
 
$
0.19

 
$
0.22

 
$
0.58

 
$
0.51

Diluted EPS:
 

 

 

 

Rights to undistributed earnings
 
$
68,686

 
$
76,695

 
$
208,106

 
$
178,482

Weighted average shares outstanding—basic
 
362,019,205

 
353,954,532

 
359,763,082

 
353,342,910

Effect of dilutive securities:
 

 

 

 

Stock options
 
2,846,021

 
2,468,684

 
3,954,716

 
2,250,869

Weighted average shares outstanding—diluted
 
364,865,226

 
356,423,216

 
363,717,798

 
355,593,779

Net income per common share—diluted
 
$
0.19

 
$
0.22

 
$
0.57

 
$
0.50

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 nine months ended September 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 nine months ended September 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 nine months ended September 30, 2011, approximately 3.4 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 and nine months ended September 30, 2010, approximately 2.7 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 September 30, 2011 and 2010, 18.5 million and 22.3 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 nine months ended September 30, 2011 and 2010, 17.8 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:

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,
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 defend litigation in which it is involved and engage in discussions where possible to resolve these matters on terms favorable to the Company. The

13
Table of Contents
MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


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:
 
 
Nine Months Ended September 30,
 
 
2011
 
2010
 
 
(in thousands)
Cash paid for interest
 
$
183,728

 
$
160,741

Cash paid for income taxes
 
4,113

 
2,359

Non-cash investing and financing activities
The Company’s accrued purchases of property and equipment were $136.5 million and $71.1 million as of September 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 $25.0 million and $23.6 million for the nine months ended September 30, 2011 and 2010, respectively.
During the nine months ended September 30, 2010, the Company returned obsolete network infrastructure assets to one of its vendors in exchange for $19.9 million in credits towards the purchase of additional network infrastructure assets with the vendor.
During the nine months ended September 30, 2010, the Company received $22.0 million in fair value of FCC licenses in exchanges with other parties.
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.
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):

14
Table of Contents
MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


 
 
September 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
 
1.0

 
0.6

DAS equipment included in property and equipment, net
 
379.3

 
366.4

Deferred network service fees included in other assets
 
8.6

 
9.9

Payments due to related-party included in accounts payable and accrued expenses
 
8.8

 
7.8

Current portion of capital lease obligations included in current maturities of long-term debt
 
6.5

 
5.2

Non-current portion of capital lease obligations included in long-term debt, net
 
233.9

 
215.4

Deferred DAS service fees included in other long-term liabilities
 
1.4

 
1.2

 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2011
 
2010
 
2011
 
2010
Fees received by the Company as compensation included in service revenues
 
$
4.0

 
$
3.4

 
$
11.4

 
$
8.5

Fees received by the Company as compensation included in equipment revenues
 
4.9

 
5.4

 
16.2

 
15.4

Fees paid by the Company for services and related expenses included in cost of service
 
6.7

 
5.7

 
17.7

 
16.3

Fees paid by the Company for services included in selling, general and administrative expenses
 
0.6

 
1.2

 
3.2

 
4.0

DAS equipment depreciation included in depreciation expense
 
8.7

 
6.0

 
27.2

 
17.7

Capital lease interest included in interest expense
 
4.9

 
3.6

 
14.3

 
10.6


 
 
Nine Months Ended September 30,
 
 
2011
 
2010
Capital lease payments included in financing activities
 
$
5.5

 
$
2.3


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 relating to the 7 7/8% Senior Notes and 6 5/8% Senior Notes.
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.
The following information presents condensed consolidating balance sheets as of September 30, 2011 and December 31, 2010, condensed consolidating statements of income for the three and nine months ended September 30, 2011 and 2010, and

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


condensed consolidating statements of cash flows for the nine months ended September 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 September 30, 2011
 
 
 
Parent
 
Issuer
 
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands)
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
1,610,336

 
$
229,705

 
$
720

 
$
—

 
$
1,840,761

Short-term investments
 
299,981

 
—

 
—

 
—

 
299,981

Inventories
 
—

 
131,835

 
15,167

 
—

 
147,002

Prepaid expenses
 
86

 
694

 
65,983

 
—

 
66,763

Advances to subsidiaries
 
—

 
1,405,498

 
—

 
(1,405,498
)
 
—

Other current assets
 
77

 
171,289

 
23,945

 
—

 
195,311

Total current assets
 
1,910,480

 
1,939,021

 
105,815

 
(1,405,498
)
 
2,549,818

Property and equipment, net
 
—

 
1,462

 
4,007,803

 
—

 
4,009,265

Long-term investments
 
6,319

 
—

 
—

 
—

 
6,319

Investment in subsidiaries
 
1,203,431

 
4,516,223

 
—

 
(5,719,654
)
 
—

FCC licenses
 
—

 
3,800

 
2,534,800

 
—

 
2,538,600

Other assets
 
—

 
141,951

 
33,648

 
—

 
175,599

Total assets
 
$
3,120,230

 
$
6,602,457

 
$
6,682,066

 
$
(7,125,152
)
 
$
9,279,601

CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued expenses
 
$
—

 
$
94,142

 
$
382,182

 
$
—

 
$
476,324

Advances from subsidiaries
 
292,154

 
—

 
1,113,344

 
(1,405,498
)
 
—

Other current liabilities
 
—

 
87,753

 
215,261

 
—

 
303,014

Total current liabilities
 
292,154

 
181,895

 
1,710,787

 
(1,405,498
)
 
779,338

Long-term debt
 
—

 
4,444,011

 
266,981

 
—

 
4,710,992

Deferred credits
 
2,606

 
753,756

 
114,766

 
—

 
871,128

Other long-term liabilities
 
—

 
19,364

 
73,309

 
—

 
92,673

Total liabilities
 
294,760

 
5,399,026

 
2,165,843

 
(1,405,498
)
 
6,454,131

STOCKHOLDERS’ EQUITY:
 
 
 
 
 
 
 
 
 
 
Common stock
 
36

 
—

 
—

 
—

 
36

Other stockholders’ equity
 
2,825,434

 
1,203,431

 
4,516,223

 
(5,719,654
)
 
2,825,434

Total stockholders’ equity
 
2,825,470

 
1,203,431

 
4,516,223

 
(5,719,654
)
 
2,825,470

Total liabilities and stockholders’ equity
 
$
3,120,230

 
$
6,602,457

 
$
6,682,066

 
$
(7,125,152
)
 
$
9,279,601

 


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Table of Contents
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

Advances to subsidiaries
 
647,701

 
462,518

 
—

 
(1,110,219
)
 
—

Other current assets
 
94

 
171,083

 
39,789

 
—

 
210,966

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

 


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


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

 
$
4,558

 
$
1,208,170

 
$
(7,340
)
 
$
1,205,388

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
 
Cost of revenues
 
—

 
4,180

 
728,666

 
(7,340
)
 
725,506

Selling, general and administrative expenses
 
—

 
378

 
162,081

 
—

 
162,459

Other operating expenses
 
—

 
91

 
140,501

 
—

 
140,592

Total operating expenses
 
—

 
4,649

 
1,031,248

 
(7,340
)
 
1,028,557

(Loss) income from operations
 
—

 
(91
)
 
176,922

 
—

 
176,831

OTHER EXPENSE (INCOME):
 
 
 
 
 
 
 
 
 
 
Interest expense
 
—

 
64,750

 
4,761

 
—

 
69,511

Non-operating expenses
 
(452
)
 
(47
)
 
(125
)
 
—

 
(624
)
Earnings from consolidated subsidiaries
 
(68,874
)
 
(171,801
)
 
—

 
240,675

 
—

Total other (income) expense
 
(69,326
)
 
(107,098
)
 
4,636

 
240,675

 
68,887

Income (loss) before provision for income taxes
 
69,326

 
107,007

 
172,286

 
(240,675
)
 
107,944

Provision for income taxes
 
—

 
(38,133
)
 
(485
)
 
—

 
(38,618
)
Net income (loss)
 
$
69,326

 
$
68,874

 
$
171,801

 
$
(240,675
)
 
$
69,326


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

 
$
4,437

 
$
1,075,390

 
$
(59,038
)
 
$
1,020,789

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
 
Cost of revenues
 
—

 
4,118

 
624,873

 
(59,038
)
 
569,953

Selling, general and administrative expenses
 
—

 
320

 
147,111

 
—

 
147,431

Other operating expenses
 
—

 
53

 
95,418

 
—

 
95,471

Total operating expenses
 
—

 
4,491

 
867,402

 
(59,038
)
 
812,855

(Loss) income from operations
 
—

 
(54
)
 
207,988

 
—

 
207,934

OTHER EXPENSE (INCOME):
 
 
 
 
 
 
 
 
 
 
Interest expense
 
—

 
63,136

 
42,899

 
(40,309
)
 
65,726

Non-operating expenses
 
(456
)
 
(24,237
)
 
(61
)
 
40,309

 
15,555

Earnings from consolidated subsidiaries
 
(76,831
)
 
(165,150
)
 
—

 
241,981

 
—

Total other (income) expense
 
(77,287
)
 
(126,251
)
 
42,838

 
241,981

 
81,281

Income (loss) before provision for income taxes
 
77,287

 
126,197

 
165,150

 
(241,981
)
 
126,653

Provision for income taxes
 
—

 
(49,366
)
 
—

 
—

 
(49,366
)
Net income (loss)
 
$
77,287

 
$
76,831

 
$
165,150

 
$
(241,981
)
 
$
77,287

 

18
Table of Contents
MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)


Condensed Consolidated Statement of Income
Nine Months Ended September 30, 2011
 
 
 
Parent
 
Issuer
 
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated