Metro PCS 2007 Annual Report Download - page 72

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61
interest costs associated with our FCC licenses and property and equipment during the construction of a new market.
The amount of such capitalized interest depends on the carrying values of the FCC licenses and construction in
progress involved in those markets and the duration of the construction process. We expect capitalized interest to
continue to be significant during the construction of the markets associated with the AWS licenses we were granted
in November 2006 as a result of Auction 66.
Loss on Extinguishment of Debt. In November 2006, we repaid all amounts outstanding under our first and
second lien credit agreements and the exchangeable secured and unsecured bridge credit agreements. As a result,
we recorded a loss on extinguishment of debt in the amount of approximately $42.7 million of the first and second
lien credit agreements and an approximately $9.4 million loss on the extinguishment of the exchangeable secured
and unsecured bridge credit agreements.
Impairment Loss on Investment Securities. We can and have historically invested our substantial cash balances
in, among other things, securities issued and fully guaranteed by the United States or any state, highly rated
commercial paper and auction rate securities, money market funds meeting certain criteria, and demand deposits.
These investments are subject to credit, liquidity, market and interest rate risk. We made investments of $133.9
million in certain “AAA” rated 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. With the
liquidity issues experienced in global credit and capital markets, the auction rate securities held by us at December
31, 2007 have experienced multiple failed auctions as the amount of securities submitted for sale in the auctions has
exceeded the amount of purchase orders. As a result, we recognized an other-than-temporary impairment loss on
investment securities in the amount of $97.8 million during the year ended December 31, 2007. See “— Liquidity
and Capital Resources.”
Provision for Income Taxes. Income tax expense for the year ended December 31, 2007 increased to $123.1
million, which is approximately 55% of our income before provision for income taxes. The provision for income
taxes for the year ended December 31, 2007 includes a tax valuation allowance on the impairment loss on
investment securities equal to 15% of our income before provision in income taxes. For the year ended December
31, 2006 the provision for income taxes was $36.7 million, or approximately 41% of income before provision for
income taxes.
Net Income. Net income increased $46.6 million, or 87%, to $100.4 million for the year ended December 31,
2007 compared to $53.8 million for the year ended December 31, 2006. The increase is primarily attributable to a
35% growth in customers during the year ended December 31, 2007 as well as cost benefits achieved due to the
increasing scale of our business in the Core and Expansion Markets. In addition, the increase in net income is due to
a 197% increase in interest income as a result of the significant increase in our cash balances due to proceeds from
our initial public offering and additional funding under our 9¼% senior notes. However, these benefits were
partially offset by an increase in interest expense due to an increase in the Company’ s average debt outstanding for
the year ended December 31, 2007 compared to the same period in 2006 as well as the $97.8 million impairment
loss on investment securities.