Metro PCS 2009 Annual Report Download

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ANNUAL REPORT 2009
NYSE: PCS
www.metropcs.com

Table of contents

  • Page 1
    ANNUAL REPORT 2009 NYSE: PCS www.metropcs.com

  • Page 2

  • Page 3
    ...of the end of 2009 Became the fifth largest facilities-based wireless carrier in the U.S based on number of subscribers Launched the New York City and Boston metropolitan areas, and continued to expand service in our other metropolitan areas Expanded our roaming coverage area through the addition of...

  • Page 4
    ...content and services on an unlimited, no contract basis. With approximately 1.3 million net subscriber additions in 2009, based on third-party studies, our wireless offerings showed an increase in the share of decision on a yearover-year basis within our operating markets. In fact, based on industry...

  • Page 5
    ... building long-term value for our shareholders as well as providing our customers the best value for their dollar. Profitable growth is the cornerstone of our business, and as we continue to grow, we actively monitor and manage our Cost Per Gross Addition (CPGA). For the full year 2009, we reported...

  • Page 6
    ..., are our initial infrastructure providers for our LTE networks. In addition, Samsung Telecommunications is expected to provide our initial dual mode CDMA/LTE handset. With our initial launch of our LTE network, and as the Web increasingly goes mobile, we expect to offer true mobile broadband to our...

  • Page 7
    ...full range of services available in the industry to our subscribers and by continuing to manage our industry leading low-cost operating structure. This should enable us to continue generating increasing growth and cash flows, while continuing to offer innovative products and services and enhance our...

  • Page 8
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  • Page 9
    .../08 3/09 6/09 9/09 12/09 MetroPCS Communications, Inc. NYSE Composite Dow Jones US Mobile Telecommunications TSM S&P 500 *$100 invested on 4/18/07 in stock or 3/31/07 in index, including reinvestment of dividends. Fiscal year ending December 31, 2009. Copyright© 2010 Dow Jones & Co. All rights...

  • Page 10
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  • Page 11
    ... June 30, 2009, the aggregate market value of the registrant's voting and non-voting common stock held by non-affiliates of the registrant was approximately $3,487,236,518 based on the closing price of MetroPCS Communications, Inc. common stock on the New York Stock Exchange on June 30, 2009, of $13...

  • Page 12
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  • Page 13
    ... of Certain Beneficial Owners and Management and Related Stockholder Matters ...95 Item 13. Certain Relationships and Related Transactions, and Director Independence...95 Item 14. Principal Accounting Fees and Services ...95 PART IV...95 Item 15. Exhibits, Financial Statement Schedules ...95 -i-

  • Page 14
    ... REGISTERED PUBLIC ACCOUNTING FIRM...F-1 Consolidated Balance Sheets ...F-2 Consolidated Statements of Income and Comprehensive Income...F-3 Consolidated Statements of Stockholders' Equity...F-4 Consolidated Statements of Cash Flows ...F-5 Notes to Consolidated Financial Statements ...F-6 -ii...

  • Page 15
    ...and planned promotions, marketing and sales initiatives; increases or changes in taxes and regulatory fees; our ability to negotiate and maintain acceptable roaming arrangements; the seasonality of our business and any failure to have strong customer growth in the first and fourth quarters of a year...

  • Page 16
    ... on whom we rely; our reliance on third parties to provide distribution, products, software and services that are integral to our business; and other factors described in this annual report under "Risk Factors." x These forward-looking statements and projections speak only as to the date made and...

  • Page 17
    ...the United States. In addition, we have roaming agreements with other wireless carriers that allow us to offer our customers service in certain areas when they are outside our service area. We provide our services using code division multiple access, or CDMA, networks using 1xRTT technology. We have...

  • Page 18
    ... Service Plans. We plan to continue to focus on increasing the value provided to our subscribers by offering predictable, affordable and flexible service plans. In January 2010, we introduced a new family of service plans that include all applicable taxes and regulatory fees for a flat rate. We plan...

  • Page 19
    ... when they are outside our service area. Products and Services We provide mobile broadband services under the MetroPCS® brand under simple and affordable flat monthly rate service plans. In 2009, our service plans started at $30 per month, excluding taxes and regulatory fees associated with the...

  • Page 20
    ... or have access, to spectrum, including the Federal Communications Commission, or FCC, licensed geographic area, the amount of broadband wireless spectrum held, and whether we hold the FCC license ourselves or provide or will provide our services in that metropolitan area through our agreements with...

  • Page 21
    ... MetroPCS has entered into long-term leases of 10MHz of spectrum to Royal Street. The map below illustrates the geographic coverage of our licensed spectrum as of December 31, 2009. Detroit Boston New York Philadelphia Las Vegas Sacramento San Francisco Los Angeles Dallas Atlanta Orlando Tampa...

  • Page 22
    ...to allow small businesses, very small businesses and other so-called designated entities, or DEs, to acquire spectrum and construct wireless networks to promote competition with existing carriers. To that end, the FCC designated certain blocks of wireless broadband PCS spectrum, or "closed" licenses...

  • Page 23
    ... A network includes a mobile switching center (for CDMA) or enhanced packet core (for LTE) which serves several purposes, including routing traffic, managing call handoffs, managing access to the public switched telephone network and providing access to voicemail and other value-added services, base...

  • Page 24
    ... providers is based mostly on price, service area, services and features, call quality and customer service. The current facilities-based wireless broadband mobile industry is dominated by four national carriers -- AT&T, Verizon Wireless, Sprint Nextel and T-Mobile -- and their prepaid affiliates...

  • Page 25
    ... used by national wireless broadband mobile services carriers, which could prompt them to reduce the subsidization of handsets and limit their long term contracts. All of these factors may detract from our ability to attract customers from certain market segments and may require us to add additional...

  • Page 26
    ...ownership of our stock by non-United States citizens; the ongoing technical, operational and service requirements under which we must operate; the timing, nature and scope of network construction; the rates, terms and conditions of our service; our protection and use of customer information; roaming...

  • Page 27
    ... use for wireless services or to change the rules relating to already licensed spectrum, which may allow new or existing licensees to provide services comparable to the services we provide. License term The broadband PCS licenses held by us and by Royal Street have an initial term of ten years...

  • Page 28
    .... Broadband PCS licensees holding 10 MHz and 15 MHz licenses generally must construct facilities to provide service to 25% of the licensed area within five years of their initial license grant date, or otherwise make a showing of substantial service. The FCC defines substantial service as service...

  • Page 29
    ... and applicable FCC conditions. Spectrum and Market Concentration Limits The FCC has certain policies intended to prevent undue concentration of the terrestrial wireless broadband mobile services market. For example, the FCC conducts a case-by-case review of all transactions where wireless spectrum...

  • Page 30
    ..., based on a five-year straight-line discount repayment schedule commencing from the grant date, which is called an unjust enrichment payment. For example, in Auction 58, Royal Street Communications received a bidding credit equal to approximately $94 million relating to open licenses it acquired as...

  • Page 31
    ... mobile services, such as cellular, broadband PCS, AWS, 700 MHz, and Enhanced Specialized Mobile Radio, or ESMR, services, and federal law preempts state rate and entry regulation of CMRS providers. The FCC has found, for the time being, that wireless broadband Internet access service offered...

  • Page 32
    ... must have the technology in place to allow its customers to keep their telephone numbers when they switch to a new carrier. Outside of the top 100 MSAs, CMRS carriers receiving a request to allow end users to keep their telephone numbers must be capable of doing so within six months of the request...

  • Page 33
    ..., or ETCs, and may receive universal service support for providing service to customers using wireless service in high cost areas or to certain qualifying low income customers. Certain competing wireless broadband mobile carriers operating in states where we operate have obtained or applied for...

  • Page 34
    ...hearing aid compatible and we have annual reporting requirements. In addition, we are required to offer these hearing aid-compatible wireless phones for each air interface we provide. As a result, this requirement may limit our ability to offer services using new air interfaces other than CDMA 1xRTT...

  • Page 35
    ...all our service plans that we now offer to new subscribers (and to all existing customers who opt-in) include certain coverage outside our existing metropolitan areas and we provide service in a limited number of metropolitan areas in the United States. As a result, we must rely on other carriers in...

  • Page 36
    ... an additional 500 MHz of spectrum over the next decade. Wireless open access. A provider of VoIP services has asked the FCC to issue a declaratory ruling that would give wireless broadband mobile customers the right to utilize any device of their choice to access a wireless broadband mobile network...

  • Page 37
    ... to provide access to broadband service to consumers residing in rural, unserved or underserved areas of the United States. The grants are available to, among others, wireless broadband mobile carriers. Grants of up to 80% of the total cost of the project may be used to fund broadband infrastructure...

  • Page 38
    ... Regulation The Communications Act preempts state or local regulation of market entry or rates charged by any CMRS provider. As a result, we are free to establish rates and offer new products and services with minimum state regulation. However, states and local agencies may regulate "other terms and...

  • Page 39
    ...Risks Related to Our Business Our business strategy may not succeed in the long term. Our business strategy has been to offer unlimited wireless broadband mobile services with limited geographic coverage on a paid-in-advance basis for flat monthly rates without requiring a long-term service contract...

  • Page 40
    ... from existing competitors or new competitors; higher than anticipated churn in our markets; our inability to increase our network capacity in areas we currently serve to meet increasing customer demand; our inability to upgrade our networks to 4G; limitations in our customer service, billing and...

  • Page 41
    ... then change wireless providers or phones, increasing our churn. Our rate of customer churn can be affected by a number of factors, including the following: • network issues, including network coverage, network reliability, technology upgrades, dropped and blocked calls, and network availability...

  • Page 42
    ...marketing costs to attract replacement customers required to sustain our business plan, which could reduce our profit margin and could reduce the cash available to construct and operate new metropolitan areas, to expand coverage and capacity in existing metropolitan areas, or to upgrade our networks...

  • Page 43
    ... include service coverage on a nationwide, tax-inclusive basis. Our new service plans, however, may not succeed in the long term or we may need to change our business strategy. If we have a disproportionate number of our customers on our lower priced service plans or if our customers do not purchase...

  • Page 44
    ... of minutes of use or unlimited use at increasingly lower prices or fixed monthly prices on a national coverage basis. All of our national wireless broadband mobile competitors and certain of our regional competitors and MVNOs currently are offering unlimited fixed-rate service plans in the markets...

  • Page 45
    ... decrease in demand for switched telephone services, such as those we currently provide. The resulting technological development of WiFi or WiMax enabled handsets permitting customers to communicate using voice and data services with their handset using this VoIP technology in any area equipped with...

  • Page 46
    ... technology-based differences in our product and service offerings and those offered by our competitors. We cannot assure you that we will obtain access to new technology, such as LTE, on a timely basis, on satisfactory terms, or that we will have adequate spectrum, or be able to acquire additional...

  • Page 47
    ... of our existing services. There can be no assurance that we can deploy and implement our LTE services timely and at a level that will meet customer expectations, provide wireless broadband mobile data service on a profitable basis or that vendors will develop and make available to companies of our...

  • Page 48
    ... to acquire additional spectrum in the future at a reasonable cost. Because we offer unlimited calling services for a fixed rate, our customers tend, on average, to use our services more than the customers of other wireless broadband mobile carriers. We believe that the average minutes of use of...

  • Page 49
    ...and unemployment rates continue to deteriorate, or remain depressed, our existing and future customer base may be disproportionately and adversely affected due to the generally lower per capita income of our customer base (versus the national facility-based wireless broadband mobile carriers), which...

  • Page 50
    ... alternative billing services from another provider or providers in a timely manner, for a reasonable cost or otherwise, which could cause us, among other things, not to be able to bill our customers, provide customer care, grow our business, report financial results, or manage our business and...

  • Page 51
    ... Lucent to provide us with PCS and AWS CDMA system products and services, including without limitation, wireless base stations, switches, power, cable and transmission equipment and services. The agreement does not cover any other non-AWS or non-PCS spectrum we may acquire in the future, including...

  • Page 52
    ... into agreements with third-party suppliers to provide products, software and services that are integral to our business, such as customer care, product distribution, content development, financial reporting, network management, network infrastructure equipment and services and billing and payment...

  • Page 53
    ...our customers have access to a wide variety of products and services within their geographic area, which means some of our dealers may be located within close proximity to one another and compete for the same customer base. Further, with the advent of our tax inclusive service plans, we are changing...

  • Page 54
    ...the number of new customers we add to our services and may increase our churn. Further, if the rates we pay for roaming increase, it could reduce the profits we make on our services, or require us to cease providing such services on an unlimited basis. A termination of existing roaming agreements or...

  • Page 55
    ... existing roaming agreements on competitive terms. Our ability to replicate these roaming service offerings at rates that will make us, or allow us to be, competitive is uncertain at this time. The FCC recently clarified that broadband commercial mobile radio service, or CMRS providers must offer...

  • Page 56
    ... agreements, which may result in higher costs, which could have a material adverse effect on our business, financial condition, and operating results. A portion of our third-party customer service and technical support providers and a portion of our revenue are derived from geographic areas...

  • Page 57
    ... currently pay. Our new service plans are offered on a flat-rate basis, inclusive of all applicable taxes and regulatory fees. As a result, we will not be able to recover any future tax and regulatory fee increases without a corresponding increase in the price of our service. So our cost to provide...

  • Page 58
    ...cause us to lose customers and incur expenses. Some of our network is not fully redundant and our disaster relief plans may not be adequate or timely. The resulting interruption or failure to provide our services could have a material adverse effect on our business, financial condition and operating...

  • Page 59
    ...impose a substantial renewal fee to allow a licensee to continue to use a particular spectrum. Such additional regulatory requirements, fees or conditions could increase the cost of doing business, could cause disruption to existing networks, and could require us to make substantial investments. Any...

  • Page 60
    ...to provide access on our network to third parties on terms and conditions that may jeopardize the flat-rate, unlimited usage pricing plans that lies at the heart of our business model. To maintain the quality of our network and user experience, we manage our network by limiting the bandwidth used by...

  • Page 61
    ... upgrades, increasing cost of insurance coverage, requiring us to hire additional employees, requiring us to spend significant additional capital, limiting the capacity of our networks, limiting the services we can offer our customers, requiring us to change our business strategy and service plans...

  • Page 62
    ... entry of new competitors into our markets or perceptions of increased price competition, including a price war; changes in our credit rating or future prospects; disruptions of our operations or service providers necessary to our network operations; seasonal or other variations in our customer base...

  • Page 63
    • introduction of new products and services by us or our competitors or changes in service plans or pricing by us or our competitors, including the introduction of or changes to unlimited fixed-rate plans by our competitors; market perceptions relating to our services, network, handsets and ...

  • Page 64
    ... of the Company, may reduce the market price of our common stock and could impede our ability to raise future capital through the issuance of equity securities at a time and at a price we deem appropriate. If we fail to manage our planned growth effectively and maintain an effective system of...

  • Page 65
    ... preclude our ability to pursue new opportunities, expand our service, upgrade our networks, engage in acquisitions, or purchase additional spectrum, thus limiting our ability to expand our business which could have a material adverse effect on our business, financial condition and operating results...

  • Page 66
    ... cases to ordinary course of business and other exceptions, may limit our ability to engage in some transactions, including the following incurring additional debt; paying dividends, redeeming capital stock or making other restricted payments or investments; selling or buying assets, properties or...

  • Page 67
    ... to, changes in our business or the telecommunications industry; limiting our ability to increase our capital expenditures to roll out new services or to upgrade our networks to new technologies, such as LTE; limiting our ability to purchase additional spectrum or develop new metropolitan areas in...

  • Page 68
    ... preferred stock at $66.67 per share. Our Rights Plan is intended to protect stockholders in the event of an unfair or coercive offer to acquire our Company and to provide our board of directors with adequate time to evaluate unsolicited offers. The Rights Plan may prevent or make takeovers...

  • Page 69
    ...Law imposes restrictions on business combinations such as mergers between us and a holder of 15% or more of our voting stock. Any of the foregoing events or other events could cause revenues, customer additions, operating income, capital expenditures and other financial or statistical information to...

  • Page 70
    ... the symbol "PCS." Prior to April 19, 2007, there was no established public trading market for our common stock. The following table sets forth for the periods indicated the high and low composite per share prices as reported by the New York Stock Exchange. High Low Fiscal year ended December 31...

  • Page 71
    ... the market and to be more reflective of the Company's status as a public company. As of December 31, 2009, compensation to be paid pursuant to the Remuneration Plan to non-employee directors of our Company included annual retainers, stock options, and board and committee meeting fees. Recent Sales...

  • Page 72
    ... consolidated financial data as of and for the years ended December 31, 2005, 2006, 2007, 2008 and 2009 from our consolidated financial statements. The historical selected financial data may not be indicative of future performance and should be read in conjunction with "Management's Discussion...

  • Page 73
    ... service area, under simple and affordable flat-rate monthly service plans. In 2009, our service plans started at $30 per month and the subscriber was obligated to pay all applicable taxes and regulatory fees associated with the service. In January 2010, we introduced a new family of service plans...

  • Page 74
    ... or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. Revenue Recognition Our wireless services are provided on a month-to-month basis and are paid in advance. We...

  • Page 75
    ... modified. We adjust the reserves in light of changing facts and circumstances. Our effective tax rate includes the impact of income tax related reserve positions and changes to income tax reserves that we consider appropriate. A number of years may elapse before a particular matter for which we...

  • Page 76
    ...area on spectrum allocated by the FCC for terrestrial wireless broadband mobile services. We hold personal communications services, or PCS, licenses granted or acquired on various dates, and in November 2006, we acquired a number of AWS licenses which can be used to provide wireless broadband mobile...

  • Page 77
    ... rate and management's future business plans. 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 impairment related to the combined single unit of accounting as of September 30, 2009...

  • Page 78
    ... purchased handset for a full refund prior to the earlier of 30 days or 60 minutes of use. Customers who returned their phones under the Metro Promise are reflected as a reduction to gross customer additions. Customers' monthly service payments are due in advance every month. Our customers must pay...

  • Page 79
    ... companies for long distance service provided to our customers. These variable charges are based on our customers' usage, applied at pre-negotiated rates with the long distance carriers. Customer Support. We pay charges to nationally recognized third-party providers for customer care, billing...

  • Page 80
    ... $1.1 million of state income tax during the years ended December 31, 2009, 2008 and 2007, respectively. Seasonality Our customer activity is influenced by seasonal effects related to traditional retail selling periods and other factors that arise from our target customer base. Based on historical...

  • Page 81
    ... and services, production processes, class of customer, method of distribution, and regulatory environment and currently exhibit similar financial performance and economic characteristics. Northeast Markets, which include Boston, New York and Philadelphia, are aggregated because they are reviewed on...

  • Page 82
    ... For the year ended December 31, 2009, cost of service includes $4.2 million and selling, general and administrative expenses includes approximately $43.6 million of stock-based compensation expense. For the year ended December 31, 2008, cost of service includes $2.9 million and selling, general and...

  • Page 83
    ... year ended December 31, 2008. The increase in cost of service is primarily attributable to the growth in our Core Markets customer base, the deployment of additional network infrastructure during the year ended December 31, 2009 and costs associated with our unlimited international calling product...

  • Page 84
    ... 2008. The increase in cost of service is primarily attributable to the growth in our Northeast Markets customer base, the deployment of additional network infrastructure during the year ended December 31, 2009 and costs associated with our unlimited international calling product. Cost of Equipment...

  • Page 85
    ...year ended December 31, 2008. The increase related primarily to network infrastructure assets that were placed into service during the year ended December 31, 2009 as a result of the launch of service and the expansion of our network in the Northeast Markets. Stock-Based Compensation Expense. Stock...

  • Page 86
    ...and a net change in uncertain tax positions of $16.3 million. Provision for income taxes for the year ended December 31, 2009 includes a net decrease in a state unrecognized tax benefit of $18.1 million due to the expiration of a statute of limitations. Net Income. Net income increased $27.4 million...

  • Page 87
    ... $38.2 million of stock-based compensation expense. For the year ended December 31, 2007, cost of service includes $1.8 million and selling, general and administrative expenses includes $26.2 million of stock-based compensation expense. (2) Core and Northeast Markets Adjusted EBITDA (Deficit) is...

  • Page 88
    ... the year ended December 31, 2007. The increase in Core Markets cost of equipment is primarily attributable to an increase in gross customer additions which accounted for approximately $73.5 million, coupled with an increase in upgrade handset sales to existing customers accounting for approximately...

  • Page 89
    ...%, for the year ended December 31, 2008 compared to the same period in 2007 primarily due to the construction and launch of service in the Philadelphia market and the build-out of the New York and Boston metropolitan areas. In addition, an increase of $2.6 million in stock-based compensation expense...

  • Page 90
    ...for the year ended December 31, 2008 from $22.0 million for the year ended December 31, 2007. The increase is primarily related to additional stock options granted to employees in these markets throughout the year ended December 31, 2008. Northeast Markets. Northeast Markets stock-based compensation...

  • Page 91
    ... a new account in connection with the purchase of an upgraded or replacement phone and does not identify themselves as an existing customer, we count the phone leaving service as a churn and the new phone entering service as a gross customer addition. Churn for the year ended December 31, 2009 was...

  • Page 92
    ... for existing customers. CPGA costs increased to $145.79 for the year ended December 31, 2009 from $127.21 for the year ended December 31, 2008. This was primarily driven by the Northeast Markets related to the launches of service in New York and Boston metropolitan areas in early 2009, coupled...

  • Page 93
    ...For the year ended December 31, 2007, Core Markets Adjusted EBITDA was approximately $694.8 million. We continue to experience increases in Core Markets Adjusted EBITDA as a result of continued customer growth and cost benefits due to the increasing scale of our business in the Core Markets. Segment...

  • Page 94
    ...million. Customers. Net customer additions in our Northeast Markets were 674,760 for the year ended December 31, 2009, compared to 104,151 for the year ended December 31, 2008. Total customers were 778,911 as of December 31, 2009 primarily due to the continued demand for our service offerings in the...

  • Page 95
    ... allows us to compare our average acquisition costs per new customer to those of other wireless broadband mobile providers. Equipment revenues related to new customers, adjusted for the impact to service revenues of promotional activity, are deducted from selling expenses in this calculation as they...

  • Page 96
    Year Ended December 31, 2009 2008 2007 (In thousands, except gross customer additions and CPGA) Calculation of Cost Per Gross Addition (CPGA): Selling expenses ...$ Less: Equipment revenues ...Add: Impact to service revenues of promotional activity ...Add: Equipment revenue not associated with new ...

  • Page 97
    Year Ended December 31, 2009 2008 2007 (In thousands, except average number of customers and CPU) Calculation of Cost Per User (CPU): Cost of service ...Add: General and administrative expenses ...Add: Net loss on equipment transactions unrelated to initial customer acquisition ...Less: Stock-based...

  • Page 98
    ... in existing markets will improve our service offerings, helping us to attract additional customers and retain existing customers and increase revenues. In September 2009, Wireless entered into a Master Procurement Agreement , or MPA, with a network infrastructure and equipment provider under...

  • Page 99
    ... for the year ended December 31, 2008. The increase was primarily attributable to an increase in cash flows from working capital changes and an increase in net income during the year ended December 31, 2009 compared to the same period in 2008. Cash provided by operating activities decreased $141...

  • Page 100
    ..., $25.2 million in cash used for business acquisitions, a $186.9 million increase in purchases of property and equipment which was primarily related to construction in the Northeast Markets, and $267.2 million in net proceeds from the sale of investments during the year ended December 31, 2007 that...

  • Page 101
    ... credit agreement, Wireless will be subject to certain limitations, including limitations on its ability to incur additional debt, make certain restricted payments, sell assets, make certain investments or acquisitions, grant liens and pay dividends. Wireless is also subject to certain financial...

  • Page 102
    ...the year ended December 31, 2009, we received $52.3 million in fair value of FCC licenses in exchanges with other parties. On February 2, 2010, we entered into a like-kind spectrum exchange agreement covering licenses in certain markets with another service provider, or Service Provider. The Service...

  • Page 103
    ... is based on the rates at December 31, 2009 which was 6.474% and includes the impact of our interest rate protection agreements, for the senior secured credit facility. (2) Includes expected commitments for future capital lease obligations and purchases of network equipment. (3) Represents payment...

  • Page 104
    ...debt to fixed rate debt at an annual rate of 5.464%. The monthly interest settlement periods began on June 30, 2008. The interest rate protection agreement expires on June 30, 2010. If market LIBOR rates increase 100 basis points over the rates in effect at December 31, 2009, annual interest expense...

  • Page 105
    ... statements for external purposes in accordance with generally accepted accounting principles in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future...

  • Page 106
    ... company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control...

  • Page 107
    ...of Cash Flows for the years ended December 31, 2009, 2008 and 2007 ...Notes to Consolidated Financial Statements... F-1 F-2 F-3 F-4 F-5 F-6 (2) Exhibit No. Exhibits Description 2.1(a) Agreement and Plan of Merger, dated as of April 6, 2004, by and among MetroPCS Communications, Inc., MPCS Holdco...

  • Page 108
    ... of Officer and Director Indemnification Agreement (Filed as Exhibit 10.4 to Amendment No. 2 to MetroPCS Communications, Inc.'s Registration Statement on Form S-1/A (SEC File No. 333-139793), filed on February 27, 2007, and incorporated by reference herein). General Purchase Agreement, effective as...

  • Page 109
    ...10.6(a) 10.6(b)* 10.7(a) 10.7(b) Amendment No. 3 to the General Purchase Agreement, effective as of December 3, 2007, by and between MetroPCS Wireless, Inc. and Lucent Technologies Inc. (Filed as Exhibit 10.4(d) to MetroPCS Communications, Inc's Annual Report on Form 10-K (SEC File No. 001-33409...

  • Page 110
    ... by reference herein). Managed Services Agreement, entered into on September 15, 2008 and effective as of April 8, 2008, by and between MetroPCS Wireless, Inc. and Amdocs Software Systems Limited and Amdocs, Inc. (Filed as Exhibit 10.1 to MetroPCS Communications, Inc.'s Quarterly Report on Form 10...

  • Page 111
    ... and Restated Non-Employee Director Remuneration Plan, effective January 1, 2008 (Filed as Exhibit 10.1 to MetroPCS Communications, Inc.'s Quarterly Report on Form 10-Q, filed on May 11, 2009 and incorporated by reference herein). Form of Officer Cash Performance Award Agreement (Filed as Exhibit 10...

  • Page 112
    ... of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. METROPCS COMMUNICATIONS, INC. (Registrant) By: /s/ ROGER D. LINQUIST Roger D. Linquist President, Chief Executive Officer and Chairman of the Board Date: March 1, 2010 100

  • Page 113
    ...Board (Principal Executive Officer) /s/ J. BRAXTON CARTER J. Braxton Carter Executive Vice President and Chief Financial Officer (Principal Financial Officer) /s/ CHRISTINE B. KORNEGAY Christine B. Kornegay Senior Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer...

  • Page 114
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  • Page 115
    ...for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 9 to the consolidated financial statements, the Company changed its method of accounting for fair value measurements of...

  • Page 116
    ...: Cash and cash equivalents ...Short-term investments...Inventories, net ...Accounts receivable (net of allowance for uncollectible accounts of $2,045 and $4,106 at December 31, 2009 and 2008, respectively)...Prepaid charges...Deferred charges...Deferred tax assets...Other current assets ...Total...

  • Page 117
    MetroPCS Communications, Inc. and Subsidiaries Consolidated Statements of Income and Comprehensive Income For the Years Ended December 31, 2009, 2008 and 2007 (in thousands, except share and per share information) 2009 2008 2007 REVENUES: Service revenues ...$ Equipment revenues...Total revenues......

  • Page 118
    ... Statements of Stockholders' Equity For the Years Ended December 31, 2009, 2008 and 2007 (in thousands, except share information) Additional Paid-In Amount Capital Accumulated Other Comprehensive Income (Loss) Number of Shares Retained Earnings Total BALANCE, January 1, 2007 ...Common Stock...

  • Page 119
    ... costs ...Repayment of debt ...Payments on capital lease obligations ...Proceeds from exercise of stock options ...Net cash provided by financing activities...INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...CASH AND CASH EQUIVALENTS, beginning of year ...CASH AND CASH EQUIVALENTS, end of year...

  • Page 120
    ...business enterprises report information about operating segments in annual financial statements. At December 31, 2009, the Company had thirteen operating segments based on geographic regions within the United States: Atlanta, Boston, Dallas/Ft. Worth, Detroit, Las Vegas, Los Angeles, Miami, New York...

  • Page 121
    ... days. Unrealized gains, net of related income taxes, for available-for-sale securities are reported in accumulated other comprehensive 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...

  • Page 122
    ... purchases and for amounts estimated to be uncollectible from other carriers. The following table summarizes the changes in the Company's allowance for uncollectible accounts (in thousands): 2009 2008 2007 Balance at beginning of period ...$ 4,106 $ Additions: Charged to expense...199 Direct...

  • Page 123
    ... 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. Revenues and Cost of Service The Company's wireless services are provided on a month-to-month...

  • Page 124
    ... other fees. Sales, use and excise taxes are reported on a net basis in selling, general and administrative expenses on the accompanying statements of income and comprehensive income. FCC Licenses and Microwave Relocation Costs The Company operates wireless broadband mobile networks under licenses...

  • Page 125
    ... rate and management's future business plans. 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 related to the combined single unit of accounting as of September 30, 2009...

  • Page 126
    ... ability to recognize the benefits of the assets in future years. The Company accounts for uncertainty in income taxes recognized in the financial statements in accordance with ASC 740, which provides guidance on the financial statement recognition and measurement of a tax position taken or expected...

  • Page 127
    ...that is traded as an asset as an input to the valuation of the underlying liability, and clarifies when to make adjustments to fair value. ASU 2009-05 was effective for periods ending after August 26, 2009. The implementation of this standard did not have a material impact on the Company's financial...

  • Page 128
    ... Royal Street have been eliminated in the consolidated financial statements. C9 Wireless, LLC has a right to sell, or put, its limited liability company interests in Royal Street Communications to the Company at specific future dates based on a contractually determined amount (the "Put Right"). The...

  • Page 129
    .... This financial instrument is reported in other current liabilities at fair market value of $4.1 million as of December 31, 2009. On April 30, 2008, Wireless entered into an additional two-year interest rate protection agreement to manage the Company's interest rate risk exposure. The agreement was...

  • Page 130
    ...derivative qualifying for hedge accounting is recognized in earnings in the period of the change. For the year ended December 31, 2009, 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...

  • Page 131
    ... previously granted to the Company in the Boston-Worcester, Massachusetts/New Hampshire/Rhode Island/Vermont Economic Area as a result of FCC Auction 66. Other Spectrum Acquisitions During the years ended December 31, 2009 and 2008, the Company closed on various agreements for the acquisition and...

  • Page 132
    ... Notes") under the existing indenture governing the Initial Notes at a price equal to 105.875% of the principal amount of such Additional Notes. On January 20, 2009, Wireless completed the sale of an additional $550.0 million of 9¼% Senior Notes due 2014 (the "New 9¼% Senior Notes" and, together...

  • Page 133
    ... includes the impact of our interest rate protection agreements (See Note 5). During the year ended December 31, 2009, the Company replaced $14.5 million of previously existing letters of credit drawn under the Senior Secured Credit Facility with letters of credit that are cash collateralized. The...

  • Page 134
    ... 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...

  • Page 135
    ...'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. The estimated fair values of the Company's financial instruments are as follows (in thousands): December 31, 2009...

  • Page 136
    ...provider was found. Concentrations of credit risk with respect to trade accounts receivable are limited due to the diversity of the Company's indirect retailer base. 11. Commitments and Contingencies: The Company has entered into pricing agreements with various handset manufacturers for the purchase...

  • Page 137
    ... the Company's option on an annual basis. If the Company fails to meet its commitments under the terms of the agreements, it may have to pay certain liquidated damages, which would be material to the Company. In October 2009, the Company amended an existing network services agreement which included...

  • Page 138
    ... Company records stock-based compensation expense in cost of service and selling, general and administrative expenses. Stock-based compensation expense was $47.8 million, $41.1 million and $28.0 million for the years ended December 31, 2009, 2008 and 2007, respectively. Cost of service for the years...

  • Page 139
    ...from those of traded options, the use of the Black-Scholes option pricing model may not provide a reliable estimate of the fair value of employee stock options. A summary of the status of the Company's Equity Plans as of December 31, 2009, 2008 and 2007, and changes during the periods then ended, is...

  • Page 140
    ... grants in the years ended December 31, 2009, 2008 and 2007, respectively, and an income tax benefit of $17.3 million, $17.2 million and $11.0 million, respectively. As of December 31, 2009, there was approximately $71.7 million of unrecognized stock-based compensation cost related to unvested share...

  • Page 141
    ... on a monthly or quarterly basis thereafter. The Company determined the grantdate fair value of the restricted stock awards granted to be $20.1 million based on the closing price of the Company's common stock on the New York Stock Exchange on the grant dates. The estimated compensation cost of the...

  • Page 142
    ... the years ended December 31, 2009, 2008 and 2007 is as follows (in thousands): 2009 2008 2007 U.S. federal income tax provision at statutory rate...$ Increase (decrease) in income taxes resulting from: State income taxes, net of federal income tax impact...Change in valuation allowance...(Benefit...

  • Page 143
    ... than not based on the future reversal of existing temporary differences which give rise to the deferred tax liabilities, with the exception of the deferred tax asset related to the unrealized tax loss. During 2009 and 2008, an impairment of investments was recorded for financial statement purposes...

  • Page 144
    ...to offset future taxable income, or may increase the amount of tax due for the period under audit, resulting in an increase to the effective rate in the year of resolution. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits are as follows (in thousands): 2009 2008...

  • Page 145
    ... per share is required for all periods presented. Under the restricted stock award agreements, unvested shares of restricted stock have rights to receive nonforfeitable dividends. For the year ended December 31, 2009, the Company has calculated diluted earnings per share under both the treasury...

  • Page 146
    ..., mobile instant messaging, push e-mail, location based services, social networking services and other value-added services. The Company aggregates its operating segments into two reportable segments: Core Markets and Northeast Markets. Effective January 1, 2009, the Company implemented a change to...

  • Page 147
    ... Notes to Consolidated Financial Statements December 31, 2009, 2008 and 2007 Year Ended December 31, 2009 Core Markets Northeast Markets Other Total Service revenues ...$ Equipment revenues...Total revenues...Cost of service(1)...Cost of equipment...Selling, general and administrative expenses...

  • Page 148
    ... Notes to Consolidated Financial Statements December 31, 2009, 2008 and 2007 Year Ended December 31, 2007 Core Markets Northeast Markets Other Total Service revenues ...$ Equipment revenues...Total revenues...Cost of service(1)...Cost of equipment...Selling, general and administrative expenses...

  • Page 149
    MetroPCS Communications, Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 2009, 2008 and 2007 The following information presents consolidating balance sheets as of December 31, 2009 and 2008, consolidating statements of income for the years ended December 31, 2009, 2008...

  • Page 150
    ... Financial Statements December 31, 2009, 2008 and 2007 Consolidated Balance Sheet As of December 31, 2009 Parent CURRENT ASSETS: Cash and cash equivalents ...Short-term investments ...Inventories, net...Accounts receivable, net ...Prepaid charges ...Deferred charges ...Deferred tax assets...

  • Page 151
    ... Notes to Consolidated Financial Statements December 31, 2009, 2008 and 2007 Consolidated Balance Sheet As of December 31, 2008 Parent CURRENT ASSETS: Cash and cash equivalents...Inventories, net ...Accounts receivable, net ...Prepaid charges ...Deferred charges ...Deferred tax asset ...Current...

  • Page 152
    ... and 2007 Consolidated Statement of Income Year Ended December 31, 2009 Parent REVENUES: Service revenues...$ Equipment revenues ...Total revenues...OPERATING EXPENSES: Cost of service (excluding depreciation and amortization expense shown separately below)...Cost of equipment...Selling, general and...

  • Page 153
    MetroPCS Communications, Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 2009, 2008 and 2007 Consolidated Statement of Income Year Ended December 31, 2008 Parent REVENUES: Service revenues...Equipment revenues ...Total revenues ...OPERATING EXPENSES: Cost of service (...

  • Page 154
    ... Communications, Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 2009, 2008 and 2007 Consolidated Statement of Income Year Ended December 31, 2007 Parent REVENUES: Service revenues...$ - Equipment revenues...- Total revenues ...- OPERATING EXPENSES: Cost of service...

  • Page 155
    ...Proceeds from long-term loan...- Proceeds from 9 ¼% Senior Notes Due 2014 ...- Debt issuance costs ...- Repayment of debt ...- Payments on capital lease obligations ...8,626 Proceeds from exercise of stock options...Net cash provided by (used in) financing 8,626 activities ...INCREASE (DECREASE) IN...

  • Page 156
    ... securities ...Deferred income taxes...Changes in assets and liabilities ...Net cash (used in) provided by operating activities...CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ...Change in prepaid purchases of property and equipment...Proceeds from sale of property and...

  • Page 157
    ... majority-owned subsidiary...Deferred income taxes...Stock-based compensation expense ...Changes in assets and liabilities ...Net cash provided by (used in) operating activities...CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ...Change in prepaid purchases of property and...

  • Page 158
    ... accounts payable and accrued expenses on the accompanying consolidated balance sheets. The Company had the following transactions with this related party (in millions): 2009 Year Ended December 31, 2008 2007 Fees received by the Company as compensation for providing billing and collection services...

  • Page 159
    ... million and $42.5 million for the years ended December 31, 2009, 2008 and 2007, 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 $92...

  • Page 160
    ...of this spectrum exchange agreement is subject to customary closing conditions, including FCC consent. In addition, the Company entered into short-term lease agreements with the Service Provider that, subject to FCC approval, authorize the Service Provider and the Company to use the spectrum covered...

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  • Page 162
    ...of the Company's 2009 Annual Report on Form 10-K filed with the SEC on March 1, 2010 is included in this annual report. A copy of any exhibit listed in the exhibit index to the Company's Annual Report on Form 10-K or any other SEC filing is available free of charge by visiting the investor relations...

  • Page 163
    ... Relations Keith D. Terreri Vice President Finance and Treasurer Board of Directors Roger D. Linquist Chairman, President & Chief Executive Officer Richard A. Anderson(1) Former Group PresidentGlobal Business Services AT&T W. Michael Barnes(1)(2) Former Public Company Chief Financial Officer Jack...

  • Page 164
    MetroPCS Communications, Inc. NYSE: PCS www.metropcs.com Corporate Headquarters 2250 Lakeside Blvd. Richardson, TX 75082