Metro PCS 2010 Annual Report Download

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ANNUAL REPORT 2010
NYSE: PCS
www.metropcs.com
MetroPCS Communications, Inc.

Table of contents

  • Page 1
    ANNUAL REPORT 2010 MetroPCS Communications, Inc. NYSE: PCS www.metropcs.com

  • Page 2

  • Page 3
    ... Officer Roger D. Linquist To Our Stockholders, What a difference a year makes. In early 2010, we substantially changed our go-to-market strategy with the introduction of Wireless for All. A year later, I am proud to report, we generated record 2010 operational and financial results. In addition...

  • Page 4
    ...United States. And as I said at the time, it was and is a "giant step for our business." We believe 4G LTE is a transformative technology ushering in a sea change for overall network efficiency and overall economics to support the ever increasing demands for video and data. 2010 Operating Income...

  • Page 5
    ...$40 per month, including all applicable taxes and regulatory fees, and offer unlimited talk, text and Web browsing. Clearly, we have the best 4G LTE value rate plan in the United States. With the introduction of MetroStudio, we are taking advantage of the 4G LTE network capabilities by providing our...

  • Page 6
    ... come to market and we will meet the demand and interest for Smartphones. In closing, let me express my gratitude to our shareholders for your support, our employees for their dedication and the Board for their wisdom. Sincerely, Roger D. Linquist Chairman, President and Chief Executive Officer

  • Page 7
    ... of dividends. Fiscal year ending December 31. Copyright© 2011 S&P, a division of The McGraw -Hill Companies Inc. All rights reserved. Copyright© 2011 Dow Jones & Co. All rights reserved. 4/07 MetroPCS Communications, Inc. NYSE Composite S&P 500 Dow Jones US Mobile Telecommunications TSM 2Q09 57...

  • Page 8
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  • Page 9
    ...Â... No 5 As of June 30, 2010, the aggregate market value of the registrant's voting and non-voting common stock held by non-affiliates of the registrant was approximately $2,173,589,153 based on the closing price of MetroPCS Communications, Inc. common stock on the New York Stock Exchange on June 30...

  • Page 10
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  • Page 11
    ... 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...64 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ...86 Item 8. Financial Statements and Supplementary Data ...87 Item 9. Changes in and Disagreements With Accountants on Accounting and...

  • Page 12
    ...94 REPORT OF INDEPENDENT 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...

  • Page 13
    ... operations, the effect of changes in aggregate fair value of financial assets and liabilities, whether litigation may have a material adverse effect on our business, financial condition or operations, and other statements that may relate to our plans, objectives, beliefs, strategies, goals, future...

  • Page 14
    ... our customers expect and to respond to technology changes, and to maintain and upgrade our networks and business systems; our deployment of new technologies, such as long term evolution, or 4G LTE, in our networks and its success and our ability to offer new services using such new technology; our...

  • Page 15
    ... a duty to provide such data in the future or to update such data if and when such data is updated. This report contains trademarks, service marks and trade names of companies and organizations other than us. MetroPCS related brands, product names, company names, trademarks, service marks, images...

  • Page 16
    ...applicable taxes and regulatory fees. We believe we offer a compelling value proposition to our customers through our service offerings that in most instances allow unlimited usage from within our service area for a low flat rate. Our average per minute cost to our customers for our service plans is...

  • Page 17
    ... one of the lowest cost providers of wireless broadband mobile services in the United States. Expand our markets. We plan to continue to focus on expanding in and around the metropolitan areas we currently serve, which may require us to acquire or gain access to additional spectrum or enter into...

  • Page 18
    ... areas we currently serve with our networks. Products and Services We provide mobile broadband services under the MetroPCS® brand. In January 2010, we introduced a new family of service plans, which include all applicable taxes and regulatory fees and offering nationwide voice, text and web access...

  • Page 19
    ...table below provides an overview of the larger metropolitan areas and surrounding areas in which we hold licenses to spectrum, including the Federal Communications Commission, or FCC, licensed geographic area, the amount of broadband wireless spectrum held and the related megahertz available in that...

  • Page 20
    ... and other so-called designated entities, or DEs, to acquire spectrum and construct wireless networks to promote competition with existing carriers. Royal Street Communications qualified as a very small business DE and was granted in December 2005 certain "open" broadband PCS licenses on which...

  • Page 21
    ... outlets. For the twelve months ended December 31, 2010, approximately 90% of our gross customer additions were through indirect channels. Our marketing strategy is to create and provide products, services and communications that drive growth while optimizing our marketing return on investment and...

  • Page 22
    ... our pricing, market penetration, growth and customer retention. These national carriers also have introduced, either directly or through their affiliates, increasingly competitive unlimited fixed-rate services plans in areas in which we offer service. These unlimited fixed-rate service plans may...

  • Page 23
    ... may face competition from new entrants and others using exclusively licensed or unlicensed spectrum. Additionally, we may compete in the future with companies that offer new technologies and market other services we do not offer or may not be available with our network technology, from our vendors...

  • Page 24
    ... certain market segments and may require us to add additional features or services to our existing service plans, or make other changes to our service plans, including pricing and usage. Seasonality Our customer activity is influenced by seasonal effects related to traditional retail selling periods...

  • Page 25
    ... broadband personal communications services, or PCS. The PCS spectrum has been licensed in a variety of bandwidths (30 MHz, 15 MHz and 10 MHz) and market areas (nationwide, major trading areas or MTAs and basic trading areas or BTAs). Under the broadband PCS licensing plan, the United States and its...

  • Page 26
    ... use for mobile wireless broadband 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 have an initial term of ten years...

  • Page 27
    ... for acquired licenses, satisfied the applicable five-year coverage requirement for each of our broadband PCS licenses and the ten-year requirement for those PCS licenses that already have been renewed. We also will be required to construct facilities to provide substantial service by the end of...

  • Page 28
    ...to third parties. These policies provide us, new entrants, and our competitors with alternative means to obtain additional spectrum and allow us to dispose of excess spectrum, subject to FCC approval and applicable FCC conditions. Spectrum and Market Concentration Limits The FCC has certain policies...

  • Page 29
    ...to reasonable network management provisions, which could limit our ability to provide certain services, requires us to not block customers' access to services competitive with our voice and video telephone services, and could limit our ability to establish the terms and conditions, including pricing...

  • Page 30
    ... to us because we provide service in a limited number of metropolitan areas in the United States and must rely on other carriers in order to offer roaming services outside our existing metropolitan areas. All the service plans we now offer to new subscribers (and to all existing customers who opt-in...

  • Page 31
    ... fixed and mobile wireless Internet access service providers, requires providers to make available relevant information regarding network management practices to the consumers who purchase their services, and to content, application and service providers who seek access to a carrier's network. In...

  • Page 32
    ...to qualify may be affected by ongoing changes and possible future limitations in the program. If we are approved, these payments would be an additional revenue source that we could use to support the services we provide in high cost areas or to certain low income customers. The FCC also recently has...

  • Page 33
    ... is incurred in stages on a market-by-market basis as local emergency service providers become equipped to handle E-911 calls. E-911 services allow state and local emergency service providers to better identify and locate wireless callers, including callers using special devices for the hearing...

  • Page 34
    ... states where we provide service have been authorized by the FCC to engage in limited numbering administration. Our ability to access telephone numbers on a timely basis is important for our ability to continue to grow our business. Regulatory fees. We are obligated to pay certain annual regulatory...

  • Page 35
    ... consent, or use fraud to gain unauthorized access to, telephone records. In addition, certain states have enacted, and other states in the future may enact, legislature relating to customer personal information. The recent and pending legislation (if enacted) may require us to change how we protect...

  • Page 36
    ... 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 conditions" of wireless service, and certain states where we operate...

  • Page 37
    ... design, increase our network design costs, require us to use more costly alternative technologies, such as DAS systems, reduce the service provided to our customers, and affect our ability to attract and retain customers. Local zoning and building ordinances also may make it difficult for us to...

  • Page 38
    ... of products and services offered, service content, features, data speeds, technology, coverage, compatible handset options, distribution, service areas, network operability and quality, customer perceptions, customer care levels and the prices and range of service plans and products. Managing these...

  • Page 39
    ... anticipated gross adds in our markets; our inability to increase our network capacity in areas we currently serve to meet increasing customer demand; our inability to offer competitive data services; limitations in our customer service, billing and other systems; our inability to manage inventory...

  • Page 40
    ...our customers, who may 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, data...

  • Page 41
    ...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 42
    ... coverage, more facilities or services, and greater bundled features and content) we do not and cannot offer, offer lower prices, market to broader customer segments, and offer service over larger geographic areas, which may have a material adverse effect on our business, financial condition...

  • Page 43
    ... continues and new technologies force us to offer new handsets and services, we could be forced to further subsidize the price of our handsets and pay higher sales commissions on the sale or upgrade of handsets, which could adversely affect our business, financial condition and operating results. We...

  • Page 44
    ...change our service plans in response to customer demands, preferences and demographic trends, increase our handset subsidies, increase our dealer payments, and increase our marketing and distribution costs, which could have a material adverse effect on our business, financial condition and operating...

  • Page 45
    ...these and future technological changes and to offer, on a timely basis, products and services that meet customer demands. For us to keep pace with these technological changes and remain competitive, we may continue to make significant capital expenditures in our networks, acquire additional spectrum...

  • Page 46
    ...equipment for use on our network. Our plans to upgrade our network to 4G LTE technology may result in additional risks and expenditures such as, among other things: • inability to timely develop and engineer design and network changes for the deployment and offering of 4G LTE services; reliance on...

  • Page 47
    ... our existing service area to meet customer expectations. We do not anticipate being able initially, and may not in the future be able, to provide 4G LTE service outside our existing service areas. Since at this time a limited number of carriers have publicly announced that they are planning to...

  • Page 48
    ... our business, financial condition and operating results. We may be unable to acquire additional spectrum in the future at a reasonable cost. Because we primarily offer unlimited calling and data services for a flat rate, our customers tend, on average, to use our services more than the customers of...

  • Page 49
    ... technologies, services, spectrum, products, operations and personnel of the acquired businesses while maintaining uniform standards, controls, policies and procedures; disruption of ongoing business; impact on our cash and available credit lines for use in financing future growth and working...

  • Page 50
    ... on us or limit our ability to provide our services in a cost effective or profitable way. Any changes in regulation, new policy initiatives, increased taxes or any other changes in state or federal law may have an adverse effect on our business, financial condition and operating results. We are...

  • Page 51
    ... or services and cause us to incur losses of customers or revenues, any or all of which could be material and could materially adversely affect our business, financial condition and operating results. Substantially all of our CDMA network infrastructure equipment is manufactured or provided by...

  • Page 52
    ... products and services, may be delayed in offering additional 4G LTE services, and may not be able to compete effectively in our markets. If any of the foregoing risks occur, it could have a material adverse effect on our business, financial condition and operating results. We use a single provider...

  • Page 53
    ... features and functions our customers expect or demand. In addition, such limitation could result in less technological development on network equipment that we use to offer 4G LTE services, delays in any available technological developments and we could be forced to pay higher prices for any such...

  • Page 54
    ... the amount of payments we make to our indirect distribution agents. If any of these occur, it could have a material adverse effect on our business, financial condition and operational results. We utilize a limited number of cell site and DAS providers. We currently use, and plan to continue to...

  • Page 55
    ... affiliations. Future regulatory changes may also affect our ability to enter into new or maintain existing roaming agreements on competitive terms. Our ability to replicate other carriers' roaming service offerings at rates that will make us, or allow us to be, competitive is uncertain at this time...

  • 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
    ... our use of or their receiving direct customer and technical support from outside the U.S., especially with the current legislative scrutiny and focus on jobs being sent overseas and the security of personal information being sent overseas. In addition, a number of our markets are located in states...

  • Page 58
    ... and attract new customers. Because of fiscal budget deficits at many state and local jurisdictions, state and local municipalities may increase taxes and regulatory fees on our services, which could have a material adverse effect on our business, financial condition and operating results. Concerns...

  • Page 59
    ... lose customers and incur expenses. Some portions of our network are 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 60
    ...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 61
    ... adverse effect on our business, financial condition and operating results, including but not limited to, increasing our operating expenses or costs, requiring us to obtain new or additional authorizations or permits, requiring us to change our business and customer service processes, limiting our...

  • Page 62
    ...our business by limiting our ability to manage our subscribers' use of our network, requiring us to provide third party access to our networks on terms and conditions that jeopardize our flat-rate, unlimited usage pricing plans or constrain our ability to offer innovative differentiated services, or...

  • Page 63
    ... of offered services and assets in the U.S., in particular limited major metropolitan areas; 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; market perceptions...

  • Page 64
    ... offering. These changes frequently occur irrespective of the operating performance of the affected companies. Hence, the trading price of our common stock could fluctuate based upon factors that have little or nothing to do with our business, financial condition and operating results. The price...

  • Page 65
    ...all of which could have an adverse effect on our business, financial condition and operating results. The value of our FCC licenses may drop in the future as a result of volatility in the marketplace and the sale of additional spectrum by the FCC. The market value of FCC licenses has been subject to...

  • Page 66
    ...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. To service our debt...

  • Page 67
    ... will depend on our ability to generate cash in the future. Our ability to produce cash from operations is subject to a number of risks, including: • introduction of new products and services by us or our competitors or changes in service plans or pricing by us or our competitors; our ability to...

  • Page 68
    to new technologies, such as 4G LTE; • • limiting our ability to purchase additional spectrum or develop new metropolitan areas in the future; reducing the amount of cash available for working capital needs, capital expenditures for existing and new markets and other corporate purposes by ...

  • 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
    ...is possible, however, that our business, financial condition and results of operations in future periods could be materially adversely affected by increased expense, including legal and litigation expenses, significant settlement costs and/or unfavorable damage awards relating to such matters. Other...

  • Page 71
    ... 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 72
    ... following table provides information about shares acquired from employees during the fourth quarter of 2010 as payment of withholding taxes in connection with the vesting of restricted stock: Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares...

  • Page 73
    ... selected financial data may not be indicative of future performance and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" in this report. 2010 Statement of Operations Data: Revenues: Service revenues...

  • Page 74
    ... from within our local service area and to receive unlimited calls from any area while in our service area, for a flatrate monthly service fee. In January 2010, we introduced a new family of service plans, which include all applicable taxes and regulatory fees and offering nationwide voice, text and...

  • Page 75
    ... different assumptions 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...

  • 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
    ... based on a combination of our historical performance and trends, our business plans and management's estimate of future performance, giving consideration to existing and anticipated competitive economic conditions. Other assumptions include a weighted average cost of capital and long-term rate of...

  • Page 78
    ...the closing price of our common stock on the date of grant as the fair market value for our common stock. The volatility assumption is based on a combination of the historical volatility of our common stock and the volatilities of similar companies over a period of time equal to the expected term of...

  • Page 79
    ... within 7 days of purchase and less than 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 their monthly service amount by...

  • Page 80
    ... $2.7 million of state income tax during the years ended December 31, 2010, 2009 and 2008, 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
    ...31, 2010 from $350.1 million for the year ended December 31, 2009. The increase is primarily attributable to an increase in upgrade handset sales to existing customers accounting for approximately $85.9 million. This increase was partially offset by lower average price of handsets activated reducing...

  • Page 82
    ...of assets related to certain network technology that was retired and replaced with newer technology during the year ended December 31, 2010. Non-Operating Items 2009 2010 (in thousands) Change Interest expense ...$ Loss on extinguishment of debt ...Provision for income taxes...Net income... 263,125...

  • Page 83
    ... rate of 35.0% due to net state and local taxes, tax credits, non-deductible expenses, valuation allowance on impairment on investment securities and a net change in uncertain tax positions. Provision for income taxes for the year ended December 31, 2010 includes a benefit of $6.9 million related...

  • Page 84
    ... million for the year ended December 31, 2008. The increase in cost of service is primarily attributable to an approximate 24% growth in our customer base and the deployment of additional network infrastructure during the twelve months ended December 31, 2009 and costs associated with our unlimited...

  • Page 85
    ...provided by financial statement measures with several customer-focused performance metrics that are widely used in the wireless industry. These metrics include average revenue per user per month, or ARPU, which measures service revenue per customer; CPGA, which measures the average cost of acquiring...

  • Page 86
    ...for the year ended December 31, 2009. The decrease in churn was primarily related to the acceptance of our Wireless for All tax and regulatory fee inclusive service plans including a decline in false churn as we no longer offer the first month of service for free. Our customer activity is influenced...

  • Page 87
    ... of ARPU for the periods indicated. Year Ended December 31, 2010 2009 2008 (In thousands, except average number of customers and ARPU) Calculation of Average Revenue Per User (ARPU): Service revenues ...$ Add: Impact to service revenues of promotional activity ...Less: Pass through charges...Net...

  • Page 88
    ... measure to CPGA. Year Ended December 31, 2010 2009 2008 (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...

  • Page 89
    ... basis, to track changes in these non-selling cash costs over time, and to help evaluate how changes in our business operations affect non-selling cash costs per customer. In addition, CPU provides management with a useful measure to compare our non-selling cash costs per customer with those of...

  • Page 90
    ... offer our services in major metropolitan areas and their surrounding areas, which we refer to as operating segments. We are seeking opportunities to enhance our current operating segments and to provide service in new geographic areas. From time to time, we may purchase spectrum and related assets...

  • Page 91
    ...the Philadelphia, New York and Boston metropolitan areas and our efforts to increase the service area and capacity of our existing network. We believe the increased service area and capacity in existing markets will improve our service offerings, helping us to attract additional customers and retain...

  • Page 92
    ...an increase in operating income during the year ended December 31, 2010, partially offset by a decrease in cash flows provided by changes in working capital during the year ended December 31, 2010 compared to the same period in 2009. Cash provided by operating activities increased approximately $451...

  • Page 93
    ... used for business acquisitions, a $186.9 million increase in purchases of property and equipment which was primarily related to construction in the Philadelphia, New York and Boston metropolitan areas, and $267.2 million in net proceeds from the sale of investments during the year ended December...

  • Page 94
    ... average annual rate of 5.246%. The monthly interest settlement periods will begin on February 1, 2010. These agreements expire on February 1, 2012. In October 2010, Wireless entered into three separate two-year interest rate protection agreements to manage the Company's interest rate risk exposure...

  • Page 95
    ... ended December 31, 2009, we received $52.3 million in fair value of FCC licenses in exchanges with other parties. On August 23, 2010, we closed on a like-kind spectrum exchange agreement covering licenses in certain markets with a service provider, or Service Provider. The Service Provider acquired...

  • Page 96
    ... "Income Taxes"). For further information related to unrecognized tax benefits, see Note 14, "Income Taxes," to the consolidated financial statements included in this Report. Inflation We believe that inflation has not materially affected our operations. Effect of New Accounting Standards Effective...

  • Page 97
    ... over the rates in effect at December 31, 2010, annual interest expense on the approximate $532.0 million in variable rate debt that is not subject to interest rate protection agreements would increase approximately $5.3 million. Item 8. Financial Statements and Supplementary Data The information...

  • Page 98
    ... 31, 2010, has been audited by Deloitte & Touche LLP, the independent registered public accounting firm who also audited our consolidated financial statements. Deloitte & Touche's attestation report on the effectiveness of our internal control over financial reporting is included herein. Changes in...

  • Page 99
    ... of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet and the related consolidated statements of income and comprehensive income, stockholders' equity, and cash flows as of and for the year ended December 31, 2010 of the Company and our report dated March...

  • Page 100
    ... Cash Flows for the years ended December 31, 2010, 2009 and 2008 ...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 101
    ... and incorporated by reference herein). General Purchase Agreement, effective as of June 6, 2005, by and between MetroPCS Wireless, Inc. and Lucent Technologies Inc. (Filed as Exhibit 10.5(a) to Amendment No. 2 to MetroPCS Communications, Inc.'s Registration Statement on Form S-1/A (SEC File No. 333...

  • Page 102
    ...Description 10.5(d)†10.6(a) 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 filed on February 29, 2008...

  • Page 103
    ...Agreement, dated as of November 5, 2010, by and among MetroPCS Wireless, Inc., the Guarantors (as defined therein) and J.P. Morgan Securities LLC (Filed as Exhibit 1.1 to MetroPCS Communications, Inc.'s Current Report... Vice President and Chief Financial Officer of MetroPCS Communications, Inc...

  • Page 104
    ... Act 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, 2011...

  • Page 105
    ... 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) /s/ RICHARD A. ANDERSON Richard A. Anderson...

  • Page 106
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  • Page 107
    ... Communications, Inc. and subsidiaries (the "Company") as of December 31, 2010 and 2009, and the related consolidated statements of income and comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements...

  • Page 108
    ...: Cash and cash equivalents ...Short-term investments ...Inventories ...Accounts receivable (net of allowance for uncollectible accounts of $2,494 and $2,045 at December 31, 2010 and 2009, respectively)...Prepaid expenses ...Deferred charges...Deferred tax assets ...Other current assets ...Total...

  • Page 109
    ... Consolidated Statements of Income and Comprehensive Income For the Years Ended December 31, 2010, 2009 and 2008 (in thousands, except share and per share information) 2010 REVENUES: Service revenues ...$ Equipment revenues...Total revenues ...OPERATING EXPENSES: Cost of service (exclusive...

  • Page 110
    MetroPCS Communications, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity For the Years Ended December 31, 2010, 2009 and 2008 (in thousands, except share information) Accumulated Number of Number of Additional Other Common Treasury Paid-In Retained Comprehensive Shares Shares ...

  • Page 111
    MetroPCS Communications, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Years Ended December 31, 2010, 2009 and 2008 (in thousands) 2010 CASH FLOWS FROM OPERATING ACTIVITIES: Net income...Adjustments to reconcile net income to net cash provided by operating activities: ...

  • Page 112
    ...business enterprises report information about operating segments in annual financial statements. At December 31, 2010, 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 113
    ... values of investments are based on quoted market prices as of the end of the reporting period (See Note 4). Inventories Substantially all of the Company's inventories are stated at the lower of average cost or market. Inventories consist mainly of handsets that are available for sale to customers...

  • Page 114
    ... years ended December 31, 2010, 2009 and 2008, the Company capitalized interest in the amount of $24.5 million, $37.5 million and $64.2 million, respectively. Software Costs In accordance with ASC 350 (Topic 350, "Intangibles - Goodwill and Other"), certain costs related to the purchase of internal...

  • Page 115
    ... and quality of market credit and liquidity. Long-term investments includes the fair value of the Company's interest rate protection agreements that are in an asset position as of December 31, 2010. Revenues and Cost of Service The Company's wireless services are provided on a month-to-month basis...

  • Page 116
    ...its customers for those service plans that do not include taxes or regulatory fees, the Company reports these regulatory fees on a gross basis in service revenues and cost of service on the accompanying consolidated statements of income and comprehensive income. For the years ended December 31, 2010...

  • Page 117
    ...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 to be taken...

  • Page 118
    ...During the year ended December 31, 2010, the Company revised cost estimates used to determine the fair value of its asset retirement obligations resulting in a $13.0 million reduction in the liability and related asset. Earnings per Share Basic earnings per share ("EPS") are based upon the weighted...

  • Page 119
    ...'s financial condition, results of operations or cash flows. 3. Asset Acquisition: On October 14, 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...

  • Page 120
    ... to Consolidated Financial Statements December 31, 2010, 2009 and 2008 5. 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...

  • Page 121
    ... into Income (Effective Portion) 2010 (28,696) $ 2009 (54,334) $ 2008 (19,406) Derivatives in ASC 815 Cash Flow Hedging Relationships Interest rate protection agreements Interest expense 6. Intangible Assets: The changes in the carrying value of intangible assets during the years ended December...

  • Page 122
    MetroPCS Communications, Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 2010, 2009 and 2008 Massachusetts/New Hampshire/Rhode Island/Vermont Economic Area. Other Spectrum Acquisitions During the year ended December 31, 2009, the Company closed on various agreements for...

  • Page 123
    ... to 89.50% of the principal amount of such New 9¼% Senior Notes. On September 21, 2010, Wireless completed a cash tender offer to purchase $313.1 million of outstanding aggregate principal amount of the Initial Notes and Additional Notes at a price equal to 104.625% for total cash consideration of...

  • Page 124
    ...charge coverage ratios. The interest rate on the outstanding debt under the Senior Secured Credit Facility is variable. The rate as of December 31, 2010 was 4.597%, which includes the impact of our interest rate protection agreements (See Note 5). During the year ended December 31, 2010, the Company...

  • Page 125
    ... or less. Included in the Company's short-term investments are 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. Fair value is determined based on observable quotes from banks and...

  • Page 126
    ... as reported in impairment loss on investment securities in the consolidated statements of income and comprehensive income. The fair value of the Company's long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for...

  • Page 127
    ...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 of wireless handsets at specified prices. The terms of...

  • Page 128
    ...agreements with network infrastructure and equipment providers with initial terms through the earlier to occur of September 2013 or the date which the Company has purchased a minimum number of certain products under the agreements. These agreements may be renewed at the Company's option on an annual...

  • Page 129
    ... settlement costs, which could materially adversely affect the Company's business, financial condition and results of operations. 12. Share-Based Payments: In accordance with ASC 718, the Company recognizes stock-based compensation expense in an amount equal to the fair value of share-based payments...

  • Page 130
    ...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, 2010, 2009 and 2008, and changes during the periods then ended, is...

  • Page 131
    ... during the year ended December 31, 2010 was $41.7 million. The Company has recognized $39.3 million, $43.9 million and $41.1 million of stock-based compensation expense related to stock option grants in the years ended December 31, 2010, 2009 and 2008, respectively, and an income tax benefit of...

  • Page 132
    ... on a monthly or quarterly basis thereafter. The Company determined the grantdate fair value of the restricted stock awards granted during the years ended December 31, 2010 and 2009 to be approximately $12.8 million and $20.1 million, respectively, based on the closing price of the Company's common...

  • Page 133
    MetroPCS Communications, Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 2010, 2009 and 2008 The Company contributed approximately $1.2 million and $0.9 million to the savings plan during the years ended December 31, 2010 and 2009, respectively. 14. Income Taxes: The ...

  • Page 134
    ...Company has approximately $0.1 million of alternative minimum tax credit carryforwards for state income tax purposes. These alternative minimum tax credits carryforward indefinitely. Financial statement deferred tax assets must be reduced by a valuation allowance if, based on the weight of available...

  • Page 135
    ... Subsidiaries Notes to Consolidated Financial Statements December 31, 2010, 2009 and 2008 Audits and Uncertain Tax Positions The Company files income tax returns in the U.S. federal and certain state jurisdictions and is subject to examinations by the Internal Revenue Service (the "IRS") and other...

  • Page 136
    ... to make certain permitted payments to MetroPCS under the terms of the Senior Secured Credit Facility and the indentures. During the quarter ended December 31, 2010, there was a change to the guarantor structure of the Company's debt. Prior to December 2010, Royal Street Communications and MetroPCS...

  • Page 137
    ... Financial Statements December 31, 2010, 2009 and 2008 condensed consolidating statements of income for the years ended December 31, 2010, 2009 and 2008, and condensed consolidating statements of cash flows for the years ended December 31, 2010, 2009 and 2008 of the parent company (MetroPCS...

  • Page 138
    MetroPCS Communications, Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 2010, 2009 and 2008 Condensed Consolidated Balance Sheet As of December 31, 2009 Parent CURRENT ASSETS: Cash and cash equivalents ...Short-term investments ...Deferred charges ...Current receivable...

  • Page 139
    MetroPCS Communications, Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 2010, 2009 and 2008 Condensed Consolidated Statement of Income Year Ended December 31, 2010 Parent REVENUES: Total Revenues ...$ OPERATING EXPENSES: Cost of revenues ...Selling, general and ...

  • Page 140
    MetroPCS Communications, Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 2010, 2009 and 2008 Condensed Consolidated Statement of Income Year Ended December 31, 2008 Parent REVENUES: Total Revenues ...$ OPERATING EXPENSES: Cost of revenues ...Selling, general and ...

  • Page 141
    ...Condensed Consolidated Statement of Cash Flows Year Ended December 31, 2008 Parent Issuer Guarantor Subsidiaries Eliminations Consolidated (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net cash (used in) provided by operating activities ...$ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of...

  • Page 142
    ... statements of income and comprehensive income. The Company had the following transactions with this related-party (in millions): Year Ended December 31, 2009 2008 2010 Fees received by the Company as compensation for providing access to the Company's line information database /calling name data...

  • Page 143
    ...Subsidiaries Notes to Consolidated Financial Statements December 31, 2010, 2009 and 2008 2010 Year Ended December 31, 2009 2008 Operating lease payments and related expenses included in cost of service ...$ Capital lease maintenance expenses included in cost of service ...DAS equipment depreciation...

  • Page 144
    MetroPCS Communications, Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 2010, 2009 and 2008 March 31, 2010 Three Months Ended June 30, September 30, 2010 2010 December 31, 2010 Total revenues ...$ Income from operations ...Net income ...Net income per common share - ...

  • Page 145
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  • Page 146
    ...of the Company's 2010 Annual Report on Form 10-K filed with the SEC on March 1, 2011 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 147
    ... Baker Botts L.L.P., Dallas Stock Symbol New York Stock Exchange: PCS MetroPCS Management Roger D. Linquist Chairman, President & Chief Executive Officer Thomas C. Keys Chief Operating Officer J. Braxton Carter Executive Vice President and Chief Financial Officer Mark A. Stachiw Executive Vice...

  • Page 148
    MetroPCS Communications, Inc. NYSE: PCS www.metropcs.com Corporate Headquarters 2250 Lakeside Blvd. Richardson, TX 75082