Metro PCS 2011 Annual Report Download - page 120

Download and view the complete annual report

Please find page 120 of the 2011 Metro PCS annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 148

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148

MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
F-14
In October 2010, Wireless entered into three separate two-year interest rate protection agreements to manage its interest
rate risk exposure under its Senior Secured Credit Facility. These agreements were effective on February 1, 2012 and cover a
notional amount of $950.0 million and effectively convert this portion of Wireless’ variable rate debt to fixed rate debt at a
weighted average annual rate of 4.908%. The monthly interest settlement periods began on February 1, 2012. These agreements
expire on February 1, 2014.
In April 2011, Wireless entered into three separate three-year interest rate protection agreements to manage its interest
rate risk exposure under its Senior Secured Credit Facility. These agreements were effective on April 15, 2011 and cover a
notional amount of $450.0 million and effectively convert this portion of Wireless’ variable rate debt to fixed rate debt at a
weighted average annual rate of 5.242%. The monthly interest settlement periods began on April 15, 2011. These agreements
expire on April 15, 2014.
Interest rate protection agreements are entered into to manage interest rate risk associated with Wireless’ variable-rate
borrowings under the Senior Secured Credit Facility. The interest rate protection agreements have been designated as cash flow
hedges. If a derivative is designated as a cash flow hedge and the hedging relationship qualifies for hedge accounting under the
provisions of ASC 815 (Topic 815, “Derivatives and Hedging”), the effective portion of the change in fair value of the
derivative is recorded in accumulated other comprehensive income (loss) and reclassified to interest expense in the period in
which the hedged transaction affects earnings. The ineffective portion of the change in fair value of a derivative qualifying for
hedge accounting is recognized in earnings in the period of the change. For the year ended December 31, 2011, the change in
fair value did not result in ineffectiveness.
At the inception of the cash flow hedges and quarterly thereafter, the Company performs an assessment to determine
whether changes in the fair values or cash flows of the derivatives are deemed highly effective in offsetting changes in the fair
values or cash flows of the hedged transaction. If at any time subsequent to the inception of the cash flow hedges, the
assessment indicates that the derivative is no longer highly effective as a hedge, the Company will discontinue hedge
accounting and recognize all subsequent derivative gains and losses in results of operations. The Company estimates that
approximately $11.6 million of net losses that are reported in accumulated other comprehensive loss at December 31, 2011 are
expected to be reclassified into earnings within the next 12 months.
Cross-default Provisions
Wireless’ interest rate protection agreements contain cross-default provisions to its Senior Secured Credit Facility.
Wireless’ Senior Secured Credit Facility allows interest rate protection agreements to become secured if the counterparty to the
agreement is a current lender under the facility. If Wireless were to default on the Senior Secured Credit Facility, it would
trigger these provisions, and the counterparties to the interest rate protection agreements could request immediate payment on
interest rate protection agreements in net liability positions, similar to their existing rights as a lender. There are no collateral
requirements in the interest rate protection agreements. The aggregate fair value of interest rate protection agreements with
cross-default provisions that are in a net liability position as of December 31, 2011 is $21.0 million.
Fair Values of Derivative Instruments
(in thousands) Liability Derivatives
As of December 31, 2011 As of December 31, 2010
Balance Sheet Location Fair Value Balance Sheet Location Fair Value
Derivatives designated as hedging
instruments under ASC 815
Interest rate protection agreements Long-term investments $ — Long-term investments $ 10,381
Interest rate protection agreements Other current liabilities (11,644) Other current liabilities (17,508)
Interest rate protection agreements Other long-term liabilities (9,371) Other long-term liabilities (1,182)
Total derivatives designated as
hedging instruments under ASC
815 $ (21,015) $ (8,309)