We have adopted the following material policies related to our executive compensation program:
SHARES ELIGIBLE FOR FUTURE SALE
Prior to thisour initial public offering in April 2007, there hashad been no public market for any class of our capital stock, and a significant public market for our common stock may not develop or be sustained after this offering.stock. Future sales of significant amounts of our capital stock, including shares of our outstanding stock and shares of our stock issued upon exercise of outstanding options, in the public market after thisthe initial public offering, or the perception that such sales could occur, could adversely affect the prevailing market price of our common stock and could impair our future ability to raise capital through the sale of our equity securities.
Sale of Restricted Shares andLock-Up Agreements
UponAs of the closing of thisthe initial public offering on April 24, 2007, we will have outstanding 346,248,461346,643,770 shares of common stock based upon our shares outstanding as of March 31, 2007, and after giving effect to the conversion of all shares of our Series D preferred stock and Series E preferred stock as well as the exercise of 1,093,4521,013,739 options by the selling stockholders as identified in this prospectus. See “Description of Capital Stock.”
the registration statement onForm S-1 in connection with the initial public offering.
Of these shares, the 50,000,00057,500,000 shares of common stock sold in thisour initial public offering will be freely tradable without restriction under the Securities Act, unless purchased by affiliates of our company, as that term is defined in Rule 144 under the Securities Act, and after the expiration of the 180 daylock-up period, and an additional approximately 90,000,000 shares will be freely tradable pursuant to Rule 144(k) under the Securities Act.
All sharesMost holders of our common stock are held by holders who are subjectand options to a stockholders agreement, andpurchase common stock, including our executive officers and directors, whoimmediately prior to our initial public offering are not stockholders will be subject to alock-up agreement, pursuant to which, subject to certain exceptions, these holders executive officers and directors have agreed not to sell or otherwise dispose of their shares of common stock or any securities convertible into or exchangeable for shares of common stock for a period of 180 days after the date of this prospectus.our initial public offering. Bear, Stearns & Co. Inc., as a representative of the underwriters for our initial public offering may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to thelock-up agreements. See “Underwriting.”
Rule 144
In general, Rule 144 allows a stockholder (or stockholders where shares are aggregated), including an affiliate, who has beneficially owned shares of our common stock for at least one year and who files a Form 144 with the SEC, to sell, within any three month period commencing 90 days after the date of thisthe prospectus relating to our initial public offering, a number of those shares that does not exceed the greater of:
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| | • | 1.0% of the number of then outstanding shares of common stock, which will equal approximately 3,462,485 shares after the consummation of this offering;stock; or |
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| | • | the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of the Form 144 with respect to such sale. |
Approximately 100,098,281100,000,000 shares of our common stock will become available for sale, subject to the volume limitations of Rule 144, after the expiration of thelock-up period. The remaining shares of our common stock will become available for sale, subject to the volume limitation of Rule 144, at various times after the expiration of thelock-up period and upon expiration of the one-year holding periods required by Rule 144.
Sales under Rule 144, however, are subject to specific manner of sale provisions, notice requirements, and the availability of current public information about us. We cannot estimate the number of shares of common stock our existing stockholders will sell under Rule 144, as this will depend on the market price for our common stock, the personal circumstances of the stockholders and other factors.
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Rule 144(k)
Under Rule 144(k), in general, a stockholder who has beneficially owned shares of our common stock for at least two years and who is not deemed to have been an affiliate of our company at any time during the
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immediately preceding 90 days may sell shares without complying with the manner of sale provisions, notice requirements, public information requirements, or volume limitations of Rule 144. Affiliates of our company, however, must always sell pursuant to Rule 144, even after the otherwise applicable Rule 144(k) holding periods have been satisfied.
Rule 701
Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required to wait until 90 days after the effective date of our Registration Statement on Form 10, or March 5, 2007, before selling such shares pursuant to Rule 701.
Registration Rights
The stockholder parties to our registration rights agreement that will become effective upon consummation of this offering,Registration Rights Agreement, who collectively hold 295,155,009 shares of common stock as of March 31, 2007, will beare entitled to certain rights with respect to the registration of the sale of such shares under the Securities Act. Under the terms of the registration rights agreement,Registration Rights Agreement, if we propose to register any of our securities under the Securities Act, either for our own account or for the account of other security holders exercising registration rights, such holders are entitled to notice of such registration and are entitled to include shares in the registration. Stockholders benefiting from these rights may also require us to file a registration statement under the Securities Act at our expense with respect to their shares of common stock, and we are required to use our best efforts to effect such registration. Further, these stockholders may require us to file additional registration statements onForm S-3 at our expense. These rights are subject to certain conditions and limitations, among them the exclusion from registration of any shares that could be sold pursuant to Rule 144(k) as well as the rights of underwriters to limit the number of shares included in such registration. All stockholder parties to our registration rights agreementRegistration Rights Agreement shall not sell or otherwise dispose of their securities for a period of 180 days after our initial public offering.
By exercising their registration rights and causing a large number of shares to be sold in the public market, these holders could cause the market price of our common stock to decline. See “Description of Capital Stock — Registration Rights Agreement”
Options
In addition to the shares of our common stock outstanding immediately after thisour initial public offering, as of March 31, 2007, there were outstanding options to purchase 22,800,81022,857,131 shares of our common stock.stock, including options that are subject to the rescission offer. An additional 25,767,972 shares of common stock have been reserved for issuance pursuant to our equity compensation plans.
Equity Compensation Plans.
As soon as practicable, we intend to fileWe filed a registration statement onForm S-8 under the Securities Act covering shares of our common stock issued or reserved for issuance under our equity compensation plans.Equity Compensation Plans. Accordingly, shares of our common stock registered under such registration statement will be available for sale in the open market upon exercise by the holders, subject to vesting restrictions with us, contractuallock-up restrictionsand/or market stand-off provisions applicable to each option agreement that prohibit the sale or other disposition of the shares of common stock underlying the options for a period of 180 days after the date of this prospectusthe initial public offering without the prior written consent from us or our underwriters.
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MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS FORNON-U.S. HOLDERS
The following is a discussion of the material U.S. federal income and estate tax consequences of the acquisition, ownership and disposition of our common stock purchased pursuant to this offering by a stockholder that, for U.S. federal income tax purposes, is not a “U.S. person,” as we define that term below. A beneficial owner of our common stock who is not a U.S. person is referred to below as a“non-U.S. holder.” This discussion is based upon current provisions of the Internal Revenue Code of 1986, as amended, or the Code, Treasury regulations promulgated thereunder, judicial opinions, administrative pronouncements and published rulings of the U.S. Internal Revenue Service, (or the IRS) all as in effect as of the date of this prospectus. These authorities may be changed, possibly retroactively, resulting in U.S. federal tax consequences different from those discussed below. We have not sought, and will not seek, any ruling from the IRS or opinion of counsel with respect to the statements made in this discussion, and there can be no assurance that the IRS will not take a position contrary to such statements or that any such contrary position taken by the IRS would not be sustained.
This discussion is limited tonon-U.S. holders who purchase our common stock issued pursuant to this offering and who hold our common stock as a capital asset (generally, property held for investment). This discussion also does not address the tax considerations arising under the laws of any foreign, state or local jurisdiction, or under United States federal estate or gift tax laws (except as specifically described below). In addition, this discussion does not address tax considerations that may be applicable to an investor’s particular circumstances or to investors that may be subject to special tax rules, including, without limitation:
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| • | banks, insurance companies or other financial institutions; |
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| • | U.S. expatriates; |
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| • | tax-exempt organizations; |
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| • | tax-qualified retirement plans; |
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| • | dealers in securities or currencies; |
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| • | traders in securities that elect to use amark-to-market method of accounting for their securities holdings; or |
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| • | persons that will hold common stock as a position in a hedging transaction, “straddle” or “conversion transaction” for tax purposes. |
If a partnership (including any entity treated as a partnership for U.S. federal income tax purposes) is a stockholder, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A stockholder that is a partnership, and partners in such partnership, are encouraged to consult their own tax advisors regarding the tax consequences of the purchase, ownership and disposition of our common stock.
For purposes of this discussion, a U.S. person means any one of the following:
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| • | a citizen or resident of the United States; |
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| • | a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) or partnership (including any entity treated as a partnership for U.S. federal income tax purposes) created or organized under the laws of the United States or of any political subdivision of the United States; |
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| • | an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
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| • | a trust, (i) the administration of which is subject to the primary supervision of a U.S. court and one or more U.S. persons have the authority to control all substantial decisions of the trust, or other trusts considered U.S. persons for U.S. federal income tax purposes, or (ii) that has a valid election in effect to be treated as a U.S. person. |
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You are urged to consult your tax advisor with respect to the application of the U.S. federal income tax laws to your particular situation as well as any tax consequences arising under the federal estate or gift tax rules or under the laws of any state, local, foreign or other taxing jurisdiction or under any applicable tax treaty.
Dividends
If distributions are paid on shares of our common stock, these distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent a distribution exceeds our current and accumulated earnings and profits, it will constitute a return of capital that is applied against and reduces, but not below zero, your adjusted tax basis in our common stock. Any remainder will constitute gain on the common stock and will be treated as described under “Gain on Disposition of Common Stock,” below. Dividends paid to anon-U.S. holder will generally be subject to withholding of U.S. federal income tax at the rate of 30% or such lower rate as may be specified by an applicable income tax treaty. If the dividend is effectively connected with thenon-U.S. holder’s conduct of a trade or business in the United States or, if a tax treaty applies, attributable to a U.S. permanent establishment maintained by thenon-U.S. holder, the dividend will not be subject to any withholding tax (provided specific certification requirements are met, as described below) but will be subject to U.S. federal income tax imposed on net income on the same basis that applies to U.S. persons generally. A corporate stockholder under certain circumstances also may be subject to a 30% (or such lower rate as may be specified by an applicable income tax treaty) branch profits tax on such effectively connected dividend income, connected earnings and profits for the taxable year.
In order to claim the benefit of a tax treaty or to claim exemption from withholding because the income is effectively connected with the conduct of a trade or business in the United States, anon-U.S. holder must provide a properly executed IRSForm W-8BEN for treaty benefits orW-8ECI for effectively connected income, or such successor forms as the IRS designates, prior to the payment of dividends. These forms must be periodically updated.Non-U.S. holders may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund.
Gain on Disposition of Common Stock
Anon-U.S. holder will generally not be subject to U.S. federal income tax, including by way of withholding, on gain recognized on a sale or other disposition of our common stock unless any one of the following is true:
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| • | the gain is effectively connected with thenon-U.S. holder’s conduct of a trade or business in the U.S. or, if a tax treaty applies, attributable to a U.S. permanent establishment maintained by suchnon-U.S. holder; |
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| • | thenon-U.S. holder is a nonresident alien individual present in the United States for 183 days or more in the taxable year of the disposition and certain other requirements are met; or |
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| • | we are a “United States real property holding corporation” or “USRPHC” for U.S. federal income tax purposes at any time during the shorter of the period during which you hold our common stock or the five-year period ending on the date you dispose of our common stock and either (i) thenon-U.S. holder has not held more than 5% of our outstanding common stock at any time during such period, or (ii) our common stock ceases to be regularly traded on an established securities market. |
We believe that we are not currently and will not become a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our United States real property interests relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future.
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Unless an applicable treaty provides otherwise, gain described in the first bullet point above will be subject to the U.S. federal income tax imposed on net income on the same basis that applies to U.S. persons generally but will generally not be subject to withholding. Corporate stockholders also may be subject to a branch profits tax on such gain. Gain described in the second bullet point above will be subject to a flat 30% U.S. federal income tax, which may be offset by U.S. source capital losses.Non-U.S. holders should consult any applicable income tax treaties that may provide for different rules.
U.S. Federal Estate Taxes
Common stock owned or treated as owned by an individual who at the time of death is anon-U.S. holder will be included in his or her estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding
Under U.S. Treasury regulations, we must report annually to the IRS and to eachnon-U.S. holder the amount of dividends paid to suchnon-U.S. holder and the tax withheld with respect to those dividends. These information reporting requirements apply even if withholding was not required because the dividends were effectively connected dividends or withholding was reduced or eliminated by an applicable tax treaty. Pursuant to an applicable tax treaty, that information may also be made available to the tax authorities in the country in which thenon-U.S. holder resides.
The United States generally imposes a backup withholding tax on dividends and specific other types of payments to certain non-corporate holders who fail to furnish certain required information. Backup withholding will generally not apply to payments of dividends made by us or our paying agents, in their capacities as such, to anon-U.S. holder of our common stock if the stockholder has provided the required certification that it is not a U.S. person or certain other requirements are met. Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the stockholder is a U.S. person.
Payments of the proceeds from a disposition or a redemption effected outside the United States by anon-U.S. holder of our common stock made by or through a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, information reporting, but not backup withholding, generally will apply to such a payment if the broker has certain connections with the United States unless the broker has documentary evidence in its records that the beneficial owner is anon-U.S. holder and specified conditions are met or an exemption is otherwise established.
Payment of the proceeds from a disposition by anon-U.S. holder of common stock made by or through the U.S. office of a broker is generally subject to information reporting and backup withholding unless thenon-U.S. holder certifies that it is not a U.S. person under penalties of perjury and such broker does not have actual knowledge, or reason to know, that the stockholder is a U.S. person, or thenon-U.S. holder otherwise establishes an exemption from information reporting and backup withholding.
Backup withholding is not an additional tax. Any amounts that we withhold under the backup withholding rules will be credited against thenon-U.S. holder’s U.S. actual federal income tax liability and, if the amounts so withheld exceed thenon-U.S. holder’s actual U.S. federal income tax liability, a refund may be obtained from the IRS if certain required information is furnished by thenon-U.S. holder to the IRS.Non-U.S. holders are urged to consult their own tax advisors regarding application of backup withholding in their particular circumstance and the availability of, and procedure for obtaining an exemption from, backup withholding under current Treasury regulations.
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UNDERWRITING
We and the selling stockholders intend to offer the shares of our common stock through the underwriters. Subject to the terms and conditions described in an underwriting agreement among us, the selling stockholders and Bear, Stearns & Co. Inc., Banc of America Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated, as joint book-running managers for this offering, we and the selling stockholders have agreed to sell to the underwriters, and the underwriters severally have agreed to purchase from us and the selling stockholders, the number of shares of common stock listed opposite their names below.
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| | Number of
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Underwriter
| | Shares | |
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Bear, Stearns & Co. Inc. | | | | |
Banc of America Securities LLC | | | | |
Merrill Lynch, Pierce, Fenner & Smith Incorporated | | | | |
Morgan Stanley & Co. Incorporated | | | | |
UBS Securities LLC | | | | |
Thomas Weisel Partners LLC | | | | |
Wachovia Capital Markets, LLC | | | | |
Raymond James | | | | |
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Total | | | 50,000,000 | |
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The underwriters have agreed to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.
We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
A prospectus in electronic format may be made available on Internet sites or through other online services maintained by one or more of the underwritersand/or selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. Certain underwriters may allocate a limited number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations.
Other than the prospectus in electronic format, information contained on any other website maintained by an underwriter or selling group member is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been endorsed by us or any underwriter or any selling group member in its capacity as underwriter or selling group member and should not be relied on by prospective investors in deciding whether to purchase any shares of common stock. The underwriters and selling group members are not responsible for information contained in Internet websites that they do not maintain.
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In addition, the underwriters may send prospectuses via email as a courtesy to certain of their customers to whom they are concurrently sending a prospectus hard copy.
Commissions and Discounts
The underwriters have advised us that they propose initially to offer the shares to the public at the public offering price on the cover page of this prospectus and to dealers at that price less a concession not in excess of $ per share. The underwriters may allow, and the dealers may reallow, a discount not in excess of $ per share to other dealers. After the public offering, the public offering price, concession and discount may be changed.
The following table shows the public offering price, underwriting discounts and proceeds before expenses to us.
The information assumes either no exercise or full exercise by the underwriters of their over-allotment option:
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| | | | Total |
| | Per
| | No
| | Full
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| | Share | | Exercise | | Exercise |
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Public offering price | | $ | | | | $ | | | | $ | | |
Underwriting discounts | | $ | | | | $ | | | | $ | | |
Proceeds, before expenses, to MetroPCS | | $ | | | | $ | | | | $ | | |
Proceeds, before expenses, to the selling stockholders | | $ | | | | $ | | | | $ | | |
The expenses of this offering, excluding the underwriting discount and commissions and related fees, are estimated at $3.0 million and are payable by us.
Over-Allotment Option
The selling stockholders have granted the underwriters an option exercisable for 30 days from the date of this prospectus to purchase a total of up to 7,500,000 additional shares at the public offering price less the underwriting discount. The underwriters may exercise this option solely to cover any over-allotments, if any, made in connection with this offering. To the extent the underwriters exercise this option in whole or in part, each will be obligated, subject to conditions contained in the underwriting agreement, to purchase a number of additional shares approximately proportionate to that underwriter’s initial commitment amount reflected in the above table.
If the underwriters sell more shares than could be covered by the over-allotment option, a naked short position would be created that can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.
No Sales of Similar Securities
We, each of our executive officers and directors and other holders of substantially all of our shares of common stock on an as adjusted basis, other than the shares to be issued in this offering, subject to limited exceptions, have agreed not to sell or transfer any shares of our common stock for 180 days after the date of this prospectus (which period could be extended by the underwriters for up to an additional 34 days under certain circumstances) without first obtaining the written consent of Bear, Stearns & Co. Inc.
The180-day period described in the preceding paragraph will be automatically extended if: (i) during the last 17 days of the180-day period we issue an earnings release or announce material news or a material event; or (ii) prior to the expiration of the180-day period, we announce that we will release earnings results during the16-day period following the last day of the180-day period, in either of which case the restrictions described
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in the preceding paragraph will continue to apply until the expiration of the18-day period beginning on the issuance of the earnings release or the announcement of the material news or material event.
Notwithstanding the foregoing, parties who will agree not to sell or transfer shares of our common stock during such period of time may transfer shares during such period, without the prior written consent of Bear, Stearns & Co. Inc.:
(i) as a bona fide gift or gifts;
(ii) to any trust for the direct or indirect benefit of such party or his or her immediate family; or
(iii) by will or intestate succession;
provided, however, it is a condition to any such transfer that the transferee (or trustee in the case of clause (ii) above) execute an agreement stating that such transferee (or trustee) is receiving and holding shares of our common stock subject to the provisions of the agreement pursuant to which these persons agreed not to sell or transfer shares of our common stock and there shall be no further transfer of shares of our common stock except in accordance with the terms of such agreement; provided, further, that in the case of any such transfer, no filing by any party under the Securities Act or the Securities Exchange Act of 1934 is required in connection with such transfer. The transfer restrictions set forth above do not apply to (i) the registration of the offer to and sale of our common stock as contemplated herein, including the sale of our common stock by any selling stockholder, (ii) any grant to, or exercise of any stock or other awards under our equity incentive plans, or (iii) the transfer, sale or offer to sell of not more than the number of shares sufficient to cover the exercise price and taxes of such employee’s options that will expire in connection with such termination following an involuntary termination of employment,providedthat any such sale, transfer or offer to sell does not occur before the earlier of (A) 85 days following the termination of employment and (B) the remainder of the180-day period.
Stabilization, Short Positions and Penalty Bids
The underwriters may engage in over-allotment, stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934.
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| • | Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. |
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| • | Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. |
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| • | Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. |
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| • | Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a syndicate covering transaction to cover syndicate short positions. |
Stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of our common stock to be higher than it would otherwise be in the absence of these transactions. These transactions may be effected on the New York Stock Exchange or otherwise and, if commenced, may be discontinued at any time.
Discretionary Shares
In connection with this offering, the underwriters may allocate shares to accounts over which they exercise discretionary authority. The underwriters do not expect to allocate shares to discretionary accounts in excess of 5% of the total number of shares in this offering.
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Sales in Other Jurisdictions
Each of the underwriters may arrange to sell shares in certain jurisdictions outside the United States through affiliates, either directly where they are permitted to do so or through affiliates.
Each of the underwriters has represented and agreed that:
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| • | it has not made or will not make an offer of shares to the public in the United Kingdom within the meaning of section 102B of the Financial Services and Markets Act 2000 (as amended) (FSMA) except to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities or otherwise in circumstances which do not require the publication by us of a prospectus pursuant to the Prospectus Rules of the Financial Services Authority (FSA); |
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| • | it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) to persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or in circumstances in which section 21 of FSMA does not apply to us; and |
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| • | it has complied with and will comply with all applicable provisions of FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom. |
The shares will not be offered, directly or indirectly, to the public in Switzerland and this prospectus does not constitute a public offering prospectus as that term is understood pursuant to article 652a or 1156 of the Swiss Federal Code of Obligations.
The shares (i) will not be offered or sold, directly or indirectly, to the public (appel public à l’épargne) in the Republic of France and (ii) offers and sales of shares in the Republic of France (a) will only be made to qualified investors (investisseurs qualifiés) as defined in, and in accordance with, Articles L411-1, L411-2 and D411-1 to D411-3 of the French Code monétaire et financier or (b) will be made in any other circumstances which do not require the publication by the issuer of a prospectus pursuant to Article L411-2 of the Code monétaire et financier andArticle 211-2 of the Règlement Général of the Autorité des marchés financiers.
Investors are informed that this prospectus has not been admitted to the clearance procedures of the Autorité des marchés financiers, and that any subsequent direct or indirect circulation to the public of the shares so acquired may not occur without meeting the conditions provided for in Articles L411-1, L411-2, L412-2 and L621-8 to L621-8-2 of the Code Monétaire et Financier.
In addition, the issuer represents and agrees that it has not distributed or caused to be distributed and will not distribute or cause to be distributed in the Republic of France, this prospectus or any other offering material relating to the shares other than to those investors (if any) to whom offers and sales of the shares in the Republic of France may be made as described above.
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date), it has not made and will not make an offer of shares to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of shares to the public in that Relevant Member State at any time:
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| • | to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; |
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| • | to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or |
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| • | in any other circumstances which do not require the publication by the issuer of a prospectus pursuant to Article 3 of the Prospectus Directive. |
For the purposes of this provision, the expression an “offer of shares to the public” in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
Other Relationships
Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us. They have received customary fees and commissions for these transactions. Also, in connection with the offering of our common stock by the selling stockholders hereunder, Bear, Stearns & Co. Inc. has agreed to facilitate a cashless exercise program for certain of our option holders pursuant to which it will receive a small commission from such option holder, in addition to the underwriting discount. In addition, Bear, Stearns & Co. Inc. and certain of its employees own, in the aggregate, less than 1% of our common stock.
In particular, (i) Bear, Stearns & Co. Inc. acted as lead arranger and joint book running manager under each of our former bridge credit facilities, as sole lead arranger and sole book runner under our former first and second lien secured credit agreements, as joint book running manager in connection with the private placement of our senior notes and as sole lead arranger and joint book runner under our senior secured credit facility, (ii) Bear Stearns Corporate Lending Inc., an affiliate of Bear, Stearns & Co. Inc., acted as a lender and as syndication agent and administrative agent under each of our former bridge credit facilities and our former first lien secured credit agreements, as a lender and syndication agent under our former second lien secured credit agreements and as syndication agent under our senior secured credit facility, (iii) Merrill Lynch, Pierce, Fenner & Smith Incorporated acted as documentation agent under our former first lien secured credit agreements, as joint book running manager in connection with the private placement of our senior notes and as joint book runner under our senior secured credit facility, (iv) Merrill Lynch Capital Corporation, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, acted as a joint book running manager and lender under each of our former bridge credit facilities, as a lender under our former first lien secured credit agreements and as administrative agent and lender under our former second lien secured credit agreements, (v) Bank of America, N.A., acted as issuing lender under our senior secured credit facility, (vi) Banc of America Bridge LLC, an affiliate of Banc of America Securities LLC, acted as joint book running manager and lender under each of our former bridge credit facilities, and (vii) Banc of America Securities LLC acted as joint book running manager in connection with the private placement of our senior notes.
Mr. Simmons, a director, is a Partner of Wachovia Capital Partners, the merchant banking arm of Wachovia Corporation. Wachovia Capital Markets LLC, an underwriter in this offering, is an affiliate of Wachovia Corporation. See “Underwriting.” An affiliate of Wachovia Capital Markets LLC and Wachovia Corporation also is one of our stockholders but is not a selling stockholder in this offering.
Offering Price Determination
Before this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiation between the underwriters and us. The principal factors to be considered in determining the public offering price include: the information set forth in this prospectus and otherwise available to the underwriters; the history and the prospects for the industry in which we will
191
compete; the ability of our management; the prospects for our future earnings; the present state of our development and our current financial condition; the general condition of the securities markets at the time of this offering; and the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies.
NOTICE TO FOREIGN INVESTORS
The Communications Act of 1934 includes provisions that authorize the FCC to restrict the level of ownership that foreign nationals or their representatives, a foreign government or its representative or any corporation organized under the laws of a foreign country may have in us. For a discussion of these and other FCC ownership restrictions, please see “Business — Ownership Restrictions.”
If a holder of our common stock acquires additional shares of common stock or otherwise is attributed with ownership of such shares that would cause us to violate FCC ownership restrictions, we may, at the option of our board of directors, redeem shares of common stock sufficient to eliminate the violation. In the event of a violation of the FCC’s foreign ownership restrictions, we must first redeem the stock of the foreign stockholder which most recently purchased its first shares of our stock. For a discussion of the redemption features of our common stock, including the prices at which we may redeem such stock, please see “Description of Capital Stock.”
LEGAL MATTERS
Certain legal matters in connection with this offeringrescission offer will be passed upon for us by Baker Botts L.L.P., Dallas, Texas, and Paul, Hastings, Janofsky & Walker LLP, Washington D.C. and for the underwriters by Latham & Watkins LLP, New York, New York.Texas.
162
EXPERTS
The consolidated financial statements of MetroPCS Communications, Inc. included in this prospectusoffering circular have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein (which expressexpresses an unqualified opinion and includes an explanatory paragraph regarding the Company’s change, as of January 1, 2006, in its method of accounting for employee stock-based compensation), and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
192
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement onForm S-1 under the Securities Act with respect to the options to purchase shares of common stock offered by this prospectus.we are offering to repurchase. In this prospectusoffering circular we refer to that registration statement, together with all amendments, exhibits and schedules to that registration statement, as “the registration statement.”
As is permitted by the rules and regulations of the SEC, this prospectus,offering circular, which is part of the registration statement, omits some information, exhibits, schedules and undertakings set forth in the registration statement. For further information with respect to us, and the securities offered by this prospectus,offering circular, please refer to the registration statement.
Following this offering,Additionally, we will be requiredare subject to the information and periodic reporting requirements of the Exchange Act, and, in accordance therewith, file current, quarterly and annualperiodic reports, proxy statements and other information with the SEC. You may read and copy thoseour current, quarterly and annual reports, proxy statements and other information at the public reference facility maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Copies of this material may also be obtained from the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. Information on the operation of the Public Reference Room may be obtained by calling the SEC at(800) 732-0330. The SEC maintains a Web site at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.
Additionally, on January 4, 2007 we filed a registration statement on Form 10 pursuant to Section 12(g) of the Securities Exchange Act of 1934. On March 5, 2007, this registration statement became effective and consequently we are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, and, in accordance therewith, will file periodic reports, proxy statements and other information with the SEC. Such periodic reports, proxy statements and other information will be available for inspection and copying at the public reference room and web site of the SEC referred to above.
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INDEX TO FINANCIAL STATEMENTS
| | | | | |
| | | Page |
| |
Audited Consolidated Financial Statements: | | | | |
| | | F-2 | |
| | | F-3 | |
| | | F-4 | |
| | | F-5 | |
| | | F-8 | |
| | | F-9 | |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
MetroPCS Communications, Inc.
Dallas, Texas
We have audited the accompanying consolidated balance sheets of MetroPCS Communications, Inc. and subsidiaries (the “Company”) as of December 31, 2006 and 2005, 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, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the consolidated financial statements, as of January 1, 2006, the Company changed its method of accounting for employee stock-based compensation.
/s/ Deloitte & Touche LLP
Dallas, Texas
March 16, 2007
F-2
MetroPCS Communications, Inc. and Subsidiaries
As of December 31, 2006 and 2005
(in thousands, except share and per share information)
| | | | | | | | | | | | | | |
| | | | | Unaudited
| | | | |
| | | | | Pro Forma
| | | | |
| | | 2006 | | 2006 | | 2005 | | | | | | | | | |
| | | | | (See Note 2) | | | | | 2006 | | 2005 | |
| |
CURRENT ASSETS: | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 161,498 | | | | | | | $ | 112,709 | | | $ | 161,498 | | | $ | 112,709 | |
| Short-term investments | | | 390,651 | | | | | | | | 390,422 | | | | 390,651 | | | | 390,422 | |
| Restricted short-term investments | | | 607 | | | | | | | | 50 | | | | 607 | | | | 50 | |
| Inventories, net | | | 92,915 | | | | | | | | 39,431 | | | | 92,915 | | | | 39,431 | |
| Accounts receivable (net of allowance for uncollectible accounts of $1,950 and $2,383 at December 31, 2006 and 2005, respectively) | | | 28,140 | | | | | | | | 16,028 | | | | 28,140 | | | | 16,028 | |
| Prepaid expenses | | | 33,109 | | | | | | | | 21,430 | | | | 33,109 | | | | 21,430 | |
| Deferred charges | | | 26,509 | | | | | | | | 13,270 | | | | 26,509 | | | | 13,270 | |
| Deferred tax asset | | | 815 | | | | | | | | 2,122 | | | | 815 | | | | 2,122 | |
| Other current assets | | | 24,283 | | | | | | | | 16,640 | | | | 24,283 | | | | 16,640 | |
| | | | | | | | | | | |
| Total current assets | | | 758,527 | | | | | | | | 612,102 | | | | 758,527 | | | | 612,102 | |
| Property and equipment, net | | | 1,256,162 | | | | | | | | 831,490 | | | | 1,256,162 | | | | 831,490 | |
| Restricted cash and investments | | | — | | | | | | | | 2,920 | | | | — | | | | 2,920 | |
| Long-term investments | | | 1,865 | | | | | | | | 5,052 | | | | 1,865 | | | | 5,052 | |
| FCC licenses | | | 2,072,885 | | | | | | | | 681,299 | | | | 2,072,885 | | | | 681,299 | |
| Microwave relocation costs | | | 9,187 | | | | | | | | 9,187 | | | | 9,187 | | | | 9,187 | |
| Other assets | | | 54,496 | | | | | | | | 16,931 | | | | 54,496 | | | | 16,931 | |
| | | | | | | | | | | |
| Total assets | | $ | 4,153,122 | | | | | | | $ | 2,158,981 | | | $ | 4,153,122 | | | $ | 2,158,981 | |
| | | | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | | | | | | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 325,681 | | | | | | | $ | 174,220 | | | $ | 325,681 | | | $ | 174,220 | |
| Current maturities of long-term debt | | | 16,000 | | | | | | | | 2,690 | | | | 16,000 | | | | 2,690 | |
| Deferred revenue | | | 90,501 | | | | | | | | 56,560 | | | | 90,501 | | | | 56,560 | |
| Other current liabilities | | | 3,447 | | | | | | | | 2,147 | | | | 3,447 | | | | 2,147 | |
| | | | | | | | | | | |
| Total current liabilities | | | 435,629 | | | | | | | | 235,617 | | | | 435,629 | | | | 235,617 | |
| Long-term debt, net | | | 2,580,000 | | | | | | | | 902,864 | | | | 2,580,000 | | | | 902,864 | |
| Deferred tax liabilities | | | 177,197 | | | | | | | | 146,053 | | | | 177,197 | | | | 146,053 | |
| Deferred rents | | | 22,203 | | | | | | | | 14,739 | | | | 22,203 | | | | 14,739 | |
| Redeemable minority interest | | | 4,029 | | | | | | | | 1,259 | | | | 4,029 | | | | 1,259 | |
| Other long-term liabilities | | | 26,316 | | | | | | | | 20,858 | | | | 26,316 | | | | 20,858 | |
| | | | | | | | | | | |
| Total liabilities | | | 3,245,374 | | | | | | | | 1,321,390 | | | | 3,245,374 | | | | 1,321,390 | |
| COMMITMENTS AND CONTINGENCIES (See Note 10) | | | | | | | | | | | | | | | | | | | | |
| SERIES D CUMULATIVE CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED STOCK, par value $0.0001 per share, 4,000,000 shares designated, 3,500,993 shares issued and outstanding at December 31, 2006 and 2005; Liquidation preference of $447,388 and $426,382 at December 31, 2006 and 2005, respectively | | | 443,368 | | | | — | | | | 421,889 | | | | 443,368 | | | | 421,889 | |
| SERIES E CUMULATIVE CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED STOCK, par value $0.0001 per share, 500,000 shares designated, 500,000 shares issued and outstanding at December 31, 2006 and 2005; Liquidation preference of $54,019 and $51,019 at December 31, 2006 and 2005, respectively | | | 51,135 | | | | — | | | | 47,796 | | | | 51,135 | | | | 47,796 | |
STOCKHOLDERS’ EQUITY: | | | | | | | | | | | | | | | | | | | | |
| Preferred stock, par value $0.0001 per share, 25,000,000 shares authorized at December 31, 2006 and 2005, 4,000,000 of which have been designated as Series D Preferred Stock and 500,000 of which have been designated as Series E Preferred Stock; no shares of preferred stock other than Series D & E Preferred Stock (presented above) issued and outstanding at December 31, 2006 and 2005 | | | — | | | | — | | | | — | | | | — | | | | — | |
| Common Stock, par value $0.0001 per share, 300,000,000 shares authorized, 157,052,097 and 155,327,094 shares issued and outstanding at December 31, 2006 and 2005, respectively | | | 16 | | | | 30 | | | | 15 | | | | 16 | | | | 15 | |
| Additional paid-in capital | | | 166,315 | | | | 660,803 | | | | 149,584 | | | | 166,315 | | | | 149,584 | |
| Deferred compensation | | | — | | | | — | | | | (178 | ) | | | — | | | | (178 | ) |
| Retained earnings | | | 245,690 | | | | 245,690 | | | | 216,702 | | | | 245,690 | | | | 216,702 | |
| Accumulated other comprehensive income | | | 1,224 | | | | 1,224 | | | | 1,783 | | | | 1,224 | | | | 1,783 | |
| | | | | | | | | | | | | |
| Total stockholders’ equity | | | 413,245 | | | | 907,747 | | | | 367,906 | | | | 413,245 | | | | 367,906 | |
| | | | | | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 4,153,122 | | | | | | | $ | 2,158,981 | | | $ | 4,153,122 | | | $ | 2,158,981 | |
| | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
MetroPCS Communications, Inc. and Subsidiaries
For the Years Ended December 31, 2006, 2005 and 2004
(in thousands, except share and per share information)
| | | | | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
| |
| REVENUES: | | | | | | | | | | | | |
| Service revenues | | $ | 1,290,947 | | | $ | 872,100 | | | $ | 616,401 | |
| Equipment revenues | | | 255,916 | | | | 166,328 | | | | 131,849 | |
| | | | | | | | | | | | | |
| Total revenues | | | 1,546,863 | | | | 1,038,428 | | | | 748,250 | |
| OPERATING EXPENSES: | | | | | | | | | | | | |
| Cost of service (exclusive of depreciation and amortization expense of $122,606, $81,196 and $57,572, shown separately below) | | | 445,281 | | | | 283,212 | | | | 200,806 | |
| Cost of equipment | | | 476,877 | | | | 300,871 | | | | 222,766 | |
| Selling, general and administrative expenses (exclusive of depreciation and amortization expense of $12,422, $6,699 and $4,629, shown separately below) | | | 243,618 | | | | 162,476 | | | | 131,510 | |
| Depreciation and amortization | | | 135,028 | | | | 87,895 | | | | 62,201 | |
| Loss (gain) on disposal of assets | | | 8,806 | | | | (218,203 | ) | | | 3,209 | |
| | | | | | | | | | | | | |
| Total operating expenses | | | 1,309,610 | | | | 616,251 | | | | 620,492 | |
| | | | | | | | | | | | | |
| Income from operations | | | 237,253 | | | | 422,177 | | | | 127,758 | |
| OTHER EXPENSE (INCOME): | | | | | | | | | | | | |
| Interest expense | | | 115,985 | | | | 58,033 | | | | 19,030 | |
| Accretion of put option in majority-owned subsidiary | | | 770 | | | | 252 | | | | 8 | |
| Interest and other income | | | (21,543 | ) | | | (8,658 | ) | | | (2,472 | ) |
| Loss (gain) on extinguishment of debt | | | 51,518 | | | | 46,448 | | | | (698 | ) |
| | | | | | | | | | | | | |
| Total other expense | | | 146,730 | | | | 96,075 | | | | 15,868 | |
| Income before provision for income taxes | | | 90,523 | | | | 326,102 | | | | 111,890 | |
| Provision for income taxes | | | (36,717 | ) | | | (127,425 | ) | | | (47,000 | ) |
| | | | | | | | | | | | | |
| Net income | | | 53,806 | | | | 198,677 | | | | 64,890 | |
| Accrued dividends on Series D Preferred Stock | | | (21,006 | ) | | | (21,006 | ) | | | (21,006 | ) |
| Accrued dividends on Series E Preferred Stock | | | (3,000 | ) | | | (1,019 | ) | | | — | |
| Accretion on Series D Preferred Stock | | | (473 | ) | | | (473 | ) | | | (473 | ) |
| Accretion on Series E Preferred Stock | | | (339 | ) | | | (114 | ) | | | — | |
| | | | | | | | | | | | | |
| Net income applicable to common stock | | $ | 28,988 | | | $ | 176,065 | | | $ | 43,411 | |
| | | | | | | | | | | | | |
| Net income | | $ | 53,806 | | | $ | 198,677 | | | $ | 64,890 | |
| Other comprehensive income: | | | | | | | | | | | | |
Unrealized losses onavailable-for-sale securities, net of tax | | | (1,211 | ) | | | (28 | ) | | | (240 | ) |
| Unrealized gains on cash flow hedging derivatives, net of tax | | | 1,959 | | | | 1,914 | | | | — | |
| Reclassification adjustment for gains and losses included in net income, net of tax | | | (1,307 | ) | | | 168 | | | | 41 | |
| | | | | | | | | | | | | |
| Comprehensive income | | $ | 53,247 | | | $ | 200,731 | | | $ | 64,691 | |
| | | | | | | | | | | | | |
| Net income per common share: (See Note 17) | | | | | | | | | | | | |
| Net income per common share — basic | | $ | 0.11 | | | $ | 0.71 | | | $ | 0.18 | |
| | | | | | | | | | | | | |
| Net income per common share — diluted | | $ | 0.10 | | | $ | 0.62 | | | $ | 0.15 | |
| | | | | | | | | | | | | |
| Weighted average shares: | | | | | | | | | | | | |
| Basic | | | 155,820,381 | | | | 135,352,396 | | | | 126,722,051 | |
| | | | | | | | | | | | | |
| Diluted | | | 159,696,608 | | | | 153,610,589 | | | | 150,633,686 | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Accumulated
| | | | |
| | | | | | | | | Additional
| | | | | | | | | | | | Other
| | | | |
| | | Number
| | | | | | Paid-In
| | | Subscriptions
| | | Deferred
| | | Retained
| | | Comprehensive
| | | | |
| | | of Shares | | | Amount | | | Capital | | | Receivable | | | Compensation | | | Earnings | | | Income (Loss) | | | Total | |
| |
BALANCE, December 31, 2003 | | | 110,159,094 | | | $ | 11 | | | $ | 78,414 | | | $ | (92 | ) | | $ | (4,154 | ) | | $ | (2,774 | ) | | $ | (72 | ) | | $ | 71,333 | |
| Exercise of Common Stock options | | | 635,928 | | | | — | | | | 416 | | | | — | | | | — | | | | — | | | | — | | | | 416 | |
| Exercise of Common Stock warrants | | | 19,501,020 | | | | 2 | | | | 42 | | | | — | | | | — | | | | — | | | | — | | | | 44 | |
| Reverse stock split — fractional shares redeemed | | | (261 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Accrued interest on subscriptions receivable | | | — | | | | — | | | | 6 | | | | (6 | ) | | | — | | | | — | | | | — | | | | — | |
| Deferred stock-based compensation | | | — | | | | — | | | | 9,606 | | | | — | | | | (9,606 | ) | | | — | | | | — | | | | — | |
| Amortization of deferred stock-based compensation expense | | | — | | | | — | | | | — | | | | — | | | | 10,429 | | | | — | | | | — | | | | 10,429 | |
| Accrued dividends on Series D Preferred Stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | (21,006 | ) | | | — | | | | (21,006 | ) |
| Accretion on Series D Preferred Stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | (473 | ) | | | — | | | | (473 | ) |
| Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 64,890 | | | | — | | | | 64,890 | |
Unrealized loss onavailable-for-sale securities, net of reclassification adjustment and tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (199 | ) | | | (199 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, December 31, 2004 | | | 130,295,781 | | | $ | 13 | | | $ | 88,484 | | | $ | (98 | ) | | $ | (3,331 | ) | | $ | 40,637 | | | $ | (271 | ) | | $ | 125,434 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
MetroPCS Communications, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity — (Continued)
For the Years Ended December 31, 2006, 2005 and 2004
(in thousands, except share information)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Accumulated
| | | | |
| | | | | | | | | Additional
| | | | | | | | | | | | Other
| | | | |
| | | Number
| | | | | | Paid-In
| | | Subscriptions
| | | Deferred
| | | Retained
| | | Comprehensive
| | | | |
| | | of Shares | | | Amount | | | Capital | | | Receivable | | | Compensation | | | Earnings | | | Income (Loss) | | | Total | |
| |
| Common Stock issued | | | 79,437 | | | | — | | | | 483 | | | | — | | | | — | | | | — | | | | — | | | | 483 | |
| Exercise of Common Stock options | | | 22,669,671 | | | | 2 | | | | 8,603 | | | | — | | | | — | | | | — | | | | — | | | | 8,605 | |
| Exercise of Common Stock warrants | | | 2,282,205 | | | | — | | | | 605 | | | | — | | | | — | | | | — | | | | — | | | | 605 | |
| Accrued interest on subscriptions receivable | | | — | | | | — | | | | 5 | | | | (5 | ) | | | — | | | | — | | | | — | | | | — | |
| Proceeds from repayment of subscriptions receivable | | | — | | | | — | | | | — | | | | 103 | | | | — | | | | — | | | | — | | | | 103 | |
| Forfeiture of unvested stock compensation | | | — | | | | — | | | | (2,887 | ) | | | — | | | | 2,887 | | | | — | | | | — | | | | — | |
| Deferred stock-based compensation | | | — | | | | — | | | | 2,330 | | | | — | | | | (2,330 | ) | | | — | | | | — | | | | — | |
| Amortization of deferred stock-based compensation expense | | | — | | | | — | | | | — | | | | — | | | | 2,596 | | | | — | | | | — | | | | 2,596 | |
| Accrued dividends on Series D Preferred Stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | (21,006 | ) | | | — | | | | (21,006 | ) |
| Accrued dividends on Series E Preferred Stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,019 | ) | | | — | | | | (1,019 | ) |
| Accretion on Series D Preferred Stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | (473 | ) | | | — | | | | (473 | ) |
| Accretion on Series E Preferred Stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | (114 | ) | | | — | | | | (114 | ) |
| Tax benefits from the exercise of Common Stock options | | | — | | | | — | | | | 51,961 | | | | — | | | | — | | | | — | | | | — | | | | 51,961 | |
| Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 198,677 | | | | — | | | | 198,677 | |
Unrealized losses onavailable-for-sale securities, net of tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (28 | ) | | | (28 | ) |
| Reclassification adjustment for losses included in net income, net of tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 168 | | | | 168 | |
| Unrealized gain on cash flow hedging derivative, net of tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,914 | | | | 1,914 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, December 31, 2005 | | | 155,327,094 | | | $ | 15 | | | $ | 149,584 | | | $ | — | | | $ | (178 | ) | | $ | 216,702 | | | $ | 1,783 | | | $ | 367,906 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
MetroPCS Communications, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity — (Continued)
For the Years Ended December 31, 2006, 2005 and 2004
(in thousands, except share information)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Accumulated
| | | | |
| | | | | | | | | Additional
| | | | | | | | | | | | Other
| | | | |
| | | Number
| | | | | | Paid-In
| | | Subscriptions
| | | Deferred
| | | Retained
| | | Comprehensive
| | | | |
| | | of Shares | | | Amount | | | Capital | | | Receivable | | | Compensation | | | Earnings | | | Income (Loss) | | | Total | |
| |
| Common Stock issued | | | 49,725 | | | | — | | | | 314 | | | | — | | | | — | | | | — | | | | — | | | | 314 | |
| Exercise of Common Stock options | | | 1,148,328 | | | | 1 | | | | 2,743 | | | | — | | | | — | | | | — | | | | — | | | | 2,744 | |
| Exercise of Common Stock warrants | | | 526,950 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Reversal of deferred compensation upon adoption of SFAS No. 123(R) | | | — | | | | — | | | | (178 | ) | | | — | | | | 178 | | | | — | | | | — | | | | — | |
| Stock-based compensation | | | — | | | | — | | | | 14,472 | | | | — | | | | — | | | | — | | | | — | | | | 14,472 | |
| Accrued dividends on Series D Preferred Stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | (21,006 | ) | | | — | | | | (21,006 | ) |
| Accrued dividends on Series E Preferred Stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | (3,000 | ) | | | — | | | | (3,000 | ) |
| Accretion on Series D Preferred Stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | (473 | ) | | | — | | | | (473 | ) |
| Accretion on Series E Preferred Stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | (339 | ) | | | — | | | | (339 | ) |
| Reduction due to the tax impact of Common Stock option forfeitures | | | — | | | | — | | | | (620 | ) | | | — | | | | — | | | | — | | | | — | | | | (620 | ) |
| Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 53,806 | | | | — | | | | 53,806 | |
Unrealized losses onavailable-for-sale securities, net of tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,211 | ) | | | (1,211 | ) |
| Unrealized gains on cash flow hedging derivatives, net of tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,959 | | | | 1,959 | |
| Reclassification adjustment for gains included in net income, net of tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,307 | ) | | | (1,307 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, December 31, 2006 | | | 157,052,097 | | | $ | 16 | | | $ | 166,315 | | | $ | — | | | $ | — | | | $ | 245,690 | | | $ | 1,224 | | | $ | 413,245 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-7
| | | | | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | |
| Net income | | $ | 53,806 | | | $ | 198,677 | | | $ | 64,890 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
| Depreciation and amortization | | | 135,028 | | | | 87,895 | | | | 62,201 | |
| Provision for uncollectible accounts receivable | | | 31 | | | | 129 | | | | 125 | |
| Deferred rent expense | | | 7,464 | | | | 4,407 | | | | 3,466 | |
| Cost of abandoned cell sites | | | 3,783 | | | | 725 | | | | 1,021 | |
| Stock-based compensation expense | | | 14,472 | | | | 2,596 | | | | 10,429 | |
| Non-cash interest expense | | | 6,964 | | | | 4,285 | | | | 2,889 | |
| Loss (gain) on disposal of assets | | | 8,806 | | | | (218,203 | ) | | | 3,209 | |
| Loss (gain) on extinguishment of debt | | | 51,518 | | | | 46,448 | | | | (698 | ) |
| (Gain) loss on sale of investments | | | (2,385 | ) | | | (190 | ) | | | 576 | |
| Accretion of asset retirement obligation | | | 769 | | | | 423 | | | | 253 | |
| Accretion of put option in majority-owned subsidiary | | | 770 | | | | 252 | | | | 8 | |
| Deferred income taxes | | | 32,341 | | | | 125,055 | | | | 44,441 | |
| Changes in assets and liabilities: | | | | | | | | | | | | |
| Inventories | | | (53,320 | ) | | | (5,717 | ) | | | (16,706 | ) |
| Accounts receivable | | | (12,143 | ) | | | (7,056 | ) | | | (714 | ) |
| Prepaid expenses | | | (6,538 | ) | | | (2,613 | ) | | | (1,933 | ) |
| Deferred charges | | | (13,239 | ) | | | (4,045 | ) | | | (2,727 | ) |
| Other assets | | | (9,231 | ) | | | (5,580 | ) | | | (2,243 | ) |
| Accounts payable and accrued expenses | | | 108,492 | | | | 41,204 | | | | (31,304 | ) |
| Deferred revenue | | | 33,957 | | | | 16,071 | | | | 10,317 | |
| Other liabilities | | | 3,416 | | | | (1,547 | ) | | | 2,879 | |
| | | | | | | | | | | | | |
| Net cash provided by operating activities | | | 364,761 | | | | 283,216 | | | | 150,379 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
| Purchases of property and equipment | | | (550,749 | ) | | | (266,499 | ) | | | (250,830 | ) |
| Change in prepaid purchases of property and equipment | | | (5,262 | ) | | | (11,800 | ) | | | — | |
| Proceeds from sale of property and equipment | | | 3,021 | | | | 146 | | | | — | |
| Purchase of investments | | | (1,269,919 | ) | | | (739,482 | ) | | | (158,672 | ) |
| Proceeds from sale of investments | | | 1,272,424 | | | | 386,444 | | | | 307,220 | |
| Change in restricted cash and investments | | | 2,406 | | | | (107 | ) | | | (1,511 | ) |
| Purchases of and deposits for FCC licenses | | | (1,391,586 | ) | | | (503,930 | ) | | | (87,025 | ) |
| Proceeds from sale of FCC licenses | | | — | | | | 230,000 | | | | — | |
| Microwave relocation costs | | | — | | | | — | | | | (63 | ) |
| | | | | | | | | | | | | |
| Net cash used in investing activities | | | (1,939,665 | ) | | | (905,228 | ) | | | (190,881 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
| Change in book overdraft. | | | 11,368 | | | | (565 | ) | | | 5,778 | |
| Payment upon execution of cash flow hedging derivative | | | — | | | | (1,899 | ) | | | — | |
| Proceeds from bridge credit agreements | | | 1,500,000 | | | | 540,000 | | | | — | |
| Proceeds from Senior Secured Credit Facility | | | 1,600,000 | | | | — | | | | — | |
Proceeds from 91/4% Senior Notes Due 2014 | | | 1,000,000 | | | | — | | | | — | |
| Proceeds from Credit Agreements | | | — | | | | 902,875 | | | | — | |
| Proceeds from short-term notes payable | | | — | | | | — | | | | 1,703 | |
| Debt issuance costs | | | (58,789 | ) | | | (29,480 | ) | | | (164 | ) |
| Repayment of debt | | | (2,437,985 | ) | | | (754,662 | ) | | | (14,215 | ) |
| Proceeds from minority interest in majority-owned subsidiary | | | 2,000 | | | | — | | | | 1,000 | |
| Proceeds from termination of cash flow hedging derivative | | | 4,355 | | | | — | | | | — | |
| Proceeds from repayment of subscriptions receivable | | | — | | | | 103 | | | | — | |
| Proceeds from issuance of preferred stock, net of issuance costs | | | — | | | | 46,662 | | | | 5 | |
| Proceeds from exercise of stock options and warrants | | | 2,744 | | | | 9,210 | | | | 460 | |
| | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 1,623,693 | | | | 712,244 | | | | (5,433 | ) |
| | | | | | | | | | | | | |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | 48,789 | | | | 90,232 | | | | (45,935 | ) |
CASH AND CASH EQUIVALENTS, beginning of period | | | 112,709 | | | | 22,477 | | | | 68,412 | |
| | | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of period | | $ | 161,498 | | | $ | 112,709 | | | $ | 22,477 | |
| | | | | | | | | | | | | |
The accompanying notes are integral part of these consolidated financial statements.
F-8
MetroPCS Communications, Inc. and Subsidiaries
December 31, 2006, 2005 and 2004
| |
| 1. | Organization and Business Operations: |
MetroPCS Communications, Inc. (“MetroPCS”), a Delaware corporation, together with its consolidated subsidiaries (the “Company”), is a wireless telecommunications carrier that offers wireless broadband personal communication services (“PCS”) as of December 31, 2006, primarily in the metropolitan areas of Atlanta, Dallas/Ft. Worth, Detroit, Miami, San Francisco, Sacramento and Tampa/Sarasota/Orlando. The Company launched service in the Dallas/Ft. Worth metropolitan area in March 2006, the Detroit metropolitan area in April 2006 and the Orlando metropolitan area in November 2006. The Company initiated the commercial launch of its first market in January 2002. The Company sells products and services to customers through Company-owned retail stores as well as through relationships with independent retailers.
On February 25, 2004, MetroPCS, Inc. formed MetroPCS, a new wholly-owned subsidiary. In July 2004, MetroPCS, Inc. merged with a new wholly-owned subsidiary of MetroPCS pursuant to a transaction that resulted in all of the capital stock (and the options and warrants related thereto) of MetroPCS, Inc. converting into capital stock (and options and warrants) of MetroPCS on aone-for-one basis, and MetroPCS, Inc. became a wholly-owned subsidiary of MetroPCS. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141,“Business Combinations,”and SFAS No. 154,“Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3,”the Company has accounted for the transactions as a change in reporting entity.
Prior to December 31, 2005, MetroPCS qualified as a very small business designated entity (“DE”). MetroPCS met the DE control requirements of the Federal Communications Commission (“FCC”) by issuing Class A Common Stock entitling its holders to 50.1% of the stockholders’ votes and the right to designate directors holding a majority of the voting power of MetroPCS’ Board of Directors. During 2005, MetroPCS was no longer required to maintain its eligibility as a DE. In accordance with the existing shareholder agreement, the Class A Common Stock automatically converted into common stock of MetroPCS on December 31, 2005 on aone-for-one basis and the holders of the Class A Common Stock relinquished affirmative control of MetroPCS (See Note 13).
On November 24, 2004, MetroPCS, through its wholly-owned subsidiaries and C9 Wireless, LLC, an independent third-party, formed a limited liability company called Royal Street Communications, LLC (“Royal Street Communications”), to bid on spectrum auctioned by the FCC in Auction No. 58. The Company owns 85% of the limited liability company member interest of Royal Street Communications, but may only elect two of the five members of Royal Street Communications’ management committee (See Note 3). The consolidated financial statements include the balances and results of operations of MetroPCS and its wholly-owned subsidiaries as well as the balances and results of operations of Royal Street Communications and its wholly-owned subsidiaries (collectively, “Royal Street”). The Company consolidates its interest in Royal Street in accordance with Financial Accounting Standards Board (“FASB”) InterpretationNo. 46-R,“Consolidation of Variable Interest Entities,”(“FIN 46(R)”). Royal Street qualifies as a variable interest entity under FIN 46(R) because the Company is the primary beneficiary of Royal Street and will absorb all of Royal Street’s expected losses. The redeemable minority interest in Royal Street is included in long-term liabilities. All intercompany accounts and transactions between the Company and Royal Street have been eliminated in the consolidated financial statements.
On March 14, 2007, the Company’s Board of Directors approved a 3 for 1 stock split of the Company’s common stock effected by means of a stock dividend of two shares of common stock for each share of common stock issued and outstanding on that date. All share, per share and conversion amounts relating to common stock and stock options included in the accompanying consolidated financial statements have been retroactively adjusted to reflect the stock split.
F-9
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
common stock and stock options included in the accompanying consolidated financial statements have been retroactively adjusted to reflect the stock split.
| |
| 2. | Summary of Significant Accounting Policies: |
Consolidation
The accompanying consolidated financial statements include the balances and results of operations of MetroPCS and its wholly- and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Unaudited Pro Forma Presentation
The unaudited pro forma balance sheet data presented as of December 31, 2006 reflects the conversion of all outstanding shares of preferred stock as of that date into 148,785,393 shares of common stock, which will occur upon closing of the proposed initial public offering, as if the conversion had occurred on December 31, 2006. The unaudited pro forma information reflects the conversion of all the outstanding shares of Series D Cumulative Convertible Redeemable Participating Preferred Stock, par value of $0.0001 per share (“Series D Preferred Stock”) and Series E Cumulative Convertible Redeemable Participating Preferred Stock, par value $0.0001 per share, (“Series E Preferred Stock”) in accordance with the terms of their respective purchase agreements. The Series D Preferred Stock, including the accrued but unpaid dividends, is convertible into common stock at $3.13 per share. The Series E Preferred Stock, including the accrued but unpaid dividends, is convertible into common stock at $9.00 per share. Upon closing of the proposed initial public offering, the Company’s authorized capital stock will consist of 1,000,000,000 shares of common stock, par value $0.0001 per share, and 100,000,000 shares of preferred stock, par value $0.0001 per share.
Operating Segments
SFAS No. 131“Disclosure About Segments of an Enterprise and Related Information,”(“SFAS No. 131”), establishes standards for the way that public business enterprises report information about operating segments in annual financial statements. At December 31, 2006, the Company had eight operating segments based on geographic regions within the United States: Atlanta, Dallas/Ft. Worth, Detroit, Miami, San Francisco, Sacramento, Tampa/Sarasota/Orlando, and Los Angeles. The Company aggregates its operating segments into two reportable segments: Core Markets and Expansion Markets (See Note 18).
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. The most significant of such estimates used by the Company include:
| | |
| | • | allowance for uncollectible accounts receivable; |
| |
| | • | valuation of inventories; |
| |
| | • | estimated useful life of assets; |
F-10
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
| | |
| | • | impairment of long-lived assets and indefinite-lived assets; |
| |
| | • | likelihood of realizing benefits associated with temporary differences giving rise to deferred tax assets; |
| |
| | • | reserves for uncertain tax positions; |
| |
| | • | estimated customer life in terms of amortization of certain deferred revenue; |
| |
| | • | valuation of common stock; and |
| |
| | • | stock-based compensation expense. |
Derivative Instruments and Hedging Activities
The Company accounts for its hedging activities under SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities,”as amended (“SFAS No. 133”). The standard requires the Company to recognize all derivatives on the consolidated balance sheet at fair value. Changes in the fair value of derivatives are to be recorded each period in earnings or on the accompanying consolidated balance sheets in accumulated other comprehensive income depending on the type of hedged transaction and whether the derivative is designated and effective as part of a hedged transaction. Gains or losses on derivative instruments reported in accumulated other comprehensive income must be reclassified to earnings in the period in which earnings are affected by the underlying hedged transaction and the ineffective portion of all hedges must be recognized in earnings in the current period. The Company’s use of derivative financial instruments is discussed in Note 5.
F-10
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Cash and Cash Equivalents
The Company includes as cash and cash equivalents (i) cash on hand, (ii) cash in bank accounts, (iii) investments in money market funds, and (iv) corporate bonds with an original maturity of 90 days or less.
Short-Term Investments
The Company’s short-term investments consist of securities classified asavailable-for-sale, which are stated at fair value. The securities include corporate and government bonds with an original maturity of over 90 days and auction rate securities. Unrealized gains and losses, net of related income taxes, foravailable-for-sale securities are reported in accumulated other comprehensive income, a component of stockholders’ equity, until realized. The estimated fair values of investments are based on quoted market prices as of the end of the reporting period (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 and independent retailers.
Allowance for Uncollectible Accounts Receivable
The Company maintains allowances for uncollectible accounts for estimated losses resulting from the inability of independent retailers to pay for equipment purchases and for amounts estimated to be
F-11
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
uncollectible from other carriers. The following table summarizes the changes in the Company’s allowance for uncollectible accounts (in thousands):
| | | | | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
| |
| Balance at beginning of period | | $ | 2,383 | | | $ | 2,323 | | | $ | 962 | |
| Additions: | | | | | | | | | | | | |
| Charged to costs and expenses | | | 31 | | | | 129 | | | | 125 | |
| Direct reduction to revenue and other accounts | | | 929 | | | | 1,211 | | | | 2,804 | |
| Deductions | | | (1,393 | ) | | | (1,280 | ) | | | (1,568 | ) |
| | | | | | | | | | | | | |
| Balance at end of period | | $ | 1,950 | | | $ | 2,383 | | | $ | 2,323 | |
| | | | | | | | | | | | | |
Prepaid Expenses
Prepaid expenses consisted of the following (in thousands):
| | | | | | | | | |
| | | 2006 | | | 2005 | |
| |
| Prepaid vendor purchases | | $ | 16,898 | | | $ | 11,801 | |
| Prepaid rent | | | 9,089 | | | | 6,347 | |
| Prepaid maintenance and support contracts | | | 1,846 | | | | 1,393 | |
| Prepaid insurance | | | 3,047 | | | | 1,020 | |
| Other | | | 2,229 | | | | 869 | |
| | | | | | | | | |
| Prepaid expenses | | $ | 33,109 | | | $ | 21,430 | |
| | | | | | | | | |
F-11
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Property and Equipment
Property and equipment, net, consisted of the following (in thousands):
| | | | | | | | | |
| | | 2006 | | | 2005 | |
| |
| Construction-in-progress | | $ | 193,856 | | | $ | 98,078 | |
| Network infrastructure | | | 1,329,986 | | | | 905,924 | |
| Office equipment | | | 31,065 | | | | 17,059 | |
| Leasehold improvements | | | 21,721 | | | | 16,608 | |
| Furniture and fixtures | | | 5,903 | | | | 4,000 | |
| Vehicles | | | 207 | | | | 118 | |
| | | | | | | | | |
| | | | 1,582,738 | | | | 1,041,787 | |
| Accumulated depreciation | | | (326,576 | ) | | | (210,297 | ) |
| | | | | | | | | |
| Property and equipment, net | | $ | 1,256,162 | | | $ | 831,490 | |
| | | | | | | | | |
Property and equipment are stated at cost. Additions and improvements are capitalized, while expenditures that do not enhance or extend the asset’s useful life are charged to operating expenses as incurred. When the Company sells, disposes of or retires property and equipment, the related gains or losses are included in operating results. Depreciation is applied using the straight-line method over the estimated useful lives of the assets once the assets are placed in service, which are ten years for network infrastructure assets,
F-12
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
three to seven years for office equipment, which includes computer equipment, three to seven years for furniture and fixtures and five years for vehicles. Leasehold improvements are amortized over the shorter of the remaining term of the lease and any renewal periods reasonably assured or the estimated useful life of the improvement. Maintenance and repair costs are charged to expense as incurred. The Company follows the provisions of SFAS No. 34,“Capitalization of Interest Cost,”with respect to its FCC licenses and the related construction of its network infrastructure assets. Capitalization commences with pre-construction period administrative and technical activities, which includes obtaining leases, zoning approvals and building permits, and ceases at the point in which the asset is ready for its intended use, which generally coincides with the market launch date. For the years ended December 31, 2006, 2005 and 2004, the Company capitalized interest in the amount of $17.5 million, $3.6 million and $2.9 million, respectively.
Restricted Cash and Investments
Restricted cash and investments consist of money market instruments and short-term investments. In general, these investments are pledged as collateral against letters of credit used as security for payment obligations and are presented as current or non-current assets based on the terms of the underlying letters of credit.
Revenues and Cost of Service
The Company’s wireless services are provided on amonth-to-month basis and are paid in advance. Revenues from wireless services are recognized as services are rendered. Amounts received in advance are recorded as deferred revenue. Long-term deferred revenue is included in other long-term liabilities. Cost of service generally includes direct costs of operating the Company’s networks.
Effective July 1, 2003, the Company adopted Emerging Issues Task Force (“EITF”)No. 00-21,“Accounting for Revenue Arrangements with Multiple Deliverables,”(“EITFNo. 00-21”). The consensus also supersedes certain guidance set forth in U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin Number 101,“Revenue Recognition in Financial Statements,” (“SAB 101”). SAB 101 was amended
F-12
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
in December 2003 by Staff Accounting Bulletin Number 104,“Revenue Recognition,”(“SAB 104”). The consensus addresses the accounting for arrangements that involve the delivery or performance of multiple products, servicesand/or rights to use assets. Revenue arrangements with multiple deliverables are divided into separate units of accounting and the consideration received is allocated among the separate units of accounting based on their relative fair values.
The Company determined that the sale of wireless services through its direct and indirect sales channels with an accompanying handset constitutes a revenue arrangement with multiple deliverables. Upon adoption of EITFNo. 00-21, the Company began dividing these arrangements into separate units of accounting, and allocating the consideration between the handset and the wireless service based on their relative fair values. Consideration received for the handset is recognized as equipment revenue when the handset is delivered and accepted by the customer. Consideration received for the wireless service is recognized as service revenues when earned.
Equipment revenues arise from the sale of handsets and accessories. Revenues and related costs from the sale of handsets in the direct retail locations are recognized at the point of sale. Handsets shipped to independent retailers are recorded as deferred revenue and deferred cost upon shipment by the Company and are recognized as equipment revenues and related costs when service is activated by its customers. Revenues
F-13
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
and related costs from the sale of accessories are recognized at the point of sale. The costs of handsets and accessories sold are recorded in cost of equipment.
Sales incentives offered without charge to customers related to the sale of handsets are recognized as a reduction of revenue when the related equipment revenue is recognized. At December 31, 2005, customers had the right to return handsets within 7 days or 60 minutes of usage, whichever occurred first. In January 2006, the Company expanded the terms of its return policy to allow customers the right to return handsets within 30 days or 60 minutes of usage, whichever occurs first.
Software Costs
In accordance with Statement of Position (“SOP”)98-1,“Accounting for Costs of Computer Software Developed or Obtained for Internal Use,”(“SOP 98-1”), certain costs related to the purchase of internal use software are capitalized and amortized over the estimated useful life of the software. For the years ended December 31, 2006, 2005 and 2004, the Company capitalized approximately $8.8 million, $2.7 million and $0.9 million, respectively, of purchased software costs underSOP 98-1, that is being amortized over a three-year life. The Company amortized computer software costs of approximately $2.8 million, $0.8 million and $0.4 million for the years ended December 31, 2006, 2005 and 2004, respectively. Capitalized software costs are classified as office equipment.
FCC Licenses and Microwave Relocation Costs
The Company operates broadband PCS networks under licenses granted by the FCC for a particular geographic area on spectrum allocated by the FCC for broadband PCS services. In addition, in November 2006, the Company acquired a number of advanced wireless services (“AWS”) licenses which can be used to provide services comparable to the PCS services provided by the Company, and other advanced wireless services. The PCS licenses included the obligation to relocate existing fixed microwave users of the Company’s licensed spectrum if the Company’s spectrum interfered with their systemsand/or reimburse other carriers (according to FCC rules) that relocated prior users if the relocation benefits the Company’s system. Additionally, the Company incurred costs related to microwave relocation in constructing its PCS network. The PCS and AWS licenses and microwave relocation costs are recorded at cost. Although PCS licenses are issued with a stated term, ten years in the case of the PCS licenses and fifteen years in the case of the AWS licenses, the renewal of PCS and AWS licenses is generally a routine matter without substantial cost and the
F-13
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Company has determined that no legal, regulatory, contractual, competitive, economic, or other factors currently exist that limit the useful life of its PCS and AWS licenses. As such, under the provisions of SFAS No. 142,“Goodwill and Other Intangible Assets,”the Company does not amortize PCS and AWS licenses and microwave relocation costs as they are considered to have indefinite lives and together represent the cost of the Company’s spectrum. The Company is required to test indefinite-lived intangible assets, consisting of PCS and AWS licenses and microwave relocation costs, for impairment on an annual basis based upon a fair value approach. Indefinite-lived intangible assets must be tested between annual tests if events or changes in circumstances indicate that the asset might be impaired. These events or circumstances could include a significant change in the business climate, including a significant sustained decline in an entity’s market value, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business, or other factors. The Company completed its impairment tests during the third quarter and no impairment has been recognized through December 31, 2006.
F-14
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred. Advertising costs totaled $46.4 million, $25.6 million and $22.2 million during the years ended December 31, 2006, 2005 and 2004, respectively.
Income Taxes
The Company records income taxes pursuant to SFAS No. 109,“Accounting for Income Taxes,”(“SFAS No. 109”). SFAS No. 109 uses an asset and liability approach to account for income taxes, wherein deferred taxes are provided for book and tax basis differences for assets and liabilities. In the event differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities result in deferred tax assets, a valuation allowance is provided for a portion or all of the deferred tax assets when there is sufficient uncertainty regarding the Company’s ability to recognize the benefits of the assets in future years.
The Company establishes reserves when, despite the belief that the Company’s tax return positions are fully supportable, the Company believes that certain positions it has taken might be challenged and ultimately might not be sustained. These potential exposures result from the varying applications of statutes, rules, regulations and interpretations. The Company’s tax contingency reserves contain assumptions based on past experiences and judgments about potential actions by taxing jurisdictions. While the Company adjusts these reserves in light of changing facts and circumstances, the ultimate resolution of these matters may be greater or less than the amount we have accrued. The Company’s effective tax rate includes the impact of reserve positions and changes to reserves that the Company considers appropriate. A number of years may elapse before a particular matter, for which the Company has established a reserve, is finally resolved. Unfavorable settlement of any particular issue may require the use of cash and may increase the effective rate in the year of resolution. Favorable resolution would be recognized as a reduction to the effective rate in the year of resolution. Other long-term liabilities included tax reserves in the amount of $19.5 million and $17.1 million as of December 31, 2006 and 2005, respectively. Accounts payable and accrued expenses included tax reserves in the amount of $4.4 and $4.1 million as of December 31, 2006 and 2005, respectively (See Note 16).
Other Comprehensive Income
Unrealized gains and losses onavailable-for-sale securities and cash flow hedging derivatives are reported in accumulated other comprehensive income as a separate component of stockholders’ equity until realized. Realized gains and losses onavailable-for-sale securities are included in interest and other income. Gains or losses on cash flow hedging derivatives reported in accumulated other comprehensive income are reclassified to earnings in the period in which earnings are affected by the underlying hedged transaction.
F-14
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Stock-Based Compensation
Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R),“Share-Based Payment,”(“SFAS No. 123(R)”), which replaces SFAS No. 123,“Accounting for Stock-Based Compensation,”(“SFAS No. 123”) and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,”and its related interpretations (“APB No. 25”). Prior to the first quarter of 2006, the Company measured stock-based compensation expense for its stock-based employee compensation plans using the intrinsic value method prescribed by APB No. 25, as allowed by SFAS No. 123. The Company elected the modified prospective transition method. Under that transition
F-15
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
method, compensation expense recognized beginning on that date includes: (a) compensation expense for all share-based payments granted prior to, but not yet vested as of, January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation expense for all share-based payments granted on or after January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). Although there was no material impact on the Company’s financial position, results of operations or cash flows from the adoption of SFAS No. 123(R), the Company reclassified all deferred equity compensation on the consolidated balance sheet to additional paid-in capital upon its adoption. The period prior to the adoption of SFAS No. 123(R) does not reflect any restated amounts.
The following table illustrates the effect on net income applicable to common stock (in thousands, except per share data) and net income per common share as if the Company had elected to recognize compensation costs based on the fair value at the date of grant for the Company’s common stock awards consistent with the provisions of SFAS No. 123 (See Note 14 for assumptions used in the fair value method):
| | | | | | | | | |
| | | 2005 | | | 2004 | |
| |
| Net income applicable to common stock — as reported | | $ | 176,065 | | | $ | 43,411 | |
| Add: Amortization of deferred compensation determined under the intrinsic method for employee stock awards, net of tax | | | 1,584 | | | | 6,036 | |
| Less: Total stock-based employee compensation expense determined under the fair value method for employee stock awards, net of tax | | | (3,227 | ) | | | (5,689 | ) |
| | | | | | | | | |
| Net income applicable to common stock — pro forma | | $ | 174,422 | | | $ | 43,758 | |
| | | | | | | | | |
| Basic net income per common share: | | | | | | | | |
| As reported | | $ | 0.71 | | | $ | 0.18 | |
| | | | | | | | | |
| Pro forma | | $ | 0.70 | | | $ | 0.18 | |
| | | | | | | | | |
| Diluted net income per common share: | | | | | | | | |
| As reported | | $ | 0.62 | | | $ | 0.15 | |
| | | | | | | | | |
| Pro forma | | $ | 0.62 | | | $ | 0.15 | |
| | | | | | | | | |
The pro forma amounts presented above may not be representative of the future effects on reported net income since the pro forma compensation expense is allocated over the periods in which options become exercisable, and new option awards may be granted each year.
Asset Retirement Obligations
The Company accounts for asset retirement obligations as determined by SFAS No. 143,“Accounting for Asset Retirement Obligations,”(“SFAS No. 143”) and FASB Interpretation No. 47,“Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143,”(“FIN No. 47”). SFAS No. 143 and FIN No. 47 address financial accounting and reporting for legal obligations associated with
F-15
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
the retirement of tangible long-lived assets and the related asset retirement costs. SFAS No. 143 requires that companies recognize the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the estimated useful life of the related asset. Upon settlement of
F-16
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement.
The Company is subject to asset retirement obligations associated with its cell site operating leases, which are subject to the provisions of SFAS No. 143 and FIN No. 47. Cell site lease agreements may contain clauses requiring restoration of the leased site at the end of the lease term to its original condition, creating an asset retirement obligation. This liability is classified under other long-term liabilities. Landlords may choose not to exercise these rights as cell sites are considered useful improvements. In addition to cell site operating leases, the Company has leases related to switch site, retail, and administrative locations subject to the provisions of SFAS No. 143 and FIN No. 47.
The following table summarizes the Company’s asset retirement obligation transactions (in thousands):
| | | | | | | | | |
| | | 2006 | | | 2005 | |
| |
| Beginning asset retirement obligations | | $ | 3,522 | | | $ | 1,893 | |
| Liabilities incurred | | | 2,394 | | | | 1,206 | |
| Accretion expense | | | 769 | | | | 423 | |
| | | | | | | | | |
| Ending asset retirement obligations | | $ | 6,685 | | | $ | 3,522 | |
| | | | | | | | | |
Earnings Per Share
Basic earnings per share (“EPS”) are based upon the weighted average number of common shares outstanding for the period. Diluted EPS is computed in the same manner as EPS after assuming issuance of common stock for all potentially dilutive equivalent shares, whether exercisable or not.
The Series D Preferred Stock and Series E Preferred Stock (collectively, the “preferred stock”) are participating securities, such that in the event a dividend is declared or paid on the common stock, the Company must simultaneously declare and pay a dividend on the preferred stock as if they had been converted into common stock. In accordance with EITF Issue03-6,“Participating Securities and theTwo-Class Method under FASB Statement No. 128,”(“EITF03-6”), the preferred stock is considered a “participating security” for purposes of computing earnings or loss per common share and, therefore, the preferred stock is included in the computation of basic and diluted earnings per common share using the two-class method, except during periods of net losses. When determining basic earnings per common share under EITF03-6, undistributed earnings for a period are allocated to a participating security based on the contractual participation rights of the security to share in those earnings as if all of the earnings for the period had been distributed.
Recent Accounting Pronouncements
In February 2006, the FASB issued SFAS No. 155,“Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140,”(“SFAS No. 155”). SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends FASB Statement No. 140 to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains
F-17F-16
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The adoption of this statement did not have any impact on the financial condition or results of operations of the Company.
In March 2006, the FASB issued SFAS No. 156,“Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140,”(“SFAS No. 156”). SFAS No. 156 amends SFAS No. 140 to require that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. SFAS No. 156 permits, but does not require, the subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value. Under SFAS No. 156, an entity can elect subsequent fair value measurement to account for its separately recognized servicing assets and servicing liabilities. Adoption of SFAS No. 156 is required as of the beginning of the first fiscal year that begins after September 15, 2006. The adoption of this statement did not have any impact on the financial condition or results of operations of the Company.
In July 2006, the FASB issued Interpretation No. 48“Accounting for Uncertainty in Income Taxes,”(“FIN No. 48”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109. FIN No. 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. While the Company’s analysis of the impact of this Interpretation is not yet completed, the Company does not anticipate it will have a material effect on the financial condition or results of operations of the Company.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108,“Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in the Current Year Financial Statements,”(“SAB 108”), which addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB 108 requires companies to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is material, companies may record the effect as a cumulative effect adjustment to beginning of year retained earnings. SAB 108 is effective for annual financial statements covering the first fiscal year ending after November 15, 2006. The Company adopted this interpretation as of December 31, 2006. The adoption of this statement did not have any impact on the financial condition or results of operations of the Company.
In September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements,”(“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosure about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company will be required to adopt SFAS No. 157 on January 1, 2008. The Company has not completed its evaluation of the effect of SFAS No. 157.
In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115,”(“SFAS No. 159”), which permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company will be required to adopt SFAS No. 159 on January 1, 2008. The Company has not completed its evaluation of the effect of SFAS No. 159.
F-18F-17
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
after November 15, 2007. The Company will be required to adopt SFAS No. 159 on January 1, 2008. The Company has not completed its evaluation of the effect of SFAS No. 159.
| |
| 3. | Majority-Owned Subsidiary: |
On November 24, 2004, MetroPCS, through its wholly-owned subsidiaries, together with C9 Wireless, LLC, an independent, unaffiliated third-party, formed a limited liability company, Royal Street Communications, that qualified to bid for closed licenses and to receive bidding credits as a very small business on open licenses in FCC Auction No. 58. MetroPCS indirectly owns 85% of the limited liability company member interest of Royal Street Communications, but may elect only two of five members of the Royal Street Communications’ management committee, which has the full power to direct the management of Royal Street. Royal Street Communications has formed limited liability company subsidiaries which hold all licenses won in Auction No. 58. At Royal Street Communications’ request and subject to Royal Street Communications’ control and direction, MetroPCS is assisting in the construction of Royal Street’s networks and has agreed to purchase, via a resale arrangement, as much as 85% of the engineered service capacity of Royal Street’s networks. The consolidated financial statements include the balances and results of operations of MetroPCS and its wholly-owned subsidiaries as well as the balances and results of operations of Royal Street. The Company consolidates its interest in Royal Street in accordance with FIN 46(R). Royal Street qualifies as a variable interest entity under FIN 46(R) because the Company is the primary beneficiary of Royal Street and will absorb all of Royal Street’s expected losses. Royal Street does not guarantee MetroPCS Wireless, Inc.’s (“Wireless”) obligations under its senior secured credit facility, pursuant to which Wireless may borrow up to $1.7 billion, as amended, (the “Senior Secured Credit Facility”) and its $1.0 billion of 91/4% Senior Notes due 2014 (the “91/4% Senior Notes”). See the “non-guarantor subsidiaries” information in Note 19 for the financial position and results of operations of Royal Street. C9 Wireless, LLC, a beneficial interest holder in Royal Street, has no recourse to the general credit of MetroPCS. All intercompany accounts and transactions between the Company and Royal Street have been eliminated in the consolidated financial statements.
C9 Wireless, LLC has a right to put its interests in Royal Street Communications to the Company at specific future dates based on a contractually determined amount (the “Put Right”). The Put Right represents an unconditional obligation of MetroPCS and its wholly-owned subsidiaries to purchase Royal Street Communications interests from C9 Wireless, LLC. In accordance with SFAS No. 150,“Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,”this obligation is recorded as a liability and is measured at each reporting date at the amount of cash that would be required to settle the obligation under the contract terms if settlement occurred at the reporting date.
F-19
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
| |
| 4. | Short-Term Investments: |
Short-term investments consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| | | 2006 | |
| | | | | | Gross
| | | Gross
| | | Aggregate
| |
| | | Amortized
| | | Unrealized
| | | Unrealized
| | | Fair
| |
| | | Cost | | | Gains | | | Losses | | | Value | |
| |
| United States government and agencies | | $ | 2,000 | | | $ | — | | | $ | (15 | ) | | $ | 1,985 | |
| Auction rate securities | | | 290,055 | | | | — | | | | (30 | ) | | | 290,025 | |
| Corporate bonds | | | 98,428 | | | | 213 | | | | — | | | | 98,641 | |
| | | | | | | | | | | | | | | | | |
| Total short-term investments | | $ | 390,483 | | | $ | 213 | | | $ | (45 | ) | | $ | 390,651 | |
| | | | | | | | | | | | | | | | | |
F-18
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
| | | | | | | | | | | | | | | | | |
| | | 2005 | |
| | | | | | Gross
| | | Gross
| | | Aggregate
| |
| | | Amortized
| | | Unrealized
| | | Unrealized
| | | Fair
| |
| | | Cost | | | Gains | | | Losses | | | Value | |
| |
| United States government and agencies | | $ | 28,999 | | | $ | — | | | $ | (241 | ) | | $ | 28,758 | |
| Auction rate securities | | | 333,819 | | | | — | | | | — | | | | 333,819 | |
| Corporate bonds | | | 27,788 | | | | 57 | | | | — | | | | 27,845 | |
| | | | | | | | | | | | | | | | | |
| Total short-term investments | | $ | 390,606 | | | $ | 57 | | | $ | (241 | ) | | $ | 390,422 | |
| | | | | | | | | | | | | | | | | |
The cost and aggregate fair values of short-term investments by contractual maturity at December 31, 2006 were as follows (in thousands):
| | | | | | | | | |
| | | | | | Aggregate
| |
| | | Amortized
| | | Fair
| |
| | | Cost | | | Value | |
| |
| Less than one year | | $ | 215,618 | | | $ | 215,801 | |
| Due in 1 - 2 years | | | — | | | | — | |
| Due in 2 - 5 years | | | — | | | | — | |
| Due after 5 years | | | 174,865 | | | | 174,850 | |
| | | | | | | | | |
| Total | | $ | 390,483 | | | $ | 390,651 | |
| | | | | | | | | |
| |
| 5. | Derivative Instruments and Hedging Activities: |
On June 27, 2005, Wireless entered into a three-year interest rate cap agreement, as required by its First Lien Credit Agreement, maturing May 31, 2011, and Second Lien Credit Agreement maturing May 31, 2012, (collectively, the “Credit Agreements”), to mitigate the impact of interest rate changes. An interest rate cap represents a right to receive cash if interest rates rise above a contractual strike rate. At December 31, 2005, the interest rate cap agreement has a notional value of $450.0 million and Wireless will receive payments on a semiannual basis if the six-month LIBOR interest rate exceeds 3.75% through January 1, 2007 and 6.00% through the agreement maturity date of July 1, 2008. Wireless paid $1.9 million upon execution of the interest rate cap agreement. This financial instrument is reported in long-term investments at fair market value, which was $5.1 million as of December 31, 2005. The change in fair value of $3.2 million is reported in accumulated other comprehensive income in the consolidated balance sheets, net of income taxes in the amount of $1.3 million. On November 21, 2006, Wireless terminated its interest rate cap agreement and
F-20
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
received proceeds of approximately $4.3 million upon termination of the agreement. The proceeds from the termination of the agreement approximated its carrying value. The remaining unrealized gain associated with the interest rate cap agreement was reclassified out of accumulated other comprehensive income into earnings as a reduction of interest expense.
On November 21, 2006, Wireless entered into a three-year interest rate protection agreement to manage the Company’s interest rate risk exposure and fulfill a requirement of Wireless’ Senior Secured Credit Facility. The agreement covers a notional amount of $1.0 billion and effectively converts this portion of Wireless’ variable rate debt to fixed rate debt. The quarterly interest settlement periods begin on February 1, 2007. The interest rate protection agreement expires on February 1, 2010. This financial instrument is reported in long-term investments at fair market value, which was approximately $1.9 million as of December 31, 2006. The change in fair value of $1.9 million is reported in accumulated other comprehensive income in the consolidated balance sheets, net of income taxes in the amount of approximately $0.8 million.
F-19
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
The interest rate protection agreement has been designated as a cash flow hedge. If a derivative is designated as a cash flow hedge and the hedging relationship qualifies for hedge accounting under the provisions of SFAS No. 133, the effective portion of the change in fair value of the derivative is recorded in accumulated other comprehensive income 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.
At inception of the hedge 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 hedge, 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 changes in the carrying value of intangible assets during the years ended December 31, 2006 and 2005 are as follows (in thousands):
| | | | | | | | | |
| | | | | | Microwave
| |
| | | | | | Relocation
| |
| | | FCC Licenses | | | Costs | |
| |
| Balance at December 31, 2004 | | $ | 154,144 | | | $ | 9,566 | |
| Additions | | | 528,930 | | | | — | |
| Reductions | | | (1,775 | ) | | | (379 | ) |
| | | | | | | | | |
| Balance at December 31, 2005 | | $ | 681,299 | | | $ | 9,187 | |
| Additions | | | 1,391,586 | | | | — | |
| | | | | | | | | |
| Balance at December 31, 2006 | | $ | 2,072,885 | | | $ | 9,187 | |
| | | | | | | | | |
FCC licenses represent the 14 C-Block PCS licenses acquired by the Company in the FCC auction in May 1996, the AWS licenses acquired in FCC Auction 66 and licenses acquired from other carriers. FCC licenses also represent licenses acquired in 2005 by Royal Street in Auction No. 58.
F-21
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
The grant of the licenses by the FCC subjects the Company to certain FCC ongoing ownership restrictions. Should the Company cease to continue to qualify under such ownership restrictions, the PCS and AWS licenses may be subject to revocation or require the payment of fines or forfeitures. All FCC licenses held by the Company will expire ten years for PCS licenses and fifteen years for AWS licenses from the initial date of grant of the license by the FCC; however, the FCC rules provide for renewal. Such renewals generally are granted routinely without substantial cost.
On April 19, 2004, the Company acquired four PCS licenses for an aggregate purchase price of $11.5 million. The PCS licenses cover 15 MHz of spectrum in each of the basic trading areas of Modesto, Merced, Eureka, and Redding, California.
On October 29, 2004, the Company acquired two PCS licenses for an aggregate purchase price of $43.5 million. The PCS licenses cover 10 MHz of spectrum in each of the basic trading areas of Tampa-St. Petersburg-Clearwater, Florida, and Sarasota-Bradenton, Florida.
On November 28, 2004, the Company executed a license purchase agreement by which the Company agreed to acquire 10 MHz of spectrum in the basic trading area of Detroit, Michigan and certain counties of the basic trading area of Dallas/Ft. Worth, Texas for $230.0 million.
F-20
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
On December 20, 2004, the Company acquired a PCS license for a purchase price of $8.5 million. The PCS license covers 20 MHz of spectrum in the basic trading area of Daytona Beach, Florida.
On May 11, 2005, the Company completed the sale of a 10 MHz portion of its 30 MHz PCS license in the San Francisco-Oakland-San Jose, California basic trading area for cash consideration of $230.0 million. The sale was structured as a like-kind exchange under Section 1031 of the Internal Revenue Code of 1986, as amended, through which the Company’s right, title and interest in and to the divested spectrum was exchanged for the spectrum acquired in Dallas/Ft. Worth, Texas and Detroit, Michigan through a license purchase agreement for an aggregate purchase price of $230.0 million. The purchase of the spectrum in Dallas/Ft. Worth and Detroit was accomplished in two steps with the first step of the exchange occurring on February 23, 2005 and the second step occurring on May 11, 2005 when the Company consummated the sale of 10 MHz of spectrum for the San Francisco-Oakland-San Jose basic trading area. The sale of spectrum resulted in a gain on disposal of asset in the amount of $228.2 million.
On July 7, 2005, the Company acquired a 10 MHz F-Block PCS license for Grayson and Fannin counties in the basic trading area of Sherman-Denison, Texas for an aggregate purchase price of $0.9 million.
On August 12, 2005, the Company closed on the purchase of a 10 MHz F-Block PCS license in the basic trading area of Bakersfield, California for an aggregate purchase price of $4.0 million.
On December 21, 2005, the FCC granted Royal Street 10 MHz of spectrum in the Los Angeles, California; Orlando, Lakeland-Winter Haven, Jacksonville, Melbourne-Titusville, and Gainesville, Florida basic trading areas. Royal Street, as the high bidder in Auction No. 58, had previously paid approximately $294.0 million to the FCC for these PCS licenses.
On November 29, 2006, the Company was granted AWS licenses as a result of FCC Auction 66, for a total aggregate purchase price of approximately $1.4 billion. These new licenses cover six of the 25 largest metropolitan areas in the United States. The east coast expansion opportunities include the entire east coast corridor from Philadelphia to Boston, including New York City, as well as the entire states of New York, Connecticut and Massachusetts. In the western United States, the new expansion opportunities include the San Diego, Portland, Seattle and Las Vegas metropolitan areas. The balance supplements or expands the
F-22
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
geographic boundaries of the Company’s existing operations in Dallas/Ft. Worth, Detroit, Los Angeles, San Francisco and Sacramento.
On February 21, 2007, the FCC granted the Company’s applications for the renewal of its 14 C-Block PCS licenses acquired in the FCC auction in May 1996, as well as the applications for the renewal of certain other licenses subsequently acquired from other carriers.
F-21
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
| |
| 7. | Accounts Payable and Accrued Expenses: |
Accounts payable and accrued expenses consisted of the following (in thousands):
| | | | | | | | | |
| | | 2006 | | | 2005 | |
| |
| Accounts payable | | $ | 90,084 | | | $ | 29,430 | |
| Book overdraft. | | | 21,288 | | | | 9,920 | |
| Accrued accounts payable | | | 111,974 | | | | 69,611 | |
| Accrued liabilities | | | 9,405 | | | | 7,590 | |
| Payroll and employee benefits | | | 20,645 | | | | 12,808 | |
| Accrued interest | | | 24,529 | | | | 17,578 | |
| Taxes, other than income | | | 42,882 | | | | 23,211 | |
| Income taxes | | | 4,874 | | | | 4,072 | |
| | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 325,681 | | | $ | 174,220 | |
| | | | | | | | | |
Long-term debt consisted of the following (in thousands):
| | | | | | | | | |
| | | 2006 | | | 2005 | |
| |
| Microwave relocation obligations | | $ | — | | | $ | 2,690 | |
| Credit Agreements | | | — | | | | 900,000 | |
91/4% Senior Notes | | | 1,000,000 | | | | — | |
| Senior Secured Credit Facility | | | 1,596,000 | | | | — | |
| | | | | | | | | |
| Total | | | 2,596,000 | | | | 902,690 | |
| Add: unamortized premium on debt | | | — | | | | 2,864 | |
| | | | | | | | | |
| Total debt | | | 2,596,000 | | | | 905,554 | |
| Less: current maturities | | | (16,000 | ) | | | (2,690 | ) |
| | | | | | | | | |
| Total long-term debt | | $ | 2,580,000 | | | $ | 902,864 | |
| | | | | | | | | |
F-23
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Maturities of the principal amount of long-term debt at face value are as follows (in thousands):
| | | | | |
For the Year Ending December 31, | | | |
| |
| 2007 | | $ | 16,000 | |
| 2008 | | | 16,000 | |
| 2009 | | | 16,000 | |
| 2010 | | | 16,000 | |
| 2011 | | | 16,000 | |
| Thereafter | | | 2,516,000 | |
| | | | | |
| Total | | $ | 2,596,000 | |
| | | | | |
Bridge Credit Agreement
In February 2005, Wireless entered into a secured bridge credit facility, dated as of February 22, 2005 (as amended, the “Bridge Credit Agreement”). The aggregate credit commitments available and funded under the
F-22
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Bridge Credit Agreement totaled $540.0 million. In May 2005, Wireless repaid the aggregate outstanding principal balance under the Bridge Credit Agreement of $540.0 million and accrued interest of $8.7 million. As a result, Wireless recorded a loss on extinguishment of debt in the amount of $10.4 million.
FCC Debt
On March 2, 2005, in connection with the sale of 10 MHz of spectrum in the San Francisco-Oakland-San Jose, California basic trading area, the Company repaid the outstanding principal balance of $12.2 million in debt payable to the FCC. This debt was incurred in connection with the original acquisition of the 30 MHz of spectrum for the San Francisco-Oakland-San Jose basic trading area. The repayment resulted in a loss on extinguishment of debt of $0.9 million.
On May 31, 2005, the Company repaid the remaining outstanding principal balance of $15.7 million in debt payable to the FCC. This debt was incurred in connection with the acquisition by the Company of its original PCS licenses in the FCC auction in May 1996. The repayment resulted in a loss on extinguishment of debt of $1.0 million.
$150 Million 103/4% Senior Notes
On September 29, 2003, MetroPCS, Inc. completed the sale of $150.0 million of 103/4% Senior Notes due 2011 (the “103/4% Senior Notes”). On May 10, 2005, holders of all of the 103/4% Senior Notes tendered their 103/4% Senior Notes in response to MetroPCS, Inc.’s cash tender offer and consent solicitation. As a result, MetroPCS, Inc. executed a supplemental indenture governing the 103/4% Senior Notes to eliminate substantially all of the restrictive covenants and event of default provisions in the indenture, to amend other provisions of the indenture, and to waive any and all defaults and events of default that may have existed under the indenture. On May 31, 2005, MetroPCS, Inc. purchased all of its outstanding 103/4% Senior Notes in the tender offer. MetroPCS, Inc. paid the holders of the 103/4% Senior Notes $178.9 million plus accrued interest of $2.7 million in the tender offer, resulting in a loss on extinguishment of debt of $34.0 million.
F-24
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
First and Second Lien Credit Agreements
On May 31, 2005, MetroPCS, Inc. and Wireless, both wholly-owned subsidiaries of MetroPCS, entered into the Credit Agreements, which provided for total borrowings of up to $900.0 million. On May 31, 2005, Wireless borrowed $500.0 million under the First Lien Credit Agreement and $250.0 million under the Second Lien Credit Agreement. On December 19, 2005, Wireless entered into amendments to the Credit Agreements and borrowed an additional $50.0 million under the First Lien Credit Agreement and an additional $100.0 million under the Second Lien Credit Agreement.
On November 3, 2006, Wireless paid the lenders under the Credit Agreements $931.5 million, which included a premium of approximately $31.5 million, plus accrued interest of $8.6 million to extinguish the aggregate outstanding principal balance under the Credit Agreements. The repayment resulted in a loss on extinguishment of debt in the amount of approximately $42.7 million.
$1.25 Billion Exchangeable Senior Secured Credit Agreement
In July 2006, MetroPCS II, Inc. (“MetroPCS II”), a wholly-owned subsidiary of MetroPCS, entered into the Secured Bridge Credit Facility. The aggregate credit commitments available under the Secured Bridge Credit Facility were $1.25 billion and were fully funded.
On November 3, 2006, MetroPCS II repaid the aggregate outstanding principal balance under the Secured Bridge Credit Facility of $1.25 billion and accrued interest of $5.9 million. As a result, the Company recorded a loss on extinguishment of debt of approximately $7.0 million.
F-23
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
$250 Million Exchangeable Senior Unsecured Credit Agreement
In October 2006, MetroPCS IV, Inc. (“MetroPCS IV”) entered into the Unsecured Bridge Credit Facility. The aggregate credit commitments available under the Unsecured Bridge Credit Facility totaled $250.0 million and were fully funded.
On November 3, 2006, MetroPCS IV repaid the aggregate outstanding principal balance under the Unsecured Bridge Credit Facility of $250.0 million and accrued interest of $1.2 million. As a result, the Company recorded a loss on extinguishment of debt of approximately $2.4 million.
$1.0 Billion 91/4% Senior Notes
On November 3, 2006, Wireless completed the sale of the 91/4% Senior Notes. The 91/4% Senior Notes are unsecured obligations and are guaranteed by MetroPCS, MetroPCS, Inc., and all of Wireless’ direct and indirect wholly-owned subsidiaries, but are not guaranteed by Royal Street. Interest is payable on the 91/4% Senior Notes on May 1 and November 1 of each year, beginning on May 1, 2007. Wireless may, at its option, redeem some or all of the 91/4% Senior Notes at any time on or after November 1, 2010 for the redemption prices set forth in the indenture governing the 91/4% Senior Notes. In addition, Wireless may also redeem up to 35% of the aggregate principal amount of the 91/4% Senior Notes with the net cash proceeds of certain sales of equity securities. The net proceeds of the sale were approximately $978.0 million after underwriter fees and other debt issuance costs of $22.0 million. The net proceeds from the sale of the 91/4% Senior Notes, together with the borrowings under the Senior Secured Credit Facility, were used to repay amounts owed under the Credit Agreements, Secured Bridge Credit Facility and Unsecured Bridge Credit Facility, and to pay related premiums, fees and expenses, as well as for general corporate purposes.
F-25
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Senior Secured Credit Facility
On November 3, 2006, Wireless entered into the Senior Secured Credit Facility, pursuant to which Wireless may borrow up to $1.7 billion. The Senior Secured Credit Facility consists of a $1.6 billion term loan facility and a $100.0 million revolving credit facility. On November 3, 2006, Wireless borrowed $1.6 billion under the Senior Secured Credit Facility. The term loan facility will be repayable in quarterly installments in annual aggregate amounts equal to 1% of the initial aggregate principal amount of $1.6 billion. The term loan facility will mature in seven years and the revolving credit facility will mature in five years. The net proceeds from the borrowings under the Senior Secured Credit Facility, together with the sale of the 91/4% Senior Notes, were used to repay amounts owed under the Credit Agreements, Secured Bridge Credit Facility and Unsecured Bridge Credit Facility, and to pay related premiums, fees and expenses, as well as for general corporate purposes
The facilities under the Senior Secured Credit Facility are guaranteed by MetroPCS, MetroPCS, Inc. and each of Wireless’ direct and indirect present and future wholly-owned domestic subsidiaries. The facilities are not guaranteed by Royal Street, but Wireless pledged the promissory note that Royal Street had given it in connection with amounts borrowed by Royal Street from Wireless and the limited liability company member interest held in Royal Street. The Senior Secured Credit Facility contains customary events of default, including cross defaults. The obligations are also secured by the capital stock of Wireless as well as substantially all of Wireless’ present and future assets and each of its direct and indirect present and future wholly-owned subsidiaries (except as prohibited by law and certain permitted exceptions) but excludes Royal Street.
The interest rate on the outstanding debt under the Senior Secured Credit Facility is variable. The rate as of December 31, 2006 was 7.875%. On November 21, 2006, Wireless entered into a three-year interest rate protection agreement to manage the Company’s interest rate risk exposure and fulfill a requirement of the
F-24
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Senior Secured Credit Facility (See Note 5). As of December 31, 2006, there was a total of approximately $1.6 billion outstanding under the Senior Secured Credit Facility, of which $16.0 million is reported in current maturities of long-term debt and approximately $1.6 billion is reported as long-term debt on the accompanying consolidated balance sheets.
On February 20, 2007, Wireless entered into an amendment to the Senior Secured Credit Facility. Under the amendment, the margin used to determine the Senior Secured Credit Facility interest rate was reduced to 2.25% from 2.50%.
Restructuring
On November 3, 2006, in connection with the closing of the 91/4% Senior Notes, the entry into the Senior Secured Credit Facility and the repayment of all amounts outstanding under the Credit Agreements, the Secured Bridge Credit Facility and the Unsecured Bridge Credit Facility, the Company consummated a restructuring transaction. As a result of the restructuring transaction, Wireless became a wholly-owned direct subsidiary of MetroPCS, Inc. (formerly MetroPCS V, Inc.), which is a wholly-owned direct subsidiary of MetroPCS. MetroPCS and MetroPCS, Inc., along with each of Wireless’ wholly-owned subsidiaries (which excludes Royal Street), guarantee the 91/4% Senior Notes and the obligations under the Senior Secured Credit Facility. MetroPCS, Inc. pledged the capital stock of Wireless as security for the obligations under the Senior Secured Credit Facility. All of the Company’s FCC licenses and the Company’s interest in Royal Street are held by Wireless and its wholly-owned subsidiaries.
F-26
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
The Company purchases a substantial portion of its wireless infrastructure equipment and handset equipment from only a few major suppliers. Further, the Company generally relies on one key vendor in each of the following areas: network infrastructure equipment, billing services, customer care, handset logistics and long distance services. Loss of any of these suppliers could adversely affect operations temporarily until a comparable substitute could be found.
Local and long distance telephone and other companies provide certain communication services to the Company. Disruption of these services could adversely affect operations in the short term until an alternative telecommunication 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.
10. Commitments and Contingencies:
The Company has entered into non-cancelable operating lease agreements to lease facilities, certain equipment and sites for towers and antennas required for the operation of its wireless networks. Future
F-25
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
minimum rental payments required for all non-cancelable operating leases at December 31, 2006 are as follows (in thousands):
| | | | | |
For the Year Ending December 31, | | | |
| |
| 2007 | | $ | 88,639 | |
| 2008 | | | 89,782 | |
| 2009 | | | 91,091 | |
| 2010 | | | 92,570 | |
| 2011 | | | 86,707 | |
| Thereafter | | | 279,415 | |
| | | | | |
| Total | | $ | 728,204 | |
| | | | | |
Total rent expense for the years ended December 31, 2006, 2005 and 2004 was $85.5 million, $51.6 million and $37.7 million, respectively.
On June 6, 2005, Wireless entered into a general purchase agreement with a vendor for the purchase of PCS CDMA system products (“CDMA Products”) and services, including without limitation, wireless base stations, switches, power, cable and transmission equipment and services, with an initial term of three years. The agreement provides for both exclusive and non-exclusive pricing for CDMA Products and the agreement may be renewed at Wireless’ option on an annual basis for three subsequent years after the conclusion of the initial three-year term. If Wireless fails to purchase exclusively CDMA Products from the vendor, it may have to pay certain liquidated damages based on the difference in prices between exclusive and non-exclusive prices for CDMA Products already purchased since the effective date of the agreement, which may be material to Wireless.
The Company has entered into pricing agreements with various handset manufacturers for the purchase of wireless handsets at specified prices. The terms of these agreements expire on various dates during the year ending December 31, 2007. In addition, the Company entered into an agreement with a handset manufacturer for the purchase of 475,000 handsets at a specified price by September 30, 2007.
F-27
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
EV-DO Revision A
The Company acquired spectrum in two of its markets during 2005 subject to certain expectations communicated to the United States Department of Justice (the “DOJ”) about how it would use such spectrum. As a result of a delay in the availability of EV-DO Revision A with VoIP, the Company has redeployed EV-DO network assets at certain cell sites in those markets in order to serve its existing customers. There have been no asserted claims or assessments to date and accordingly, no liability has been recorded as of December 31, 2006.
Litigation
The Company is involved in various claims and legal actions arising in the ordinary course of business. The ultimate disposition of these matters is not expected to have a material adverse impact on the Company’s financial position, results of operations or liquidity.
The Company is involved in various claims and legal actions in relation to claims of patent infringement. The ultimate disposition of these matters is not expected to have a material adverse impact on the Company’s financial position, results of operations or liquidity.
F-26
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Rescission Offer
Certain options granted under the Company’s 1995 Stock Option Plan and 2004 Equity Incentive Plan may not have been exempt from registration or qualification under federal securities laws and the securities laws of certain states. As a result, the Company is considering making a rescission offer to the holders of certain options. If this rescission offer is made and accepted, the Company could be required to make aggregate payments to the holders of these options of up to $2.6 million, which includes statutory interest, based on options outstanding as of December 31, 2006. Federal securities laws do not provide that a rescission offer will terminate a purchaser’s right to rescind a sale of a security that was not registered as required. If any or all of the offerees reject the rescission offer, the Company may continue to be liable for this amount under federal and state securities laws. Management does not believe that this rescission offer will have a material effect on the Company’s results of operations, cash flows or financial position.
AWS Licenses Acquired in Auction 66
Spectrum allocated for AWS currently is utilized by a variety of categories of commercial and governmental users. To foster the orderly clearing of the spectrum, the FCC adopted a transition and cost sharing plan pursuant to which incumbent non-governmental users could be reimbursed for relocating out of the band and the costs of relocation would be shared by AWS licensees benefiting from the relocation. The FCC has established a plan where the AWS licensee and the incumbent non-governmental user are to negotiate voluntarily for three years and then, if no agreement has been reached, the incumbent licensee is subject to mandatory relocation where the AWS licensee can force the incumbent non-governmental licensee to relocate at the AWS licensee’s expense. The spectrum allocated for AWS currently is utilized also by governmental users. The FCC rules provide that a portion of the money raised in Auction 66 will be used to reimburse the relocation costs of governmental users from the AWS band. However, not all governmental users are obligated to relocate. The Company may incur costs to relocate the incumbent licensees in the areas where it was granted licenses in Auction 66.
F-28
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
| |
| 11. | Series D Cumulative Convertible Redeemable Participating Preferred Stock: |
In July 2000, MetroPCS, Inc. executed a Securities Purchase Agreement, which was subsequently amended (as amended, the “SPA”). Under the SPA, MetroPCS, Inc. issued shares of Series D Preferred Stock. In July 2004, each share of MetroPCS, Inc. Series D Preferred Stock was converted into a share of Series D Preferred Stock of MetroPCS (See Note 1). Dividends accrue at an annual rate of 6% of the liquidation value of $100 per share on the Series D Preferred Stock. Dividends of $21.0 million, $21.0 million and $21.0 million were accrued for the years ended December 31, 2006, 2005 and 2004, respectively, and are included in the Series D Preferred Stock balance.
Each share of Series D Preferred Stock will automatically convert into common stock upon (i) completion of a Qualified Public Offering (as defined in the SPA), (ii) MetroPCS’ common stock trading (or in the case of a merger or consolidation of MetroPCS with another company, other than a sale or change of control of MetroPCS, the shares received in such merger or consolidation having traded immediately prior to such merger and consolidation) on a national securities exchange for a period of 30 consecutive trading days above a price that implies a market valuation of the Series D Preferred Stock in excess of twice the initial purchase price of the Series D Preferred Stock, or (iii) the date specified by the holders of two-thirds of the outstanding Series D Preferred Stock. The Series D Preferred Stock and the accrued but unpaid dividends thereon are convertible into common stock at $3.13 per share of common stock, which per share amount is subject to adjustment in accordance with the terms of MetroPCS’ Second Amended and Restated Articles of Incorporation. If not previously converted, MetroPCS is required to redeem all outstanding shares of Series D Preferred Stock on July 17, 2015, at the liquidation value plus accrued but unpaid dividends.
F-27
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
The holders of Series D Preferred Stock, as a class with the holders of common stock, have the right to vote on all matters as if each share of Series D Preferred Stock had been converted into common stock, except for the election of directors. The holders of Series D Preferred Stock, as a class, can nominate one member of the Board of Directors of MetroPCS. Each share of Series D Preferred Stock is entitled to a liquidation preference upon a liquidation event (as defined in MetroPCS’ Second Amended and Restated Articles of Incorporation) equal to the sum of:
| | |
| | • | the per share liquidation value, plus |
| |
| | • | the greater of: |
| |
| | • | the amount of all accrued and unpaid dividends and distributions on such share, and |
| |
| | • | the amount that would have been paid in respect of such share had it been converted into common stock immediately prior to the event that triggered payment of the liquidation preference, net of the liquidation value of the Series D Preferred Stock and the Series E Preferred Stock. |
The SPA defines a number of events of noncompliance. Upon an occurrence of an event of noncompliance, the holders of not less than two-thirds of the then outstanding shares of Series D Preferred Stock can request MetroPCS to redeem the outstanding shares at an amount equal to the liquidation value plus accrued but unpaid dividends. The Company believes that there was no uncured or unwaived event of noncompliance at December 31, 2006.
| |
| 12. | Series E Cumulative Convertible Redeemable Participating Preferred Stock: |
MetroPCS entered into a stock purchase agreement, dated as of August 30, 2005, under which MetroPCS issued 500,000 shares of Series E Preferred Stock for $50.0 million in cash. Total proceeds to
F-29
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
MetroPCS were $46.7 million, net of transaction costs of approximately $3.3 million. The Series E Preferred Stock and the Series D Preferred Stock rank equally with respect to dividends, conversion rights and liquidation preferences. Dividends on the Series E Preferred Stock accrue at an annual rate of 6% of the liquidation value of $100 per share. Dividends of $3.0 and $1.0 million were accrued for the years ended December 31, 2006 and 2005, respectively, and are included in the Series E Preferred Stock balance.
Each share of Series E Preferred Stock will be converted into common stock of MetroPCS upon (i) the completion of a Qualifying Public Offering, (as defined in the Second Amended and Restated Stockholders Agreement), (ii) the common stock trading (or, in the case of a merger or consolidation of MetroPCS with another company, other than as a sale or change of control of MetroPCS, the shares received in such merger or consolidation having traded immediately prior to such merger or consolidation) on a national securities exchange for a period of 30 consecutive trading days above a price implying a market valuation of the Series D Preferred Stock over twice the Series D Preferred Stock initial purchase price, or (iii) the date specified by the holders of two-thirds of the Series E Preferred Stock. The Series E Preferred Stock is convertible into common stock at $9.00 per share, which per share amount is subject to adjustment in accordance with the terms of the Second Amended and Restated Articles of Incorporation of MetroPCS. If not previously converted, MetroPCS is required to redeem all outstanding shares of Series E Preferred Stock on July 17, 2015, at the liquidation preference of $100 per share plus accrued but unpaid dividends. In 2005 MetroPCS, in connection with the sale of the Series E Preferred Stock, increased the total authorized Preferred Stock to 25,000,000 shares, par value $0.0001 per share.
On October 25, 2005, pursuant to the terms of the stock purchase agreement, the investors in the Series E Preferred Stock also conducted a tender offer in which they purchased outstanding Series D Preferred Stock and common stock. The Company believes that there was no uncured or unwaived event of noncompliance at December 31, 2006.
F-28
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Warrants
From inception through February 1998, MetroPCS, Inc. issued various warrants to purchase common stock in conjunction with sales of stock and in exchange for consulting services, which were converted into warrants in MetroPCS in July 2004. As of December 31, 2006, there were no remaining warrants outstanding.
During the year ended December 31, 2006, 526,950 warrants, with an exercise price of $0.0009 per warrant, were exercised for 526,950 shares of common stock.
Redemption
If, at any time, ownership of shares of common stock, Series D Preferred Stock or Series E Preferred Stock by a holder would cause the Company to violate any FCC ownership requirements or restrictions, MetroPCS may, at the option of the Board of Directors, redeem a number of shares of common stock, Series D Preferred Stock or Series E Preferred Stock sufficient to eliminate such violation.
Conversion Rights
On April 15, 2004, the Board of Directors approved the conversion of shares of Class B non-voting common stock into Class C Common Stock. Each outstanding share of Class B non-voting common stock
F-30
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
was converted into a share of Class C Common Stock on May 18, 2004. On July 13, 2004, as part of the merger of a wholly-owned subsidiary of MetroPCS into MetroPCS, Inc., each share of the Class A Common Stock, Class C Common Stock and Series D Preferred Stock of MetroPCS, Inc. was converted on a share for share basis into Class A Common Stock, Class C Common Stock or Series D Preferred Stock, as applicable, of MetroPCS. On July 23, 2004, the Class C Common Stock was renamed common stock. Effective December 31, 2005, each share of Class A Common Stock was automatically converted into one share of common stock upon the occurrence of the Class A Termination Event.
Class A Common Stock Termination Event
MetroPCS previously qualified as a very small business designated entity (“DE”). MetroPCS met the DE control requirements of the FCC by issuing Class A Common Stock entitling its holders to 50.1% of the stockholders’ votes and the right to designate directors holding a majority of the voting power of MetroPCS’ Board of Directors. As a result of MetroPCS’ repayment of its FCC debt in May 2005, it was no longer required to maintain its eligibility as a DE. On August 5, 2005 MetroPCS’ wholly-owned licensee subsidiaries each filed administrative updates with the FCC notifying the FCC that MetroPCS was no longer subject to the DE control requirements.
As part of the stock purchase agreement for the Series E Preferred Stock, MetroPCS filed its Second Amended and Restated Certificate of Incorporation (“Revised Articles”) and MetroPCS and certain of its stockholders entered into the Second Amended and Restated Stockholders Agreement, dated as of August 30, 2005 (“Stockholders Agreement”). The Revised Articles and Stockholders Agreement required, among other things, that MetroPCS cause a change in control by the later of December 31, 2005 or the date on or after which the FCC’s grant of MetroPCS’ application to transfer control became final (“Class A Termination Event”). The Class A Termination Event triggers, among other things, the conversion of all of the Class A Common Stock into MetroPCS common stock and the extinguishment of the special voting and board appointment rights of the Class A Common Stock. In addition, certain supermajority voting rights held by the Series D Preferred Stock and Series E Preferred Stock are also extinguished. The stock purchase agreement for the Series E Preferred Stock requires that under the new structure MetroPCS have a nine member Board of Directors. In addition, after the Class A Termination Event, votes on significant matters requiring a stockholder
F-29
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
vote are generally by vote of the holders of a majority of all of the shares of capital stock of MetroPCS, with the holders of the Series D Preferred Stock and Series E Preferred Stock voting with holders of the common stock on an “as converted” basis. On November 1, 2005, MetroPCS’ wholly-owned licensee subsidiaries filed transfer of control applications with the FCC to seek the FCC’s consent to the Class A Termination Event. The FCC applications were approved and the grants were listed in an FCC Public Notice on November 8, 2005. The grants became final on December 19, 2005 and the Class A Termination Event occurred on December 31, 2005. The net effect of these changes is that the holders of Class A Common Stock have relinquished affirmative control of MetroPCS to the stockholders as a whole. There was no significant financial accounting impact.
Common Stock Issued to Directors
Non-employee members of MetroPCS’ Board of Directors receive compensation for serving on the Board of Directors, pursuant to MetroPCS’ Non-Employee Director Remuneration Plan. The annual retainer provided under the Non-Employee Director Remuneration Plan may be paid in cash, common stock, or a combination of cash and common stock at the election of each director. During the years ended December 31,
F-31
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
2006 and 2005, non-employee members of the Board of Directors were issued 49,725 and 79,437 shares of common stock, respectively, as payment of their annual retainer.
| |
| 14. | Share-Based Payments: |
Prior to the first quarter of 2006, the Company measured stock-based compensation expense for its stock-based employee compensation plans using the intrinsic value method prescribed by APB No. 25, as allowed by SFAS No. 123.
Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R) using the modified prospective transition method. Under that transition method, compensation expense recognized beginning on that date includes: (a) compensation expense for all share-based payments granted prior to, but not yet vested as of, January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation expense for all share-based payments granted on or after January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). Although there was no material impact on the Company’s financial position, results of operations or cash flows from the adoption of SFAS No. 123(R), the Company reclassified all deferred equity compensation on the consolidated balance sheet to additional paid-in capital upon its adoption. The period prior to the adoption of SFAS No. 123(R) does not reflect any restated amounts.
MetroPCS has two stock option plans (the “Option Plans”) under which it grants options to purchase common stock of MetroPCS: the Second Amended and Restated 1995 Stock Option Plan, as amended (“1995 Plan”), and the Amended and Restated 2004 Equity Incentive Compensation Plan, as amended (“2004 Plan”). The 1995 Plan was terminated in November 2005 and no further awards can be made under the 1995 Plan, but all options granted before November 2005 will remain valid in accordance with their original terms. As of December 31, 2006, the maximum number of shares reserved for the 2004 Plan was 18,600,000 shares. In December 2006, the 2004 Plan was amended to increase the number of shares of common stock reserved for issuance under the plan from 14,100,000 to a total of 18,600,000 shares. In February 2007, the 2004 Plan was amended to increase the number of shares of common stock reserved for issuance under the plan from 18,600,000 to a total of 40,500,000 shares. Vesting periods and terms for stock option grants are determined by the plan administrator, which is MetroPCS’ Board of Directors for the 1995 Plan and the Compensation Committee of the Board of Directors of MetroPCS for the 2004 Plan. No option granted under the 1995 Plan have a term in excess of fifteen years and no option granted under the 2004 Plan shall have a term in excess
F-30
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
of ten years. Options granted during the years ended December 31, 2006, 2005 and 2004 have a vesting period of one to four years.
Options granted under the 1995 Plan are exercisable upon grant. Shares received upon exercising options prior to vesting are restricted from sale based on a vesting schedule. In the event an option holder’s service with the Company is terminated, MetroPCS may repurchase unvested shares issued under the 1995 Plan at the option exercise price. Options granted under the 2004 Plan are only exercisable upon vesting. Upon exercise of options under the Option Plans, new shares of common stock are issued to the option holder.
The value of the options is determined by using a Black-Scholes pricing model that includes the following variables: 1) exercise price of the instrument, 2) fair market value of the underlying stock on date of grant, 3) expected life, 4) estimated volatility and 5) the risk-free interest rate. The Company utilized the
F-32
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
following weighted-average assumptions in estimating the fair value of the option grants in the years ended December 31, 2006, 2005 and 2004:
| | | | | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
| |
| Expected dividends | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % |
| Expected volatility | | | 35.04 | % | | | 50.00 | % | | | 55.00 | % |
| Risk-free interest rate | | | 4.64 | % | | | 4.24 | % | | | 3.22 | % |
| Expected lives in years | | | 5.00 | | | | 5.00 | | | | 5.00 | |
| Weighted-average fair value of options: | | | | | | | | | | | | |
| Granted at below fair value | | $ | 10.16 | | | $ | — | | | $ | 2.88 | |
| Granted at fair value | | $ | 3.75 | | | $ | 3.44 | | | $ | 2.64 | |
| Weighted-average exercise price of options: | | | | | | | | | | | | |
| Granted at below fair value | | $ | 1.49 | | | $ | — | | | $ | 4.46 | |
| Granted at fair value | | $ | 9.95 | | | $ | 7.13 | | | $ | 5.25 | |
The Black-Scholes model requires the use of subjective assumptions including expectations of future dividends and stock price volatility. Such assumptions are only used for making the required fair value estimate and should not be considered as indicators of future dividend policy or stock price appreciation. Because changes in the subjective assumptions can materially affect the fair value estimate, and because employee stock options have characteristics significantly different 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.
F-31
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
A summary of the status of the Company’s Option Plans as of December 31, 2006, 2005 and 2004, and changes during the periods then ended, is presented in the table below:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
| | | | | | Weighted
| | | | | | Weighted
| | | | | | Weighted
| |
| | | | | | Average
| | | | | | Average
| | | | | | Average
| |
| | | | | | Exercise
| | | | | | Exercise
| | | | | | Exercise
| |
| | | Shares | | | Price | | | Shares | | | Price | | | Shares | | | Price | |
| |
| Outstanding, beginning of year | | | 14,502,210 | | | $ | 4.18 | | | | 32,448,855 | | | $ | 0.92 | | | | 31,057,182 | | | $ | 0.61 | |
| Granted | | | 11,369,793 | | | $ | 9.65 | | | | 5,838,534 | | | $ | 7.13 | | | | 2,671,518 | | | $ | 4.76 | |
| Exercised | | | (1,148,328 | ) | | $ | 2.39 | | | | (22,669,671 | ) | | $ | 0.38 | | | | (635,928 | ) | | $ | 0.65 | |
| Forfeited | | | (1,224,213 | ) | | $ | 4.22 | | | | (1,115,508 | ) | | $ | 4.04 | | | | (643,917 | ) | | $ | 2.02 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding, end of year | | | 23,499,462 | | | $ | 6.91 | | | | 14,502,210 | | | $ | 4.18 | | | | 32,448,855 | | | $ | 0.92 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Options vested or expected to vest at year-end | | | 20,127,759 | | | $ | 6.55 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Options exercisable at year-end | | | 10,750,692 | | | $ | 3.78 | | | | 10,985,577 | | | $ | 3.23 | | | | 32,448,855 | | | $ | 0.92 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Options vested at year-end | | | 8,940,615 | | | $ | 3.59 | | | | 6,696,330 | | | $ | 1.87 | | | | 26,976,972 | | | $ | 0.49 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Options outstanding under the Option Plans as of December 31, 2006 have a total aggregate intrinsic value of approximately $103.9 million and a weighted average remaining contractual life of 8.01 years.
F-33
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Options outstanding under the Option Plans as of December 31, 2005 and 2004 have a weighted average remaining contractual life of 7.80 and 7.23 years, respectively. Options vested or expected to vest under the Option Plans as of December 31, 2006 have a total aggregate intrinsic value of approximately $96.2 million and a weighted average remaining contractual life of 7.83 years. Options exercisable under the Option Plans as of December 31, 2006 have a total aggregate intrinsic value of approximately $81.2 million and a weighted average remaining contractual life of 6.63 years.
The following table summarizes information about stock options outstanding at December 31, 2006:
| | | | | | | | | | | | | | | | | | | | | |
| | | Options Outstanding | | | Options Vested | |
| | | | | | Weighted
| | | Weighted
| | | | | | Weighted
| |
| | | | | | Average
| | | Average
| | | | | | Average
| |
| | | Number of
| | | Contractual
| | | Exercise
| | | Number of
| | | Exercise
| |
Exercise Price | | Shares | | | Life | | | Price | | | Shares | | | Price | |
| |
| $0.08 - $ 0.33 | | | 851,991 | | | | 5.93 | | | $ | 0.12 | | | | 851,991 | | | $ | 0.12 | |
| $0.34 - $ 1.57 | | | 3,733,773 | | | | 4.74 | | | $ | 1.57 | | | | 3,728,109 | | | $ | 1.57 | |
| $1.58 - $ 6.31 | | | 2,961,708 | | | | 6.80 | | | $ | 3.97 | | | | 2,083,725 | | | $ | 3.72 | |
| $6.32 - $ 7.15 | | | 7,872,015 | | | | 8.58 | | | $ | 7.14 | | | | 2,255,292 | | | $ | 7.14 | |
| $7.16 - $11.33 | | | 8,079,975 | | | | 9.64 | | | $ | 10.95 | | | | 21,498 | | | $ | 11.07 | |
In 2004, Congress passed the American Job Creation Act of 2004 which changed certain rules with respect to deferred compensation, including options to purchase MetroPCS’ common stock which were granted below the fair market value of the common stock as of the grant date. MetroPCS had previously granted certain options to purchase its common stock under the 1995 Plan at exercise prices which MetroPCS believes were below the fair market value of its common stock at the time of grant. In December 2005, MetroPCS offered to amend the stock option grants of all affected employees by increasing the exercise price of such affected stock option grants to the fair value of MetroPCS’ common stock as of the date of grant and granting additional stock options which vested 50% on January 1, 2006 and 50% on January 1, 2007 at the fair market
F-32
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
value of MetroPCS’ common stock as of the grant date provided that the employee remained employed by the Company on those dates. The total number of affected stock options was 2,617,140 and MetroPCS granted 407,274 additional stock options.
During the year ended December 31, 2006, 1,148,328 options granted under the Option Plans were exercised for 1,148,328 shares of common stock. The intrinsic value of these options was approximately $9.0 million and total proceeds were approximately $2.7 million for the year ended December 31, 2006. During the year ended December 31, 2005, 22,669,671 options granted under the Option Plans were exercised for 22,669,671 shares of common stock. The intrinsic value of these options was approximately $152.8 million and total proceeds were approximately $8.6 million for the year ended December 31, 2005. During the year ended December 31, 2004, 635,928 options granted under the Option Plans were exercised for 635,928 shares of common stock. The intrinsic value of these options was approximately $2.1 million and total proceeds were approximately $0.4 million for the year ended December 31, 2004.
In October 2005, Madison Dearborn Capital Partners and TA Associates consummated a tender offer in which they purchased from existing stockholders shares of Series D Preferred Stock and common stock in MetroPCS. In connection with this transaction, 22,102,287 options granted under the Option Plans were exercised for 22,102,287 shares of common stock. MetroPCS received no proceeds from this transaction.
F-34
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
The following table summarizes information about unvested stock option grants:
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | | | | Grant-Date
| |
Stock Option Grants | | Shares | | | Fair Value | |
| |
| Unvested balance, January 1, 2006 | | | 7,582,659 | | | $ | 3.00 | |
| Grants | | | 11,369,793 | | | $ | 3.98 | |
| Vested shares | | | (3,679,491 | ) | | $ | 3.64 | |
| Forfeitures | | | (639,012 | ) | | $ | 3.10 | |
| | | | | | | | | |
| Unvested balance, December 31, 2006 | | | 14,633,949 | | | $ | 3.60 | |
| | | | | | | | | |
The Company determines fair value of stock option grants as the share price of the Company’s common stock at grant-date. The weighted average grant-date fair value of the stock option grants for the year ended December 31, 2006, 2005 and 2004 is $3.98, $2.93 and $2.79, respectively. The total fair value of stock options that vested during the year ended December 31, 2006 was $13.4 million.
The Company has recorded $14.5 million, $2.6 million and $10.4 million of non-cash stock-based compensation expense in the years ended December 31, 2006, 2005 and 2004, respectively, and an income tax benefit of $5.8 million, $1.0 million and $4.1 million, respectively.
As of December 31, 2006, there was approximately $49.3 million of unrecognized stock-based compensation cost related to unvested share-based compensation arrangements, which is expected to be recognized over a weighted average period of approximately 3.06 years. Such costs are scheduled to be recognized as follows: $17.4 million in 2007, $15.7 million in 2008, $11.3 million in 2009 and $4.9 million in 2010.
F-33
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
During the year ended December 31, 2006, the following awards were granted under the Company’s Option Plans:
| | | | | | | | | | | | | | | | | |
| | | | | | Weighted
| | | Weighted
| | | Weighted
| |
| | | Number of
| | | Average
| | | Average
| | | Average
| |
| | | Options
| | | Exercise
| | | Market Value
| | | Intrinsic Value
| |
Grants Made During the Quarter Ended | | Granted | | | Price | | | per Share | | | per Share | |
| |
| March 31, 2006 | | | 2,869,989 | | | $ | 7.15 | | | $ | 7.15 | | | $ | 0.00 | |
| June 30, 2006 | | | 534,525 | | | $ | 7.54 | | | $ | 7.54 | | | $ | 0.00 | |
| September 30, 2006 | | | 418,425 | | | $ | 8.67 | | | $ | 8.67 | | | $ | 0.00 | |
| December 31, 2006 | | | 7,546,854 | | | $ | 10.81 | | | $ | 11.33 | | | $ | 0.53 | |
Compensation expense is recognized over the requisite service period for the entire award, which is generally the maximum vesting period of the award.
The fair value of the common stock was determined contemporaneously with the option grants.
In December 2006, the Company amended stock option agreements of a former member of MetroPCS’ Board of Directors to extend the contractual life of 405,054 vested options to purchase common stock until December December��31, 2006. This amendment resulted in the recognition of additional non-cash stock-based compensation expense of approximately $4.1 million in the fourth quarter of 2006.
In December 2006, in recognition of efforts related to the Company’s pending initial public offering and to align executive ownership with the Company, the Company made a special stock option grant to its named
F-35
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
executive officers and certain other eligible employees. The Company granted stock options to purchase an aggregate of 6,885,000 shares of the Company’s common stock to its named executive officers and certain other officers and employees. The purpose of the grant was also to provide retention of employees following the Company’s initial public offering as well as to motivate employees to return value to the Company’s shareholders through future appreciation of the Company’s common stock price. The exercise price for the option grants is $11.33, which is the fair market value of the Company’s common stock on the date of the grant as determined by the Company’s board of directors. In determining the fair market value of the common stock, consideration is given to the recommendations of our finance and planning committee and of management based on certain data, including discounted cash flow analysis, comparable company analysis, and comparable transaction analysis, as well as contemporaneous valuation. The stock options granted to the named executive officers other than the Company’s CEO and senior vice president and chief technology officer will generally vest on a four-year vesting schedule with 25% vesting on the first anniversary date of the award and the remainder pro-rata on a monthly basis thereafter. The stock options granted to the Company’s CEO will vest on a three-year vesting schedule with one-third vesting on the first anniversary date of the award and the remainder pro-rata on a monthly basis thereafter. The stock options granted to the Company’s senior vice president and chief technology officer will vest over a two-year vesting schedule with one-half vesting on the first anniversary of the award and the remainder pro-rata on a monthly basis thereafter.
In November 2006, the Company made an election to account for its APIC pool utilizing the short cut method provided under FSP FAS No. 123(R)-3,“Transition Election Related to Accounting for the Tax Effects of Share-Based Payments.”
Upon adoption of SFAS No. 123(R), the Company had 946,908 options that were subject to variable accounting under APB No. 25, and related interpretations. As the options were fully vested upon adoption of SFAS No. 123(R) and there have been no subsequent modifications, no incremental stock-based compensation expense has been recognized in 2006. During the years ended December 31, 2005 and 2004, $2.3 million and $5.1 million, respectively, of stock-based compensation expense was recognized related to these options. No options were exercised and 270,900 options were forfeited at a weighted average exercise price of $1.57
F-34
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
during 2006. 676,008 options remain outstanding at a weighted average exercise price of $1.32 intrinsic value of $6.8 million, and remaining contractual life of 3.16 years as of December 31, 2006.
| |
| 15. | Employee Benefit Plan: |
The Company sponsors a savings plan under Section 401(k) of the Internal Revenue Code for the majority of its employees. The plan allows employees to contribute a portion of their pretax income in accordance with specified guidelines. The Company does not match employee contributions but may make discretionary or profit-sharing contributions. The Company has made no contributions to the savings plan through December 31, 2006.
F-36
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
The provision for taxes on income consisted of the following (in thousands):
| | | | | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
| |
| Current: | | | | | | | | | | | | |
| Federal | | $ | 674 | | | $ | (233 | ) | | $ | 197 | |
| State | | | 3,702 | | | | 2,603 | | | | 2,502 | |
| | | | | | | | | | | | | |
| | | | 4,376 | | | | 2,370 | | | | 2,699 | |
| | | | | | | | | | | | | |
| Deferred: | | | | | | | | | | | | |
| Federal | | | 29,959 | | | | 114,733 | | | | 39,056 | |
| State | | | 2,382 | | | | 10,322 | | | | 5,245 | |
| | | | | | | | | | | | | |
| | | | 32,341 | | | | 125,055 | | | | 44,301 | |
| | | | | | | | | | | | | |
| Provision for income taxes | | $ | 36,717 | | | $ | 127,425 | | | $ | 47,000 | |
| | | | | | | | | | | | | |
Deferred taxes are provided for those items reported in different periods for income tax and financial reporting purposes. The Company’s net deferred tax liability consisted of the following deferred tax assets and liabilities (in thousands):
| | | | | | | | | | | | | | | | | |
| | | 2006 | | 2005 | | | 2006 | | 2005 | |
| |
Deferred tax assets: | | | | | | | | | | | | | | | | |
Start-up costs capitalized for tax purposes | | $ | — | | | $ | 866 | | | $ | — | | | $ | 866 | |
| Net operating loss carry forward | | | 83,787 | | | | 85,152 | | | | 83,787 | | | | 85,152 | |
| Net basis difference in FCC licenses | | | — | | | | 1,428 | | | | — | | | | 1,428 | |
| Revenue deferred for book purposes | | | 9,407 | | | | 5,007 | | | | 9,407 | | | | 5,007 | |
| Allowance for uncollectible accounts | | | 1,214 | | | | 1,272 | | | | 1,214 | | | | 1,272 | |
| Deferred rent expense | | | 8,311 | | | | 5,747 | | | | 8,311 | | | | 5,747 | |
| Deferred compensation | | | 5,636 | | | | 2,818 | | | | 5,636 | | | | 2,818 | |
| Asset retirement obligation | | | 592 | | | | 347 | | | | 592 | | | | 347 | |
| Accrued vacation | | | 1,004 | | | | 603 | | | | 1,004 | | | | 603 | |
| Partnership interest | | | 7,130 | | | | 392 | | | | 7,130 | | | | 392 | |
| Alternative Minimum Tax credit carryforward | | | 666 | | | | — | | |
| Other | | | 1,011 | | | | 558 | | |
| | | | | | | |
| Total deferred tax assets | | | 118,758 | | | | 104,190 | | |
Deferred tax liabilities: | | | | | | | | | |
| Depreciation | | | (188,484 | ) | | | (157,083 | ) | |
| Deferred cost of handset sales | | | (10,251 | ) | | | (4,867 | ) | |
| Net basis difference in FCC licenses | | | (9,802 | ) | | | — | | |
| Prepaid insurance | | | (1,174 | ) | | | (374 | ) | |
| Gain deferral related to like kind exchange | | | (83,467 | ) | | | (83,699 | ) | |
F-37F-35
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
| | | | | | | | | | | | | | | | | |
| | | 2006 | | 2005 | | | 2006 | | 2005 | |
| |
| Alternative Minimum Tax credit carryforward | | | | 666 | | | | — | |
| Other | | | | 1,011 | | | | 558 | |
| | | | | | | |
| Total deferred tax assets | | | | 118,758 | | | | 104,190 | |
Deferred tax liabilities: | | | | | | | | | |
| Depreciation | | | | (188,484 | ) | | | (157,083 | ) |
| Deferred cost of handset sales | | | | (10,251 | ) | | | (4,867 | ) |
| Net basis difference in FCC licenses | | | | (9,802 | ) | | | — | |
| Prepaid insurance | | | | (1,174 | ) | | | (374 | ) |
| Gain deferral related to like kind exchange | | | | (83,467 | ) | | | (83,699 | ) |
| Other comprehensive income | | | (949 | ) | | | (1,331 | ) | | | (949 | ) | | | (1,331 | ) |
| Other | | | (1,013 | ) | | | (573 | ) | | | (1,013 | ) | | | (573 | ) |
| | | | | | | | | | | |
| Total deferred tax liabilities | | | (295,140 | ) | | | (247,927 | ) | | | (295,140 | ) | | | (247,927 | ) |
| | | | | | | | | | | |
| Subtotal | | | (176,382 | ) | | | (143,737 | ) | | | (176,382 | ) | | | (143,737 | ) |
| | | | | | | | | | | |
| Valuation allowance | | | — | | | | (194 | ) | | | — | | | | (194 | ) |
| | | | | | | | | | | |
| Net deferred tax liability | | $ | (176,382 | ) | | $ | (143,931 | ) | | $ | (176,382 | ) | | $ | (143,931 | ) |
| | | | | | | | | | | |
Deferred tax assets and liabilities at December 31, 2006 and 2005 are as follows (in thousands):
| | | | | | | | | |
| | | 2006 | | | 2005 | |
| |
| Current deferred tax asset | | $ | 815 | | | $ | 2,122 | |
| Non-current deferred tax liability | | | (177,197 | ) | | | (146,053 | ) |
| | | | | | | | | |
| Net deferred tax liability | | $ | (176,382 | ) | | $ | (143,931 | ) |
| | | | | | | | | |
During 2004, the Company generated approximately $49.3 million of net operating loss for federal income tax purposes which will also be available for carryforward to offset future income. At December 31, 2004 the Company has approximately $124.7 million and $160.8 million of net operating loss carryforwards for federal and state income tax purposes, respectively. The federal net operating loss will begin expiring in 2023. The state net operating losses will begin to expire in 2013. The Company has been able to take advantage of accelerated depreciation available under federal tax law, which has created a significant deferred tax liability. The reversal of the timing differences which gave rise to the deferred tax liability, future taxable income and future tax planning strategies will allow the Company to benefit from the deferred tax assets, and as such, most of the valuation allowance was released in 2002. The Company has a valuation allowance of $0.1 million at December 31, 2004 relating primarily to state net operating losses.
During 2005, the Company generated approximately $103.2 million of net operating loss for federal income tax purposes which will also be available for carryforward to offset future income. At December 31, 2005 the Company has approximately $228.7 million and $102.5 million of net operating loss carryforwards for federal and state income tax purposes, respectively. The federal net operating loss will begin expiring in 2023. The state net operating losses will begin to expire in 2013. The Company has been able to take advantage of accelerated depreciation and like-kind exchange gain deferral available under federal tax law, which has created a significant deferred tax liability. The reversal of the timing differences which gave rise to the deferred tax liability, future taxable income and future tax planning strategies will allow the Company to benefit from the deferred tax assets. The Company has a valuation allowance of $0.2 million at December 31, 2005 relating primarily to state net operating losses.
F-36
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
During 2006, the Company utilized approximately $6.5 million of net operating loss carryforwards for federal income tax purposes. At December 31, 2006 the Company has approximately $222.2 million and $131.4 million of net operating loss carryforwards for federal and state income tax purposes, respectively related to operations. As of December 31, 2006, the Company has an additional $4.5 million and $4.2 million of net operating losses for federal and state purposes, respectively, arising from tax deductions related to the exercise of non-qualified stock options accounted for under SFAS No. 123(R). The federal net operating loss will begin expiring in 2023. The state net operating losses will begin to expire in 2013. The Company has been able to take advantage of accelerated depreciation and like-kind exchange gain deferral available under
F-38
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
federal tax law, which has created a significant deferred tax liability. The reversal of the timing differences which gave rise to the deferred tax liability, future taxable income and future tax planning strategies will allow the Company to benefit from the deferred tax assets. The Company has no valuation allowance as of December 31, 2006.
The Company’s tax returns are subject to periodic audit by the various taxing jurisdictions in which it operates. These audits can result in adjustments of taxes due or adjustments of the NOLs which are available to offset future taxable income. The Company’s estimate of the potential outcome of any uncertain tax issue prior to audit is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time. An unfavorable result under audit may reduce the amount of federal and state NOLs the Company has available for carryforward 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.
The Company establishes income tax reserves when, despite its belief that its tax returns are fully supportable, it believes that certain positions may be challenged and ultimately modified. The Company established tax reserves of $23.9 million and $21.2 million as of December 31, 2006 and 2005, respectively. At December 31, 2005, tax reserves in the amount of $17.1 million and $4.1 million are included in other long-term liabilities and accounts payable and accrued expenses, respectively. At December 31, 2006, tax reserves in the amount of $19.5 million and $4.4 million are included in other long-term liabilities and accounts payable and accrued expenses, respectively.
A reconciliation of income taxes computed at the United States federal statutory income tax rate (35%) to the provision for income taxes reflected in the consolidated statements of income and comprehensive income for the years ended December 31, 2006, 2005 and 2004 is as follows (in thousands):
| | | | | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
| |
| U.S. federal income tax provision at statutory rate | | $ | 31,683 | | | $ | 114,136 | | | $ | 39,117 | |
| Increase (decrease) in income taxes resulting from: | | | | | | | | | | | | |
| State income taxes, net of federal income tax impact | | | 2,386 | | | | 10,865 | | | | 5,187 | |
| Change in valuation allowance | | | (194 | ) | | | 52 | | | | 58 | |
| Provision for tax uncertainties | | | 2,557 | | | | 2,274 | | | | 2,561 | |
| Permanent items | | | 218 | | | | 98 | | | | 15 | |
| Other | | | 67 | | | | — | | | | 62 | |
| | | | | | | | | | | | | |
| Provision for income taxes | | $ | 36,717 | | | $ | 127,425 | | | $ | 47,000 | |
| | | | | | | | | | | | | |
Internal Revenue Service Audit
The Internal Revenue Service (the “IRS”) commenced an audit of MetroPCS’ 2002 and 2003 federal income tax returns in March 2005. In October 2005, the IRS issued a30-day letter which primarily related to depreciation expense claimed on the returns under audit. The Company filed an appeal of the auditor’s assessments in November 2005. The IRS appeals officer made the Company an offer to settle all issues in July
F-37
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
2006. The net result of the settlement offer created an increase to 2002 taxable income of $3.9 million and an increase to the 2003 net operating loss of $0.5 million. The increase to 2002 taxable income was offset by net operating loss carryback from 2003. The Company owed additional interest on the 2002 deferred taxes of approximately $0.1 million, but no additional tax or penalty. In addition, the IRS Joint Committee concluded its review of the audit and issued a closing letter dated September 5, 2006.
F-39
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Texas Margin Tax
On May 18, 2006, the Texas Governor signed into law a Texas margin tax (“H.B. No. 3”) which restructures the state business tax by replacing the taxable capital and earned surplus components of the current franchise tax with a new “taxable margin” component. Because the tax base on the Texas margin tax is derived from an income-based measure, the Company believes the margin tax is an income tax and, therefore, the provisions of SFAS No. 109 regarding the recognition of deferred taxes apply to the new margin tax. In accordance with SFAS No. 109, the effect on deferred tax assets of a change in tax law should be included in tax expense attributable to continuing operations in the period that includes the enactment date. Although the effective date of H.B. No. 3 is January 1, 2008, certain effects of the change should be reflected in the financial statements of the first interim or annual reporting period that includes May 18, 2006. The Company has recorded a deferred tax liability of $0.05 million as of December 31, 2006 relating to H.B. No. 3.
| |
| 17. | Net Income Per Common Share: |
The following table sets forth the computation of basic and diluted net income per common share for the periods indicated (in thousands, except share and per share data):
| | | | | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
| |
Basic EPS — Two Class Method: | | | | | | | | | | | | |
| Net income | | $ | 53,806 | | | $ | 198,677 | | | $ | 64,890 | |
| Accrued dividends and accretion: | | | | | | | | | | | | |
| Series D Preferred Stock | | | (21,479 | ) | | | (21,479 | ) | | | (21,479 | ) |
| Series E Preferred Stock | | | (3,339 | ) | | | (1,133 | ) | | | — | |
| | | | | | | | | | | | | |
| Net income applicable to common stock | | $ | 28,988 | | | $ | 176,065 | | | $ | 43,411 | |
| Amount allocable to common shareholders | | | 57.1 | % | | | 54.4 | % | | | 53.1 | % |
| | | | | | | | | | | | | |
| Rights to undistributed earnings | | $ | 16,539 | | | $ | 95,722 | | | $ | 23,070 | |
| | | | | | | | | | | | | |
| Weighted average shares outstanding — basic | | | 155,820,381 | | | | 135,352,396 | | | | 126,722,051 | |
| | | | | | | | | | | | | |
| Net income per common share — basic | | $ | 0.11 | | | $ | 0.71 | | | $ | 0.18 | |
| | | | | | | | | | | | | |
Diluted EPS: | | | | | | | | | | | | |
| Rights to undistributed earnings | | $ | 16,539 | | | $ | 95,722 | | | $ | 23,070 | |
| | | | | | | | | | | | | |
| Weighted average shares outstanding — basic | | | 155,820,381 | | | | 135,352,396 | | | | 126,722,051 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Warrants | | | 147,257 | | | | 2,689,377 | | | | 6,642,015 | |
| Stock options | | | 3,728,970 | | | | 15,568,816 | | | | 17,269,621 | |
| | | | | | | | | | | | | |
| Weighted average shares outstanding — diluted | | | 159,696,608 | | | | 153,610,589 | | | | 150,633,687 | |
| | | | | | | | | | | | | |
| Net income per common share — diluted | | $ | 0.10 | | | $ | 0.62 | | | $ | 0.15 | |
| | | | | | | | | | | | | |
F-38
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Net income per common share is computed in accordance with EITF03-6. Under EITF03-6, the preferred stock is considered a “participating security” for purposes of computing earnings or loss per common share and, therefore, the preferred stock is included in the computation of basic and diluted net
F-40
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
income per common share using the two-class method, except during periods of net losses. When determining basic earnings per common share under EITF03-6, undistributed earnings for a period are allocated to a participating security based on the contractual participation rights of the security to share in those earnings as if all of the earnings for the period had been distributed.
At December 31, 2006, 2005 and 2004, 136.1 million, 129.4 million and 122.7 million, respectively, of convertible shares of Series D Preferred Stock were excluded from the calculation of diluted net income per common share since the effect was anti-dilutive.
At December 31, 2006 and 2005, 5.7 million and 1.9 million of convertible shares of Series E Preferred Stock were excluded from the calculation of diluted net income per common share since the effect was anti-dilutive.
Pro forma net income per common share, presented below, gives effect to the conversion of all outstanding shares of Series D Preferred Stock and Series E Preferred Stock, as well as accrued, but unpaid dividends, in connection with the proposed initial public offering. As a result of the conversion of the Series D Preferred Stock and the Series E Preferred Stock, pro forma net income per common share is not calculated using the two-class method, as presented above.
| | | | | |
| | | 2006 | |
| |
| Net income | | $ | 53,806 | |
| | | | | |
| Basic net income per common share — Pro forma | | $ | 0.18 | |
| | | | | |
| Diluted net income per common share — Pro forma | | $ | 0.18 | |
| | | | | |
| Shares used in computing pro forma basic net income per common share | | | 297,568,412 | |
| | | | | |
| Shares used in computing pro forma diluted net income per common share | | | 301,444,638 | |
| | | | | |
Operating segments are defined by SFAS No. 131 as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Chairman of the Board and Chief Executive Officer.
At December 31, 2006, the Company had eight operating segments based on geographic regions within the United States: Atlanta, Dallas/Ft. Worth, Detroit, Miami, San Francisco, Sacramento, Tampa/Sarasota/Orlando, and Los Angeles. Each of these operating segments provides wireless voice and data services and products to customers in its service areas or is currently constructing a network in order to provide these services. These services include unlimited local and long distance calling, voicemail, caller ID, call waiting, text messaging, picture and multimedia messaging, international long distance and text messaging, ringtones, games and content applications, unlimited directory assistance, ring back tones, nationwide roaming and other value-added services.
The Company aggregates its operating segments into two reportable segments: Core Markets and Expansion Markets.
| | |
| | • | Core Markets, which include Atlanta, Miami, San Francisco, and Sacramento, are aggregated because they are reviewed on an aggregate basis by the chief operating decision maker, they are similar in |
F-41
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
| | |
| | respect to their products and services, production processes, class of customer, method of distribution, and regulatory environment and currently exhibit similar financial performance and economic characteristics. |
| | |
| | • | Expansion Markets, which include Dallas/Ft. Worth, Detroit, Tampa/Sarasota/Orlando and Los Angeles, are aggregated because they are reviewed on an aggregate basis by the chief operating decision maker, they are similar in respect to their products and services, production processes, class of customer, method of distribution, and regulatory environment and have similar expected long-term financial performance and economic characteristics. |
The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. General corporate overhead, which includes expenses such as corporate employee labor costs, rent and utilities, legal, accounting and auditing expenses, is allocated equally across all operating segments. Corporate marketing and advertising expenses are allocated equally to the operating segments, beginning in the period during which the Company launches service in that operating segment. Expenses associated with the Company’s national data center are allocated based on the average number of
F-39
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
customers in each operating segment. All intercompany transactions between reportable segments have been eliminated in the presentation of operating segment data.
Interest expense, interest income, gain/loss on extinguishment of debt and income taxes are not allocated to the segments in the computation of segment operating profit for internal evaluation purposes.
| | | | | | | | | | | | | | | | | |
| | | Core
| | | Expansion
| | | | | | | |
Year Ended December 31, 2006 | | Markets | | | Markets | | | Other | | | Total | |
| |
| Service revenues | | $ | 1,138,019 | | | $ | 152,928 | | | $ | — | | | $ | 1,290,947 | |
| Equipment revenues | | | 208,333 | | | | 47,583 | | | | — | | | | 255,916 | |
| Total revenues | | | 1,346,352 | | | | 200,511 | | | | — | | | | 1,546,863 | |
| Cost of service(1) | | | 338,923 | | | | 106,358 | | | | — | | | | 445,281 | |
| Cost of equipment | | | 364,281 | | | | 112,596 | | | | — | | | | 476,877 | |
| Selling, general and administrative expenses(2) | | | 158,100 | | | | 85,518 | | | | — | | | | 243,618 | |
| Adjusted EBITDA (deficit)(3) | | | 492,773 | | | | (97,214 | ) | | | — | | | | | |
| Depreciation and amortization | | | 109,626 | | | | 21,941 | | | | 3,461 | | | | 135,028 | |
| Stock-based compensation expense | | | 7,725 | | | | 6,747 | | | | — | | | | 14,472 | |
| Income (loss) from operations | | | 367,109 | | | | (126,387 | ) | | | (3,469 | ) | | | 237,253 | |
| Interest expense | | | — | | | | — | | | | 115,985 | | | | 115,985 | |
| Accretion of put option in majority-owned subsidiary | | | — | | | | — | | | | 770 | | | | 770 | |
| Interest income | | | — | | | | — | | | | (21,543 | ) | | | (21,543 | ) |
| Loss on extinguishment of debt | | | — | | | | — | | | | 51,518 | | | | 51,518 | |
| Income (loss) before provision for income taxes | | | 367,109 | | | | (126,387 | ) | | | (150,199 | ) | | | 90,523 | |
| Capital expenditures | | | 217,215 | | | | 314,308 | | | | 19,226 | | | | 550,749 | |
| Total assets(4) | | | 945,699 | | | | 1,064,243 | | | | 2,143,180 | | | | 4,153,122 | |
F-42F-40
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
| | | | | | | | | | | | | | | | | |
| | | Core
| | | Expansion
| | | | | | | |
Year Ended December 31, 2005 | | Markets | | | Markets | | | Other | | | Total | |
| |
| Service revenues | | $ | 868,681 | | | $ | 3,419 | | | $ | — | | | $ | 872,100 | |
| Equipment revenues | | | 163,738 | | | | 2,590 | | | | — | | | | 166,328 | |
| Total revenues | | | 1,032,419 | | | | 6,009 | | | | — | | | | 1,038,428 | |
| Cost of service | | | 271,437 | | | | 11,775 | | | | — | | | | 283,212 | |
| Cost of equipment | | | 293,702 | | | | 7,169 | | | | — | | | | 300,871 | |
| Selling, general and administrative expenses(2) | | | 153,321 | | | | 9,155 | | | | — | | | | 162,476 | |
| Adjusted EBITDA (deficit)(3) | | | 316,555 | | | | (22,090 | ) | | | — | | | | | |
| Depreciation and amortization | | | 84,436 | | | | 2,030 | | | | 1,429 | | | | 87,895 | |
| Stock-based compensation expense | | | 2,596 | | | | — | | | | — | | | | 2,596 | |
| Income (loss) from operations | | | 219,777 | | | | (24,370 | ) | | | 226,770 | | | | 422,177 | |
| Interest expense | | | — | | | | — | | | | 58,033 | | | | 58,033 | |
| Accretion of put option in majority-owned subsidiary | | | — | | | | — | | | | 252 | | | | 252 | |
| Interest income | | | — | | | | — | | | | (8,658 | ) | | | (8,658 | ) |
| Loss on extinguishment of debt | | | — | | | | — | | | | 46,448 | | | | 46,448 | |
| Income (loss) before provision for income taxes | | | 219,777 | | | | (24,370 | ) | | | 130,695 | | | | 326,102 | |
| Capital expenditures | | | 171,783 | | | | 90,871 | | | | 3,845 | | | | 266,499 | |
| Total assets | | | 701,675 | | | | 378,671 | | | | 1,078,635 | | | | 2,158,981 | |
| | |
| (1) | | Cost of service for the year ended December 31, 2006 includes $1.3 million of stock-based compensation expense disclosed separately. |
| |
| (2) | | Selling, general and administrative expenses include stock-based compensation expense disclosed separately. For the years ended December 31, 2006 and 2005, selling, general and administrative expenses include $13.2 million and $2.6 million, respectively, of stock-based compensation expense. |
| |
| (3) | | Adjusted EBITDA (deficit) is presented in accordance with SFAS No. 131 as it is the primary financial measure utilized by management to facilitate evaluation of each segments’ ability to meet future debt service, capital expenditures and working capital requirements and to fund future growth. |
| |
| (4) | | Total assets as of December 31, 2006 include the Auction 66 AWS licenses that the Company was granted on November 29, 2006 for a total aggregate purchase price of approximately $1.4 billion. These AWS licenses are presented in the “Other” column as the Company has not allocated the Auction 66 licenses to its reportable segments as of December 31, 2006. |
F-43F-41
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
The following table reconciles segment Adjusted EBITDA (Deficit) for the years ended December 31, 2006 and 2005 to consolidated income before provision for income taxes:
| | | | | | | | | |
| | | 2006 | | | 2005 | |
| |
Segment Adjusted EBITDA (Deficit): | | | | | | | | |
| Core Markets Adjusted EBITDA | | $ | 492,773 | | | $ | 316,555 | |
| Expansion Markets Adjusted EBITDA (Deficit) | | | (97,214 | ) | | | (22,090 | ) |
| | | | | | | | | |
Total | | | 395,559 | | | | 294,465 | |
| Depreciation and amortization | | | (135,028 | ) | | | (87,895 | ) |
| Loss (gain) on disposal of assets | | | (8,806 | ) | | | 218,203 | |
| Non-cash compensation expense | | | (14,472 | ) | | | (2,596 | ) |
| Interest expense | | | (115,985 | ) | | | (58,033 | ) |
| Accretion of put option in majority-owned subsidiary | | | (770 | ) | | | (252 | ) |
| Interest and other income | | | 21,543 | | | | 8,658 | |
| (Gain) loss on extinguishment of debt | | | (51,518 | ) | | | (46,448 | ) |
| | | | | | | | | |
Consolidated income before provision for income taxes | | $ | 90,523 | | | $ | 326,102 | |
| | | | | | | | | |
For the year ended December 31, 2004 the consolidated financial statements represent the Core Markets reportable segment, as the Expansion Markets reportable segment had no operations until 2005.
| |
| 19. | Guarantor Subsidiaries: |
In connection with Wireless’ sale of the 91/4% Senior Notes and the entry into the Senior Secured Credit Facility, MetroPCS and all of MetroPCS’ subsidiaries, other than Wireless and Royal Street (the “guarantor subsidiaries”), provided guarantees on the 91/4% Senior Notes and Senior Secured Credit Facility. These guarantees are full and unconditional as well as joint and several. Certain provisions of the Senior Secured Credit Facility restrict the ability of the guarantor subsidiaries to transfer funds to Wireless. Royal Street and its subsidiaries (the “non-guarantor subsidiaries”) are not guarantors of the 91/4% Senior Notes or the Senior Secured Credit Facility.
The following information presents condensed consolidating balance sheets as of December 31, 2006 and 2005, condensed consolidating statements of income for the years ended December 31, 2006, 2005 and 2004, and condensed consolidating statements of cash flows for the years ended December 31, 2006, 2005 and 2004 of the parent company, the issuer, the guarantor subsidiaries and the non-guarantor subsidiaries. Investments include investments in subsidiaries held by the parent company and the issuer and have been presented using the equity method of accounting.
F-44F-42
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Consolidated Balance Sheet
As of December 31, 2006
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Non-
| | | | | | | |
| | | | | | | | | Guarantor
| | | Guarantor
| | | | | | | |
| | | Parent | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | (In thousands) | |
| |
CURRENT ASSETS: | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 15,714 | | | $ | 99,301 | | | $ | 257 | | | $ | 46,226 | | | $ | — | | | $ | 161,498 | |
| Short-term investments | | | 45,365 | | | | 345,286 | | | | — | | | | — | | | | — | | | | 390,651 | |
| Restricted short-term investments | | | — | | | | 556 | | | | — | | | | 51 | | | | — | | | | 607 | |
| Inventories, net | | | — | | | | 81,339 | | | | 11,576 | | | | — | | | | — | | | | 92,915 | |
| Accounts receivable, net | | | — | | | | 29,348 | | | | — | | | | 1,005 | | | | (2,213 | ) | | | 28,140 | |
| Prepaid expenses | | | — | | | | 8,107 | | | | 23,865 | | | | 1,137 | | | | — | | | | 33,109 | |
| Deferred charges | | | — | | | | 26,509 | | | | — | | | | — | | | | — | | | | 26,509 | |
| Deferred tax asset | | | — | | | | 815 | | | | — | | | | — | | | | — | | | | 815 | |
| Current receivable from subsidiaries | | | — | | | | 4,734 | | | | — | | | | — | | | | (4,734 | ) | | | — | |
| Other current assets | | | 97 | | | | 9,478 | | | | 15,354 | | | | 120 | | | | (766 | ) | | | 24,283 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total current assets | | | 61,176 | | | | 605,473 | | | | 51,052 | | | | 48,539 | | | | (7,713 | ) | | | 758,527 | |
| Property and equipment, net | | | — | | | | 14,077 | | | | 1,158,442 | | | | 83,643 | | | | — | | | | 1,256,162 | |
| Long-term investments | | | — | | | | 1,865 | | | | — | | | | — | | | | — | | | | 1,865 | |
| Investment in subsidiaries | | | 320,783 | | | | 939,009 | | | | — | | | | — | | | | (1,259,792 | ) | | | — | |
| FCC licenses | | | 1,391,410 | | | | — | | | | 387,876 | | | | 293,599 | | | | — | | | | 2,072,885 | |
| Microwave relocation costs | | | — | | | | — | | | | 9,187 | | | | — | | | | — | | | | 9,187 | |
| Long-term receivable from subsidiaries | | | — | | | | 456,070 | | | | — | | | | — | | | | (456,070 | ) | | | — | |
| Other assets | | | 399 | | | | 51,477 | | | | 4,078 | | | | 5,810 | | | | (7,268 | ) | | | 54,496 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total assets | | $ | 1,773,768 | | | $ | 2,067,971 | | | $ | 1,610,635 | | | $ | 431,591 | | | $ | (1,730,843 | ) | | $ | 4,153,122 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 401 | | | $ | 138,953 | | | $ | 161,663 | | | $ | 29,614 | | | $ | (4,950 | ) | | $ | 325,681 | |
| Current maturities of long-term debt | | | — | | | | 16,000 | | | | — | | | | 4,734 | | | | (4,734 | ) | | | 16,000 | |
| Deferred revenue | | | — | | | | 19,030 | | | | 71,471 | | | | — | | | | — | | | | 90,501 | |
| Advances to subsidiaries | | | 865,612 | | | | (1,207,821 | ) | | | 341,950 | | | | — | | | | 259 | | | | — | |
| Other current liabilities | | | — | | | | 31 | | | | 3,416 | | | | 757 | | | | (757 | ) | | | 3,447 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total current liabilities | | | 866,013 | | | | (1,033,807 | ) | | | 578,500 | | | | 35,105 | | | | (10,182 | ) | | | 435,629 | |
| Long-term debt | | | — | | | | 2,580,000 | | | | — | | | | 4,540 | | | | (4,540 | ) | | | 2,580,000 | |
| Long-term note to parent | | | — | | | | — | | | | — | | | | 456,070 | | | | (456,070 | ) | | | — | |
| Deferred tax liabilities | | | 7 | | | | 177,190 | | | | — | | | | — | | | | — | | | | 177,197 | |
| Deferred rents | | | — | | | | — | | | | 21,784 | | | | 419 | | | | — | | | | 22,203 | |
| Redeemable minority interest | | | — | | | | 4,029 | | | | — | | | | — | | | | — | | | | 4,029 | |
| Other long-term liabilities | | | — | | | | 19,517 | | | | 6,285 | | | | 514 | | | | — | | | | 26,316 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total liabilities | | | 866,020 | | | | 1,746,929 | | | | 606,569 | | | | 496,648 | | | | (470,792 | ) | | | 3,245,374 | |
| COMMITMENTS AND CONTINGENCIES (See Note 10) | | | | | | | | | | | | | | | | | | | | | | | | |
| SERIES D PREFERRED STOCK | | | 443,368 | | | | — | | | | — | | | | — | | | | — | | | | 443,368 | |
| SERIES E PREFERRED STOCK | | | 51,135 | | | | — | | | | — | | | | — | | | | — | | | | 51,135 | |
STOCKHOLDERS’ EQUITY: | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Common stock | | | 16 | | | | — | | | | — | | | | — | | | | — | | | | 16 | |
| Additional paid-in capital | | | 166,315 | | | | — | | | | — | | | | 20,000 | | | | (20,000 | ) | | | 166,315 | |
| Retained earnings (deficit) | | | 245,690 | | | | 319,863 | | | | 1,004,066 | | | | (85,057 | ) | | | (1,238,872 | ) | | | 245,690 | |
| Accumulated other comprehensive income | | | 1,224 | | | | 1,179 | | | | — | | | | — | | | | (1,179 | ) | | | 1,224 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total stockholders’ equity | | | 413,245 | | | | 321,042 | | | | 1,004,066 | | | | (65,057 | ) | | | (1,260,051 | ) | | | 413,245 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 1,773,768 | | | $ | 2,067,971 | | | $ | 1,610,635 | | | $ | 431,591 | | | $ | (1,730,843 | ) | | $ | 4,153,122 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-45F-43
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Consolidated Balance Sheet
As of December 31, 2005
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Non-
| | | | | | | |
| | | | | | | | | Guarantor
| | | Guarantor
| | | | | | | |
| | | Parent | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | (In thousands) | |
| |
CURRENT ASSETS: | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 10,624 | | | $ | 95,772 | | | $ | 219 | | | $ | 6,094 | | | $ | — | | | $ | 112,709 | |
| Short-term investments | | | 24,223 | | | | 366,199 | | | | — | | | | — | | | | — | | | | 390,422 | |
| Inventories, net | | | — | | | | 34,045 | | | | 5,386 | | | | — | | | | — | | | | 39,431 | |
| Accounts receivable, net | | | — | | | | 16,852 | | | | — | | | | — | | | | (824 | ) | | | 16,028 | |
| Prepaid expenses | | | — | | | | — | | | | 21,412 | | | | 18 | | | | — | | | | 21,430 | |
| Deferred charges | | | — | | | | 13,270 | | | | — | | | | — | | | | — | | | | 13,270 | |
| Deferred tax asset | | | — | | | | 2,122 | | | | — | | | | — | | | | — | | | | 2,122 | |
| Other current assets | | | 208 | | | | 2,364 | | | | 14,118 | | | | — | | | | — | | | | 16,690 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total current assets | | | 35,055 | | | | 530,624 | | | | 41,135 | | | | 6,112 | | | | (824 | ) | | | 612,102 | |
| Property and equipment, net | | | — | | | | — | | | | 829,457 | | | | 2,033 | | | | — | | | | 831,490 | |
| Restricted cash and investments | | | — | | | | 2,917 | | | | 3 | | | | — | | | | — | | | | 2,920 | |
| Long-term investments | | | — | | | | 16,385 | | | | — | | | | — | | | | (11,333 | ) | | | 5,052 | |
| Investment in subsidiaries | | | 243,671 | | | | 710,963 | | | | — | | | | — | | | | (954,634 | ) | | | — | |
| FCC licenses | | | — | | | | — | | | | 387,700 | | | | 293,599 | | | | — | | | | 681,299 | |
| Microwave relocation costs | | | — | | | | — | | | | 9,187 | | | | — | | | | — | | | | 9,187 | |
| Long-term receivable from subsidiaries | | | — | | | | 320,630 | | | | — | | | | — | | | | (320,630 | ) | | | — | |
| Other assets | | | — | | | | 15,360 | | | | 1,571 | | | | — | | | | — | | | | 16,931 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total assets | | $ | 278,726 | | | $ | 1,596,879 | | | $ | 1,269,053 | | | $ | 301,744 | | | $ | (1,287,421 | ) | | $ | 2,158,981 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 321 | | | $ | 58,104 | | | $ | 125,362 | | | $ | 2,590 | | | $ | (12,157 | ) | | $ | 174,220 | |
| Current maturities of long-term debt | | | — | | | | — | | | | 2,690 | | | | — | | | | — | | | | 2,690 | |
| Deferred revenue | | | — | | | | 9,158 | | | | 47,402 | | | | — | | | | — | | | | 56,560 | |
| Advances to subsidiaries | | | (559,186 | ) | | | 218,278 | | | | 340,908 | | | | — | | | | — | | | | — | |
| Other current liabilities | | | — | | | | — | | | | 2,147 | | | | — | | | | — | | | | 2,147 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total current liabilities | | | (558,865 | ) | | | 285,540 | | | | 518,509 | | | | 2,590 | | | | (12,157 | ) | | | 235,617 | |
| Long-term debt, net | | | — | | | | 902,864 | | | | — | | | | — | | | | — | | | | 902,864 | |
| Long-term note to parent | | | — | | | | — | | | | — | | | | 320,630 | | | | (320,630 | ) | | | — | |
| Deferred tax liabilities | | | — | | | | 146,053 | | | | — | | | | — | | | | — | | | | 146,053 | |
| Deferred rents | | | — | | | | — | | | | 14,739 | | | | — | | | | — | | | | 14,739 | |
| Redeemable minority interest | | | — | | | | 1,259 | | | | — | | | | — | | | | — | | | | 1,259 | |
| Other long-term liabilities | | | — | | | | 17,233 | | | | 3,625 | | | | — | | | | — | | | | 20,858 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total liabilities | | | (558,865 | ) | | | 1,352,949 | | | | 536,873 | | | | 323,220 | | | | (332,787 | ) | | | 1,321,390 | |
| COMMITMENTS AND CONTINGENCIES (See Note 10) | | | | | | | | | | | | | | | | | | | | | | | | |
| SERIES D PREFERRED STOCK | | | 421,889 | | | | — | | | | — | | | | — | | | | — | | | | 421,889 | |
| SERIES E PREFERRED STOCK | | | 47,796 | | | | — | | | | — | | | | — | | | | — | | | | 47,796 | |
STOCKHOLDERS’ EQUITY: | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Common stock | | | 15 | | | | — | | | | — | | | | — | | | | — | | | | 15 | |
| Additional paid-in capital | | | 149,584 | | | | — | | | | — | | | | 20,000 | | | | (20,000 | ) | | | 149,584 | |
| Subscriptions receivable | | | — | | | | — | | | | — | | | | (13,333 | ) | | | 13,333 | | | | — | |
| Deferred compensation | | | (178 | ) | | | (178 | ) | | | (178 | ) | | | — | | | | 356 | | | | (178 | ) |
| Retained earnings (deficit) | | | 216,702 | | | | 242,357 | | | | 732,358 | | | | (28,143 | ) | | | (946,572 | ) | | | 216,702 | |
| Accumulated other comprehensive income | | | 1,783 | | | | 1,751 | | | | — | | | | — | | | | (1,751 | ) | | | 1,783 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total stockholders’ equity | | | 367,906 | | | | 243,930 | | | | 732,180 | | | | (21,476 | ) | | | (954,634 | ) | | | 367,906 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 278,726 | | | $ | 1,596,879 | | | $ | 1,269,053 | | | $ | 301,744 | | | $ | (1,287,421 | ) | | $ | 2,158,981 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-46F-44
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Consolidated Statement of Income
Year Ended December 31, 2006
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Guarantor
| | | Non-Guarantor
| | | | | | | |
| | | Parent | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | (In thousands) | |
| |
| REVENUES: | | | | | | | | | | | | | | | | | | | | | | | | |
| Service revenues | | $ | — | | | $ | 695 | | | $ | 1,290,945 | | | $ | 1,005 | | | $ | (1,698 | ) | | $ | 1,290,947 | |
| Equipment revenues | | | — | | | | 11,900 | | | | 244,016 | | | | — | | | | — | | | | 255,916 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | | — | | | | 12,595 | | | | 1,534,961 | | | | 1,005 | | | | (1,698 | ) | | | 1,546,863 | |
| OPERATING EXPENSES: | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of service (excluding depreciation and amortization expense shown separately below) | | | — | | | | — | | | | 434,987 | | | | 11,992 | | | | (1,698 | ) | | | 445,281 | |
| Cost of equipment | | | — | | | | 11,538 | | | | 465,339 | | | | — | | | | — | | | | 476,877 | |
| Selling, general and administrative expenses (excluding depreciation and amortization expense shown separately below) | | | — | | | | 362 | | | | 227,723 | | | | 15,533 | | | | — | | | | 243,618 | |
| Depreciation and amortization | | | — | | | | — | | | | 134,708 | | | | 320 | | | | — | | | | 135,028 | |
| Loss on disposal of assets | | | — | | | | — | | | | 8,806 | | | | — | | | | — | | | | 8,806 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total operating expenses | | | — | | | | 11,900 | | | | 1,271,563 | | | | 27,845 | | | | (1,698 | ) | | | 1,309,610 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | | — | | | | 695 | | | | 263,398 | | | | (26,480 | ) | | | — | | | | 237,253 | |
| OTHER EXPENSE (INCOME): | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | 17,161 | | | | 115,575 | | | | (7,370 | ) | | | 30,956 | | | | (40,337 | ) | | | 115,985 | |
| Earnings from consolidated subsidiaries | | | (77,506 | ) | | | (214,795 | ) | | | — | | | | — | | | | 292,301 | | | | — | |
| Accretion of put option in majority-owned subsidiary | | | — | | | | 770 | | | | — | | | | — | | | | — | | | | 770 | |
| Interest and other income | | | (2,807 | ) | | | (57,493 | ) | | | (699 | ) | | | (882 | ) | | | 40,338 | | | | (21,543 | ) |
| Loss on extinguishment of debt | | | 9,345 | | | | 42,415 | | | | (242 | ) | | | — | | | | — | | | | 51,518 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total other expense | | | (53,807 | ) | | | (113,528 | ) | | | (8,311 | ) | | | 30,074 | | | | 292,302 | | | | 146,730 | |
| Income before provision for income taxes | | | 53,807 | | | | 114,223 | | | | 271,709 | | | | (56,914 | ) | | | (292,302 | ) | | | 90,523 | |
| Provision for income taxes | | | — | | | | (36,717 | ) | | | — | | | | — | | | | — | | | | (36,717 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | 53,807 | | | $ | 77,506 | | | $ | 271,709 | | | $ | (56,914 | ) | | $ | (292,302 | ) | | $ | 53,806 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-47F-45
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Consolidated Statement of Income
Year Ended December 31, 2005
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Guarantor
| | | Non-Guarantor
| | | | | | | |
| | | Parent | | | Issuer | | | Subsidiaries | | | Subsidiaries | �� | | Eliminations | | | Consolidated | |
| | | (In thousands) | |
| |
| REVENUES: | | | | | | | | | | | | | | | | | | | | | | | | |
| Service revenues | | $ | — | | | $ | — | | | $ | 872,100 | | | $ | — | | | $ | — | | | $ | 872,100 | |
| Equipment revenues | | | — | | | | 13,960 | | | | 152,368 | | | | — | | | | — | | | | 166,328 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | | — | | | | 13,960 | | | | 1,024,468 | | | | — | | | | — | | | | 1,038,428 | |
| OPERATING EXPENSES: | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of service (excluding depreciation and amortization expense shown separately below) | | | — | | | | — | | | | 283,175 | | | | 37 | | | | — | | | | 283,212 | |
| Cost of equipment | | | — | | | | 12,837 | | | | 288,034 | | | | — | | | | — | | | | 300,871 | |
| Selling, general and administrative expenses (excluding depreciation and amortization expense shown separately below) | | | 274 | | | | 2,893 | | | | 158,287 | | | | 1,022 | | | | — | | | | 162,476 | |
| Depreciation and amortization | | | — | | | | 120 | | | | 87,775 | | | | — | | | | — | | | | 87,895 | |
| Gain on disposal of assets | | | — | | | | — | | | | (218,203 | ) | | | — | | | | — | | | | (218,203 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total operating expenses | | | 274 | | | | 15,850 | | | | 599,068 | | | | 1,059 | | | | — | | | | 616,251 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | | (274 | ) | | | (1,890 | ) | | | 425,400 | | | | (1,059 | ) | | | — | | | | 422,177 | |
| OTHER EXPENSE (INCOME): | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | — | | | | 58,482 | | | | (444 | ) | | | 26,997 | | | | (27,002 | ) | | | 58,033 | |
| Earnings from consolidated subsidiaries | | | (198,335 | ) | | | (396,060 | ) | | | — | | | | — | | | | 594,395 | | | | — | |
| Accretion of put option in majority-owned subsidiary | | | — | | | | 252 | | | | — | | | | — | | | | — | | | | 252 | |
| Interest and other income | | | (615 | ) | | | (34,913 | ) | | | (1 | ) | | | (131 | ) | | | 27,002 | | | | (8,658 | ) |
| Loss on extinguishment of debt | | | — | | | | 44,589 | | | | 1,859 | | | | — | | | | — | | | | 46,448 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total other expense | | | (198,950 | ) | | | (327,650 | ) | | | 1,414 | | | | 26,866 | | | | 594,395 | | | | 96,075 | |
| Income before provision for income taxes | | | 198,676 | | | | 325,760 | | | | 423,986 | | | | (27,925 | ) | | | (594,395 | ) | | | 326,102 | |
| Provision for income taxes | | | — | | | | (127,425 | ) | | | — | | | | — | | | | — | | | | (127,425 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | 198,676 | | | $ | 198,335 | | | $ | 423,986 | | | $ | (27,925 | ) | | $ | (594,395 | ) | | $ | 198,677 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-48F-46
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Consolidated Statement of Income
Year Ended December 31, 2004
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Guarantor
| | | Non-Guarantor
| | | | | | | |
| | | Parent | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | (In thousands) | |
| |
| REVENUES: | | | | | | | | | | | | | | | | | | | | | | | | |
| Service revenues | | $ | — | | | $ | — | | | $ | 616,401 | | | $ | — | | | $ | — | | | $ | 616,401 | |
| Equipment revenues | | | — | | | | 11,720 | | | | 120,129 | | | | — | | | | — | | | | 131,849 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | | — | | | | 11,720 | | | | 736,530 | | | | — | | | | — | | | | 748,250 | |
| OPERATING EXPENSES: | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of service (excluding depreciation and amortization expense shown separately below) | | | — | | | | — | | | | 200,806 | | | | — | | | | — | | | | 200,806 | |
| Cost of equipment | | | — | | | | 10,944 | | | | 211,822 | | | | — | | | | — | | | | 222,766 | |
| Selling, general and administrative expenses (excluding depreciation and amortization expense shown separately below) | | | 2,631 | | | | 38,956 | | | | 89,761 | | | | 162 | | | | — | | | | 131,510 | |
| Depreciation and amortization | | | — | | | | 915 | | | | 61,286 | | | | — | | | | — | | | | 62,201 | |
| Loss on disposal of assets | | | — | | | | 24 | | | | 3,185 | | | | — | | | | — | | | | 3,209 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total operating expenses | | | 2,631 | | | | 50,839 | | | | 566,860 | | | | 162 | | | | — | | | | 620,492 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | | (2,631 | ) | | | (39,119 | ) | | | 169,670 | | | | (162 | ) | | | — | | | | 127,758 | |
| OTHER EXPENSE (INCOME): | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | — | | | | 16,723 | | | | 2,307 | | | | 56 | | | | (56 | ) | | | 19,030 | |
| Earnings from consolidated subsidiaries | | | (66,600 | ) | | | (167,843 | ) | | | — | | | | — | | | | 234,443 | | | | — | |
| Accretion of put option in majority-owned subsidiary | | | — | | | | 8 | | | | — | | | | — | | | | — | | | | 8 | |
| Interest and other income | | | — | | | | (2,528 | ) | | | — | | | | — | | | | 56 | | | | (2,472 | ) |
| Gain on extinguishment of debt | | | — | | | | — | | | | (698 | ) | | | — | | | | — | | | | (698 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total other expense | | | (66,600 | ) | | | (153,640 | ) | | | 1,609 | | | | 56 | | | | 234,443 | | | | 15,868 | |
| Income before provision for income taxes | | | 63,969 | | | | 114,521 | | | | 168,061 | | | | (218 | ) | | | (234,443 | ) | | | 111,890 | |
| Provision for income taxes | | | 921 | | | | (47,921 | ) | | | — | | | | — | | | | — | | | | (47,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | 64,890 | | | $ | 66,600 | | | $ | 168,061 | | | $ | (218 | ) | | $ | (234,443 | ) | | $ | 64,890 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-49F-47
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Consolidated Statement of Cash Flows
Year Ended December 31, 2006
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Guarantor
| | | Non-Guarantor
| | | | | | | |
| | | Parent | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | (In Thousands) | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | 53,807 | | | $ | 77,504 | | | $ | 271,709 | | | $ | (56,914 | ) | | $ | (292,300 | ) | | $ | 53,806 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | — | | | | — | | | | 134,708 | | | | 320 | | | | — | | | | 135,028 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Provision for uncollectible accounts receivable | | | — | | | | 31 | | | | — | | | | — | | | | — | | | | 31 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Deferred rent expense | | | — | | | | — | | | | 7,045 | | | | 419 | | | | — | | | | 7,464 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of abandoned cell sites | | | — | | | | — | | | | 1,421 | | | | 2,362 | | | | — | | | | 3,783 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-cash interest expense | | | 4,810 | | | | 1,681 | | | | 473 | | | | 40,129 | | | | (40,129 | ) | | | 6,964 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Loss on disposal of assets | | | — | | | | — | | | | 8,806 | | | | — | | | | — | | | | 8,806 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Loss (gain) on extinguishment of debt | | | 9,345 | | | | 42,415 | | | | (242 | ) | | | — | | | | — | | | | 51,518 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gain on sale of investments | | | (815 | ) | | | (1,570 | ) | | | — | | | | — | | | | — | | | | (2,385 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Accretion of asset retirement obligation | | | — | | | | — | | | | 706 | | | | 63 | | | | — | | | | 769 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Accretion of put option in majority-owned subsidiary | | | — | | | | 770 | | | | — | | | | — | | | | — | | | | 770 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Deferred income taxes | | | (613 | ) | | | 32,954 | | | | — | | | | — | | | | — | | | | 32,341 | |
| | | | | | | | | | | �� | | | | | | | | | | | | | | |
| Stock-based compensation expense | | | — | | | | — | | | | 14,472 | | | | — | | | | — | | | | 14,472 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Changes in assets and liabilities | | | 1,334,686 | | | | (1,758,916 | ) | | | 29,988 | | | | 13,162 | | | | 432,474 | | | | 51,394 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) operating activities | | | 1,401,220 | | | | (1,605,131 | ) | | | 469,086 | | | | (459 | ) | | | 100,045 | | | | 364,761 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Purchases of property and equipment | | | — | | | | (19,326 | ) | | | (472,020 | ) | | | (59,403 | ) | | | — | | | | (550,749 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in prepaid purchases of property and equipment | | | — | | | | (7,826 | ) | | | 2,564 | | | | — | | | | — | | | | (5,262 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from sale of property and equipment | | | — | | | | — | | | | 3,021 | | | | — | | | | — | | | | 3,021 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Purchase of investments | | | (326,517 | ) | | | (943,402 | ) | | | — | | | | — | | | | — | | | | (1,269,919 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from sale of investments | | | 333,159 | | | | 939,265 | | | | — | | | | — | | | | — | | | | 1,272,424 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in restricted cash and investments | | | — | | | | 2,448 | | | | 9 | | | | (51 | ) | | | — | | | | 2,406 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Purchases of and deposits for FCC licenses | | | (1,391,410 | ) | | | — | | | | (176 | ) | | | — | | | | — | | | | (1,391,586 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | (1,384,768 | ) | | | (28,841 | ) | | | (466,602 | ) | | | (59,454 | ) | | | — | | | | (1,939,665 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in book overdraft. | | | — | | | | 11,368 | | | | — | | | | — | | | | — | | | | 11,368 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from bridge credit agreements | | | 1,500,000 | | | | — | | | | — | | | | — | | | | — | | | | 1,500,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from Senior Secured Credit Facility | | | — | | | | 1,600,000 | | | | — | | | | — | | | | — | | | | 1,600,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from 91/4% Senior Notes | | | — | | | | 1,000,000 | | | | — | | | | — | | | | — | | | | 1,000,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from minority interest in subsidiary | | | — | | | | 2,000 | | | | — | | | | — | | | | — | | | | 2,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from long-term note to parent | | | — | | | | — | | | | — | | | | 100,045 | | | | (100,045 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Debt issuance costs | | | (14,106 | ) | | | (44,683 | ) | | | — | | | | — | | | | — | | | | (58,789 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Repayment of debt | | | (1,500,000 | ) | | | (935,539 | ) | | | (2,446 | ) | | | — | | | | — | | | | (2,437,985 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from termination of cash flow hedging derivative | | | — | | | | 4,355 | | | | — | | | | — | | | | — | | | | 4,355 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from exercise of stock options and warrants | | | 2,744 | | | | — | | | | — | | | | — | | | | — | | | | 2,744 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash (used in) provided by financing activities | | | (11,362 | ) | | | 1,637,501 | | | | (2,446 | ) | | | 100,045 | | | | (100,045 | ) | | | 1,623,693 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
INCREASE IN CASH AND CASH EQUIVALENTS | | | 5,090 | | | | 3,529 | | | | 38 | | | | 40,132 | | | | — | | | | 48,789 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS, beginning of period | | | 10,624 | | | | 95,772 | | | | 219 | | | | 6,094 | | | | — | | | | 112,709 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of period | | $ | 15,714 | | | $ | 99,301 | | | $ | 257 | | | $ | 46,226 | | | $ | — | | | $ | 161,498 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-50F-48
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Consolidated Statement of Cash Flows
Year Ended December 31, 2005
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Guarantor
| | | Non-Guarantor
| | | | | | | |
| | | Parent | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | (In Thousands) | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | 198,928 | | | $ | 198,587 | | | $ | 423,986 | | | $ | (27,925 | ) | | $ | (594,899 | ) | | $ | 198,677 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | — | | | | 120 | | | | 87,775 | | | | — | | | | — | | | | 87,895 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Provision for uncollectible accounts receivable | | | — | | | | 129 | | | | — | | | | — | | | | — | | | | 129 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Deferred rent expense | | | — | | | | (72 | ) | | | 4,479 | | | | — | | | | — | | | | 4,407 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of abandoned cell sites | | | — | | | | — | | | | 725 | | | | — | | | | — | | | | 725 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-cash interest expense | | | — | | | | 3,695 | | | | 590 | | | | 26,997 | | | | (26,997 | ) | | | 4,285 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gain on disposal of assets | | | — | | | | — | | | | (218,203 | ) | | | — | | | | — | | | | (218,203 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Loss on extinguishment of debt | | | — | | | | 44,589 | | | | 1,859 | | | | — | | | | — | | | | 46,448 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gain on sale of investments | | | (154 | ) | | | (36 | ) | | | — | | | | — | | | | — | | | | (190 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Accretion of asset retirement obligation | | | — | | | | 1 | | | | 422 | | | | — | | | | — | | | | 423 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Accretion of put option in majority-owned subsidiary | | | — | | | | — | | | | — | | | | — | | | | 252 | | | | 252 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Deferred income taxes | | | 52,882 | | | | 72,173 | | | | — | | | | — | | | | — | | | | 125,055 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock-based compensation expense | | | — | | | | — | | | | 2,596 | | | | — | | | | — | | | | 2,596 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Changes in assets and liabilities | | | (272,868 | ) | | | (608,004 | ) | | | 13,857 | | | | 862 | | | | 896,870 | | | | 30,717 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash (used in) provided by operating activities | | | (21,212 | ) | | | (288,818 | ) | | | 318,086 | | | | (66 | ) | | | 275,226 | | | | 283,216 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Purchases of property and equipment | | | — | | | | — | | | | (266,033 | ) | | | (466 | ) | | | — | | | | (266,499 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in prepaid purchases of property and equipment | | | — | | | | — | | | | (11,800 | ) | | | — | | | | — | | | | (11,800 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from sale of property and equipment | | | — | | | | — | | | | 146 | | | | — | | | | — | | | | 146 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Purchase of investments | | | (54,262 | ) | | | (685,220 | ) | | | — | | | | — | | | | — | | | | (739,482 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from sale of investments | | | 30,225 | | | | 356,219 | | | | — | | | | — | | | | — | | | | 386,444 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in restricted cash and investments | | | — | | | | (121 | ) | | | 14 | | | | — | | | | — | | | | (107 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Purchases of FCC licenses | | | — | | | | — | | | | (235,330 | ) | | | (268,600 | ) | | | — | | | | (503,930 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from sale of FCC licenses | | | — | | | | — | | | | 230,000 | | | | — | | | | — | | | | 230,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | (24,037 | ) | | | (329,122 | ) | | | (283,003 | ) | | | (269,066 | ) | | | — | | | | (905,228 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in book overdraft. | | | — | | | | (565 | ) | | | — | | | | — | | | | — | | | | (565 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Payment upon execution of cash flow hedging derivative | | | — | | | | (1,899 | ) | | | — | | | | — | | | | — | | | | (1,899 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from Credit Agreements | | | — | | | | 902,875 | | | | — | | | | — | | | | — | | | | 902,875 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from Bridge Credit Agreements | | | — | | | | 540,000 | | | | — | | | | — | | | | — | | | | 540,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from long-term note to parent | | | — | | | | — | | | | — | | | | 275,226 | | | | (275,226 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Debt issuance costs | | | — | | | | (29,480 | ) | | | — | | | | — | | | | — | | | | (29,480 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Repayment of debt | | | — | | | | (719,671 | ) | | | (34,991 | ) | | | — | | | | — | | | | (754,662 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from repayment of subscriptions receivable | | | — | | | | 103 | | | | — | | | | — | | | | — | | | | 103 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from issuance of preferred stock, net of issuance costs | | | 46,662 | | | | — | | | | — | | | | — | | | | — | | | | 46,662 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from exercise of stock options and warrants | | | 9,210 | | | | — | | | | — | | | | — | | | | — | | | | 9,210 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 55,872 | | | | 691,363 | | | | (34,991 | ) | | | 275,226 | | | | (275,226 | ) | | | 712,244 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
INCREASE IN CASH AND CASH EQUIVALENTS | | | 10,623 | | | | 73,423 | | | | 92 | | | | 6,094 | | | | — | | | | 90,232 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS, beginning of period | | | 1 | | | | 22,349 | | | | 127 | | | | — | | | | — | | | | 22,477 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of period | | $ | 10,624 | | | $ | 95,772 | | | $ | 219 | | | $ | 6,094 | | | $ | — | | | $ | 112,709 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-51F-49
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
Consolidated Statement of Cash Flows
Year Ended December 31, 2004
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Guarantor
| | | Non-Guarantor
| | | | | | | |
| | | Parent | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | (In thousands) | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | 54,294 | | | $ | 66,609 | | | $ | 168,061 | | | $ | (218 | ) | | $ | (223,856 | ) | | $ | 64,890 | |
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | — | | | | 915 | | | | 61,286 | | | | — | | | | — | | | | 62,201 | |
| Provision for uncollectible accounts receivable | | | — | | | | 125 | | | | — | | | | — | | | | — | | | | 125 | |
| Deferred rent expense | | | — | | | | 15 | | | | 3,451 | | | | — | | | | — | | | | 3,466 | |
| Cost of abandoned cell sites | | | — | | | | — | | | | 1,021 | | | | — | | | | — | | | | 1,021 | |
| Non-cash interest expense | | | — | | | | 470 | | | | 2,419 | | | | 56 | | | | (56 | ) | | | 2,889 | |
| Loss (gain) on disposal of assets | | | — | | | | 24 | | | | 3,185 | | | | — | | | | — | | | | 3,209 | |
| (Gain) loss on extinguishment of debt | | | — | | | | — | | | | (698 | ) | | | — | | | | — | | | | (698 | ) |
| (Gain) loss on sale of investments | | | — | | | | 576 | | | | — | | | | — | | | | — | | | | 576 | |
| Accretion of asset retirement obligation | | | — | | | | (1 | ) | | | 254 | | | | — | | | | — | | | | 253 | |
| Accretion of put option in majority-owned subsidiary | | | — | | | | — | | | | — | | | | — | | | | 8 | | | | 8 | |
| Deferred income taxes | | | (921 | ) | | | 45,362 | | | | — | | | | — | | | | — | | | | 44,441 | |
| Stock-based compensation expense | | | — | | | | 10,429 | | | | — | | | | — | | | | — | | | | 10,429 | |
| Changes in assets and liabilities | | | (53,837 | ) | | | (314,588 | ) | | | 77,929 | | | | 143 | | | | 247,922 | | | | (42,431 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash (used in) provided by operating activities | | | (464 | ) | | | (190,064 | ) | | | 316,908 | | | | (19 | ) | | | 24,018 | | | | 150,379 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
| Purchases of property and equipment | | | — | | | | (1,558 | ) | | | (249,272 | ) | | | — | | | | — | | | | (250,830 | ) |
| Purchase of investments | | | — | | | | (158,672 | ) | | | — | | | | — | | | | — | | | | (158,672 | ) |
| Proceeds from sale of investments | | | — | | | | 307,220 | | | | — | | | | — | | | | — | | | | 307,220 | |
| Change in restricted cash and investments | | | — | | | | (1,511 | ) | | | — | | | | — | | | | — | | | | (1,511 | ) |
| Purchases of FCC licenses | | | — | | | | (8,700 | ) | | | (53,325 | ) | | | — | | | | — | | | | (62,025 | ) |
| Deposit to FCC for licenses | | | — | | | | — | | | | — | | | | (25,000 | ) | | | — | | | | (25,000 | ) |
| Microwave relocation costs | | | — | | | | — | | | | (63 | ) | | | — | | | | — | | | | (63 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) investing activities | | | — | | | | 136,779 | | | | (302,660 | ) | | | (25,000 | ) | | | — | | | | (190,881 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in book overdraft. | | | — | | | | 5,778 | | | | — | | | | — | | | | — | | | | 5,778 | |
| Proceeds from short-term notes payable | | | — | | | | 1,703 | | | | — | | | | — | | | | — | | | | 1,703 | |
| Proceeds from long-term note to parent | | | — | | | | — | | | | — | | | | 18,352 | | | | (18,352 | ) | | | — | |
| Proceeds from capital contributions | | | — | | | | — | | | | — | | | | 6,667 | | | | (6,667 | ) | | | — | |
| Debt issuance costs | | | — | | | | (164 | ) | | | — | | | | — | | | | — | | | | (164 | ) |
| Repayment of debt | | | — | | | | — | | | | (14,215 | ) | | | — | | | | — | | | | (14,215 | ) |
| Proceeds from minority interest in majority-owned subsidiary | | | — | | | | — | | | | — | | | | — | | | | 1,000 | | | | 1,000 | |
| Proceeds from issuance of preferred stock, net of issuance costs | | | 5 | | | | — | | | | — | | | | — | | | | — | | | | 5 | |
| Proceeds from exercise of stock options and warrants | | | 460 | | | | — | | | | — | | | | — | | | | — | | | | 460 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 465 | | | | 7,317 | | | | (14,215 | ) | | | 25,019 | | | | (24,019 | ) | | | (5,433 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | 1 | | | | (45,968 | ) | | | 33 | | | | — | | | | (1 | ) | | | (45,935 | ) |
CASH AND CASH EQUIVALENTS, beginning of period | | | — | | | | 68,318 | | | | 94 | | | | — | | | | — | | | | 68,412 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of period | | $ | 1 | | | $ | 22,350 | | | $ | 127 | | | $ | — | | | $ | (1 | ) | | $ | 22,477 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-52F-50
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
| |
| 20. | Related-Party Transactions: |
One of the Company’s current directors is a general partner of various investment funds affiliated with one of the Company’s greater than 5% stockholders. These funds own in the aggregate an approximate 17% interest in a company that provides services to the Company’s customers, including handset insurance programs and roadside assistance services. Pursuant to the Company’s agreement with this related party, the Company bills its customers directly for these services and remits the fees collected from its customers for these services to the related party. During the years ended December 31, 2006, 2005 and 2004, the Company received a fee of approximately $2.7 million, $2.2 million and $1.4 million, respectively, as compensation for providing this billing and collection service. In addition, the Company also sells handsets to this related party. For the years ended December 31, 2006, 2005 and 2004, the Company sold approximately $12.7 million, $13.2 million and $12.5 million in handsets, respectively, to the related party. As of December 31, 2006 and 2005, the Company owed approximately $3.0 million and $2.1 million, respectively, to this related party for fees collected from its customers that are included in accounts payable and accrued expenses on the accompanying consolidated balance sheets. As of December 31, 2005, receivables from this related party in the amount of approximately $0.7 million are included in accounts receivable. As of December 31, 2006, receivables from this related party in the amount of approximately $0.8 million and $0.1 million are included in accounts receivable and other current assets, respectively.
The Company paid approximately $0.1 million, $0.2 million and $0.4 million for the years ended December 31, 2006, 2005 and 2004, respectively, to a law firm for professional services, a partner of which was a director of the Company during 2004, 2005 and 2006.
The Company paid approximately $0.1 million, $1.3 million and $2.3 million for the years ended December 31, 2006, 2005 and 2004, respectively, to a law firm for professional services, a partner of which is related to a Company officer.
| |
| 21. | Supplemental Cash Flow Information: |
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2006 | | | 2005 | | | 2004 | |
| | | | | | (In thousands) | | | | |
| |
| Cash paid for interest | | $ | 86,380 | | | $ | 41,360 | | | $ | 19,180 | |
| Cash paid for income taxes | | | 3,375 | | | | — | | | | — | |
Non-cash investing and financing activities:
The Company accrued dividends of $21.0 million, $21.0 million and $21.0 million related to the Series D Preferred Stock for the years ended December 31, 2006, 2005 and 2004, respectively.
The Company accrued dividends of $3.0 million and $1.0 million related to the Series E Preferred Stock for the years ended December 31, 2006 and 2005.
Net changes in the Company’s accrued purchases of property, plant and equipment were $28.5 million, $25.3 million and $33.4 million for the years ended December 31, 2006, 2005 and 2004, respectively. Of the $33.4 million net change for the year ended December 31, 2004, $8.5 million was included in other long-term liabilities.
The Company accrued $0.5 million of microwave relocation costs for the year ended December 31, 2004.
See Note 2 for the non-cash increase in the Company’s asset retirement obligations.
F-53F-51
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004 — (Continued)
See Note 2 for the non-cash increase in the Company’s asset retirement obligations.
| |
| 22. | Fair Value of Financial Instruments: |
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Long-Term Debt
The fair value of the Company’s long-term debt is estimated based on the quoted market prices for the same of 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):
| | | | | | | | | | | | | | | | | | | | | |
| | | 2006 | | | 2005 | | | | |
| | | Carrying
| | | | | | Carrying
| | | | | | | |
| | | Amount | | | Fair Value | | | Amount | | | Fair Value | | | | |
| |
| Microwave relocation obligations | | $ | — | | | $ | — | | | $ | 2,690 | | | $ | 2,690 | | | | | |
| Credit Agreements | | | — | | | | — | | | | 900,000 | | | | 861,380 | | | | | |
| Senior Secured Credit Facility | | | 1,596,000 | | | | 1,597,219 | | | | — | | | | — | | | | | |
91/4% Senior Notes | | | 1,000,000 | | | | 1,032,500 | | | | — | | | | — | | | | | |
| Cash flow hedging derivatives | | | 1,865 | | | | 1,865 | | | | 5,052 | | | | 5,052 | | | | | |
| Short-term investments | | | 390,651 | | | | 390,651 | | | | 390,422 | | | | 390,422 | | | | | |
23. Quarterly Financial Data (Unaudited):
The following financial information reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s results of operations for the interim periods. Summarized data for each interim period for the years ended December 31, 2006 and 2005 is as follows (in thousands, except per share data):
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended | |
| | | March 31,
| | | June 30,
| | | September 30,
| | | December 31,
| |
| | | 2005 | | | 2005 | | | 2005 | | | 2005 | |
| |
| Total revenues | | $ | 235,956 | | | $ | 250,689 | | | $ | 263,555 | | | $ | 288,229 | |
| Income from operations(1) | | | 45,841 | | | | 284,303 | | | | 47,778 | | | | 44,256 | |
| Net income(1) | | | 22,800 | | | | 136,482 | | | | 20,556 | | | | 18,841 | |
| Net income per common share — basic | | $ | 0.07 | | | $ | 0.54 | | | $ | 0.06 | | | $ | 0.05 | |
| Net income per common share — diluted | | $ | 0.06 | | | $ | 0.46 | | | $ | 0.05 | | | $ | 0.04 | |
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended | |
| | | March 31,
| | | June 30,
| | | September 30,
| | | December 31,
| |
| | | 2006 | | | 2006 | | | 2006 | | | 2006 | |
| |
| Total revenues | | $ | 329,461 | | | $ | 368,194 | | | $ | 396,116 | | | $ | 453,092 | |
| Income from operations | | | 46,999 | | | | 54,099 | | | | 69,394 | | | | 66,761 | |
| Net income (loss)(2) | | | 18,369 | | | | 22,989 | | | | 29,266 | | | | (16,818 | ) |
| Net income (loss) per common share — basic | | $ | 0.04 | | | $ | 0.06 | | | $ | 0.08 | | | $ | (0.15 | ) |
| Net income (loss) per common share — diluted | | $ | 0.04 | | | $ | 0.06 | | | $ | 0.08 | | | $ | (0.15 | ) |
F-54F-52
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended | |
| | | March 31,
| | | June 30,
| | | September 30,
| | | December 31,
| |
| | | 2006 | | | 2006 | | | 2006 | | | 2006 | |
| |
| Total revenues | | $ | 329,461 | | | $ | 368,194 | | | $ | 396,116 | | | $ | 453,092 | |
| Income from operations | | | 46,999 | | | | 54,099 | | | | 69,394 | | | | 66,761 | |
| Net income (loss)(2) | | | 18,369 | | | | 22,989 | | | | 29,266 | | | | (16,818 | ) |
| Net income (loss) per common share — basic | | $ | 0.04 | | | $ | 0.06 | | | $ | 0.08 | | | $ | (0.15 | ) |
| Net income (loss) per common share — diluted | | $ | 0.04 | | | $ | 0.06 | | | $ | 0.08 | | | $ | (0.15 | ) |
| | |
| (1) | | During the three months ended June 30, 2005, the Company recorded on a gain on the sale of PCS spectrum in the amount of $228.2 million. |
| |
| (2) | | During the three months ended December 31, 2006, the Company repaid all of its outstanding obligations under the Credit Agreements, the Secured Bridge Credit Facility and the Unsecured Bridge Credit Facility resulting in a loss on extinguishment of debt in the amount of approximately $51.8 million. |
Stock Split
On March 14, 2007, the Company’s Board of Directors approved a 3 for 1 stock split of the Company’s common stock effected by means of a stock dividend of two shares of common stock for each share of common stock issued and outstanding on that date. All share, per share and conversion amounts relating to common stock and stock options included in the accompanying consolidated financial statements have been retroactively adjusted to reflect the stock split.
Stockholder Rights Plan (Unaudited)
In connection with the proposed initial public offering, the Company anticipates adoptingadopted a Stockholder Rights Plan. Under the Stockholder Rights Plan, each share of the Company’s common stock will includeincludes one right to purchase one one-thousandth of a share of series A junior participating preferred stock.stock, par value $0.0001 per share. The rights will separate from the common stock and become exercisable (1) ten calendar days after public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial ownership of 15% of the Company’s outstanding common stock or (2) ten business days following the start of a tender offer or exchange offer that would result in a person’s acquiring beneficial ownership of 15% of the Company’s outstanding common stock. A 15% beneficial owner is referred to as an “acquiring person” under the Stockholder Rights Plan.
Initial Public Offering (Unaudited)
On April 24, 2007, the Company consummated an initial public offering of 57,500,000 shares of common stock priced at $23.00 per share (less underwriting discounts and commissions). The Company offered 37,500,000 shares of common stock and certain of the Company’s existing stockholders offered 20,000,000 shares of common stock in the initial public offering, which included 7,500,000 shares sold by the Company’s existing stockholders pursuant to the underwriters’ exercise of their over-allotment option. Concurrent with the initial public offering, all outstanding shares of preferred stock, including accrued but unpaid dividends, were converted into 150,962,690 shares of common stock. The shares began trading on April 19, 2007 on The New York Stock Exchange under the symbol “PCS”.
Stock Option Grants (Unaudited)
In April 2007, the Company granted stock options to purchase an aggregate of 5,480,148 shares of the Company’s common stock to certain employees. The exercise price for the option grants is $23.00, which is the price of the Company’s common stock on the date of the initial public offering. The stock options granted will generally vest on a four-year vesting schedule with 25% vesting on the first anniversary date of the award and the remainder pro-rata on a monthly basis thereafter.
Purchase Agreement (Unaudited)
In May 2007, the Company entered into an agreement to use commercially reasonable efforts to deploy 1,001 nodes in distributed antenna systems pursuant to a 15 year lease at a specified price.
F-55
F-53
Appendix A
50,000,000 SharesForm of Notice of Election
MetroPCS Communications, Inc.
8144 Walnut Hill Lane, Suite 800
Common StockDallas, Texas 75231
Attention: General Counsel
Ladies and Gentlemen:
I have received and read the offering circular (the “Offering Circular”) of MetroPCS Communications, Inc. (“MetroPCS”) dated , 2007, pursuant to which MetroPCS has offered to repurchase certain options to purchase shares of its common stock, par value $0.0001 per share (“Common Stock”), that may have been issued in violation of federal or state securities laws, or both. I acknowledge that I have had an opportunity to carefully review the information from MetroPCS that I consider important in making my election. I advise MetroPCS as follows by placing an “X” in the proper spaces provided below (and filling in the appropriate table(s), if applicable):
| | |
Options to
| | |
Purchase
| | |
Shares of
| | |
Common
| | |
| Stock | | |
|
o 1. | | I hereby elect to reject the rescission offer and desire to retain the grant of the option(s) to purchase Common Stock. |
| | |
o 2. | | I hereby elect to accept the rescission offer and rescind the grant of the following option(s) to purchase Common Stock of MetroPCS, to forego the right to purchase the Common Stock thereunder, and to receive a payment equal to 20% of the exercise price of such options together with interest at the applicable statutory rate per year. |
| | | | | | | | |
| | | | Grant Date
| | | | |
| | | | (The Date Indicated
| | | | |
| | | | on Your Option
| | | | |
| | | | Paperwork
| | | | |
| | | | as the Date the
| | Number of Shares
| | Number of Shares
|
| | | | Board of Directors
| | Underlying the Option
| | to be Repurchased
|
| | | | Granted You
| | (Please Indicate on
| | (Please indicate on
|
| | | | Your Options.) | | a Post-Split Basis) | | a Post-Split Basis) |
|
| . | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
We recommend that you return this notice of election by (1) insured registered mail, return receipt requested and (2) facsimile to Damien Falgoust at the following facsimile number:PROSPECTUS(866) 857-6303.
If you desire to accept this rescission offer, you must complete and return this notice of election on or before 5:00 P.M. Dallas, Texas time on , 2007
Bear, Stearns & Co. Inc.
Banc2007. Any notice of America Securities LLCelection received after such time will not be accepted, and you will be deemed to have rejected the rescission offer.
Merrill Lynch & Co.No authority conferred or agreed to be conferred by this Notice of Election shall be affected by, and all such authority shall survive, the death or incapacity of the undersigned, and any obligations of the undersigned hereunder shall be binding upon the heirs, executors, administrators, trustees in bankruptcy, personal and legal representatives, successors and assigns of the undersigned.
Morgan Stanley
UBS Investment Bank
Thomas Weisel Partners LLC
Wachovia Securities
Raymond James
Until , 2007 (25 days after the commencement of this offering), all dealers that effect transactions in our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
A-1
To the extent I accept this rescission offer, I hereby acknowledge and agree that:
(1) I will not have any further right, title, interest or claim with respect to such options to purchase shares of Common Stock and any subsequent appreciation in the value of such options to purchase shares of Common Stock whatsoever.
(2) The tender of stock options pursuant to the procedures of the rescission offer described in the Offering Circular will constitute a binding agreement between the undersigned and MetroPCS, upon the terms and subject to the conditions of the rescission offer described in the Offering Circular.
(3) I have full power and authority to tender, sell, assign and transfer the stock options tendered hereby, and that when such tendered stock options are accepted for purchase and payment, MetroPCS will acquire good and valid title thereto, free and clear of all liens, security interests, restrictions, charges and encumbrances and not subject to any adverse claim or right.
(4) Any defect or irregularity in connection with the tender of options to purchase Common Stock must be cured prior to the expiration of the rescission offer, unless waived by MetroPCS. Tender of stock options and deliveries of this election form shall not be deemed to have been made until all defects and irregularities have been cured or waived by MetroPCS. A defective tender of stock options (which defect is not waived by MetroPCS) will not be deemed a valid acceptance of MetroPCS’ offer to repurchase such options. MetroPCS will be under no duty to give notice of any defects or irregularities in the tender of options, or will incur any liability for failure to give any such notice. Any acceptance or rejection of defects or irregularities by MetroPCS shall be at MetroPCS’ sole discretion and shall be conclusive, final and binding.
(5) Upon request, I will execute and deliver any additional documents deemed by MetroPCS to be necessary or desirable to complete the sale, assignment and transfer of the stock options tendered hereby.
SELLING STOCKHOLDER
(Printed Name)
Dated: , 2007
A-2
PART IIAppendix B
Form of Letter to Residents
of California
, 2007
VIA CERTIFIED MAIL — RETURN RECEIPT REQUESTED
Dear Option Holder:
Under the U.S. federal securities laws, and the securities laws of the State of California (the “California Securities Laws”), the grant by a company of an option to purchase common stock under an equity incentive plan, such as the Amended and Restated MetroPCS Communications, Inc. 2004 Equity Incentive Compensation Plan (the “Plan”), may need to meet certain specified conditions, or be registered with the U.S. Securities and Exchange Commission (the “SEC”) and qualified with the California Department of Corporations (the “Department”) to make such grant. As detailed onExhibit 1, MetroPCS Communications, Inc. (the “Company”) granted to you one or more option(s) to purchase common stock of the Company (the “Options”) pursuant to one or more Stock Option Agreement(s) between you and the Company (the “Option Agreements”) under the Plan, which did not meet all of these conditions, and were not registered with the SEC or qualified with the Department.
The Company hereby offers to repurchase the Options on the terms set forth in this letter and the accompanying offering circular.You are not obligated to accept this repurchase offer. Indeed, the Company values your continued participation as a securities holder and hopes that you will decide to remain a securities holder of the Company. This letter and the accompanying offering circular set forth the terms of the Company’s repurchase offer.
| |
| 1. | Name and Address of Person Making the Offer |
MetroPCS Communications, Inc.
8144 Walnut Hill Lane, Suite 800
Dallas, Texas75231-4388
| |
| 2. | Description of Transaction |
As described above, the Company granted to you the Options, which entitle you to purchase common stock, subject to certain vesting requirements described in the Option Agreements and the Plan.Exhibit 1 sets forth the number of shares of common stock purchaseable under the Options, including the exercise price(s) and date(s) of grant,and/or the number of shares of common stock purchased, including the purchase price(s) and date(s) of purchase. The Options were issued to you under the Plan, which provides incentives to attract, retain and motivate eligible persons whose contributions are important to the success of the Company by offering them an opportunity to participate in the Company’s future performance.
| |
| 3. | Parties to the Transaction |
You and the Company were the parties to the transaction by which you were granted the Options. The Company’s executive officers are Roger D. Linquist, who is Chief Executive Officer, J. Braxton Carter, who is Chief Financial Officer, and Mark A. Stachiw, who is General Counsel and Secretary.
The members of the Company’s Board of Directors are Roger D. Linquist, who is Chairman of the Board, Arthur C. Patterson, John Sculley, James F. Wade, Walker C. Simmons, W. Michael Barnes, C. Kevin Landry and James N. Perry, Jr. The principal shareholders of the Company are affiliates of TA Associates, Inc., Madison Dearborn Capital Partners IV, L.P., and Accel Partners (including affiliates of such entities).
B-1
| |
| 4. | Basis for Liability under the California Securities Laws |
The grant by the Company of the Options under the Plan without first qualifying such securities pursuant to Section 25110 of the California Corporations Code (the “Permit”) may (but not necessarily) have created a right of rescission on your part under Section 25503 of the California Corporations Code.
| |
| 5. | Scope of Rescission Rights under the California Securities Laws |
If a company has violated certain provisions of the California Securities Law by granting securities without the Permit, then, under Section 25503 of the California Securities Law, the persons who purchased those securities may be entitled to rescind the grant and seek from the company the purchase price which they paid for the securities, plus interest, at the legal rate (currently 7%) from the date of the issuance transaction, on the purchase price. The Company has determined that any such rescission right under Section 25503 (and therefore the Company’s repurchase offer to you) is equal to the following:
(1) 20% of the aggregate exercise price of the Options (where the aggregate exercise price is equal to the total number of shares of common stock issuable under the Options multiplied by the per share exercise price(s) for the Options);
plus
(2) interest on the amount provided by subitem (1) above at the legal rate of 7% from the date(s) of grant of the Options, until the date you accept (if you do accept) the repurchase offer being made by this letter;
This amount is described hereinafter as the “Securities Refund.”Exhibit 1 details the Securities Refund amount(s) applicable to you. While you did not pay anything for the Options, the figure of 20% of the aggregate exercise price of the Options is the value assigned by the Company for the Options.
The offer being made by this letter is intended to terminate your rescission right under the applicable federal securities laws and the California Securities Laws, whether or not you accept the offer.
| |
| 6. | Terms of Repurchase Offer |
If you accept the offer of repurchase made by, and pursuant to the terms of, this letter and the offering circular, then the Company will repurchase the Options from you, and, in consideration, the Company will pay to you the Securities Refund. Further, if you accept the repurchase offer, then you will not retain the Options and will no longer have any rights to exercise (or other rights under) the Options. If you do not accept the repurchase offer, then you will retain the Options and all rights thereunder.
If you wish to accept the repurchase offer, payment of the Securities Refund will be made to you promptly after delivery to the Company of your acceptance of this offer in the manner described in Paragraph 7 below.
If you do not wish to accept the repurchase offer, please follow the instructions in Paragraph 8 below.
| |
| 7. | If You Accept the Repurchase Offer |
To accept the repurchase offer made by this letter, the “Action on Repurchase Offer” form attached to this letter asExhibit 2 must be signed by youand notarized and received by the Company at the address indicated on such form as soon as possible, butno later than , 2007. Additionally, you must return to the Company, together with the signed Action on Repurchase Offer, all your originally signed copies of the Option Agreement(s), if applicable.
| |
| 8. | If You Do Not Accept the Repurchase Offer |
You are not obligated to accept the repurchase offer. If you donot wish to accept the repurchase offer, please sign and send back to the Company the “Action on Repurchase Offer” form attached to this letter asExhibit 2 as soon as possible. You do not need to have this document notarized.
If you have not returned a signed Action on Repurchase Offer by 5:00 p.m., Dallas, Texas time on , 2007,you will be deemed to have declined the repurchase offer.
B-2
Your right of action, if any, under Sections 25500, 25501 and 25502 of the California Securities Laws and under common law, is not necessarily foreclosed by acceptance or rejection of the repurchase offer made by this letter and the federal offering circular.
Except for your right of action, if any, described in paragraph 9 above, or otherwise available under applicable law, by accepting or declining to accept the repurchase offer made by this letter, you hereby agree to release the Company and each of its officers, directors, shareholders, agents,successors-in-interest and assigns from all claims, demands, obligations and causes of action of any nature whatsoever, whether now known or unknown, which are based upon or arise out of or in connection with the offer, grant and sale to you of the Options and the shares of common stock issuable thereunder.
The Commissioner of the Department has the authority under Section 25534 of the California Corporations Code to require that securities issued without a permit bear a legend restricting the transfer of such securities.
The provisions of Sections 25503, 25504 and 25507(b) of the California Securities Laws are set forth inExhibit 3 to this letter.
| |
| 13. | Information Regarding the Company |
The following is a description of the Company’s business, current activity, capitalization, financial statements and management.
Business and Current Activity
[please see “Business” beginning on page 91 of the accompanying offering circular]
Management & Directors
[please see “Management” beginning on page 122 of the accompanying offering circular]
Capitalization
[please see “Capitalization” beginning on page 45 of the accompanying offering circular]
Financial Statements
[please see “Financial Statements” beginning onpage F-1 of the accompanying offering circular]
IF YOU HAVE ANY QUESTIONS REGARDING THE COMPANY’S REPURCHASE OFFER, PLEASE CONTACT DAMIEN FALGOUST, ESQ. IN THE COMPANY’S LEGAL DEPARTMENT, AT(214) 378-2955.
MetroPCS Communications, Inc.
Exhibits:
Exhibit 1: Summary of Options and Securities Refund
Exhibit 2: Action on Repurchase Offer
Exhibit 3: Selected Selections of California Corporations Code
B-3
EXHIBIT 1
SUMMARY OF OPTIONS AND
REPURCHASE OFFER CONSIDERATION
Name (“Securities Holder”):
Outstanding Options:
| | | | | | | | | | | | |
Option
| | Grant
| | Outstanding
| | Exercise
| | Aggregate
| | Statutory
| | Securities
|
| Number | | Date | | (Share #) | | Price ($) | | Consideration(1) | | Interest(2) | | Refund |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
|
TOTAL SECURITIES REFUND AMOUNT: $ |
| | |
| (1) | | Assumes, for purposes of this repurchase offer, that the consideration received by the Company for issuance of options was equal to 20% of the aggregate exercise price of the options. |
|
| (2) | | Assumes, for purposes of this repurchase offer, that the Securities Holder accepts this offer on . |
B-4
EXHIBIT 2
ACTION ON REPURCHASE OFFER
Form of Notice of Election in Respect of Options Granted to Persons in California
MetroPCS Communications, Inc.
8144 Walnut Hill Lane, Suite 800
Dallas, Texas 75231
Attention: General Counsel
Ladies and Gentlemen:
I have received and read the offering circular (the “Offering Circular”) of MetroPCS Communications, Inc. (“MetroPCS”) and letter regarding the California Securities Laws, dated , 2007, pursuant to which MetroPCS has offered to repurchase certain options to purchase shares of its common stock, par value $0.0001 per share (“Common Stock), that may have been issued in violation of federal or California securities laws, or both. I acknowledge that I have had an opportunity to carefully review the information from MetroPCS that I consider important in making my election. I advise MetroPCS as follows by placing an “X” in the proper spaces provided below (and filling in the appropriate table(s), if applicable):
| | |
Options to
| | |
Purchase
| | |
Shares of
| | |
Common
| | |
| Stock | | |
|
o 1. | | I hereby elect to reject the rescission offer and desire to retain the grant of the option(s) to purchase Common Stock. |
o 2. | | I hereby elect to accept the rescission offer and rescind the grant of the following option(s) to purchase Common Stock of MetroPCS, to forego the right to purchase the Common Stock thereunder, and to receive a payment equal to 20% of the exercise price of such options together with interest at the applicable statutory rate of 7% per year measured from the date of option grant. |
| | | | | | | | |
| | | | Grant Date
| | | | |
| | | | (The Date Indicated
| | | | |
| | | | on Your Option
| | | | |
| | | | Paperwork
| | | | |
| | | | as the Date the
| | Number of Shares
| | Number of Shares
|
| | | | Board of Directors
| | Underlying the Option
| | to be Repurchased
|
| | | | Granted You
| | (Please Indicate on
| | (Please indicate on
|
| | | | Your Options.) | | a Post-Split Basis) | | a Post-Split Basis) |
|
| | | | | | | | |
| . | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
We recommend that you return this notice of election by (1) insured registered mail, return receipt requested and (2) facsimile to Damien Falgoust at the following facsimile number:(866) 857-6303.
If you desire to accept this rescission offer, you must complete and return this notice of election on or before 5:00 P.M. Dallas, Texas time on , 2007. Any notice of election received after such time will not be accepted, and you will be deemed to have rejected the rescission offer.
No authority conferred or agreed to be conferred by this Notice of Election shall be affected by, and all such authority shall survive, the death or incapacity of the undersigned, and any obligations of the undersigned hereunder shall be binding upon the heirs, executors, administrators, trustees in bankruptcy, personal and legal representatives, successors and assigns of the undersigned.
To the extent I accept this rescission offer, I hereby acknowledge and agree that:
(1) I will not have any further right, title, interest or claim with respect to such options to purchase shares of Common Stock and any subsequent appreciation in the value of such options to purchase shares of Common Stock whatsoever.
B-5
(2) The tender of stock options pursuant to the procedures of the rescission offer described in the Offering Circular will constitute a binding agreement between the undersigned and MetroPCS, upon the terms and subject to the conditions of the rescission offer described in the Offering Circular.
(3) I have full power and authority to tender, sell, assign and transfer the stock options tendered hereby, and that when such tendered stock options are accepted for purchase and payment, MetroPCS will acquire good and valid title thereto, free and clear of all liens, security interests, restrictions, charges and encumbrances and not subject to any adverse claim or right.
(4) Any defect or irregularity in connection with the tender of options to purchase Common Stock must be cured prior to the expiration of the rescission offer, unless waived by MetroPCS. Tender of stock options and deliveries of this election form shall not be deemed to have been made until all defects and irregularities have been cured or waived by MetroPCS. A defective tender of stock options (which defect is not waived by MetroPCS) will not be deemed a valid acceptance of MetroPCS’ offer to repurchase such options. MetroPCS will be under no duty to give notice of any defects or irregularities in the tender of options, or will incur any liability for failure to give any such notice. Any acceptance or rejection of defects or irregularities by MetroPCS shall be at MetroPCS’ sole discretion and shall be conclusive, final and binding.
(5) Upon request, I will execute and deliver any additional documents deemed by MetroPCS to be necessary or desirable to complete the sale, assignment and transfer of the stock options tendered hereby.
(6) Payment to me of the amount set forth above, terminates any responsibility, liability or obligation of the Company, and each of its officers, directors, shareholders, or agents, to me under the laws of the State of California (other than liability, if any, under Sections 25500, 25501 and 25502 of the California Corporations Code or under common law) with respect to the offer, grant and sale to me of the stock options tendered hereby and the shares of Common Stock issuable thereunder, including all claims, demands, obligations and causes of action of any nature whatsoever, whether now known or unknown, which are based upon or arise out of or in connection with the offer, grant or sale to me of the stock options tendered hereby and the shares of Common Stock issuable thereunder.
SELLING STOCKHOLDER
(Printed Name)
Dated: , 2007
Notary:
| |
| RETURN TO: | MetroPCS Communications, Inc. |
8144 Walnut Hill Lane, Suite 800
Dallas, Texas75231-4388
Attn:
B-6
AGREED TO AND ACCEPTED:
MetroPCS Communications, Inc., a Delaware corporation
, its
B-7
EXHIBIT 3
Selected Sections of California Corporations Code
| |
| §25503. | Rescission or Damages for Failure to Qualify Securities. |
Any person who violates Section 25110, 25130 or 25133, or a condition of qualification under Chapter 2 (commencing with Section 25110) of this part, imposed pursuant to Section 25141, or an order suspending trading issued pursuant to Section 25219, shall be liable to any person acquiring from him the security sold in violation of such section, who may sue to recover the consideration he paid for such security with interest thereon at the legal rate, less the amount of any income received therefrom, upon the tender of such security, or for damages, if he no longer owns the security, or if the consideration given for the security is not capable of being returned. Damages, if the plaintiff no longer owns the security, shall be equal to the difference between (a) his purchase price plus interest at the legal rate from the date of purchase and (b) the value of the security at the time it was disposed of by the plaintiff plus the amount of any income received therefrom by the plaintiff.
Damages, if the consideration given for the security is not capable of being returned, shall be equal to the value of that consideration plus interest at the legal rate from the date of purchase, provided the security is tendered; and if the plaintiff no longer owns the security, damages in such case shall be equal to the difference between (a) the value of the consideration given for the security plus interest at the legal rate from the date of purchase and (b) the value of the security at the time it was disposed of by the plaintiff plus the amount of any income received therefrom by the plaintiff. Any person who violates Section 25120 or a condition of qualification under Chapter 3 (commencing with Section 25120) of this part imposed pursuant to Section 25141, shall be liable to any person acquiring from him the security sold in violation of such section who may sue to recover the difference between (a) the value of the consideration received by the seller and (b) the value of the security at the time it was received by the buyer, with interest thereon at the legal rate from the date of purchase. Any person on whose behalf an offering is made and any underwriter of the offering, whether on a best efforts of a firm commitment basis, shall be jointly and severally liable under this section, but in no event shall any underwriter (unless such underwriter shall have knowingly received from the issuer for acting as an underwriter some benefit, directly or indirectly, in which all other underwriters similarly situated did not share in proportion to their respective interest in the underwriting) be liable in any suit or suits authorized under this section for damages in excess of the total price at which the securities underwritten by him and distributed to the public were offered to the public. Any tender specified in this section may be made at any time before entry of judgment. No person shall be liable under this section for violation of Section 25110, 25120 or 25130 if the sale of the security is qualified prior to the payment or receipt of any part of the consideration for the security sold, even though an offer to sell or a contract of sale may have been made or entered into without qualification.
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| §25504. | Joint and Several Liability of Principals and Agents. |
Every person who directly or indirectly controls a person liable under Section 25501 or 25503, every partner in a firm so liable, every principal executive officer or director of a corporation so liable, every person occupying a similar status or performing similar functions, every employee of a person so liable who materially aids in the act or transaction constituting the violation, and every broker-dealer or agent who materially aids in the act or transaction constituting the violation, are also liable jointly and severally with and to the same extent as such person, unless the other person who is so liable had no knowledge of or reasonable grounds to believe in the existence of the facts by reason of which the liability is alleged to exist.
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| §25507. | Time Limitations — Failure to Qualify Securities. |
(b) No buyer may commence an action under Section 25503 (or Section 25504 or Section 25504.1 insofar as they relate to that section) if, before suit is commenced, such buyer shall have received a written offer approved as to form by the commissioner (1) stating the respect in which liability under such section may have arisen, (2) offering to repurchase the security for a cash price payable upon delivery of the security or offering to pay the buyer an amount in cash equal in either case to the amount recoverable by the buyer in accordance with Section 25503, or, offering to rescind the transaction by putting the parties back in the same position as before the transaction, (3) providing that such offer may be accepted by the buyer at any time within a specified period of not less than 30 days after the date of receipt thereof unless rejected earlier during such period by the buyer, (4) setting forth the provisions of this subdivision (b), and (5) containing such other information as the commissioner may require by rule or order, and such buyer shall have failed to accept such offer in writing within the specified period after receipt thereof.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUSOFFERING CIRCULAR
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ItemITEM 13. | Other Expenses of Issuance and Distribution. |
Set forth below are the expenses (other than underwriting discounts and commissions) expected to be incurred in connection with the issuance and distribution of the securities registered hereby. With the exception of the Securities and Exchange Commission registration fee, and the National Association of Securities Dealers, Inc. filing fee, the amounts set forth below are estimates.
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| SEC registration fee | | $ | 202.17 | |
| Legal fees and expenses | | | * | |
| Blue sky fees and expenses | | | * | |
| Accounting fees and expenses | | | * | |
| Printing expenses | | | * | |
| Transfer agent fees and expenses | | | * | |
| Miscellaneous | | | * | |
| | | | | |
| Total | | $ | | |
| | | | | |
| | | | | |
| SEC registration fee | | $ | 121,143 | |
| National Association of Securities Dealers, Inc. filing fee | | | 75,500 | |
| New York Stock Exchange listing fee | | | 250,000 | |
| Legal fees and expenses | | | 1,000,000 | |
| Blue sky fees and expenses | | | 15,000 | |
| Accounting fees and expenses | | | 800,000 | |
| Printing expenses | | | 700,000 | |
| Transfer agent fees and expenses | | | 15,000 | |
| Miscellaneous | | | 23,357 | |
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| Total | | $ | 3,000,000 | |
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| * | | To be filed by amendment. |
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ItemITEM 14. | Indemnification of Officers and Directors. |
Section 145 of the Delaware General Corporation Law permits a Delaware corporation to indemnify any person who was or is a party or witness or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise. Depending on the character of the proceeding, a corporation may indemnify against expenses, costs and fees (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding if the person indemnified acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. If the person indemnified is not wholly successful in such action, suit or proceeding, but is successful, on the merits or otherwise, in one or more but less than all claims, issues or matters in such proceeding, he or she may be indemnified against expenses actually and reasonably incurred in connection with each successfully resolved claim, issue or matter. In the case of an action or suit by or in the right of the corporation, no indemnification may be made in respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware, or the court in which such action or suit was brought, shall determine that, despite the adjudication of liability, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 145 provides that, to the extent a director, officer, employee or agent of a corporation has been successful in the defense of any action, suit or proceeding referred to above or in the defense of any claim, issue or manner therein, he or she shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection therewith.
Our certificate of incorporation provides that we shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of our company) by
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reason of the fact that he or she is or was our director, officer, employee or agent, or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement
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actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Our certificate of incorporation also provides that we shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of our company to procure a judgment in its favor by reason of the fact that he or she is or was our director,
officer, employee or agent, or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to our company unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
Expenses (including attorneys’ fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by us in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by us as authorized in our certificate of incorporation. Such expenses (including attorneys’ fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as our board of directors deems appropriate.
The indemnification and advancement of expenses described above:
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| | • | shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office; |
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| | • | shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent; and |
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| | • | shall inure to the benefit of the heirs, executors and administrators of such a person. |
Our certificate of incorporation also provides that our directors shall not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability:
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| | • | for any breach of the director’s duty of loyalty to us or our stockholders; |
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| | • | for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; |
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| | • | under Section 174 of the Delaware General Corporation Law; or |
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| | • | for any transaction from which the director derived any improper personal benefit. |
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Any repeal or modification of the provisions of our certificate of incorporation governing indemnification or limitation of liability shall be prospective only, and shall not adversely affect:
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| | • | any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts; or |
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| | • | any limitation on the personal liability of a director existing at the time of such repeal or modification. |
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We have also entered into separate indemnification agreements with each of our directors and executive officers under which we have agreed to indemnify, and to advance expenses to, each director and executive officer to the fullest extent permitted by applicable law with respect to liabilities they may incur in their capacities as directors and officers.
We maintain director and officer liability insurance to insure each person who was, is, or will be our director or officer against specified losses and wrongful acts of such director or officer in his or her capacity as such, including breaches of duty and trust, neglect, error and misstatement. In accordance with the director and officer insurance policy, each insured party will be entitled to receive advances of specified defense costs.
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| ITEM 15. | Recent Sales of Unregistered Securities |
Set forth below is a listing of all sales of securities by MetroPCS Communications and its wholly-owned and majority-owned subsidiaries during the past three years not registered under the Securities Act:
Series E Convertible Preferred Stock. In September 2005, MetroPCS Communications, Inc. issued 500,000 shares of Series E Preferred Stock, par value $0.0001 per share, or Series E Preferred Stock, of MetroPCS Communications, Inc., to Madison Dearborn Capital Partners and TA Associates for an aggregate sales price of $50,000,000 pursuant to a Stock Purchase Agreement, dated August 30, 2005, or Series E Purchase Agreement. This transaction was undertaken in reliance upon the accredited investors’ exemption from registration afforded by Rule 506 of Regulation D, or Rule 506, of the Securities Act. We believe that other exemptions may also exist for this transaction. Each share of Series E Preferred Stock accrues dividends from the date of issuance at a rate of 6% per year on the liquidation value of $100 per share. Each share of Series E Preferred Stock will bewas converted into MetroPCS Communications common stock, par value $0.0001 per share, or Common Stock, upon (i) the completionconsummation of a Qualifying Public Offering, (as defined in the Second Amended and Restated Stockholders Agreement), (ii) the Common Stock trading (or, in the case of a merger or consolidation of MetroPCS Communications, Inc. with another company, other than as a sale or change of control of MetroPCS Communications, Inc., the shares received in such merger or consolidation having traded immediately prior to such merger or consolidation)our initial public offering on a national securities exchange for a period of 30 consecutive trading days above a price implying a market valuation of the Series D Preferred Stock over twice the Series D Preferred Stock initial purchase price, or (iii) the date specified by the holders of 66 2/3% of the Series E Preferred Stock.April 24, 2007. The Series E Preferred Stock is convertiblewas converted into Common Stock at $9.00 per share, which per share amount is subject to adjustment in accordance with the terms of the Second Amended and Restated Certificate of Incorporation of MetroPCS Communications, Inc. If not previously converted, MetroPCS Communications, Inc. is required to redeem all outstanding shares of Series E Preferred Stock on July 17, 2015, at the liquidation preference of $100 per share plus accrued but unpaid dividends.share.
Series D Convertible Preferred Stock. Between July 2000 and January 2004, MetroPCS, Inc. issued 3,500,993 shares of Series D Preferred Stock, par value $0.0001 per share, of MetroPCS, Inc., or MetroPCS Series D Preferred Stock, in multiple closings, for an aggregate sales price of $350,099,300. These transactions relied on the accredited investors’ exemption from registration requirements afforded by Rule 506. We believe that other exemptions may also exist for these transactions. In 2004, each share of
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MetroPCS Series D Preferred Stock was converted into Series D Preferred Stock. The conversion was exempt from registration under Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering. Each share of Series D Preferred Stock will bewas converted into Common Stock upon (i) the completionconsummation of a Qualifying Public Offering, (as defined in the Second Amended and Restated Stockholders Agreement), (ii) the Common Stock trades (or, in the case of a merger or consolidation of MetroPCS Communications, Inc. with another company, other than as a sale or change of control of MetroPCS Communications, Inc., the shares received in such merger or consolidation having traded immediately prior to such merger or consolidation)our initial public offering on a national securities exchange for a period of 30 consecutive trading days above a price that implies a market valuation of the Series D Preferred Stock in excess of twice the initial purchase price of the Series D Preferred Stock, or (iii) the date specified by the holders of 66 2/3% of the Series D Preferred Stock.April 24, 2007. The Series D Preferred Stock is convertiblewas converted into Common Stock at $3.13 per share, which per share amount is subject to adjustment under the terms of the Second Amended and Restated Certificate of Incorporation of MetroPCS Communications, Inc. If not previously converted, MetroPCS Communications, Inc. is required to redeem all outstanding shares of Series D Preferred Stock on July 17, 2015, at the liquidation preference of $100 per share plus accrued but unpaid dividends.share.
MetroPCS Restructuring Transaction. In connection with its formation, MetroPCS Communications, Inc. issued 300 shares of its common stock to MetroPCS, Inc. on March 10, 2004 for an aggregate purchase price of $1,000. The transaction was deemed exempt from Securities Act registration under Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering. In April 2004, each share of Class B non-voting common stock in MetroPCS, Inc. (and each option and warrant related thereto) was converted into one share of Class C common stock (as an option or warrant to purchase Class C common stock) in MetroPCS, Inc. Concurrent with the conversion, MetroPCS, Inc. increased the number of Class C common stock shares to 300,000,000 and decreased the authorized number of Class B common stock shares to zero. In April 2004, in connection with the abandoned initial public offering in 2004, MetroPCS, Inc., MetroPCS Communications, Inc., and MPCS Holdco Merger Sub, Inc., a wholly-owned subsidiary of MetroPCS Communications, Inc. (“Merger Sub”), entered into an Agreement and Plan of Merger in which Merger Sub and MetroPCS, Inc. agreed to merge with MetroPCS, Inc. as the surviving corporation. On the effective date of the merger, which was in July 2004, each share of Class A common stock of MetroPCS, Inc., par value $0.0001 per share, was automatically converted into one share of Class A common stock, par value $0.0001 per share, of MetroPCS Communications, Inc.; each share of Class C common stock of MetroPCS, Inc., par value $0.0001 per share, (including each share of Class B non-voting common stock of MetroPCS, Inc. that was converted into Class C common stock of MetroPCS, Inc. in April 2004) was automatically
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converted into one share of Class C common stock, par value $0.0001 per share, of MetroPCS Communications, Inc.; and each share of Series D Preferred Stock of MetroPCS, Inc. was automatically converted into one share of Series D Preferred Stock of MetroPCS Communications, Inc. In addition, each option to purchase MetroPCS, Inc. Class C common stock (including each option to purchase MetroPCS, Inc. Class B non-voting common stock that was converted into an option to purchase MetroPCS, Inc. Class C common stock in April 2004) was assumed by MetroPCS Communications, Inc., and if and when exercisable, shall be exercised for common stock, par value $0.0001 per share, in MetroPCS Communications, Inc. Further, each warrant outstanding to obtain Class C common stock (including each warrant to purchase MetroPCS, Inc. Class B non-voting common stock that was converted into a warrant to purchase MetroPCS, Inc. Class C common stock) in MetroPCS, Inc. was assumed by MetroPCS Communications, Inc. and, if and when exercisable, shall be exercised for the same class of common stock in MetroPCS Communications, Inc. On July 23, 2004 the Class C common stock of MetroPCS Communications, Inc. was renamed Common Stock. These transactions are exempt from registration under Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering.
Exchange of Common Stock. When MetroPCS, Inc. emerged from bankruptcy in October 1998, its Fifth Amended and Restated Certificate of Incorporation included a provision prohibiting the issuance of non-voting equity securities pursuant to our bankruptcy plan of reorganization and Section 1123(a)(6) of the
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Bankruptcy Code. After its emergence from bankruptcy, MetroPCS, Inc. issued shares of Class B non-voting common stock, which had been authorized by its certificate of incorporation in effect prior to the bankruptcy filing. The Class B common stock had no voting rights except as required by law. MetroPCS, Inc.’s board of directors has indicated that the continued inclusion of the prohibition on the issuance of non-voting equity securities after MetroPCS, Inc.’s emergence from bankruptcy was a mistake, and on August 30, 2005, MetroPCS, Inc. filed a certificate of correction to remove this prohibition. In addition, MetroPCS, Inc.’s Seventh Amended and Restated Certificate of Incorporation retroactively rescinds any prohibition on the issuance of the non-voting equity securities and ratifies the authorization and issuance of the Class B common stock by MetroPCS, Inc.
In April 2004, all of the shares of Class B non-voting common stock, par value $0.0001 per share, of MetroPCS, Inc., or Class B Common Stock, converted into shares of Class C Common Stock of MetroPCS, Inc. In order to resolve any uncertainty regarding the validity of the common stock ultimately received in the conversion of Class B Common Stock, MetroPCS Communications, Inc. entered into an exchange agreement with Madison Dearborn Capital Partners and TA Associates in August 2005 to exchange all the common stock, which had been issued in connection with the conversion of Class B Common Stock, that Madison Dearborn Capital Partners and TA Associates acquired as a result of their offer to purchase, along with all claims relating to the possible invalidity of the issuance of the Class B Common Stock for an equivalent number of shares of MetroPCS Communications, Inc. Common Stock. In addition, in December 2005, we initiated an offer to exchange any remaining MetroPCS Communications, Inc. Common Stock ultimately received in connection with the conversion of Class B Common Stock, along with any claims relating to the possible invalidity of the issuance of the Class B Common Stock, for an equivalent number of shares of MetroPCS Communications, Inc. common stock. As a result, all shares of MetroPCS Communications, Inc. Common Stock which were ultimately received in connection with the conversion of Class B Common Stock, along with all claims relating to the possible invalidity of the issuance of the Class B Common Stock, have been exchanged for new shares of MetroPCS Communications, Inc. Common Stock. The transaction is exempt from Securities Act registration under Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering.
Equity Incentive Plans. Since January 1, 2004 through December 31, 2006, our employees have purchased 24,436,032 shares of MetroPCS Communications, Inc. Common Stock through the exercise of outstanding options under the 1995 Plan for an aggregate sales price of approximately $9.8 million. Since January 1, 2004 through December 31, 2006, our employees have purchased 17,892 shares of MetroPCS Communications, Inc. Common Stock through the exercise of outstanding options under our 2004 Equity Incentive Compensation Plan, as amended, or the 2004 Plan, for an aggregate sales price of approximately $0.1 million. These transactions were undertaken in reliance upon exemptions from Securities Act registration requirements afforded by Rule 701, Rule 506 and Section 4(2) of the Securities Act, except that we have determined that the issuance of certain options to purchase 1,959,296 shares of
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MetroPCS Communications, Inc. Common Stock under the 1995 Plan and 2004 Plan since January 1, 2004 may not have been exempt from registration or qualification requirements under federal or state securities laws. Consequently, certain of these options and shares of MetroPCS Communications, Inc. Common Stock may have been issued in violation of federal or state securities laws and may beare the subject to rescission. We intend to make a rescission offer as soon as practicable after the effective date of this offering to holders of any outstanding options and shares subject to rescission. If the rescission offer is accepted by all offerees, we could be required to make an aggregate payment of up to approximately $2.6 million.described in the Offering Circular. See “Rescission Offer — Background.”
Director Remuneration Plan. Non-employee members of our board of directors are eligible to participate in our non-employee director remuneration plan under which such directors may receive compensation for serving on the board of directors. This compensation includes annual retainers, board meeting fees, committee paid event fees, initial stock grants and annual stock grants. Non-employee directors are eligible to receive an initial grant of 120,000 options to purchase MetroPCS Communications, Inc. Common Stock plus an additional 30,000 or 9,000 options to purchase MetroPCS Communications, Inc.
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Common Stock if the member serves as the chairman of the audit committee or any of the other committees, respectively. Non-employee directors are also eligible to receive an annual grant of 30,000 options to purchase MetroPCS Communications, Inc. Common Stock plus an additional 15,000 or 6,000 options to purchase MetroPCS Communications, Inc. Common Stock if the member serves as the chairman of the audit committee or the other committees, respectively. In addition, non-employee directors may elect to receive their annual retainer in the form of MetroPCS Communications, Inc. Common Stock. If such election is made, the non-employee director is eligible to receive the number of shares of MetroPCS Communications, Inc. Common Stock that is equal to (a) the portion of the annual retainer received in MetroPCS Communications, Inc. Common Stock divided by the fair market value of the MetroPCS Communications, Inc. Common Stock at the time the annual retainer is paid (b) times three. Since the inception of the plan, non-employeenonemployee directors have been granted 1,066,131 options to purchase MetroPCS Communications, Inc. Common Stock and 97,596 of those options have been exercised. Shares of MetroPCS Communications, Inc. Common Stock granted under the non-employee director remuneration plan were granted in reliance upon Rule 506 of the Securities Act and options were granted in reliance upon Rule 701and/or Rule 506 of the Securities Act. We believe other exemptions may also be available.
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| ITEM 16. | Exhibits and Financial Statement Schedules |
(A) Exhibits:
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Exhibit No.
| | Description
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| 1 | .1** | | Form of Underwriting Agreement. |
| 2 | .1(a)*** | | Agreement and Plan of Merger, dated as of April 6, 2004, by and among MetroPCS Communications, Inc., MPCS Holdco Merger Sub, Inc. and MetroPCS, Inc. |
| 2 | .1(b)*** | | Agreement and Plan of Merger, dated as of November 3, 2006, by and among MetroPCS Wireless, Inc., MetroPCS IV, Inc., MetroPCS III, Inc., MetroPCS II, Inc. and MetroPCS, Inc. |
| 3 | .1*** | | Form of Third Amended and Restated Certificate of Incorporation of MetroPCS Communications, Inc. to be filed upon the closing of this offering. |
| 3 | .2*** | | Form of Third Amended and Restated Bylaws of MetroPCS Communications, Inc. to be effective upon the closing of this offering. |
| 4 | .1* | | Form of Certificate of MetroPCS Communications, Inc. Common Stock. |
| 4 | .2*** | | Rights Agreement, dated as of March 29, 2007, between MetroPCS Communications, Inc. and American Stock Transfer & Trust Company, as Rights Agent, which includes the form of Certificate of Designation of Series A Junior Participating Preferred Stock of MetroPCS Communications, Inc. as Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights as Exhibit C. (Filed as Exhibit 4.1 to MetroPCS Communications, Inc.’s Current Report onForm 8-K, filed on March 30, 2007, and incorporated by reference herein). |
| 5 | .1** | | Opinion of Baker Botts L.L.P. |
| 10 | .1(a)*** | | MetroPCS Communications, Inc. Amended and Restated 2004 Equity Incentive Compensation Plan. |
| 10 | .1(b)*** | | Second Amended and Restated 1995 Stock Option Plan of MetroPCS, Inc. |
| 10 | .1(c)*** | | First Amendment to the Second Amended and Restated 1995 Stock Option Plan of MetroPCS, Inc. |
| 10 | .1(d)*** | | Second Amendment to the Second Amended and Restated 1995 Stock Option Plan of MetroPCS, Inc. |
| 10 | .2** | | Form of Registration Rights Agreement to become effective upon the closing of this offering. |
| 10 | .3*** | | Form of Officer and Director Indemnification Agreement. (Filed as Exhibit 10.4 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .4(a)***† | | 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 onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
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Exhibit No. | | Description |
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| | 2 | .1(a) | | Agreement and Plan of Merger, dated as of April 6, 2004, by and among MetroPCS Communications, Inc., MPCS Holdco Merger Sub, Inc. and MetroPCS, Inc (Filed as Exhibit 2.1(a) to MetroPCS Communications, Inc.’s Registration Statement onForm S-1 (SEC FileNo. 333-139793), filed on January 4, 2007, and incorporated by reference herein). |
| | 2 | .1(b) | | Agreement and Plan of Merger, dated as of November 3, 2006, by and among MetroPCS Wireless, Inc., MetroPCS IV, Inc., MetroPCS III, Inc., MetroPCS II, Inc. and MetroPCS, Inc. (Filed as Exhibit 2.1(b) to MetroPCS Communications, Inc.’s Registration Statement onForm S-1 (SEC FileNo. 333-139793), filed on January 4, 2007, and incorporated by reference herein). |
| | 3 | .1 | | Third Amended and Restated Certificate of Incorporation of MetroPCS Communications, Inc. (Filed as Exhibit 3.1 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 3 | .2 | | Third Amended and Restated Bylaws of MetroPCS Communications, Inc. (Filed as Exhibit 3.2 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 4 | .1 | | Form of Certificate of MetroPCS Communications, Inc. Common Stock. (Filed as Exhibit 4.1 to Amendment No. 4 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on April 3, 2007, and incorporated by reference herein). |
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| | | | | |
Exhibit No. | | Description |
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| | 4 | .2 | | Rights Agreement, dated as of March 29, 2007, between MetroPCS Communications, Inc. and American Stock Transfer & Trust Company, as Rights Agent, which includes the form of Certificate of Designation of Series A Junior Participating Preferred Stock of MetroPCS Communications, Inc. as Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights as Exhibit C (Filed as Exhibit 4.1 to MetroPCS Communications, Inc.’s Current Report onForm 8-K, filed on March 30, 2007, and incorporated by reference herein). |
| | 5 | .1* | | Opinion of Baker Botts L.L.P. |
| | 10 | .1(a) | | Amended and Restated MetroPCS Communications, Inc. 2004 Equity Incentive Compensation Plan (Filed as Exhibit 10.1(a) to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .1(b) | | Second Amended and Restated 1995 Stock Option Plan of MetroPCS, Inc. (Filed as Exhibit 10.1(d) to MetroPCS Communications, Inc.’s Registration Statement onForm S-1 (SEC FileNo. 333-139793), filed on January 4, 2007, and incorporated by reference herein). |
| | 10 | .1(c) | | First Amendment to the Second Amended and Restated 1995 Stock Option Plan of MetroPCS, Inc. (Filed as Exhibit 10.1(e) to MetroPCS Communications, Inc.’s Registration Statement onForm S-1 (SEC FileNo. 333-139793), filed on January 4, 2007, and incorporated by reference herein). |
| | 10 | .1(d) | | Second Amendment to the Second Amended and Restated 1995 Stock Option Plan of MetroPCS, Inc. (Filed as Exhibit 10.1(f) to MetroPCS Communications, Inc.’s Registration Statement onForm S-1 (SEC FileNo. 333-139793), filed on January 4, 2007, and incorporated by reference herein). |
| | 10 | .2 | | Registration Rights Agreement, effective as of April 24, 2007, by and among MetroPCS Communications, Inc. and the stockholders listed therein. (Filed as Exhibit 10.2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on April 11, 2007, and incorporated by reference herein). |
| | 10 | .3 | | Form of Officer and Director Indemnification Agreement (Filed as Exhibit 10.4 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .4(a) | | 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 onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .4(b) | | Amendment No. 1 to the General Purchase Agreement, effective as of September 30, 2005, by and between MetroPCS Wireless, Inc. and Lucent Technologies Inc. (Filed as Exhibit 10.5(b) to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .4(c) | | Amendment No. 2 to the General Purchase Agreement, effective as of November 10, 2005, by and between MetroPCS Wireless, Inc. and Lucent Technologies Inc. (Filed as Exhibit 10.5(c) to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .5 | | Amended and Restated Services Agreement, executed on December 15, 2005 as of November 24, 2004, by and between MetroPCS Wireless, Inc. and Royal Street Communications, LLC, including all amendments thereto (Filed as Exhibit 10.6 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .6 | | Second Amended and Restated Credit Agreement, executed on December 15, 2005 as of December 22, 2004, by and between MetroPCS Wireless, Inc. and Royal Street Communications, LLC, including all amendments thereto (Filed as Exhibit 10.7 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
II-6
| | | | |
Exhibit No.
| | Description
|
|
| 10 | .4(b)***† | | Amendment No. 1 to the General Purchase Agreement, effective as of September 30, 2005, by and between MetroPCS Wireless, Inc. and Lucent Technologies Inc. (Filed as Exhibit 10.5(b) to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .4(c)***† | | Amendment No. 2 to the General Purchase Agreement, effective as of November 10, 2005, by and between MetroPCS Wireless, Inc. and Lucent Technologies Inc. (Filed as Exhibit 10.5(c) to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .5***† | | Amended and Restated Services Agreement, executed on December 15, 2005 as of November 24, 2004, by and between MetroPCS Wireless, Inc., and Royal Street Communications, LLC including all amendments thereto. (Filed as Exhibit 10.6 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). |
| 10 | .6***† | | Second Amended and Restated Credit Agreement, executed on December 15, 2005 as of December 22, 2004, by and between MetroPCS Wireless, Inc. and Royal Street Communications, LLC, including all amendments thereto. (Filed as Exhibit 10.7 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC File No. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .7*** | | Amended and Restated Pledge Agreement, executed on December 15, 2005 as of December 22, 2004, by and between Royal Street Communications, LLC and MetroPCS Wireless, Inc., including all amendments thereto. (Filed as Exhibit 10.8 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC File No. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .8*** | | Amended and Restated Security Agreement, executed on December 15, 2005 as of December 22, 2004, by and between Royal Street Communications, LLC and MetroPCS Wireless, Inc., including all amendments thereto. (Filed as Exhibit 10.9 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC File No. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .9***† | | Amended and Restated Limited Liability Company Agreement of Royal Street Communications, LLC, executed on December 15, 2005 as of November 24, 2004 by and between C9 Wireless, LLC, GWI PCS1, Inc., and MetroPCS Wireless, Inc., including all amendments thereto. (Filed as Exhibit 10.10 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC File No. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .10***† | | Master Equipment and Facilities Lease Agreement, executed as of May 17, 2006, by and between MetroPCS Wireless, Inc. and Royal Street Communications, LLC, including all amendments thereto. (Filed as Exhibit 10.11 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC File No. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .11*** | | Amended and Restated Credit Agreement, dated as of February 20, 2007, among MetroPCS Wireless, Inc., as borrower, the several lenders from time to time parties thereto, Bear Stearns Corporate Lending Inc., as administrative agent and syndication agent, Bear, Stearns & Co. Inc., as sole lead arranger and joint book runner, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint book runner and Banc of America Securities LLC, as joint book runner. (Filed as Exhibit 10.12 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC File No. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .12*** | | Purchase Agreement dated October 26, 2006, among MetroPCS Wireless, Inc., the Guarantors as defined therein and Bear, Stearns & Co. Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Banc of America Securities LLC. (Filed as Exhibit 10.13 to Amendment No. 1 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC File No. 333-139793), filed on February 13, 2007, and incorporated by reference herein). |
II-7
| | | | |
Exhibit No.
| | Description
|
|
| 10 | .13*** | | Registration Rights Agreement, dated November 3, 2006, by and among MetroPCS Wireless, Inc., the Guarantors as defined therein and Bear, Stearns & Co. Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Banc of America Securities LLC. (Filed as Exhibit 10.14 to Amendment No. 1 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC File No. 333-139793), filed on February 13, 2007, and incorporated by reference herein). |
| 10 | .14*** | | Indenture, dated as of November 3, 2006, among MetroPCS Wireless, Inc., the Guarantors as defined therein and The Bank of New York Trust Company, N.A., as trustee. (Filed as Exhibit 10.15 to Amendment No. 1 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC File No. 333-139793), filed on February 13, 2007, and incorporated by reference herein). |
| 10 | .15*** | | Supplemental Indenture, dated as of February 6, 2007, among the Guaranteeing Subsidiaries as defined therein, the other Guarantors as defined in the Indenture referred to therein and The Bank of New York Trust Company, N.A., as trustee under the Indenture referred to therein. (Filed as Exhibit 10.16 to Amendment No. 1 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC File No. 333-139793), filed on February 13, 2007, and incorporated by reference herein). |
| 16 | .1*** | | Letter regarding change in certifying accountant. |
| 21 | .1*** | | Subsidiaries of Registrant. |
| 23 | .1* | | Consent of Deloitte & Touche LLP. |
| 23 | .2** | | Consent of Baker Botts L.L.P. (included in Exhibit 5.1). |
| 24 | .1*** | | Power of Attorney, pursuant to which amendments to thisForm S-1 may be filed, is included on the signature page contained in Part II of thisForm S-1. |
| | | | | |
Exhibit No. | | Description |
| |
| | 10 | .7 | | Amended and Restated Pledge Agreement, executed on December 15, 2005 as of December 22, 2004, by and between Royal Street Communications, LLC and MetroPCS Wireless, Inc., including all amendments thereto (Filed as Exhibit 10.8 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .8 | | Amended and Restated Security Agreement, executed on December 15, 2005 as of December 22, 2004, by and between Royal Street Communications, LLC and MetroPCS Wireless, Inc., including all amendments thereto (Filed as Exhibit 10.9 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .9 | | Amended and Restated Limited Liability Company Agreement of Royal Street Communications, LLC, executed on December 15, 2005 as of November 24, 2004, by and between C9 Wireless, LLC, GWI PCS1, Inc., and MetroPCS Wireless, Inc., including all amendments thereto (Filed as Exhibit 10.10 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .10 | | Master Equipment and Facilities Lease Agreement, executed as of May 17, 2006, by and between MetroPCS Wireless, Inc. and Royal Street Communications, LLC, including all amendments thereto (Filed as Exhibit 10.11 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .11 | | Amended and Restated Credit Agreement, dated as of February 20, 2007, among MetroPCS Wireless, Inc., as borrower, the several lenders from time to time parties thereto, Bear Stearns Corporate Lending Inc., as administrative agent and syndication agent, Bear, Stearns & Co. Inc., as sole lead arranger and joint book runner, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint book runner and Banc of America Securities LLC, as joint book runner (Filed as Exhibit 10.12 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .12 | | Purchase Agreement, dated October 26, 2006, among MetroPCS Wireless, Inc., the Guarantors as defined therein and Bear, Stearns & Co. Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Banc of America Securities LLC (Filed as Exhibit 10.13 to Amendment No. 1 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 13, 2007, and incorporated by reference herein). |
| | 10 | .13 | | Registration Rights Agreement, dated as of November 3, 2006, by and among MetroPCS Wireless, Inc., the Guarantors as defined therein and Bear, Stearns & Co. Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Banc of America Securities LLC (Filed as Exhibit 10.14 to Amendment No. 1 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 13, 2007, and incorporated by reference herein). |
| | 10 | .14 | | Indenture, dated as of November 3, 2006, among MetroPCS Wireless, Inc., the Guarantors as defined therein and The Bank of New York Trust Company, N.A., as trustee (Filed as Exhibit 10.15 to Amendment No. 1 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 13, 2007, and incorporated by reference herein). |
| | 10 | .15 | | Supplemental Indenture, dated as of February 6, 2007, among the Guaranteeing Subsidiaries as defined therein, the other Guarantors as defined in the Indenture referred to therein and The Bank of New York Trust Company, N.A., as trustee under the Indenture referred to therein (Filed as Exhibit 10.16 to Amendment No. 1 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 13, 2007, and incorporated by reference herein). |
| | 21 | .1* | | Subsidiaries of Registrant. |
| | 23 | .1* | | Consent of Deloitte & Touche LLP. |
| | 23 | .2* | | Consent of Baker Botts L.L.P. (included in Exhibit 5.1). |
| | 24 | .1* | | Power of Attorney, pursuant to which amendments to thisForm S-1 may be filed, is included on the signature page contained in Part II of thisForm S-1. |
| | |
| * | | Filed herewith. |
|
** | | To be filed by amendment. |
|
*** | | Previously filed. |
|
† | | Portions of this Exhibit have been omitted and filed separately with the Securities and Exchange Commission as part of an application for confidential treatment. |
II-7
(B) Financial Statement Schedules:
Financial statement schedules are omitted because they are not required or the required information is shown in our consolidated financial statements or the notes thereto.
(a) The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
II-8
(c)(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statementregistration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this Registration Statementregistration statement as of the time it was declared effective.
(2) For purposesthe purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fideoffering thereof.
II-9II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas, State of Texas, on April 3,May 14, 2007.
METROPCS COMMUNICATIONS, INC.
| | |
| | By: | /s/ ROGERRoger D. LINQUIST Linquist |
Roger D. Linquist
President and Chief Executive Officer and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby severally constitutes and appoints Roger D. Linquist his true and lawfulattorney-in-fact and agent, each with the power of substitution and resubstitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement onForm S-1 (and any additional registration statement related thereto permitted by Rule 462(b) promulgated under the Securities Act of 1933 (and all further amendments, including post-effective amendments thereto)), and to file the same, with accompanying exhibits and other related documents, with the Securities and Exchange Commission, and ratify and confirm all that saidattorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue of said appointment.
Pursuant to the requirements of the Securities Exchange Act of 1934, this registration statement has been signed below by the following persons on behalf of the registrant and in the capacities indicated on April 3,May 14, 2007.
| | | |
| | |
| | |
| | |
/s/ ROGERRoger D. LINQUISTLinquist
Roger D. Linquist
President and Chief Executive Officer and
and Chairman of the Board
(Principal Executive Officer) | | */s/ J. Braxton Carter
J. Braxton Carter
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer) |
| | | |
| | |
| | |
*/s/ Christine B. Kornegay
Christine B. Kornegay
Vice President, Controller and
Chief Accounting Officer
(Principal Accounting Officer) | | */s/ Arthur C. Patterson
Arthur C. Patterson
Director |
| | | |
| | |
| | |
*/s/ Walker C. Simmons
Walker C. Simmons
Director | | */s/ John Sculley
John Sculley
Director |
| | | |
| | |
| | |
*/s/ James F. Wade
James F. Wade
Director | | */s/ W. Michael Barnes
W. Michael Barnes
Director |
| | | |
| | |
| | |
*/s/ C. Kevin Landry
C. Kevin Landry
Director | | */s/ James N. Perry, Jr.
James N. Perry, Jr.
Director |
| |
* By: | /s/ ROGER D. LINQUIST
|
Roger D. Linquist
Attorney-in-Fact
II-10II-9
Index to Exhibits
| | | | |
Exhibit No.
| | Description
|
|
| 1 | .1** | | Form of Underwriting Agreement. |
| 2 | .1(a)*** | | Agreement and Plan of Merger, dated as of April 6, 2004, by and among MetroPCS Communications, Inc., MPCS Holdco Merger Sub, Inc. and MetroPCS, Inc. |
| 2 | .1(b)*** | | Agreement and Plan of Merger, dated as of November 3, 2006, by and among MetroPCS Wireless, Inc., MetroPCS IV, Inc., MetroPCS III, Inc., MetroPCS II, Inc. and MetroPCS, Inc. |
| 3 | .1*** | | Form of Third Amended and Restated Certificate of Incorporation of MetroPCS Communications, Inc. to be filed upon the closing of this offering. |
| 3 | .2*** | | Form of Third Amended and Restated Bylaws of MetroPCS Communications, Inc. to be effective upon the closing of this offering. |
| 4 | .1* | | Form of Certificate of MetroPCS Communications, Inc. Common Stock. |
| 4 | .2*** | | Rights Agreement, dated as of March 29, 2007, between MetroPCS Communications, Inc. and American Stock Transfer & Trust Company, as Rights Agent, which includes the form of Certificate of Designation of Series A Junior Participating Preferred Stock of MetroPCS Communications, Inc. as Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights as Exhibit C. (Filed as Exhibit 4.1 to MetroPCS Communications, Inc.’s Current Report onForm 8-K, filed on March 30, 2007, and incorporated by reference herein). |
| 5 | .1** | | Opinion of Baker Botts L.L.P. |
| 10 | .1(a)*** | | MetroPCS Communications, Inc. Amended and Restated 2004 Equity Incentive Compensation Plan. |
| 10 | .1(b)*** | | Second Amended and Restated 1995 Stock Option Plan of MetroPCS, Inc. |
| 10 | .1(c)*** | | First Amendment to the Second Amended and Restated 1995 Stock Option Plan of MetroPCS, Inc. |
| 10 | .1(d)*** | | Second Amendment to the Second Amended and Restated 1995 Stock Option Plan of MetroPCS, Inc. |
| 10 | .2** | | Form of Registration Rights Agreement to become effective upon the closing of this offering. |
| 10 | .3*** | | Form of Officer and Director Indemnification Agreement. (Filed as Exhibit 10.4 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .4(a)***† | | 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 onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .4(b)***† | | Amendment No. 1 to the General Purchase Agreement, effective as of September 30, 2005, by and between MetroPCS Wireless, Inc. and Lucent Technologies Inc. (Filed as Exhibit 10.5(b) to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .4(c)***† | | Amendment No. 2 to the General Purchase Agreement, effective as of November 10, 2005, by and between MetroPCS Wireless, Inc. and Lucent Technologies Inc. (Filed as Exhibit 10.5(c) to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .5***† | | Amended and Restated Services Agreement, executed on December 15, 2005 as of November 24, 2004, by and between MetroPCS Wireless, Inc., and Royal Street Communications, LLC including all amendments thereto. (Filed as Exhibit 10.6 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .6***† | | Second Amended and Restated Credit Agreement, executed on December 15, 2005 as of December 22, 2004, by and between MetroPCS Wireless, Inc. and Royal Street Communications, LLC, including all amendments thereto. (Filed as Exhibit 10.7 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .7*** | | Amended and Restated Pledge Agreement, executed on December 15, 2005 as of December 22, 2004, by and between Royal Street Communications, LLC and MetroPCS Wireless, Inc., including all amendments thereto. (Filed as Exhibit 10.8 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | | | | |
Exhibit No. | | Description |
| |
| | 2 | .1(a) | | Agreement and Plan of Merger, dated as of April 6, 2004, by and among MetroPCS Communications, Inc., MPCS Holdco Merger Sub, Inc. and MetroPCS, Inc. (Filed as Exhibit 2.1(a) to MetroPCS Communications, Inc.’s Registration Statement onForm S-1 (SEC FileNo. 333-139793), filed on January 4, 2007, and incorporated by reference herein). |
| | 2 | .1(b) | | Agreement and Plan of Merger, dated as of November 3, 2006, by and among MetroPCS Wireless, Inc., MetroPCS IV, Inc., MetroPCS III, Inc., MetroPCS II, Inc. and MetroPCS, Inc. (Filed as Exhibit 2.1(b) to MetroPCS Communications, Inc.’s Registration Statement onForm S-1 (SEC FileNo. 333-139793), filed on January 4, 2007, and incorporated by reference herein). |
| | 3 | .1 | | Third Amended and Restated Certificate of Incorporation of MetroPCS Communications, Inc. (Filed as Exhibit 3.1 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 3 | .2 | | Third Amended and Restated Bylaws of MetroPCS Communications, Inc. (Filed as Exhibit 3.2 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 4 | .1 | | Form of Certificate of MetroPCS Communications, Inc. Common Stock. (Filed as Exhibit 4.1 to Amendment No. 4 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on April 3, 2007, and incorporated by reference herein). |
| | 4 | .2 | | Rights Agreement, dated as of March 29, 2007, between MetroPCS Communications, Inc. and American Stock Transfer & Trust Company, as Rights Agent, which includes the form of Certificate of Designation of Series A Junior Participating Preferred Stock of MetroPCS Communications, Inc. as Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights as Exhibit C (Filed as Exhibit 4.1 to MetroPCS Communications, Inc.’s Current Report onForm 8-K, filed on March 30, 2007, and incorporated by reference herein). |
| | 5 | .1* | | Opinion of Baker Botts L.L.P. |
| | 10 | .1(a) | | Amended and Restated MetroPCS Communications, Inc. 2004 Equity Incentive Compensation Plan (Filed as Exhibit 10.1(a) to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .1(b) | | Second Amended and Restated 1995 Stock Option Plan of MetroPCS, Inc. (Filed as Exhibit 10.1(d) to MetroPCS Communications, Inc.’s Registration Statement onForm S-1 (SEC FileNo. 333-139793), filed on January 4, 2007, and incorporated by reference herein). |
| | 10 | .1(c) | | First Amendment to the Second Amended and Restated 1995 Stock Option Plan of MetroPCS, Inc. (Filed as Exhibit 10.1(e) to MetroPCS Communications, Inc.’s Registration Statement onForm S-1 (SEC FileNo. 333-139793), filed on January 4, 2007, and incorporated by reference herein). |
| | 10 | .1(d) | | Second Amendment to the Second Amended and Restated 1995 Stock Option Plan of MetroPCS, Inc. (Filed as Exhibit 10.1(f) to MetroPCS Communications, Inc.’s Registration Statement onForm S-1 (SEC FileNo. 333-139793), filed on January 4, 2007, and incorporated by reference herein). |
| | 10 | .2 | | Registration Rights Agreement, effective as of April 24, 2007, by and among MetroPCS Communications, Inc. and the stockholders listed therein. (Filed as Exhibit 10.2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on April 11, 2007, and incorporated by reference herein). |
| | 10 | .3 | | Form of Officer and Director Indemnification Agreement (Filed as Exhibit 10.4 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .4(a) | | 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 onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .4(b) | | Amendment No. 1 to the General Purchase Agreement, effective as of September 30, 2005, by and between MetroPCS Wireless, Inc. and Lucent Technologies Inc. (Filed as Exhibit 10.5(b) to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | | | | |
Exhibit No. | | Description |
| |
| | 10 | .4(c) | | Amendment No. 2 to the General Purchase Agreement, effective as of November 10, 2005, by and between MetroPCS Wireless, Inc. and Lucent Technologies Inc. (Filed as Exhibit 10.5(c) to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .5 | | Amended and Restated Services Agreement, executed on December 15, 2005 as of November 24, 2004, by and between MetroPCS Wireless, Inc. and Royal Street Communications, LLC, including all amendments thereto (Filed as Exhibit 10.6 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .6 | | Second Amended and Restated Credit Agreement, executed on December 15, 2005 as of December 22, 2004, by and between MetroPCS Wireless, Inc. and Royal Street Communications, LLC, including all amendments thereto (Filed as Exhibit 10.7 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .7 | | Amended and Restated Pledge Agreement, executed on December 15, 2005 as of December 22, 2004, by and between Royal Street Communications, LLC and MetroPCS Wireless, Inc., including all amendments thereto (Filed as Exhibit 10.8 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .8 | | Amended and Restated Security Agreement, executed on December 15, 2005 as of December 22, 2004, by and between Royal Street Communications, LLC and MetroPCS Wireless, Inc., including all amendments thereto (Filed as Exhibit 10.9 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .9 | | Amended and Restated Limited Liability Company Agreement of Royal Street Communications, LLC, executed on December 15, 2005 as of November 24, 2004, by and between C9 Wireless, LLC, GWI PCS1, Inc., and MetroPCS Wireless, Inc., including all amendments thereto (Filed as Exhibit 10.10 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .10 | | Master Equipment and Facilities Lease Agreement, executed as of May 17, 2006, by and between MetroPCS Wireless, Inc. and Royal Street Communications, LLC, including all amendments thereto (Filed as Exhibit 10.11 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .11 | | Amended and Restated Credit Agreement, dated as of February 20, 2007, among MetroPCS Wireless, Inc., as borrower, the several lenders from time to time parties thereto, Bear Stearns Corporate Lending Inc., as administrative agent and syndication agent, Bear, Stearns & Co. Inc., as sole lead arranger and joint book runner, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint book runner and Banc of America Securities LLC, as joint book runner (Filed as Exhibit 10.12 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| | 10 | .12 | | Purchase Agreement, dated October 26, 2006, among MetroPCS Wireless, Inc., the Guarantors as defined therein and Bear, Stearns & Co. Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Banc of America Securities LLC (Filed as Exhibit 10.13 to Amendment No. 1 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 13, 2007, and incorporated by reference herein). |
| | 10 | .13 | | Registration Rights Agreement, dated as of November 3, 2006, by and among MetroPCS Wireless, Inc., the Guarantors as defined therein and Bear, Stearns & Co. Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Banc of America Securities LLC (Filed as Exhibit 10.14 to Amendment No. 1 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 13, 2007, and incorporated by reference herein). |
| | 10 | .14 | | Indenture, dated as of November 3, 2006, among MetroPCS Wireless, Inc., the Guarantors as defined therein and The Bank of New York Trust Company, N.A., as trustee (Filed as Exhibit 10.15 to Amendment No. 1 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 13, 2007, and incorporated by reference herein). |
| | | | |
Exhibit No.
| | Description
|
|
| 10 | .8*** | | Amended and Restated Security Agreement, executed on December 15, 2005 as of December 22, 2004, by and between Royal Street Communications, LLC and MetroPCS Wireless, Inc., including all amendments thereto. (Filed as Exhibit 10.9 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .9***† | | Amended and Restated Limited Liability Company Agreement of Royal Street Communications, LLC, executed on December 15, 2005 as of November 24, 2004 by and between C9 Wireless, LLC, GWI PCS1, Inc., and MetroPCS Wireless, Inc., including all amendments thereto. (Filed as Exhibit 10.10 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .10***† | | Master Equipment and Facilities Lease Agreement, executed as of May 17, 2006, by and between MetroPCS Wireless, Inc. and Royal Street Communications, LLC, including all amendments thereto. (Filed as Exhibit 10.11 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .11*** | | Amended and Restated Credit Agreement, dated as of February 20, 2007, among MetroPCS Wireless, Inc., as borrower, the several lenders from time to time parties thereto, Bear Stearns Corporate Lending Inc., as administrative agent and syndication agent, Bear, Stearns & Co. Inc., as sole lead arranger and joint book runner, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint book runner and Banc of America Securities LLC, as joint book runner. (Filed as Exhibit 10.12 to Amendment No. 2 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 27, 2007, and incorporated by reference herein). |
| 10 | .12*** | | Purchase Agreement dated October 26, 2006, among MetroPCS Wireless, Inc., the Guarantors as defined therein and Bear, Stearns & Co. Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Banc of America Securities LLC. (Filed as Exhibit 10.13 to Amendment No. 1 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 13, 2007, and incorporated by reference herein). |
| 10 | .13*** | | Registration Rights Agreement, dated November 3, 2006, by and among MetroPCS Wireless, Inc., the Guarantors as defined therein and Bear, Stearns & Co. Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Banc of America Securities LLC. (Filed as Exhibit 10.14 to Amendment No. 1 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 13, 2007, and incorporated by reference herein). |
| 10 | .14*** | | Indenture, dated as of November 3, 2006, among MetroPCS Wireless, Inc., the Guarantors as defined therein and The Bank of New York Trust Company, N.A., as trustee. (Filed as Exhibit 10.15 to Amendment No. 1 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 13, 2007, and incorporated by reference herein). |
| 10 | .15*** | | Supplemental Indenture, dated as of February 6, 2007, among the Guaranteeing Subsidiaries as defined therein, the other Guarantors as defined in the Indenture referred to therein and The Bank of New York Trust Company, N.A., as trustee under the Indenture referred to therein. (Filed as Exhibit 10.16 to Amendment No. 1 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 13, 2007, and incorporated by reference herein). |
| 16 | .1*** | | Letter regarding change in certifying accountant. |
| 21 | .1*** | | Subsidiaries of Registrant. |
| 23 | .1* | | Consent of Deloitte & Touche LLP. |
| 23 | .2** | | Consent of Baker Botts L.L.P. (included in Exhibit 5.1). |
| 24 | .1*** | | Power of Attorney, pursuant to which amendments to thisForm S-1 may be filed, is included on the signature page contained in Part II of thisForm S-1. |
| | | | | |
Exhibit No. | | Description |
| |
| | 10 | .15 | | Supplemental Indenture, dated as of February 6, 2007, among the Guaranteeing Subsidiaries as defined therein, the other Guarantors as defined in the Indenture referred to therein and The Bank of New York Trust Company, N.A., as trustee under the Indenture referred to therein (Filed as Exhibit 10.16 to Amendment No. 1 to MetroPCS Communications, Inc.’s Registration Statement onForm S-1/A (SEC FileNo. 333-139793), filed on February 13, 2007, and incorporated by reference herein). |
| | 21 | .1* | | Subsidiaries of Registrant. |
| | 23 | .1* | | Consent of Deloitte & Touche LLP. |
| | 23 | .2* | | Consent of Baker Botts L.L.P. (included in Exhibit 5.1). |
| | 24 | .1* | | Power of Attorney, pursuant to which amendments to thisForm S-1 may be filed, is included on the signature page contained in Part II of thisForm S-1. |
| | |
| * | | Filed herewith. |
|
** | | To be filed by amendment. |
|
*** | | Previously filed. |
|
† | | Portions of this Exhibit have been omitted and filed separately with the Securities and Exchange Commission as part of an application for confidential treatment. |
