May 15, 2007 SECURITIES AND EXCHANGE COMMISSION Delaware statement becomes effective. options pursuant to the Second Amended and Restated 1995 Stock Option Plan of MetroPCS, Inc., as amended, and the Amended and Restated MetroPCS Communications, Inc. 2004 Equity Incentive Compensation Plan. Pursuant to Rule 416(a) promulgated under the Securities Act, this Registration Statement shall also cover any additional shares of the Registrant’s common stock that become issuable with respect to July 27, 2004Registration No. 333-113865333- Amendment No. 5toFORMForm S-1Under
UNDER
THE SECURITIES ACT OF 1933MetroPCS Communications, Inc.METROPCS COMMUNICATIONS, INC.Delaware 4812 20-08362694812 20-0836269 (State or other jurisdiction of
incorporation or organization) (Primary Standard Industrial
Classification Code Number) (I.R.S. Employer
Identification No.)8144 Walnut Hill Lane, Suite 800Dallas, Texas 75231(214) 265-2550(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)Roger D. LinquistPresident, Chief Executive Officer,Secretary and Chairman of the Board8144 Walnut Hill Lane, Suite 800Dallas, Texas 75231(214) 265-2550(Name, address, including zip code, and telephone number, including area code, of agent for service)8144 Walnut Hill Lane
Suite 800
Dallas, Texas 75231-4388
(214) 265-2550
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)Roger D. Linquist
Chief Executive Officer
8144 Walnut Hill Lane
Suite 800
Dallas, Texas 75231-4388
(214) 265-2550
(Name, address, including zip code, and telephone number,
including area code, of agent for service)Andrews Kurth LLP600 Travis, Suite 4200Houston, Texas 77002(713) 220-4200Attn: Henry Havre Kin GillLatham & Watkins LLP885 Third Avenue, Suite 1000New York, New York 10022(212) 906-1200Attn: Ian Blumensteinfollowingafter the effectiveness of this registration statement.¨o¨o¨o¨oIf the delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. ¨ Proposed Maximum Amount of Aggregate Offering Registration Title of Each Class of Securities to be Registered(1) Price(2) Fee Common Stock, par value $0.0001 per share $6,585,498.33(3) $202.17 Title(1)Consists of Each Classshares issuable upon exercise ofbe RegisteredProposed MaximumAggregateOffering Price (2)Amountthe shares being registered hereunder by reason ofRegistration Fee (2)Common any stock par value $0.0001 per share (1)$607,200,000$76,933 (3)(1)Includesdividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration that increases the number of the Registrant’s outstanding shares of common stock issuable upon the exercise of the underwriters’ over-allotment option.stock.(2) Estimated solely for the purpose of calculating the amountregistration fee in accordance with Rule 457(j) of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.Act.(3) The registrant has previously paid these fees.weighted average price of the 936,546 shares of the common stock being registered is $7.03 per share.registrantRegistrant hereby amends this registration statementRegistration Statement on such date or dates as may be necessary to delay its effective date until the registrantRegistrant shall file a further amendment which specifically states that this registration statementRegistration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, of 1933 or until the registration statementRegistration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the Securities and Exchange Commission declares our registration statement effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
The information in this offering circular is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This offering circular is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. |
24,000,000 Shares
This is
We currently anticipateunderwriters’ exercise of their over-allotment option.
• | We are offering to repurchase options granted by us to purchase approximately 936,546 shares of our common stock from certain persons who are or were residents of California, Florida, Georgia, Michigan, Nevada, and Texas at the time such options were issued by us. We refer to these states in this offering circular as the “Rescission States”. These holders are current and former employees who were granted options to purchase shares of our common stock during certain periods in 2004 and 2006 pursuant to the Second Amended and Restated 1995 Stock Option Plan of MetroPCS, Inc., as amended, or 1995 Plan, and the Amended and Restated MetroPCS Communications, Inc. 2004 Equity Incentive Compensation Plan, or 2004 Plan, and collectively, our Equity Compensation Plans. | |
• | The options to purchase shares of our common stock that we are offering to repurchase consist of (1) unexercised and outstanding options to purchase 339,114 shares of our common stock granted in 2004 to certain employees who are or were residents of the Rescission States at the time of grant and (2) unexercised and outstanding options to purchase 597,432 shares of our common stock granted between April 30, 2006 and September 30, 2006 to certain employees who are or were residents of the Rescission States at the time of grant. | |
• | The repurchase price for unexercised and outstanding options subject to this rescission offer is 20% of the per share exercise price of the options multiplied by the number of shares of common stock subject to the options. In each case, if you accept our rescission offer and tender your unexercised options, you will receive interest based on the repurchase price and calculated from the date the option was granted to you through the date that the rescission offer expires at the interest rate mandated by your state of residence at the time the option was granted as set forth below. | |
• | Federal law does not provide a specific interest rate to be used in the calculation of the consideration to be received in connection with the repurchases of securities by an issuer in a rescission offer. The legal rates of interest for the repurchase of options in the Rescission States are as follows: |
State | Interest Rate | |||
California | 7.00 | % | ||
Florida | 9.00 | % | ||
Georgia | 6.00 | % | ||
Michigan | 6.00 | % | ||
Nevada | 8.25 | % | ||
Texas | 6.00 | % |
, 2007.
• | This rescission offer is not an unanticipated development. Rather, our intent to make this rescission offer and the details of the rescission offer were disclosed in the registration statement on Form related to our initial public offering originally filed with the Securities and Exchange Commission, or the SEC, on January 4, 2007 which became effective on April 19, 2007 and our registration statement on Form 10 originally filed with the SEC on January 4, 2007 which became effective on March 5, 2007. | |||||
• | Although we believed at the time we granted the options to purchase our common stock that valid exemptions existed from the registration and qualification requirements under the Securities Act of 1933, as amended, or Securities Act, and the securities laws of the Rescission States, certain options to purchase our common stock granted during certain periods of 2004 and 2006 may not have been exempt from the registration and qualification requirements under Rule 701 under the Securities Act or under the securities laws of the Rescission States. As a result, the holders of options to purchase our common stock received from us in violation of federal and state securities laws may have a right to require us to repurchase those securities. Rescission offers for such potential violations are commonly made by companies in this situation. | |||||
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We intend to commence the rescission offer on , 2007. The rescission offer will be made to the holders of unexercised and outstanding options to purchase 936,546 shares of our common stock. The filing of this registration statement is a normal part of the rescission offer process. | ||||||
• | We do not believe the rescission offer will be accepted by the holders subject to this rescission offer in an amount that would represent a material expenditure by us. This belief is based on the fact that our rescission offer will offer to repurchase options at a weighted average price of $1.41, which is significantly less than the difference between the highest per share exercise price of the options subject to the rescission offer and the two-week average trading price at which our common stock has traded since we completed our initial public offering on April 19, 2007. We cannot give you any assurances as to the price at which the common stock will trade in the future. | |||||
• | When the rescission offer expires, any holder of options to purchase our common stock subject to this rescission offer who did not accept the rescission offer will hold options to purchase freely tradable stock, subject to vesting and other restrictions contained in our Equity Compensation Plans, insider trading restrictions and anylock-up arrangements made with the underwriters of our initial public offering or contained in our Registration Rights Agreement, unless the holder is an affiliate of MetroPCS within the meaning of Rule 144 or Rule 145 of the Securities Act. | |||||
• | This rescission offer is merely an offer to repurchase certain options to purchase our common stock. You are not required to accept our rescission offer or take any action if you wish to decline our rescission offer. |
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The underwriters may purchase up to an additional 3,600,000 shares of common stock from the selling stockholders at the initial public offering price less the underwriting discount to cover over-allotments.
The underwriters expect to deliver the shares on , 2004.
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Subsidiaries of Registrant | ||||||||||
Consent of Deloitte & |
UBS Investment Bank
JPMorgan
Thomas Weisel Partners LLC
The date of this prospectus is , 2004.
Q1: | Why are we making the rescission offer? | |
A: | Certain options to purchase our common stock, granted during certain periods of 2004 and 2006 may not have been exempt from the registration and qualification requirements under Rule 701 under the Securities Act or under the securities laws of certain states. We issued these options in reliance on Rule 701 under the Securities Act. However, we may not have been entitled to rely on Rule 701 because — during 2004 and beginning on April 30, 2006 — we were subject to, or should have been subject to, the periodic reporting requirements under the Securities Exchange Act of 1934, as amended, or the Exchange Act. | |
As a result, certain holders of options may have a right to require us to repurchase those securities if we are found to be in violation of federal or state securities laws. The rescission offer is intended to address these federal and state securities laws compliance issues by allowing the holders of options to purchase common stock covered by the rescission offer to rescind the underlying securities transactions and sell those securities back to us. | ||
For a more detailed description of the background of this rescission offer, please see “Rescission Offer — Background” below. | ||
Q2: | Which options are included in the rescission offer? | |
A: | We are offering, upon the terms and conditions described in this offering circular, to rescind the grant of options to purchase 936,546 shares of our common stock which were initially granted in 2004 and after April 30, 2006 through September 30, 2006 and to pay 20% of the per share exercise price of the options multiplied by the number of shares of common stock subject to the options. | |
The outstanding options to purchase shares of our common stock are held by 338 persons, all of whom are current and former employees. We granted these options subject to the rescission offer between (1) January and December 2004 and (2) April 30, 2006 and September 30, 2006, at exercise prices ranging from $1.57 to $8.67 per share. The weighted average exercise price per share for these options is $7.03. | ||
Q3: | When does the rescission offer expire? | |
A: | Our rescission offer will expire at 5:00 P.M. Dallas, Texas time on , 2007. | |
Q4: | What will I receive if I accept the rescission offer? | |
A: | If you accept our rescission offer with respect to unexercised options to purchase our common stock, regardless of whether these options are vested, we will repurchase these options at a price equal to 20% of the per share exercise price multiplied by the number of shares subject to the options, plus interest at the current statutory rate per year, from the date of grant through the date the rescission offer expires. |
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The legal rates of interest for the repurchase of options to purchase our common stock in the Rescission States are as follows: |
State | ||||
California | 7.00 | % | ||
Florida | 9.00 | % | ||
Georgia | 6.00 | % | ||
Michigan | 6.00 | % | ||
Nevada | 8.25 | % | ||
| 6.00 | % |
We believe that your acceptance of the rescission offer will preclude you from later seeking similar relief under general legal theories of estoppel, and we are unaware of any federal or state case law to the contrary. However, we urge you to consult with your legal counsel regarding all of your legal rights and remedies and your tax and financial advisors before deciding whether or not to accept the rescission offer. | ||
Q5: | Can you give me an example of what I will receive if I accept the rescission offer? | |
A: | We will repurchase outstanding, unexercised options to purchase our common stock subject to the rescission offer at a price equal to 20% of the per share exercise price of the option multiplied by the number of shares subject to the options, plus interest at the current statutory rate per year (as specified above), from the date of grant through the date the rescission offer expires. For example, if you are a resident of California and hold an unexercised option to purchase 1,000 shares of our common stock at a per share exercise price of $5.47 that was granted in October 2004 and you accept our rescission offer, you would receive (subject to applicable taxes and tax withholding requirements): | |
• 20% of the exercise price for the total option = 20% * (1,000 X $5.47) = $1,094. | ||
• Plus interest at 7% per year = $77. | ||
• For a total of $1,287 (assuming 2 | ||
If you tender your options to purchase our common stock, you will not have any right, title or interest to the options to purchase shares of common stock you are tendering upon the closing of the rescission offer, and you will only be entitled to receive the proceeds from our repurchase of the options. | ||
Q6: | Have any officers, directors or 5% stockholders advised MetroPCS whether they will participate in the rescission offer? | |
A: | None of our executive officers or directors are eligible to participate in this rescission offer. In addition, none of our 5% stockholders are holders of options to purchase shares of our common stock subject to this rescission offer. | |
Q7: | If I do not accept the offer now, can I sell my shares? | |
A: | If you do not accept the rescission offer, you can sell the shares of common stock obtained upon valid exercise of the options that were subject to the rescission offer without limitation as to the number or manner of sale, unless you are an affiliate of MetroPCS; provided, however, that you will remain subject to any restrictions contained in our Equity Compensation Plans, any market standoff agreements,lock-up arrangements with the underwriters of our initial public offering or contained in our Registration Rights Agreement, vesting restrictions, insider trading restrictions and any other transfer restrictions applicable to your shares. You may only sell shares purchased upon exercise of vested options; stock underlying unvested options may not be sold. | |
Q8: | What do I need to do now to accept or reject the rescission offer? | |
A: | To accept or reject the rescission offer, you must complete and sign the accompanying election form and return it in the enclosed return envelope to our legal department, to the attention of Damien Falgoust, Esq., 8144 Walnut Hill Lane, Suite 800, Dallas, Texas75231-4388, as soon as practical but in no |
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event later than 5:00 P.M. Dallas, Texas time on , 2007. If you are accepting the rescission offer, please also include in your return envelope a completed and signed election form (seeAppendix A). Please indicate on your election form the grant date of the options that you are tendering for repurchase and the number of shares underlying the options. | ||
Q9: | Can I accept the rescission offer in part? | |
A: | If you accept the rescission offer with respect to your options, then you must accept the rescission offer with respect to an entire option grant. You can accept the rescission offer in part to the extent you have received multiple option grants. For example, you can accept the rescission offer with respect to one option grant subject to the rescission offer by returning a completed signed election form with respect to that option grant (seeAppendix A) and not accept the rescission offer for another option grant. | |
Q10: | What happens if I do not return my rescission offer election form? | |
A: | If you do not return your election form before the expiration date of our rescission offer, you will be deemed to have rejected our offer. | |
Q11: | What remedies or rights do I have now that I will not have after the rescission offer? | |
A: | Because the options were granted to you without any monetary consideration, it is unclear what, if anything, you would be entitled to receive if you exercised your right of rescission under the Securities Act. It is also unclear whether or not you will have a right of rescission under federal securities laws after the rescission offer. The staff of the SEC is of the opinion that a person’s right of rescission created under the Securities Act may survive the rescission offer. However, federal courts in the past have ruled that a person who rejects or fails to accept a rescission offer is precluded from later seeking similar relief. Generally, the federal statute of limitations for noncompliance with the requirement to register securities under the Securities Act is one year but can run up to three years. | |
The state remedies and statutes of limitations vary and depend upon the state in which you resided when the options were granted. The following is a summary of the statutes of limitations and the effect of the rescission offer for the states in which the securities covered by this rescission offer were sold. |
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Q12: | ||
A: | ||
Q13: | ||
A: | Yes. You can change your decision about accepting or rejecting our rescission offer at any time before the expiration date of the rescission offer. You can do this by completing and submitting a new election form to | |
Who can help answer my questions? | ||
A: | We recommend that you consult your legal counsel and tax and financial advisors before making your decision about accepting or rejecting our rescission offer. In addition, you can call Damien Falgoust, Esq. in our legal department at(214) 378-2955 with questions about the rescission offer. | |
Q15: | Where can I get more information about MetroPCS? | |
A: | You can obtain more information about MetroPCS from the filings we make from time to time with the SEC. These filings are available on the SEC’s website atwww.sec.gov. |
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MetroPCS
We are amongoffering circular. This summary is not complete and does not contain all of the fastest growing wireless communications providersinformation that is important to you or that you should consider before deciding whether to accept or reject the rescission offer. You should read carefully the entire offering circular, including the risk factors, financial data and financial statements included in this offering circular, before making a decision about whether to accept or reject the United States, measured by annual percentage growth in customersrescission offer. In this offering circular, unless the context indicates otherwise, references to “MetroPCS,” “our Company,” “the Company,” “we,” “our,” “ours” and revenue. “us” refer to MetroPCS Communications, Inc., a Delaware corporation, and its wholly-owned subsidiaries.
We provide wireless voice and data services to thetarget a mass market which we believe is largely underserved by traditional wireless carriers. Our service, branded under the “metroPCS”“MetroPCS” name, allows our customers to place unlimited wireless calls from within a local calling areaour service areas and to receive unlimited calls from any area under our simple and affordable flat monthly rate plan of $35. For an additional $5 per month, our customers may place unlimited long distance calls from within a local calling area to any number in the continental United States. For additional fees, we also provide caller ID, voicemail, text messaging, camera functions, downloads of ringtones, games and content applications, international long distance and other value-added services. Our calling plans differentiate us from the more complex plans and long-term contracts required by other wireless carriers.plans. Our customers pay for our service in advance, eliminating any customercustomer-related credit exposure, and we do not require a long-termexposure. Our flat rate service contract. Our customers currently average approximately 1,800 minutes of useplans start as low as $30 per month. For an additional $5 to $20 per month, compared to approximately 675 minutes per month forour customers may select a service plan that offers additional services, such as unlimited nationwide long distance service, voicemail, caller ID, call waiting, text messaging, mobile Internet browsing, pushe-mail and picture and multimedia messaging. For additional fees, we also provide international long distance and text messaging, ringtones, games and content applications, unlimited directory assistance, mobile Internet browsing, ring back tones, nationwide roaming and other value-added services. As of December 31, 2006, over 85% of our customers selected either our $40 or $45 rate plan. Our flat rate plans differentiate our service from the more complex plans and long-term contract requirements of traditional wireless carriers.
To date, our strategy has resulted in high rates of customer acceptance and strong financial performance. For the year ended December 31, 2003,2006, was $493 million, representing a 56% increase over the comparable period in 2005 and representing 43% of our segment service revenue. For a discussion of our Core Markets segment Adjusted EBITDA, please read “Summary Historical Financial and Operating Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Core Markets Performance Measures.”
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population of approximately 40 million in major metropolitan areas where we believe we have the opportunity to achieve financial results similar to our existing Core and Expansion Markets, with a primary focus on the New York, Boston, Philadelphia and Las Vegas metropolitan areas.
• | Our |
• | Our focus on densely populated markets, which |
• | Our leadership position as one of the lowest cost |
• | Our |
• | Our advanced CDMA network, which is designed to |
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Our
• | Offer affordable, fixed price unlimited calling plans |
• | Expand into new attractive |
As a result of
• | Our limited operating history; | |
• | Competition from other wireline and wireless providers, many of whom have substantially greater resources than us; | |
• | Our significant current debt levels of approximately $2.6 billion as of December 31, 2006, the terms of which may restrict our operational flexibility; | |
• | Our need to generate significant excess cash flows to meet the requirements for the build-out and launch of our Auction 66 Markets; and | |
• | Increased costs which could result from higher customer churn, delays in technological developments or our inability to successfully manage our growth. |
We expect that attractive expansion opportunities will become available,expenses, and we planwill use the remaining amounts for general corporate purposes. On February 20, 2007 we amended and restated our senior secured facility to target new markets that complementreduce the rate by1/4%.
The Offering
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The number ofcommon stock. We sold 37,500,000 shares of capitalcommon stock at a price per share of $23 (less underwriting discounts and commissions). In addition, selling stockholders sold an aggregate of 20,000,000 shares of common stock, including 7,500,000 shares sold pursuant to be outstanding upon consummationthe exercise by the underwriters of this offering:their over-allotment option.
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MetroPCS Communications, Inc., a Delaware corporation, was incorporated on March 10, 2004, and is the holding company parent of MetroPCS, Inc., a Delaware corporation. MetroPCS, Inc. was incorporated on June 24, 1994. We operate principally through two subsidiaries and hold PCS licenses in 15 subsidiaries.
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Common stock underlying options subject to rescission offer | 936,546 shares. | |
Repurchase Price | 20% of the per share exercise price multiplied by the number of shares subject to the options covered by this rescission offer. | |
Expiration Date | The rescission offer will expire at 5:00 P.M. Dallas, Texas time on , 2007. | |
Use of proceeds | We will not receive any proceeds from the rescission offer. | |
Total common stock outstanding | 346,643,726 shares. | |
NYSE symbol | “PCS” | |
Risk Factors | See “Risk Factors” below for a discussion of some of the factors you should consider carefully before deciding whether to accept or reject our rescission offer. |
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Year Ended December 31, | ||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | ||||||||||||||||
(In thousands, except share and per share data) | ||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Service revenues | $ | 102,293 | $ | 369,851 | $ | 616,401 | $ | 872,100 | $ | 1,290,947 | ||||||||||
Equipment revenues | 27,048 | 81,258 | 131,849 | 166,328 | 255,916 | |||||||||||||||
Total revenues | 129,341 | 451,109 | 748,250 | 1,038,428 | 1,546,863 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Cost of service (excluding depreciation and amortization disclosed separately below) | 63,567 | 122,211 | 200,806 | 283,212 | 445,281 | |||||||||||||||
Cost of equipment | 106,508 | 150,832 | 222,766 | 300,871 | 476,877 | |||||||||||||||
Selling, general and administrative expenses (excluding depreciation and amortization disclosed separately below) | 55,161 | 94,073 | 131,510 | 162,476 | 243,618 | |||||||||||||||
Depreciation and amortization | 21,472 | 42,428 | 62,201 | 87,895 | 135,028 | |||||||||||||||
(Gain) loss on disposal of assets | (279,659 | ) | 392 | 3,209 | (218,203 | ) | 8,806 | |||||||||||||
Total operating expenses | (32,951 | ) | 409,936 | 620,492 | 616,251 | 1,309,610 | ||||||||||||||
Income from operations | 162,292 | 41,173 | 127,758 | 422,177 | 237,253 | |||||||||||||||
Other expense (income): | ||||||||||||||||||||
Interest expense | 6,720 | 11,115 | 19,030 | 58,033 | 115,985 | |||||||||||||||
Accretion of put option in majority-owned subsidiary | — | — | 8 | 252 | 770 | |||||||||||||||
Interest and other income | (964 | ) | (996 | ) | (2,472 | ) | (8,658 | ) | (21,543 | ) | ||||||||||
Loss (gain) on extinguishment of debt | 703 | (603 | ) | (698 | ) | 46,448 | 51,518 | |||||||||||||
Total other expense | 6,459 | 9,516 | 15,868 | 96,075 | 146,730 | |||||||||||||||
Income before provision for income taxes and cumulative effect of change in accounting principle | 155,833 | 31,657 | 111,890 | 326,102 | 90,523 | |||||||||||||||
Provision for income taxes | (25,528 | ) | (16,179 | ) | (47,000 | ) | (127,425 | ) | (36,717 | ) | ||||||||||
Income before cumulative effect of change in accounting principle | 130,305 | 15,478 | 64,890 | 198,677 | 53,806 | |||||||||||||||
Cumulative effect of change in accounting principle, net of tax | — | (120 | ) | — | — | — | ||||||||||||||
Net income | 130,305 | 15,358 | 64,890 | 198,677 | 53,806 | |||||||||||||||
Accrued dividends on Series D Preferred Stock | (10,619 | ) | (18,493 | ) | (21,006 | ) | (21,006 | ) | (21,006 | ) | ||||||||||
Accrued dividends on Series E Preferred Stock | — | — | — | (1,019 | ) | (3,000 | ) | |||||||||||||
Accretion on Series D Preferred Stock | (473 | ) | (473 | ) | (473 | ) | (473 | ) | (473 | ) | ||||||||||
Accretion on Series E Preferred Stock | — | — | — | (114 | ) | (339 | ) | |||||||||||||
Net income (loss) applicable to Common Stock | $ | 119,213 | $ | (3,608 | ) | $ | 43,411 | $ | 176,065 | $ | 28,988 | |||||||||
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Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||
2001 | 2002 | 2003 | 2003 | 2004 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Service revenues | $ | — | $ | 102,137 | $ | 370,920 | $ | 75,999 | $ | 132,921 | ||||||||||
Equipment revenues | — | 23,458 | 88,562 | 23,399 | 40,077 | |||||||||||||||
Total revenues | — | 125,595 | 459,482 | 99,398 | 172,998 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Cost of service (excluding depreciation included below) | — | 61,881 | 118,335 | 25,929 | 40,909 | |||||||||||||||
Cost of equipment | — | 100,651 | 155,084 | 44,213 | 64,047 | |||||||||||||||
Selling, general and administrative expenses (excluding non-cash compensation) | 27,963 | 55,515 | 90,556 | 18,046 | 28,916 | |||||||||||||||
Non-cash compensation | 1,455 | 1,115 | 7,379 | 241 | 3,256 | |||||||||||||||
Depreciation and amortization | 208 | 21,394 | 41,900 | 9,047 | 12,774 | |||||||||||||||
(Gain) loss on sale of assets | — | (278,956 | )(1) | 333 | 111 | 87 | ||||||||||||||
Total operating expenses | 29,626 | (38,400 | ) | 413,587 | 97,587 | 149,989 | ||||||||||||||
Income (loss) from operations | (29,626 | ) | 163,995 | 45,895 | 1,811 | 23,009 | ||||||||||||||
Other (income) expense: | ||||||||||||||||||||
Interest expense | 10,491 | 6,805 | 11,254 | 1,755 | 5,572 | |||||||||||||||
Interest income | (2,046 | ) | (964 | ) | (1,061 | ) | (140 | ) | (616 | ) | ||||||||||
(Gain) loss on extinguishment of debt | 7,109 | — | (603 | ) | — | (201 | ) | |||||||||||||
Total other expense | 15,554 | 5,841 | 9,590 | 1,615 | 4,755 | |||||||||||||||
Income (loss) before income taxes and cumulative effect of change in accounting principle | (45,180 | ) | 158,154 | 36,305 | 196 | 18,254 | ||||||||||||||
Provision for income taxes | — | (19,087 | ) | (15,665 | ) | (113 | ) | (7,417 | ) | |||||||||||
Income (loss) before cumulative effect of change in accounting principle | (45,180 | ) | 139,067 | 20,640 | 83 | 10,837 | ||||||||||||||
Cumulative effect of change in accounting, net of tax | — | — | (74 | ) | (74 | ) | — | |||||||||||||
Net income (loss) | $ | (45,180 | ) | $ | 139,067 | $ | 20,566 | $ | 9 | $ | 10,837 | |||||||||
Other Financial and Operating Data (GAAP): | ||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | (32,401 | ) | $ | (64,523 | ) | $ | 109,618 | $ | (4,826 | ) | $ | 24,368 | |||||||
Net cash provided by (used in) investing activities | 24,183 | (73,494 | ) | (137,321 | ) | (26,623 | ) | (70,527 | ) | |||||||||||
Net cash provided by (used in) financing activities | 41,708 | 157,066 | 201,951 | 5,581 | (4,697 | ) | ||||||||||||||
Cash used for capital expenditures | 133,604 | 212,305 | 117,212 | 26,899 | 73,338 |
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||
2001 | 2002 | 2003 | 2003 | 2004 | ||||||||||||||||
Other Financial and Operating Data (Non-GAAP): | ||||||||||||||||||||
Adjusted EBITDA (in thousands) (2) | $ | (27,963 | ) | $ | (92,452 | ) | $ | 95,507 | $ | 11,210 | $ | 39,126 | ||||||||
Adjusted EBITDA margin (3) | — | — | 21 | % | 11 | % | 23 | % | ||||||||||||
Covered POPs (at period end) (4) | — | 16,964,450 | 17,662,491 | 17,197,196 | 17,942,763 | |||||||||||||||
Customers (at period end) | — | 513,484 | 976,899 | 708,965 | 1,150,954 | |||||||||||||||
Average monthly churn (5) | — | 4.4 | % | 4.6 | % | 3.5 | % | 3.8 | % | |||||||||||
Average revenue per user (ARPU) (2) | — | $ | 39.17 | $ | 37.68 | $ | 39.50 | $ | 40.00 | |||||||||||
Cost per gross addition (CPGA) (2) | — | 158.50 | 99.86 | 104.97 | 96.74 |
Year Ended December 31, | ||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | ||||||||||||||||
(In thousands, except share and per share data) | ||||||||||||||||||||
Basic net income (loss) per common share(1): | ||||||||||||||||||||
Income (loss) before cumulative effect of change in accounting principle | $ | 0.72 | $ | (0.03 | ) | $ | 0.18 | $ | 0.71 | $ | 0.11 | |||||||||
Cumulative effect of change in accounting principle, net of tax | — | (0.00 | ) | — | — | — | ||||||||||||||
Basic net income (loss) per common share | $ | 0.72 | $ | (0.03 | ) | $ | 0.18 | $ | 0.71 | $ | 0.11 | |||||||||
Diluted net income (loss) per common share(1): | ||||||||||||||||||||
Income (loss) before cumulative effect of change in accounting principle | $ | 0.52 | $ | (0.03 | ) | $ | 0.15 | $ | 0.62 | $ | 0.10 | |||||||||
Cumulative effect of change in accounting principle, net of tax | — | (0.00 | ) | — | — | — | ||||||||||||||
Diluted net income (loss) per common share | $ | 0.52 | $ | (0.03 | ) | $ | 0.15 | $ | 0.62 | $ | 0.10 | |||||||||
Weighted average shares(1): | ||||||||||||||||||||
Basic | 108,709,302 | 109,331,885 | 126,722,051 | 135,352,396 | 155,820,381 | |||||||||||||||
Diluted | 150,218,097 | 109,331,885 | 150,633,686 | 153,610,589 | 159,696,608 | |||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | ||||||||||||||||
(Dollars, customers and POPs in thousands) | ||||||||||||||||||||
Other Financial Data: | ||||||||||||||||||||
Net cash (used in) provided by operating activities | $ | (50,672 | ) | $ | 112,605 | $ | 150,379 | $ | 283,216 | $ | 364,761 | |||||||||
Net cash used in investment activities | (88,311 | ) | (306,868 | ) | (190,881 | ) | (905,228 | ) | (1,939,665 | ) | ||||||||||
Net cash provided by (used in) financing activities | 157,039 | 201,951 | (5,433 | ) | 712,244 | 1,623,693 | ||||||||||||||
Consolidated Operating Data: | ||||||||||||||||||||
Licensed POPs (at period end)(2) | 22,584 | 22,584 | 28,430 | 64,222 | 65,618 | |||||||||||||||
Covered POPs (at period end)(2) | 16,964 | 17,662 | 21,083 | 23,908 | 38,630 | |||||||||||||||
Customers (at period end) | 513 | 977 | 1,399 | 1,925 | 2,941 | |||||||||||||||
Adjusted EBITDA (Deficit)(3) | $ | (94,376 | ) | $ | 89,566 | $ | 203,597 | $ | 294,465 | $ | 395,559 | |||||||||
Adjusted EBITDA as a percentage of service revenues(4) | NM | 24.2 | % | 33.0 | % | 33.8 | % | 30.6 | % | |||||||||||
Capital Expenditures | $ | 227,350 | $ | 117,731 | $ | 250,830 | $ | 266,499 | $ | 550,749 | ||||||||||
Core Markets Operating Data(6): | ||||||||||||||||||||
Licensed POPs (at period end)(2) | 22,584 | 22,584 | 24,686 | 25,433 | 25,881 | |||||||||||||||
Covered POPs (at period end)(2) | 16,964 | 17,662 | 21,083 | 21,263 | 22,461 | |||||||||||||||
Customers (at period end) | 513 | 977 | 1,399 | 1,872 | 2,301 | |||||||||||||||
Adjusted EBITDA (Deficit)(6) | $ | (94,376 | ) | $ | 89,566 | $ | 203,597 | $ | 316,555 | $ | 492,773 | |||||||||
Adjusted EBITDA as a percentage of service revenues(4) | NM | 24.2 | % | 33.0 | % | 36.4 | % | 43.3 | % | |||||||||||
Capital Expenditures | $ | 227,350 | $ | 117,731 | $ | 250,830 | $ | 171,783 | $ | 217,215 | ||||||||||
Expansion Markets Operating Data(6): | ||||||||||||||||||||
Licensed POPs (at period end)(2) | — | — | 3,744 | 38,789 | 39,737 | |||||||||||||||
Covered POPs (at period end)(2) | — | — | — | 2,645 | 16,169 | |||||||||||||||
Customers (at period end) | — | — | — | 53 | 640 | |||||||||||||||
Adjusted EBITDA (Deficit)(6) | — | — | — | $ | (22,090 | ) | $ | (97,214 | ) | |||||||||||
Capital Expenditures | — | — | — | $ | 90,871 | $ | 314,308 |
Year Ended December 31, | ||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | ||||||||||||||||
Average monthly churn(7)(8) | 4.4 | % | 4.6 | % | 4.9 | % | 5.1 | % | 4.6 | % | ||||||||||
Average revenue per user (ARPU)(9)(10) | $ | 39.23 | $ | 37.49 | $ | 41.13 | $ | 42.40 | $ | 42.98 | ||||||||||
Cost per gross addition (CPGA)(8)(9)(11) | $ | 157.02 | $ | 100.46 | $ | 103.78 | $ | 102.70 | $ | 117.58 | ||||||||||
Cost per user (CPU)(9)(12) | $ | 37.68 | $ | 18.21 | $ | 18.95 | $ | 19.57 | $ | 19.65 |
7
As of March 31, 2004 | ||||||
Actual | As Adjusted (6) | |||||
(In thousands) | ||||||
Balance Sheet Data: | ||||||
Cash and cash equivalents | $ | 185,109 | $ | 420,119 | ||
Property and equipment, net | 519,549 | 519,549 | ||||
Total assets | 895,220 | 1,130,230 | ||||
Total debt, net of unamortized discount | 193,102 | 193,102 |
As of December 31, 2006 | ||||||||
Actual | As Adjusted(13) | |||||||
(In thousands) | ||||||||
Balance Sheet Data: | ||||||||
Cash, cash equivalents & short-term investments | $ | 552,149 | $ | 1,374,812 | ||||
Property and equipment, net | 1,256,162 | 1,256,162 | ||||||
Total assets | 4,153,122 | 4,975,785 | ||||||
Long-term debt (including current maturities) | 2,596,000 | 2,596,000 | ||||||
Series D Cumulative Convertible Redeemable Participating Preferred Stock | 443,368 | — | ||||||
Series E Cumulative Convertible Redeemable Participating Preferred Stock | 51,135 | — | ||||||
Stockholders’ equity | 413,245 | 1,730,410 |
(1) | See Note 17 to the consolidated financial statements included elsewhere in this offering circular for an explanation of the calculation of basic and diluted net income (loss) per common share. The calculation of basic and diluted net income per common share for the years ended December 31, 2002 | |
(2) | Licensed POPs represent the aggregate number of | |
(3) | Our senior secured credit facility calculates consolidated Adjusted EBITDA as: consolidated net incomeplusdepreciation and amortization; gain (loss) on disposal of |
We |
8
The following table shows the calculation of consolidated Adjusted EBITDA, as defined in our |
Year Ended December 31, | ||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Calculation of Consolidated Adjusted EBITDA (Deficit): | ||||||||||||||||||||
Net income | $ | 130,305 | $ | 15,358 | $ | 64,890 | $ | 198,677 | $ | 53,806 | ||||||||||
Adjustments: | ||||||||||||||||||||
Depreciation and amortization | 21,472 | 42,428 | 62,201 | 87,895 | 135,028 | |||||||||||||||
(Gain) loss on disposal of assets | (279,659 | ) | 392 | 3,209 | (218,203 | ) | 8,806 | |||||||||||||
Non-cash compensation expense(a) | 1,519 | 5,573 | 10,429 | 2,596 | 14,472 | |||||||||||||||
Interest expense | 6,720 | 11,115 | 19,030 | 58,033 | 115,985 | |||||||||||||||
Accretion of put option in majority-owned subsidiary(a) | — | — | 8 | 252 | 770 | |||||||||||||||
Interest and other income | (964 | ) | (996 | ) | (2,472 | ) | (8,658 | ) | (21,543 | ) | ||||||||||
Loss (gain) on extinguishment of debt | 703 | (603 | ) | (698 | ) | 46,448 | 51,518 | |||||||||||||
Provision for income taxes | 25,528 | 16,179 | 47,000 | 127,425 | 36,717 | |||||||||||||||
Cumulative effect of change in accounting principle, net of tax(a) | — | 120 | — | — | — | |||||||||||||||
Consolidated Adjusted EBITDA (Deficit) | $ | (94,376 | ) | $ | 89,566 | $ | 203,597 | $ | 294,465 | $ | 395,559 | |||||||||
(a) | Represents a non-cash expense, as defined by our senior secured credit facility. |
In addition, for further information, the following table reconciles consolidated Adjusted EBITDA, as defined in our senior secured credit facility, to cash flows from operating activities for the periods indicated. |
Year Ended December 31, | ||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Reconciliation of Net Cash (Used In) Provided By Operating Activities to Consolidated Adjusted EBITDA (Deficit): | ||||||||||||||||||||
Net cash (used in) provided by operating activities | $ | (50,672 | ) | $ | 112,605 | $ | 150,379 | $ | 283,216 | $ | 364,761 | |||||||||
Adjustments: | ||||||||||||||||||||
Interest expense | 6,720 | 11,115 | 19,030 | 58,033 | 115,985 | |||||||||||||||
Non-cash interest expense | (2,833 | ) | (3,073 | ) | (2,889 | ) | (4,285 | ) | (6,964 | ) | ||||||||||
Interest and other income | (964 | ) | (996 | ) | (2,472 | ) | (8,658 | ) | (21,543 | ) | ||||||||||
Provision for uncollectible accounts receivable | (359 | ) | (110 | ) | (125 | ) | (129 | ) | (31 | ) | ||||||||||
Deferred rent expense | (2,886 | ) | (2,803 | ) | (3,466 | ) | (4,407 | ) | (7,464 | ) | ||||||||||
Cost of abandoned cell sites | (1,449 | ) | (824 | ) | (1,021 | ) | (725 | ) | (3,783 | ) | ||||||||||
Accretion of asset retirement obligation | — | (127 | ) | (253 | ) | (423 | ) | (769 | ) | |||||||||||
Loss (gain) on sale of investments | — | — | (576 | ) | 190 | 2,385 | ||||||||||||||
Provision for income taxes | 25,528 | 16,179 | 47,000 | 127,425 | 36,717 | |||||||||||||||
Deferred income taxes | (6,616 | ) | (18,716 | ) | (44,441 | ) | (125,055 | ) | (32,341 | ) | ||||||||||
Changes in working capital | (60,845 | ) | (23,684 | ) | 42,431 | (30,717 | ) | (51,394 | ) | |||||||||||
Consolidated Adjusted EBITDA (Deficit) | $ | (94,376 | ) | $ | 89,566 | $ | 203,597 | $ | 294,465 | $ | 395,559 | |||||||||
(4) | Adjusted EBITDA as a | |
(5) | Core Markets include Atlanta, Miami, Sacramento and San Francisco. Expansion Markets include Dallas/Ft. Worth, Detroit, Tampa/Sarasota/Orlando and Los Angeles. See “Management’s Discussion and Analysis of | |
(6) | Core and Expansion Markets Adjusted EBITDA is presented in accordance with | |
(7) | Average monthly churn represents (a) the number of customers who have been disconnected from our system during the measurement period less the number of customers who have reactivated service, divided by (b) the sum of the average monthly number of customers during such period. See “Management’s Discussion and Analysis of Financial |
9
Condition and Results of Operations — Performance Measures.” A customer’s handset is disabled if the customer has failed to make payment by the due date and is disconnected from our system if the customer fails to make payment within 30 days thereafter. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Customer Recognition and Disconnect Policies.” | ||
(8) | In the first quarter of 2006, based upon a change in the |
Average revenue per user, or ARPU, |
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||
2001 | 2002 | 2003 | 2003 | 2004 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Calculation of Adjusted EBITDA: | ||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | (32,401 | ) | $ | (64,523 | ) | $ | 109,618 | $ | (4,826 | ) | $ | 24,368 | |||||||
Interest expense, net of interest income | 8,445 | 5,841 | 10,193 | 1,615 | 4,956 | |||||||||||||||
Bad debt expense | — | (381 | ) | (991 | ) | (749 | ) | (433 | ) | |||||||||||
Accretion of asset retirement obligation | — | — | (50 | ) | (25 | ) | (79 | ) | ||||||||||||
Non-cash interest | (3,882 | ) | (3,028 | ) | (3,090 | ) | (784 | ) | (688 | ) | ||||||||||
Deferred rents | (949 | ) | (1,853 | ) | (1,160 | ) | (414 | ) | (435 | ) | ||||||||||
Cost of abandoned cell sites | — | — | (824 | ) | (477 | ) | (183 | ) | ||||||||||||
Non-deferred tax | — | 8,993 | 1,643 | — | — | |||||||||||||||
Working capital changes | 824 | (37,501 | ) | (19,832 | ) | 16,870 | 11,620 | |||||||||||||
Adjusted EBITDA | $ | (27,963 | ) | $ | (92,452 | ) | $ | 95,507 | $ | 11,210 | $ | 39,126 | ||||||||
(10) | ARPU — Average revenue per user, or ARPU, |
Average number of customers for any measurement period is determined by dividing (a) the sum of the average monthly number of customers for the measurement period by (b) the number of months in such period. Average monthly number of customers for any month represents the sum of the number of customers on the first day of the month and the last day of the month divided by two. The following table shows the calculation of ARPU for the periods indicated: |
Year Ended December 31, | ||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | ||||||||||||||||
(In thousands, except average number of customers and ARPU) | ||||||||||||||||||||
Calculation of ARPU: | ||||||||||||||||||||
Service revenues | $ | 102,293 | $ | 369,851 | $ | 616,401 | $ | 872,100 | $ | 1,290,947 | ||||||||||
Less: | ||||||||||||||||||||
Activation revenues | (3,018 | ) | (14,410 | ) | (7,874 | ) | (6,808 | ) | (8,297 | ) | ||||||||||
E-911, FUSF and vendor’s compensation charges | — | (6,527 | ) | (12,522 | ) | (26,221 | ) | (45,640 | ) | |||||||||||
Net service revenues | $ | 99,275 | $ | 348,914 | $ | 596,005 | $ | 839,071 | $ | 1,237,010 | ||||||||||
Divided by: | ||||||||||||||||||||
Average number of customers | 210,881 | 775,605 | 1,207,521 | 1,649,208 | 2,398,682 | |||||||||||||||
ARPU | $ | 39.23 | $ | 37.49 | $ | 41.13 | $ | 42.40 | $ | 42.98 | ||||||||||
10
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||
2002 | 2003 | 2003 | 2004 | |||||||||||||||
(In thousands, except average number of customers and ARPU) | ||||||||||||||||||
Calculation of Average Revenue Per User (ARPU) | ||||||||||||||||||
Service revenues | $ | 102,137 | $ | 370,920 | $ | 75,999 | $ | 132,921 | ||||||||||
Less: | Activation revenues | (3,018 | ) | (14,410 | ) | (1,860 | ) | (3,186 | ) | |||||||||
E-911 charges | — | (5,823 | ) | (1,166 | ) | (2,076 | ) | |||||||||||
Net service revenues | 99,119 | 350,687 | 72,973 | 127,659 | ||||||||||||||
Divided by: Average number of customers | 210,881 | 775,605 | 615,876 | 1,063,815 | ||||||||||||||
ARPU | $ | 39.17 | $ | 37.68 | $ | 39.50 | $ | 40.00 | ||||||||||
(11) | CPGA — Cost per gross addition, or CPGA, is determined by dividing (a) selling expenses plus the total cost of equipment associated with transactions with new customers less activation revenues and equipment revenues associated with transactions with new customers during the measurement period by (b) gross customer additions during such period. We utilize CPGA to assess the efficiency of our distribution strategy, validate the initial capital invested in our customers and determine the number of months to recover our customer acquisition costs. This measure also |
Year Ended December 31, | ||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | ||||||||||||||||
(In thousands, except gross customer additions and CPGA) | ||||||||||||||||||||
Calculation of CPGA: | ||||||||||||||||||||
Selling expenses | $ | 26,228 | $ | 44,006 | $ | 52,605 | $ | 62,396 | $ | 104,620 | ||||||||||
Less: | ||||||||||||||||||||
Activation revenues | (3,018 | ) | (14,410 | ) | (7,874 | ) | (6,809 | ) | (8,297 | ) | ||||||||||
Less: | ||||||||||||||||||||
Equipment revenues | (27,048 | ) | (81,258 | ) | (131,849 | ) | (166,328 | ) | (255,916 | ) | ||||||||||
Add: | ||||||||||||||||||||
Equipment revenue not associated with new customers | 482 | 13,228 | 54,323 | 77,011 | 114,392 | |||||||||||||||
Add: | ||||||||||||||||||||
Cost of equipment | 106,508 | 150,832 | 222,766 | 300,871 | �� | 476,877 | ||||||||||||||
Less: | ||||||||||||||||||||
Equipment costs not associated with new customers | (4,850 | ) | (22,549 | ) | (72,200 | ) | (109,803 | ) | (155,930 | ) | ||||||||||
Gross addition expenses | $ | 98,302 | $ | 89,849 | $ | 117,771 | $ | 157,338 | $ | 275,746 | ||||||||||
Divided by: | ||||||||||||||||||||
Gross customer additions | 626,050 | 894,348 | 1,134,762 | 1,532,071 | 2,345,135 | |||||||||||||||
CPGA | $ | 157.02 | $ | 100.46 | $ | 103.78 | $ | 102.70 | $ | 117.58 | ||||||||||
11
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||
2002 | 2003 | 2003 | 2004 | |||||||||||||||
(In thousands, except gross customer additions and CPGA) | ||||||||||||||||||
Calculation of Cost Per Gross Addition (CPGA): | ||||||||||||||||||
Selling expenses | $ | 26,526 | $ | 44,076 | $ | 9,879 | $ | 12,214 | ||||||||||
Less: | Activation revenues | (3,018 | ) | (14,410 | ) | (1,860 | ) | (3,186 | ) | |||||||||
Less: | Equipment revenues | (23,458 | ) | (88,562 | ) | (23,399 | ) | (40,077 | ) | |||||||||
Plus: | Equipment revenue not associated with new customers | 578 | 17,150 | 1,035 | 16,729 | |||||||||||||
Plus: | Cost of equipment | 100,651 | 155,084 | 44,213 | 64,047 | |||||||||||||
Less: | Equipment costs not associated with new customers | (2,050 | ) | (24,030 | ) | (2,541 | ) | (21,201 | ) | |||||||||
Gross addition expenses | 99,229 | 89,308 | 27,327 | 28,526 | ||||||||||||||
Divided by: Gross customer additions | 626,050 | 894,348 | 260,320 | 294,886 | ||||||||||||||
CPGA | $ | 158.50 | $ | 99.86 | $ | 104.97 | $ | 96.74 | ||||||||||
(12) | CPU — Cost per user, or CPU, is |
Year Ended December 31, | ||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | ||||||||||||||||
(In thousands, except average number of customers and CPU) | ||||||||||||||||||||
Calculation of CPU: | ||||||||||||||||||||
Cost of service | $ | 63,567 | $ | 122,211 | $ | 200,806 | $ | 283,212 | $ | 445,281 | ||||||||||
Add: | ||||||||||||||||||||
General and administrative expense | 28,933 | 50,067 | 78,905 | 100,080 | 138,998 | |||||||||||||||
Add: | ||||||||||||||||||||
Net loss on equipment transactions unrelated to initial customer acquisition | 4,368 | 9,320 | 17,877 | 32,791 | 41,538 | |||||||||||||||
Less: | ||||||||||||||||||||
Non-cash compensation expense included in cost of service and general and administrative expense | (1,519 | ) | (5,573 | ) | (10,429 | ) | (2,596 | ) | (14,472 | ) | ||||||||||
Less: | ||||||||||||||||||||
E-911, FUSF and vendor’s compensation revenues | — | (6,527 | ) | (12,522 | ) | (26,221 | ) | (45,640 | ) | |||||||||||
Total costs used in the calculation of CPU | $ | 95,349 | $ | 169,498 | $ | 274,637 | $ | 387,266 | $ | 565,705 | ||||||||||
Divided by: | ||||||||||||||||||||
Average number of customers | 210,881 | 775,605 | 1,207,521 | 1,649,208 | 2,398,682 | |||||||||||||||
CPU | $ | 37.68 | $ | 18.21 | $ | 18.95 | $ | 19.57 | $ | 19.65 | ||||||||||
(13) | As adjusted to |
12
Risks Relatedoffering circular, before deciding whether to accept or reject our rescission offer. Our Business
We havebusiness, financial condition or results of operations could be materially adversely affected by any or all of these risks. As a limited operating history and our recent performance may not be indicative of our future results.
We began offering service in the first quarter of 2002, and we had no revenues prior to that time. Consequently, we have a limited operating and financial history upon which to evaluate our financial performance, business plan execution and ability to succeed in the future. You should consider our prospects in light of the risks, expenses and difficulties we may encounter, including those frequently encountered by new companies competing in rapidly evolving markets. If we are unable to execute our plans and grow our business, our financial results would be adversely affected.
If we experience a higher rate of customer turnover than forecasted, our costs could increase and our revenues could decline, which would reduce our profits and could reduceresult, the trading price of our common stock.stock may decline, and you might lose part or all of your investment.
Our average monthly rate
13
• | actual or anticipated fluctuations in our or our competitors operating results; | |
• | changes in or our failure to meet securities analysts’ expectations; | |
• | announcements of technological innovations; | |
• | entry of new competitors into our markets; | |
• | introduction of new products and services by us or our competitors or changes in service plans or pricing by us or our competitors; | |
• | significant developments with respect to intellectual property rights or litigation; | |
• | additions or departures of key personnel; | |
• | conditions and trends in the communications and high technology markets; | |
• | volatility in stock market prices and volumes, which is particularly common among securities of telecommunications companies; | |
• | general stock market conditions; | |
• | the general state of the U.S. and world economies; | |
• | the announcement, commencement, bidding and closing of auctions for new spectrum; and | |
• | actions occurring in and the outcome of litigation between Leap and us. |
Unlike manysame manner as our other stockholders.
14
Additionally, as of November 24, 2003, FCC rules require all wireless carriers to provide for wireless number portability for their customers in the top 100 metropolitan statistical areas. As a result, wireless customers in these markets nowif such persons act together, they will have the ability to change wireless carriers, but retain their wireless telephone number. Althoughhave substantial control over all matters submitted to date these wireless number portability rules have not resulted in substantial increases inour stockholders for approval, including the frequency with which customers switch wireless carriers, it is too soonelection and removal of directors and the approval of any merger, consolidation or sales of all or substantially all of our assets. These stockholders may make decisions that are adverse to predict the long-term effect of these rules on customer turnover.your interests. In addition, persons affiliated with these number portability requirements are likely to result in added capital expenditures for us to make necessary system changes.
Our internal controls over revenue reporting are insufficient to detect in a timely manner misstatements that could occur in our financial statements in amounts that may be material.
Our customers pay in advance for our services. In accordance with generally accepted accounting principles, amounts received in advance are recorded on our balance sheet as deferred revenue, and are recognized as
service revenues on our statement of operations only when the services actually are rendered. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.” Because we currently prepare service revenue calculations and reconciliations of deferred revenue balances manually, the process is inherently subject to error. This issue may become more significant as our business expands and our product offering becomes more complex.
In July 2003, during the preparation of quarterly financial statements, management noted that the balance of the deferred revenue accounts relative to service revenues had fluctuated from period to period in an inconsistent manner. Management called this inconsistency to the attention of our auditors. In August 2003, management and our auditors noted that the reconciliation of deferred revenue did not include all the appropriate accounts receivable and deferred revenue accounts, and was not prepared on a timely basis. In September 2003, management concluded that we were understaffed in our revenue accounting function and that we did not have personnel with the appropriate experience required to properly account for activity resulting from the billing system.
In October 2003, in connection with the review of our interim financial statements, our auditors issued a letter to us describing these deficiencies. In February 2004, in connection with the audit of our financial statements for the year ended December 31, 2003, our auditors identified the lack of automation in the revenue reporting process as a “material weakness” in our internal controls over revenue reporting. The Public Company Accounting Oversight Board has defined material weakness as “a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.” This means that there is a risk that a material misstatement in the deferred revenue accounts and the related service revenue accounts in our financial statements for a future period is reasonably possible.
To address revenue reporting, management made significant changes to the manual service revenue calculations and deferred revenue reconciliation processes to insure proper revenue reporting and a more timely and complete monthly reconciliation of accounts receivable balances provided by our billing system to the corresponding balances in our general ledger and the related deferred revenue accounts. To further enhance our internal controls, subsequent to December 31, 2003, we have added a Vice President–Controller and a Director of Revenue Accounting, each of whom has several years of relevant experience with revenue and billing systems in the telecommunications industry. We have also hired a senior accounting professional whose focus is to insure that we are effectively utilizingstockholders constitute all of the functions availablecurrent members of our board of directors. See our discussion under the caption “Security Ownership of Principal Stockholders” for more information about ownership of our outstanding shares.
• | authorize the issuance of preferred stock that can be created and issued by the board of directors without prior stockholder approval to increase the number of outstanding shares and deter or prevent a takeover attempt; | |
• | prohibit stockholder action by written consent, requiring all stockholder actions to be taken at a meeting of our stockholders; | |
• | require stockholder meetings to only be called by the President or at the written request of a majority of the directors then in office and not the stockholders; | |
• | prohibit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates; | |
• | provide that our board of directors is divided into three classes, each serving three-year terms; and | |
• | establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings. |
Management believes, and our auditors have advised us based on their reviewthose of our financial statementsstockholders and may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for the three months ended March 31, 2004, that the material weakness still exists due to the lacktheir shares.
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Our inability to manage our planned growth could increase our costs and adversely affect our level of service.
We have experienced rapid growth and development in a relatively short period of time and expect to continue to experience growth in the future. The management of such growth will require, among other things, continued development of our financial and management controls and management information systems, stringent control of costs, diligent management of our network infrastructure and its growth, increased capital requirements associated with marketing activities, the ability to attract and retain qualified management personnel and the training of new personnel. Failure to successfully manage our expected growth and development could have a material adverse effect on our business, increase our costs and adversely affect our level of service. Additionally, the costs of acquiring new customers could affect our near-term profitability
adversely. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
The wireless industry is experiencing rapid technological change, anddisinterested. Under Delaware law, transactions that we may lose customers if we fail to keep up with these changes.
The wireless communications industry is experiencing significant technological change, as evidenced by the ongoing improvements in the capacity and quality of digital technology, the development and commercial acceptance of advanced wireless data services, shorter development cycles for new products and enhancements and changes in end-user requirements and preferences. We may lose customers if we fail to keep up with these changes.
We are dependent on our FCC licenses, and our ability to provide service to our customers and generate revenues could be harmed by adverse regulatory action or changes to existing laws or rules.
The FCC regulates the licensing, construction, modification, operation, ownership, sale and interconnection arrangements of wireless communications systems, as do some state and local regulatory agencies. We cannot assure you that the FCC or the state and local agencies having jurisdiction over our business will not adopt regulations or take other actions that would adversely affect our business by imposing new costs or requiring changes in our current or planned operations, or that the Communications Act of 1934, from which the FCC obtains its authority, will not be amended in a manner that could be adverse to us.
Our principal assets are our FCC licenses to provide personal communications services. The loss of any of these licenses could have a material adverse effect on our business. Our FCC licenses are subject to revocation if we are found not to have complied with the FCC’s rules or the Communications Act’s requirements. We also could be subject to fines and forfeitures for such non-compliance, which could affect our business adversely. For example, absent a waiver, failure to comply with the FCC’s enhanced 911, or E-911, requirements or with number portability requirements could subject us to significant penalties. In addition, because we acquired our licenses in an “entrepreneur’s block” FCC auction, our licenses are subject to additional FCC requirements, which dictate the mannerenter into in which our voting control and equity must be held duringa director or officer has a conflict of interest are generally permissible so long as (1) the first ten years we hold the licenses (until 2007 with respect to our current licenses), and obligate us to make quarterly installment paymentsmaterial facts relating to the FCC on the debt we owe to the FCC for our licenses. Failure to comply with these requirements could result in revocation of the licenses and/director’s or fines and forfeitures, and/officer’s relationship or could require us to pay the outstanding debt to the FCC on an accelerated basis, any of which could have an adverse effect on our business. Finally, our current licenses expire in January 2007, and although the FCC’s rules provide for renewal, there is no guarantee that the FCC will renew all or any of our licenses. Failure to have our licenses renewed would affect our business adversely. See “Legislation and Government Regulations.”
In addition, the market value of FCC licenses has been subject to significant volatility in the past. There can be no assuranceinterest as to the market valuetransaction are disclosed to our board of directors and a majority of our FCC licensesdisinterested directors approves the transaction, (2) the material facts relating to the director’s or thatofficer’s relationship or interest as to the market valuetransaction are disclosed to our stockholders and a majority of FCC licenses willour disinterested stockholders approves the transaction, or (3) the transaction is otherwise fair to us. Also, pursuant to the terms of our certificate of incorporation, our non-employee directors, including the representatives from Accel Partners, TA Associates, Madison Dearborn Capital Partners and M/C Venture Partners, are not be volatilerequired to offer us any corporate opportunity of which they become aware and could take any such opportunity for themselves or offer it to other companies in the future.
which they have an investment, unless such opportunity is expressly offered to them in their capacity as a director of our company. See “Description of Capital Stock — Corporate Opportunities.”
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These carriers are capable of bundling their wireless services with other telecommunications services and other services in a package of services that we may not be able to duplicate at competitive prices.
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• | network coverage; | |
• | reliability issues, such as dropped and blocked calls and network availability; | |
• | handset problems; | |
• | lack of competitive regional and nationwide roaming and the inability of our customers to cost-effectively roam onto other wireless networks; | |
• | affordability; | |
• | supplier or vendor failures; | |
• | customer care concerns; | |
• | lack of early access to the newest handsets; | |
• | wireless number portability requirements that allow customers to keep their wireless phone number when switching between service providers; | |
• | our inability to offer bundled services or new services offered by our competitors; and | |
• | competitive offers by third parties. |
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• | increased competition from existing competitors or new competitors; | |
• | higher than anticipated churn in our Core and Expansion Markets; | |
• | our inability to increase our network capacity in areas we currently cover and plan to cover in the Core and Expansion Markets to meet growing customer demand; | |
• | our inability to continue to offer products or services which prospective customers want; | |
• | our inability to increase the relevant coverage areas in our Core and Expansion Markets in areas that are important to our current and prospective customers; | |
• | changes in the demographics of our Core and Expansion Markets; and | |
• | adverse changes in the regulatory environment that may limit our ability to grow our customer base. |
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• | rapid development and introduction of new technologies, products, and services, such as VoIP,push-to-talk services, orpush-to-talk, location based services, such as global positioning satellite, or GPS, mapping technology and high speed data services, including streaming video, mobile gaming, video conferencing and other applications; | |
• | substantial regulatory change due to the continuing implementation of the Telecommunications Act of 1996, which amended the Communications Act of 1934, as amended, or Communications Act, and included changes designed to stimulate competition for both local and long distance telecommunications services and continued allocation of spectrum for, and relaxation of existing rules to allow existing licensees to offer, wireless services competitive with our services; | |
• | increased competition within established metropolitan areas from current and new entrants that may provide competing or alternative services; | |
• | an increase in mergers and strategic alliances that allow one telecommunications provider greater access to capital or resources or to offer increased services, access to wider geographic territory, or attractive bundles of services; and | |
• | the blurring of traditional dividing lines between, and the bundling of, different services, such as local telephone, long distance, wireless, video, data and Internet services. For example, several carriers appear to be positioning themselves to offer a “quadruple play” of services which includes telephone service, Internet access, video service and wireless service. |
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• | increase our vulnerability to general adverse economic and industry conditions; | |
• | require us to dedicate a substantial portion of our cash flow from operations to make interest and principal payments on our debt, limiting the availability of our cash flow to fund future capital expenditures for existing or new markets, working capital and other general corporate requirements; | |
• | limit our flexibility in planning for, or reacting to, changes in our business and the telecommunications industry; | |
• | limit our ability to purchase additional spectrum, develop new metropolitan areas in the future or fund growth in our metropolitan areas; | |
• | place us at a competitive disadvantage compared with competitors that have less debt; and | |
• | limit our ability to borrow additional funds, even when necessary to maintain adequate liquidity. |
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• | paying dividends, redeeming capital stock or making other restricted payments or investments; | |
• | paying interest on any additional indebtedness incurred; | |
• | selling or buying assets, properties or licenses; | |
• | developing assets, properties or licenses which we have or in the future may procure; | |
• | creating liens on assets; | |
• | participating in future FCC auctions of spectrum; | |
• | merging, consolidating or disposing of assets; | |
• | entering into transactions with affiliates; and | |
• | permitting subsidiaries (which does not include Royal Street) to pay dividends or make other payments. |
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business operations and financial performance.
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pursue or have initiated claims against us for termination payments and the likely outcome of these claims is uncertain. A finding by the FCC that we are liable for additional terminating compensation payments could subject us to additional claims by other carriers. In addition, certain transit carriers have taken the position that they can charge “market” rates for transit services, which may in some instances be significantly higher than our current rates. We may be obligated to pay these higher ratesand/or purchase services from others or engage in direct connection, which may result in higher costs which could materially affect our costs and financial results.
• | physical damage to outside plant facilities; | |
• | power surges or outages; |
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• | equipment failure; | |
• | vendor or supplier failures or delays; | |
• | software defects; | |
• | human error; | |
• | disruptions beyond our control, including disruptions caused by terrorist activities, theft, or natural disasters; and | |
• | failures in operational support systems. |
As of March 31, 2004, we had $193.1 million of outstanding indebtedness, which could have important consequences. For example, it could:
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Despite current indebtedness levels, we and our subsidiaries will be able to incur substantially more debt. This could further exacerbate the risks associated with our leverage.
We and our subsidiaries are able to incur substantial additional indebtedness in the future. The terms of the indenture governing our senior notes do not fully prohibit us or our subsidiaries from doing so. If new debt is added to our and our subsidiaries’ current debt levels, the related risks that we and they now face could intensify.
Risks Related to the Offering
A limited number of stockholders control us, and their interests may be different from yours.
Our certificate of incorporation and the stockholders agreement toFCC licenses, which our current stockholders are parties provide that, upon the consummation of this offering, with respect to all matters submitted to a vote of stockholders for which a separate class vote is not required, the holders of our Class A common stock will have, collectively, votes equal to 50.1% of the aggregate voting power of all shares entitled to vote, and the holders of our common stock will have, collectively, votes equal to 49.9% of the aggregate voting power of all shares entitled to vote. In addition, the holders of Class A common stock will be entitled to a separate class vote to elect five of the nine members of our board of directors. Although we expect to petition the FCC for the ability to combine our Class A common stock and our common stock into a single class of capital stock after the consummation of this offering, we cannot assure you that the FCC will grant this request in a timely fashion or at all. See “Legislation and Government Regulations” and “Description of Capital Stock.”
Roger D. Linquist (our President, Chief Executive Officer, Secretary and Chairman of the Board) and C. Boyden Gray (a member of our board of directors) together own all outstanding shares of our Class A common stock. In addition, after consummation of this offering, our executive officers and directors and principal stockholders together will beneficially own shares representing approximately 44.3% of the voting power underlying our common stock and 73.2% of the voting power underlying all classes of our capital stock, including shares subject to options and warrants that confer beneficial ownership of the underlying shares. As a result, these controlling stockholders will have the ability to determine the composition of our board of directors and to control our future operations and strategy.
Conflicts of interest between the controlling stockholders and our public stockholders may arise with respect to sales of shares of capital stock owned by the controlling stockholders or other matters. In addition, the interests of the controlling stockholders and other existing stockholders regarding any proposed merger or sale may differ from the interests of our public stockholders, especially if the consideration to be paid for the common stock is less than the price paid by public stockholders.
This concentration of ownership could also have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material and adverse effect on our business, results of operations and financial condition. In addition, a failure to comply with these requirements or the market priceFCC’s construction requirements could result in revocation of the licensesand/or fines and forfeitures, any of which could have an adverse effect on our common stockbusiness.
Therethe five members of Royal Street Communications’ management committee, which has been no prior market for our capital stock, and an active trading market may not develop.
Priorthe full power to this offering, there has been no public market for any classdirect the management of our capital stock. An active trading market may not develop following the closing of this offering or, if developed, may not be sustained.Royal Street. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market mayFCC’s rules also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital by selling shares and may impairrestrict our ability to acquire other companies or technologiescontrol Royal Street licenses during the period that Royal Street must maintain its eligibility as a very small business designated entity, or DE, which is currently through December 2010. Thus, we cannot be certain that the Royal Street licenses will be developed in a manner fully consistent with our business plan or that C9 will act in ways that benefit us.
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an example of an impermissible material relationship, but indicated that previously approved arrangements of this nature would be allowed to continue. While the FCC has grandfathered the existing arrangements between Royal Street and us, there can be no assurance that any changes that may be required of those arrangements in the future will not cause the FCC to determine that the changes would trigger the loss of DE eligibility for Royal Street and require the reimbursement of the bidding credits received by Royal Street and loss of any licenses covering geographic areas that are not sufficiently constructed which were available initially only to DEs. Further, the FCC has opened a Notice of Further Proposed Rulemaking seeking to determine what additional changes, if any, may be required or appropriate to its DE program. There can be no assurance that these changes will not be applied to the current arrangements between Royal Street and us. Any of these results could be materially adverse to our business.
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the fiscal years ended December 31, 1999 and 2000. Financial statements for those periods have not been reviewed by our current independent registered public accounting firm. Purchaserspurchase shares of our common stock pursuant to our Equity Compensation Plans. Except as to options to purchase shares of our common stock covered by this rescission offer, all such options currently held by optionees were granted in reliance on the exemptions from registration available under Rule 701, Section 4(2), or Rule 506 of the Securities Act.
• | First, companies subject to the periodic reporting requirements of the Exchange Act are not eligible to rely upon the Rule 701 exemption. We became subject to the reporting requirements of the Exchange Act in January 2004 as a result of our registration of certain of our debt securities, and we were subject to the reporting requirements of the Exchange Act for the remainder of 2004. As a result of being a reporting company in 2004, all options granted in 2004 were ineligible for the Rule 701 exemption. | |
• | Second, because we have rapidly expanded our operations and the size of our workforce since our inception, we have granted options to purchase shares of our common stock to a large number of participants under our Equity Compensation Plans. On December 31, 2005, options granted under our Equity Compensation Plans were held by more than 500 holders. As a result, we became subject to the registration requirements under Section 12(g) of the Exchange Act. In general, Section 12(g) of the Exchange Act (as supplemented by rules adopted by the SEC) requires every issuer having total assets of more than $10 million and a class of equity security held of record by 500 or more persons to register that class of equity security under the Exchange Act. An issuer is required to comply with the registration requirements within 120 days after the end of the first fiscal year when it first meets the above-described total asset and record holder test. However, we failed to register under Section 12(g) of the Exchange Act by April 30, 2006 (the date we were required to do so). If we had filed a registration statement as required by Section 12(g), we would have become subject to the periodic reporting requirements of the Exchange Act. Accordingly, we may not have been eligible to rely on the exemption from registration under Rule 701 of the Securities Act or the corresponding exemption from qualification under California securities laws that requires compliance with Rule 701. Due to the unavailability of these exemptions and our failure to register under Section 12(g) following the end of our 2005 fiscal year, certain options granted between April 30, 2006 through September 30, 2006 may not have been exempt from registration under Rule 701 or exempt from qualification under the California securities laws. In November 2006, we realized that we were not in compliance with Section 12(g) of the Exchange Act and we ceased granting options in reliance on Rule 701 of the Securities Act. |
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• | the highly competitive nature of our industry; | |
• | the rapid technological changes in our industry; | |
• | our ability to maintain adequate customer care and manage our churn rate; | |
• | our ability to sustain the growth rates we have experienced to date; | |
• | our ability to access the funds necessary to build and operate our Auction 66 Markets; | |
• | the costs associated with being a public company and our ability to comply with the internal financial and disclosure control and reporting obligations of public companies; | |
• | our ability to manage our rapid growth, train additional personnel and improve our financial and disclosure controls and procedures; | |
• | our ability to secure the necessary spectrum and network infrastructure equipment; | |
• | our ability to clear the Auction 66 Market spectrum of incumbent licensees; | |
• | our ability to adequately enforce or protect our intellectual property rights; | |
• | governmental regulation of our services and the costs of compliance and our failure to comply with such regulations; | |
• | our capital structure, including our indebtedness amounts; | |
• | changes in consumer preferences or demand for our products; | |
• | our inability to attract and retain key members of management; and | |
• | other factors described in this offering circular under “Risk Factors.” |
We do not intend to, and do not
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The terms of our senior secured credit facility restrict our ability to declare or pay dividends. We have never declared or paid any cash dividends on our common stock. For the foreseeable future, wegenerally intend to retain the future earnings, if any, earnings to financeinvest in our business. Subject to Delaware law, our board of directors will determine the development and expansionpayment of our business, and we do not anticipate paying any cash dividends on our common stock. Payment of any future dividends on our common stock, will depend upon our earningsif any, and capital requirements, the termsamount of our debt instruments and any preferred stock and other factors our board of directors considers appropriate. In addition, because we are a holding company, we depend on the cash flows of our subsidiaries to pay any potential dividends. The ability of our subsidiaries to distribute funds to us is and will be restricted by the terms of existing and future indebtedness, including the indenture governing our senior notes, and by applicable state laws that limit the payments of dividends. See “Description of Certain Indebtedness.”
Our stock price is likely to be very volatile.
Prior to this offering, you could not buy or sell our common stock publicly. Although the initial public offering price will be determined based on several factors, the market price after this offering may vary from the initial offering price. The market price of our common stock is likely to be highly volatile and could be subject to wide fluctuationsdividends in response to factors such as the following, some of which are beyond our control:
any applicable contractual restrictions limiting our ability to pay dividends; | ||
our earnings and cash flows; | ||
our capital requirements; | ||
our financial condition; and | ||
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Substantial sales of our common stock could adversely affect our stock price.
Sales of a substantial number of shares of common stock after this offering, or the perception that such sales could occur, could adversely affect the market price of our common stock by introducing a large number of sellers to the market. Given the volatility that will likely exist for our shares, such sales could cause the market price of our common stock to decline.
Immediately after this offering, we will have 97,106,870 shares of common stock outstanding.
of common stock to be sold in this offering will be freely tradable without restriction or further registration under the federal securities laws unless purchased by our affiliates, as that term is defined in Rule 144 under the Securities Act, and an additional 32,683,857 shares will be freely tradable pursuant to Rule 144(k) under the Securities Act. The remaining 40,423,013 shares of our outstanding common stock will be restricted securities under the Securities Act, subject to restrictions on the timing, manner and volume of sales of such shares.
After this offering, the stockholder parties to our stockholders agreement, who will collectively hold 73,106,870 shares of our common stock, will be entitled to certain rights with respect to the registration of the sale of such shares under the Securities Act. By exercising their registration rights and causing a large number of shares to be soldprovided in the public market, these holders could cause the market price oftable below our common stock to decline. See “Description of Capital Stock—Stockholders Agreement.”
Following the consummation of this offering, we also intend to file a registration statement on Form S-8 under the Securities Act covering shares of common stock reserved for issuance under our equity compensation plans; that registration statement will automatically become effective upon filing.
We cannot predict whether future sales of our common stock, or the availability of our common stock for sale, will adversely affect the market price for our common stock or our ability to raise capital by offering equity securities.
Anti-takeover provisions affecting us could prevent or delay a change of control.
Provisions of Delaware law and of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire control of us. For example, we are subject to Section 203 of the Delaware General Corporation Law which would make it more difficult for another party to acquire our company without the approval of our board of directors. Additionally, our certificate of incorporation authorizes our board of directors to issue preferred stock without requiring any stockholder approval, and preferred stock could be issued as a defensive measure in response to a takeover proposal. These provisions could make it more difficult for a third party to acquire us even if an acquisition might be in the best interest of our stockholders. See “Description of Capital Stock.”
Our certificate of incorporation provides for two classes of directors, those elected by holders of our Class A common stock and those elected by holders of our common stock. The classification of our board of directors could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us. See “Description of Capital Stock.”
The indenture governing our senior notes contains limitations concerning mergers, consolidations and certain sales of assets by us. These limitations may further deter takeover attempts. In particular, the indenture requires us to give holders of the senior notes the opportunity to sell us their senior notes at 101% of their principal amount plus accrued and unpaid interest in the event of a change of control, as such term is defined in the indenture. See “Description of Certain Indebtedness.”
Our business is subject to regulation by the FCC and state regulatory commissions or similar state regulatory agencies in the states in which we operate. The FCC and some states have statutes or regulations that would require an investor who acquires a specified percentage of our securities or the securities of one of our subsidiaries to obtain approval to own those securities from the FCC or the applicable state commission. Therefore, such regulatory agencies have the ability to prevent a change of control even if such an acquisition is in the best interests of our stockholders.
You will experience immediate and substantial dilution.
The initial public offering price will be substantially higher than the net tangible book value of each outstanding share of common stock. Purchasers of common stock in this offering will suffer immediate and
substantial dilution. The dilution will be $14.59 per share in the net tangible book value of the common stock at an assumed initial public offering price of $21.00 per share.
Our management has broad discretion in the application of proceeds, which may increase the risk that the proceeds will not be applied effectively.
Our management will have broad discretion in determining how to spend the net proceeds we receive from this offering. Accordingly, we can spend the net proceeds from this offering in ways which turn out to be ineffective or with which our stockholders may not agree.
The requirements of being a public company may strain our resources and distract management.
Until recently, we were not subject to the reporting requirements of the Securities Exchange Act of 1934 or the other rules and regulations of the Securities and Exchange Commission relating to public companies. We have been working with our independent legal, accounting and financial advisors to identify those areas in which improvements should be made to our financial and management control systems to manage our growth and our obligations as a public company. These areas include corporate governance, corporate control, internal audit, and financial reporting and accounting systems. We have made, and will continue to make, improvements in these and other areas, including the establishment of an internal audit function, and the addition of new personnel in finance and accounting areas. However, we cannot assure you that these and other measures we may take will be sufficient to allow us to satisfy our obligations as a public company on a timely basis.
We estimate that the net proceeds to us from the sale of common stock in this offering will be approximately $235.0 million at an assumed initial public offering price of $21.00 per share and after deducting underwriting discounts and commissions and estimated transaction fees and expenses payable by us. We will not receive any proceeds from the sale of common stock by the selling stockholders.
We intend to use the net proceeds to us for general corporate purposes, including continued expansion of our networks in existing markets and expansion into new markets, including through acquisitions. In addition, we may use a portion of the net proceeds to redeem a portion of our 10 3/4% senior notes due 2011 at a redemption price equal to 110.750% of the principal amount of redeemed notes, plus accrued and unpaid interest on such notes.
We have never declared or paid aconsolidated cash, dividend on our common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Payment of any future dividends on our common stock will depend upon our earnings and capital requirements, the terms of our debt instruments and any preferred stock and other factors our board of directors considers appropriate. In addition, because we are a holding company, we depend on the cash flows of our subsidiaries to pay any potential dividends. The ability of our subsidiaries to distribute funds to us is and will be restricted by the terms of existing and future indebtedness, including the indenture governing our senior notes, and by applicable state laws that limit the payments of dividends. See “Description of Certain Indebtedness.”
The following table sets forth our cash and cash equivalents and consolidatedshort-term investments and capitalization as of MarchDecember 31, 20042006 on an actual basis and on a pro formaan as adjusted basis to reflect:
the conversion of our outstanding shares of Series D and Series E preferred stock, including accrued but unpaid dividends as of December 31, 2006; | ||
• | the exercise of 1,013,739 options at a weighted average exercise price of $3.65 by the selling stockholders identified in the prospectus dated April 18, 2007 related to our initial public offering in April 2007; and | |
• | the consummation of our initial public offering in April 2007, which consisted of the sale by us of |
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As of December 31, 2006 | ||||||||
Actual | As Adjusted | |||||||
(In thousands) | ||||||||
Cash, cash equivalents and short-term investments | $ | 552,149 | $ | 1,374,812 | ||||
Long-Term Debt: | ||||||||
Senior secured credit facility | 1,596,000 | 1,596,000 | ||||||
Senior notes | 1,000,000 | 1,000,000 | ||||||
Total Long-Term Debt | $ | 2,596,000 | $ | 2,596,000 | ||||
Series D Preferred Stock(1) | $ | 443,368 | $ | — | ||||
Series E Preferred Stock(2) | $ | 51,135 | $ | — | ||||
Stockholders’ Equity: | ||||||||
Preferred stock(3) | $ | — | $ | — | ||||
Common stock(4) | 16 | 34 | ||||||
Additional paid-in capital | 166,315 | 1,483,462 | ||||||
Retained earnings | 245,690 | 245,690 | ||||||
Accumulated other comprehensive income | 1,224 | 1,224 | ||||||
Total Stockholders’ Equity | $ | 413,245 | $ | 1,730,410 | ||||
Total Capitalization | $ | 3,503,748 | $ | 4,326,410 | ||||
(1) | Par value $0.0001 per share, 4,000,000 shares designated and 3,500,993 shares issued and outstanding, actual; no shares designated, issued or outstanding, pro forma as adjusted. | |
(2) | Par value $0.0001 per share, 500,000 shares designated and 500,000 shares issued and outstanding, actual; no shares designated, issued or outstanding, pro forma as adjusted. | |
(3) | Par value $0.0001 per share, 25,000,000 shares authorized, 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 issued and outstanding, actual; 100,000,000 shares authorized but no shares issued or outstanding, pro forma as adjusted. | |
(4) | Par value $0.0001 per share, 300,000,000 shares authorized and 157,052,097 shares issued and outstanding, actual; 1,000,000,000 shares authorized and 344,351,229 issued and outstanding, pro forma as adjusted. The number of shares of common stock outstanding after this offer excludes: 22,485,723 shares of our common stock issuable upon exercise of options outstanding as of December 31, 2006, at a weighted average exercise price of $7.06 per share, of which options to purchase 9,736,953 shares were exercisable as of that date; 26,283,582 shares of our common stock available for future grant under our equity compensation plans as of December 31, 2006. |
45
As of March 31, 2004 | ||||||||
Actual | Pro Forma | |||||||
(unaudited) | ||||||||
(In thousands) | ||||||||
Cash and cash equivalents | $ | 185,109 | $ | 420,119 | ||||
Total debt: | ||||||||
FCC notes, net of unamortized discount | $ | 39,285 | $ | 39,285 | ||||
Senior notes | 150,000 | 150,000 | ||||||
Other debt | 3,817 | 3,817 | ||||||
Total debt, net of unamortized discount | 193,102 | 193,102 | ||||||
Series D cumulative convertible redeemable participating | ||||||||
preferred stock, par value $.0001 per share, 4,000,000 shares designated and 3,500,953 shares issued and outstanding, actual; none designated, issued or outstanding, pro forma | 384,267 | — | ||||||
Stockholders’ equity: | ||||||||
Class A common stock, par value $.0001 per share, 300 shares authorized, and 90 shares issued and outstanding | — | — | ||||||
Class B common stock, par value $.0001 per share, 60,000,000 shares authorized and 4,113,785 shares issued and outstanding, actual; none authorized, issued or outstanding, pro forma | — | — | ||||||
Common stock, par value $.0001 per share, 240,000,000 shares authorized and 37,239,375 shares issued and outstanding, actual; 300,000,000 shares authorized and 94,798,683 shares issued and outstanding, pro forma | 4 | 9 | ||||||
Additional paid-in capital | 92,420 | 717,008 | ||||||
Subscription receivable | (93 | ) | (93 | ) | ||||
Deferred compensation | (4,328 | ) | (4,328 | ) | ||||
Retained earnings | 6,383 | 1,062 | ||||||
Total stockholders’ equity | 94,386 | 713,658 | ||||||
Total capitalization | $ | 671,755 | $ | 906,760 | ||||
Assumed initial public offering price per share Pro forma net tangible book value per share before this offering Increase per share attributable to new investors As adjusted pro forma net tangible book value per share after this offering Dilution per share to new investors Existing stockholders New investors TotalDILUTIONOur pro forma net tangible book value as of March 31, 2004 was approximately $372.5 million, or $4.50 per share of our common stock and Class A common stock. Pro forma net tangible book value represents the amount of total tangible assets less total liabilities, divided by the sum of the number of shares of our common stock and Class A common stock outstanding, assuming conversion of all outstanding shares of Series D preferred stock into common stock. Without taking into account any other changes in the net tangible book value after March 31, 2004, other than to give effect to our sale of shares of common stock in this offering at an assumed initial public offering price of $21.00 per share and our receipt of the estimated net proceeds from this offering, our as adjusted pro forma net tangible book value as of March 31, 2004 would have been approximately $607.5 million, or $6.41 per share. This represents an immediate increase in net tangible book value of $1.91 per share to existing stockholders and an immediate dilution of $14.59 per share to new investors. The following table illustrates this per share dilution: $ 21.00 4.50 1.91 6.41 $ (14.59 ) The following table summarizes, on a pro forma basis as of March 31, 2004, the differences between existing stockholders and the new investors with respect to the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid before deducting the underwriting discounts and commissions and estimated offering expenses payable by us. Shares Purchased Total Consideration Average Price
Per Share Number Percent Amount Percent 82,798,773 87.3 % $ 482,012,000 65.7 % $ 5.82 12,000,000 12.7 % 252,000,000 34.3 % 21.00 94,798,773 100.0 % $ 734,012,000 100.0 % $ 7.74 The foregoing table assumes no exercise of stock options or warrants. As of March 31, 2004, there were options outstanding to purchase 10,574,475 shares of common stock at a weighted average exercise price of $2.3046 per share and warrants outstanding to purchase 3,137,460 shares of common stock at a weighted average exercise price of $ 0.2304 per share. To the extent outstanding options and warrants are exercised, there will be further dilution to new investors. If these outstanding options and warrants were exercised in full, the additional dilution would be approximately $0.58 per share to new investors, based on receipt of the monetary consideration for the shares and the increase in the number of shares outstanding resulting from those exercises.If the underwriters’ over-allotment option is exercised in full, the number of shares of common stock held by existing stockholders will be reduced to 83.5% of the total number of shares of common stock outstanding after this offering, and the number of shares of common stock held by new investors will be increased to 15,600,000 shares, or 16.5% of the total number of shares of common stock outstanding after this offering.Index to Financial Statementstable setstables set forth selected consolidated financial and otherdata. We derived our selected consolidated financial data of MetroPCS Communications, Inc. as of and for the years ended December 31, 1999, 2000, 2001, 20022004, 2005 and 2003 and as of and for the three months ended March 31, 2003 and 2004. We derived2006 from our selected consolidated financial data as of December 31, 2002 and 2003 and for each of the three years in the period ended December 31, 2003 from the consolidated financial statements, which were audited by PricewaterhouseCoopers LLP and are included elsewhere in this prospectus. We derived our selected consolidated financial data as of December 31, 2001 from the consolidated financial statements, which were audited by PricewaterhouseCoopersDeloitte & Touche LLP. We derived our selected consolidated financial data as of and for the years ended December 31, 19992002 and 20002003 from theour consolidated financial statements, which were audited by Arthur Andersen LLP. We derived our selected consolidated financial data as of and for the three months ended March 31, 2003 and 2004 from our unaudited consolidated financial statements, which are included elsewhere in this prospectus.statements. You should read the selected consolidated financial and other data in conjunction with “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements includingand the related notes thereto, included elsewhere in this prospectus.offering circular. Year Ended December 31, 2002 2003 2004 2005 2006 (In thousands, except share and per share data) Revenues: Service revenues $ 102,293 $ 369,851 $ 616,401 $ 872,100 $ 1,290,947 Equipment revenues 27,048 81,258 131,849 166,328 255,916 Total revenues 129,341 451,109 748,250 1,038,428 1,546,863 Operating expenses: Cost of service (excluding depreciation and amortization disclosed separately below) 63,567 122,211 200,806 283,212 445,281 Cost of equipment 106,508 150,832 222,766 300,871 476,877 Selling, general and administrative expenses (excluding depreciation and amortization disclosed separately below) 55,161 94,073 131,510 162,476 243,618 Depreciation and amortization 21,472 42,428 62,201 87,895 135,028 (Gain) loss on disposal of assets (279,659 ) 392 3,209 (218,203 ) 8,806 Total operating expenses (32,951 ) 409,936 620,492 616,251 1,309,610 Income from operations 162,292 41,173 127,758 422,177 237,253 Other expense (income): Interest expense 6,720 11,115 19,030 58,033 115,985 Accretion of put option in majority-owned subsidiary — — 8 252 770 Interest and other income (964 ) (996 ) (2,472 ) (8,658 ) (21,543 ) Loss (gain) on extinguishment of debt 703 (603 ) (698 ) 46,448 51,518 Total other expense 6,459 9,516 15,868 96,075 146,730 Income before provision for income taxes and cumulative effect of change in accounting principle 155,833 31,657 111,890 326,102 90,523 Provision for income taxes (25,528 ) (16,179 ) (47,000 ) (127,425 ) (36,717 ) Income before cumulative effect of change in accounting principle 130,305 15,478 64,890 198,677 53,806 Cumulative effect of change in accounting, net of tax — (120 ) — — — Net income 130,305 15,358 64,890 198,677 53,806 Accrued dividends on Series D Preferred Stock (10,619 ) (18,493 ) (21,006 ) (21,006 ) (21,006 ) Accrued dividends on Series E Preferred Stock — — — (1,019 ) (3,000 ) Accretion on Series D Preferred Stock (473 ) (473 ) (473 ) (473 ) (473 ) Accretion on Series E Preferred Stock — — — (114 ) (339 ) Net income (loss) applicable to common stock $ 119,213 $ (3,608 ) $ 43,411 $ 176,065 $ 28,988
46
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||
1999 | 2000 | 2001 | 2002 | 2003 | 2003 | 2004 | ||||||||||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||
Service revenues | $ | — | $ | — | $ | — | $ | 102,137 | $ | 370,920 | $ | 75,999 | $ | 132,921 | ||||||||||||||
Equipment revenues | — | — | — | 23,458 | 88,562 | 23,399 | 40,077 | |||||||||||||||||||||
Total revenues | — | — | — | 125,595 | 459,482 | 99,398 | 172,998 | |||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||
Cost of service (excluding depreciation included below) | — | — | — | 61,881 | 118,335 | 25,929 | 40,909 | |||||||||||||||||||||
Cost of equipment | — | — | — | 100,651 | 155,084 | 44,213 | 64,047 | |||||||||||||||||||||
Selling, general and administrative expenses (excluding non-cash compensation) | 3,170 | 3,411 | 27,963 | 55,515 | 90,556 | 18,046 | 28,916 | |||||||||||||||||||||
Non-cash compensation | 1,002 | 1,222 | 1,455 | 1,115 | 7,379 | 241 | 3,256 | |||||||||||||||||||||
Depreciation and amortization | 8 | 3 | 208 | 21,394 | 41,900 | 9,047 | 12,774 | |||||||||||||||||||||
(Gain) loss on sale of assets | — | — | — | (278,956 | )(1) | 333 | 111 | 87 | ||||||||||||||||||||
Total operating expenses | 4,180 | 4,636 | 29,626 | (38,400 | ) | 413,587 | 97,587 | 149,989 | ||||||||||||||||||||
Income (loss) from operations | (4,180 | ) | (4,636 | ) | (29,626 | ) | 163,995 | 45,895 | 1,811 | 23,009 | ||||||||||||||||||
Other (income) expense: | ||||||||||||||||||||||||||||
Interest expense | 15,261 | 16,142 | 10,491 | 6,805 | 11,254 | 1,755 | 5,572 | |||||||||||||||||||||
Interest income | (67 | ) | (169 | ) | (2,046 | ) | (964 | ) | (1,061 | ) | (140 | ) | (616 | ) | ||||||||||||||
(Gain) loss on extinguishment of debt | — | — | 7,109 | — | (603 | ) | — | (201 | ) | |||||||||||||||||||
Total other (income) expense | 15,194 | 15,973 | 15,554 | 5,841 | 9,590 | 1,615 | 4,755 | |||||||||||||||||||||
Income (loss) before income taxes and cumulative effect of change in accounting principle | (19,374 | ) | (20,609 | ) | (45,180 | ) | 158,154 | 36,305 | 196 | 18,254 | ||||||||||||||||||
Provisions for income taxes | — | — | — | (19,087 | ) | (15,665 | ) | (113 | ) | (7,417 | ) | |||||||||||||||||
Income (loss) before cumulative effect of change in accounting principle | (19,374 | ) | (20,609 | ) | (45,180 | ) | 139,067 | 20,640 | 83 | 10,837 | ||||||||||||||||||
Cumulative effect of change in accounting principle, net of tax | — | — | — | — | (74 | ) | (74 | ) | — | |||||||||||||||||||
Net income (loss) | (19,374 | ) | (20,609 | ) | (45,180 | ) | 139,067 | 20,566 | 9 | 10,837 | ||||||||||||||||||
Accrued dividends on Series C preferred stock | (400 | ) | (422 | ) | — | — | — | — | — | |||||||||||||||||||
Accrued dividends on Series D preferred stock | — | (195 | ) | (4,963 | ) | (10,838 | ) | (18,749 | ) | (4,268 | ) | (4,747 | ) | |||||||||||||||
Net income (loss) applicable to common stock | $ | (19,774 | ) | $ | (21,226 | ) | $ | (50,143 | ) | $ | 128,229 | $ | 1,817 | $ | (4,259 | ) | $ | 6,090 | ||||||||||
Income (loss) per share: | ||||||||||||||||||||||||||||
Income (loss) per share before cumulative effect of change in accounting principle—basic | $ | (0.86 | ) | $ | (0.76 | ) | $ | (1.44 | ) | $ | 2.26 | $ | 0.02 | $ | (0.12 | ) | $ | 0.08 | ||||||||||
Cumulative effect per share of change in accounting principle, net of tax—basic | — | — | — | — | (0.00 | ) | (0.00 | ) | — | |||||||||||||||||||
Net income (loss) per share—basic | (0.86 | ) | (0.76 | ) | (1.44 | ) | 2.26 | 0.02 | (0.12 | ) | 0.08 | |||||||||||||||||
Net income (loss) per share—diluted | (0.86 | ) | (0.76 | ) | (1.44 | ) | 1.71 | 0.02 | (0.12 | ) | 0.06 | |||||||||||||||||
Other Financial and Operating Data (GAAP): | ||||||||||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | (9,884 | ) | $ | (9,463 | ) | $ | (32,401 | ) | $ | (64,523 | ) | $ | 109,618 | $ | (4,826 | ) | $ | 24,368 | |||||||||
Net cash provided by (used in) investing activities | (669 | ) | (15,093 | ) | 24,183 | (73,494 | ) | (137,321 | ) | (26,623 | ) | (70,527 | ) | |||||||||||||||
Net cash provided by (used in) financing activities | 10,420 | 31,015 | 41,708 | 157,066 | 201,951 | 5,581 | (4,697 | ) | ||||||||||||||||||||
Cash used for capital expenditures | 669 | 93 | 133,604 | 212,305 | 117,212 | 26,899 | 73,338 | |||||||||||||||||||||
Other Financial and Operating Data (Non-GAAP): | ||||||||||||||||||||||||||||
Adjusted EBITDA (2) | $ | (3,170 | ) | $ | (3,411 | ) | $ | (27,963 | ) | $ | (92,452 | ) | $ | 95,507 | $ | 11,210 | $ | 39,126 | ||||||||||
Adjusted EBITDA margin (3) | — | — | — | — | 21 | % | 11 | % | 23 | % |
As of December 31, | As of 2004 | |||||||||||||||||
1999 | 2000 | 2001 | 2002 | 2003 | ||||||||||||||
(In thousands) | ||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||
Cash and cash equivalents | $ | 2,719 | $ | 9,178 | $ | 42,668 | $ | 61,717 | $ | 235,965 | $ | 185,109 | ||||||
Property and equipment, net | 995 | 98 | 169,459 | 353,360 | 482,965 | 519,549 | ||||||||||||
Total assets | 108,296 | 126,520 | 324,010 | 562,922 | 902,494 | 895,220 | ||||||||||||
Total debt, net of unamortized discount | 79,697 | 81,251 | 48,548 | 50,850 | 195,795 | 193,102 |
Year Ended December 31, | ||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | ||||||||||||||||
(In thousands, except share and per share data) | ||||||||||||||||||||
Basic net income (loss) per common share(1): | ||||||||||||||||||||
Income (loss) before cumulative effect of change in accounting principle | $ | 0.72 | $ | (0.03 | ) | $ | 0.18 | $ | 0.71 | $ | 0.11 | |||||||||
Cumulative effect of change in accounting, net of tax | — | (0.00 | ) | — | — | — | ||||||||||||||
Basic net income (loss) per common share | $ | 0.72 | $ | (0.03 | ) | $ | 0.18 | $ | 0.71 | $ | 0.11 | |||||||||
Diluted net income (loss) per common share(1): | ||||||||||||||||||||
Income (loss) before cumulative effect of change in accounting principle | $ | 0.52 | $ | (0.03 | ) | $ | 0.15 | $ | 0.62 | $ | 0.10 | |||||||||
Cumulative effect of change in accounting, net of tax | — | (0.00 | ) | — | — | — | ||||||||||||||
Diluted net income (loss) per common share | $ | 0.52 | $ | (0.03 | ) | $ | 0.15 | $ | 0.62 | $ | 0.10 | |||||||||
Weighted average shares(1): | ||||||||||||||||||||
Basic | 108,709,302 | 109,331,885 | 126,722,051 | 135,352,396 | 155,820,381 | |||||||||||||||
Diluted | 150,218,097 | 109,331,885 | 150,633,686 | 153,610,589 | 159,696,608 | |||||||||||||||
Other Financial Data: | ||||||||||||||||||||
Net cash (used in) provided by operating activities | $ | (50,672 | ) | $ | 112,605 | $ | 150,379 | $ | 283,216 | $ | 364,761 | |||||||||
Net cash used in investment activities | (88,311 | ) | (306,868 | ) | (190,881 | ) | (905,228 | ) | (1,939,665 | ) | ||||||||||
Net cash provided by (used in) financing activities | 157,039 | 201,951 | (5,433 | ) | 712,244 | 1,623,693 |
As of December 31, | ||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Cash, cash equivalents & short-term investments | $ | 60,724 | $ | 254,838 | $ | 59,441 | $ | 503,131 | $ | 552,149 | ||||||||||
Property and equipment, net | 352,799 | 485,032 | 636,368 | 831,490 | 1,256,162 | |||||||||||||||
Total assets | 554,705 | 898,939 | 965,396 | 2,158,981 | 4,153,122 | |||||||||||||||
Long-term debt (including current maturities) | 51,649 | 195,755 | 184,999 | 905,554 | 2,596,000 | |||||||||||||||
Series D Cumulative Convertible Redeemable Participating Preferred Stock | 294,423 | 378,926 | 400,410 | 421,889 | 443,368 | |||||||||||||||
Series E Cumulative Convertible Redeemable Participating Preferred Stock | — | — | — | 47,796 | 51,135 | |||||||||||||||
Stockholders’ equity | 69,397 | 71,333 | 125,434 | 367,906 | 413,245 |
(1) | See Note 17 to the consolidated financial statements included elsewhere in this offering circular for an explanation of the calculation of basic and diluted net income (loss) per common share. The calculation of basic and diluted net income (loss) per common share for the years ended December 31, 2002 |
47
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||
1999 | 2000 | 2001 | 2002 | 2003 | 2003 | 2004 | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Calculation of Adjusted EBITDA: | ||||||||||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | (9,884 | ) | $ | (9,463 | ) | $ | (32,401 | ) | $ | (64,523 | ) | $ | 109,618 | $ | (4,826 | ) | $ | 24,368 | |||||||||
Interest expense, net interest income | 15,194 | 15,973 | 8,445 | 5,841 | 10,193 | 1,615 | 4,956 | |||||||||||||||||||||
Bad debt expense | — | — | — | (381 | ) | (991 | ) | (749 | ) | (433 | ) | |||||||||||||||||
Accretion of asset retirement obligation | — | — | — | — | (50 | ) | (25 | ) | (79 | ) | ||||||||||||||||||
Non-cash interest | (4,396 | ) | (5,506 | ) | (3,882 | ) | (3,028 | ) | (3,090 | ) | (784 | ) | (688 | ) | ||||||||||||||
Deferred rents | — | — | (949 | ) | (1,853 | ) | (1,160 | ) | (414 | ) | (435 | ) | ||||||||||||||||
Cost of abandoned cell sites | — | — | — | — | (824 | ) | (477 | ) | (183 | ) | ||||||||||||||||||
Loss on impairment of property, plant and equipment | — | (987 | ) | — | — | — | — | — | ||||||||||||||||||||
Non-deferred tax | — | — | — | 8,993 | 1,643 | — | — | |||||||||||||||||||||
Working capital changes | (4,084 | ) | (3,428 | ) | 824 | (37,501 | ) | (19,832 | ) | 16,870 | 11,620 | |||||||||||||||||
Adjusted EBITDA | $ | (3,170 | ) | $ | (3,411 | ) | $ | (27,963 | ) | $ | (92,452 | ) | $ | 95,507 | $ | 11,210 | $ | 39,126 | ||||||||||
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
48
Recent Developments
Although full results for the second quarter of 2004 are not yet available, based upon information available toby us and except as otherwise described in this prospectus, we are not aware and do not anticipate that our results for the second quarter will be adversely impacted, in the aggregate, by material or unusual adverse events, andRoyal Street markets. Our arrangements with Royal Street are based on a wholesale model under which we do not believe that, during the second quarter, we incurred material additional borrowings or other liabilities, contingent or otherwise, or defaulted under our debt covenants. Nevertheless, our actual results for the second quarter of 2004 may differpurchase network capacity from these expectations and from the estimates disclosed below. Moreover, our results from the second quarter of 2004 and these estimates have not been compiled or examined by our independent registered public accounting firm which does not express an opinion or any other form of assurance with respect thereto. Our results for this interim period are not indicative of the results that can be expected for the full year.
The following are estimates for certain key financial results that we expect for the second quarter of 2004:
In addition, we expectRoyal Street to report approximately 63,200 net new customer additions and an average monthly churn rate of approximately 5.2% for the three months ended June 30, 2004.
Adjusted EBITDA is a supplement to GAAP financial information and should not be construed as an alternative to, or more meaningful than, GAAP financial information. We have not provided a reconciliation of our projected adjusted EBITDA to net cash provided by operating activities as to do so would requireallow us to make projections of balance sheet amounts that we believe are not subjectoffer our standard products and services in the Royal Street markets to meaningful projection. See “—Reconciliation of Non-GAAP Financial Measures” for more information about adjusted EBITDA.
On July 8, 2004, we entered into an agreement with NextWave Telecom, Inc. and certain of its affiliates to acquire two 10MHz licenses for $43.5 million. The licenses cover areas in southwest Florida (Tampa, St. Petersburg, Clearwater, Sarasota and Bradenton) with a population of approximately 3.3 million people. Consummation ofMetroPCS customers under the acquisition is subject to satisfaction of several conditions, including the approvals of the FCC and the bankruptcy court in which NextWave’s Chapter 11 bankruptcy cases are pending. We intend to begin planning network deployment shortly and we expect to spend approximately $31.5 million, primarily in 2005, to complete the initial build out of our network and launch service in these areas.
MetroPCS brand name.
Our customers pay in advance for our services. In accordance with generally accepted accounting principles, amounts received in advance are recorded on our balance sheet as deferred revenue, and are recognized as service revenues on our statement of operations only when the services are actually rendered. Although our billing system properly calculates the amount due from customers for service and properly records customer payments, it is not integrated with our accounting system and does not calculate service revenues or deferred revenue balances on a customer-by-customer basis. As a result, management calculates gross service revenues based on the average number of customers within each service offering multiplied by the price of the relevant service offering. Gross service revenues are then reduced by an amount attributable to the estimated number of customers included in our customer counts with handsets that have been disenabled, or hotlined, and whose service will be disconnected before they make a payment. Management’s controls over this process include detailed manual reconciliations between our billing system and our general ledger to insure that the balances in our deferred revenue accounts on the balance sheet are properly stated and we have properly recorded service revenues on our statement of operations.
In July 2003, during the preparation of quarterly financial statements, management noted that the balance of the deferred revenue accounts relative to service revenues had fluctuated from period to period in an inconsistent manner. Management called this inconsistency to the attention of our auditors. In August 2003, prior to the time that MetroPCS, Inc. became a reporting company under the Securities Exchange Act of 1934, management and our auditors noted that the reconciliation of deferred revenue did not include all the appropriate accounts receivable and deferred revenue accounts, and was not prepared on a timely basis. In September 2003, management concluded that we were understaffed in our revenue accounting function and that we did not have personnel with the appropriate experience required to properly account for activity resulting from the billing system.
Management immediately began to implement steps to improve the capabilities and reliability of our financial and accounting systems in order to provide reasonable assurance that our financial statements would not contain a material misstatement. At that time, our Chief Financial Officer began devoting substantial additional attention to our revenue accounting function in order to augment the Controller’s increased focus on this area that had begun in July 2003. In September 2003, we hired a Director of External Reporting, which enabled our
Controller to devote additional time to our revenue accounting function. In October 2003, we began a search for additional accounting personnel with relevant training and experience in this area. Management believes the increased attention by our Chief Financial Officer and our Controller during the second half of 2003 was sufficient to remediate any understaffing in our revenue accounting function. In December 2003, we hired a Vice President–Controller and a Director of Revenue Accounting, whose responsibilities include direct oversight and supervision of our revenue accounting function. These new personnel assumed their positions with us in early January 2004.
In October 2003, in connection with the review of our interim financial statements, our auditors issued a letter to us describing these deficiencies. In February 2004, in connection with the audit of our financial statements for the year ended December 31, 2003, our auditors identified the lack of automation in the revenue reporting process as a “material weakness” in our internal controls over revenue reporting. The Public Company Accounting Oversight Board has defined material weakness as “a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.” This means that there is a risk that a material misstatement in the deferred revenue accounts and the related service revenue accounts in our financial statements for a future period is reasonably possible.
To address revenue reporting, management made significant changes to the manual calculation and reconciliation processes to insure proper revenue reporting, including implementation of the following procedures by the end of the third quarter of 2003:
We began a monthly reconciliation of cash received to recorded revenues and deferred revenues that was utilized in the December 31, 2003 year-end close.
As a result of these procedures, management and our auditors identified and recorded adjustments to our deferred revenue and service revenues accounts during the course of the preparation of the financial statements for the related periods. These adjustments totaled $110,000 for the three months ended December 31, 2003, or 0.1% of service revenues and 1.2% of income from operations for such period, and $665,000 for the three months ended March 31, 2004, or 0.5% of service revenues and 2.9% of income from operations for such period. These procedures also resulted in reclassification entries on our balance sheet prior to its issuance to properly classify amounts between deferred revenues and other liability accounts related to taxes and other charges to customers.
Management believes that the implementation of these procedures, together with the recording of the resulting adjustments prior to issuance of the related financial statements, were sufficient to permit it to conclude that the material weakness in our internal controls over revenue reporting had not resulted in a material misstatement of our financial statements.
To further enhance our internal controls, as discussed above, we have added a Vice President, Controller and a Director of Revenue Accounting, each of whom has several years of relevant experience with revenue and billing systems in the telecommunications industry. We have also hired a senior accounting professional whose focus is to make sure that we are effectively utilizing all of the functions available in our billing system, expand the related reporting capabilities, and continue to enhance and further automate our processes related to revenue
accounting. We have increased the overall size of the revenue accounting staff from three persons during most of 2003 to a staff of six currently. In order to reduce the risk of manual errors, we are automating the summarization and transfer of information from our billing system to our general ledger. We are also developing reports that will substantially improve our control over the revenue calculation and deferred revenue reconciliation process.
While these efforts represent significant steps in remediating the material weakness, management believes, and our auditors have advised us based on their review of our financial statements for the three months ended March 31, 2004, that the material weakness still exists due to the lack of automation in this area. Moreover, our auditors have advised us that they will not be able to confirm that the material weakness has been fully remediated until they complete an audit of our financial statements. We expect our next audit to be completed in March 2005.
Remediation of the material weakness requires the automation of reports, including the development of reporting that details the deferred revenue and service revenues accounts on a customer-by-customer basis. Remediation will also require the automation of the transfer of information between our billing system and our general ledger, which is currently being performed manually. Development of these automated processes is currently ongoing. Although we intend to eliminate the material weakness by December 31, 2004, we cannot assure you that we will be able to do so.
Beginning Our assessment of estimated returns is based on historical return rates. If our customers’ actual returns are not consistent with our estimates of their returns, revenues may be different than initially recorded.
49
as service revenues when earned.
our indirectindependent retailers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
In circumstances where we are aware of a specific carrier’s inability to meet its financial obligations to us, we record a specific allowance for intercarrier compensation against amounts due, to reduce the net recognized receivable to the amount we reasonably believe will be collected. Total allowance for uncollectible accounts receivable as of December 31, 2006 was approximately 7% of the total amount of gross accounts receivable.
50
Impairment of Long-Lived Assetsthe lease and Indefinite Lived Assets
any renewal periods reasonably assured or the estimated useful life of the improvement. The estimated life of property and equipment is based on historical experience with similar assets, as well as taking into account anticipated technological or other changes. If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of increased depreciation expense in future periods. Likewise, if the anticipated technological or other changes occur more slowly than anticipated, the life of the assets could be extended based on the life assigned to new assets added to property and equipment. This could result in a reduction of depreciation expense in future periods.
involved and would be recorded as a reduction in the carrying value of the related asset and charged to results of operations. If actual results are not consistent with our assumptions and estimates, we may be exposed to an additional impairment charge associated with long-lived assets. The carrying value of property and equipment was approximately $1.3 billion as of December 31, 2006.
51
Valuation An impairment loss would be recorded as a reduction in the carrying value of Common Stock
the related indefinite-lived intangible asset and charged to results of operations. Historically, we have assessednot experienced significant negative variations between our assumptions and estimates when compared to actual results. However, if actual results are not consistent with our assumptions and estimates, we may be required to record to an impairment charge associated with indefinite-lived intangible assets. Although we do not expect our estimates or assumptions to change significantly in the future, the use of different estimates or assumptions within our discounted cash flow model when determining the fair value of our FCC licenses or using a methodology other than a discounted cash flow model could result in different values for our FCC licenses and may affect any related impairment charge. The most significant assumptions within our discounted cash flow model are the discount rate, our projected growth rate and management’s future business plans. A change in management’s future business plans or disposition of one or more FCC licenses could result in the requirement to test certain other FCC licenses. If any legal, regulatory, contractual, competitive, economic or other factors were to limit the useful lives of our indefinite-lived FCC licenses, we would be required to test these intangible assets for impairment in accordance with SFAS No. 142 and amortize the intangible asset over its remaining useful life.
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December 31, | December 31, | |||||||
2006 | 2005 | |||||||
Expected dividends | 0.00 | % | 0.00 | % | ||||
Expected volatility | 35.04 | % | 50.00 | % | ||||
Risk-free interest rate | 4.64 | % | 4.24 | % | ||||
Expected lives in years | 5.00 | 5.00 | ||||||
Weighted-average fair value of options: | ||||||||
Granted at below fair value | $ | 10.16 | $ | — | ||||
Granted at fair value | $ | 3.75 | $ | 3.44 | ||||
Weighted-average exercise price of options: | ||||||||
Granted at below fair value | $ | 1.49 | $ | — | ||||
Granted at fair value | $ | 9.95 | $ | 7.13 |
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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, 2005 | 60,000 | $ | 6.31 | $ | 6.31 | $ | 0.00 | |||||||||
June 30, 2005 | — | — | — | — | ||||||||||||
September 30, 2005 | 4,922,385 | $ | 7.14 | $ | 7.14 | $ | 0.00 | |||||||||
December 31, 2005 | 856,149 | $ | 7.15 | $ | 7.15 | $ | 0.00 | |||||||||
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 |
• | discounted cash flow analysis; | |
• | comparable company market multiples; and | |
• | comparable merger and acquisition transaction multiples. |
54
follows:
Number of | Price | Gross | ||||||||||
Shares | per Share | Proceeds | ||||||||||
October 2005 | 48,847,533 | $ | 7.15 | $ | 349,422,686 | |||||||
September 2006 | 1,375,488 | $ | 8.67 | 11,920,896 | ||||||||
October 2006 | 1,654,050 | $ | 8.67 | 14,335,100 | ||||||||
Total | 51,877,071 | $ | 375,678,682 | |||||||||
customers.
Cell Site Costs. We incur expenses for the rent of cell sites, network facilities, engineering operations, field technicians and related utility and maintenance charges. |
55
• |
EquipmentEquipment.. We purchase personal communicationswireless broadband PCS handsets and accessories from third-party vendors to resell to our customers and indirectindependent retailers in connection with our services. We subsidize the sale of handsets to encourage the sale and use of our services. We do not manufacture any of this equipment.Index to Financial StatementsExpensesExpenses.. Our selling expense includes advertising and promotional costs associated with capturingmarketing and selling to new customers and fixed charges such as retail store rent and retail associates’ salaries. General and administrative expense includes support functions including, technical operations, finance, accounting, human resources, information technology and legal services.Non-cash Compensation. We record stock-based compensation expense in cost of service and selling, general and administrative expenses associated with employee stock options issued below estimated fair market valuewhich is measured at the date of grant. In addition,grant, based on the estimated fair value of the award. Prior to the adoption of SFAS No. 123(R), we recordrecorded stock-based compensation expense at the end of each reporting period with respect to our variable stock options.AmortizationAmortization.. 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 and capitalized interest, three to seven years for office equipment, includingwhich includes computer equipment, and three to seven years for furniture and fixtures.fixtures and five years for vehicles. Leasehold improvements are amortized over the term of the respective leases, which includes renewal periods that are reasonably assured, or the estimated useful life of the improvement, whichever is shorter.IncomeIncome.. Interest expense consists ofincludes interest incurred on our FCC notes basedborrowings, amortization of debt issuance costs and amortization of discounts and premiums on an estimated fair market borrowing rate at the time of issuance, of which 6.5% is paid in cash, and interest on our senior notes.long-term debt. Interest income is earned primarily on our cash and cash equivalents.TaxesTaxes.. As a result of our operating losses and additionalaccelerated depreciation available under federal tax laws, in 2003, we have paid no federal income taxtaxes prior to date.2006. For the year ended December 31, 2006, we paid approximately $2.7 million in federal income taxes. In addition, we have paid an immaterial amount of state income tax through December 31, 2006.
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• | 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 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. |
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Reportable Operating Segment Data | 2006 | 2005 | Change | |||||||||
(In thousands) | ||||||||||||
REVENUES: | ||||||||||||
Service revenues: | ||||||||||||
Core Markets | $ | 1,138,019 | $ | 868,681 | 31 | % | ||||||
Expansion Markets | 152,928 | 3,419 | ** | |||||||||
Total | $ | 1,290,947 | $ | 872,100 | 48 | % | ||||||
Equipment revenues: | ||||||||||||
Core Markets | $ | 208,333 | $ | 163,738 | 27 | % | ||||||
Expansion Markets | 47,583 | 2,590 | ** | |||||||||
Total | $ | 255,916 | $ | 166,328 | 54 | % | ||||||
OPERATING EXPENSES: | ||||||||||||
Cost of service (excluding depreciation and amortization disclosed separately below)(1): | ||||||||||||
Core Markets | $ | 338,923 | $ | 271,437 | 25 | % | ||||||
Expansion Markets | 106,358 | 11,775 | ** | |||||||||
Total | $ | 445,281 | $ | 283,212 | 57 | % | ||||||
Cost of equipment: | ||||||||||||
Core Markets | $ | 364,281 | $ | 293,702 | 24 | % | ||||||
Expansion Markets | 112,596 | 7,169 | ** | |||||||||
Total | $ | 476,877 | $ | 300,871 | 59 | % | ||||||
Selling, general and administrative expenses (excluding depreciation and amortization disclosed separately below)(1): | ||||||||||||
Core Markets | $ | 158,100 | $ | 153,321 | 3 | % | ||||||
Expansion Markets | 85,518 | 9,155 | ** | |||||||||
Total | $ | 243,618 | $ | 162,476 | 50 | % | ||||||
Adjusted EBITDA (Deficit)(2): | ||||||||||||
Core Markets | $ | 492,773 | $ | 316,555 | 56 | % | ||||||
Expansion Markets | (97,214 | ) | (22,090 | ) | ** | |||||||
Depreciation and amortization: | ||||||||||||
Core Markets | $ | 109,626 | $ | 84,436 | 30 | % | ||||||
Expansion Markets | 21,941 | 2,030 | ** | |||||||||
Other | 3,461 | 1,429 | 142 | % | ||||||||
Total | $ | 135,028 | $ | 87,895 | 54 | % | ||||||
Stock-based compensation expense: | ||||||||||||
Core Markets | $ | 7,725 | $ | 2,596 | 198 | % | ||||||
Expansion Markets | 6,747 | — | ** | |||||||||
Total | $ | 14,472 | $ | 2,596 | 457 | % | ||||||
Income (loss) from operations: | ||||||||||||
Core Markets | $ | 367,109 | $ | 219,777 | 67 | % | ||||||
Expansion Markets | (126,387 | ) | (24,370 | ) | ** | |||||||
Other | (3,469 | ) | 226,770 | (102 | )% | |||||||
Total | $ | 237,253 | $ | 422,177 | (44 | )% | ||||||
** | Not meaningful. The Expansion Markets reportable segment had no significant operations during 2005. |
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(1) | Cost of service and selling, general and administrative expenses include stock-based compensation expense. For the year ended December 31, 2006, cost of service includes $1.3 million and selling, general and administrative expenses includes $13.2 million of stock-based compensation expense. | |
(2) | Core and Expansion Markets 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 our ability to meet future debt service, capital expenditures and working capital requirements and to fund future growth. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Operating Segments.” |
• | Core Markets. Core Markets service revenues increased $269.3 million, or 31%, to $1,138.0 million for the year ended December 31, 2006 from $868.7 million for the year ended December 31, 2005. The increase in service revenues is primarily attributable to net additions of approximately 430,000 customers accounting for $199.2 million of the Core Markets increase, coupled with the migration of existing customers to higher price rate plans accounting for $70.1 million of the Core Markets increase. |
• | Expansion Markets. Expansion Markets service revenues increased $149.5 million to $152.9 million for the year ended December 31, 2006 from $3.4 million for the year ended December 31, 2005. These revenues wereattributableto the launch of the Tampa/Sarasota metropolitan area in October 2005, the Dallas/Ft. Worth metropolitan area in March 2006, the Detroit metropolitan area in April 2006 and the expansion of the Tampa/Sarasota area to include the Orlando metropolitan area in November 2006. Net additions in the Expansion Markets totaled approximately 587,000 customers for the year ended December 31, 2006. |
• | Core Markets. Core Markets equipment revenues increased $44.6 million, or 27%, to $208.3 million for the year ended December 31, 2006 from $163.7 million for the year ended December 31, 2005. The increase in equipment revenues is primarily attributable to the sale of higher priced handset models accounting for $30.2 million of the increase, coupled with the increase in gross customer additions during the year of approximately 130,000 customers, which accounted for $14.4 million of the increase. | |
• | Expansion Markets. Expansion Markets equipment revenues increased $45.0 million to $47.6 million for the year ended December 31, 2006 from $2.6 million for the year ended December 31, 2005. These revenues were attributable to the launch of the Tampa/Sarasota metropolitan area in October 2005, the Dallas/Ft. Worth metropolitan area in March 2006, the Detroit metropolitan area in April 2006 and the expansion of the Tampa/Sarasota area to include the Orlando metropolitan area in November 2006. Gross additions in the Expansion Markets totaled approximately 730,000 customers for the year ended December 31, 2006. |
• | Core Markets. Core Markets cost of service increased $67.5 million, or 25%, to $338.9 million for the year ended December 31, 2006 from $271.4 million for the year ended December 31, 2005. The |
59
increase in cost of service was primarily attributable to a $14.8 million increase in federal universal service fund, or FUSF, fees, a $13.2 million increase in long distance costs, a $7.7 million increase in cell site and switch facility lease expense, a $6.4 million increase in customer service expense, a $5.9 million increase in intercarrier compensation, and a $4.3 million increase in employee costs, all of which are a result of the 23% growth in our Core Markets customer base and the addition of approximately 350 cell sites to our existing network infrastructure. |
• | Expansion Markets. Expansion Markets cost of service increased $94.6 million to $106.4 million for the year ended December 31, 2006 from $11.8 million for the year ended December 31, 2005. These increases were attributable to the launch of the Tampa/Sarasota metropolitan area in October 2005, the Dallas/Ft. Worth metropolitan area in March 2006, the Detroit metropolitan area in April 2006 and the expansion of the Tampa/Sarasota area to include the Orlando metropolitan area in November 2006. The increase in cost of service was primarily attributable to a $22.3 million increase in cell site and switch facility lease expense, a $13.8 million increase in employee costs, a $9.3 million increase in intercarrier compensation, $8.2 million in long distance costs, $8.2 million in customer service expense and $3.5 million in billing expenses. |
• | Core Markets. Core Markets cost of equipment increased $70.6 million, or 24%, to $364.3 million for the year ended December 31, 2006 from $293.7 million for the year ended December 31, 2005. The increase in equipment costs is primarily attributable to the sale of higher cost handset models accounting for $44.7 million of the increase. The increase in gross customer additions during the year of approximately 130,000 customers as well as the sale of new handsets to existing customers accounted for $25.9 million of the increase. | |
• | Expansion Markets. Expansion Markets costs of equipment increased $105.4 million to $112.6 million for the year ended December 31, 2006 from $7.2 million for the year ended December 31, 2005. These costs were primarily attributable to the launch of the Tampa/Sarasota metropolitan area in October 2005, the Dallas/Ft. Worth metropolitan area in March 2006, the Detroit metropolitan area in April 2006 and the expansion of the Tampa/Sarasota area to include the Orlando metropolitan area in November 2006. |
• | Core Markets. Core Markets selling, general and administrative expenses increased $4.8 million, or 3%, to $158.1 million for the year ended December 31, 2006 from $153.3 million for the year ended December 31, 2005. Selling expenses increased by $10.7 million, or approximately 18% for the year ended December 31, 2006 compared to year ended December 31, 2005. General and administrative expenses decreased by $5.9 million, or approximately 6% for the year ended December 31, 2006 compared to the year ended December 31, 2005. The increase in selling expenses is primarily due to an increase in advertising and market research expenses which were incurred to support the growth in the Core Markets. This increase in selling expenses was offset by a decrease in general and administrative expenses, which were higher in 2005 because they included approximately $5.9 million in legal and accounting expenses associated with an internal investigation related to material weaknesses in our internal control over financial reporting as well as financial statement audits related to our restatement efforts. | |
• | Expansion Markets. Expansion Markets selling, general and administrative expenses increased $76.3 million to $85.5 million for the year ended December 31, 2006 from $9.2 million for the year ended December 31, 2005. Selling expenses increased $31.5 million for the year ended December 31, 2006 |
60
compared to the year ended December 31, 2005. This increase in selling expenses was related to marketing and advertising expenses associated with the launch of the Dallas/Ft. Worth metropolitan area, the Detroit metropolitan area, and the expansion of the Tampa/Sarasota area to include the Orlando metropolitan area. General and administrative expenses increased by $44.8 million for the year ended December 31, 2006 compared to the same period in 2005 due to labor, rent, legal and professional fees and various administrative expenses incurred in relation to the launch of the Dallas/Ft. Worth metropolitan area, Detroit metropolitan area, and the expansion of the Tampa/Sarasota area to include the Orlando metropolitan area as well as build-out expenses related to the Los Angeles metropolitan area. |
• | Core Markets. Core Markets depreciation and amortization expense increased $25.2 million, or 30%, to $109.6 million for the year ended December 31, 2006 from $84.4 million for the year ended December 31, 2005. The increase related primarily to an increase in network infrastructure assets placed into service during the year ended December 31, 2006. We added approximately 350 cell sites in our Core Markets during this period to increase the capacity of our existing network and expand our footprint. | |
• | Expansion Markets. Expansion Markets depreciation and amortization expense increased $19.9 million to $21.9 million for the year ended December 31, 2006 from $2.0 million for the year ended December 31, 2005. The increase related to network infrastructure assets that were placed into service as a result of the launch of the Dallas/Ft. Worth metropolitan area, the Detroit metropolitan area, and expansion of the Tampa/Sarasota area to include the Orlando metropolitan area. |
• | Core Markets. Core Markets stock-based compensation expense increased $5.1 million, or 198%, to $7.7 million for the year ended December 31, 2006 from $2.6 million for the year ended December 31, 2005. The increase is primarily related to the adoption of SFAS No. 123(R) on January 1, 2006. In addition, in December 2006, we amended the stock option agreements of a former member of our board of directors to extend the contractual life of 405,054 vested options to purchase common stock until December 31, 2006. This amendment resulted in the recognition of additional stock-based compensation expense of approximately $4.1 million in the fourth quarter of 2006. | |
• | Expansion Markets. Expansion Markets stock-based compensation expense was $6.8 million for the year ended December 31, 2006. This expense is attributable to stock options granted to employees in our Expansion Markets which are being accounted for under SFAS No. 123(R)as of January 1, 2006. |
Consolidated Data | 2006 | 2005 | Change | |||||||||
(In thousands) | ||||||||||||
Loss (gain) on disposal of assets | $ | 8,806 | $ | (218,203 | ) | 104 | % | |||||
Loss on extinguishment of debt | 51,518 | 46,448 | 11 | % | ||||||||
Interest expense | 115,985 | 58,033 | 100 | % | ||||||||
Provision for income taxes | 36,717 | 127,425 | (72 | )% | ||||||||
Net income | 53,806 | 198,677 | (73 | )% |
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62
Reportable Operating Segment Data | 2005 | 2004 | Change | |||||||||
(In thousands) | ||||||||||||
REVENUES: | ||||||||||||
Service revenues: | ||||||||||||
Core Markets | $ | 868,681 | $ | 616,401 | 41 | % | ||||||
Expansion Markets | 3,419 | — | ** | |||||||||
Total | $ | 872,100 | $ | 616,401 | 41 | % | ||||||
Equipment revenues: | ||||||||||||
Core Markets | $ | 163,738 | $ | 131,849 | 24 | % | ||||||
Expansion Markets | 2,590 | — | ** | |||||||||
Total | $ | 166,328 | $ | 131,849 | 26 | % | ||||||
OPERATING EXPENSES: | ||||||||||||
Cost of service (excluding depreciation and amortization disclosed separately below): | ||||||||||||
Core Markets | $ | 271,437 | $ | 200,806 | 35 | % | ||||||
Expansion Markets | 11,775 | — | ** | |||||||||
Total | $ | 283,212 | $ | 200,806 | 41 | % | ||||||
Cost of equipment: | ||||||||||||
Core Markets | $ | 293,702 | $ | 222,766 | 32 | % | ||||||
Expansion Markets | 7,169 | — | ** | |||||||||
Total | $ | 300,871 | $ | 222,766 | 35 | % | ||||||
Selling, general and administrative expenses (excluding depreciation and amortization disclosed separately below)(1): | ||||||||||||
Core Markets | $ | 153,321 | $ | 131,510 | 17 | % | ||||||
Expansion Markets | 9,155 | — | ** | |||||||||
Total | $ | 162,476 | $ | 131,510 | 24 | % | ||||||
Adjusted EBITDA (Deficit)(2): | ||||||||||||
Core Markets | $ | 316,555 | $ | 203,597 | 55 | % | ||||||
Expansion Markets | (22,090 | ) | — | ** | ||||||||
Depreciation and amortization: | ||||||||||||
Core Markets | $ | 84,436 | $ | 61,286 | 38 | % | ||||||
Expansion Markets | 2,030 | — | ** | |||||||||
Other | 1,429 | 915 | �� | 56 | % | |||||||
Total | $ | 87,895 | $ | 62,201 | 41 | % | ||||||
Stock-based compensation expense: | ||||||||||||
Core Markets | $ | 2,596 | $ | 10,429 | (75 | )% | ||||||
Expansion Markets | — | — | — | |||||||||
Total | $ | 2,596 | $ | 10,429 | (75 | )% | ||||||
Income (loss) from operations: | ||||||||||||
Core Markets | $ | 219,777 | $ | 128,673 | 71 | % | ||||||
Expansion Markets | (24,370 | ) | — | ** | ||||||||
Other | 226,770 | (915 | ) | ** | ||||||||
Total | $ | 422,177 | $ | 127,758 | 230 | % | ||||||
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** | Not meaningful. The Expansion Markets reportable segment had no operations until 2005. | |
(1) | Selling, general and administrative expenses include stock-based compensation expense disclosed separately. | |
(2) | Core and Expansion Markets 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 our ability to meet future debt service, capital expenditures and working capital requirements and to fund future growth. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Operating Segments.” |
• | Core Markets. Core Markets service revenues increased $252.3 million, or 41%, to $868.7 million for the year ended December 31, 2005 from $616.4 million for the year ended December 31, 2004. The increase in service revenues is primarily attributable to net additions of approximately 473,000 customers accounting for $231.8 million of the Core Markets increase, coupled with the migration of existing customers to higher priced rate plans accounting for $20.5 million of the Core Markets increase. |
• | Expansion Markets. Expansion Markets service revenues were $3.4 million for the year ended December 31, 2005. These revenues are attributable to the launch of the Tampa/Sarasota metropolitan area in October 2005. Net additions in the Tampa/Sarasota metropolitan area totaled approximately 53,000 customers. |
• | Core Markets. CoreMarketsequipment revenues increased $31.9 million, or 24%, to $163.7 million for the year ended December 31, 2005 from $131.8 million for the year ended December 31, 2004. The increase in revenues was primarily attributable to an increase in sales to new customers of $32.6 million, a 60% increase over 2004. During the year ended December 31, 2005, Core Markets gross customer additions increased 30% to approximately 1,478,500 customers compared to 2004. | |
• | Expansion Markets. Expansion Markets equipment revenues were $2.6 million for the year ended December 31, 2005. These revenues are attributable to approximately 53,600 gross customer additions due to the launch of the Tampa/Sarasota metropolitan area in October 2005. |
• | Core Markets. Core Markets cost of service increased $70.6 million, or 35%, to $271.4 million for the year ended December 31, 2005 from $200.8 million for the year ended December 31, 2004. The increase was primarily attributable to a $12.9 million increase in intercarrier compensation, a $12.3 million increase in long distance costs, a $9.5 million increase in cell site and switch facility lease expense, a $5.6 million increase in customer service expense, a $3.9 million increase in billing expenses and $2.6 million increase in employee costs, which were a result of the 34% growth in our customer base and the addition of 315 cell sites to our existing network infrastructure. | |
• | Expansion Markets. Expansion Markets cost of service was $11.8 million for the year ended December 31, 2005. These expenses are attributable to the launch of the Tampa/Sarasota metropolitan area in October 2005, which contributed net additions of approximately 53,000 customers during 2005. |
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Cost of service included employee costs of $4.1 million, cell site and switch facility lease expense of 3.4 million, repair and maintenance expense of $1.6 million and intercarrier compensation of $1.0 million. |
• | Core Markets. Core Markets cost of equipment increased $70.9 million, or 32%, to $293.7 million for the year ended December 31, 2005 from $222.8 million for the year ended December 31, 2004. The increase in cost of equipment is due to the 30% increase in gross customer additions during 2005 compared to the year ended December 31, 2004. | |
• | Expansion Markets. Expansion Markets cost of equipment was $7.2 million for the year ended December 31, 2005. This cost is attributable to the launch of the Tampa/Sarasota metropolitan area in October 2005, which resulted in approximately 53,600 activations during 2005. |
• | Core Markets. Core Markets selling, general and administrative expenses increased $21.8 million, or 17%, to $153.3 million for the year ended December 31, 2005 from $131.5 million for the year ended December 31, 2004. Selling expenses increased by $6.3 million, or 12% for the year ended December 31, 2005 compared to 2004. General and administrative expenses increased by $15.5 million, or 20%, during 2005 compared to 2004. The significant increase in general and administrative expenses was primarily driven by increases in accounting and auditing fees of $4.9 million and increases in professional service fees of $3.6 million due to substantial legal and accounting expenses associated with an internal investigation related to material weaknesses in our internal control over financial reporting as well as financial statement audits related to our restatement efforts. We also experienced a $6.6 million increase in labor costs associated with new employee additions necessary to support the growth in our business. These increases were offset by a $7.8 million decrease in stock-based compensation expense. | |
• | Expansion Markets. Expansion Markets selling, general and administrative expenses were $9.2 million for the year ended December 31, 2005. Selling expenses were $3.5 million and general and administrative expenses were $5.7 million for 2005. These expenses are comprised of marketing and advertising expenses as well as labor, rent, professional fees and various administrative expenses associated with the launch of the Tampa/Sarasota metropolitan area in October 2005 and build-out of the Dallas/Ft. Worth and Detroit metropolitan areas. |
• | Core Markets. Core Markets depreciation and amortization expense increased $23.1 million, or 38%, to $84.4 million for the year ended December 31, 2005 from $61.3 million for the year ended December 31, 2004. The increase related primarily to an increase in network infrastructure assets placed into service during 2005, compared to the year ended December 31, 2004. We added 315 cell sites in our Core Markets during the year ended December 31, 2005 to increase the capacity of our existing network and expand our footprint. |
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• | Expansion Markets. Expansion Markets depreciation and amortization expense was $2.0 million for the year ended December 31, 2005. This expense is attributable to network infrastructure assets placed into service as a result of the launch of the Tampa/Sarasota metropolitan area. |
Consolidated Data | 2005 | 2004 | Change | |||||||||
(In thousands) | ||||||||||||
Loss (gain) on disposal of assets | $ | (218,203 | ) | $ | 3,209 | ** | ||||||
(Gain) loss on extinguishment of debt | 46,448 | (698 | ) | ** | ||||||||
Interest expense | 58,033 | 19,030 | 205 | % | ||||||||
Provision for income taxes | 127,425 | 47,000 | 171 | % | ||||||||
Net income | 198,677 | 64,890 | 206 | % |
** | Not meaningful |
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Three Months Ended March 31, | |||||||||
2003 | 2004 | Change | |||||||
(In thousands) | |||||||||
Revenues | |||||||||
Service revenues | $ | 75,999 | $ | 132,921 | 75 | % | |||
Equipment revenues | 23,399 | 40,077 | 71 | % | |||||
Cost of service (excluding depreciation included below) | 25,929 | 40,909 | 58 | % | |||||
Cost of equipment | 44,213 | 64,047 | 45 | % | |||||
Selling, general and administrative expenses (excluding non-cash compensation included below) | 18,046 | 28,916 | 60 | % | |||||
Non-cash compensation | 241 | 3,256 | * | ||||||
Depreciation and amortization | 9,047 | 12,774 | 41 | % | |||||
Interest expense | 1,755 | 5,572 | 217 | % | |||||
Net income | 9 | 10,837 | * |
2004 | 2003 | Change | ||||||||||
(In thousands) | ||||||||||||
Revenues | ||||||||||||
Service revenues | $ | 616,401 | $ | 369,851 | 67 | % | ||||||
Equipment revenues | 131,849 | 81,258 | 62 | % | ||||||||
Cost of service (excluding depreciation and amortization disclosed separately below) | 200,806 | 122,211 | 64 | % | ||||||||
Cost of equipment | 222,766 | 150,832 | 48 | % | ||||||||
Selling, general and administrative expenses (excluding depreciation and amortization disclosed separately below) | 131,510 | 94,073 | 40 | % | ||||||||
Depreciation and amortization | 62,201 | 42,428 | 47 | % | ||||||||
Interest expense | 19,030 | 11,115 | 71 | % | ||||||||
Provision for income taxes | 47,000 | 16,179 | 191 | % | ||||||||
Net income | 64,890 | 15,358 | 323 | % |
Service revenues accounted for 77% of total revenues and equipment revenues accounted for 23% of total revenues for the three monthsyear ended MarchDecember 31, 2004. Service revenues increased $56.9 million, or 75%, to $132.92004 from $369.9 million for the three monthsyear ended MarchDecember 31, 2003. The increase is primarily attributable to the addition of approximately 422,000 customers accounting for $159.7 million of the increase, coupled with the migration of existing customers to higher priced rate plans accounting for $86.8 million of the increase.
Equipment revenues increased $16.7 million, or 71%, to $40.1 million for the three months ended March 31, 2004 from $23.4 million for the three months ended March 31, 2003. During 2003, we significantly expanded our handset product line, leading to significant upgrade sales to existing customers. Handset sales to existingapproximately 422,000 customers increased to $16.7 million of revenue during the first quarteryear. Additionally, employee costs, cell site and switch facility lease expense and repair and maintenance expense increased as a result of 2004, as compared to $1.0 million of revenue in the first quarter of 2003. The remaining increase was attributable to the revenues generated by new customers selecting handsets from our expanded product line.
Cost of Service. Cost of service increased $15.0 million, or 58%, to $40.9 million for the three months ended March 31, 2004 from $25.9 million for the three months ended March 31, 2003. This increase was due to the overall growth of our business and an increase inthe expansion of our customer base, including a $4.2 million increase in long distance costs, a $3.8 million increase in call center expenses, a $1.1 million increase in billing expenses, and a $0.9 million increase in E-911 fees.
network.
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Non-cash Compensation. Non-cash compensation was $3.3 million for the three months ended March 31, 2004, compared to $0.2 million for the three months ended March 31, 2003. The increase was primarily due to thean increase in the estimated fair market value of our stock which resulted in a $3.0 million charge related to outstandingused for valuing stock options accounted for under variable accounting.
Selling expenses increased by $8.6 million as a result of increased sales and marketing activities. General and administrative expenses increased by $25.6 million primarily due to the increase in our administrative costs associated with our customer base and to network expansion, a $8.1 million increase in professional fees including legal and accounting services, a $3.7 million increase in employee salaries and benefits, a $3.6 million increase in bank service charges, a $0.5 million increase in rent expense, a $1.2 million increase in personal property tax expense, and a $1.1 million increase in property insurance. Of the $8.1 million increase in professional fees, approximately $3.2 million was related to the preparation of a registration statement for an initial public offering of our common stock to the public. These costs were expensed, as this initial public offering was not completed and the registration statement was withdrawn.
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Three Months Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2005 | 2005 | 2005 | 2005 | |||||||||||||
(In thousands) | ||||||||||||||||
REVENUES: | ||||||||||||||||
Service revenues | $ | 196,898 | $ | 212,697 | $ | 221,615 | $ | 240,891 | ||||||||
Equipment revenues | 39,058 | 37,992 | 41,940 | 47,338 | ||||||||||||
Total revenues | 235,956 | 250,689 | 263,555 | 288,229 | ||||||||||||
OPERATING EXPENSES: | ||||||||||||||||
Cost of service (excluding depreciation and amortization expense shown separately below) | 63,735 | 65,944 | 72,261 | 81,272 | ||||||||||||
Cost of equipment | 68,101 | 65,287 | 77,140 | 90,342 | ||||||||||||
Selling, general and administrative expenses (excluding depreciation and amortization expense shown separately below) | 37,849 | 39,342 | 39,016 | 46,270 | ||||||||||||
Depreciation and amortization | 19,270 | 20,714 | 21,911 | 26,001 | ||||||||||||
Loss (gain) on disposal of assets | 1,160 | (224,901 | ) | 5,449 | 88 | |||||||||||
Total operating expenses | 190,115 | (33,614 | ) | 215,777 | 243,973 | |||||||||||
Income from operations | 45,841 | 284,303 | 47,778 | 44,256 | ||||||||||||
OTHER EXPENSE (INCOME): | ||||||||||||||||
Interest expense | 8,036 | 15,761 | 17,069 | 17,167 | ||||||||||||
Accretion of put option in majority-owned subsidiary | 62 | 62 | 62 | 64 | ||||||||||||
Interest and other income | (557 | ) | (1,215 | ) | (3,105 | ) | (3,781 | ) | ||||||||
Loss on extinguishment of debt | 867 | 45,581 | — | — | ||||||||||||
Total other expense | 8,408 | 60,189 | 14,026 | 13,450 | ||||||||||||
Income before provision for income taxes | 37,433 | 224,114 | 33,752 | 30,806 | ||||||||||||
Provision for income taxes | (14,633 | ) | (87,632 | ) | (13,196 | ) | (11,965 | ) | ||||||||
Net income | $ | 22,800 | $ | 136,482 | $ | 20,556 | $ | 18,841 | ||||||||
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Three Months Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2006 | 2006 | 2006 | 2006 | |||||||||||||
(In thousands) | ||||||||||||||||
REVENUES: | ||||||||||||||||
Service revenues | $ | 275,416 | $ | 307,843 | $ | 332,920 | $ | 374,768 | ||||||||
Equipment revenues | 54,045 | 60,351 | 63,196 | 78,324 | ||||||||||||
Total revenues | 329,461 | 368,194 | 396,116 | 453,092 | ||||||||||||
OPERATING EXPENSES: | ||||||||||||||||
Cost of service (excluding depreciation and amortization expense shown separately below) | 92,489 | 107,497 | 113,524 | 131,771 | ||||||||||||
Cost of equipment | 100,911 | 112,005 | 117,982 | 145,979 | ||||||||||||
Selling, general and administrative expenses (excluding depreciation and amortization expense shown separately below) | 51,437 | 60,264 | 60,220 | 71,697 | ||||||||||||
Depreciation and amortization | 27,260 | 32,316 | 36,611 | 38,841 | ||||||||||||
Loss (gain) on disposal of assets | 10,365 | 2,013 | (1,615 | ) | (1,957 | ) | ||||||||||
Total operating expenses | 282,462 | 314,095 | 326,722 | 386,331 | ||||||||||||
Income from operations | 46,999 | 54,099 | 69,394 | 66,761 | ||||||||||||
OTHER EXPENSE (INCOME): | ||||||||||||||||
Interest expense | 20,885 | 21,713 | 24,811 | 48,576 | ||||||||||||
Accretion of put option in majority-owned subsidiary | 157 | 203 | 203 | 207 | ||||||||||||
Interest and other income | (4,572 | ) | (6,147 | ) | (4,386 | ) | (6,438 | ) | ||||||||
(Gain) loss on extinguishment of debt | (217 | ) | (27 | ) | — | 51,762 | ||||||||||
Total other expense | 16,253 | 15,742 | 20,628 | 94,107 | ||||||||||||
Income (loss) before provision for income taxes | 30,746 | 38,357 | 48,766 | (27,346 | ) | |||||||||||
Provision for income taxes | (12,377 | ) | (15,368 | ) | (19,500 | ) | 10,528 | |||||||||
Net income (loss) | $ | 18,369 | $ | 22,989 | $ | 29,266 | $ | (16,818 | ) | |||||||
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Set forth below is a summary of certain non-GAAP financialMeasures” below.
Three Months Ended March 31, | |||||||||||
2003 | 2004 | Change | |||||||||
Customers: | |||||||||||
End of period | 708,965 | 1,150,954 | 62 | % | |||||||
Net additions | 195,481 | 174,055 | (11 | %) | |||||||
Churn: | |||||||||||
Average monthly rate | 3.5 | % | 3.8 | % | 9 | % | |||||
ARPU | $ | 39.50 | $ | 40.00 | 1 | % | |||||
CPGA | 104.97 | 96.74 | (8 | %) | |||||||
Adjusted EBITDA (In thousands) | 11,210 | 39,126 | 249 | % |
2004, 2005 and 2006.
Year Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
Customers: | ||||||||||||
End of period | 1,398,732 | 1,924,621 | 2,940,986 | |||||||||
Net additions | 421,833 | 525,889 | 1,016,365 | |||||||||
Churn: | ||||||||||||
Average monthly rate | 4.9 | % | 5.1 | % | 4.6 | % | ||||||
ARPU | $ | 41.13 | $ | 42.40 | $ | 42.98 | ||||||
CPGA | $ | 103.78 | $ | 102.70 | $ | 117.58 | ||||||
CPU | $ | 18.95 | $ | 19.57 | $ | 19.65 |
Churn. The average monthly rate of customer turnover, or churn, was 3.8% and 3.5% for the three months ended March 31, 2004 and 2003, respectively.traditional wireless carriers that require customers to sign a one- to two-year contract with significant early termination fees. Average monthly churn represents (a) the number of customers who have been disconnected from our system during the measurement period less the number of customers who have reactivated service, divided by (b) the sum of the average monthly number of customers during such period.
We classify delinquent customers as churn after they have been delinquent for 30 days. In addition, when an existing customer establishes a new account in connection with the purchase of an upgraded or replacement phone and does not identify themselves as an existing customer, we count that phone leaving service as a churn and the new phone entering service as a gross customer addition. Churn for the year ended December 31, 2006 was 4.6% compared to 5.1% for the year ended December 31, 2005. Based upon a change in the allowable return period from 7 days to 30 days, we revised our definition of gross customer additions to exclude customers that discontinue service in the first 30 days of service. This revision reduces deactivations and gross customer additions commencing March 23, 2006, and reduces churn. Churn computed under the original 7 day allowable return period would have been 5.1% for the year ended December 31, 2006. Our average monthly rate of customer turnover, or churn, was 5.1% and 4.9% for the years ended December 31, 2005 and 2004, respectively. Average monthly churn rates for selected traditional wireless carriers ranges from 1.0% to 2.6% for post-pay customers and over 6.0% for pre-pay customers based on public filings or press releases.
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$45 per month.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization. Adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, was $39.1 million and $11.2 million$117.58 for the three monthsyear ended December 31, 2006 from $102.70 for the year ended December 31, 2005, which was primarily driven by the selling expenses associated with the launch of the Dallas/Ft. Worth metropolitan area, the Detroit metropolitan area and the expansion of the Tampa/Sarasota area to include the Orlando metropolitan area. In addition, on January 23, 2006, we revised the terms of our return policy from 7 days to 30 days, and as a result we revised our definition of gross customer additions to exclude customers that discontinue service in the first 30 days of service. This revision, commencing March 23, 2006, reduces deactivations and gross customer additions and increases CPGA. CPGA decreased $1.08, or 1.0%, in 2005 from $103.78 for the year ended December 31, 2004. The decrease in CPGA was the result of the higher rate of growth in customer activations and the relatively fixed nature of the expenses associated with those activations.
Year Endedour restatement efforts.
Three Months Ended | ||||||||||||||||||||||||||||||||
March 31, | June 30, | September 30, | December 31, | March 31, | June 30, | September 30, | December 31, | |||||||||||||||||||||||||
2005 | 2005 | 2005 | 2005 | 2006 | 2006 | 2006 | 2006 | |||||||||||||||||||||||||
Customers: | ||||||||||||||||||||||||||||||||
End of period | 1,567,969 | 1,645,174 | 1,739,787 | 1,924,621 | 2,170,059 | 2,418,909 | 2,616,532 | 2,940,986 | ||||||||||||||||||||||||
Net additions | 169,236 | 77,205 | 94,613 | 184,834 | 245,437 | 248,850 | 197,623 | 324,454 | ||||||||||||||||||||||||
Churn(1): | ||||||||||||||||||||||||||||||||
Average monthly rate | 4.3 | % | 5.1 | % | 5.6 | % | 5.2 | % | 4.4 | % | 4.5 | % | 5.0 | % | 4.5 | % | ||||||||||||||||
ARPU | $ | 42.57 | $ | 42.32 | $ | 42.16 | $ | 42.55 | $ | 43.12 | $ | 42.86 | $ | 42.78 | $ | 43.15 | ||||||||||||||||
CPGA(1) | $ | 100.15 | $ | 101.63 | $ | 102.56 | $ | 105.50 | $ | 106.26 | $ | 122.20 | $ | 120.29 | $ | 120.01 | ||||||||||||||||
CPU | $ | 19.33 | $ | 18.50 | $ | 19.61 | $ | 20.67 | $ | 20.11 | $ | 19.78 | $ | 19.15 | $ | 19.67 |
(1) | On January 23, 2006, we revised the terms of our return policy from 7 days to 30 days, and as a result we revised our definition of gross customer additions to exclude customers that discontinue service in the first 30 days of service. This revision, commencing March 23, 2006, reduces deactivations and gross customer additions, which reduces churn and increases CPGA. Churn computed under the original 7 day allowable return period would have been 4.5%, 5.2%, 5.7% and 5.0% for the three month periods ended March 31, 2006, June 30, 2006, September 30, 2006 and December 31, |
72
2006, respectively. CPGA computed under the original 7 day allowable return period would have been $105.33, $113.11, $110.43 and $113.67 for the three month periods ended March 31, 2006, June 30, 2006, September 30, 2006 and December 31, 2006, respectively. |
2002 | 2003 | Change | |||||||
(In thousands) | |||||||||
Revenues | |||||||||
Service revenues | $ | 102,137 | $ | 370,920 | 263 | % | |||
Equipment revenues | 23,458 | 88,562 | 278 | % | |||||
Cost of service (excluding depreciation included below) | 61,881 | 118,335 | 91 | % | |||||
Cost of equipment | 100,651 | 155,084 | 54 | % | |||||
Selling, general and administrative expenses (excluding non-cash compensation included below) | 55,515 | 90,556 | 63 | % | |||||
Non-cash compensation | 1,115 | 7,379 | 562 | % | |||||
Depreciation and amortization | 21,394 | 41,900 | 96 | % | |||||
Net income | 139,067 | 20,566 | (85 | %) |
indicated for our Core Markets:
Year Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
(Dollars in thousands) | ||||||||||||
Core Markets Customers: | ||||||||||||
End of period | 1,398,732 | 1,871,665 | 2,300,958 | |||||||||
Net additions | 421,833 | 472,933 | 429,293 | |||||||||
Core Markets Adjusted EBITDA | $ | 203,597 | $ | 316,555 | $ | 492,773 | ||||||
Core Markets Adjusted EBITDA as a Percent of Service Revenues | 33.0 | % | 36.4 | % | 43.3 | % |
Service2006 and 2005 was 43% and 36%, respectively. Core Markets Adjusted EBITDA as a percent of service revenues increased $268.8 million, or 263%, to $370.9 million for the year ended December 31, 2003 from $102.1 million for the year ended December 31, 2002. The increase2004 was attributable to the timing of the commercial launch of our four market clusters and a 268% increase in the average number of our customers. We launched service in our Miami market in January 2002, in our Atlanta and Sacramento market clusters in February 2002, and in our San Francisco market cluster in September 2002. We launched commercial operations on the west coast of southern Florida in October 2003.
Equipment revenues increased $65.1 million, or 278%, to $88.6 million for the year ended December 31, 2003 from $23.5 million for the year ended December 31, 2002. The increase was attributable to a 43% increase in gross additions and a 99% increase in revenue per handset and upgrade sales to our existing customers, resulting in an increase of $16.6 million in equipment revenues. In 2002, we offered only one handset model to new customers.
Cost of Service33%. Cost of service increased $56.5 million, or 91%, to $118.3 million for the year ended December 31, 2003 from $61.9 million for the year ended December 31, 2002. The increase was attributable to the timing of the commercial launch of our four market clusters andConsistent with the increase in our number of customers, which resultedCore Markets Adjusted EBITDA, we continue to experience corresponding increases in a $16.0 million increase in interconnect fees, a $12.9 million increase in call center expenses, a $7.8 million increase in billing expenses, a $6.5 million increase in long distance costs, a $5.8 million increase in E-911 fees. Additionally, employee costs, cell site and switch facility lease expense and repair and maintenance expense increasedCore Markets Adjusted EBITDA as a resultpercent of service revenues due to the growth in service revenues as well as cost benefits due to the increasing scale of our business andin the expansionCore Markets.
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Cost of Equipment. Cost of equipment increased by $54.4 million, or 54%, to $155.1 millioncertain quarterly key performance measures for the year ended December 31, 2003 from $100.7 million for the year ended December 31, 2002. The increase was due to a 66% increase in the number of handsets sold offset by a 7% reduction in average handset cost per unit.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $35.0 million, or 63%, to $90.6 million for the year ended December 31, 2003 from $55.5 million for the year ended December 31, 2002. Selling expenses increased by $17.6 million as a result of increased sales and marketing activities. General and administrative expenses increased by $17.4 million primarily due to the increase in our customer base and to network expansion, including a $5.8 million increase in transaction fees for customer collections, a $2.1 million increase in handset repair fees, a $3.0 million increase employee salaries and benefits, a $1.5 million increase in maintenance agreementsperiods indicated for our network facilities, a $1.5 million increase in property insurance and a $1.1 million increase in professional fees.Core Markets.
Three Months Ended | ||||||||||||||||||||||||||||||||
March 31, | June 30, | September 30, | December 31, | March 31, | June 30, | September 30, | December 31, | |||||||||||||||||||||||||
2005 | 2005 | 2005 | 2005 | 2006 | 2006 | 2006 | 2006 | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Core Markets Customers: | ||||||||||||||||||||||||||||||||
End of period | 1,567,969 | 1,645,174 | 1,739,441 | 1,871,665 | 2,055,550 | 2,119,168 | 2,174,264 | 2,300,958 | ||||||||||||||||||||||||
Net additions | 169,236 | 77,205 | 94,267 | 132,224 | 183,884 | 63,618 | 55,096 | 126,694 | ||||||||||||||||||||||||
Core Markets Adjusted EBITDA | $ | 68,036 | $ | 84,321 | $ | 81,133 | $ | 83,064 | $ | 109,120 | $ | 127,182 | $ | 128,283 | $ | 128,188 | ||||||||||||||||
Core Markets Adjusted EBITDA as a Percent of Service Revenues | 34.6 | % | 39.6 | % | 36.6 | % | 35.0 | % | 41.2 | % | 45.2 | % | 45.0 | % | 41.8 | % |
Non-cash Compensation. Non-cash compensation increased $6.3 million to $7.4 million for the year ended December 31, 2003 from $1.1 million for the year ended December 31, 2002, as a result of an increase in the estimated fair market value of our stock used for valuing stock options accounted for under variable accounting.
Depreciation and Amortization. Depreciation and amortization expense increased $20.5 million, or 96%, to $41.9 million for the year ended December 31, 2003 from $21.4 million for the year ended December 31, 2002. The increase related primarily to the increase in network assets in service due to the timing of the commercial launch of our four market clusters. In-service base stations and switching equipment increased by $123.4 million during the year ended December 31, 2003. In addition, we had 142 more cell sites in service at December 31, 2003 than at December 31, 2002. We expect depreciation to continue to increase due to the additional cell sites and switches that we plan to place in service to meet future customer growth and usage.
Interest Expense. Interest expense increased $4.5 million, or 65%, to $11.3 million for the year ended December 31, 2003 from $6.8 million for the year ended December 31, 2002. The increase was primarily attributable to additional interest on our $150.0 million of 10 3/4% senior notes issued in September 2003.
Net Income. Net income decreased $118.5 million, or 85%, to $20.6 million for the year ended December 31, 2003 from $139.1 million for the year ended December 31, 2002. Net income for the year ended December 31, 2002 included a $279.0 million ($245.3 million after tax) gain on the sale of 10 MHz of spectrum in our Atlanta market.
2002 | 2003 | Change | |||||||||
Customers: | |||||||||||
End of period | 513,484 | 976,899 | 90 | % | |||||||
Net additions | 513,484 | 463,415 | (10 | %) | |||||||
Churn: | |||||||||||
Average monthly rate | 4.4 | % | 4.6 | % | 5 | % | |||||
ARPU | $ | 39.17 | $ | 37.68 | (4 | %) | |||||
CPGA | 158.50 | 99.86 | (37 | %) | |||||||
Adjusted EBITDA (In thousands) | (92,452 | ) | 95,507 | * |
indicated for our Expansion Markets:
Year Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
(Dollars in thousands) | ||||||||||||
Expansion Markets Customers: | ||||||||||||
End of period | — | 52,956 | 640,028 | |||||||||
Net additions | — | 52,956 | 587,072 | |||||||||
Expansion Markets Adjusted EBITDA (Deficit) | — | $ | (22,090 | ) | $ | (97,214 | ) |
Churn. The average monthly churn rate was 4.6% and 4.4%52,956 for the yearsyear ended December 31, 20032005. The increase in customers was primarily attributable to the launch of the Dallas/Ft. Worth metropolitan area in March 2006, the Detroit metropolitan area in April 2006 and 2002, respectively.
Average Revenue Per User. ARPU was $37.68 and $39.17the expansion of the Tampa/Sarasota area to include the Orlando metropolitan area in November 2006. Net customer additions in our Expansion Markets were 52,956 for the yearsyear ended December 31, 20032005, which was attributable to the launch of the Tampa/Sarasota metropolitan area in October 2005.
Cost Per Gross Addition. CPGA was $99.86 and $158.50 for the yearsyear ended December 31, 2003 and 2002, respectively. The $58.64, or 37%, decrease in CPGA was the result of an increase in activation fees revenue as well as lower per unit handset subsidies. Equipment costs for handsets sold to existing customers, including handset upgrade transactions, are excluded from CPGA as these costs are incurred specifically for existing customers. For more detail regarding our calculation of CPGA, refer to “—Reconciliation of Non-GAAP Financial Measures” below.
Adjusted EBITDA.2006, Expansion Markets Adjusted EBITDA increased $188.0deficit was $97.2 million compared to $95.5$22.1 million for the year ended December 31, 2003 from an adjusted2005. The increases in Adjusted EBITDA deficit, when compared to the same periods in the previous year, were attributable to the launch of $92.5 million for the year ended December 31, 2002. Tampa/Sarasota metropolitan area in October 2005, the Dallas/Ft. Worth metropolitan area in March 2006, the Detroit metropolitan area in April 2006 and the expansion of the Tampa/Sarasota area to include the Orlando metropolitan area in November 2006 as well as expenses associated with the construction of the Los Angeles metropolitan area.
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Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Set forth below isfollowing table shows a summary of certain financial informationquarterly key performance measures for the periods indicated:
2001 | 2002 | Change | ||||||||
(In thousands) | ||||||||||
Selling, general and administrative expenses (excluding non-cash compensation included below) | $ | 27,963 | $ | 55,515 | 99 | % | ||||
Non-cash compensation | 1,455 | 1,115 | (23 | )% | ||||||
Depreciation and amortization | 208 | 21,394 | * | |||||||
Net income (loss) | (45,180 | ) | 139,067 | * |
Revenues. Total revenues were $125.6 million for the year ended December 31, 2002. We were a development stage company until our commercial launch in January 2002; therefore, we had no revenues in 2001.
Service revenues were $102.1 million for the year ended December 31, 2002. Our customer base grew to approximately 513,000 customers at December 31, 2002. ARPU was $39.17 for the year ended December 31, 2002.
Equipment revenues were $23.5 million for the year ended December 31, 2002. We did not sell handsets or other products prior to 2002.
Cost of Service. Cost of service was $61.9 million for the year ended December 31, 2002. We had no cost of service in 2001.
Cost of Equipment. Cost of equipment was $100.7 million for the year ended December 31, 2002. We did not sell handsets or other products prior to 2002; therefore, we had no cost of equipment in 2001.
Selling, General and Administrative Expenses. Selling, general and administrative expenses including non-cash compensation increased $27.2 million, or 93%, to $56.6 million for the year ended December 31, 2002 from $29.4 million for the year ended December 31, 2001. Selling expenses were $26.5 million in 2002, compared to no selling expenses in 2001. General and administrative expenses were $30.1 million in 2002, which included additional staffing due to the timing of the launch of our business. General and administrative expenses in 2001 were $29.4 million, which included $9.5 million primarily related to build-out activities, which prior to commercial launch were classified in general and administrative expenses.
Depreciation and Amortization. Depreciation and amortization expense was $21.4 million for the year ended December 31, 2002, compared to $0.2 million for the year ended December 31, 2001. The increase related primarily to depreciating wireless network assets for the switches and cell sites put into operation during 2002, along with depreciating furniture and equipment purchasedindicated for our offices and retail stores.
Interest Expense and Interest Income. Interest expense decreased $3.7 million, or 35%, to $6.8 million for the year ended December 31, 2002 from $10.5 million for the year ended December 31, 2001. This decrease resulted from a reduction of a portion of our FCC notes following our sale of spectrum in 2002 and the settlement of notes to an equipment vendor in the third quarter of 2001. Interest income was $1.0 million for the year ended December 31, 2002, as compared to $2.0 million for the year ended December 31, 2001. This decrease was due to a decline in interest rates on our short-term investments as well as lower average cash balances.
Net Income. Net income was $139.1 million for the year ended December 31, 2002, as compared to a net loss of $45.2 million for the year ended December 31, 2001. Net income for the year ended December 31, 2002 included a $279.0 million ($245.3 million after tax) gain on the sale of 10 MHz of spectrum in our Atlanta market.
Liquidity and Capital Resources
The construction of our network and the marketing and distribution of our wireless communications products and services have required, and will continue to require, substantial capital investment. Capital outlays have included license acquisition costs, capital expenditures for network construction, funding of operating cash flow losses and other working capital costs, debt service and financing fees and expenses. We estimate that our aggregate capital expenditures for 2004, which will be primarily associated with our efforts to increase the capacity of our network through the addition of cell sites and switches, will be approximately $230 million, of which $49.2 million had been incurred through March 31, 2004. A portion of this amount includes the cost to begin the build out of our network for the newly acquired licensed areas in northern California; however, this amount does not include the cost to acquire the licenses and build out our network if we are successful in consummating the acquisition of the two licenses in southwest Florida discussed in “—Recent Developments.” Our estimated capital expenditures for 2004 represent an increase of approximately $20 million from our prior estimates, primarily due to additional network capacity requirements necessitated by the increased demand of adding more subscribers than planned whose average usage is higher than planned. We believe the increased service area and capacity will improve our service offering and thereby help us to attract additional customers and increase revenues. We believe our cash on hand and cash generated from operations will be sufficient to meet our projected capital requirements for the foreseeable future. The net proceeds we receive from this offering will allow us to continue the expansion of our networks in existing markets and into new markets, including through acquisitions, and maintain a cash liquidity cushion. Although we estimate that these funds will be sufficient to finance our continued growth, we may have additional capital requirements, which could be substantial, for future network upgrades and advances in new technology.
Existing Indebtedness. As of March 31, 2004, we had $193.1 million of total indebtedness. This indebtedness consisted of $150.0 million of senior notes, $43.5 million face amount of FCC notes, which are recorded net of unamortized original issue discount of $4.2 million, and $3.8 million of debt associated with our obligation to other carriers for the cost of clearing microwave links in areas covered by our licenses. For a description of our existing indebtedness, see “Description of Certain Indebtedness.”
Other Long-Term Liabilities. As of December 31, 2003, we had approximately $20.6 million in other long-term liabilities, comprised of liabilities to certain network equipment providers, the primary cause of the increase, and our reserve for uncertain tax positions, as compared to $1.8 million as of December 31, 2002.
Historical Cash Flow. As of March 31, 2004, we had $185.1 million in cash and cash equivalents, as compared to $236.0 million at December 31, 2003. Cash provided by operating activities was $24.4 million during the three months ended March 31, 2004 as a result of net income of $10.8 million, $25.2 million of non- cash charges consisting primarily of depreciation and amortization, deferred expenses, accretion of interest and non-cash compensation, and $11.6 million of cash used for changes in working capital. Cash used in investing activities was $70.5 million during the three months ended March 31, 2004, relating to capital expenditures associated with increasing the capacity and expanding the footprint of our network during the first quarter of 2004 and payments made during the three months ended March 31, 2004 for network equipment accrued at December 31, 2003. We will continue to upgrade our network capacity and improve the quality of our service to support our anticipated customer growth and satisfy competitive requirements. Cash used by financing activities was $4.7 million during the three months ended March 31, 2004, primarily due to a $3.1 million repayment on our FCC debt.
As of December 31, 2003, we had $236.0 million in cash and cash equivalents, as compared to $61.7 million at December 31, 2002. Cash provided by operating activities was $109.6 million during the year ended December 31, 2003 as a result of our net income of $20.6 million and $69.2 million of non-cash charges consisting primarily of depreciation and amortization, deferred expenses, accretion of interest and non-cash
compensation, and $19.8 million of cash provided by changes in working capital. Cash used in investing activities was $137.3 million during the year ended December 31, 2003, primarily relating to capital expenditures associated with increasing the capacity of our network. Cash provided by financing activities was $202.0 million during the year ended December 31, 2003, primarily relating to the net proceeds from the sale of our senior notes of $144.5 million and the sale of our Series D preferred stock of $65.5 million.
As of December 31, 2002, we had $61.7 million in cash and cash equivalents, as compared to $42.7 million in cash and cash equivalents at December 31, 2001. Cash used in operating activities was $64.5 million during the year ended December 31, 2002 as a result of our net income of $139.1 million, $37.5 million of cash provided by changes in working capital and $37.9 million of non-cash charges consisting primarily of depreciation and amortization, deferred income taxes, accretion of interest, and non-cash compensation, offset by a $279.0 million gain resulting from our sale of spectrum, the proceeds of which are included in investing cash flows. Cash used by investing activities was $73.5 million during the year ending December 31, 2002, related to capital expenditures associated with our network build-out, offset by $141.2 million of proceeds on our sale of spectrum. Cash provided by financing activities was $157.1 million during the year ended December 31, 2002, primarily relating to proceeds from the sale of our preferred stock.
Cash used in operating activities was $32.4 million during the year ended December 31, 2001 as a result of our net loss of $45.2 million and $0.8 million of cash used in changes in working capital, offset by $13.6 million consisting of loss on extinguishment of debt, depreciation and amortization, accretion of interest and non-cash compensation and other expense. Cash provided by investing activities was $24.2 million during the year ending December 31, 2001, primarily relating to an advance associated with our sale of spectrum that ultimately closed in 2002, offset by capital expenditures associated with our network build-out. Cash provided by financing activities was $41.7 million during the year ended December 31, 2001, primarily relating to proceeds from the sale of our preferred stock.
Contractual Obligations and Commercial Commitments
The following table provides aggregate information about our contractual obligations as of December 31, 2003. See note 8 to our consolidated financial statements included elsewhere in this prospectus.
Payments Due by Period | |||||||||||||||
Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | |||||||||||
Contractual Obligations | (In thousands) | ||||||||||||||
Long-term debt, including current portion | $ | 200,588 | $ | 13,362 | $ | 29,453 | $ | 4,252 | $ | 153,521 | |||||
Interest paid in cash | 136,035 | 19,092 | 35,455 | 32,791 | 48,697 | ||||||||||
Operating leases | 172,885 | 29,337 | 58,220 | 39,083 | 46,245 | ||||||||||
Firm purchase commitments | 22,139 | 13,622 | 8,517 | — | — | ||||||||||
Total cash contractual obligations | $ | 531,647 | $ | 75,413 | $ | 131,645 | $ | 76,126 | $ | 248,463 | |||||
Inflation
We believe that inflation has not affected our operations materially.
Qualitative and Quantitative Disclosures About Market Risk
Market risk is the potential loss arising from adverse changes in market prices and rates, including interest rates. We do not enter into derivatives or other financial instruments for trading, speculative or hedging purposes. Our outstanding indebtedness bears interest at fixed rates.
Effect of New Accounting Standards
In July 2001, the FASB issued Statement of Financial Accounting Standards, or SFAS, No. 143, “Accounting for Asset Retirement Obligations.” This statement provides accounting and reporting standards for
costs associated with the retirement of long-lived assets. This statement requires entities to record 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 the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement.
We are subject to asset retirement obligations associated with our cell site operating leases, which are subject to the provisions of SFAS No. 143. Cell site lease agreements may contain clauses requiring restoration of the leased site at the end of the lease term, creating an asset retirement obligation. Landlords may choose not to exercise these rights as cell sites are considered useful improvements. In addition to cell site operating leases, we have leases related to switch site, retail, and administrative locations subject to the provisions of SFAS No. 143. We adopted SFAS No. 143 on January 1, 2003.
In November 2002, the EITF of the FASB reached consensus on EITF No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” This consensus requires that revenue arrangements with multiple deliverables be divided into separate units of accounting if the deliverables in the arrangement meet specific criteria. In addition, arrangement consideration must be allocated among the separate units of accounting based on their relative fair values, with certain limitations. The sale of wireless service with an accompanying handset constitutes a revenue arrangement with multiple deliverables. We adopted the provisions of this consensus for revenue arrangements entered into beginning after July 1, 2003. We have elected to apply the accounting provisions of EITF 00-21 on a prospective basis beginning July 1, 2003. As a result, we allocate amounts charged to customers between the sale of handsets and the sale of wireless telecommunication services on a relative fair value basis. In most cases, this results in all amounts collected from the customer upon activation of the handset being allocated to the sale of the handset. As a result of this treatment, activation fees included in the consideration at the time of sale are recorded as handset revenue. Prior to the adoption of EITF 00-21, we had deferred activation fee revenue and amortized these revenues over the average life of our customers. The existing deferred revenue at July 1, 2003 continues to be amortized.
In March 2004, the EITF reached consensus on EITF Issue 03-6, “Participating Securities and the Two-Class Method under FASB Statement No. 128,” which requires, among other items, the use of the two-class method for calculating earnings per share when participating convertible securities exist. The consensus is effective for fiscal periods beginning after March 31, 2004 and requires restatement of prior periods if the two-class method has not been used. Our accounting policy, under FASB Statement No. 128, “Earnings per Share,” was to calculate earnings per share under both the two-class and if-converted method and report earnings per share on the method that was most dilutive. The adoption of EITF 03-06 will not have an effect on our financial statements as the two-class method is currently being followed.
Expansion Markets.
Three Months Ended | ||||||||||||||||||||||||||||||||
March 31, | June 30, | September 30, | December 31, | March 31, | June 30, | September 30, | December 31, | |||||||||||||||||||||||||
2005 | 2005 | 2005 | 2005 | 2006 | 2006 | 2006 | 2006 | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Expansion Markets Customers: | ||||||||||||||||||||||||||||||||
End of period | — | — | 346 | 52,956 | 114,509 | 299,741 | 442,268 | 640,028 | ||||||||||||||||||||||||
Net additions | — | — | 346 | 52,610 | 61,553 | 185,232 | 142,527 | 197,760 | ||||||||||||||||||||||||
Expansion Markets Adjusted EBITDA (Deficit) | $ | (901 | ) | $ | (2,105 | ) | $ | (5,659 | ) | $ | (13,425 | ) | $ | (22,685 | ) | $ | (36,596 | ) | $ | (20,112 | ) | $ | (17,821 | ) |
Adjusted earnings before interest, taxes, depreciation and amortization or adjusted EBITDA, average
key liquidity and operating performance comparisons with other companies in the wireless industry. The following tables reconcile our non-GAAP financial measures with our financial statements presented in accordance with GAAP.
Adjusted EBITDA
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||
2001 | 2002 | 2003 | 2003 | 2004 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | (32,401 | ) | $ | (64,523 | ) | $ | 109,618 | $ | (4,826 | ) | $ | 24,368 | |||||||
Interest expense, net of interest income | 8,445 | 5,841 | 10,193 | 1,615 | 4,956 | |||||||||||||||
Bad debt expense | — | (381 | ) | (991 | ) | (749 | ) | (433 | ) | |||||||||||
Accretion of asset retirement obligation | — | — | (50 | ) | (25 | ) | (79 | ) | ||||||||||||
Non-cash interest | (3,882 | ) | (3,028 | ) | (3,090 | ) | (784 | ) | (688 | ) | ||||||||||
Deferred rents | (949 | ) | (1,853 | ) | (1,160 | ) | (414 | ) | (435 | ) | ||||||||||
Cost of abandoned cell sites | — | — | (824 | ) | (477 | ) | (183 | ) | ||||||||||||
Non-deferred tax | — | 8,993 | 1,643 | — | — | |||||||||||||||
Working capital changes | 824 | (37,501 | ) | (19,832 | ) | 16,870 | 11,620 | |||||||||||||
Adjusted EBITDA | $ | (27,963 | ) | $ | (92,452 | ) | $ | 95,507 | $ | 11,210 | $ | 39,126 | ||||||||
We believeutilize ARPU is a useful measure to evaluate our per-customer service revenue realization and to assist in forecasting our future service revenues. ARPU is calculated exclusive of activation revenues, as these amounts are a component of our costs of acquiring new customers and are included in our calculation of CPGA. ARPU is also calculated exclusive ofE-911, FUSF and vendor’s compensation charges, as these are generally pass through charges that we collect from our customers and remit to the appropriate government agencies.
75
Year Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
(In thousands, except average number of customers and ARPU) | ||||||||||||
Calculation of Average Revenue Per User (ARPU): | ||||||||||||
Service revenues | $ | 616,401 | $ | 872,100 | $ | 1,290,947 | ||||||
Less: | ||||||||||||
Activation revenues | (7,874 | ) | (6,808 | ) | (8,297 | ) | ||||||
E-911, FUSF and vendor’s compensation charges | (12,522 | ) | (26,221 | ) | (45,640 | ) | ||||||
Net service revenues | $ | 596,005 | $ | 839,071 | $ | 1,237,010 | ||||||
Divided by: | ||||||||||||
Average number of customers | 1,207,521 | 1,649,208 | 2,398,682 | |||||||||
ARPU | $ | 41.13 | $ | 42.40 | $ | 42.98 | ||||||
Three Months Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2005 | 2005 | 2005 | 2005 | |||||||||||||
(In thousands, except average number of customers and ARPU) | ||||||||||||||||
Calculation of Average Revenue Per User (ARPU): | ||||||||||||||||
Service revenues | $ | 196,898 | $ | 212,697 | $ | 221,615 | $ | 240,891 | ||||||||
Less: | ||||||||||||||||
Activation revenues | (1,581 | ) | (1,656 | ) | (1,751 | ) | (1,821 | ) | ||||||||
E-911, FUSF and vendor’s compensation charges | (6,075 | ) | (6,286 | ) | (6,513 | ) | (7,346 | ) | ||||||||
Net service revenues | $ | 189,242 | $ | 204,755 | $ | 213,351 | $ | 231,724 | ||||||||
Divided by: Average number of customers | 1,481,839 | 1,612,932 | 1,686,774 | 1,815,288 | ||||||||||||
ARPU | $ | 42.57 | $ | 42.32 | $ | 42.16 | $ | 42.55 | ||||||||
76
Average Revenue per User (ARPU)
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||
2002 | 2003 | 2003 | 2004 | |||||||||||||
(In thousands, except average number of customers and ARPU) | ||||||||||||||||
Service revenues | $ | 102,137 | $ | 370,920 | $ | 75,999 | $ | 132,921 | ||||||||
Less: Activation revenues | (3,018 | ) | (14,410 | ) | (1,860 | ) | (3,186 | ) | ||||||||
E-911 charges | — | (5,823 | ) | (1,166 | ) | (2,076 | ) | |||||||||
Net service revenues | 99,119 | 350,687 | 72,973 | 127,659 | ||||||||||||
Divided by: Average number of customers | 210,881 | 775,605 | 615,876 | 1,063,815 | ||||||||||||
ARPU | $ | 39.17 | $ | 37.68 | $ | 39.50 | $ | 40.00 | ||||||||
Three Months Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2006 | 2006 | 2006 | 2006 | |||||||||||||
(In thousands, except average number of customers and ARPU) | ||||||||||||||||
Calculation of Average Revenue Per User (ARPU): | ||||||||||||||||
Service revenues | $ | 275,416 | $ | 307,843 | $ | 332,920 | $ | 374,768 | ||||||||
Less: | ||||||||||||||||
Activation revenues | (1,923 | ) | (1,979 | ) | (2,123 | ) | (2,272 | ) | ||||||||
E-911, FUSF and vendor’s compensation charges | (8,958 | ) | (10,752 | ) | (9,512 | ) | (16,418 | ) | ||||||||
Net service revenues | $ | 264,535 | $ | 295,112 | $ | 321,285 | $ | 356,078 | ||||||||
Divided by: Average number of customers | 2,045,110 | 2,295,249 | 2,503,423 | 2,750,943 | ||||||||||||
ARPU | $ | 43.12 | $ | 42.86 | $ | 42.78 | $ | 43.15 | ||||||||
Year Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
(In thousands, except gross customer additions and CPGA) | ||||||||||||
Calculation of Cost Per Gross Addition (CPGA): | ||||||||||||
Selling expenses | $ | 52,605 | $ | 62,396 | $ | 104,620 | ||||||
Less: | ||||||||||||
Activation revenues | (7,874 | ) | (6,808 | ) | (8,297 | ) | ||||||
Less: | ||||||||||||
Equipment revenues | (131,849 | ) | (166,328 | ) | (255,916 | ) | ||||||
Add: | ||||||||||||
Equipment revenue not associated with new customers | 54,323 | 77,010 | 114,392 | |||||||||
Add: | ||||||||||||
Cost of equipment | 222,766 | 300,871 | 476,877 | |||||||||
Less: | ||||||||||||
Equipment costs not associated with new customers | (72,200 | ) | (109,803 | ) | (155,930 | ) | ||||||
Gross addition expenses | $ | 117,771 | $ | 157,338 | $ | 275,746 | ||||||
Divided by: | ||||||||||||
Gross customer additions | 1,134,762 | 1,532,071 | 2,345,135 | |||||||||
CPGA | $ | 103.78 | $ | 102.70 | $ | 117.58 | ||||||
77
Three Months Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2005 | 2005 | 2005 | 2005 | |||||||||||||
(In thousands, except gross customer additions and CPGA) | ||||||||||||||||
Calculation of Cost Per Gross Addition (CPGA): | ||||||||||||||||
Selling expenses | $ | 14,115 | $ | 14,482 | $ | 15,266 | $ | 18,533 | ||||||||
Less: | ||||||||||||||||
Activation revenues | (1,581 | ) | (1,656 | ) | (1,751 | ) | (1,821 | ) | ||||||||
Less: | ||||||||||||||||
Equipment revenues | (39,058 | ) | (37,992 | ) | (41,940 | ) | (47,338 | ) | ||||||||
Add: | ||||||||||||||||
Equipment revenue not associated with new customers | 16,666 | 17,767 | 20,891 | 21,687 | ||||||||||||
Add: | ||||||||||||||||
Cost of equipment | 68,101 | 65,287 | 77,140 | 90,342 | ||||||||||||
Less: | ||||||||||||||||
Equipment costs not associated with new customers | (22,080 | ) | (24,881 | ) | (30,949 | ) | (31,893 | ) | ||||||||
Gross addition expenses | $ | 36,163 | $ | 33,007 | $ | 38,657 | $ | 49,510 | ||||||||
Divided by: | ||||||||||||||||
Gross customer additions | 361,079 | 324,777 | 376,916 | 469,299 | ||||||||||||
CPGA | $ | 100.15 | $ | 101.63 | $ | 102.56 | $ | 105.50 | ||||||||
Three Months Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2006 | 2006 | 2006 | 2006 | |||||||||||||
(In thousands, except gross customer additions and CPGA) | ||||||||||||||||
Calculation of Cost Per Gross Addition (CPGA): | ||||||||||||||||
Selling expenses | $ | 20,298 | $ | 26,437 | $ | 26,062 | $ | 31,823 | ||||||||
Less: | ||||||||||||||||
Activation revenues | (1,923 | ) | (1,979 | ) | (2,123 | ) | (2,272 | ) | ||||||||
Less: | ||||||||||||||||
Equipment revenues | (54,045 | ) | (60,351 | ) | (63,196 | ) | (78,324 | ) | ||||||||
Add: | ||||||||||||||||
Equipment revenue not associated with new customers | 24,864 | 26,904 | 28,802 | 33,822 | ||||||||||||
Add: | ||||||||||||||||
Cost of equipment | 100,911 | 112,005 | 117,982 | 145,979 | ||||||||||||
Less: | ||||||||||||||||
Equipment costs not associated with new customers | (35,364 | ) | (34,669 | ) | (38,259 | ) | (47,638 | ) | ||||||||
Gross addition expenses | $ | 54,741 | $ | 68,347 | $ | 69,268 | $ | 83,390 | ||||||||
Divided by: | ||||||||||||||||
Gross customer additions | 515,153 | 559,309 | 575,820 | 694,853 | ||||||||||||
CPGA | $ | 106.26 | $ | 122.20 | $ | 120.29 | $ | 120.01 | ||||||||
78
Year Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
(In thousands, except average number of customers and CPU) | ||||||||||||
Calculation of Cost Per User (CPU): | ||||||||||||
Cost of service | $ | 200,806 | $ | 283,212 | $ | 445,281 | ||||||
Add: | ||||||||||||
General and administrative expense | 78,905 | 100,080 | 138,998 | |||||||||
Add: | ||||||||||||
Net loss on equipment transactions unrelated to initial customer acquisition | 17,877 | 32,791 | 41,538 | |||||||||
Less: | ||||||||||||
Stock-based compensation expense included in cost of service and general and administrative expense | (10,429 | ) | (2,596 | ) | (14,472 | ) | ||||||
Less: | ||||||||||||
E-911, FUSF and vendor’s compensation revenues | (12,522 | ) | (26,221 | ) | (45,640 | ) | ||||||
Total costs used in the calculation of CPU | $ | 274,637 | $ | 387,266 | $ | 565,705 | ||||||
Divided by: | ||||||||||||
Average number of customers | 1,207,521 | 1,649,208 | 2,398,682 | |||||||||
CPU | $ | 18.95 | $ | 19.57 | $ | 19.65 | ||||||
79
Three Months Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2005 | 2005 | 2005 | 2005 | |||||||||||||
(In thousands, except average number of customers and CPU) | ||||||||||||||||
Calculation of Cost Per User (CPU): | ||||||||||||||||
Cost of service | $ | 63,735 | $ | 65,944 | $ | 72,261 | $ | 81,272 | ||||||||
Add: | ||||||||||||||||
General and administrative expense | 23,734 | 24,860 | 23,750 | 27,737 | ||||||||||||
Add: | ||||||||||||||||
Net loss on equipment transactions unrelated to initial customer acquisition | 5,414 | 7,114 | 10,058 | 10,206 | ||||||||||||
Less: | ||||||||||||||||
Stock-based compensation expense included in general and administrative expense | (865 | ) | (2,100 | ) | (337 | ) | 706 | |||||||||
Less: | ||||||||||||||||
E-911, FUSF and vendor’s compensation revenues | (6,075 | ) | (6,286 | ) | (6,513 | ) | (7,346 | ) | ||||||||
Total costs used in the calculation of CPU | $ | 85,943 | $ | 89,532 | $ | 99,219 | $ | 112,575 | ||||||||
Divided by: | ||||||||||||||||
Average number of customers | 1,481,839 | 1,612,932 | 1,686,774 | 1,815,288 | ||||||||||||
CPU | $ | 19.33 | $ | 18.50 | $ | 19.61 | $ | 20.67 | ||||||||
Three Months Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2006 | 2006 | 2006 | 2006 | |||||||||||||
(In thousands, except average number of customers and CPU) | ||||||||||||||||
Calculation of Cost Per User (CPU): | ||||||||||||||||
Cost of service | $ | 92,489 | $ | 107,497 | $ | 113,524 | $ | 131,771 | ||||||||
Add: | ||||||||||||||||
General and administrative expense | 31,139 | 33,827 | 34,158 | 39,874 | ||||||||||||
Add: | ||||||||||||||||
Net loss on equipment transactions unrelated to initial customer acquisition | 10,500 | 7,765 | 9,457 | 13,816 | ||||||||||||
Less: | ||||||||||||||||
Stock-based compensation expense included in general and administrative expense | (1,811 | ) | (2,158 | ) | (3,781 | ) | (6,722 | ) | ||||||||
Less: | ||||||||||||||||
E-911, FUSF and vendor’s compensation revenues | (8,958 | ) | (10,752 | ) | (9,512 | ) | (16,418 | ) | ||||||||
Total costs used in the calculation of CPU | $ | 123,359 | $ | 136,179 | $ | 143,846 | $ | 162,321 | ||||||||
Divided by: | ||||||||||||||||
Average number of customers | 2,045,110 | 2,295,249 | 2,503,423 | 2,750,943 | ||||||||||||
CPU | $ | 20.11 | $ | 19.78 | $ | 19.15 | $ | 19.67 | ||||||||
80
81
82
Year Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
(In thousands) | ||||||||||||
Calculation of Consolidated Adjusted EBITDA: | ||||||||||||
Net income | $ | 64,890 | $ | 198,677 | $ | 53,806 | ||||||
Adjustments: | ||||||||||||
Depreciation and amortization | 62,201 | 87,895 | 135,028 | |||||||||
Loss (gain) on disposal of assets | 3,209 | (218,203 | ) | 8,806 | ||||||||
Stock-based compensation expense(1) | 10,429 | 2,596 | 14,472 | |||||||||
Interest expense | 19,030 | 58,033 | 115,985 | |||||||||
Accretion of put option in majority-owned subsidiary(1) | 8 | 252 | 770 | |||||||||
Interest and other income | (2,472 | ) | (8,658 | ) | (21,543 | ) | ||||||
(Gain) loss on extinguishment of debt | (698 | ) | 46,448 | 51,518 | ||||||||
Provision for income taxes | 47,000 | 127,425 | 36,717 | |||||||||
Cumulative effect of change in accounting principle, net of tax(1) | — | — | — | |||||||||
Consolidated Adjusted EBITDA | $ | 203,597 | $ | 294,465 | $ | 395,559 | ||||||
(1) | Represents a non-cash expense, as defined by our senior secured credit facility. |
Year Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
(In thousands) | ||||||||||||
Reconciliation of Net Cash Provided by Operating Activities to Consolidated Adjusted EBITDA: | ||||||||||||
Net cash provided by operating activities | $ | 150,379 | $ | 283,216 | $ | 364,761 | ||||||
Adjustments: | ||||||||||||
Interest expense | 19,030 | 58,033 | 115,985 | |||||||||
Non-cash interest expense | (2,889 | ) | (4,285 | ) | (6,964 | ) | ||||||
Interest and other income | (2,472 | ) | (8,658 | ) | (21,543 | ) | ||||||
Provision for uncollectible accounts receivable | (125 | ) | (129 | ) | (31 | ) | ||||||
Deferred rent expense | (3,466 | ) | (4,407 | ) | (7,464 | ) | ||||||
Cost of abandoned cell sites | (1,021 | ) | (725 | ) | (3,783 | ) | ||||||
Accretion of asset retirement obligation | (253 | ) | (423 | ) | (769 | ) | ||||||
Loss (gain) on sale of investments | (576 | ) | 190 | 2,385 | ||||||||
Provision for income taxes | 47,000 | 127,425 | 36,717 | |||||||||
Deferred income taxes | (44,441 | ) | (125,055 | ) | (32,341 | ) | ||||||
Changes in working capital | 42,431 | (30,717 | ) | (51,394 | ) | |||||||
Consolidated Adjusted EBITDA | $ | 203,597 | $ | 294,465 | $ | 395,559 | ||||||
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Cost per Gross Addition (CPGA)
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||
2002 | 2003 | 2003 | 2004 | |||||||||||||
(In thousands, except gross customer additions and CPGA) | ||||||||||||||||
Selling expenses | $ | 26,526 | $ | 44,076 | $ | 9,879 | $ | 12,214 | ||||||||
Less: Activation revenues | (3,018 | ) | (14,410 | ) | (1,860 | ) | (3,186 | ) | ||||||||
Less: Equipment revenues | (23,458 | ) | (88,562 | ) | (23,399 | ) | (40,077 | ) | ||||||||
Plus: Equipment revenue not associated with new customers | 578 | 17,150 | 1,035 | 16,729 | ||||||||||||
Plus: Cost of equipment | 100,651 | 155,084 | 44,213 | 64,047 | ||||||||||||
Less: Equipment costs not associated with new customers | (2,050 | ) | (24,030 | ) | (2,541 | ) | (21,201 | ) | ||||||||
Gross addition expenses | 99,229 | 89,308 | 27,327 | 28,526 | ||||||||||||
Divided by: Gross customer additions | 626,050 | 894,348 | 260,320 | 294,886 | ||||||||||||
CPGA | $ | 158.50 | $ | 99.86 | $ | 104.97 | $ | 96.74 | ||||||||
MetroPCS
launch in the second or third quarter of 2007. During the year ended December 31, 2005, we had $266.5 million in capital expenditures. These capital expenditures were primarily for the expansion and improvement of our existing network infrastructure and costs associated with the construction of the Tampa/Sarasota, Dallas/Ft. Worth and Detroit Expansion Markets.
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Payments Due by Period | ||||||||||||||||||||
Less Than | 1 - 3 | 3 - 5 | More Than | |||||||||||||||||
Total | 1 Year | Years | Years | 5 Years | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Contractual Obligations: | ||||||||||||||||||||
Long-term debt, including current portion | $ | 2,596,000 | $ | 16,000 | $ | 32,000 | $ | 32,000 | $ | 2,516,000 | ||||||||||
Interest expense on long-term debt(1) | 1,601,613 | 218,185 | 436,370 | 436,370 | 510,688 | |||||||||||||||
Operating leases | 728,204 | 88,639 | 180,873 | 179,277 | 279,415 | |||||||||||||||
Total cash contractual obligations | $ | 4,925,817 | $ | 322,824 | $ | 649,243 | $ | 647,647 | $ | 3,306,103 | ||||||||||
(1) | Interest expense on long-term debt includes future interest payments on outstanding obligations under our senior secured credit facility and 91/4% senior notes. The senior secured credit facility bears interest at a floating rate tied to a fixed spread to the London Inter Bank Offered Rate. The interest expense presented in this table is based on the rates at December 31, 2006 which was 7.875% for the senior secured credit facility. |
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We provide wireless voice and data services to thetarget a mass market which we believe is largely underserved by traditional wireless carriers. We operate principally through two subsidiaries and hold PCS licenses in 15 subsidiaries. Our service, branded under the “metroPCS”“MetroPCS” name, allows our customers to place unlimited wirelesslocal calls from within a local callingour service area, and to receive unlimited calls from any area for awhile in our local service areas, under simple and affordable flat monthly rate plan of $35.plans starting at $30 per month. For an additional $5 to $20 per month, our customers may select a service plan that offers additional services, such as the ability to place unlimited long distance calls from within aour local service calling area to any number in the continental United States.States or unlimited voicemail, caller ID, call waiting, text messaging, mobile Internet browsing, pushe-mail and picture and multimedia messaging. For additional fees, we also provide caller ID, voicemail,international long distance and text messaging, camera functions,ringtones, ring back tones, downloads, of ringtones, games and content applications, international long distancemobile Internet browsing, unlimited directory assistance and other value-added services. Our callingcustomers also have access, on a prepaid basis, to nationwide roaming. Our rate plans differentiate usour service from the more complex plans and long-term contracts required by most other traditional wireless carriers. Our customers pay for our service in advance, eliminating any customercustomer-related credit exposure, and we do not require a long-term service contract. Ourexposure.
We believe our
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markets.
335 POPs per square mile, over four times the national average. In addition, the population of our markets is growing at an average of 1.5 times faster than the national average and the average household income in our markets is $5,000 above the national average according to the Paul Kagan Associates, Inc. Wireless Telecom Atlas & Databook 2002. Based on these statistics, we believe our market profile is the most attractive of any U.S. wireless carrier. We believe significant opportunities exist to expand into other markets with similar characteristics.
Our Cost Leadership PositionStates.. We believe our operating strategy, network design and high relative population density and spectrum positionin our markets have enabled us to become, and will enable us to continue to be, one of the lowest cost providerproviders of wireless broadband PCS services in the United States. We also believe our rapidly increasing scale will allow us to continue to drive our per customerper-customer operating costs down in the future. For the three months ended March 31, 2004, our cost per gross addition, or CPGA, was $97 compared to an average of $345 for our three largest national competitors. In addition, ourwe will seek to maintain operating costs per customer that are substantially below the serviceoperating costs of our national wireless broadband PCS competitors. We believe that our industry leading cost position provides us and will continue to provide us with a sustainable competitive advantage in our markets.
advantage.
Our Deep Spectrum Portfolio. We currently hold 30 MHz of spectrum in 13 of our 18 license areas even though our business plan generally requires only 20 MHz of spectrum in our major markets. This excess spectrum provides us with the flexibility to swap or sell 10 MHz or more of spectrum in selected markets to support future expansion or investment initiatives without materially impacting our business plan. For example, in February 2002, we completed our only spectrum sale to date, selling 10 MHz of excess spectrum in our Atlanta market for $290.0 million.
Business Strategy
We believe the following components of our business strategy will allow us to continue our rapid, profitable growth:
Continue to Target Underserved Customer Segments in OurCore Markets. We believe there is substantial demand in the United States for our affordable wireless services, as demonstrated by the fact that we have been among the leaders of the U.S. wireless industry in incremental market penetration in every quarter since we launched operations. Historically, approximately 40% of our gross customer additions have been first time wireless customers, while the remainder have switched from traditional wireless carriers. We believe our rapid adoption ratesearly experience in Tampa/Sarasota, Dallas/Ft. Worth and customer mix demonstrate thatDetroit, where, as of December 31, 2006, we have added approximately 640,000 new subscribers since the launch of service, demonstrates our ability to successfully expand our service is expanding the overall size of the wireless market as well as better meeting the needs of many existing wireless users.
Offer Affordable, Fixed Price Calling Plans Without Long-Term Service Contracts. We believe that our fixed price, unlimited service represents an attractive offering to a large segment of the population. Our service results in average per minute usage costs to our customers that are significantly lower than the average per minute rates of other wireless operators. We believe that many prospective customers refrain from subscribing to or extensively using traditional wireless communications services due to high prices or unattractive and confusing calling plans, and that our simple, cost- effective service will allow us to attract many of these customers and continue our rapid growth.
Maintain Our Positionas the Lowest Cost Wireless Telephone Services Provider in the United States. We are the lowest cost provider of wireless services in the United States, which allows us to offer our services at affordable prices while maintaining cash profit margins per customer that are among the highest in the industry. Our operating strategy, network design, spectrum portfolio and rapidly increasing scale, together with the population density of our markets, should allow us to continue to maintain our cost leadership position and further reduce our per customer operating costs in the future.
Expand into Attractive Markets Through Acquisitions and Spectrum Swaps. We believe the success of our business model can be replicated in markets outside of our existing footprint. We expect that attractive expansion opportunities will become available. We plan to target expansion markets that complement our existing footprint or can be operated as a stand alone cluster with growth and profitability characteristics similar to our existing markets. Part of the proceeds from this offering may be used to fund expansion into new markets, and we may also choose to swap a portion of our existing excess spectrum for spectrum in new markets.
metropolitan areas.
We were
In October 1997, after repeated efforts to obtain a commercially viable restructuring of our debt to the FCC, the subsidiaries in which we hold our FCC licenses each filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. In January 1998, we filed our own voluntary Chapter 11 petition, joining our license subsidiaries’ bankruptcy proceedings.
surviving corporation. As a result of proceedings commenced in the bankruptcy court, it was determined that, after crediting the $106.0 million we had paid to the FCC as down payments for our licenses, the total amount owed by us to the FCC was $60.0 million. In September 1998, the bankruptcy court confirmed our plan of reorganization and we emerged from bankruptcy in October 1998.
On July 13, 2004,this merger, MetroPCS, Inc. became a wholly ownedwholly-owned subsidiary of MetroPCS Communications, Inc. In August 2006, MetroPCS Communications, Inc. formed MetroPCS V, Inc., as a wholly-owned subsidiary which indirectly, through a series of no longer existing wholly-owned subsidiaries, held all of the common stock of MetroPCS Wireless, Inc.
), and we continue to conduct business under the MetroPCS brand.
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Product | $30/Month | $35/Month | $40/Month | $45/Month | $50/Month | |||||||||||||||
Unlimited local calling | X | X | X | X | X | |||||||||||||||
Unlimited nationwide long distance calling(1) | X | X | X | |||||||||||||||||
Unlimited domestic text messaging | X | X | ||||||||||||||||||
Unlimited picture messaging | X | X | ||||||||||||||||||
Enhanced voicemail | X | X | ||||||||||||||||||
3-way calling | X | X | ||||||||||||||||||
Caller ID | X | X | ||||||||||||||||||
Call waiting | X | X | ||||||||||||||||||
Mobile Internet browsing | X | |||||||||||||||||||
Pushe-mail | X | |||||||||||||||||||
Additional calling features available | X | X | X | X |
(1) | Includes only the continental United States. |
Customers oncharges for calls within this area, while our basic $35 per month plan desiring long distance and international calling service may choose a pre-paid option, allowing them to place calls anywhere in the world at favorable rates. Customers on our $40 per month plan who desire international calling service may also choose this pre-paid option for international calling service. treats these as local calls.
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• | services provided through the |
• | text messaging services (domestic and international), which allow the customer to send and receive alphanumeric messages |
• | multimedia messaging services, which allow the customer to send and receive messages containing | ||
• | mobile Internet browsing; and | ||
• | pushe-mail. |
rules and regulations. date, including our operations in Orlando and portions of northern Florida. Together, our Core and Expansion Markets have FeaturesFeatures.. We offer other custom calling features, including caller ID, call waiting, three-way calling, distinctive ringtones, ring back tones and voicemail.HandsetsHandsets.. We sell a variety of handsets manufactured primarily by Nokia, Kyocera, Audiovox, LG and Sony Ericssonnationally recognized handset manufacturers for use on our network, including models that provide color screens, camera phones and other features to facilitatefacilitating digital data transmission.data. All of the handsets we offer are CDMA 1XRTT compliant.compliant and are capable of providing the location data mandated by the FCC’s wirelessE-911continue to evaluate new productinitially launched our service in South Florida, Georgia and service offerings in order to enhance customer satisfaction and attract new customers. For example, in March 2004, we launched, on a trial basis, a limited usage offering in which customers purchase 250 minutesthe Sacramento area of local and long distance usage per month for $25 instead of our traditional unlimited usage offerings. We believe that this offering will help us to retain existing customers and attract new customers who do not require unlimited usage or who are unwilling or unable to pay for our traditional unlimited usage plans.FCC LicensesFourteen of our wholly-owned license subsidiaries each hold one 30 MHz PCS license, with the exception of one subsidiary that holds a license for 20 MHz as a result of the February 2002 sale of 10 MHz of spectrum in our Atlanta market. Six licenses permit wireless operationsNorthern California in the greaterfirst quarter of 2002 and launched the San Francisco and Sacramento metropolitan area in September of 2002. These Core Market clusters five permit wireless operations in the greater Miami metropolitan cluster and three permit wireless operations in the Atlanta metropolitan cluster. The licenses have an initial term of ten years after the initial grant date in January 1997, and, subject to applicable conditions, may be renewed. Each FCC license is essential to our ability to operate and conduct our business in the area covered by that license. See “Risk Factors—Risks Related to Our Business” and “Legislation and Government Regulations.”On April 15, 2004, we acquired, through a wholly-owned subsidiary, four additional 15 MHz licenses for areas in northern California (Merced, Modesto, Eureka and Redding), with a totallicensed population of approximately 1.226 million people. Asof which our networks currently cover approximately 22 million. Our Core Market clusters have an average population density of 271 people per square mile, compared to the national average of 84, enjoy average annualized population growth of 1.8% compared to the national average of 1.1% and have a median household income of $53,000 compared to a national average of $47,000.our otherRoyal Street Communications, a company in which we own a non-controlling 85% limited liability company member interest, which was granted broadband PCS licenses these licensesby the FCC in December 2005 following FCC Auction 58. For a discussion of Royal Street and Auction 58, please see “— Auction 58 and Royal Street.” We have an initial terma wholesale agreement with Royal Street that allows us to purchase up to 85% of ten years afterRoyal Street’s service capacity and sell it on a retail basis under the initial grant dateMetroPCS brand in January 1997geographic areas where Royal Street was granted FCC licenses. Our Expansion Markets include Tampa/Sarasota/Orlando, Dallas/Ft. Worth, Detroit, portions of Northern Florida, which are geographically complementary to our South Florida cluster, as well as Los Angeles, which is geographically complementary to our Northern California cluster. Within our Expansion Markets we operate or will operate four new separate clusters: Northern and subjectCentral Florida, Dallas/Ft. Worth, Detroit and Southern California. As of November 2006, we had launched our service in all of our major Expansion Markets except for Los Angeles, which we expect to applicable conditions, may be renewed. We paid an aggregate cash purchase price of $10.9 million for this acquisition. We arelaunch in the processsecond or third quarter of planning network deployment and have not begun to provide service in these areas.On July 8, 2004, we entered into an agreement2007 through our wholesale arrangement with NextWave Telecom, Inc. and certain of its affiliates to acquire two 10 MHz PCS licenses for the Tampa-St. Petersburg-Clearwater, Florida area, and the Sarasota-Bradenton, Florida area. These areasRoyal Street. Our Expansion Markets have a totallicensed population of approximately 3.340 million, people. These licensesIndexof which our networks currently cover approximately 16 million people in the geographic areas we have launched to Financial Statementsan initial termaverage population density of ten years after339 people per square mile, compared to the initial grant date in January 1997,national average of 84, enjoy average annualized population growth of 1.7% compared to the national average of 1.1% and subjecthave a median household income of $50,000 compared to applicable conditions, may be renewed. We agreed to pay a cash purchase pricenational average of $43.5 million for this acquisition. Consummation of this acquisition is subject to satisfaction of several conditions, including approval by the FCC and approval by the bankruptcy court in which NextWave’s Chapter 11 bankruptcy cases are pending.MarketsOur FCC licenses cover four clusters encompassing the greater metropolitan areas of San Francisco, Miami, Atlanta and Sacramento.$47,000. We believe our marketsall of these Expansion Markets are particularly attractive because of their high population densities, attractive customer demographics,
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Annualized | ||||||||||||||||||||||||
POPs | POP | POP | Launch | |||||||||||||||||||||
Metropolitan Area | BTA | (’000s)(1) | Density(3) | Growth(4) | MHz | Date | ||||||||||||||||||
Core Markets: | ||||||||||||||||||||||||
Georgia: | ||||||||||||||||||||||||
Atlanta, GA | 24 | 5,213.8 | 474 | 2.53 | % | 20 | Q1 2002 | |||||||||||||||||
Gainesville, GA | 160 | 304.9 | 187 | 3.15 | % | 30 | Q1 2002 | |||||||||||||||||
Athens, GA | 22 | 232.1 | 169 | 1.70 | % | 20 | Q1 2002 | |||||||||||||||||
South Florida: | ||||||||||||||||||||||||
Miami-Fort Lauderdale, FL | 293 | 4,415.8 | 1,051 | 1.69 | % | 30 | Q1 2002 | |||||||||||||||||
West Palm Beach, FL | 469 | 1,334.9 | 483 | 2.05 | % | 30 | Q1 2002 | |||||||||||||||||
Fort Myers, FL | 151 | 748.5 | 219 | 2.61 | % | 30 | Q1 2004 | |||||||||||||||||
Fort Pierce-Vero Beach, FL | 152 | 497.3 | 305 | 2.13 | % | 30 | Q1 2004 | |||||||||||||||||
Naples, FL | 313 | 322.2 | 162 | 3.63 | % | 30 | Q1 2004 | |||||||||||||||||
Northern California: | ||||||||||||||||||||||||
San Fran.-Oak.-S.J., CA | 404 | 7,501.4 | 553 | 0.57 | % | 20 | Q3 2002 | |||||||||||||||||
Sacramento, CA | 389 | 2,388.0 | 150 | 2.65 | % | 30 | Q1 2002 | |||||||||||||||||
Stockton, CA | 434 | 752.6 | 309 | 3.25 | % | 30 | Q1 2002 | |||||||||||||||||
Modesto, CA | 303 | 604.2 | 162 | 2.79 | % | 15 | Q1 2005 | |||||||||||||||||
Salinas-Monterey, CA | 397 | 434.2 | 131 | 1.21 | % | 30 | Q1 2002 | |||||||||||||||||
Redding, CA | 371 | 304.3 | 19 | 1.47 | % | 30 | Q4 2006 | |||||||||||||||||
Merced, CA | 291 | 269.3 | 79 | 2.53 | % | 15 | Q1 2005 | |||||||||||||||||
Chico-Oroville, CA | 79 | 246.9 | 83 | 1.13 | % | 30 | Q1 2002 | |||||||||||||||||
Eureka, CA | 134 | 155.8 | 34 | 0.18 | % | 15 | TBD | |||||||||||||||||
Yuba City-Marysville, CA | 485 | 155.3 | 125 | 1.68 | % | 30 | Q1 2002 | |||||||||||||||||
Expansion Markets: | ||||||||||||||||||||||||
Central and Northern Florida: | ||||||||||||||||||||||||
Tampa-St. Petersburg, FL | 440 | 2,915.0 | 602 | 1.59 | % | 10 | Q4 2005 | |||||||||||||||||
Sarasota-Bradenton, FL | 408 | 708.0 | 362 | 1.97 | % | 10 | Q4 2005 | |||||||||||||||||
Daytona Beach, FL | 107 | 559.1 | 349 | 1.92 | % | 20 | TBD | |||||||||||||||||
Ocala, FL | 326 | 297.0 | 184 | 2.09 | % | 10 | TBD | |||||||||||||||||
Jacksonville, FL(2) | 212 | 1,525.9 | 192 | 1.78 | % | 10 | TBD | |||||||||||||||||
Lakeland-Winter Haven, FL(2) | 239 | 525.1 | 288 | 1.27 | % | 10 | Q4 2006 | |||||||||||||||||
Melbourne-Titusville, FL(2) | 289 | 530.1 | 533 | 1.65 | % | 10 | TBD | |||||||||||||||||
Gainesville, FL(2) | 159 | 339.6 | 94 | 0.92 | % | 10 | TBD | |||||||||||||||||
Orlando, FL(2) | 336 | 2,010.0 | 493 | 2.54 | % | 10 | Q4 2006 | |||||||||||||||||
Dallas/Ft. Worth: | ||||||||||||||||||||||||
Dallas/Ft. Worth, TX(5) | 101 | 6,028.9 | 727 | 2.56 | % | 10 | Q1 2006 | |||||||||||||||||
Sherman-Denison, TX(6) | 418 | 190.1 | 70 | 0.99 | % | 10 | Q1 2006 | |||||||||||||||||
Detroit: | ||||||||||||||||||||||||
Detroit, MI | 112 | 5,095.3 | 826 | 0.41 | % | 10 | Q2 2006 | |||||||||||||||||
Southern California: | ||||||||||||||||||||||||
Los Angeles, CA(2) | 262 | 18,261.0 | 413 | 1.66 | % | 10 | Q2/Q3 2007 | |||||||||||||||||
Bakersfield, CA | 28 | 752.0 | 92 | 1.95 | % | 10 | TBD |
(1) | POPs based on 2005 population data and increased based on annualized POP growth rates. | |
(2) | License granted to Royal Street. | |
(3) | Calculated as number of POPs divided by square miles. | |
(4) | Estimatedaverage 2003-2008 annual population growth. | |
(5) | The Dallas/Ft. Worth license is comprised of the counties which make up CMA9. | |
(6) | Comprised of Grayson and Fannin counties only. |
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Purchase | Spectrum | |||||||||||||
License | Price $ | MHz | Population | |||||||||||
REA 1 | Northeast | 552,694,000 | 10 | 50,058,090 | ||||||||||
REA 6 | West | 355,726,000 | 10 | 49,999,164 | ||||||||||
EA 10 | New York-No. New Jer.-Long Island, NY-NJ-CT-PA-MA-VT(1) | 363,945,000 | 10 | 25,712,577 | ||||||||||
EA 57 | Detroit-Ann Arbor-Flint, MI | 50,317,000 | 10 | 6,963,637 | ||||||||||
EA 127 | Dallas/Ft. Worth, TX-AR-OK | 49,766,000 | 10 | 7,645,530 | ||||||||||
EA 62 | Grand Rapids-Muskegon-Holland, MI | 7,920,000 | 10 | 1,881,991 | ||||||||||
EA 153 | Las Vegas, NV-AZ-UT(1) | 10,420,000 | 10 | 1,709,797 | ||||||||||
EA 88 | Shreveport-Bossier City, LA-AR | 622,000 | 10 | 573,616 |
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(1) | Licenses overlap other Auction 66 licenses |
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2002 POPs(2) | MHz in Market | 2001-2006 Annual Population Growth Rate(2) | Population Density(3) | ||||||
(In thousands) | |||||||||
San Francisco Cluster: | |||||||||
San Francisco—Oakland—San Jose | 7,375.9 | 30 | 1.05 | % | 544 | ||||
Salinas—Monterey | 410.1 | 30 | 1.03 | % | 124 | ||||
Subtotals/Average | 7,786.0 | 1.05 | % | 462 | |||||
Miami Cluster: | |||||||||
Miami—Fort Lauderdale | 4,073.0 | 30 | 1.62 | % | 970 | ||||
West Palm Beach | 1,213.6 | 30 | 2.02 | % | 439 | ||||
Fort Myers | 654.7 | 30 | 2.04 | % | 191 | ||||
Fort Pierce—Vero Beach | 447.9 | 30 | 1.86 | % | 274 | ||||
Naples | 268.1 | 30 | 3.01 | % | 134 | ||||
Subtotals/Average | 6,657.3 | 1.81 | % | 475 | |||||
Atlanta Cluster: | |||||||||
Atlanta | 4,612.8 | 20 | 2.31 | % | 420 | ||||
Gainesville | 259.4 | 30 | 2.53 | % | 159 | ||||
Athens | 214.7 | 30 | 1.85 | % | 156 | ||||
Subtotals/Average | 5,086.9 | 2.30 | % | 364 | |||||
Sacramento Cluster: | |||||||||
Sacramento | 2,059.0 | 30 | 1.45 | % | 129 | ||||
Stockton | 619.6 | 30 | 1.31 | % | 254 | ||||
Chico—Oroville | 233.4 | 30 | 0.96 | % | 79 | ||||
Yuba City—Marysville | 141.9 | 30 | 1.09 | % | 114 | ||||
Subtotals/Average | 3,053.9 | 1.37 | % | 135 | |||||
Totals/Average | 22,584.1 | 1.60 | % | 335 | |||||
U.S. Totals/Average | 291,248.0 | 1.06 | % | 82 |
the renewal applications for those licenses that expired in January 2007. For a discussion of general licensing requirements, please see “— General Licensing Requirements and Broadband Spectrum Allocations.”
included approximately 1,370 indirect retailers and 50 MetroPCS retail locations. Our indirect distribution outlets include a range of local, regional and national mass market retailers and specialty stores. For 2003, approximately 76%A significant portion of our gross customer additions have been added through our indirect distribution outlets and for the twelve months ended December 31, 2006, 84% of our gross customer additions were added through indirect channels. We have over 2,000 locations where customers can make their monthly payments, and many of these locations also serve as distribution points for our products and services. Our cost to distribute through direct and indirect distribution outlets. Wechannels is substantially similar, and we believe our mix of indirect and direct distribution providesallows us with the ability to reach the largest number of potential customers in our markets at a low relative cost. We plan to increase our number of indirect distribution outlets and company-operated stores.
Company-operated stores in both Core and Expansion Markets and in new markets acquired in the future, such as the Auction 66 Markets.
Our
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Customer |
Payment |
carriers in our service areas.
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sectors and to deploy these six-sector cells in selected, high-demand areas. This will increase the capacity of the wireless base stations in these markets by doubling the number of sectors over which a base station’s antennas can handle calls simultaneously. Our vendors have informed us that cell sites using six sectors have been in operation for many years in the U.S., and we have obtained actual performance data on cell sites that have been operational for multiple years. We and Royal Street have commercially deployed six-sector cell sites in certain geographic areas in 2006, and we anticipate that Royal Street will deploy this technology in Los Angeles in 2007.
battery recharges than other commonly deployed digital PCS technologies.
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develops.
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Further, since many of our competitors are large companies, they can require handset manufacturers to provide the newest handsets exclusively to them. Our competitors also can afford to heavily subsidize the price of the subscriber’s handset because they require long term contracts. These advantages may detract from our ability to attract customers from certain market segments.
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MetroPCS Subscriber Statistics | ||||||||||||||||||||||||
Net Additions | Subscribers | |||||||||||||||||||||||
Core | Expansion | Core | Expansion | |||||||||||||||||||||
Markets | Markets | Consolidated | Markets | Markets | Consolidated | |||||||||||||||||||
(In 000s) | ||||||||||||||||||||||||
2004 | ||||||||||||||||||||||||
Q1 | 174 | — | 174 | 1,151 | — | 1,151 | ||||||||||||||||||
Q2 | 63 | — | 63 | 1,214 | — | 1,214 | ||||||||||||||||||
Q3 | 66 | — | 66 | 1,280 | — | 1,280 | ||||||||||||||||||
Q4 | 119 | — | 119 | 1,399 | — | 1,399 | ||||||||||||||||||
2005 | ||||||||||||||||||||||||
Q1 | 169 | — | 169 | 1,568 | — | 1,568 | ||||||||||||||||||
Q2 | 77 | — | 77 | 1,645 | — | 1,645 | ||||||||||||||||||
Q3 | 95 | — | 95 | 1,740 | — | 1,740 | ||||||||||||||||||
Q4 | 132 | 53 | 185 | 1,872 | 53 | 1,925 | ||||||||||||||||||
2006 | ||||||||||||||||||||||||
Q1 | 184 | 61 | 245 | 2,056 | 114 | 2,170 | ||||||||||||||||||
Q2 | 63 | 186 | 249 | 2,119 | 300 | 2,419 | ||||||||||||||||||
Q3 | 55 | 142 | 198 | 2,174 | 442 | 2,617 | ||||||||||||||||||
Q4 | 127 | 198 | 324 | 2,301 | 640 | 2,941 |
Legal Proceedings
From time to time, weleased from unaffiliated third parties. We believe these properties, which are involved in litigation that we consider to be inbeing used for their intended purposes, are adequate and well-maintained.
LEGISLATION AND GOVERNMENT REGULATIONS
The wireless communicationstelecommunications industry is subject to extensive governmental regulation onextensively at both the federal level and, to varying degrees, onat the state level. The enactment of the Telecommunications Act of 1996 has had an effect on many aspects of this regulation. In addition, this regulation currently is the subject of administrativeand local levels. Administrative rulemakings, legislation and judicial proceedings that arecan affect this government regulation and may be significant to us. In recent years, the regulation of the communications industry has been in a state of flux as Congress, the FCC, state legislatures and state
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The licensing, construction, modification, operation, ownership, sale
operate, the rates, terms and conditions of service, the protection and use of customer information, roaming policies, the provision of certain services, such asE-911, and the interconnection of communications networks.
However, licensees are given the flexibility to partition their service areas and to disaggregate their spectrum into smaller areas or spectrum blocks with the approval of the FCC. The FCC has adoptedalso awarded two cellular licenses on a metropolitan statistical area, or MSA, and rural service area, or RSA, basis with 25 MHz of spectrum for each license. There are 306 MSAs and 428 RSAs in the United States. Licensees of cellular spectrum can offer PCS services in competition with broadband PCS licensees. Many of our competitors utilize a combination of cellular and broadband PCS spectrum to provide their services.
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geographic area in 3 years, 50% in 5 years and 75% in 8 years.
We believe we will be eligible for a renewal expectancy for our broadband PCS licenses that will be renewed in the near term, but cannot be certain because the applicable FCC standards are not precisely defined.
competition, employment discrimination, misrepresentations to the FCC or other government agencies, or serious violations of the Communications Act or FCC regulations. We believe there are no activities and no judicial or administrative proceedings in which we are involvedinvolving us that would warrant such a finding by the FCC.
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The FCC permits cellular, broadband PCS, paging and ESMR licensees to offer fixed services on a co-primary basis along with mobile services. This rule may facilitate the provision of wireless local loop service, which involves the use of wireless links to provide local telephone service by CMRS licensees, although the extent of lawful state regulation of such wireless local loop service is undetermined. While we do not presently have a fixed service offering, our network is fully capable of accommodating such a service. We continue to evaluate our service offerings which may include a fixed service plan at some point in the future.
Until April 4, 2005, the FCC requires that a PCS licensee ensure that its operations do not cause interference to incumbent licensees that operate fixed microwave systems within the PCS licensee’s license area. In an effort to balance the competing interests of existing microwave users and newly authorized PCS licensees, the FCC adopted a transition plan to relocate such microwave operators to other spectrum blocks and a cost sharing plan so that if the relocation of an incumbent benefits more than one PCS licensee, the benefiting PCS licensees will share the cost of the relocation. The transition and cost sharing plans expire on April 4, 2005, at which time remaining incumbents in the PCS spectrum will be responsible for their costs to relocate to alternate spectrum locations. We have fulfilled all of the relocation obligations (and related payments) we directly incurred in our PCS markets, and we have ongoing obligations of approximately $3.8 million that are payable to other carriers under cost sharing plans related to microwave relocation in our markets. The FCC allows “designated entities” to pay these shared relocation expenses over the same term as the applicable FCC license for the area. Each of these obligations has a ten-year term, with interest only payments through year six and principal payments commencing in year seven.
Ownership RestrictionsLicenses
Pursuant to a Report and Order released in December 2001, as of January 1, 2003, the FCC no longer enforces a particular limit on the amount of CMRS spectrum in which an entity may hold an attributable interest. The FCC now engages in a case-by-case review of transactions that would raise concerns similar to those that the CMRS spectrum cap was designed to address. By eliminating a hard cap in favor of the more flexible analysis, we believe the changes adopted by the FCC in the December 2001 Report and Order could further increase the ability of wireless operators to attract capital or to make investments in other wireless operators.
The FCC may prohibit or impose conditions on assignments and transfers of control of licenses.
plans.
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Although
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Althoughany bidding credits received as follows: if the DE loses its eligibility or seeks to assign or transfer control of the license, the DE will have to reimburse the FCC terminated future application of its control group requirements in August 2000, allowing licensees to qualify as designated entities by meeting alternative controlling interests rules, the FCC held that existing licensees could continue to qualify under the rules in existence at the time they received their licenses. We met and continue to meet the 25% control group structural option. In order to meet the control group requirements, our certificate of incorporation provides that our Class A common stock, as a class, must constitute 50.1%for 100% of the aggregate voting power of all classes and series of our capital stock and electbidding credit plus interest if such loss, assignment or appoint a majority of our board of directors. In addition, our bylaws provide for restrictions on transfer relating to shares of our capital stock held by investors that are qualifying investors, and our certificate of incorporation includes redemption rights that allow us to redeem shares of our capital stock, as necessary, in order to ensure our continued compliance with the control group structural option rules for the purposes of C block license requirements.
FCC rules also allowed companies to qualify as a designated entity in the 1996 C Block auction where they met the FCC’s definition of a “Publicly Traded Corporation with Widely Dispersed Voting Power.” To qualify for this alternative structural option, a company had to demonstrate that no person or entity:
We intend to request approval from the FCC to adopt this alternative structure without financial penalty after the consummation of this offering. Prior to the consummation of this offering, our certificate of incorporation will be amended to allow us to redeem shares of our capital stock to ensure that we are eligible for this structure.
FCC rules impose specific restrictions on the voluntary assignments or transfers of control of C block licenses. Duringoccurs within the first five years of the license term; 75% if during the sixth and seventh year of the license term; 50% if during the eighth and ninth of the license term; and 25% in the tenth year. In addition, to the extent that a DE enters into an impermissible material relationship, seeks to assign or transfer control of the license, or otherwise loses its eligibility for a bidding credit for any reason prior to the filing of the notification informing the FCC that the construction requirements applicable at the end of the license term (or untilhave been met, the licensee satisfiesDE must reimburse the FCC for 100% of the bidding credit plus interest. In its June 2006 Order on Reconsideration of the Second Report and Order, the FCC clarified its rules to state that its changes to the DE unjust enrichment rules would only apply to licenses initially issued after April 25, 2006. Licenses issued prior to April 25, 2006, including those granted to Royal Street from Auction 58, would be subject to the five-year unjust enrichment rules previously in effect. Likewise, the requirement that the FCC be reimbursed for the entire bidding credit amount owed if a DE loses its eligibility for a bidding credit prior to the filing of the notifications informing the FCC that the construction benchmark), assignments or transfersrequirements applicable at the end of control are permitted, butthe license term have been met applies only to entitiesthose licenses that meet specified qualifications,are initially granted on or after April 25, 2006. Fourth, the FCC has adopted rules requiring a DE to seek approval for any event in which it is involved that might affect its ongoing eligibility, such as entry into an impermissible material relationship, even if the event would not have triggered a reporting requirement under the FCC’s existing rules. In connection with this rule change, the FCC now requires DEs to file annual reports with the FCC listing and summarizing all agreements and arrangements that relate to eligibility for designated entity benefits. Fifth, the FCC indicated that it will step up its audit program of DEs and has stated that it will audit the eligibility of every DE that wins a license in the AWS auction at least once during the initial license term. Sixth, these changes will all be effective with respect to all applications filed with the FCC that occur after the effective date of the FCC’s revised rules, including the AWS auction.
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• | relationships between designated entities and other communications enterprises based on class of services, financial measures, or spectrum interests; | |
• | the need to include other agreements within the definition of impermissible material relationships; and | |
• | prohibiting entities or persons with net worth over a particular amount from being considered a DE. |
material adverse effect on our and Royal Street’s operations and financial performance.
operations.
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These fees are subject to increase by the FCC periodically.
the FCC, whether some additional relief from these regulations will be required, or whether the FCC would grant such relief if we request that it do so. Absent a waiver, failurecomply. Failure to complymaintain compliance with the FCC’sE-911 requirements couldcan subject us to significant penalties. The extent to which we are required tomust deployE-911 services will affectaffects our capital spending obligations. TheIn 1999, the FCC in 1999 amended its rules to eliminate a requirement thatno longer require compensation by the state to carriers be compensated forE-911 costs and to expand the circumstances under which wireless carriers may be required to offerE-911 services. services to the public safety agencies. States in which we do business may limit or eliminate our ability to recover ourE-911 costs. Federal legislation enacted in 1999 may limit our liability for uncompleted 911 calls to a degree commensurate withsimilar level to wireline carriers in our markets.
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recover. Our customer base may be subject to a greater percentage of law enforcement requests than those of other carriers and that the resulting expenses incurred by us to cooperate with law enforcement are proportionately greater.
authorized by the FCC to start limiting numbering administration.
all of our markets.
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generally been successful in negotiating arrangements with carriers with whichwhom we exchange traffic; however, our business could be adversely affected shouldif the rates some carriers charge us for terminating our customers’ traffic ultimately prove to be higher than anticipated.
In one case, a complaint has been filed by a CLEC against us before the FCC claiming a right to terminating compensation payments on a going forward basis and going backward basis at a rate that we consider to be excessive. We are vigorously defending against the complaint, but cannot predict the outcome at this time. An adverse outcome could be material.
PCS
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choose to subsidize the cost of the hearing aid-compatible handsets.
rates among CMRS affiliates. Other aspects of the FCC’s rules have been vacated by the United States Court of Appeals for the District of Columbia Circuit, and are subject to further consideration by the FCC. There isThe FCC recently terminated a pending proceeding in which the FCC willto determine how rate integration requirements apply to CMRS offerings including singleafter concluding that, in light of the Court of Appeals’ vacatur of its prior order, there is no rate plans. Tointegration rule currently applicable to CMRS carriers. Our pricing flexibility is reduced to the extent that we offer services subject to these requirements, our pricing flexibility is reduced, and we cannot assure you that the FCC will decline to imposeimposing these requirements on us.
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United States Court of Appeals for the Ninth Circuit. Several parties have announced an intention to seek review of the issues in the U.S. Supreme Court. The location and constructionoutcome of these cases, which we are unable to predict at this time, could affect the extent to which our PCS antennas and base stations and the towers we lease on which such antennas are locatedCMRS services are subject to FCC and Federal Aviation Administrationstate regulations and arethat may cause us to incur additional costs.
operations in California.
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Name | Age | Position | ||||||
Roger D. Linquist | 68 | President, Chief Executive Officer | ||||||
J. Braxton Carter | 48 | Senior Vice President and Chief Financial Officer | ||||||
Douglas S. Glen | 49 | Senior Vice President, Corporate Operations | ||||||
Thomas C. Keys | 48 | Senior Vice President, Market Operations, West | ||||||
Christine B. Kornegay | 43 | Vice President, Controller and Chief Accounting Officer | ||||||
Malcolm M. Lorang | 73 | Senior Vice President and Chief Technology Officer | ||||||
John J. Olsen | 50 | Vice President and Chief | ||||||
Mark A. Stachiw | ||||||||
| Senior Vice President, General Counsel and Secretary | |||||||
Keith D. Terreri | 42 | Vice President, Finance and | ||||||
Robert A. Young | ||||||||
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| Executive Vice President, Market Operations, East | |||||||
W. Michael Barnes | 64 | Director | ||||||
| 62 | Director | ||||||
Arthur C. Patterson | 63 | Director | ||||||
James N. Perry, Jr. | 46 | Director | ||||||
John Sculley | ||||||||
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| Director | |||||||
Walker C. | 36 | Director | ||||||
| 51 | Director | ||||||
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our companyMetroPCS Communications and has served as our President, Chief Executive Officer, and chairman of the Board of Directors of MetroPCS Communications since its inception and its Secretary and a director since our inception.from inception through October 2004. In 1989, Mr. Linquist founded PageMart Wireless (now Metrocall)USA Mobility), a U.S. paging company. He served as PageMart’s Chief Executive Officer from 1989 to 1993, and as Chairman from 1989 through March 1994, when he resigned to form MetroPCS, Inc. Prior to founding PageMart, Mr. Linquist was Chief Executive Officer of PacTel Personal Communications (which later became AirTouch) and of Communications Industries, covering the time period from 1982 to 1989. Prior to 1982, Mr. Linquist was a management consultant with McKinsey & Co. and held various management positions with Texas Instruments.company. Mr. Linquist served as a director of PageMart Wireless from June 1989 to September 1997, and was a founding director of the Cellular Telecommunications and Internet Association. Mr. Linquist was an executive officer of MetroPCS, Inc. when it initiated its bankruptcy proceedings in October 1997. Mr. Linquist is the father of Corey A. Linquist, our Vice President and General Manager, Sacramento,Sacramento; father of Todd C. Linquist, Staff Vice President of Wireless Data Services;father-in-law of Michelle Linquist, Director of Logistics; and the father-in-law of Phillip R. Terry, our Vice President, of Corporate Marketing.Malcolm M. Lorang co-founded our company and has served as our Vice President and Chief Technical Officer since our inception. Mr. Lorang has a broad background in radio frequency communications systems and systems engineering, most recently serving as Vice President of Engineering for PageMart Wireless from 1989 toIndex to Financial Statements1994. Mr. Lorang has authored numerous patents, including patents in the radio frequency communications systems area, and was involved in the development and testing of military applications for spread spectrum technology upon which CDMA is based. Mr. Lorang’s experience includes positions with Magnavox Research Laboratories from 1957 to 1972, and Texas Instruments from 1972 to 1988 as a senior design engineer and member of its technical staff. Mr. Lorang was an executive officer of MetroPCS, Inc. when it initiated its bankruptcy proceedings in October 1997.Lyle PatrickBraxton Carter joined us asbecame MetroPCS Communications’ Senior Vice President and Chief Financial Officer in May 2004. From 2001 until 2002,March 2005. In December 2005, Mr. Patrick served as Vice PresidentCarter became a director of MetroPCS, Inc., MetroPCS Wireless, Inc. and Chief Financial Officercertain of Completel, an emerging telecommunications company headquartered in London. Prior to joining Completel, Mr. Patrick served at McLeodUSA Incorporated as Group Vice President and Chief Financial Officer from 1998 through 2001, and Executive Vice President-Telecom and Public Policy from 1997 until 1998. Subsequent to Mr. Patrick’s departure, McLeodUSA filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code on January 31, 2002. Civil suits alleging violations of the Securities Act and the Exchange Act have been filed against McLeodUSA and its current and former officers, including Mr. Patrick. Mr. Patrick believes that these suits are without merit and intends to defend them vigorously. From 1988 until its 1997 merger into McLeodUSA, Mr. Patrick served as Chief Financial Officer, Vice President and Controller of Consolidated Communications Inc. Mr. Patrick was a partner at the accounting firm of Arthur Andersen & Co. prior to joining Consolidated Communications.Dennis G. Spickler became our Vice President of Business Development in March 2004.subsidiaries. Previously, Mr. SpicklerCarter served as our Vice President, of Finance and Chief Financial OfficerCorporate Operations from September 1996 throughFebruary 2001 to March 2004.2005. Prior to joining our company, he served as Vice President, Chief Financial and Information Technology Officer for PrimeCo PersonalMetroPCS Communications, from its inception in March 1995 through September 1996. Prior to joining PrimeCo, Mr. Spickler served in various management positions for Bell Atlantic including Managing Director, Mergers and Acquisitions from April 1991 to March 1995, and Vice President, Financial Operations for Bell Atlantic TriCon Leasing from 1988 to 1991. Mr. Spickler also served as General Manager—External Reporting and Professional Accounting Matters for Bell Atlantic and prior to that was an Audit Manager for Coopers & Lybrand (now PricewaterhouseCoopers LLP). Mr. Spickler was an executive officer of MetroPCS, Inc. when it initiated its bankruptcy proceedings in October 1997.Robert A. Young joined us as Executive Vice President, Market Operations in May 2001. Previously, Mr. Young served as President of the Great Lakes Area of Verizon Wireless from February 2001 until April 2001, and as President of Verizon Wireless Messaging Services (previously known as AirTouch Paging) from April 2000 until January 2001. Prior to joining Verizon Wireless, Mr. Young held various positions with PrimeCo Personal Communications, including Vice President—Customer Care from April 1998 until April 2000, President—Independent Region from October 1997 until October 1998, and Vice President/General Manager—Houston from May 1995 until September 1997. He also chaired PrimeCo’s Information Technology Steering Committee and was a member of its Senior Leadership Team.J. Braxton Carter joined us as Vice President of Corporate Operations in February 2001. Prior to joining our company, Mr. Carter was Chief Financial Officer and Chief Operating Officer of PrimeCo PCS, the successor entity of PrimeCo Personal Communications formed in March 2000. He held various senior management positions with PrimeCo Personal Communications, including Chief Financial Officer and Controller, from 1996 until March 2000. Mr. Carter also has extensive senior management experience in the retail industry and spent 10ten years in public accounting.
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Albert S. Loverde joined us2003 to June 2004, and as Vice President and General Manager, GeorgiaCounsel, Allegiance Telecom Company Worldwide from March 2002 to September 2003. Mr. Stachiw served as Vice President and General Counsel, Allegiance Telecom Company Worldwide for Allegiance Telecom, Inc., when it initiated bankruptcy proceedings in May 2003. Prior to joining Allegiance Telecom, Inc., from April 2001 through March 2002, Mr. Stachiw was Of Counsel at Paul, Hastings, Janofsky and Walker, LLP, and represented national and international telecommunications firms in regulatory and transactional matters. Before joining
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July 1996, as Director of Marketing at Haddcomm International from January 1995 to March 1995,2001 until April 2001, and as Vice President of Verizon Wireless Messaging Services (formerly known as AirTouch Paging and General Manager for Sterling CellularPacTel Paging) from August 1990 toApril 2000 until January 1995. Mr. Loverde also spent 25 years at Bell Laboratories in various positions. Mr. Loverde was an executive officer of MetroPCS, Inc. when it initiated its bankruptcy proceedings in October 1997.
Corey A. Linquist became our Regional Vice President and General Manager, Sacramento in January 2001. Previously, Mr. Linquist was Director of Strategic Planning for our company, a position he held since our inception in July 1994. Prior to joining us, Mr. Linquist served in a similar position at PageMart Wireless. Mr. Linquist is the son of Roger D. Linquist, our President, Chief Executive Officer, Secretary and Chairman of our Board of Directors.
Frank J. Bell joined us as Vice President and General Manager, Florida in June 2001. Prior to joining our company,Verizon Wireless Messaging Services, Mr. Bell was Area Vice President of Florida for Sprint PCS from February 1998 to March 2001. During his 16 years in the wireless industry, Mr. Bell hasYoung held various senior management positions with Pactel/AirTouch Paging and Dial Page.
Phillip R. Terry became our Vice President of Corporate Marketing in December 2003. Previously, Mr. Terry served as our Staff Vice President for Product Management and Distribution Services from April 2002 to December 2003, and as our Director of Field Distribution from April 2001 to April 2002. Prior to joining us, Mr. Terry was employed by WebLink Wireless where he was the Corporate Director of Carrier Services from January 1998 to March 2001, Southwest Regional Vice President from January 1995 through December 1997 and Area Vice President for Dallas/Fort Worth from January 1990 through December 1994. Mr. Terry is the son-in-law of Roger D. Linquist, our President, Chief Executive Officer, Secretary and Chairman of our Board of Directors.
Michael N. Lavey joined us as Vice President and Controller in January 2004 and also served as Interim Chief Financial Officer from March 2004 until May 2004. Prior to joining our company, Mr. Lavey served from May 2002 to November 2003 as Vice President – Controller for VarTec Telecom, a nationwide provider of long distance and local telephone service. Previously, Mr. Lavey served as Vice President – Corporate Controller for ExcelPrimeCo Personal Communications, from January 2000 until its acquisition by VarTec in April 2002. Prior to joining Excel, Mr. Lavey held various management positions with BancTec, including Vice President – Enterprise System Strategy— Customer Care from April 1998 until April 2000, President — Independent Region from October 1997 until October 1998, and Vice President/General Manager — Houston from May 1996 to January 2000, Vice President1995 until September 1997. He also chaired PrimeCo’s Information Technology Steering Committee and Controller – North American Operations from March 1995 to May 1996, and Treasurer from March 1994 to March 1995.
was a member of its Senior Leadership Team.
Harry F. Hopper, III, a director of our company since May 2001, has been a managing member of Columbia Capital or its affiliates since 1994. Columbia Capital is a venture capital firm with an investment focus on communications services, media, network infrastructure and software. Mr. Hopper is currently a member of the board of directors of Affinity InternetAlex Brown Incorporated, Ameritrade Holding Corporation, Biogen, Continental Cablevision, Instinet Group, Keystone Group, SBA Communications, Standex International Corporation and was formerly a director of DSL.Net, Equinix and Pegasus Communications Inc. as well as a number of privately held companies.
Joseph T. McCullen, Jr., has been a director of our company since May 2001 and previously from December 1995 until November 2000. He has served as a Managing Director of McCullenthe National Venture Capital a venture capital and
advisory firm, since July 2001. He served as a Managing Director of Whitney & Co. from 1999 until 2001, and as a Managing Director of OneLiberty Ventures, a venture capital firm, from 1986 until 1999. Mr. McCullen also serves as a director of several privately held companies. Mr. McCullen’s public sector experience includes service as Assistant Secretary of the Navy from 1973 to 1977, and as Special Assistant to the President from 1971 to 1973. Mr. McCullen was a director of MetroPCS, Inc. when it initiated its bankruptcy proceedings in October 1997.
Association.
MetroPCS Communications. Mr. Perry also presently serves on the boards of directors of Band-X Limited, Cbeyond Communications, Inc., Cinemark, Inc., Intelstat Holdings Ltd., Madison River Telephone Company, LLC and Catholic Relief Services.
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Craig R. Stapleton
disagreement with MetroPCS Communications or management.
Texas 11 Acquisition LLC. Mr. Wade’s previous resignations were not caused by a disagreement with MetroPCS Communications or management.
Our certificate of incorporation provides for two classes of directors, those elected by holders of our Class A common stock and those elected by holders of our common stock. The certificate of incorporation provides for five Class A directors and a number of common directors determined as set forth in our bylaws.
Committees of the Board of Directors
Our board of directors has established four standing committees: an audit committee, a nominating and corporate governance committee, a compensation committee and a finance committee. Upon the consummation of this offering, the composition of each board committee will comply with the requirements of the Nasdaq National Market and the Sarbanes-Oxley Act of 2002.
planning committee.
committee charter. Ourmeets the standards for financial knowledge for listed companies. In addition, the board of directors has determined that Mr.W. Michael Barnes is an “audit committee financial expert”expert,” as such term is defined in Item 401 ofRegulation S-K. Mr. W. Michael Barnes previously served as the Chief Financial Officer of Rockwell International Corporation. The responsibilities of the audit committee include:
• | overseeing, reviewing and evaluating our financial statements, the audits of our financial statements, our accounting and financial reporting processes, the integrity of our financial statements, our disclosure controls and procedures and our internal |
• | appointing, compensating, retaining and overseeing our independent |
• | pre-approving permissible non-audit services to be performed by our independent |
overseeing our compliance with legal and regulatory requirements and compliance with ethical standards adopted by us; | ||
• | establishing and maintaining whistleblower procedures; |
• | evaluating periodically our Code of Business Conduct and Ethics; and |
• | conducting an annual self-evaluation. |
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• | assisting in the process of identifying, recruiting, evaluating and nominating candidates for membership on our board of directors and the committees thereof; |
• | developing processes regarding the consideration of director candidates recommended by stockholders and stockholder communications with our board of directors; |
• | conducting an annual self-evaluation and assisting our board of directors and our other committees of the board | ||
• | development and recommendation of corporate governance principles. |
Arthur C. Patterson, James F. Wade, Joseph T. McCullen, Jr.as chairman, John Sculley and Harry F. Hopper, III,C. Kevin Landry, each of whom has been affirmatively determined by our board of directors to be independent in accordance with Nasdaqapplicable rules. The responsibilities of the compensation committee of the board of directors include: Ÿ• developing and reviewing general policy relating to compensation and benefits; Ÿ• reviewing and evaluating the compensation discussion and analysis prepared by management; • evaluating the performance of the chief executive officer and reviewing and making recommendations to our board of directors concerning the compensation and benefits of our chief executive officer, our directors and our directors;other corporate officers; Ÿ• overseeing our chief executive officer’s decisions concerning the performance and compensation of our other executive officers; Ÿ• administering our stock option and employee benefit plans; Ÿ• preparing an executive compensation report for publication in our annual proxy statement; and Ÿ• conducting an annual self-evaluation. F. Wade and Harry F. Hopper, III. Each of these members has been determined by our board of directors to be independent as defined by NASD and SEC rules.N. Perry. The responsibilities of the finance and planning committee include: Ÿ• monitoring our present and future capital requirements and business opportunities; Ÿ• overseeing, reviewing and evaluating our capital structure and our strategic planning and financial execution processes; and Ÿ• making recommendations to our board regarding acquisitions, dispositions and our short and long-term operating plans. IndexFinancial StatementsCompensationall of DirectorsNon-employeeour directors, receive an annual retainerofficers, employees, consultants and contractors. The code of $15,000ethics addresses, among other things, competition and $1,500 per board or committee meeting attended in personfair dealing, conflicts of interest, financial matters and $750 per board or committee meeting attended telephonically. In lieu of these cash payments, directors may elect to receive that number of shares of common stock equal in value toexternal reporting, company funds and assets, confidentiality and corporate opportunity requirements and the amountprocess for reporting violations of the annual retainer and they may elect to receive that numbercode of sharesethics, employee misconduct, conflicts of common stock equal in value to two times the amountinterest or other violations. Our code of the individual meeting fee. The chairmenethics is publicly available on our website atwww.metropcs.com. Any waiver of our finance, compensation and nominating and governance committees receive an annual retainercode of $17,000 and the chairman ofethics with respect to our chief executive officer, chief financial officer, controller or persons performing similar functions may only be authorized by our audit committee receivesand will be disclosed as required by applicable law.
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Our non-employee directors receive an initial option grant of 40,000 shares and all non-employee directors will receive an annual option grant of 10,000 shares if they remain in office on the date of each annual stockholders meeting. Such grants will vest ratably over three years. The chairmen of our finance, compensation and nominating and governance committees receive an initial option grant of 43,000 shares and will receive an annual option grant of 12,000 shares if they remain in office on the date of each annual stockholders meeting. Our audit committee chairman receives an initial option grant of 50,000 shares and will receive an annual option grant of 15,000 shares if he remains in office on the date of each annual stockholders meeting.
Executive Compensation Committee Interlocks and Insider ParticipationProgram
• | Attract and retain talented and experienced executives in the highly competitive and dynamic wireless telecommunications industry; | |
• | Motivate and reward executives whose knowledge, skills and performance are critical to our success; | |
• | Align the interests of our executive officers and stockholders by motivating executive officers to increase stockholder value and rewarding executive officers when stockholder value increases; | |
• | Provide a competitive compensation package which is weighted heavily towards pay for performance, and in which total compensation is primarily determined by company/team and individual results and the creation of stockholder value; | |
• | Ensure fairness among the executive management team by recognizing the contributions each executive makes to our success; | |
• | Foster a shared commitment among executives by coordinating their company/team and individual goals; and | |
• | Compensate our executives to manage our business to meet our long-range objectives. |
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• | Data in proxy statement filings from wireless telecommunications companies that we believe are comparable to us based on revenue and market capitalization or are otherwise relevant, including: |
• | Alltel Corp; | |
• | Centennial Communications Corp.; | |
• | Dobson Communications Corp.; | |
• | Leap Wireless International Inc.; | |
• | Rural Cellular Corp; | |
• | SunCom PCS Holding; and | |
• | United States Cellular Corp. |
• | Published survey data from public and private companies to determine appropriate compensation levels based on revenue levels in general industry and the telecommunications industry. |
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• | Our business need for the executive officer’s skills; | |
• | The contributions that the executive officer has made or we believe will make to our success; | |
• | The transferability of the executive officer’s managerial skills to other potential employers; | |
• | The relevance of the executive officer’s experience to other potential employers, particularly in the telecommunications industry; and | |
• | The readiness of the executive officer to assume a more significant role with another potential employer. |
• | For 2006, the annual cash incentive plan award under the Bonus Opportunity Plan award was based on the following performance measures: |
• | Achievement of Operating Market Targets: |
• | Gross margin; | |
• | Adjusted EBITDA per average subscriber; | |
• | Capital expenditures per ending subscriber at year-end; | |
• | New Markets % of Build; and | |
• | Discretionary component. |
• | Implementation of financial controls and Sarbanes-Oxley Act compliance; and | |
• | Individual performance measures, such as achievement of strategic objectives, and demonstration of our core values. |
• | For 2007, the annual cash incentive plan awards have been made as performance awards pursuant to the 2004 Plan and are based on the following performance measures: |
• | Operating markets: |
• | Gross margin; |
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• | Adjusted EBITDA per average subscriber; | |
• | Capital expenditures per ending subscriber at year-end; and | |
• | Discretionary component. |
• | New Markets Build-out: |
• | Construction/market readiness goals for new markets; and | |
• | Discretionary component. |
• | Individual performance measures, such as achievement of strategic objectives, and demonstration of our core values. |
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• | Allocation between long-term and currently paid out compensation: The compensation we currently pay consists of base payandannual cash incentive compensation. The long-term compensation consists entirely of awards of stock options pursuant to our Second Amended and Restated 1995 Stock Option Plan of MetroPCS, Inc., as amended, or the 1995 Plan, and our 2004 Plan. The allocation between long-term and currently paid out compensation is based on an analysis of how our peer companies, telecommunication industry and general industry use long-term and currently paid compensation to pay their executive officers. | |
• | Allocation between cash and non-cash compensation: It is our policy to allocate all currently paid compensation and annual incentive pay in the form of cash and all long-term compensation in the form of awards of options to purchase our common stock. We consider competitive market analyses when determining the allocation between cash and non-cash compensation. | |
• | Return of incentive pay: We have implemented a policy for the adjustment or recovery of awards if performance measures upon which they are based are materially restated or otherwise adjusted in a manner that will reduce the size of an award or payment. This policy includes the return by any executive officer any compensation based upon performance measures that require material restatement which are caused by such executive’s intentional misconduct or misrepresentation. |
Element | Characteristics | Purpose | ||
Base salary | Fixed annual cash compensation; all executives are eligible for periodic increases in base salary based on performance; targeted at the median market pay level. | Keep our annual compensation competitive with the market for skills and experience necessary to meet the requirements of the executive’s role with us. | ||
Annual cash incentive awards | Performance-based annual cash incentive earned based on company/team and individual performance against target performance levels; targeted above the market median for outstanding performance achievement. | Motivate and reward for the achievement and over-performance of our critical financial and strategic goals. Amounts earned for achievement of target performance levels based on our annual budget is designed to provide a market-competitive pay package at median performance; potential for lesser or greater amounts are intended to motivate participants to achieve or exceed our financial and other performance goals and to not reward if performance goals are not met. Provides change in control protection. |
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Element | Characteristics | Purpose | ||
Long-term equity incentive plan awards (stock options) | Performance-based equity award which has value to the extent our common stock price increases over time; targeted at the median market pay leveland/or competitive practices at peer companies. | Align interest of management with stockholders; motivate and reward management to increase the stockholder value of the company over the long term. Vesting based on continued employment will facilitate retention; amount realized from exercise of stock options rewards increases stockholder value of the company; provides change in control protection. | ||
Retirement savings opportunity | Tax-deferred plan in which all employees can choose to defer compensation for retirement. We provide no matching or other contributions; and we do not allow employees to invest these savings in company stock. | Provide employees the opportunity to save for their retirement. Account balances are affected by contributions and investment decisions made by the employee. | ||
Health & welfare benefits | Fixed component. The same/comparable health & welfare benefits (medical, dental, vision, disability insurance and life insurance) are available for all full-time employees. | Provides benefits to meet the health and welfare needs of employees and their families. |
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EVP Market | Other | |||||||||||||||
2006 Pay Out Measures/Annual Cash Incentive Plan Components | CEO | CFO | Ops | NEOs | ||||||||||||
Company/team performance | 70 | % | 60 | % | 70 | % | 70 | % | ||||||||
• Gross Margin | ||||||||||||||||
• Adjusted EBITDA per average subscriber | ||||||||||||||||
• Capital expenditures per ending subscriber | ||||||||||||||||
• New market % of build | ||||||||||||||||
• Discretionary | ||||||||||||||||
Financial Controls/Sarbanes-Oxley Act compliance | 20 | % | 20 | % | 20 | % | 15 | % | ||||||||
Individual performance | 10 | % | 20 | % | 10 | % | 15 | % |
All | ||||
2007 Pay Out Measures/Annual Cash Incentive Plan Components | NEOs | |||
Company/team performance | 70 | % | ||
• Operating Markets: | ||||
• Gross Margin | ||||
• Adjusted EBITDA per average subscriber | ||||
• Capital expenditures per ending subscriber | ||||
• Discretionary | ||||
• New market buildout: | ||||
• Construction/Market Readiness | ||||
• Discretionary Component | ||||
Individual performance | 30 | % |
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2006 and 2007 Annual Cash Incentive Plan Award | ||||
Level Based on Goal Achievement | ||||
Officer | At 100% (Target) | Maximum Performance | ||
CEO | 100% of base salary | 200% of base salary | ||
SVP and CFO | 75% of base salary | 150% of base salary | ||
EVP, Market Ops | 75% of base salary | 150% of base salary | ||
SVP, General Counsel and Secretary | 65% of base salary | 130% of base salary | ||
SVP and CTO | 65% of base salary | 130% of base salary |
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Indemnification The exercise price of Directorsany such grant is the fair market value of our stock on the grant date.
Under Section 145to align executive ownership with us, we made a special stock option grant to our named executive officers and certain other eligible employees. We granted stock options to purchase an aggregate of 6,885,000 shares of our common stock to our named executive officers and certain other officers and employees. The purpose of the Delaware General Corporation Law,grant was also to provide retention of employees following our initial public offering as well as to motivate employees to return value to our stockholders through future appreciation of our common stock price. The exercise price for the option grants is $11.33, which is the fair market value of our common stock on the date
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• | Each outstanding option automatically accelerates so that each option becomes fully exercisable for all of the shares of the related class of common stock at the time subject to such option immediately before the corporation transaction; | |
• | All outstanding repurchase rights automatically terminate and the shares of common stock subject to those terminated rights immediately vest in full; | |
• | Immediately following a corporate transaction, all outstanding options terminate and cease to be outstanding, except to the extent assumed by the successor corporation and thereafter adjusted in accordance with the 1995 Plan; and | |
• | In the event of an “involuntary termination” of an optionee’s “service” with us within 18 months following a corporate transaction, any fully-vested options issued to such holder remain exercisable until the earlier of (i) the expiration of the option term, or (ii) the expiration of one year from the effective date of the involuntary termination. |
• | A merger or consolidation transferring greater than 50% of the voting power of our outstanding securities to a person or persons different from the persons holding those securities immediately prior to such transaction; or | |
• | The disposition of all or substantially all of our assets in a complete liquidation or dissolution; |
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• | All “options” and “stock appreciation rights” then outstanding become immediately vested and fully exercisable; | |
• | All restrictions and conditions of all “restricted stock” and “phantom stock” then outstanding are deemed satisfied, and the “restriction period” or other limitations on payment in full with respect thereto are deemed to have expired, as of the date of the change in control; and | |
• | All outstanding “performance awards” and any “other stock or performance-based awards” become fully vested, deemed earned in full and are to be promptly paid to the participants as of the date of the change in control. |
• | Any “person” (a) other than us or any of our subsidiaries, (b) any of our or our subsidiaries’ employee benefit plans, (c) any “affiliate,” (d) a company owned, directly or indirectly, by our stockholders, or (e) an underwriter temporarily holding our securities pursuant to an offering of such securities, becomes the “beneficial owner,” directly or indirectly, of more than 50% of our voting stock; | |
• | A merger, organization, business combination or consolidation of us or one of our subsidiaries transferring greater than 50% of the voting power of our outstanding securities to a person or persons different from the persons holding those securities immediately prior to such transaction; | |
• | The disposition of all or substantially all of our assets, other than to the current holders of 50% or more of the voting power of our voting securities; | |
• | The approval by the stockholders of a plan for the complete liquidation or dissolution; or | |
• | The individuals who constitute our board on the effective date of the 2004 Plan (or any individual who was appointed to the board of directors by a majority of the individuals who constitute our board of directors as of the effective date of the 2004 Plan) cease for any reason to constitute at least a majority of our board of directors. |
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Non-Equity | ||||||||||||||||||||
Option | Incentive Plan | |||||||||||||||||||
Awards | Compensation | |||||||||||||||||||
Name & Principal Position | Year | Salary | (3) | (4) | Total | |||||||||||||||
Roger D. Linquist | 2006 | $ | 466,923 | $ | 1,184,793 | $ | 815,300 | $ | 2,467,016 | |||||||||||
— President and CEO | 2005 | $ | 435,833 | — | $ | 527,840 | $ | 963,673 | ||||||||||||
J. Braxton Carter | 2006 | $ | 287,404 | $ | 410,865 | $ | 379,000 | $ | 1,077,269 | |||||||||||
— SVP/CFO | 2005 | $ | 264,750 | — | $ | 238,280 | $ | 503,030 | ||||||||||||
Robert A. Young | 2006 | $ | 330,769 | $ | 583,738 | $ | 424,200 | $ | 1,338,707 | |||||||||||
— EVP Market Operations | 2005 | $ | 310,750 | — | $ | 265,340 | $ | 576,090 | ||||||||||||
Mark A. Stachiw | 2006 | $ | 223,173 | $ | 349,212 | $ | 251,700 | $ | 824,085 | |||||||||||
— SVP/General Counsel and Secretary(1) | 2005 | $ | 204,583 | — | $ | 136,740 | $ | 341,323 | ||||||||||||
Malcolm M. Lorang | 2006 | $ | 214,135 | $ | 247,300 | $ | 237,500 | $ | 698,935 | |||||||||||
— SVP/Chief Technology Officer(2) | 2005 | $ | 202,250 | — | $ | 130,790 | $ | 333,040 |
(1) | Mr. Stachiw became a Senior Vice President during 2006. | |
(2) | Mr. Lorang became a Senior Vice President during 2006. | |
(3) | The value of the option awards for 2006 is determined using the fair value recognition provisions of SFAS 123(R), which was effective January 1, 2006. For option awards during the year ended December 31, 2005, in accordance with APB 25, the following amounts were included as non-cash compensation expense in the 2005 audited consolidated financial statements for Messrs. Linquist, Carter, Young, and Lorang, respectively: $83,199, $6,521, $28,473 and $289,800. See Note 2 “Summary of Significant Accounting Policies” to the consolidated financial statements contained elsewhere in this offering circular for further discussion of the accounting treatment for these options. | |
(4) | During 2005 and 2006, MetroPCS Communications awarded annual cash incentive bonuses pursuant to a written annual cash incentive plan. This plan provides for the award of annual cash bonuses based upon targets and maximum bonus payouts set by the board of directors at the beginning of each fiscal year. See “— Discussion of Summary Compensation and Plan-Based Awards Tables — Material Terms of Plan-Based Awards.” |
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All Other | ||||||||||||||||||||||||||||
Option | ||||||||||||||||||||||||||||
Awards: | Exercise | |||||||||||||||||||||||||||
Number of | or Base | |||||||||||||||||||||||||||
Estimated Future Payouts | Securities | Price of | ||||||||||||||||||||||||||
Under Non-Equity Incentive | Underlying | Option | ||||||||||||||||||||||||||
Grant | Grant Date | Plan Awards(4) | Options | Awards | ||||||||||||||||||||||||
Name & Principal Position | Date | Fair Value(3) | Threshold | Target | Maximum | (#) | ($/Share) | |||||||||||||||||||||
Roger D. Linquist | $ | 0 | $ | 480,000 | $ | 960,000 | — | — | ||||||||||||||||||||
— President and CEO | 3/14/2006 | $ | 1,676,633 | — | — | — | 513,900 | 7.15 | ||||||||||||||||||||
12/22/2006 | $ | 8,907,975 | — | — | — | 2,250,000 | 11.33 | |||||||||||||||||||||
J. Braxton Carter | $ | 0 | $ | 221,250 | $ | 442,500 | — | — | ||||||||||||||||||||
— Senior VP/CFO | 3/14/2006 | $ | 446,319 | — | — | — | 136,800 | 7.15 | ||||||||||||||||||||
12/22/2006 | $ | 2,375,460 | — | — | — | 600,000 | 11.33 | |||||||||||||||||||||
Robert A. Young | $ | 0 | $ | 255,000 | $ | 510,000 | — | — | ||||||||||||||||||||
— Executive VP Market | 3/14/2006 | $ | 745,823 | — | — | — | 228,600 | 7.15 | ||||||||||||||||||||
Operations — East | 12/22/2006 | $ | 2,375,460 | — | — | — | 600,000 | 11.33 | ||||||||||||||||||||
Mark A. Stachiw | $ | 0 | $ | 149,500 | $ | 299,000 | — | — | ||||||||||||||||||||
— Senior VP/General Counsel | 3/14/2006 | $ | 61,663 | — | — | — | 18,900 | 7.15 | ||||||||||||||||||||
and Secretary(1) | 3/14/2006 | $ | 195,754 | — | — | — | 60,000 | 7.15 | ||||||||||||||||||||
12/22/2006 | $ | 1,781,595 | — | — | — | 450,000 | 11.33 | |||||||||||||||||||||
Malcolm M. Lorang | $ | 0 | $ | 143,000 | $ | 286,000 | — | |||||||||||||||||||||
— Senior VP/Chief Technology | 3/14/2006 | $ | 178,136 | — | — | — | 54,600 | 7.15 | ||||||||||||||||||||
Officer(2) | 3/14/2006 | $ | 195,754 | — | — | — | 60,000 | 7.15 | ||||||||||||||||||||
12/22/2006 | $ | 593,865 | — | — | — | 150,000 | 11.33 |
(1) | Mr. Stachiw became a Senior Vice President during 2006. | |
(2) | Mr. Lorang became a Senior Vice president during 2006. | |
(3) | The value of the option awards for 2006 is determined using the fair value recognition provisions of SFAS 123(R) which was effective January 1, 2006. | |
(4) | During 2005 and 2006 MetroPCS Communications awarded annual cash incentive bonuses pursuant to a written Bonus Opportunity Plan. This plan provides for the award of annual cash bonuses based upon targets and maximum bonus payouts set by the board of directors at the beginning of each fiscal year. See “— Discussion of Summary Compensation and Plan-Based Awards Tables — Material Terms of Plan-Based Awards.” The actual amount paid to each named executive officer pursuant to the Bonus Opportunity Plan for the fiscal year ended December 31, 2006 is set forth in the Summary Compensation Table under the column titled “Non-Equity Incentive Plan Compensation.” See “— Summary of Compensation.” |
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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.
At present, there is no pending litigation or proceeding involving any of our directors, officers, employees or agents where indemnification would be required or permitted. We are not aware of any threatened litigation or proceeding that might result in a claim for such indemnification.
Executive Compensation
The following table sets forth the cash Program.”
Summary Compensation Table
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Option Grants in Last Fiscal Year
The following table contains additional information concerning the stock option grants made to each of the named executive officers during the fiscal year ended December 31, 2003.
Number of Securities Underlying Options Granted (1) (2) | Individual Grants | Expiration Date | Potential Realizable Value at Assumed Annual Rate of Stock Price | ||||||||||||||||
Name | % of Total Options Granted to Employees in Fiscal Year | Exercise Price Per Share | 0% | 5% | 10% | ||||||||||||||
Roger D. Linquist | 57,000 | 5.62 | % | $ | 4.70 | 9/16/2013 | $ | 929,100 | $ | 1,681,887 | $ | 2,836,810 | |||||||
Robert A. Young | 37,500 | 3.70 | 4.70 | 6/24/2013 | 611,250 | 1,106,505 | 1,866,322 | ||||||||||||
Dennis G. Spickler | 28,500 | 2.81 | 4.70 | 9/16/2013 | 464,550 | 840,943 | 1,418,405 | ||||||||||||
Frank J. Bell | 23,250 | 2.29 | 4.70 | 9/16/2013 | 378,975 | 686,033 | 1,157,120 | ||||||||||||
Herbert “Chip” Graves, IV | — | — | — | — | — | — | — |
Aggregated Option Exercises in 2003 and Fiscal Year-End Option Values
The following table sets forth information concerning options exercised during the last fiscal year and held as of December 31, 2003 by each of the named executive officers. To date, all shares acquired pursuant to the exercise of options have been fully vested on the date of exercise.
Shares Acquired on Exercise | Value Realized (1) | Number of Shares Underlying at December 31, 2003 | Value of Unexercised In-the-Money Options at | ||||||||||||
Exercisable (2) | Unexercisable (3) | Exercisable | Unexercisable | ||||||||||||
Roger D. Linquist | — | $ | — | 4,198,450 | — | $ | 46,383,493 | $ | — | ||||||
Robert A. Young | — | — | 162,500 | — | 1,088,750 | — | |||||||||
Dennis G. Spickler | 65,500 | 729,179 | 499,400 | — | 5,264,623 | — | |||||||||
Frank J. Bell | — | — | 83,250 | — | 557,775 | — | |||||||||
Herbert “Chip” Graves, IV | — | — | 55,000 | — | 368,500 | — |
Equity Compensation Plans
2004 Plan.
Our second amended and restated 1995 stock option plan, which we refer to as our 1995 stock option plan, provides for the grant of options to acquire shares of our common stock. Incentive and nonqualified options may be granted to our employees, directors, consultants and other independent advisors. The maximum number of shares of common stock that may be issued under our 1995 stock option plan2004 Plan is currently 12,321,500 shares, subject to adjustments upon specified corporate events. In the discretion of the compensation committee, the exercise price for options granted prior to the consummation of this offering may be less than, equal to or greater than the fair market value of the underlying common stock on the option grant date. However, the exercise price for options granted after the consummation of this offering may not be less than the fair market value of the underlying common stock on the option grant date. Options shall have such exercise and other terms as may be established by the compensation committee, but may not be granted for terms greater than 15 years. Options
may be granted for shares of common stock which will vest over time in accordance with schedules establishedadministered by the compensation committee of our board of directors. Option holders have the right to exercise these options immediately, even if the vesting criteria have not been met. If an option for unvested shares of common stock is exercised, the option holder is restricted from selling the unvested restricted shares prior to their vesting and if the option holder’s service with us is terminated, we may repurchase any and all of their unvested shares at a price equal to the aggregate exercise price paid for such shares. Our 1995 stock optionAs plan also provides thatadministrator, the compensation committee may, withhas full authority to (i) interpret the consent of the affected option holders, reprice outstanding options or cancel2004 Plan and regrant options onall awards thereunder, (ii) make, amend and rescind such termsrules as it deems appropriate. Stockholder approval is also required for any repricing.
2004 Equity Incentive Compensation Plan
Our 2004 equity incentive compensation plan providesnecessary for the administration of the 2004 Plan, (iii) make all determinations necessary or advisable for the administration of the 2004 Plan, and (iv) make any corrections to the 2004 Plan or an award deemed necessary by the compensation committee to effectuate the 2004 Plan. All awards under the 2004 Plan are granted by our compensation committee in its discretion, but historically all awards to executive officers are approved by our board of directors based on the recommendations of our compensation committee.
such award shall be released from such award and shall thereafter be available under the 2004 Plan for the grant of additional awards.
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Purchased Stock. The plan provides that we may sellacquire shares of our common stock at a fixed price for a fixed period of time and generally are subject to a vesting requirement. A stock option will be in the form of a nonqualified stock option or an incentive stock options. The exercise price is set by our employees, directors and consultants on such terms as the compensation committee may establish. The price per share of common stock tobut cannot be purchased may be equal to or less than the fair market value of the common stock on the date of purchase.
Bonus Stock. We may grant shares of bonus stock under the plan to our employees, directors and consultants for the performance of services by such individuals without additional consideration except as may be required by the compensation committee.
Stock Appreciation Rights. The plan also provides that we may grant rights to receive, in either cash or shares of common stock, the excess100% of the fair market value of our common stock on the date of grant, or, in the case of incentive stock options granted to an employee who owns 10% or more of total combined voting power of our common stock, or a 10% owner, the exercise overprice cannot be less than 110% of the grant price as determined byfair market value of our common stock on the date grant. The term of a stock option may not exceed ten years or five years in the case of incentive stock options granted to a 10% owner. With stockholder approval, our compensation committee whichmay grant to the holder of outstanding nonqualified stock option a replacement options with lower (or higher with consent) exercise price shall notthan the exercise price of the replaced options.
Phantom Stock. Under the plan, we may grant rights to receive a specified number of shares of our common stock over a specified grant price. Phantom stock awards are rights to receive cash equal to the fair market value of a specified number of shares of our common stock or a combination thereof at the end of a specified deferral period. We refer to theseStock appreciation rights as phantom stock awards. Such awards may be subject togranted in tandem with options. All stock appreciation rights granted under our 2004 Plan must have a grant price per share that is not less than the achievementfair market value of performance goals and specified restrictions, including a risk of forfeiture, which restrictions may lapse at the expiration of the deferral period or at earlier specified times. The term of any phantom stock award may not exceed ten years.
Restricted Stock Awards. We may also grant awards in the form of restricted sharesshare of our common stock. Thesestock on date of the grant.
Performance Awards. We may grant shares of our common stock cash or a combination thereofthat are subject to plan participants upon the attainment of certaincancellation, restrictions and vesting conditions, as determined by our compensation committee.
Other Stock or Performance-Based Awards. The plan also permits other stock or performance-based awards that are denominated ormay be payable in valued in whole or in part by reference to, or otherwise based on or related to our common stock (including units or securities convertible into shares of our common stock) or cash. The terms and conditions of any such awards will be determined by the compensation committee.
Employment Contracts and Change of Control Arrangements
We do not presently have any employment contracts in effect with any of our named executive officers.
Our equity compensation plans provide for the accelerated vesting of the shares of our common stock, subjectcash or any combination thereof as determined by our compensation committee.
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• | incentivize and reward individuals whose accountability, performance and potential is critical to our success; | |
• | encourage long-term focus and provide a strong link to stockholder interests and foster a shared commitment to move the business towards our long-range objectives; | |
• | deliver a competitive “total reward” package to attract and retain staff in a highly competitive industry; and | |
• | create a direct link between company results and employee rewards. |
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Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
Equity | ||||||||||||||||||||||||||||||||||||
Incentive | ||||||||||||||||||||||||||||||||||||
Plan | ||||||||||||||||||||||||||||||||||||
Equity | Awards: | |||||||||||||||||||||||||||||||||||
Incentive | Market | |||||||||||||||||||||||||||||||||||
Awards: | or Payout | |||||||||||||||||||||||||||||||||||
Equity | Number of | Value of | ||||||||||||||||||||||||||||||||||
Incentive | Market | Unearned | Unearned | |||||||||||||||||||||||||||||||||
Plan | Value of | Shares, | Shares, | |||||||||||||||||||||||||||||||||
Awards; | Number | Shares or | Units or | Units or | ||||||||||||||||||||||||||||||||
Number of | Number of | Number of | of Shares | Units of | Other | Other | ||||||||||||||||||||||||||||||
Securities | Securities | Securities | or Units of | Stock | Rights | Rights | ||||||||||||||||||||||||||||||
Underlying | Underlying | Underlying | Stock That | That Have | That Have | That Have | ||||||||||||||||||||||||||||||
Unexercised | Unexercised | Unexercised | Option | Option | Have Not | Not | Not | Not | ||||||||||||||||||||||||||||
Options (#) | Options (#) | Unearned | Exercise | Expiration | Vested | Vested | Vested | Vested | ||||||||||||||||||||||||||||
Name | Exercisable(1) | Unexercisable(1) | Options (#) | Price | Date | (#) | ($) | (#) | ($) | |||||||||||||||||||||||||||
Roger D. Linquist | 25,155 | (2) | — | — | $ | 5.49 | 3/11/2014 | — | — | — | — | |||||||||||||||||||||||||
President and CEO | 520,800 | (3) | — | — | $ | 7.13 | 8/3/2015 | — | — | — | — | |||||||||||||||||||||||||
1,209 | (4) | 1,209 | (4) | — | $ | 7.15 | 12/30/2015 | — | �� | — | — | — | ||||||||||||||||||||||||
— | 513,900 | (13) | $ | 7.15 | 3/14/2016 | |||||||||||||||||||||||||||||||
— | 2,250,000 | (15) | $ | 11.33 | 12/22/2016 | |||||||||||||||||||||||||||||||
J. Braxton Carter | 6,969 | (2) | — | — | $ | 5.49 | 3/11/2014 | — | — | — | — | |||||||||||||||||||||||||
SVP/CFO | 60,000 | (5) | — | — | $ | 6.31 | 3/31/2015 | — | — | — | — | |||||||||||||||||||||||||
165,057 | (3) | — | — | $ | 7.13 | 8/3/2015 | — | — | — | — | ||||||||||||||||||||||||||
3,516 | (3) | 4,527 | (3) | — | $ | 7.13 | 8/3/2015 | |||||||||||||||||||||||||||||
333 | (4) | 336 | (4) | — | $ | 7.15 | 12/30/2015 | |||||||||||||||||||||||||||||
— | 136,800 | (13) | $ | 7.15 | 3/14/2016 | |||||||||||||||||||||||||||||||
— | 600,000 | (16) | $ | 11.33 | 12/22/2016 | |||||||||||||||||||||||||||||||
Robert A. Young | 7,911 | (2) | — | — | $ | 5.49 | 3/11/2014 | — | — | — | — | |||||||||||||||||||||||||
EVP Market | 126,393 | (3) | 162,507 | (3) | — | $ | 7.13 | 8/3/2015 | — | — | — | — | ||||||||||||||||||||||||
Operations | 381 | (4) | 381 | (4) | — | $ | 7.15 | 12/30/2015 | — | — | — | — | ||||||||||||||||||||||||
— | 228,600 | (13) | $ | 7.15 | 3/14/2016 | |||||||||||||||||||||||||||||||
— | 600,000 | (16) | $ | 11.33 | 12/22/2016 | |||||||||||||||||||||||||||||||
Mark A. Stachiw | 120,000 | (6) | — | — | $ | 5.47 | 10/12/2014 | — | — | — | — | |||||||||||||||||||||||||
SVP/General | 37,500 | (7) | 82,500 | (7) | — | $ | 7.15 | 9/21/2015 | — | — | — | — | ||||||||||||||||||||||||
Counsel and | 16,608 | (4) | 16,608 | (4) | — | $ | 7.15 | 12/30/2015 | — | — | — | — | ||||||||||||||||||||||||
Secretary | — | 18,900 | (13) | $ | 7.15 | 3/14/2016 | ||||||||||||||||||||||||||||||
— | 60,000 | (13) | $ | 7.15 | 3/14/2016 | |||||||||||||||||||||||||||||||
— | 450,000 | (16) | $ | 11.33 | 12/22/2016 | |||||||||||||||||||||||||||||||
Malcolm M. Lorang | 285,444 | (8) | — | — | $ | 0.08 | 7/1/2009 | — | — | — | — | |||||||||||||||||||||||||
SVP/Chief | 36,792 | (9) | — | — | $ | 1.57 | 7/1/2012 | — | — | — | — | |||||||||||||||||||||||||
Technology | 24,108 | (10) | — | — | $ | 1.92 | 7/1/2012 | — | — | — | — | |||||||||||||||||||||||||
Officer | 21,093 | (11) | — | — | $ | 1.57 | 10/30/2013 | — | — | — | — | |||||||||||||||||||||||||
46,407 | (12) | — | — | $ | 3.13 | 10/30/2013 | — | — | — | — | ||||||||||||||||||||||||||
23,061 | (2) | — | — | $ | 5.49 | 3/11/2014 | — | — | — | — | ||||||||||||||||||||||||||
68,700 | (3) | — | — | $ | 7.13 | 8/3/2015 | — | — | — | — | ||||||||||||||||||||||||||
8,592 | (4) | 8,589 | (4) | — | $ | 7.15 | 12/30/2015 | — | — | — | — | |||||||||||||||||||||||||
— | 54,600 | (13) | $ | 7.15 | 3/14/2016 | |||||||||||||||||||||||||||||||
— | 150,000 | (14) | $ | 11.33 | 12/22/2016 | — | — | — | — |
(1) | Unless otherwise noted, options vest over a period of four years as follows: twenty-five percent (25%) of the option vests on the first anniversary of service beginning on the “Vesting Commencement Date” (as defined in the Employee Non-Qualified Option Grant Agreement). The remainder vests upon the optionee’s completion of each additional month of service, in a series of thirty-six (36) successive, equal monthly installments beginning with the first anniversary of the Vesting Commencement Date. | |
(2) | Options granted on March 11, 2004. Options repriced from $4.97 to $5.49 on December 28, 2005. | |
(3) | Options granted on August 3, 2005. |
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(4) | Options granted on December 30, 2005 and vest over a one-year period as follows: fifty percent (50%) of the underlying shares vest on January 1, 2006 and the remaining fifty percent (50%) of the shares vest on January 1, 2007. | |
(5) | Options granted on March 31, 2005. | |
(6) | Options granted on October 12, 2004. Options repriced from $3.97 to $5.47 on December 28, 2005. | |
(7) | Options granted on September 21, 2005. | |
(8) | Options granted July 1, 1999 and vested ratably in a series of forty eight (48) successive equal monthly installments ending July 1, 2003. | |
(9) | Options granted on July 1, 2002. | |
(10) | Options granted on July 1, 2002. Options repriced from $1.57 to $1.92 on December 28, 2005. | |
(11) | Options granted on October 30, 2003. | |
(12) | Options granted on October 30, 2003. Options repriced from $1.57 to $3.13 on December 28, 2005. | |
(13) | Options granted on March 14, 2006. | |
(14) | Options granted on December 22, 2006 and vest over a period of 2 years ending December 22, 2008. | |
(15) | Options granted on December 22, 2006 and vest over a period of 3 years ending December 22, 2009. | |
(16) | Options granted on December 22, 2006. |
• | an annual retainer of $15,000, plus $2,000 if such member serves as the chairman of the finance, compensation or the nominating and governance committee of the board of directors and $5,000 if such member serves as chairman of the audit committee of the board of directors, which amount may be payable in cash, common stock, or a combination of cash and common stock; | |
• | any payments of annual retainer made in common stock shall be for a number of shares that is equal to (a) the portion of the annual retainer to be paid in common stock divided by the fair market value of the common stock on the date of payment of the annual retainer (b) times three; | |
• | an initial grant of 120,000 options to purchase common stock plus an additional 30,000 or 9,000 options to purchase common stock if the member serves as the chairman of the audit committee or as chairman of any of the other committees of the board of directors, respectively; |
148
• | an annual grant of 30,000 options to purchase common stock plus an additional 15,000 or 6,000 options to purchase common stock if the member serves as the chairman of the audit committee or as chairman of any of the other committees of the board of directors, respectively; | |
• | $1,500 for each in-person board of directors meeting and $750 for each telephonic meeting of the board of directors attended; and | |
• | $1,500 for each in-person Committee Paid Event (as defined in our Non-Employee Director Remuneration Plan) and $750 for each telephonic Committee Paid Event attended and the chairman of the committee receives an additional $500 for each in-person Committee Paid Event and $250 for each telephonic Committee Paid Event attended. |
Change in | ||||||||||||||||||||||||||||
Pension Value & | ||||||||||||||||||||||||||||
Fees | Non-qualified | |||||||||||||||||||||||||||
Earned | Non-Equity | Deferred | ||||||||||||||||||||||||||
or Paid | Stock | Option | Incentive Plan | Compensation | All Other | |||||||||||||||||||||||
Name | in Cash | Awards(1) | Awards(2)(11) | Compensation | Earnings | Compensation | Total | |||||||||||||||||||||
W. Michael Barnes(3) | $ | 29,750 | $ | 59,981 | $ | 196,226 | — | — | — | $ | 285,957 | |||||||||||||||||
Harry F. Hopper, III(4) | $ | 13,250 | $ | 44,980 | $ | 46,825 | — | — | — | $ | 105,055 | |||||||||||||||||
Arthur C. Patterson(5) | $ | 44,250 | $ | 50,989 | $ | 115,270 | — | — | — | $ | 210,509 | |||||||||||||||||
John Sculley(6) | $ | 23,000 | $ | 50,960 | $ | 98,907 | — | — | — | $ | 172,867 | |||||||||||||||||
James F. Wade(7) | $ | 12,000 | $ | 50,989 | $ | 42,440 | — | — | — | $ | 105,429 | |||||||||||||||||
Walker C. Simmons(8) | $ | 5,250 | $ | 44,980 | $ | 79,174 | — | — | — | $ | 129,404 | |||||||||||||||||
C. Kevin Landry(9) | $ | 64,055 | $ | 0 | $ | 167,414 | — | — | — | $ | 231,469 | |||||||||||||||||
James N. Perry, Jr.(10) | $ | 45,250 | $ | 61,719 | $ | 176,267 | — | — | — | $ | 283,236 |
(1) | Stock awards issued to members of the board of directors are recorded at market value on the date of issuance. | |
(2) | The value of the option awards is determined using the fair value recognition provisions of SFAS 123(R), which was effective January 1, 2006. | |
(3) | Includes 8,385 stock awards and 197,487 option awards outstanding as of December 31, 2006. | |
(4) | Includes 6,288 stock awards and 0 option awards outstanding as of December 31, 2006. Mr. Hopper resigned as a director in May 2006. Mr. Hopper’s resignation was not caused by a disagreement with us or management. | |
(5) | Includes 7,128 stock awards and 376,524 option awards outstanding as of December 31, 2006. | |
(6) | Includes 6,978 stock awards and 580,428 option awards outstanding as of December 31, 2006. | |
(7) | Includes 7,128 stock awards and 295,305 option awards outstanding as of December 31, 2006. | |
(8) | Includes 5,190 stock awards and 120,000 option awards outstanding as of December 31, 2006. Mr. Simmons previously served as a director from December 2004 until March 2005, when he resigned. Mr. Simmons’ resignation was not caused by a disagreement with us or management. Mr. Simmons was reappointed to the board in June 2006. | |
(9) | Includes 0 stock awards and 150,000 option awards outstanding as of December 31, 2006. | |
(10) | Includes 8,628 stock awards and 159,000 option awards outstanding as of December 31, 2006. |
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(11) | The following summarizes the grant date, fair value of each award granted during 2006, computed in accordance with SFAS No. 123(R): |
Number of | Exercise or | |||||||||||||||
Securities | Base Price | |||||||||||||||
Underlying | of Option | Grant Date | ||||||||||||||
Grant | Options | Awards | Fair Value | |||||||||||||
Name | Date | (#) | ($/share) | ($) | ||||||||||||
W. Michael Barnes | 3/14/2006 | 45,000 | $ | 7.15 | $ | 146,816 | ||||||||||
Harry F. Hopper, III | 3/14/2006 | 30,000 | $ | 7.15 | $ | 97,877 | ||||||||||
Arthur C. Patterson | 3/14/2006 | 39,000 | $ | 7.15 | $ | 127,240 | ||||||||||
John Sculley | 3/14/2006 | 30,000 | $ | 7.15 | $ | 97,877 | ||||||||||
6/28/2006 | 9,000 | $ | 7.54 | $ | 31,518 | |||||||||||
James F. Wade | 3/14/2006 | 36,000 | $ | 7.15 | $ | 117,452 | ||||||||||
Walker C. Simmons | 12/22/2006 | 120,000 | $ | 11.33 | $ | 475,092 | ||||||||||
C. Kevin Landry | 3/14/2006 | 30,000 | $ | 7.15 | $ | 97,877 | ||||||||||
James N. Perry, Jr. | 3/14/2006 | 39,000 | $ | 7.15 | $ | 127,240 |
150
• | each of our directors; | |
• | each named executive officer; | |
• | all of our directors and executive officers as a group; and | |
• | each person known by us to beneficially own more than 5% of the outstanding shares of our common stock. |
Common Stock | ||||||||
Beneficially Owned | ||||||||
Number | Percentage | |||||||
Directors and Named Executive Officers(1): | ||||||||
Roger D. Linquist(2) | 7,559,727 | 2.18 | % | |||||
J. Braxton Carter(3) | 285,261 | * | ||||||
Robert A. Young(4) | 238,028 | * | ||||||
Mark A. Stachiw(5) | 166,872 | * | ||||||
Malcolm M. Lorang(6) | 739,298 | * | ||||||
John Sculley(7) | 1,372,627 | * | ||||||
James F. Wade(8)(15) | 25,013,015 | 7.21 | % | |||||
Arthur C. Patterson(9) | 37,837,961 | 10.90 | % | |||||
W. Michael Barnes(10) | 203,531 | * | ||||||
C. Kevin Landry(11)(17) | 37,789,567 | 10.90 | % | |||||
James N. Perry, Jr.(12)(16) | 38,671,394 | 11.15 | % | |||||
Walker C. Simmons(13) | — | — | ||||||
All directors and executive officers as a group (12 persons) | 156,830,058 | 44.79 | % | |||||
Beneficial Owners of More Than 5%: | ||||||||
Accel Partners, et al(14) | 31,604,109 | 9.11 | % | |||||
428 University Ave | ||||||||
Palo Alto, CA 94301 | ||||||||
First Plaza Group Trust | 22,524,561 | 6.50 | % | |||||
One Chase Manhattan Plaza, 17th Floor | ||||||||
New York, NY 10005 | ||||||||
M/C Venture Partners, et al(15)(8) | 25,013,015 | 7.21 | % | |||||
75 State Street | ||||||||
Boston, MA 02109 | ||||||||
Madison Dearborn Capital Partners IV, L.P.(16)(12) | 38,671,394 | 11.15 | % | |||||
Three First National Plaza, Suite 3800 | ||||||||
Chicago, IL 60602 | ||||||||
TA Associates, et al(17)(11) | 37,789,567 | 10.90 | % | |||||
John Hancock Tower — 56th Floor | ||||||||
200 Clarendon Street | ||||||||
Boston, MA 012116 |
151
* | Represents less than 1% | |
(1) | Unless otherwise indicated, the address of each person is c/o MetroPCS Communications, Inc., 8144 Walnut Hill Lane, Suite 800, Dallas, Texas 75231. | |
(2) | Includes 708,966 shares of common stock issuable upon exercise of options granted under our Equity Compensation Plans, 5,320,761 shares of common stock held directly by Mr. Linquist, and 1,530,000 shares of common stock held by THCT Partners, LTD, a partnership with which Mr. Linquist is affiliated and may be deemed to be a member of a “group” underSection 13d-3 of the Exchange Act and may be deemed to share votingand/or investment power with respect to the shares owned by such entities. Mr. Linquist disclaims beneficial ownership of such shares, except to the extent of his interest in such shares arising from his interests in THCT Partners, LTD. Mr. Linquist has dispositive power with respect to the common stock held by THCT Partners, LTD. | |
(3) | Includes 269,300 shares of common stock issuable upon exercise of options granted under our Equity Compensation Plans. | |
(4) | Includes 222,710 shares of common stock issuable upon exercise of options granted under our Equity Compensation Plans. | |
(5) | Includes 166,872 shares of common stock issuable upon exercise of options granted under our Equity Compensation Plans. | |
(6) | Includes 561,098 shares of common stock issuable upon exercise of options granted under our Equity Compensation Plans. | |
(7) | Includes 563,594 shares of common stock issuable upon exercise of options granted under our Equity Compensation Plans. | |
(8) | Includes 281,309 shares of common stock issuable upon exercise of options granted under our Equity Compensation Plans. All shares attributed to Mr. Wade are owned directly by M/C Venture Investors, LLC,M/C Venture Partners IV, LP, M/C Venture Partners V, LP, and Chestnut Venture Partners LP, with which Mr. Wade is affiliated and may be deemed to be a member of a “group” (hereinafter referred to as M/C Venture Partners, et al) underSection 13d-3 of the Exchange Act and may be deemed to share votingand/or investment power with respect to the shares owned by such entities. Mr. Wade disclaims beneficial ownership of such shares, except to the extent of his interest in such shares arising from his interests in M/C Venture Partners, et al. | |
(9) | Includes 360,939 shares of common stock issuable upon exercise of options granted to Mr. Patterson under our Equity Compensation Plans and 12,888 shares of common stock held directly by Mr. Patterson. All other shares attributed to Mr. Patterson are owned directly by Accel Internet Fund III L.P., Accel Investors ‘94 L.P., Accel Investors ‘99 L.P., Accel IV L.P., Accel Keiretsu L.P., Accel VII L.P., ACP Family Partnership L.P., Ellmore C. Patterson Partners, BrandyTrust Private Equity Partners L.P., Brandywine-Anne Hyde Pattersonc/o A.O. Choate, Brandywine-Caroline Choate de Chazal Trust U/A 2-10-56, Brandywine-David C. Patterson U/A 2-10-56, Brandywine-Jane C. Beck TrustU/A 2-10-56, Brandywine-Michael E. Patterson Trust U/A 2-10-56, Brandywine-Robert E. Patterson TrustU/A 2-10-56 and Brandywine-Thomas HC Patterson Trust U/A 2-10-56, with which Mr. Patterson is affiliated and may be deemed to be a member of a “group” underSection 13d-3 of the Exchange Act and may be deemed to share votingand/or investment power with respect to the shares owned by such entities. Mr. Patterson disclaims beneficial ownership of such shares, except to the extent of his interest in such shares arising from his interests in Accel Partners, et al. | |
(10) | Includes 179,987 shares of common stock issuable upon exercise of options granted under our Equity Compensation Plans. | |
(11) | Includes 88,332 shares of common stock issuable upon exercise of stock options granted to Mr. Landry under our Equity Compensation Plans. All other shares attributed to Mr. Landry are owned directly by TA Atlantic and Pacific V L.P., TA Investors II L.P., TA IX L.P., TA Strategic Partners Fund A L.P., TA Strategic Partners Fund B L.P. and TA/Atlantic and Pacific IV L.P., with which Mr. Landry is affiliated and may be deemed to be a member of a “group” (hereinafter referred to as TA Associates, et al) underSection 13d-3 of the Exchange Act and may be deemed to share votingand/or investment power with respect to the shares owned by such entities. Mr. Landry disclaims beneficial ownership of such shares, except to the extent of his interest in such shares arising from his interests in TA Associates, et al. | |
(12) | Includes 90,082 shares of common stock issuable upon exercise of options granted to Mr. Perry under our Equity Compensation Plans. All other shares attributed to Mr. Perry are owned directly by Madison Dearborn Capital Partners IV, L.P. and Madison Dearborn Partners IV, L.P. with which Mr. Perry is affiliated and may be deemed to be a member of a “group” (hereinafter referred to as Madison Dearborn Capital Partners IV, L.P., et al) underSection 13d-3 of the Exchange Act and may be deemed to share votingand/or investment power with respect to the shares owned |
152
by such entities. Mr. Perry disclaims beneficial ownership of such shares, except to the extent of his interest in such shares arising from his interests in Madison Dearborn Capital Partners IV, L.P., et al. |
(13) | Mr. Simmons is a managing director of Wachovia Corporation (“Wachovia”), an affiliate of which owns 6,908,611 shares of common stock and 44,166 shares of common stock issuable upon exercise of options granted under our Equity Compensation Plans. Under his employment arrangement with Wachovia, Mr. Simmons holds all shares and options for the benefit of Wachovia and its affiliates and, consequently, Mr. Simmons disclaims beneficial ownership of all shares and options held directly by him as well as those owned by Wachovia and its affiliates, except to the extent of his pecuniary interest therein. | |
(14) | Accel Partners, et al (consisting of Accel Internet Fund III L.P., Accel Investors ‘94 L.P., Accel Investors ‘99 L.P., Accel IV LP, Accel Keiretsu L.P. and Accel VII L.P.), may be deemed to be a “group” underSection 13d-3 of the Exchange Act. Includes 31,243,170 shares of common stock and 360,939 shares of common stock issuable upon exercise of options granted under our Equity Compensation Plans, which are held directly by Arthur C. Patterson. | |
(15) | M/C Venture Partners, et al (consisting of M/C Venture Investors, LLC, M/C Venture Partners IV, LP, M/C Venture Partners V, LP, and Chestnut Venture Partners LP) may be deemed to be a “group” underSection 13d-3 of the Exchange Act. Includes an aggregate of 281,309 shares of common stock issuable upon exercise of options granted under our Equity Compensation Plans. | |
(16) | Madison Dearborn Capital Partners IV, L.P., et al (consisting of Madison Dearborn Capital Partners IV, L.P. and Madison Dearborn Partners IV, L.P.) may be deemed to be a “group” underSection 13d-3 of the Exchange Act. Includes 90,082 shares of common stock issuable upon exercise of options granted under our Equity Compensation Plans and held directly by Mr. Perry. | |
(17) | TA Associates, et al (consisting of TA Atlantic and Pacific V L.P., TA Investors II L.P., TA IX L.P., TA Strategic Partners Fund A L.P., TA Strategic Partners Fund B L.P. and TA/Atlantic and Pacific IV L.P.) may be deemed to be a “group” underSection 13d-3 of the Exchange Act. Includes 88,332 shares of common stock issuable upon exercise of options granted under our Equity Compensation Plans and held directly by Mr. Landry. |
153
Employment of Immediate Family Members
March 11, 2014.
March 11, 2014.
Michael D. Loverde, the son of our Vice President and General Manager, Georgia, Albert S. Loverde, has served as our Director of Advertising and Public Relations for our Atlanta market since August 2001.$55,129. In 2003, we paid Mr. Loverde a salary of $94,963 and a bonus of $20,000, and2004, we granted Mr. LoverdeTerry options to purchase up to 3,50048,000 and 34,551 shares of our common stock at an exercise price of $4.70$1.80 and $4.97 per share. Suchshare, respectively. These options expire on October 30, 2013.January 27, 2014 and March 11, 2014, respectively.
Ginger L. Loverde, the daughter-in-law of our Vice President and General Manager, Georgia, Albert S. Loverde, has served as our Customer Operations Specialist for our Atlanta market since February 2001. In 2003, we paid Ms. Loverde a salary of $55,839 and a bonus of $6,500. In 2002, we paid Ms. Loverde a salary of $53,750 and a bonus of $8,000.
Karen L. Albregts, the daughter of our Vice President and General Manager, Georgia, Albert S. Loverde, has served as our Radio Frequency Engineer for our Atlanta market since June 2002. In 2003, we paid Ms. Albregts a salary of $76,112 and a bonus of $5,000. In 2002, we paid Ms. Albregts a salary of $35,217,$29,930, and we granted Ms. Albregtsher options to purchase up to 4,5009,750 shares to acquire our common stock at an exercise price of $7.15 per share. These options expire on March 14, 2016. In 2005, we paid Mrs. Linquist a salary of $90,333 and a bonus of $9,930, and we granted her options to purchase up to 22,500 shares of our common stock at an exercise price of $4.70$7.15 per share. SuchThese options expire on AugustSeptember 21, 2015. In 2004, we paid Mrs. Linquist a salary of $39,602 and we granted her options to purchase up to 11,400 shares of our common stock at an exercise price of $4.04 per share. These options expire on September 14, 2012.2014.
154
Legal Services Performed
OneCleveland Unlimited, LLC, or CU LLC. M/C Venture Partners, one of our largest stockholders, and Columbia Capital, also a stockholder, each own 44.6% of the membership interests of CU LLC. Additionally, James F. Wade, one of our current directors, and Harry F. Hopper, III, one of our former directors, are directors of Revol. Amounts due under the TEA are not fixed. For the first six months of the TEA, plus the later of one month or the date the parties elect to bill each other, traffic is exchanged for no charge. Afterwards, each party pays the other party on a per minute basis for directing telecommunications traffic to its network. This agreement was negotiated as an arms-length transaction and we believe it represents market terms. Our audit committee reviewed and recommended to our board of directors that this transaction be approved and our board of directors has approved this transaction.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information asAsurion. For the years ended December 31, 2006, 2005 and 2004, we sold approximately $12.7 million, $13.2 million and $12.5 million in handsets, respectively, to Asurion. Our arrangements with Asurion were negotiated at arms-length, and we believe they represent market terms. Our audit committee reviewed and recommended to our board of May 31, 2004 regardingdirectors that this relationship be approved and ratified and our board of directors has approved and ratified this relationship.
Beneficial ownership is determined in accordance with the rules of the SEC. Unless otherwise indicated below and exceptPolicy on Authorizations, which includes specific provisions for related party transactions. Pursuant to the extent authority is shared by spouses under applicable law, to our knowledge, the persons named in the table have sole votingPolicy on Authorizations, related party transactions include related amounts receivable or payable, including sales, purchases, loans, transfers, leasing arrangements and investment power with respect to all shares of each class of capital stockguarantees, and shown as beneficially owned by them. The number of shares of common stock used to calculate each listed person’s percentage ownership of such class includes the shares of common stock underlying options, warrantsamounts receivable from or other convertible securities held by such person that are exercisable within 60 days of this offering. There are no currently outstanding options, warrants or other convertible securities exercisable for shares of Class A common stock. After giving effect to the conversion of our Class B common stock into common stock and our Series D preferred stock into common stock, there were 90 shares of Class A common stock and 85,106,870 shares of common stock outstanding as of May 31, 2004. The table below assumes no exercise of the underwriters’ over-allotment option and excludes shares of common stock to be issued in respect of unpaid dividends on our outstanding Series D preferred stock that have accumulated subsequent to May 31, 2004.
Other than as disclosed below, no selling stockholder holds or has held during the past three years any position, office or other material relationship with us.
After the Offering | |||||||||||||||||||||||||
Name and Address | Class A | Common Stock Beneficially Owned | Common Stock to be Sold in the Offering | Common Stock Beneficially Owned | Total Shares Beneficially Owned | Voting Percentage | |||||||||||||||||||
Number | Percentage | Number | Percentage | Number | Percentage | Number | Percentage | ||||||||||||||||||
Directors and Named Executive Officers: | |||||||||||||||||||||||||
Roger D. Linquist (2) | 60 | 66.7 | % | 5,959,507 | 6.7 | % | 515,651 | 5,443,856 | 5.4 | % | 5,443,916 | 5.4 | % | 36.1 | % | ||||||||||
J. Lyle Patrick (3) | — | — | 100,000 | * | — | 100,000 | * | 100,000 | * | * | |||||||||||||||
Dennis G. Spickler (4) | — | — | 691,669 | * | 55,430 | 636,239 | * | 636,239 | * | * | |||||||||||||||
Frank J. Bell (5) | — | — | 90,595 | * | 3,707 | 86,888 | * | 86,888 | * | * | |||||||||||||||
Herbert “Chip” Graves, IV (6) | — | — | 71,621 | * | 2,598 | 69,023 | * | 69,023 | * | * | |||||||||||||||
Robert A. Young (7) | — | — | 186,053 | * | 7,950 | 178,103 | * | 178,103 | * | * | |||||||||||||||
C. Boyden Gray (8) | 30 | 33.3 | % | 269,370 | * | 10,903 | 258,467 | * | 258,467 | * | 16.8 | % | |||||||||||||
John Sculley (9) | — | — | 512,219 | * | 54,504 | 457,715 | * | 457,715 | * | * | |||||||||||||||
Joseph T. McCullen, Jr. (10) | — | — | 209,551 | * | 37,650 | 171,901 | * | 171,901 | * | * | |||||||||||||||
Harry F. Hopper, III (11) | — | — | 3,071,285 | 3.6 | % | 308,563 | 2,762,722 | 3.2 | % | 2,762,722 | 3.2 | % | 1.6 | % | |||||||||||
Arthur C. Patterson (12) | — | — | 15,363,231 | 18.0 | % | — | 15,363,231 | 15.8 | % | 15,363,231 | 15.8 | % | 7.9 | % | |||||||||||
W. Michael Barnes | — | — | — | * | — | — | * | — | * | * | |||||||||||||||
Craig R. Stapleton (13) | — | — | 4,252,273 | 5.0 | % | 250,000 | 4,002,273 | 4.1 | % | 4,002,273 | 4.1 | % | 2.1 | % | |||||||||||
James F. Wade | — | — | — | * | — | — | * | — | * | * | |||||||||||||||
All directors and executive officers as a group (20 persons) | 90 | 100.0 | % | 33,028,772 | 35.6 | % | 1,422,210 | 31,606,562 | 30.1 | % | 31,606,652 | 30.0 | % | 66.2 | % | ||||||||||
Additional 5% and Selling Stockholders: | |||||||||||||||||||||||||
Accel Partners, et al (14) | — | — | 15,272,932 | 17.9 | % | — | 15,272,932 | 15.7 | % | 15,272,932 | 15.7 | % | 7.8 | % | |||||||||||
Auchincloss, Wadsworth & Co. L.P. | — | — | 182,386 | * | 16,369 | 166,017 | * | 166,017 | * | * | |||||||||||||||
BancAmerica Capital Investors SBIC I, LP | — | — | 1,490,530 | 1.8 | % | 373,132 | 1,117,398 | 1.2 | % | 1.2 | % | * | |||||||||||||
Battery Ventures III, L.P. (15) | — | — | 3,880,771 | 4.6 | % | 427,667 | 3,453,104 | 3.6 | % | 3,453,104 | 3.6 | % | 1.8 | % | |||||||||||
Ralph Baruch | — | — | 302,214 | * | 37,514 | 264,700 | * | 264,700 | * | * | |||||||||||||||
Berkeley Investments | — | — | 416,419 | * | 63,668 | 352,751 | * | 352,751 | * | * | |||||||||||||||
Dennis Bovin (45) | — | — | 21,150 | * | 3,172 | 17,978 | * | 17,978 | * | * | |||||||||||||||
BP Amoco Corporation Master Trust for Employee Pension Plans | — | — | 867,294 | 1.0 | % | 132,267 | 735,027 | * | 735,027 | * | * | ||||||||||||||
Erika Butler (16) | — | — | 50 | * | 6 | 44 | * | 44 | * | * | |||||||||||||||
J. Braxton Carter (17) | — | — | 101,090 | * | 4,933 | 95,157 | * | 95,157 | * | * | |||||||||||||||
Chestnut Venture Partners LP (18) | — | — | 239,122 | * | 59,427 | 179,695 | * | 179,695 | * | * | |||||||||||||||
Clarity Partners (19) | — | — | 3,177,541 | 3.7 | % | 797,123 | 2,380,418 | 2.5 | % | 2,380,418 | 2.5 | % | 1.2 | % | |||||||||||
Steven T. Cochran (20) | — | — | 30,982 | * | 1,221 | 29,761 | * | 29,761 | * | * | |||||||||||||||
Columbia Capital, et al (21) | — | — | 3,071,285 | 3.6 | % | 308,563 | 2,762,722 | 3.2 | % | 2,762,722 | 3.2 | % | 1.6 | % | |||||||||||
Ashton de Peyster FL Trust (22) | — | — | 257,184 | * | 53,585 | 203,599 | * | 203,599 | * | * | |||||||||||||||
Jennifer DiGuisti (23) | — | — | 6,250 | * | 689 | 5,561 | * | 5,561 | * | * | |||||||||||||||
First Plaza Group Trust (24) | — | — | 7,674,832 | 9.0 | % | 1,014,065 | 6,660,767 | 6.9 | % | 6,660,767 | 6.9 | % | 3.4 | % | |||||||||||
Peter Fox | — | — | 12,570 | * | 1,385 | 11,185 | * | 11,185 | * | * | |||||||||||||||
Robert Gerard | — | — | 105,150 | * | 11,588 | 93,562 | * | 93,562 | * | * | |||||||||||||||
Rakesh Gupta | — | — | 23,863 | * | 5,988 | 17,875 | * | 17,875 | * | * | |||||||||||||||
Patricia G. Hambrecht | — | — | 61,470 | * | 6,744 | 54,726 | * | 54,726 | * | * | |||||||||||||||
The Hamilton Companies, LLC | — | — | 593,190 | * | 65,370 | 527,820 | * | 527,820 | * | * | |||||||||||||||
Robert Harteveldt (45) | — | — | 11,250 | * | 1,240 | 10,010 | * | 10,010 | * | * |
After the Offering | ||||||||||||||||||||||||
Name and Address of Beneficial Owner (1) | Class A | Common Stock Beneficially Owned | Common Stock to be Sold in the Offering | Common Stock Beneficially Owned | Total Shares Beneficially Owned | Voting Percentage | ||||||||||||||||||
Number | Percentage | Number | Percentage | Number | Percentage | Number | Percentage | |||||||||||||||||
Ronald Hersh | — | –– | 11,250 | * | 1,240 | 10,010 | * | 10,010 | * | * | ||||||||||||||
INVESCO Investors (25) | — | –– | 2,596,644 | 3.1 | % | 312,621 | 2,284,023 | 2.4 | % | 2,284,023 | 2.4 | % | 1.2 | % | ||||||||||
Eric Jensen | — | — | 3,750 | * | 413 | 3,337 | * | 3,337 | * | * | ||||||||||||||
Kurt Jensen | — | — | 3,750 | * | 413 | 3,337 | * | 3,337 | * | * | ||||||||||||||
Louise Jensen | — | — | 7,500 | * | 827 | 6,673 | * | 6,673 | * | * | ||||||||||||||
David Kaplan | — | –– | 19,928 | * | 1,049 | 18,879 | * | 18,879 | * | * | ||||||||||||||
Key Principal Partners LLC | — | –– | 1,638,319 | 1.9 | % | 411,349 | 1,226,970 | 1.3 | % | 1,226,970 | 1.3 | % | * | |||||||||||
Ira D. Levy (26) | — | — | 42,632 | * | 1,614 | 41,018 | * | 41,018 | * | * | ||||||||||||||
Barry Lewis | — | — | 119,256 | * | 29,946 | 89,310 | * | 89,310 | * | * | ||||||||||||||
John Lewis | — | — | 3,841 | * | 964 | 2,877 | * | 2,877 | * | * | ||||||||||||||
Corey A. Linquist (27) | — | — | 562,949 | * | 45,384 | 517,565 | * | 517,565 | * | * | ||||||||||||||
Todd C. Linquist (28) | — | –– | 362,199 | * | 30,202 | 331,997 | * | 331,997 | * | * | ||||||||||||||
John R. Lister (29) | — | –– | 420,320 | * | 47,092 | 373,228 | * | 373,228 | * | * | ||||||||||||||
Malcolm M. Lorang (30) | — | — | 888,836 | 1.0 | % | 73,607 | 815,229 | * | 815,229 | * | * | |||||||||||||
Los Angeles County Employee Retirement Association (31) | — | — | 2,535,900 | 3.0 | % | 279,460 | 2,256,440 | 2.3 | % | 2,256,440 | 2.3 | % | 1.2 | % | ||||||||||
Albert S. Loverde (32) | — | –– | 584,889 | * | 49,716 | 535,173 | * | 535,173 | * | * | ||||||||||||||
Amanda Loverde | — | — | 5,010 | * | 562 | 4,448 | * | 4,448 | * | * | ||||||||||||||
Patrick Loverde | — | — | 5,010 | * | 562 | 4,448 | * | 4,448 | * | * | ||||||||||||||
M/C Venture Investors, L.L.C. (33) | — | — | 1,179,050 | 1.4 | % | 274,281 | 904,769 | * | 904,769 | * | * | |||||||||||||
M/C Venture Partners IV, LP (34) | — | — | 2,547,471 | 3.0 | % | 641,644 | 1,905,827 | 2.0 | % | 1,905,827 | 2.0 | % | 1.0 | % | ||||||||||
M/C Venture Partners V, LP (35) | — | — | 6,036,115 | 7.1 | % | 1,520,349 | 4,515,766 | 4.6 | % | 4,515,766 | 4.6 | % | 2.3 | % | ||||||||||
Ralph Mack (45) | — | — | 22,500 | * | 2,480 | 20,020 | * | 20,020 | * | * | ||||||||||||||
Mark Massur | — | –– | 28,293 | * | 5,000 | 23,293 | * | 23,293 | * | * | ||||||||||||||
Metro PCS Investors LLC (36) | — | — | 3,178,944 | 3.7 | % | 795,797 | 2,383,147 | 2.5 | % | 2,383,147 | 2.5 | % | 1.2 | % | ||||||||||
Mitsui & Co., Ltd. (37) | — | –– | 2,520,000 | 3.0 | % | 277,708 | 2,242,292 | 2.3 | % | 2,242,292 | 2.3 | % | 1.2 | % | ||||||||||
Donald Mullen | — | — | 22,628 | * | 2,512 | 20,116 | * | 20,116 | * | * | ||||||||||||||
New York Life Insurance Co. | — | –– | 808,890 | * | 89,141 | 719,749 | * | 719,749 | * | * | ||||||||||||||
One Liberty Fund III, L.P. | — | — | 1,936,713 | 2.3 | % | 217,635 | 1,719,078 | 1.8 | % | 1,719,078 | 1.8 | % | * | |||||||||||
Paragon Venture Partners II, LP | — | — | 551,553 | * | 22,502 | 529,051 | * | 529,051 | * | * | ||||||||||||||
James E. Parker (38) | — | –– | 31,730 | * | 1,319 | 30,411 | * | 30,411 | * | * | ||||||||||||||
Ann L. Pattee | — | –– | 72,450 | * | 7,984 | 64,466 | * | 64,466 | * | * | ||||||||||||||
Gordon B. Pattee | — | –– | 79,110 | * | 8,718 | 70,392 | * | 70,392 | * | * | ||||||||||||||
Ellen M. Poss | — | –– | 22,055 | * | 2,430 | 19,625 | * | 19,625 | * | * | ||||||||||||||
Primus Capital Fund III, L.P. | — | –– | 1,765,529 | 2.1 | % | 198,269 | 1,567,260 | 1.6 | % | 1,567,260 | 1.6 | % | * | |||||||||||
Primus Capital Fund V, L.P. | — | –– | 1,165,315 | 1.4 | % | 260,089 | 905,226 | * | 905,226 | * | * | |||||||||||||
Primus Executive Fund V, L.P. | — | –– | 24,416 | * | 4,872 | 19,544 | * | 19,544 | * | * | ||||||||||||||
James M. Rhodes (39) | — | –– | 5,250 | * | 579 | 4,671 | * | 4,671 | * | * | ||||||||||||||
Sani Holdings, Ltd. (Bahamas) | — | –– | 341,396 | * | 44,610 | 296,786 | * | 296,786 | * | * | ||||||||||||||
Steven L. Scari (45) | — | –– | 17,218 | * | 1,499 | 15,719 | * | 15,719 | * | * | ||||||||||||||
Curtis Schade | — | — | 11,250 | * | 1,240 | 10,010 | * | 10,010 | * | * | ||||||||||||||
David Schoenthal (45) | — | — | 16,896 | * | 1,094 | 15,802 | * | 15,802 | * | * | ||||||||||||||
Douglas Sharon | — | –– | 14,370 | * | 1,584 | 12,786 | * | 12,786 | * | * | ||||||||||||||
SonomaWest Holdings, Inc. | — | –– | 358,419 | * | 89,686 | 268,733 | * | 268,733 | * | * | ||||||||||||||
Technology Ventures Associates III, LP (40) | — | –– | 4,252,273 | 5.0 | % | 250,000 | 4,002,273 | * | 4,002,273 | * | * | |||||||||||||
Betsy Terry | — | — | 15,000 | * | 1,653 | 13,347 | * | 13,347 | * | * | ||||||||||||||
Phillip R. Terry (41) | — | — | 62,516 | * | 1,614 | 60,902 | * | 60,902 | * | * | ||||||||||||||
Salvatore A. Tiano (45) | — | –– | 11,250 | * | 1,240 | 10,010 | * | 10,010 | * | * | ||||||||||||||
Trailhead Ventures, LP | — | –– | 1,806,140 | 2.1 | % | 216,085 | 1,590,055 | 1.6 | % | 1,590,055 | 1.6 | % | * | |||||||||||
Craig Vieweg | — | –– | 119,238 | * | 29,941 | 89,297 | * | 89,297 | * | * | ||||||||||||||
Terri J. Visser | — | –– | 3,000 | * | 331 | 2,669 | * | 2,669 | * | * | ||||||||||||||
Wachovia Capital Partners 2001, LLC (42) | — | — | 2,980,985 | 3.5 | % | 748,540 | 2,232,445 | 2.3 | % | 2,232,445 | 2.3 | % | 1.1 | % | ||||||||||
Jason Whitmire (43) (45) | — | — | 1,000 | * | 110 | 890 | * | 890 | * | * | ||||||||||||||
Whitney & Co. affiliated funds (44) | — | — | 2,986,768 | 3.5 | % | 747,195 | 2,239,573 | 2.4 | % | 2,239,573 | 2.4 | % | 1.2 | % | ||||||||||
Winston-Thayer Partners | — | –– | 674,595 | * | 169,368 | 505,227 | * | 505,227 | * | * | ||||||||||||||
James Wolfsberg | — | — | 11,250 | * | 1,240 | 10,010 | * | 10,010 | * | * |
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Senior Notes
In September 2003, our wholly-owned subsidiary, MetroPCS, Inc., issued $150.0 million in aggregate principal amount of its 10¾% Senior Notes due 2011, which we refer to as our senior notes, pursuant to an indenture dated as of September 29, 2003. Our senior notes mature on October 1, 2011, and interest is payable on our senior notes on April 1 and October 1 of each year, commencing April 1, 2004. Our senior notes are guaranteed on a senior unsecured basis by all of the current and future domestic restricted subsidiaries of MetroPCS, Inc., other than certain immaterial subsidiaries. MetroPCS Communications, Inc. is not a guarantor of the senior notes.
MetroPCS, Inc. may, at its option, redeem some or all of the senior notes at any time on or after October 1, 2007, at specific redemption prices set forth in the indenture. In addition, prior to October 1, 2006, MetroPCS, Inc. may, at its option, redeem senior notes with the net proceeds of equity sales at a redemption price equal to 110.750% of the principal amount, plus accrued and unpaid interest;provided that, after the redemption, at least 65% of the initial aggregate principal amount of the senior notes remains outstanding.
If MetroPCS, Inc. or its restricted subsidiaries sell assets, MetroPCS, Inc. may be required to use the proceeds from such sale to offer to repurchase senior notes at a purchase price equal to 100% of the aggregate principal amount of senior notes repurchased, plus accrued and unpaid interest to the date of purchase. If MetroPCS, Inc. or its restricted subsidiaries experience a change of control, as such term is defined in the indenture, MetroPCS, Inc. may be required to offer to repurchase the senior notes at a purchase price equal to 101% of the aggregate principal amount of senior notes repurchased, plus accrued and unpaid interest to the date of purchase.
The indenture, among other things, restricts the ability of MetroPCS, Inc. and its restricted subsidiaries under certain conditions to:
FCC Notes
Fourteen of our wholly-owned license subsidiaries have executed separate promissory notes payable to the FCC in a principal amount equal to the adjusted price of that license subsidiary’s FCC license, as determined in accordance with our plan of reorganization under the United States Bankruptcy Code. Under the terms of a separate security agreement between the FCC and each license subsidiary, each FCC note is secured by a first priority security interest in the FCC license held by such license subsidiary. All of the FCC notes mature in January 2007, which is the expiration of the original ten-year term of our FCC licenses. The FCC notes bear interest at a rate of 6.5% per annum, and are payable in quarterly installments of principal and interest, until maturity, on January 31, April 30, July 31 and October 31 of each year.
Scheduled principal and interest payments under the FCC notes are approximately $4.0 million per quarter.
related parties.
As of March 31, 2004, the aggregate principal amount of the FCC notes was $43.5 million, which is recorded on our balance sheet net of a discount to reflect the fair marketmonetary value of the obligations determined assumingtransaction. All related party transactions also must be approved by our Senior Vice President and General Counsel and reported to the Vice President — Controller for financial statement disclosure purposes. Additionally, related party transactions cannot be approved by the Chief Financial Officer, Chief Executive Officer, Senior Vice President and General Counsel or a fair market borrowing rate at the time the FCC notes were issued. The resulting discountmember of $4.2 million is being amortized through maturityour board of directors if they are one of the FCC notes. However, ifparties in the FCC notes are accelerated for any reason, including a default by us in anyrelated party transaction. In such instance, the next higher level of our obligations with respect to the FCC notes, the full principal amount of the FCC notes, plus accrued interest, together with any late and/or administrative charge, would become due and payable.authority must approve that particular related party transaction.
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Other Debt
As of March 31, 2004, we had ongoing obligations of approximately $3.8 million that are payable to other wireless carriers under cost-sharing plans related to microwave relocation in our markets. Each of these obligations has a ten-year term, with interest only payments through year six and principal payments commencing in year seven. See “Legislation and Government Regulations—General Licensing Requirements.”
record. any sinking fund.summary descriptiondescribes our common stock, preferred stock, certificate of incorporation and bylaws that are in effect as of the closing of our capital stock does not purportinitial public offering in April 2007 and the rights agreement we have entered into with American Stock Transfer & Trust Company, as rights agent. This description is a summary only. We encourage you to beread the complete and is subject to and qualified in its entirety by the provisionstext of our certificate of incorporation and bylaws, copieswhich are incorporated by reference as exhibits to the registration statement of which may be obtained as described under “Available Information,” and bythis offering circular is a part. In addition, you should read the provisions of applicable Delaware law. As used in this prospectus, the term “common stock” refers to shares of our capital stockcomplete text of the same classrights agreement, which we have filed as exhibits to the shares offered by this prospectus and does not include Class A common stock.Upon consummationregistration statement of which this offering ourcircular is a part. These documents are currently effective.will consist of:Ÿ300,000,000 shares of common stock, par value $0.0001 per share;Ÿ300 shares of Class A common stock, par value $0.0001 per share; andŸ5,000,000 shares of preferred stock, par value $0.0001 per share.Dual Class Voting StructureFollowing this offering we will have two outstanding classesconsists of capital stock. One class will be common stock, which is the class we are issuing in this offering. The other class of our capital stock will be our existing Class A common stock. MetroPCS, Inc. issued Class A common stock in 1995 in order to bid in the FCC’s 1996 C Block PCS spectrum auction, which was limited to “designated entities,” and we have maintained this capital structure so as to continue to qualify as a designated entity. Qualifying as a designated entity also allowed MetroPCS, Inc. to obtain favorable financing terms for the FCC licenses, including the right to pay for the licenses in installments over the ten-year initial term of the licenses. Under the FCC’s rules applicable to the 1996 C Block auction, a “designated entity” is an entity that, together with its affiliates and persons or entities that hold attributable interests in the entity and their affiliates, had gross revenues of less than $125.0 million in each of the preceding two years and total assets of less than $500.0 million at the time they applied to compete in the auction.In order to avoid attribution of the gross revenues and assets of certain investors, the FCC’s rules in place at the time of the 1996 C Block auction permitted licensees to identify a “control group” composed of individuals or entities whose interests would be deemed the only “attributable” interests in, and whose assets and revenues would be the only assets and revenues attributed to the licensee. Under these rules, for the remaining three years of the initial term of our FCC licenses, our control group must exercise de facto control over MetroPCS, must control or appoint the majority of the board of directors, must own at least 10% of our overall equity on a fully-diluted basis and must retain at least 50.1% of the voting control over MetroPCS. In addition, for the remaining three years of the initial term of our FCC licenses, no investor or group of affiliated investors that is not in our control group may hold more than 25% of our overall equity. Maintaining our status as a designated entity is important in order to maintain favorable terms for our FCC licenses. Although FCC rules now allow our FCC licenses to be held by a non-designated entity, that could result in the immediate loss of the right to pay for the licenses in installments and the immediate obligation to pay the outstanding balance of all amounts owed to the FCC. In addition, although the ownership requirements applicable to our FCC licenses will expire on January 27, 2007, or the tenth anniversary of the date on which they were granted by the FCC, it is possible that we will acquire additional FCC licenses in the future that are subject to similar ownership restrictions. Depending on when such licenses were initially granted by the FCC, in order to be eligible to hold such licenses we could be required to continue to comply with the 25% control group structural option beyond January 27, 2007, unless the FCC has approved a different structural option for us.The holders of our Class A common stock currently hold 50.1% of our equity voting rights by virtue of their Class A common stock holdings, and those holders will retain such voting control immediately following this offering. We believe, however, that following this offering we may be able to qualify as a designated entity using an alternative to the control group described above, which would allow us to eliminate the supervoting Class A common stock. Under the proposed alternative qualifying structure, which was available to applicants in the 1996 C Block auction that were publicly traded corporations, no person or entity would be permitted to:Ÿown more than 15% of our equity;Index to Financial StatementsŸpossess, either directly or indirectly, the power to control the election of more than 15% of the members of our board of directors; orŸhave de facto control over us.Under this proposed alternative structure, which we refer to as the publicly traded corporation structure, the existing control group restrictions would no longer be necessary or possible. Accordingly, after this offering, we intend to petition the FCC to allow us to convert to this alternative structure and to convert our Class A common stock into common stock, with one vote per share, while retaining our designated entity status. We believe that we will be successful in obtaining this approval from the FCC, which will allow us to convert to a single class of equity securities, within a period of approximately nine months following the consummation of this offering. However, we cannot assure you that the FCC will grant this request in a timely fashion or at all. Absent more rapid FCC approval for the conversion of our Class A common stock into common stock, each share of Class A common stock will automatically convert into one share of common stock on January 27, 2007 (the tenth anniversary of the grant of our FCC licenses by the FCC, at which point the designated entity requirement expires on its own terms), though such conversion shall not be permitted if the effects thereof on stock ownership levels would violate FCC ownership restrictions in place at that time.Common Stock and Class A Common StockGeneralAfter giving effect to the conversion of our Class B common stock into common stock and our Series D preferred stock into common stock, there were 90 shares of Class A common stock and 85,106,8701,000,000,000 shares of common stock, outstanding as of May 31, 2004.Roger D. Linquist, who holds 60par value $0.0001 per share, and 100,000,000 shares of Class Apreferred stock, par value $0.0001 per share. Immediately prior to our initial public offering in April 2007, there had been no public market for our common stock. Our common stock and C. Boyden Gray, who holds 30 shares of Class A common stock, arecurrently trades on The New York Stock Exchange under the only two record holders of our Class A common stock.symbol “PCS.” As of MayDecember 31, 2004, there were 157 record holders2006 we had 181 stockholders of our common stock.Subject to the rights of holders of all outstanding classes of stock having prior rights as to dividends, the holders of common stock and Class A common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by our board of directors out of our corporate assets legally available for distribution.Subject to the rights of holders of all outstanding classes of stock having prior rights as to distributions, in the event of the liquidation, dissolution or winding up of our company, the holders of common stock and Class A common stock are entitled to share ratably in all assets remaining after payment of liabilities, if any, then outstanding.Prior to the consummation of this offering, there was no established trading market for any class of our capital stock.Voting Rights and Board RepresentationCommon StockOur certificate of incorporation provides that the holders of our Class A common stock have the right to vote on every matter submitted to a vote of our stockholders other than any matter on which only the holders of one or more classes or series of capital stock other than Class A common stock are entitled to vote separately as a class. Similarly, the holdersone or more classes or series of capital stock other than commonpreferred stock are entitled to vote separately as a class.Holders There will be no cumulative voting rights. Accordingly, holders of the common stock offered in this prospectus will have one vote per share. However, with respect to all matters submitted to a votemajority of stockholders for which a separate class vote is not required, the Class A stockholders have, collectively, votes equal to 50.1% of the aggregate voting power of all shares entitled to voteIndex in an election of directors will be able to Financial Statementsandelect all of the directors standing for election.have, collectively, votes equal to 49.9% of the aggregate voting power of all shares entitled to vote.The holders of Class A common stock are entitled towill share equally on a separate class vote to elect five members of our board of directors. The holders of common stock are entitled to a separate class vote to elect a number of members ofper share basis any dividends when, as and if declared by our board of directors as shall be fixed by,out of funds legally available for that purpose. If we are liquidated, dissolved or inwound up, the manner provided in, our bylaws (currently four members). Each Class A director has one vote on each matter submitted to a voteholders of our board of directors, and each common director currently has one vote;provided,however, that if, at any time, our board of directors has more than four common directors, each common director will individually have a fractional vote such that the common directors collectively have four votes.ConversionEach share of Class A common stock will automatically convert into onebe entitled to a ratable share of any distribution to stockholders, after satisfaction of all of our liabilities and of the prior rights of any outstanding class of preferred stock. Our common stock on January 27, 2007 (the tenth anniversary of the initial grantwill carry no preemptive or other subscription rights to purchase shares of our PCS licenses by the FCC) or such earlier date as may be determined by our board of directors. Any conversion described in the preceding sentencecommon stock and will not be permitted ifconvertible, assessable or entitled to the effects thereof on stock ownership levels would violate FCC ownership restrictions. The common stock has no conversion rights.Our certificatebenefits of incorporation provides that immediately upon the conversion of all issued and outstanding shares of Class A common stock into common stock, the Class A common stock shall cease to be a part of our authorized capital stock.ownership restrictions, or FCC requirements necessary to retain our status as a designated entity using the 25% control group structure (or the publicly traded corporation structure if we are authorized by the FCC to adopt that alternative structure),rules, we may, at the option of our board of directors, redeem shares of our common stock sufficient to eliminate the violation (or to allow us to comply with the alternative structure). In the event of a violation of the FCC’s foreign ownership restrictions, we must first redeem the stock of the foreign stockholder that most recently purchased its first shares of our stock. Ÿ• 75% of the fair market value of the common stock being redeemed, if the holder caused the FCC violation; or Ÿ• 100% of the fair market value of the common stock being redeemed, if the FCC violation was not caused by no fault of the holder.“Legislation and Government Regulations—“Business — Ownership Restrictions.”Warrants to Purchase Common StockBetween December 1995 and October 1999, we issued warrants to certain investors, members of management and other individuals in conjunction with sales of stock and in exchange for outside consulting services. As of May 31, 2004, warrants to purchase 1,215,570 shares of common stock, at a weighted average exercise price of $0.5697, remained outstanding. Each warrant contains provisions for the adjustment of the exercise price and the aggregate number of shares of common stock issuable upon the exercise of the warrant in the event of stock dividends, stock splits, reclassifications, combinations and other dilutive events.Index to Financial Statements has the authority to issue up to 5,000,000100,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, dividend rates, conversion rates, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of the series,
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Stockholders Agreement
We and the current holders of our common stock and our Class A common stock are parties to an amended and restated stockholders agreement.
Election of Board of Directors
Pursuant to the terms of our stockholders agreement and our certificate of incorporation, the Class A stockholders are entitled to elect five members
Our stockholders agreement provides that,description of the five Class A directors, Roger D. Linquist is entitled to designate two directors, C. Boyden Gray is entitled to designate one director, and Messrs. Linquist and Gray, together, are entitled to designate two directors. The Class A stockholders have agreed to vote all of their shares of Class A common stock for such designees. In addition, pursuant to the termsRights Plan, please read “— Stockholder Rights Plan.”
The fourth common director shall be nominated in accordance with the applicable provisionsas of Delaware law, our certificate of incorporation and our bylaws. The right of each of Accel Partners and M/C Venture Partners to designate one director shall terminate when and if such stockholder ceases to own:
According to our stockholders agreement, under specific conditions, our board of directors and the stockholders whoMarch 31, 2007, are parties to that agreement must use their reasonable best efforts to amend our corporate governance documents to provide for the Class A stockholders and the common stockholders to vote on a one
vote per share basis, and the reduction of the number of directors elected by the Class A stockholders as a class from five to two directors, with these two directors being designated one by Roger D. Linquist and a second by C. Boyden Gray. The agreement requires reasonable best efforts to effect these amendments upon the occurrence of both of the following events:
Also, if these amendments have not been effected by January 27, 2007 (ten years following the initial grant to us of a PCS license), then our board of directors and the stockholder parties to the agreement must use their reasonable best efforts to make these amendments.
Registration Rights
After this offering, the stockholder parties to our stockholders agreement, who will collectively hold 73,106,870 shares of common stock, will be entitled to certain rights with respect to the registration of the sale of such shares under the Securities Act. Under the terms of the stockholders 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 rights of underwriters to limit the number of shares included in such registration.registration and limit such stockholder’s right to sell securities during the 180 days following our initial public offering of our common stock.
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• | before such time the board of directors of the corporation approved either the business combination or the transaction in which the person became an interested stockholder; |
• | upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested person owns at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding shares owned by persons who are directors and also officers of the corporation and by certain employee stock plans; or |
at or after such time the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 662/3% of the outstanding voting stock of the corporation that is not owned by the interested stockholder. |
• | who, together with affiliates and associates, owns 15% or more of the corporation’s outstanding voting stock; or |
• | who is an affiliate or associate of the corporation and, together with his or her affiliates and associates, has owned 15% or more of the corporation’s outstanding voting stock within three years. |
• | eliminate the personal liability of directors for monetary damages resulting from breaches of fiduciary duty to the extent permitted by Delaware law, except (i) for any breach of a director’s duty of loyalty to the company or its stockholders, (ii) for acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of law, or (iii) for any transaction from which the director derived an improper personal benefit; and | |
• | indemnify directors and officers to the fullest extent permitted by Delaware law, including in circumstances in which indemnification is otherwise discretionary. |
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Our certificate of incorporation also provides that if at any time there ceasestockholder proposals to be any shares of our Class A common stock issued and outstanding, then:
The provisions of our certificate of incorporation relating to the matters described above in this “Description of Capital Stock” section may not be amended or repealed without:
Our bylaws provide that a stockholder may propose business or nominate directorsconsidered at an annual meeting only if the stockholder delivers written noticeof stockholders must be delivered to us not less than 90 days or20 nor more than 12060 days before the first anniversary date of the preceding year’s annual meeting. If the date of the annual meeting is advanced more than 30 days before or delayed more than 70 days after the anniversary of the preceding year’s annual meeting, then we must receive the stockholder’s notice not earlier than the one hundred twentieth day before the annual meeting and not later than the later of the ninetieth day prior to the annual meeting or the tenth day following the day on which public announcement of the date of the annual meeting is first made.meeting. In addition, in anythe notice of proposed business,any such proposal, the proposing stockholder must state the proposals, the reasons for the proposal, the
stockholder’s name and address, the class and number of shares held by such stockholder and any material interest of the stockholder in the proposals. There are additional informational requirements in connection with a proposal concerning a nominee for theour board of directors.
Our bylaws also provide
Additionally, our ability to issue undesignated preferred stock may render more difficult, or discourage, an attempt to obtain control of us. See “Description of Capital Stock—Preferred Stock”
Indemnification of Directors and Officers
bylaws require a greater percentage. Our certificate of incorporation provides that we will indemnify any person who was or is a party or is threatened to be made a party to any action, suit or proceeding, by reasonthe affirmative vote of the fact that he or she is or wasat least 75% of our director, officer, employee or agent. This indemnification extends to all expenses, judgments, finescapital stock issued and amounts paid in settlement reasonably incurred by any indemnified person if he or she acted in good faithoutstanding and in a manner he or she reasonably believed to be in our best interests, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. However, we are not required to indemnify any person ultimately determined to be liable to us, in any action, suit or proceeding brought on our behalf, unless the court in which the action, suit or proceeding is brought determines that indemnification is fair and reasonable under the circumstances.
We may pay the expenses (including attorneys’ fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding in advance of final disposition upon receipt of an undertaking by the director or officer to repay the amount advanced if it is ultimately determined that he or she is not entitled to be indemnified as authorized invote (in accordance with our certificate of incorporation.
The indemnification and advancement of expenses described above:
Our certificate of incorporation also provides that our directorsincorporation) will not be personally liablerequired to usamend or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability:
The effect of this provision is to restrict our rights and the rights of our stockholders in derivative suits to recover monetary damages against a director for breach ofrepeal certain fiduciary duties as a director. However, we believe that this provision, and the provisions relating to indemnification of directors and officers described above, are necessary to attract and retain qualified directors and officers.
Any repeal or modification of the provisions of our certificate of incorporation governing indemnification or limitation of liability will be prospective, and will not adversely affect:
We have also entered into separate indemnification agreements with eachthat are designed to protect against takeovers unless such amendments are approved by 75% of our directorsboard of directors. In addition, our certificate of incorporation provides that an amendment to our bylaws by stockholder action will require the affirmative vote of at least 662/3% of our capital stock issued and executive officers under which we have agreedoutstanding and entitled to indemnify, and to advance expenses to, each director and executive officer to the fullest extentvote.
We maintain director and officer liability insurancerespective affiliates even if the opportunity is one that we might reasonably have pursued, unless such corporate opportunity is offered 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 breachesa director of duty and trust, neglect, error and misstatement. In accordance with the director and officer insurance policy, each insured partyour company. Stockholders will be entitleddeemed to receive advanceshave notice of specified defense costs.
and consented to this provision of our certificate of incorporation.
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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 to non-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:
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:
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. Dividends paid to a non-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 the non-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 the non-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 branch profits tax equal to 30% (or such lower rate as may be specified by an applicable income tax treaty) of a portion of its effectively 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, a non-U.S. holder must provide a properly executed IRS Form W-8BEN for treaty benefits or W-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
A non-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:
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. As long as our common stock is regularly traded on an established securities market, however, it will be treated as United States real property interests, in general, only with respect to a non-U.S. holder that holds more than 5% of such regularly traded common stock.
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
Our common stock owned or treated as owned by an individual who at the time of death is a non-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 each non-U.S. holder the amount of dividends paid to such non-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 the non-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 comply with specific information requirements. Backup withholding will generally not apply to payments of dividends made by us or our paying agents, in their capacities as such, to a non-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 a non-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 a non-U.S. holder and specified conditions are met or an exemption is otherwise established.
Payment of the proceeds from a disposition by a non-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 the non-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 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 refunded or credited against the non-U.S. holder’s U.S. federal income tax liability if certain required information is furnished 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.
Upon
1,013,739 options by the selling stockholders as identified in the registration statement onForm S-1 in connection with the initial public offering.
The shares of Class A common stock and the remaining 40,423,013 shares of common stock are “restricted securities” as that term is defined in Rule 144 under the Securities Act. These restricted securities may be sold in the public market only if they are registered under the Securities Act or sold in accordance with Rule 144 or Rule 701 promulgated under the Securities Act. Beginning 90 days after the date of this prospectus, approximately 32,133,025 of the remaining shares of common stock will have become eligible for sale in the public market pursuant to Rule 144, subject to certain volume limitations.
Substantially all of the shares of our capital stock, other than the shares
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 Merrill Lynch, Pierce, Fenner & Smith Incorporated have advised us that they will determine toat any time without notice, release sharesall or any portion of the securities subject to lock-ups on a case-by-case basis after considering various factors such as the current equity market condition, the performance of the price of our common stock since the offering, the likely impact of any release on the price of our common stock, the number of shares requested to be released and the requesting party’s reason for making the request. Bear, Stearns & Co. Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated have also agreed to waive the lock-up arrangements to the extent necessary to permit the selling stockholders to sell the shares being offered by them. See “Underwriting.”
agreements.
• | 1.0% of the number of then outstanding shares of common |
• | 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. |
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As of May 31, 2004, 1,011,112 shares of our common stock had been issued to some of our employees in reliance on Rule 701.
After this offering, the
All stockholder parties to our Registration Rights Agreement shall not sell or otherwise dispose of their securities for a period of 180 days after our initial public offering.
Stock — Registration Rights Agreement”
As soon as practicable after the closing of this offering, we intend to fileEquity Compensation Plans.
We and the selling stockholders intend to offer the shares through the underwriters. Subject to the terms and conditions described in an underwriting agreement among us, the selling stockholders and Bear, Stearns & Co. Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC, J.P. Morgan Securities Inc. and Thomas Weisel Partners LLC, as representatives of the several underwriters, 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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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
A prospectus in electronic format may be made available on internet sites or through other online services maintained by one or more of the underwriters and/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 representatives 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 be 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.
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 discount 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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The expenses of this offering, excluding the underwriting discount and commissions and related fees, are estimated at $2.5 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 3,600,000 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.
No Sales of Similar Securities
We, each of our officers and directors and holders of substantially all of our common stock, have agreed, with exceptions, not to sell or transfer any common stock for 180 days after the date of this prospectus without first obtaining the written consent of Bear, Stearns & Co. Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. Specifically, we and these other individuals have agreed not to:
This lock-up provision applies to common stock, any other equity security of MetroPCS or any of its subsidiaries and any security convertible into, or exercisable or exchangeable for, any common stock or other such equity security. Bear, Stearns & Co. Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated may waive this lock-up without public notice. This lockup provision does not limit our ability to grant options to purchase common stock or issue common stock upon the exercise of options or otherwise under our equity compensation plans.
At our request, the underwriters have reserved up to 720,000 of the shares of common stock being offered by this prospectus for sale to our directors, officers and employees and particular other individuals designated by us at the initial public offering price. Shares purchased through this directed share program may be subject to a 180-day lock-up restriction substantially similar to the lock-up restriction described above. Any purchases of the
reserved shares will reduce the number of shares available to the general public. If all of these reserved shares are not purchased, the underwriters will offer the remainder to the general public on the same terms as the other shares offered by this prospectus.
Quotation on the Nasdaq National Market
Our common stock has been approved for quotation on the Nasdaq National Market under the symbol “MPCS.”
Price Stabilization, Short Positions
Until the distribution of the shares is completed, SEC rules may limit the underwriters from bidding for and purchasing our common stock. However, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock during and after this offering.
If the underwriters over-allot or otherwise create a short position in our common stock in connection with this offering, i.e., if they sell more shares than are listed on the cover of this prospectus, the underwriters may reduce that short position by purchasing shares in the open market. The underwriters may also elect to reduce any short position by exercising all or part of the over-allotment option described above. In addition, the underwriters may impose penalty bids, under which selling concessions allowed to syndicate members or other broker-dealers participating in this offering are reclaimed if shares of our common stock previously distributed in this offering are repurchased in connection with stabilization transactions or otherwise. These transactions to stabilize or maintain the market price may cause the price of our common stock to be higher than it might be in the absence of such transactions. The imposition of a penalty bid may also affect the price of our common stock to the extent that it discourages resales.
Neither we nor any of the underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters makes any representation that they will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
Passive Market Making
In connection with this offering, the underwriters may engage in passive market making transactions in our common stock on the Nasdaq National Market in accordance with Rule 103 of Regulation M under the Securities Exchange Act of 1934 during a period before the commencement of offers or sales of common stock and extending through the completion of distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, that bid must then be lowered when specified purchase limits are exceeded.
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. In addition, Bear, Stearns & Co. Inc. and certain of its employees own, in the aggregate, less than 1% of our common stock. Certain employees of Bear, Stearns & Co. Inc. are selling stockholders in this offering. See “Principal and Selling Stockholders.”
Pricing of this Offering
Prior to this offering, there has been no public market for our shares of common stock. Consequently, the initial public offering price for our shares of common stock will be determined by negotiations between us and the representatives of the underwriters.
Resale Restrictions
The distribution of the common stock in Canada is being made only on a private placement basis exempt from the requirement that we and the selling stockholders prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are made. Any resale of the common stock in Canada must be made under applicable securities laws, which will vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock.
Representations of Purchasers
By purchasing common stock in Canada and accepting a purchase confirmation a purchaser is representing to us, the selling stockholders and the dealer from whom the purchase confirmation is received that:
Rights of Action—Ontario Purchasers Only
Under Ontario securities legislation, a purchaser who purchases a security offered by this prospectus during the period of distribution will have a statutory right of action for damages, or while still the owner of the common stock, for rescission against us and the selling stockholders in the event that this prospectus contains a misrepresentation. A purchaser will be deemed to have relied on the misrepresentation. The right of action for damages is exercisable not later than the earlier of 180 days from the date the purchaser first had knowledge of the facts giving rise to the cause of action and three years from the date on which payment is made for the common stock. The right of action for rescission is exercisable not later than 180 days from the date on which payment is made for the common stock. If a purchaser elects to exercise the right of action for rescission, the purchaser will have no right of action for damages against us or the selling stockholders. In no case will the amount recoverable in any action exceed the price at which the common stock were offered to the purchaser and if the purchaser is shown to have purchased the securities with knowledge of the misrepresentation, we and the selling stockholders will have no liability. In the case of an action for damages, we and the selling stockholders will not be liable for all or any portion of the damages that are proven to not represent the depreciation in value of the common stock as a result of the misrepresentation relied upon. These rights are in addition to, and without derogation from, any other rights or remedies available at law to an Ontario purchaser. The foregoing is a summary of the rights available to an Ontario purchaser. Ontario purchasers should refer to the complete text of the relevant statutory provisions.
Enforcement of Legal Rights
All of our directors and officers as well as the experts named herein and the selling stockholders may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or those persons. All or a substantial portion of our assets and the assets of those persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against us or those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of Canada.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the common stock in their particular circumstances and about the eligibility of the common stock for investment by the purchaser under relevant Canadian legislation.
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 “Legislation and Government Regulations—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—Common Stock and Class A Common Stock—Redemption.”
The validity of the shares of common stock offered hereby will be passed upon for us by Andrews Kurth LLP, Houston,Baker Botts L.L.P., Dallas, Texas. Certain legal matters in connection with this offering will be passed upon for the underwriters by Latham & Watkins LLP, New York, New York.
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auditing.
Our subsidiary, MetroPCS, Inc., is subject to the informationalinformation and periodic reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, and, is required toin accordance therewith, file annual and quarterlyperiodic reports, proxy statements and other information with the SEC. In addition, upon consummationYou may read and copy our 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 offering, MetroPCS Communications, Inc. willmaterial may also become subject tobe obtained from the informational and reporting requirements of the Exchange Act. Any materials filed with the SEC may be read and copied at the SEC’s Public Reference Room of the SEC at 450 Fifth100 F Street, N.W.N.E., Washington, D.C. 20549.20549 at prescribed rates. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.(800) 732-0330. The SEC maintains an Interneta Web site (http://www.sec.gov)at www.sec.gov that contains reports, proxy and information statements and other information regarding issuersregistrants that file electronically with the SEC. We expect that any materials filed by MetroPCS Communications, Inc. or by MetroPCS, Inc.make electronic filings with the SEC will be filed electronically.using its EDGAR system.
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PricewaterhouseCoopersemployee stock-based compensation.
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February 25, 2004, except as to Note 18 which is as of July 23, 2004
December 31, | Unaudited Pro Forma Stockholders’ December 31, | |||||||||||
2002 | 2003 | |||||||||||
ASSETS: | ||||||||||||
Cash and cash equivalents | $ | 61,717 | $ | 235,965 | ||||||||
Inventory, net | 13,546 | 21,210 | ||||||||||
Accounts receivable (net of allowance of $383 and $1,085 at December 31, 2002 and 2003, respectively) | 5,241 | 8,678 | ||||||||||
Prepaid expenses | 4,839 | 5,292 | ||||||||||
Deferred charges | 7,910 | 6,498 | ||||||||||
Current deferred tax asset | 13,330 | 6,675 | ||||||||||
Other current assets | 3,073 | 8,833 | ||||||||||
Total current assets | 109,656 | 293,151 | ||||||||||
Property and equipment, net | 353,360 | 482,965 | ||||||||||
Restricted cash and investments | 2,180 | 1,248 | ||||||||||
Long-term investments | — | 19,000 | ||||||||||
PCS licenses | 90,619 | 90,619 | ||||||||||
Microwave relocation costs | 6,932 | 10,000 | ||||||||||
Other assets | 175 | 5,511 | ||||||||||
Total assets | $ | 562,922 | $ | 902,494 | ||||||||
LIABILITIES: | ||||||||||||
Accounts payable and accrued expenses | $ | 89,829 | $ | 153,688 | ||||||||
Current maturities of long-term debt | 9,499 | 13,362 | ||||||||||
Deferred revenue | 14,375 | 31,091 | ||||||||||
Other current liabilities | 5,508 | 2,295 | ||||||||||
Total current liabilities | 119,211 | 200,436 | ||||||||||
Long-term debt, net | 41,351 | 182,433 | ||||||||||
Deferred tax liabilities | 23,424 | 30,791 | ||||||||||
Long-term deferred revenue | 3,585 | 30 | ||||||||||
Deferred rents | 2,802 | 3,961 | ||||||||||
Other long-term liabilities | 1,785 | 20,554 | ||||||||||
Total liabilities | 192,158 | 438,205 | ||||||||||
COMMITMENTS AND CONTINGENCIES (See Note 8) | ||||||||||||
SERIES D CUMULATIVE CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED STOCK, par value $.0001 per share, 4,000,000 shares designated, 2,845,578 and 3,500,947 shares issued and outstanding at December 31, 2002 and 2003, respectively, actual; none designated, issued or outstanding, pro forma; liquidation preference of $300,554 and $384,841 at December 31, 2002 and 2003, respectively | 294,642 | 379,401 | $ | — | ||||||||
STOCKHOLDERS’ EQUITY: | ||||||||||||
Preferred stock, par value $.0001 per share, 5,000,000 shares authorized, 4,000,000 of which have been designated as Series D Preferred Stock, no shares issued and outstanding at December 31, 2002 and 2003, actual; none designated, issued or outstanding, pro forma | — | — | — | |||||||||
Common stock, par value $.0001 per share— | ||||||||||||
Class A, 300 shares authorized, 90 shares issued and outstanding at December 31, 2002 and 2003, actual and pro forma | — | — | — | |||||||||
Class B, 60,000,000 shares authorized, 3,843,785 and 3,908,785 shares issued and outstanding at December 31, 2002 and 2003, respectively, actual; none authorized, issued or outstanding, pro forma | — | — | — | |||||||||
Class C, 240,000,000 shares authorized, 32,579,427 and 32,682,903 shares issued and outstanding at December 31, 2002 and 2003, respectively, actual; 77,532,189 shares issued and outstanding, pro forma | 3 | 3 | 8 | |||||||||
Additional paid-in capital | 88,776 | 88,913 | 468,602 | |||||||||
Subscriptions receivable | (86 | ) | (92 | ) | (92 | ) | ||||||
Deferred compensation | (2,234 | ) | (4,229 | ) | (4,229 | ) | ||||||
Retained earnings (deficit) | (10,337 | ) | 293 | — | ||||||||
Total stockholders’ equity | 76,122 | 84,888 | $ | 464,289 | ||||||||
Total liabilities and stockholders’ equity | $ | 562,922 | $ | 902,494 | ||||||||
in thousands, except share and per share information)
2006 | 2005 | |||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 161,498 | $ | 112,709 | ||||
Short-term investments | 390,651 | 390,422 | ||||||
Restricted short-term investments | 607 | 50 | ||||||
Inventories, net | 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 | ||||||
Prepaid expenses | 33,109 | 21,430 | ||||||
Deferred charges | 26,509 | 13,270 | ||||||
Deferred tax asset | 815 | 2,122 | ||||||
Other current assets | 24,283 | 16,640 | ||||||
Total current assets | 758,527 | 612,102 | ||||||
Property and equipment, net | 1,256,162 | 831,490 | ||||||
Restricted cash and investments | — | 2,920 | ||||||
Long-term investments | 1,865 | 5,052 | ||||||
FCC licenses | 2,072,885 | 681,299 | ||||||
Microwave relocation costs | 9,187 | 9,187 | ||||||
Other assets | 54,496 | 16,931 | ||||||
Total assets | $ | 4,153,122 | $ | 2,158,981 | ||||
CURRENT LIABILITIES: | ||||||||
Accounts payable and accrued expenses | $ | 325,681 | $ | 174,220 | ||||
Current maturities of long-term debt | 16,000 | 2,690 | ||||||
Deferred revenue | 90,501 | 56,560 | ||||||
Other current liabilities | 3,447 | 2,147 | ||||||
Total current liabilities | 435,629 | 235,617 | ||||||
Long-term debt, net | 2,580,000 | 902,864 | ||||||
Deferred tax liabilities | 177,197 | 146,053 | ||||||
Deferred rents | 22,203 | 14,739 | ||||||
Redeemable minority interest | 4,029 | 1,259 | ||||||
Other long-term liabilities | 26,316 | 20,858 | ||||||
Total liabilities | 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 | ||||||
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 | ||||||
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 | 15 | ||||||
Additional paid-in capital | 166,315 | 149,584 | ||||||
Deferred compensation | — | (178 | ) | |||||
Retained earnings | 245,690 | 216,702 | ||||||
Accumulated other comprehensive income | 1,224 | 1,783 | ||||||
Total stockholders’ equity | 413,245 | 367,906 | ||||||
Total liabilities and stockholders’ equity | $ | 4,153,122 | $ | 2,158,981 | ||||
F-3
Year Ended December 31, | ||||||||||||
2001 | 2002 | 2003 | ||||||||||
REVENUES: | ||||||||||||
Service revenues | $ | — | $ | 102,137 | $ | 370,920 | ||||||
Equipment revenues | — | 23,458 | 88,562 | |||||||||
Total revenues | — | 125,595 | 459,482 | |||||||||
OPERATING EXPENSES: | ||||||||||||
Cost of service (excluding depreciation included below) | — | 61,881 | 118,335 | |||||||||
Cost of equipment | — | 100,651 | 155,084 | |||||||||
Selling, general and administrative expenses (excludes non-cash compensation) | 27,963 | 55,515 | 90,556 | |||||||||
Non-cash compensation | 1,455 | 1,115 | 7,379 | |||||||||
Depreciation and amortization | 208 | 21,394 | 41,900 | |||||||||
(Gain) loss on sale of asset | — | (278,956 | ) | 333 | ||||||||
Total operating expenses | 29,626 | (38,400 | ) | 413,587 | ||||||||
INCOME (LOSS) FROM OPERATIONS | (29,626 | ) | 163,995 | 45,895 | ||||||||
OTHER (INCOME) EXPENSE: | ||||||||||||
Interest expense | 10,491 | 6,805 | 11,254 | |||||||||
Interest income | (2,046 | ) | (964 | ) | (1,061 | ) | ||||||
Loss (gain) on extinguishment of debt | 7,109 | — | (603 | ) | ||||||||
Total other expense | 15,554 | 5,841 | 9,590 | |||||||||
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE | (45,180 | ) | 158,154 | 36,305 | ||||||||
Provision for income taxes | — | (19,087 | ) | (15,665 | ) | |||||||
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE | (45,180 | ) | 139,067 | 20,640 | ||||||||
Cumulative effect of change in accounting principle, net of tax | — | — | (74 | ) | ||||||||
NET INCOME (LOSS) | (45,180 | ) | 139,067 | 20,566 | ||||||||
ACCRUED DIVIDENDS ON SERIES D PREFERRED STOCK | (4,963 | ) | (10,838 | ) | (18,749 | ) | ||||||
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK | $ | (50,143 | ) | $ | 128,229 | $ | 1,817 | |||||
NET INCOME (LOSS) PER SHARE: (Note 14) | ||||||||||||
BASIC | ||||||||||||
Income before cumulative effect of change in accounting principle | $ | (1.44 | ) | $ | 2.26 | $ | 0.02 | |||||
Cumulative effect of change in accounting principle, net of tax | — | — | 0.00 | |||||||||
NET INCOME (LOSS) PER SHARE—BASIC | $ | (1.44 | ) | $ | 2.26 | $ | 0.02 | |||||
DILUTED | ||||||||||||
Income before cumulative effect of change in accounting principle | $ | (1.44 | ) | $ | 1.71 | $ | 0.02 | |||||
Cumulative effect of change in accounting principle, net of tax | — | — | 0.00 | |||||||||
NET INCOME (LOSS) PER SHARE—DILUTED | $ | (1.44 | ) | $ | 1.71 | $ | 0.02 | |||||
WEIGHTED AVERAGE SHARES | ||||||||||||
Basic | 34,902,736 | 36,247,740 | 36,433,053 | |||||||||
Diluted | 34,902,736 | 48,004,343 | 49,254,463 | |||||||||
NET INCOME PER SHARE—PRO FORMA: | ||||||||||||
BASIC | ||||||||||||
Income before cumulative effect of change in accounting principle | $ | 0.28 | ||||||||||
Cumulative effect of change in accounting principle, net of tax | (0.00 | ) | ||||||||||
NET INCOME PER SHARE—BASIC PRO FORMA | $ | 0.28 | ||||||||||
DILUTED | ||||||||||||
Income before cumulative effect of change in accounting principle | $ | 0.24 | ||||||||||
Cumulative effect of change in accounting principle | (0.00 | ) | ||||||||||
NET INCOME PER SHARE—DILUTED PRO FORMA | $ | 0.24 | ||||||||||
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 | |||||||||
F-4
Consolidated Statements of Stockholders’ Equity (Deficit)
For the Years Ended December 31, 2006, 2005 and 2004
(in thousands, except share information)
(In Thousands, Except Share Information)
Common Stock | |||||||||||||||||||||||||
Number of Shares | Amount | Additional Paid-In Capital | Subscriptions Receivable | Deferred Compensation | Retained Earnings (Deficit) | Total | |||||||||||||||||||
BALANCE, December 31, 2000 | 33,441,600 | $ | 3 | $ | 112,736 | $ | (33 | ) | $ | (1,491 | ) | $ | (104,224 | ) | $ | 6,991 | |||||||||
Exercise of Class C Common Stock Options | 50,167 | — | 236 | — | — | — | 236 | ||||||||||||||||||
Exercise of Class C Common Stock Warrants | 2,551,860 | — | 17 | — | — | — | 17 | ||||||||||||||||||
Issuance of contingent Class C Stock Warrants | — | — | 3,000 | — | — | — | 3,000 | ||||||||||||||||||
Redemption of Class C Common Stock Warrants | — | — | (13,953 | ) | — | — | — | (13,953 | ) | ||||||||||||||||
Accrued interest on subscription receivable | — | — | 3 | (3 | ) | — | — | — | |||||||||||||||||
Deferred compensation | — | — | 2,537 | — | (2,537 | ) | — | — | |||||||||||||||||
Amortization of deferred compensation expense | — | — | — | — | 1,455 | — | 1,455 | ||||||||||||||||||
Accretion of costs to issue Series D Preferred | — | — | (494 | ) | — | — | — | (494 | ) | ||||||||||||||||
Accrued dividends on Series D Preferred | — | — | (4,963 | ) | — | — | — | (4,963 | ) | ||||||||||||||||
Net Loss | — | — | — | — | — | (45,180 | ) | (45,180 | ) | ||||||||||||||||
BALANCE, December 31, 2001 | 36,043,627 | 3 | 99,119 | (36 | ) | (2,573 | ) | (149,404 | ) | (52,891 | ) | ||||||||||||||
Exercise of Class B Common Stock Options | 363,425 | — | 112 | (46 | ) | — | — | 66 | |||||||||||||||||
Exercise of Class C Common Stock Options | 16,250 | — | 76 | — | — | — | 76 | ||||||||||||||||||
Accrued interest on subscription receivable | — | — | 4 | (4 | ) | — | — | — | |||||||||||||||||
Deferred compensation | — | — | 776 | — | (776 | ) | — | — | |||||||||||||||||
Amortization of deferred compensation expense | — | — | — | — | 1,115 | — | 1,115 | ||||||||||||||||||
Accretion of costs to issue Series D Preferred | — | — | (473 | ) | — | — | — | (473 | ) | ||||||||||||||||
Accrued dividends on Series D Preferred | — | — | (10,838 | ) | — | — | — | (10,838 | ) | ||||||||||||||||
Net Income | — | — | — | — | — | 139,067 | 139,067 | ||||||||||||||||||
BALANCE, December 31, 2002 | 36,423,302 | 3 | 88,776 | (86 | ) | (2,234 | ) | (10,337 | ) | 76,122 | |||||||||||||||
Exercise of Class B Common Stock Options | 65,000 | — | 15 | — | — | — | 15 | ||||||||||||||||||
Exercise of Class C Common Stock Options | 5,946 | — | 28 | — | — | — | 28 | ||||||||||||||||||
Exercise of Class C Common Stock warrants | 97,530 | — | — | — | — | — | — | ||||||||||||||||||
Accrued interest on subscription receivable | — | — | 6 | (6 | ) | — | — | — | |||||||||||||||||
Deferred compensation | — | — | 3,404 | — | (3,404 | ) | — | — | |||||||||||||||||
Forfeitures of stock options | — | — | (261 | ) | — | 261 | — | — | |||||||||||||||||
Amortization of deferred compensation expense | — | — | — | — | 1,148 | — | 1,148 | ||||||||||||||||||
Compensation expense | — | — | 6,231 | — | — | — | 6,231 | ||||||||||||||||||
Accretion of costs to issue Series D Preferred | — | — | (473 | ) | — | — | — | (473 | ) | ||||||||||||||||
Accrued dividends on Series D Preferred | — | — | (8,813 | ) | — | — | (9,936 | ) | (18,749 | ) | |||||||||||||||
Net Income | — | — | — | — | — | 20,566 | 20,566 | ||||||||||||||||||
BALANCE, December 31, 2003 | 36,591,778 | $ | 3 | $ | 88,913 | $ | (92 | ) | $ | (4,229 | ) | $ | 293 | $ | 84,888 | ||||||||||
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 |
F-5
Year Ended December 31, | ||||||||||||
2001 | 2002 | 2003 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income (loss) | $ | (45,180 | ) | $ | 139,067 | $ | 20,566 | |||||
Adjustments to reconcile net income (loss) to net cash used in operating activities— | ||||||||||||
Cumulative effect of accounting change | — | — | 74 | |||||||||
Loss (gain) on extinguishment of debt | 7,109 | — | (603 | ) | ||||||||
Loss on sale of asset | — | — | 333 | |||||||||
Gain on sale of spectrum | — | (278,956 | ) | — | ||||||||
Depreciation and amortization | 208 | 21,394 | 41,900 | |||||||||
Non-cash interest expense | 3,882 | 3,028 | 3,090 | |||||||||
Bad debt expense | — | 381 | 991 | |||||||||
Equity based compensation expense | — | — | 6,231 | |||||||||
Amortization of deferred compensation | 1,455 | 1,115 | 1,148 | |||||||||
Accretion of asset retirement obligation | — | — | 50 | |||||||||
Deferred rents | 949 | 1,853 | 1,160 | |||||||||
Deferred taxes | — | 10,094 | 14,022 | |||||||||
Cost of abandoned cell sites | — | — | 824 | |||||||||
Changes in assets and liabilities— | ||||||||||||
Inventory | (6,037 | ) | (7,509 | ) | (7,664 | ) | ||||||
Accounts receivable | — | (5,622 | ) | (4,428 | ) | |||||||
Prepaid expenses | (2,509 | ) | (2,783 | ) | (274 | ) | ||||||
Deferred charges and other current assets | (126 | ) | (10,514 | ) | (4,263 | ) | ||||||
Accounts payable, accrued expenses and deferred revenue | 7,848 | 63,929 | 36,461 | |||||||||
Net cash provided by (used in) operating activities | (32,401 | ) | (64,523 | ) | 109,618 | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Collection of notes receivable | 15,000 | — | — | |||||||||
Purchase of investments | (1,520 | ) | (1,912 | ) | (19,912 | ) | ||||||
Proceeds from sale of investments | — | 1,297 | 1,860 | |||||||||
Proceeds from sale of Spectrum | — | 286,242 | — | |||||||||
Proceeds from advance on sale of Spectrum | 145,000 | — | — | |||||||||
Repayment of advance on sale of Spectrum | — | (145,000 | ) | — | ||||||||
Microwave relocation | (693 | ) | (1,806 | ) | (2,028 | ) | ||||||
Purchase of other assets | — | (10 | ) | (35 | ) | |||||||
Purchase of property and equipment | (133,604 | ) | (212,305 | ) | (117,212 | ) | ||||||
Proceeds from sale of property and equipment | — | — | 6 | |||||||||
Net cash provided by (used in) investing activities | 24,183 | (73,494 | ) | (137,321 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Book overdraft | 6,660 | (2,776 | ) | 824 | ||||||||
Repayment of notes | (39,446 | ) | (251 | ) | (9,077 | ) | ||||||
Proceeds from issuance of warrants | 16 | — | — | |||||||||
Proceeds from sale of Senior Notes, net of underwriter fees | — | — | 145,500 | |||||||||
Payment of debt issuance costs on Senior Notes | — | — | (876 | ) | ||||||||
Proceeds from sale of Series D Preferred Stock, net of issuance cost | 88,194 | 159,951 | 65,537 | |||||||||
Proceeds from exercise of stock options and warrants | 236 | 142 | 43 | |||||||||
Repurchase of warrants | (13,952 | ) | — | — | ||||||||
Net cash provided by financing activities | 41,708 | 157,066 | 201,951 | |||||||||
INCREASE IN CASH AND CASH EQUIVALENTS | 33,490 | 19,049 | 174,248 | |||||||||
CASH AND CASH EQUIVALENTS, beginning of period | 9,178 | 42,668 | 61,717 | |||||||||
CASH AND CASH EQUIVALENTS, end of period | $ | 42,668 | $ | 61,717 | $ | 235,965 | ||||||
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 |
F-6
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 | |||||||||||||||||
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 | ||||||
F-8
1. | Organization and Business Operations: |
Unaudited pro forma stockholders’ equity at December 31, 2003 gives effectMetroPCS pursuant to the conversion ofa transaction that resulted in all of our outstanding Class B commonthe capital stock (and the options and Series D preferred stock into Class C common stock, which will occur concurrently with the consummation of this offering, including shares of Class C common stock to be issued in respect of unpaid dividends on the outstanding Series D preferred stock that have accumulated as of December 31, 2003.
2. Summary of Significant Accounting Policies:
Consolidation
The accompanying consolidated financial statements include the accountswarrants related thereto) of MetroPCS, Inc. converting into capital stock (and options and its wholly owned subsidiaries. All significant intercompany balanceswarrants) of MetroPCS on aone-for-one basis, and transactions are eliminated.
Operating Segment
The Company has adopted the Financial Accounting Standards Board (the “FASB”)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.
F-9
2. | Summary of Significant Accounting Policies: |
Expansion Markets (See Note 18).
• | allowance for uncollectible |
• | valuation of |
• | estimated useful life of assets; |
• | impairment of long-lived assets and |
• | likelihood of realizing benefits associated with temporary differences giving rise to deferred tax assets; |
• | reserves for uncertain tax positions; |
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
• | estimated customer life in terms of amortization of certain deferred revenue; |
• | valuation of common | ||
• | stock-based compensation expense. |
During 2002, the
Certain reclassifications have been made to prior year balances to conform toearnings in the current year presentation. These reclassifications had no effect on the resultsperiod. The Company’s use of operations or stockholders’ equity (deficit) as previously reported.derivative financial instruments is discussed in Note 5.
F-10
Inventories 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).
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 | ||||||
Restricted cash and investments consists of money market instruments and short-term investments. Short-term investments held to maturity are stated at cost plus accrued interest, which approximates market, mature within twelve months and are comprised primarily of federal home loan mortgage notes, all denominated in U.S. dollars. In general, these investments are pledged as collateral against letters of credit used as security for payment obligations. For purposes
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
Long-Term Investments
Long-term investments consist of federal home loan mortgage notes and bonds. Long-term investments held to maturity are stated at cost, which approximates market. Long-term investments mature in October and November 2005.
December 31, | ||||||||
2002 | 2003 | |||||||
(in thousands) | ||||||||
Construction-in-progress | $ | 30,602 | $ | 74,802 | ||||
Network infrastructure | 335,166 | 455,617 | ||||||
Office equipment | 2,918 | 6,157 | ||||||
Furniture and fixtures | 1,248 | 1,725 | ||||||
Leasehold improvements | 5,043 | 7,925 | ||||||
374,977 | 546,226 | |||||||
Accumulated depreciation | (21,617 | ) | (63,261 | ) | ||||
Property and equipment, net | $ | 353,360 | $ | 482,965 | ||||
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 | ||||
2006, 2005 and 2004, the Company capitalized interest in the amount of $17.5 million, $3.6 million and $2.9 million, respectively.
Wireless
In addition, the Company charges a fee for the initial activation of service that is recognized immediately in equipment revenue for all activations beginning on
F-12
when earned.
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
F-13
2006.
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
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 manneramount of $19.5 million and $17.1 million as EPS after assuming issuance of common stock for all potentially dilutive equivalent shares, whether exercisable or not. All classes of the Company’s common stock share equallyDecember 31, 2006 and 2005, respectively. Accounts payable and accrued expenses included tax reserves in the Company’s earningsamount of $4.4 and $4.1 million as of December 31, 2006 and 2005, respectively (See Note 16).
The Series D Preferred Stock is a participating security, such thatstockholders’ 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 event a dividend is declared or paid onperiod in which earnings are affected by the common stock, the Company must simultaneously declare and pay a dividend on the Series D Preferred Stock as if the Series D Preferred Stock had been converted into common stock. The EITF’s Topic D-95, “Effect of Participating Convertible Securities on the Computation of Basic Earnings per Share,” requires that the Preferred Stock be included in the computation of basic earnings per share if the effect of inclusion is dilutive. The Company’s accounting policy requires the use of the two-class method for its participating securities for earnings per share calculations. The Series D Preferred Stock is considered in the calculation of diluted earnings per share under the “if-converted” method, if dilutive.underlying hedged transaction.
F-14
Stock Based Compensation
The Company follows the disclosure requirements of SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure,” which amends the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation” to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.
As permitted by
2001 | 2002 | 2003 | ||||||||||
(in thousands) | ||||||||||||
Net income (loss) applicable to common stock—As reported | $ | (50,143 | ) | $ | 128,229 | $ | 1,817 | |||||
Add: Amortization of deferred compensation determined under the intrinsic method for employee stock awards, net of tax | 880 | 675 | 4,465 | |||||||||
Less: Total stock-based employee compensation expense determined under the fair value method for employee stock awards, net of tax | (2,016 | ) | (2,419 | ) | (5,632 | ) | ||||||
Net income (loss) applicable to common stock—Pro forma | $ | (51,279 | ) | $ | 126,485 | $ | 650 | |||||
Basic net income (loss) per share—As reported | $ | (1.44 | ) | $ | 2.26 | $ | 0.02 | |||||
Basic net income (loss) per share—Pro forma | $ | (1.48 | ) | $ | 2.24 | $ | 0.00 | |||||
Diluted net income (loss) per share—As reported | $ | (1.44 | ) | $ | 1.71 | $ | 0.02 | |||||
Diluted net income (loss) per share—Pro forma | $ | (1.48 | ) | $ | 1.71 | $ | 0.00 | |||||
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 | ||||
In June 2001, the
F-15
The adoption of SFAS143 and FIN No. 143 resulted in a January 1, 2003 adjustment to record a $0.7 million increase in the carrying values of property and equipment with a corresponding increase in other long-term liabilities. In addition, $0.1 million of accretion, before taxes, was recorded to increase the liability to $0.8 million at adoption.
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
The net effect was to record a loss of $74,000 as a cumulative effect adjustment resulting from a change in accounting principle in the Company’s consolidated statements of operations upon adoption on January 1, 2003.
The following pro forma data summarizes the Company’s net income as if the Company had adopted the provisions of SFAS No. 143 on January 1, 2001, including an associated pro forma asset retirement obligation on that date of $0.4 million:
December 31, | |||||||||||
2001 | 2002 | 2003 | |||||||||
(in thousands) | |||||||||||
Net income, as reported | $ | (45,180 | ) | $ | 139,067 | $ | 20,566 | ||||
Pro forma adjustments to reflect retroactive adoption of SFAS No. 143 | — | (20 | ) | 74 | |||||||
Pro forma adjustments to reflect accretion expense | (16 | ) | (45 | ) | — | ||||||
Pro forma adjustments to reflect depreciation expense | (4 | ) | (10 | ) | — | ||||||
Pro forma net income | (45,200 | ) | $ | 138,992 | $ | 20,640 | |||||
47.
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 | ||||
F-16
F-17
3. | Majority-Owned Subsidiary: |
4. | Short-Term Investments: |
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
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
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: |
F-19
Pro Forma December 31, 2002 | December 31, 2003 | |||||
(in thousands) | ||||||
Beginning asset retirement obligations | $ | 401 | $ | 701 | ||
Cumulative effect of accounting change, before taxes | — | 100 | ||||
Liabilities incurred | 225 | — | ||||
Accretion/depreciation expense | 75 | 50 | ||||
Ending asset retirement obligations | $ | 701 | $ | 851 | ||
3. Effects of Recent Accounting Pronouncements:
In June 2001,133, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” The Company adopted the provisions of this statement on January 1, 2003. See Note 2 for further details.
In November 2002, the EITFeffective portion of the FASB reached consensus on EITF No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” This consensus requires that revenue arrangements with multiple deliverables be divided into separate unitschange in fair value of accounting if the deliverablesderivative is recorded in accumulated other comprehensive income and reclassified to interest expense in the arrangement meet specific criteria. In addition, arrangement consideration must be allocated amongperiod in which the separate unitshedged transaction affects earnings. The ineffective portion of the change in fair value of a derivative qualifying for hedge accounting based on their relativeis recognized in earnings in the period of the change.
6. | Intangible Assets: |
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
4. PCS Licenses:
PCSfollows (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 | ||||
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-20
In
F-21
5. Accounts Payable2006, 2005 and Accrued Expenses:2004 — (Continued)
7. | Accounts Payable and Accrued Expenses: |
December 31, | ||||||
2002 | 2003 | |||||
Accounts payable | $ | 18,552 | $ | 48,492 | ||
Book overdraft | 3,884 | 4,708 | ||||
Accrued property and equipment | 28,953 | 50,421 | ||||
Accrued accounts payable | 2,905 | 32,128 | ||||
Payroll and employee benefits | 4,313 | 5,446 | ||||
Accrued interest | 647 | 4,847 | ||||
Taxes, other than income | 20,759 | 6,277 | ||||
Taxes payable | 8,993 | 304 | ||||
Other | 823 | 1,065 | ||||
Accounts payable and accrued expenses | $ | 89,829 | $ | 153,688 | ||
6. Long-Term Debt:
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 | ||||
8. | Long-Term Debt: |
2002 | 2003 | |||||||
FCC notes | $ | 56,242 | $ | 46,771 | ||||
Senior Notes | — | 150,000 | ||||||
Microwave clearing obligations | 2,397 | 3,817 | ||||||
Total face-value debt | 58,639 | 200,588 | ||||||
Less—Original issue discount | (7,789 | ) | (4,793 | ) | ||||
Total debt | 50,850 | 195,795 | ||||||
Less—Current maturities | (9,499 | ) | (13,362 | ) | ||||
Total long-term debt | $ | 41,351 | $ | 182,433 | ||||
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
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 | ||||
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 | ||
F-22
For the Year Ending December 31, | |||
2004 | $ | 13,362 | |
2005 | 14,252 | ||
2006 | 15,201 | ||
2007 | 3,956 | ||
2008 | 296 | ||
Thereafter | 153,521 | ||
Total | $ | 200,588 | |
The FCC
Based on an estimated fair market borrowing rateamount of 14% at time of issuance,$10.4 million.
Inof spectrum for the event thatSan Francisco-Oakland-San Jose basic trading area. The repayment resulted in a loss on extinguishment of debt of $0.9 million.
As provided by FCC regulations, and further discussed in Note 8, the Company has opted to make payments on the installment method to the various carriers to whom it owes a microwave cost sharing liability. The Company has remitted a 10% down payment upon presentation of the supported costs by the carrier and makes payments to the carriers for the same terms as the FCC notes which mature in 10 years from inception.
In October 1998, the Company sold $30.0 million of Senior Notes due October 2006 to Lucent (the “Lucent Senior Notes”) and warrants to purchase $6.0 million of Class C Common Stock (the “Warrants”), which were exercisable upon grant. In addition, the Company issued contingent warrants (the “Contingent Warrants”) to purchase $3.0 million of Class C Common Stock, which were contingent upon the Company not repaying the Lucent Senior Notes before February 2001. The Contingent Warrants to purchase $3.0 million of Class C Common Stock became exercisable in February 2001, and were recorded as additional $3.0 million in original issue discount. During 2000, Lucent and the Company amended the Lucent Senior Notes and increased the amount outstanding by $3.6 million for interest payments that were deferred. The Lucent Senior Notes were recorded on the Company’s financial statements at December 31, 2000 at the accreted value of $34.5 million. The original issue discount of $1.3 million at December 31, 2000 was amortized using an effective interest rate of 16.85%, which resulted in additional interest expense of $0.6 million during 2001. The Lucent Senior Notes bore interest at a variable rate equal to either (a) LIBOR plus an applicable margin or (b) a base rate (defined as
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
the higher of the prime rate or the federal funds rate plus 0.5%) plus an applicable margin, which was payable quarterly, and was secured by substantially all assets of the Company. The weighted average interest in effect for the period ended December 31, 2001 with respect to the Lucent Senior Notes was 9.73%.
In October 1998, the Company entered into an Unsecured Creditors’ Credit Agreement with Lucent to fund up to $18 million of the unsecured creditors’ fund, as defined, in the Company’s plan of reorganization under the United States Bankruptcy Code. The Unsecured Creditors’ Credit Agreement provided for payment of fees for the undrawn amount of the commitment and for interest to be paid quarterly on amounts funded under the agreement at a rate which is the greater of (a) the prime rate in effect on any day or (b) the federal funds effective rate plus one-half of 1%, plus an applicable margin which escalated quarterly. As part of the Unsecured Creditors’ Credit Agreement, the Company issued warrants to purchase 685,590 shares of Class C Common Stock at an exercise price of approximately $0.03 per share. Lucent was entitled to exercise these warrants at any time prior to October 8, 2008. The fair value of these warrants at the time of issuance, $2.3 million, and an initial commitment fee of $0.7 million was recorded as debt issuance cost and was amortized over the term of the Unsecured Creditors’ Credit Agreement. In February 2001, the Unsecured Creditors’ Credit Agreement was terminatedacquisition by the Company andof its original PCS licenses in the remainingFCC auction in May 1996. The repayment resulted in a loss on extinguishment of debt issuance cost was expensed because such cost had no future benefit.
In September 2001, the Company paid Lucent $13.9 million to settle the Warrants, Contingent Warrants and the 685,590 warrants associated with the Unsecured Creditors’ Credit Agreement and $39.8 million to settle the Lucentof $1.0 million.
F-23
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
securities. The net proceeds of the offeringsale were approximately $144.5$978.0 million after estimated underwriter fees and other debt issuance costs of $5.5 million which have been recorded in long-term other assets and are being amortized over the life of the debt. Of such costs, $0.1 million is included in accounts payable and accrued expenses.$22.0 million. The net proceeds will befrom the sale of the 91/4% Senior Notes, together with the borrowings under the Senior Secured Credit Facility, were used to further deployrepay amounts owed under the Company’s networkCredit Agreements, Secured Bridge Credit Facility and Unsecured Bridge Credit Facility, and to pay related infrastructure,premiums, fees and expenses, as well as for general corporate purposes.
F-24
The carrying amounteach 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 debt approximates fair value at December 31, 2002FCC licenses and 2003 based on the Company’s estimate of interest rates that would be obtained for new debt with similar terms.
7. Concentrations:
in Royal Street are held by Wireless and its wholly-owned subsidiaries.
9. | Concentrations: |
Until April 2005, the Company may be required to share radio frequency spectrum with existing fixed microwave licensees operating on the same spectrum as the Company’s. To the extent that the Company’s PCS operations interfere with those of existing microwave licensees, the Company will be required to pay for the relocation of the existing microwave station paths to alternate spectrum locations or transmission technologies. The FCC adopted a transition plan to move those microwave users to different locations on the spectrum. The FCC also adopted a cost sharing plan, so that if the relocation of a microwave user benefits more than one PCS licensee, all benefiting PCS licensees are required to share the relocation costs. After the expiration of the FCC-mandated transition and cost sharing plans in April 2005, any remaining microwave user operating in the PCS spectrum must relocate if it interferes with a PCS licensee’s operations, and it will be responsible for its own relocation costs. The Company does not believe the costs to relocate existing microwave station paths to alternate spectrum locations or transmission technologies will be material to the Company’s financial position or results of operations.
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
F-25
Year Ending December 31: | |||
2004 | $ | 29,337 | |
2005 | 29,710 | ||
2006 | 28,510 | ||
2007 | 21,033 | ||
2008 | 18,050 | ||
Thereafter | 46,245 | ||
Total | $ | 172,885 | |
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 | ||
In May 2001, the Company
The Company entered into non-cancelable purchase agreementsagreement with a vendor for the acquisitionpurchase of expansion carriers installed inPCS CDMA system products (“CDMA Products”) and services, including without limitation, wireless base stations, which are recorded in propertyswitches, power, cable and transmission equipment upon shipment. Under these agreements,and services, with an initial term of three years. The agreement provides for both exclusive and non-exclusive pricing for CDMA Products and the Company agreesagreement 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 base stations upon shipment, and the expansion carriers at the earlier of the date the carrier is turned on or twelve months from the shipmenteffective date of the base stationagreement, which may be material to Wireless.
2006.
F-26
9. Series D Cumulative Convertible Redeemable Participating Preferred Stock:
11. | Series D Cumulative Convertible Redeemable Participating Preferred Stock: |
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
F-27
• | 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 |
66 2/3%two-thirds of the then outstanding shares of Series D Preferred Stock can request the CompanyMetroPCS to redeem the outstanding shares at an amount equal to the liquidation preferencevalue plus accrued but unpaid dividends. The Company believes that there was in complianceno uncured or unwaived event of noncompliance at December 31, 2003.2006.12. Series E Cumulative Convertible Redeemable Participating Preferred Stock:
F-28
10. Capitalization:
13. | Capitalization: |
Price | Issued | Outstanding | ||
Warrants for Class B Shares | ||||
$0.0004 | 264,000 | 264,000 | ||
$0.0334 | 51,000 | 51,000 | ||
Total Warrants for Class B Shares | 315,000 | 315,000 | ||
Warrants for Class C Shares | ||||
$0.0004 | 13,643,383 | 6,282,045 | ||
$0.0334 | 3,895,920 | 914,040 | ||
$3.3334 | 207,000 | 207,000 | ||
Total Warrants for Class C Shares | 17,746,303 | 7,403,085 | ||
Total Warrants | 18,061,303 | 7,718,085 | ||
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Conversion$0.0009 per warrant, were exercised for 526,950 shares of Debtcommon stock.
In September 2001, the Company executed a Termination and Release Agreement with Lucent whereby all amounts owed under the Lucent Senior Notes including interest, costs of counsel and indemnity amounts together with $6.0 million aggregate denomination of Class C Common Stock Warrants and $3.0 million aggregate denomination of Class C Common Stock Contingent Warrants issued pursuant to the Lucent Senior Notes and 685,590 Class C Common Stock Warrants issued pursuant to the Unsecured Creditors’ Credit Agreement were fully settled and terminated for cash consideration of $53.7 million. Approximately $39.8 million was allocated to the retirement of the Lucent Senior Notes resulting in a loss on the early extinguishment of debt of $7.1 million. The remaining $13.9 million was allocated to the repurchase of the warrants resulting in a reduction of paid-in capital.
Redemption
Each share of Class A and B Common Stock shall automatically be converted into one share of Class C Common Stock in January 2007 or such earlier date as may be determined by
F-29
Voting Rights
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 class, have the rightwhole. There was no significant financial accounting impact.
14. | Share-Based Payments: |
11. Stock Option Plan:
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 Companyperiod prior to the adoption of SFAS No. 123(R) does not reflect any restated amounts.
F-30
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Generally, the option holder.
2001 | 2002 | 2003 | ||||||||||
Expected dividends | 0.00 | % | 0.00 | % | 0.00 | % | ||||||
Expected volatility | 43.63 | % | 60.67 | % | 68.01 | % | ||||||
Risk-free interest rate | 4.60 | % | 4.08 | % | 2.82 | % | ||||||
Expected lives in years | 5.00 | 5.00 | 5.00 | |||||||||
Weighted-average fair value of options: | ||||||||||||
Granted at below market price | $ | 2.94 | $ | 3.46 | $ | 5.52 | ||||||
Weighted-average exercise price of options: | ||||||||||||
Granted at below market price | $ | 4.70 | $ | 4.70 | $ | 4.70 |
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 |
F-31
2001 | 2002 | 2003 | ||||||||||||||||
Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||
Outstanding and exercisable, beginning of year | 7,769,490 | $ | 1.02 | 9,436,956 | $ | 1.28 | 9,556,831 | $ | 1.56 | |||||||||
Granted | 1,908,066 | 4.70 | 775,975 | 4.70 | 1,013,425 | 4.70 | ||||||||||||
Exercised | (50,167 | ) | 4.70 | (379,675 | ) | 0.50 | (70,946 | ) | 0.60 | |||||||||
Forfeited | (190,433 | ) | 4.70 | (276,425 | ) | 2.48 | (153,437 | ) | 4.70 | |||||||||
Outstanding and exercisable, end of year | 9,436,956 | 1.28 | 9,556,831 | 1.56 | 10,345,873 | 1.82 | ||||||||||||
Options vested at year-end | 6,248,869 | 7,469,662 | 8,275,695 |
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 | 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 |
F-32
Options Outstanding | Options Vested | |||||||||||
Exercise Price | Number of Shares | Weighted Average Contractual Life | Weighted Average Exercise Price | Number of Shares | Weighted Average Exercise Price | |||||||
$0.24 | 6,343,690 | 8.2 | $ | 0.24 | 6,343,690 | $ | 0.24 | |||||
$1.00 | 399,000 | 11.5 | $ | 1.00 | 340,812 | $ | 1.00 | |||||
$4.70 | 3,603,183 | 8.2 | $ | 4.70 | 1,591,193 | $ | 4.70 | |||||
10,345,873 | 8,275,695 | |||||||||||
As of$8.6 million for the year ended December 31, 2001, 2002, and 2003,2005. During the year ended December 31, 2004, 635,928 options outstandinggranted under the Option Plan havePlans 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.
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 | |||||
During 2001, 2002 and 2003, the Company recorded deferred compensation of $2.5 million, $0.8 million and $3.4 million, representing the difference between the estimatedgrant-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.
F-33
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 |
F-34
12. Employee Benefit Plan:
15. | Employee Benefit Plan: |
13. Income Taxes:
2006.
16. | Income Taxes: |
2001 | 2002 | 2003 | |||||||
Current: | |||||||||
Federal | $ | — | $ | 7,186 | $ | 1,087 | |||
State | — | 1,807 | 556 | ||||||
— | 8,993 | 1,643 | |||||||
Deferred: | |||||||||
Federal | — | 8,325 | 12,424 | ||||||
State | — | 1,769 | 1,598 | ||||||
— | 10,094 | 14,022 | |||||||
Provision for income taxes | $ | — | $ | 19,087 | $ | 15,665 | |||
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
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 | ||||||
2006 | 2005 | |||||||
Deferred tax assets: | ||||||||
Start-up costs capitalized for tax purposes | $ | — | $ | 866 | ||||
Net operating loss carry forward | 83,787 | 85,152 | ||||||
Net basis difference in FCC licenses | — | 1,428 | ||||||
Revenue deferred for book purposes | 9,407 | 5,007 | ||||||
Allowance for uncollectible accounts | 1,214 | 1,272 | ||||||
Deferred rent expense | 8,311 | 5,747 | ||||||
Deferred compensation | 5,636 | 2,818 | ||||||
Asset retirement obligation | 592 | 347 | ||||||
Accrued vacation | 1,004 | 603 | ||||||
Partnership interest | 7,130 | 392 |
F-35
2006 2005 Alternative Minimum Tax credit carryforward 666 — Other 1,011 558 Total deferred tax assets 118,758 104,190 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 ) Other (1,013 ) (573 ) Total deferred tax liabilities (295,140 ) (247,927 ) Subtotal (176,382 ) (143,737 ) Valuation allowance — (194 ) Net deferred tax liability $ (176,382 ) $ (143,931 )
2002 | Change | 2003 | ||||||||||
Start-up costs capitalized for tax purposes | $ | 7,434 | $ | (2,534 | ) | $ | 4,900 | |||||
Net operating loss carry forward | — | 30,126 | 30,126 | |||||||||
Net basis difference in PCS licenses | 14,884 | (3,606 | ) | 11,278 | ||||||||
Revenue deferred for book purposes | 6,426 | (2,495 | ) | 3,931 | ||||||||
Accrued interest expense | 3,548 | (3,548 | ) | — | ||||||||
Allowance for doubtful accounts | 2,786 | (1,368 | ) | 1,418 | ||||||||
Deferred rent expense | 1,107 | 458 | 1,565 | |||||||||
Deferred compensation | 1,005 | 2,872 | 3,877 | |||||||||
Accrued property tax | 900 | (635 | ) | 265 | ||||||||
Inventory | — | 840 | 840 | |||||||||
Accrued vacation | 437 | (24 | ) | 413 | ||||||||
Depreciation | (42,184 | ) | (35,915 | ) | (78,099 | ) | ||||||
Deferred cost of handset sales | (3,125 | ) | 558 | (2,567 | ) | |||||||
Amortization of original issue discount | (3,077 | ) | 1,184 | (1,893 | ) | |||||||
Other | (235 | ) | 65 | (170 | ) | |||||||
Valuation allowance | — | — | — | |||||||||
$ | (10,094 | ) | $ | (14,022 | ) | $ | (24,116 | ) | ||||
At December 31, 2001, the Company had approximately $45 million of net operating loss carryforwards for federal income tax purposes. In connection with the gain on sale of spectrum (see Note 4) the Company fully utilized the net operating loss carryforward in 2002.
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 | ) | ||
F-36
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 no valuation allowance as of December 31, 2006.
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 | ||||||
F-37
2001 | 2002 | 2003 | |||||||||
U.S. Federal income tax (benefit) provision at statutory rate | $ | (15,813 | ) | $ | 55,354 | $ | 12,681 | ||||
Increase (decrease) in income taxes resulting from: | |||||||||||
State income taxes, net of federal income tax impact | (2,033 | ) | 7,117 | 1,630 | |||||||
Change in valuation allowance | 16,128 | (43,209 | ) | — | |||||||
Resolution of federal income tax audit | — | — | 647 | ||||||||
Other | 1,718 | (175 | ) | 707 | |||||||
Provision for income taxes | $ | — | $ | 19,087 | $ | 15,665 | |||||
2001 | 2002 | 2003 | ||||||||||
(In Thousands, except Share Information) | ||||||||||||
Basic EPS—Two-Class Method: | ||||||||||||
Net income (loss) before cumulative effect of change in accounting principle | $ | (45,180 | ) | $ | 139,067 | $ | 20,640 | |||||
Accrued dividends on Series D Preferred Stock | (4,963 | ) | (10,838 | ) | (18,749 | ) | ||||||
Net income (loss) attributable to Common Stockholders before cumulative effect of change in accounting principle | $ | (50,143 | ) | $ | 128,229 | $ | 1,891 | |||||
Amount allocable to Common Stockholders | 100% | 64% | 50% | |||||||||
Rights to undistributed earnings (losses) | $ | (50,143 | ) | $ | 82,067 | $ | 946 | |||||
Cumulative effect of change in accounting principle | — | — | (74 | ) | ||||||||
Amount allocable to Common Stockholders | 100% | 64% | 50% | |||||||||
Rights to undistributed earnings (losses) | $ | — | $ | — | $ | (37 | ) | |||||
Net income attributable to Common Stockholders | $ | (50,143 | ) | $ | 128,229 | $ | 1,817 | |||||
Amount allocable to Common Stockholders | 100% | 64% | 50% | |||||||||
Rights to undistributed earnings (losses) | $ | (50,143 | ) | $ | 82,067 | $ | 909 | |||||
Weighted average common shares outstanding: | ||||||||||||
Common Stock, Class A | 90 | 90 | 90 | |||||||||
Common Stock, Class B | 3,480,360 | 3,681,488 | 3,843,785 | |||||||||
Common Stock, Class C | 31,422,286 | 32,566,162 | 32,589,178 | |||||||||
34,902,736 | 36,247,740 | 36,433,053 | ||||||||||
Basic EPS—before cumulative effect of change in accounting principle | (1.44 | ) | 2.26 | 0.02 | ||||||||
Cumulative effect of change in accounting principle | — | — | (0.00 | ) | ||||||||
Basic EPS | (1.44 | ) | 2.26 | 0.02 | ||||||||
Diluted EPS: | ||||||||||||
Net income (loss) before cumulative effect of change in accounting principle allocable to Common Stockholders | $ | (50,143 | ) | $ | 82,067 | $ | 946 | |||||
Cumulative effect of change in accounting principle, allocable to Common Stockholders | — | — | (37 | ) | ||||||||
Net income (loss), allocable to Common Stockholders | $ | (50,143 | ) | $ | 82,067 | $ | 909 | |||||
Weighted average common shares outstanding: | ||||||||||||
Common Stock, Class A | 90 | 90 | 90 | |||||||||
Common Stock, Class B | 3,480,360 | 3,681,488 | 3,843,785 | |||||||||
Common Stock, Class C | 31,422,286 | 32,566,162 | 32,589,178 | |||||||||
Dilutive effect of stock options | — | 4,067,183 | 4,562,207 | |||||||||
Dilutive effect of warrants | — | 7,689,420 | 8,259,203 | |||||||||
�� | 34,902,736 | 48,004,343 | 49,254,463 | |||||||||
Diluted EPS—before cumulative effect of change in accounting principle | $ | (1.44 | ) | $ | 1.71 | $ | 0.02 | |||||
Cumulative effect of change in accounting principle | — | — | (0.00 | ) | ||||||||
Diluted EPS | $ | (1.44 | ) | $ | 1.71 | $ | 0.02 | |||||
At December 31, 2001,2006, 2005 and 2004 — (Continued)
17. | Net Income Per Common Share: |
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 | ||||||
At
At December 31, 2001, 3.8 million of options to purchase common stock were excluded from the calculation of diluted earnings per share since the effect was anti-dilutive.
Pro forma net
Year Ended December 31, 2003 | ||||
Net income before cumulative effect of change in accounting principle | $ | 20,640 | ||
Cumulative effect of change in accounting principle | (74 | ) | ||
Net income | $ | 20,566 | ||
Basic Earnings Per Share—Pro Forma | ||||
Net income before cumulative effect of change in accounting principle | $ | 0.28 | ||
Cumulative effect of change in accounting principle | (0.00 | ) | ||
Net income per share—basic | $ | 0.28 | ||
Diluted Earnings Per Share—Pro Forma | ||||
Net income before cumulative effect of change in principle | $ | 0.24 | ||
Cumulative effect of change in accounting principle | (0.00 | ) | ||
Net income per share—diluted | $ | 0.24 | ||
Shares used in computing pro forma basic net income per share | 72,899,790 | |||
Shares used in computing pro forma diluted net income per share | 85,721,201 |
15. Supplemental Cash Flow Information:
Year Ended December 31, | |||||||||
2001 | 2002 | 2003 | |||||||
(in thousands) | |||||||||
Cash paid for interest | $ | 9,742 | $ | 3,805 | $ | 3,596 | |||
Cash paid for income taxes | — | — | 21 |
Non-cash investing and financing activities:
The Company accrued dividends of $5.0 million, $10.8 million and $18.7 million related to the Series D Preferred Stock for the years ended December 31, 2001, 2002 and 2003, respectively.
The Company accrued $36.0 million, $29.0 million and $55.6 million of plant and equipment at December 31, 2001, 2002 and 2003, respectively.
The Company accrued $0, $2.8 million and $1.0 million of microwave relocation costs at December 31, 2001, 2002 and 2003, respectively.
In 2002, the Company sold 10 MHz of spectrum in which $3.8 million of face value FCC debt was assumed by the purchaser (see Note 4).
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
16. Quarterly Results of Operations (Unaudited)
The following table summarizes the Company’s quarterly financial data for the two years ended December 31, 2002 and 2003, respectively (in thousands):
2002 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
Total revenues | $ | 5,737 | $ | 22,421 | $ | 36,994 | $ | 60,443 | ||||||||
Income/(loss) from operations | 243,832 | (32,140 | ) | (25,214 | ) | (22,483 | ) | |||||||||
Net income (loss) | 190,434 | (20,334 | ) | (16,205 | ) | (14,828 | ) | |||||||||
Basic earnings (loss) per share | 3.76 | (0.62 | ) | (0.52 | ) | (0.52 | ) | |||||||||
Diluted earnings (loss) per share | 2.86 | (0.62 | ) | (0.52 | ) | (0.52 | ) | |||||||||
2003 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
Total revenues | $ | 99,398 | $ | 107,650 | $ | 116,852 | $ | 135,582 | ||||||||
Income from operations | 1,811 | 19,088 | 15,593 | 9,403 | ||||||||||||
Income before cumulative effect of change in accounting principle | 83 | 10,693 | 8,514 | 1,350 | ||||||||||||
Net income | 9 | 10,693 | 8,514 | 1,350 | ||||||||||||
Net income (loss) allocable to Common Stockholders | (4,259 | ) | 3,158 | 1,840 | (3,762 | ) | ||||||||||
Net income (loss) per share | ||||||||||||||||
Basic | ||||||||||||||||
Income before cumulative effect of change in accounting principle | (0.12 | ) | 0.08 | 0.06 | (0.10 | ) | ||||||||||
Cumulative effect of change in accounting principle, net of tax | (0.00 | ) | — | — | — | |||||||||||
Net income (loss) per share—basic | (0.12 | ) | 0.08 | 0.06 | (0.10 | ) | ||||||||||
Diluted | ||||||||||||||||
Income before cumulative effect of change in accounting principle | (0.12 | ) | 0.06 | 0.04 | (0.10 | ) | ||||||||||
Cumulative effect of change in accounting principle, net of tax | (0.00 | ) | — | — | — | |||||||||||
Net income (loss) per share—diluted | (0.12 | ) | 0.06 | 0.04 | (0.10 | ) |
Net income for the first quarter of 2002 included a $279.0 million ($245.3 million after tax) gain on the sale of spectrum in our Atlanta market.
In the first and fourth quarters of 2003 the net loss per share, allocable to Common Stockholders, resulted from the accrued dividends on Series D preferred stock.
17. Related-Party Transactions:
The Company paid approximately $0.3 million, $0.2 million and $0.2 million for the years ended December 31, 2001, 2002 and 2003, respectively, to a firm for professional services, a partner of which is a director of the Company. The Company paid approximately $1.3 million, $0.1 million and $0.7 million for the years ended December 31, 2001, 2002 and 2003, respectively, to a firm for professional services, a partner of which is related to a Company officer.
MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
18. Subsequent Event
On May 18, 2004, the Company effected a conversion of Class B common stock to Class C common stock, on a share-for-share basis. Concurrent with the conversion, the Company increased the authorized 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 addition, on July 23, 2004, the Company effected a 1-for-2 reverse stock split of the Company’s Class A and Class C common stock. All share, per share and conversion amounts relating to the Class A and Class C common stock, stock options, and stock purchase warrants included in the accompanying consolidated financial statements have been retroactively adjusted to reflect the reverse stock split.
MetroPCS Communications, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share Information)
(UNAUDITED)
December 31, 2003 | March 31, 2004 | Unaudited Pro Forma Stockholders’ Equity at March 31, 2004 | ||||||||||
CURRENT ASSETS: | ||||||||||||
Cash and cash equivalents | $ | 235,965 | $ | 185,109 | ||||||||
Inventory, net | 21,210 | 22,957 | ||||||||||
Accounts receivable (net of allowance of $1,085 and $1,377 at December 31, 2003 and March 31, 2004, respectively) | 8,678 | 9,042 | ||||||||||
Prepaid expenses | 5,292 | 7,528 | ||||||||||
Deferred charges | 6,498 | 8,894 | ||||||||||
Current deferred tax asset | 6,675 | 6,675 | ||||||||||
Other current assets | 8,833 | 11,774 | ||||||||||
Total current assets | 293,151 | 251,979 | ||||||||||
Property and equipment, net | 482,965 | 519,549 | ||||||||||
Restricted cash and investments | 1,248 | 1,422 | ||||||||||
Long-term investments | 19,000 | 15,999 | ||||||||||
PCS licenses | 90,619 | 90,619 | ||||||||||
Microwave relocation costs | 10,000 | 9,872 | ||||||||||
Other assets | 5,511 | 5,780 | ||||||||||
Total assets | $ | 902,494 | $ | 895,220 | ||||||||
CURRENT LIABILITIES: | ||||||||||||
Accounts payable and accrued expenses | $ | 153,688 | $ | 121,677 | ||||||||
Current maturities of long-term debt | 13,362 | 13,579 | ||||||||||
Deferred revenue | 31,091 | 36,472 | ||||||||||
Other current liabilities | 2,295 | 1,673 | ||||||||||
Total current liabilities | 200,436 | 173,401 | ||||||||||
Long-term debt, net | 182,433 | 179,523 | ||||||||||
Deferred tax liabilities | 30,791 | 38,208 | ||||||||||
Long-term deferred revenue | 30 | 105 | ||||||||||
Deferred rents | 3,961 | 4,397 | ||||||||||
Other long-term liabilities | 20,554 | 20,933 | ||||||||||
Total liabilities | 438,205 | 416,567 | ||||||||||
COMMITMENTS AND CONTINGENCIES (Note 9) | ||||||||||||
SERIES D CUMULATIVE CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED STOCK, par value $.0001 per share, 4,000,000 shares designated, 3,500,947 and 3,500,953 shares issued and outstanding at December 31, 2003 and March 31, 2004, respectively, actual; none designated, issued or outstanding, pro forma | ||||||||||||
Liquidation preference of $384,841 and $389,588, at December 31, 2003 and March 31, 2004, respectively | 379,401 | 384,267 | — | |||||||||
STOCKHOLDERS’ EQUITY: | ||||||||||||
Preferred stock, par value $.0001 per share, 5,000,000 shares authorized, 4,000,000 of which have been designated as Series D Preferred Stock, no shares issued and outstanding at December 31, 2003 and March 31, 2004, respectively, actual; none designated, issued or outstanding, pro forma | — | — | — | |||||||||
Common stock, par value $.0001 per share— | ||||||||||||
Class A, 300 shares authorized, 90 shares issued and outstanding at December 31, 2003 and March 31, 2004, respectively actual and pro forma | — | — | — | |||||||||
Class B, 60,000,000 shares authorized, 3,908,785 and 4,113,785 shares issued and outstanding at December 31, 2003 and March 31, 2004, respectively, actual; none authorized, issued or outstanding, pro forma | — | — | — | |||||||||
Class C, 240,000,000 shares authorized, 32,682,903 shares and 37,239,375 shares issued and outstanding at December 31, 2003 and March 31, 2004, respectively, actual; 82,798,683 shares issued and outstanding, pro forma | 3 | 4 | 8 | |||||||||
Additional paid-in capital | 88,913 | 92,420 | 482,004 | |||||||||
Subscriptions receivable | (92 | ) | (93 | ) | (93 | ) | ||||||
Deferred compensation | (4,229 | ) | (4,328 | ) | (4,328 | ) | ||||||
Retained earnings | 293 | 6,383 | 1,062 | |||||||||
Total stockholders’ equity | 84,888 | 94,386 | $ | 478,653 | ||||||||
Total liabilities and stockholders’ equity | $ | 902,494 | $ | 895,220 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
MetroPCS Communications, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Share Information)
(UNAUDITED)
Three Months Ended March 31, | ||||||||
2003 | 2004 | |||||||
REVENUES: | ||||||||
Service revenues | $ | 75,999 | $ | 132,921 | ||||
Equipment revenues | 23,399 | 40,077 | ||||||
Total revenues | 99,398 | 172,998 | ||||||
OPERATING EXPENSES: | ||||||||
Cost of service (excluding depreciation included below) | 25,929 | 40,909 | ||||||
Cost of equipment | 44,213 | 64,047 | ||||||
Selling, general and administrative expenses (excludes non-cash compensation) | 18,046 | 28,916 | ||||||
Non-cash compensation | 241 | 3,256 | ||||||
Depreciation and amortization | 9,047 | 12,774 | ||||||
Loss on sale of assets | 111 | 87 | ||||||
Total operating expenses | 97,587 | 149,989 | ||||||
INCOME FROM OPERATIONS | 1,811 | 23,009 | ||||||
OTHER (INCOME) EXPENSE: | ||||||||
Interest expense | 1,755 | 5,572 | ||||||
Interest income | (140 | ) | (616 | ) | ||||
Gain on extinguishment of debt | — | (201 | ) | |||||
Total other expense | 1,615 | 4,755 | ||||||
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT ON CHANGE IN ACCOUNTING PRINCIPLE | 196 | 18,254 | ||||||
PROVISION FOR INCOME TAXES | (113 | ) | (7,417 | ) | ||||
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE | 83 | 10,837 | ||||||
Cumulative effect of change in accounting principle, net of tax | (74 | ) | — | |||||
NET INCOME | 9 | 10,837 | ||||||
ACCRUED DIVIDENDS ON SERIES D PREFERRED STOCK | (4,268 | ) | (4,747 | ) | ||||
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK | $ | (4,259 | ) | $ | 6,090 | |||
NET INCOME (LOSS) PER SHARE: (Note 8) BASIC | ||||||||
Income before cumulative effect of change in accounting principle | $ | (0.12 | ) | $ | 0.08 | |||
Cumulative effect of change in accounting principle | (0.00 | ) | — | |||||
NET INCOME (LOSS) PER SHARE – BASIC | $ | (0.12 | ) | $ | 0.08 | |||
DILUTED | ||||||||
Income before cumulative effect of change in accounting principle | $ | (0.12 | ) | $ | 0.06 | |||
Cumulative effect of change in accounting principle | (0.00 | ) | — | |||||
NET INCOME (LOSS) PER SHARE – DILUTED | $ | (0.12 | ) | $ | 0.06 | |||
The accompanying notes are an integral part of these consolidated financial statements.
MetroPCS Communications, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(UNAUDITED)
Three Months Ended March 31, | ||||||||
2003 | 2004 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 9 | $ | 10,837 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities— | ||||||||
Cumulative effect of change in accounting | 74 | — | ||||||
Gain on extinguishment of debt | — | (201 | ) | |||||
Loss on sale of assets | 111 | 87 | ||||||
Depreciation and amortization | 9,047 | 12,774 | ||||||
Non-cash interest expense | 784 | 688 | ||||||
Bad debt expense | 749 | 433 | ||||||
Equity based compensation expense | — | 2,965 | ||||||
Amortization of deferred compensation | 241 | 291 | ||||||
Accretion of asset retirement obligation | 25 | 79 | ||||||
Deferred rent | 414 | 435 | ||||||
Deferred taxes | 113 | 7,417 | ||||||
Cost of abandoned cell sites | 477 | 183 | ||||||
Changes in assets and liabilities— | ||||||||
Inventory | (2,057 | ) | (1,747 | ) | ||||
Accounts receivable | (4,883 | ) | (797 | ) | ||||
Prepaid expenses | (1,208 | ) | (2,236 | ) | ||||
Deferred charges and other current assets | 1,295 | (5,337 | ) | |||||
Accounts payable, accrued expenses & deferred revenue | (10,017 | ) | (1,503 | ) | ||||
Net cash provided by (used in) operating activities | (4,826 | ) | 24,368 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of investments | (390 | ) | (3,174 | ) | ||||
Proceeds from sale of investments | 762 | 6,004 | ||||||
Microwave relocation | (96 | ) | (19 | ) | ||||
Purchase of property and equipment | (26,899 | ) | (73,338 | ) | ||||
Net cash used in investing activities | (26,623 | ) | (70,527 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Change in book overdraft | 5,671 | (1,908 | ) | |||||
Repayment of notes | (90 | ) | (3,059 | ) | ||||
Proceeds from sale of Series D Preferred Stock, net of issuance cost | — | 1 | ||||||
Proceeds from exercise of stock options | — | 269 | ||||||
Net cash provided by (used in) financing activities | 5,581 | (4,697 | ) | |||||
DECREASE IN CASH AND CASH EQUIVALENTS | (25,868 | ) | (50,856 | ) | ||||
CASH AND CASH EQUIVALENTS, beginning of period | 61,717 | 235,965 | ||||||
CASH AND CASH EQUIVALENTS, end of period | $ | 35,849 | $ | 185,109 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
MetroPCS Communications, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1—Organization and Business Operations
MetroPCS Communications, Inc., a Delaware corporation (“MetroPCS”), together with its wholly owned subsidiaries (collectively, the “Company”) is a wireless communications carrier that offers digital wireless service in the metropolitan areas of Atlanta, Miami, San Francisco and Sacramento. The Company initiated the commercial launch of its first market in January 2002 and was in the development stage for 2000 and 2001. The Company is headquartered in Dallas, Texas and has approximately 859 employees Company-wide as of March 31, 2004.
On March 23, 2004, MetroPCS Communications, Inc. filed a Registration Statement on Form S-1 with the Securities and Exchange Commission to affect an initial public offering of its common stock.
Unaudited pro forma stockholders’ equity at March 31, 2004 gives effect to the conversion of all of our outstanding Class B common stock and Series D preferred stock into Class C common stock, which will occur concurrently with the consummation of this offering, including shares of Class C common stock to be issued in respect of unpaid dividends on the outstanding Series D preferred stock that have accumulated as of March 31, 2004.
Note 2—Basis of Presentation of Unaudited Interim Financial Statements
The unaudited consolidated balance sheet as of March 31, 2004, the unaudited consolidated statements of operations for the three months ended March 31, 2003 and 2004, the unaudited consolidated statements of cash flows for the three months ended March 31, 2003 and 2004 and related footnotes have been preparedcomputed in accordance with accounting principles generally accepted inEITF03-6. Under EITF03-6, the United Statespreferred stock is considered a “participating security” for purposes of America for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America. The financial information presented should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2003. In the opinion of management, the interim data includes all normal and recurring adjustments necessary for a fair presentation of results for the interim periods. Operating results for the three months ended March 31, 2004 are not necessarily indicative of results that may be expected for the year ending December 31, 2004.
Certain reclassifications have been made to prior period balances to conform to current period presentation. These reclassifications had no effect on the results of operations or stockholders’ equity as previously reported.
Note 3—Principles of Consolidation
The unaudited consolidated financial statements include the accounts of MetroPCS and its wholly owned subsidiaries. All significant intercompany balances and transactions are eliminated. The Company manages the business as one reportable business segment – wireless voice and data services and products.
Note 4—Effects of Recent Accounting Pronouncements
In March 2004, the Emerging Issues Task Force (“EITF”) reached consensus on EITF Issue 03-6, “Participating Securities and the Two-Class Method under FASB Statement No. 128,” which requires, among
MetroPCS Communications, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
other items, the use of the two-class method for calculatingcomputing earnings per share when participating convertible securities exist. The consensus is effective for fiscal periods beginning after March 31, 2004 and requires restatement of prior periods if the two-class method has not been used. The Company’s accounting policy, under FASB Statement No. 128, “Earnings per Share”, was to calculate earnings per share under both the two-class and if-converted method and report earnings per share on the method that was most dilutive. The adoption of EITF 03-06 will not have an effect on the Company’s financial statements as the two-class method is currently being followed.
Note 5—Stock Based Compensation
The Company follows the disclosure requirements of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” which amends the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation,” to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.
As permitted by SFAS No. 123, the Company measures compensation expense for its stock-based employee compensation plans using the intrinsic value method prescribed by the Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” The Company has adopted the disclosure-only provisions of SFAS No. 123. The following table illustrates the effect on net income (loss) available to common stockholders 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.
Three Months Ended March 31, | ||||||||
2003 | 2004 | |||||||
(in thousands) | ||||||||
Net income (loss) applicable to common stock – As reported | $ | (4,259 | ) | $ | 6,090 | |||
Add: Amortization of deferred compensation determined under the intrinsic method for employee stock awards, net of tax | 146 | 1,933 | ||||||
Less: Total stock-based employee compensation expense determined under the fair value method for employee stock awards, net of tax | (484 | ) | (548 | ) | ||||
Net income (loss) applicable to common stock – Pro forma | $ | (4,597 | ) | $ | 7,475 | |||
Basic net income (loss) per share – As reported | $ | (0.12 | ) | $ | 0.08 | |||
Basic net income (loss) per share – Pro forma | $ | (0.12 | ) | $ | 0.10 | |||
Diluted net income (loss) per share – As reported | $ | (0.12 | ) | $ | 0.06 | |||
Diluted net income (loss) per share – Pro forma | $ | (0.12 | ) | $ | 0.08 |
During the first three months of 2004, the Company recognized compensation expense of $3.0 million related to options outstanding that are required to be marked-to-market under variable accounting, as a result of the increase in the estimated fair market value of the Company’s common stock.
Note 6—Long-Term Investments
During the three months ended March 31, 2004, long-term investments classified as held-to-maturity were called by the issuer, thereby accelerating the maturity. Proceeds from the sale were approximately $6.0 million and the Company recognized no gain or loss onper common share and, therefore, the transactions. Also during the three months ended March 31, 2004, the Company purchased additional long-term investments of approximately $3.0 million. These
MetroPCS Communications, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
investments consists of federal home loan mortgage notes and bonds, are classified as held to maturity, stated at cost, which approximates market value, and mature between September 2005 and March 2007.
Note 7—Stockholders’ Equity
During the three months ended March 31, 2004, warrants to purchase 4,505,940 shares of Class C commonpreferred stock and 75,000 shares of Class B common stock were exercised for $0.0004 per share. In addition, options to purchase 130,000 shares of Class B common stock and 50,532 shares of Class C common stock were exercised for proceeds of approximately $30,000 and $237,000, respectively.
Note 8—Net Income (Loss) Per Common 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 basic EPS after assuming the issuance of common stock for all potentially dilutive shares, whether exercisable or not.
The Series D Preferred Stock is a participating security, 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 Series D Preferred Stock as if the Series D Preferred Stock had been converted into common stock. The EITF’s Topic D-95, “Effect of Participating Convertible Securities on the Computation of Basic Earnings per Share,” requires that the Preferred Stock be included in the computation of basic earningsand diluted net income per common share if the effect of inclusion is dilutive. The Company’s accounting policy requires the use ofusing the two-class method, for its participating securities for EPS calculations. The Series D Preferred Stock is considered in the calculationexcept during periods of dilutednet 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 “if-converted” method, if dilutive.
Three Months Ended March 31, | ||||||||
2003 | 2004 | |||||||
Basic EPS – Two-Class Method: | ||||||||
Income before cumulative effect of change in accounting principle | $ | 83 | $ | 10,837 | ||||
Accrued dividends on Series D Preferred Stock | (4,268 | ) | (4,747 | ) | ||||
Income (loss) attributable to Common Stockholders before | ||||||||
cumulative effect of change in accounting principle | $ | (4,185 | ) | $ | 6,090 | |||
Amount allocable to Common Stockholders | 100 | % | 49 | % | ||||
Rights to undistributed earnings (losses) | $ | (4,185 | ) | $ | 2,984 | |||
Cumulative effect of change in accounting principle | $ | (74 | ) | $ | — | |||
Amount allocable to Common Stockholders | 100 | % | 49 | % | ||||
Rights to undistributed earnings (losses) | $ | (74 | ) | $ | — | |||
Net income (loss) attributable to Common Stockholders | $ | (4,259 | ) | $ | 6,090 | |||
Amount allocable to Common Stockholders | 100 | % | 49 | % | ||||
Rights to undistributed earnings (losses) | $ | (4,259 | ) | $ | 2,984 | |||
MetroPCS Communications, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Three Months Ended March 31, | |||||||
2003 | 2004 | ||||||
Weighted average common shares outstanding: | |||||||
Common Stock, Class A | 90 | 90 | |||||
Common Stock, Class B | 3,843,785 | 3,988,950 | |||||
Common Stock, Class C | 32,579,427 | 35,062,135 | |||||
36,423,302 | 39,051,175 | ||||||
Basic EPS – before cumulative effect of change in accounting principle | $ | (0.12 | ) | $ | 0.08 | ||
Cumulative effect of change in accounting principle | (0.00 | ) | — | ||||
Basic EPS | $ | (0.12 | ) | $ | 0.08 | ||
Diluted EPS: | |||||||
Income (loss) before cumulative effect of change in accounting principle allocable to Common Stockholders | $ | (4,185 | ) | $ | 2,984 | ||
Cumulative effect of change in accounting principle, allocable to Common Stockholders | (74 | ) | — | ||||
Net income (loss), allocable to Common Stockholders | $ | (4,259 | ) | $ | 2,984 | ||
Weighted average common shares outstanding: | |||||||
Common Stock, Class A | 90 | 90 | |||||
Common Stock, Class B | 3,843,785 | 3,988,950 | |||||
Common Stock, Class C | 32,579,427 | 35,062,l35 | |||||
Dilutive effect of warrants | — | 5,233,287 | |||||
Dilutive effect of stock options | — | 5,245,677 | |||||
Weighted average common stock and common stock equivalents outstanding | 36,423,302 | 49,530,139 | |||||
Diluted EPS – before cumulative effect of change in accounting principle | $ | (0.12 | ) | $ | 0.06 | ||
Cumulative effect of change in accounting principle | (0.00 | ) | — | ||||
Diluted EPS | $ | (0.12 | ) | $ | 0.06 | ||
All classescontractual participation rights of the Company’s common stocksecurity to share equally in those earnings as if all of the earnings and losses offor the Company, and, accordingly, EPS is the same for each class of common stock.
period had been distributed.
18. | Segment Information: |
• | 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 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. |
(Unaudited)
Pro forma net
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-40
Core Expansion 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-41
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 | ||||
19. | Guarantor Subsidiaries: |
F-42
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-43
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-44
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-45
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-46
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-47
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-48
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-49
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-50
20. | Related-Party Transactions: |
Three Months Ended March 31, 2004 | |||
Net income | $ | 10,837 | |
Basic Earnings Per Share—Pro Forma | $ | 0.14 | |
Diluted Earnings Per Share—Pro Forma | $ | 0.12 | |
Shares used in computing pro forma basic net income per share | 80,496,705 | ||
Shares used in computing pro forma diluted net income per share | 90,975,669 |
Note 9—Commitmentscompensation for providing this billing and Contingencies
Until Aprilcollection 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 may be required to share radio frequency spectrum with existing fixed microwave licensees operating on the same spectrum as the Company. To the extent that the Company’s PCS operations interfere with those of existing microwave licensees, the Company will be required to pay for the relocation of the existing microwave station paths to alternate spectrum locations or transmission technologies. The FCC adopted a transition plan, so that if the relocation of a microwave user benefits more than one PCS licensee, all benefiting PCS licensees are required to share the relocation costs. After the expiration of the FCC mandated transition and cost sharing plans in April 2005, any remaining microwave user operating in the PCS spectrum must relocate if it interferes with a PCS licensee’s operation, and it will be responsible for its own relocation costs. The Company does not believe the costs to relocate existing microwave station paths to alternate spectrum locations or transmission technologies will be material to the Company’s financial position or results of operations.
The Company entered into non-cancelable purchase agreements with a vendor for the acquisition of expansion carriers installed in base stations which are recorded in property and equipment upon shipment. Under these agreements, the Company agrees to pay for the base stations upon shipment, and the expansion carriers at the earlier of the date the carrier is turned on or twelve months from the shipment date of the base station for the first expansion carrier, and the earlier of the date the carrier is turned on or twenty-four months from the shipment date of the base station for the second expansion carrier. Outstanding obligations under these purchase agreements were $22.1owed approximately $3.0 million and $21.7$2.1 million, at December 31, 2003 and March 31, 2004, respectively. Of the these amounts $13.6 million and $12.8 million wererespectively, to this related party for fees collected from its customers that are included in accounts payable and accrued expenses aton the accompanying consolidated balance sheets. As of December 31, 20032005, 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 March$0.1 million are included in accounts receivable and other current assets, respectively.
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 | — | — |
Litigation
(Unaudited)
Note 10—Supplemental Cash Flow Information
22. | Fair Value of Financial Instruments: |
Note 11—Subsequent Event
On April 15, 2004, upon receiving FCC approval,same of similar issues or on the current rates offered to the Company finalized an agreement to purchase four additional PCS licenses to expandfor debt of the Sacramento marketsame remaining maturities.
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 |
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-52
(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. |
24. | Subsequent Events: |
On May 18, 2004, the Company effected a conversion of Class B common stock to Class C common stock, on a share-for-share basis. Concurrent with the conversion, the Company increased the authorized 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 addition, on July 23, 2004, the Company effected a 1-for-2 reverse1 stock split of the Company’s Class Acommon stock effected by means of a stock dividend of two shares of common stock for each share of common stock issued and Class C common stock.outstanding on that date. All share, per share and conversion amounts relating to the Class A and Class C common stock stock options, and stock purchase warrantsoptions included in the accompanying consolidated financial statements have been retroactively adjusted to reflect the reverse stock split.
F-53
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) | ||||||
. | ||||||||
A-1
By: |
A-2
1. | Name and Address of Person Making the Offer |
2. | Description of Transaction |
3. | Parties to the Transaction |
B-1
4. | Basis for Liability under the California Securities Laws |
5. | Scope of Rescission Rights under the California Securities Laws |
6. | Terms of Repurchase Offer |
7. | If You Accept the Repurchase Offer |
8. | If You Do Not Accept the Repurchase Offer |
B-2
9. | Right of Action |
10. | Release |
11. | Legend Condition |
12. | California Law |
13. | Information Regarding the Company |
B-3
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
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) | ||||||
. | ||||||||
B-5
By: |
RETURN TO: | MetroPCS Communications, Inc. |
B-6
By: |
B-7
§25503. | Rescission or Damages for Failure to Qualify Securities. |
§25504. | Joint and Several Liability of Principals and Agents. |
B-8
§25507. | Time Limitations — Failure to Qualify Securities. |
B-9
24,000,000 Shares
MetroPCS Communications, Inc.
Common Stock
PROSPECTUS
Joint Book-Running Managers
Bear, Stearns & Co. Inc.
Merrill Lynch & Co.
UBS Investment Bank
Joint Lead Manager
JPMorgan
Thomas Weisel Partners LLC
, 2004
INFORMATION NOT REQUIRED IN THE PROSPECTUSOFFERING CIRCULAR
Item 13. Other Expenses of Issuance and Distribution.
The following table sets
ITEM 13. | Other Expenses of Issuance and Distribution. |
SEC registration fee | $ | 76,933 | |
NASD filing fee | 30,500 | ||
Nasdaq National Market application fee | 145,000 | ||
Accounting fees and expenses | 800,000 | ||
Legal fees and expenses | 900,000 | ||
Printing and engraving expenses | 225,000 | ||
Transfer agent fees and expenses | 2,500 | ||
Miscellaneous fees and expenses | 320,067 | ||
Total | $ | 2,500,000 | |
Item 14. Indemnification of Directors and Officers.
amounts set forth below are estimates.
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 | $ | |||
* | To be filed by amendment. |
ITEM 14. | Indemnification of Officers and Directors. |
II-1
against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement
II-1
• | 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; |
• | 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 |
• | shall inure to the benefit of the heirs, executors and administrators of such a person. |
• | for any breach of the director’s duty of loyalty to us or our stockholders; |
• | for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; |
• | under Section 174 of the Delaware General Corporation Law; or |
• | for any transaction from which the director derived any improper personal benefit. |
• | 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 |
II-2
• | any limitation on the personal liability of a director existing at the time of such repeal or modification. |
II-2
Item 15.
ITEM 15. | Recent Sales of Unregistered Securities |
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 was converted into MetroPCS Communications common stock, par value $0.0001 per share, or Common Stock, upon the consummation of our initial public offering on April 24, 2007. The Series E Preferred Stock was converted into Common Stock at $9.00 per share.
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Item 16. Exhibits
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. 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) Exhibits. The following exhibits are filed as partthe portion of this registration statement:
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). |
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Exhibit No. | Description | |||
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). |
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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. |
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(b) Financial Statement Schedules.
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule
Consolidated Valuation and Qualifying Accounts
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Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
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Pursuant to requirements of the Securities Act, this amendment has been signed on July 26, 2004 by the following persons in the capacities indicated.
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By: | /s/ Roger D. Linquist |
/s/ Roger D. Linquist Roger D. Linquist President and Chief Executive Officer 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 |
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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 | .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. |
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Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule
To the Board of Directors of MetroPCS Communications, Inc.:
Our audits of the consolidated financial statements referred to in our report dated February 25, 2004, except as to Note 18 which is as of July 23, 2004, appearing in this Registration Statement on Form S-1 of MetroPCS Communications, Inc. also included an audit of the consolidated financial statement schedule of MetroPCS Communications, Inc. included in this Form S-1. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Dallas, Texas
February 25, 2004
SCHEDULE II
MetroPCS Communications, Inc. and Subsidiaries
Consolidated Valuation and Qualifying Accounts
For the Period December 31, 2000 through 2003
(in thousands)
Classification | Balance at Beginning of Period | Additions Charged to Costs and Expenses | Additions Charged to Other Accounts | Deductions | Balance At End of Period | ||||||
December 31, 2001 | |||||||||||
Allowance for doubtful accounts | — | — | — | — | — | ||||||
Deferred tax valuation | 15,921 | 27,288 | — | — | 43,209 | ||||||
December 31, 2002 | |||||||||||
Allowance for doubtful accounts | — | 383 | — | — | 383 | ||||||
Deferred tax valuation | 43,209 | — | — | (43,209 | )(1) | — | |||||
December 31, 2003 | |||||||||||
Allowance for doubtful accounts | 383 | 991 | — | (289 | ) | 1,085 | |||||
Deferred tax valuation | — | — | — | — | — |
EXHIBIT INDEX
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Filed herewith. |