UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                           to                                           

METROPCS COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		20-0836269 (I.R.S. Employer Identification No.)

8144 Walnut Hill Lane, Suite 800 Dallas, Texas (Address of principal executive offices)		75231-4388 (Zip Code)

(214) 265-2550
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o      Accelerated filer o      Non-accelerated filer þ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     On July 31, 2007, there were 346,882,322 shares of the registrant’s common stock, $0.0001 par value, outstanding.

 

 

METROPCS COMMUNICATIONS, INC.
Quarterly Report on Form 10-Q

Table of Contents

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006			1
Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2007 and 2006			2
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006			3
Notes to Condensed Consolidated Interim Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3. Quantitative and Qualitative Disclosures about Market Risk			46
Item 4. Controls and Procedures			47
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			48
Item 1A. Risk Factors			49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			*
Item 3. Defaults Upon Senior Securities			*
Item 4. Submission of Matters to a Vote of Security Holders			*
Item 5. Other Information			*
Item 6. Exhibits			57
SIGNATURES			58
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

PART I.
FINANCIAL INFORMATION

Item 1. Financial Statements.

MetroPCS Communications, Inc. and Subsidiaries

		June 30,				December 31,
		2007				2006
CURRENT ASSETS:
Cash and cash equivalents		$	227,836			$	161,498
Short-term investments			1,539,438				390,651
Restricted short-term investments			—				607
Inventories, net			90,000				92,915
Accounts receivable (net of allowance for uncollectible accounts of $2,306 and $1,950 at June 30, 2007 and December 31, 2006, respectively)			29,533				28,140
Prepaid expenses			44,667				33,109
Deferred charges			25,423				26,509
Deferred tax asset			815				815
Other current assets			20,998				24,283
Total current assets			1,978,710				758,527
Property and equipment, net			1,534,402				1,256,162
Long-term investments			8,573				1,865
FCC licenses			2,072,895				2,072,885
Microwave relocation costs			9,600				9,187
Other assets			62,165				54,496
Total assets		$	5,666,345			$	4,153,122
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	402,538			$	325,681
Current maturities of long-term debt			16,000				16,000
Deferred revenue			102,869				90,501
Other current liabilities			4,228				3,447
Total current liabilities			525,635				435,629
Long-term debt, net			2,995,355				2,580,000
Deferred tax liabilities			241,308				177,197
Deferred rents			26,297				22,203
Redeemable minority interest			4,521				4,029
Other long-term liabilities			30,787				26,316
Total liabilities			3,823,903				3,245,374
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 at December 31, 2006, 0 and 3,500,993 shares issued and outstanding at June 30, 2007 and December 31, 2006, respectively; Liquidation preference of $447,388 at December 31, 2006			—				443,368
SERIES E CUMULATIVE CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED STOCK, par value $0.0001 per share, 500,000 shares designated at December 31, 2006, 0 and 500,000 shares issued and outstanding at June 30, 2007 and December 31, 2006, respectively; Liquidation preference of $54,019 at December 31, 2006			—				51,135
OPTIONS SUBJECT TO RESCISSION (See Note 11)			1,437				—
STOCKHOLDERS’ EQUITY:
Preferred stock, par value $0.0001 per share, 100,000,000 shares authorized, 4,000,000 of which were designated as Series D Preferred Stock and 500,000 of which were designated as Series E Preferred Stock at December 31, 2006; no shares of preferred stock other than Series D & E Preferred Stock (presented above) issued and outstanding at June 30, 2007 and December 31, 2006			—				—
Common Stock, par value $0.0001 per share, 1,000,000,000 shares authorized, 346,728,450 and 157,052,097 shares issued and outstanding at June 30, 2007 and December 31, 2006, respectively			35				16
Additional paid-in capital			1,502,290				166,315
Retained earnings			332,453				245,690
Accumulated other comprehensive income			6,227				1,224
Total stockholders’ equity			1,841,005				413,245
Total liabilities and stockholders’ equity		$	5,666,345			$	4,153,122

MetroPCS Communications, Inc. and Subsidiaries

		For the three months ended								For the six months ended
		June 30,								June 30,
		2007				2006				2007				2006
REVENUES:
Service revenues		$	479,341			$	307,843			$	918,857			$	583,260
Equipment revenues			71,835				60,351				169,005				114,395
Total revenues			551,176				368,194				1,087,862				697,655
OPERATING EXPENSES:
Cost of service (excluding depreciation and amortization expense of $36,653, $29,433, $71,827 and $54,289, shown separately below)			162,227				107,497				307,562				199,987
Cost of equipment			133,439				112,005				306,747				212,916
Selling, general and administrative expenses (excluding depreciation and amortization expense of $4,471, $2,883, $8,677 and $5,287, shown separately below)			82,717				60,264				155,654				111,701
Depreciation and amortization			41,124				32,316				80,504				59,576
(Gain) loss on disposal of assets			(393	)			2,013				2,657				12,377
Total operating expenses			419,114				314,095				853,124				596,557
Income from operations			132,062				54,099				234,738				101,098
OTHER EXPENSE (INCOME):
Interest expense			49,168				21,713				98,144				42,597
Accretion of put option in majority-owned subsidiary			254				203				492				360
Interest and other income			(14,494	)			(6,147	)			(21,651	)			(10,719	)
Gain on extinguishment of debt			—				(27	)			—				(244	)
Total other expense			34,928				15,742				76,985				31,994
Income before provision for income taxes			97,134				38,357				157,753				69,104
Provision for income taxes			(39,040	)			(15,368	)			(63,307	)			(27,745	)
Net income			58,094				22,989				94,446				41,359
Accrued dividends on Series D Preferred Stock			(1,319	)			(5,237	)			(6,499	)			(10,417	)
Accrued dividends on Series E Preferred Stock			(189	)			(748	)			(929	)			(1,488	)
Accretion on Series D Preferred Stock			(30	)			(118	)			(148	)			(236	)
Accretion on Series E Preferred Stock			(22	)			(85	)			(107	)			(170	)
Net income applicable to Common Stock		$	56,534			$	16,801			$	86,763			$	29,048
Net income		$	58,094			$	22,989			$	94,446			$	41,359
Other comprehensive income:
Unrealized gain (loss) on available-for-sale securities, net of tax			1,807				(744	)			2,402				(516	)
Unrealized gain on cash flow hedging derivative, net of tax			6,898				619				5,129				1,230
Reclassification adjustment for gains included in net income, net of tax			(1,487	)			(20	)			(2,528	)			(515	)
Comprehensive income		$	65,312			$	22,844			$	99,449			$	41,558
Net income per common share:
Basic		$	0.17			$	0.06			$	0.29			$	0.11
Diluted		$	0.17			$	0.06			$	0.28			$	0.10
Weighted average shares:
Basic			296,670,880				155,829,673				227,238,734				155,503,804
Diluted			306,484,317				159,350,145				235,898,089				159,318,289

MetroPCS Communications, Inc. and Subsidiaries

		For the six months ended
		June 30,
		2007				2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	94,446			$	41,359
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			80,504				59,576
Provision for uncollectible accounts receivable			23				111
Deferred rent expense			4,265				3,376
Cost of abandoned cell sites			3,832				638
Non-cash interest expense			2,048				776
Loss on disposal of assets			2,657				12,377
Gain on extinguishment of debt			—				(244	)
Gain on sale of investments			(2,241	)			(1,268	)
Accretion of asset retirement obligation			572				298
Accretion of put option in majority-owned subsidiary			492				360
Deferred income taxes			62,158				26,496
Stock-based compensation expense			11,864				3,969
Changes in assets and liabilities:
Inventories			2,741				10,295
Accounts receivable			(1,415	)			(3,804	)
Prepaid expenses			(7,625	)			(3,074	)
Deferred charges			1,086				(8,631	)
Other assets			(9,332	)			258
Accounts payable and accrued expenses			7,212				38,066
Deferred revenue			12,383				16,504
Other liabilities			1,639				1,630
Net cash provided by operating activities			267,309				199,068
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment			(347,114	)			(307,296	)
Change in prepaid purchases of property and equipment			(3,389	)			(708	)
Proceeds from sale of property and equipment			188				25
Purchase of investments			(2,371,757	)			(537,806	)
Proceeds from sale of investments			1,226,823				645,834
Change in restricted cash and investments			556				(3,174	)
Microwave relocation costs			(400	)			—
Net cash used in investing activities			(1,495,093	)			(203,125	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in book overdraft			59,076				27,717
Proceeds from 91/4% Senior Notes			423,500				—
Proceeds from initial public offering			862,500				—
Debt issuance costs			(3,008	)			(104	)
Cost of raising capital			(44,266	)			—
Repayment of debt			(8,000	)			(2,011	)
Proceeds from minority interest in majority-owned subsidiary			—				2,000
Proceeds from exercise of stock options			4,320				337
Net cash provided by financing activities			1,294,122				27,939
INCREASE IN CASH AND CASH EQUIVALENTS			66,338				23,882
CASH AND CASH EQUIVALENTS, beginning of period			161,498				112,709
CASH AND CASH EQUIVALENTS, end of period		$	227,836			$	136,591

MetroPCS Communications, Inc. and Subsidiaries

1. Basis of Presentation:

     The accompanying unaudited condensed consolidated interim financial statements include the balances and results of operations of MetroPCS Communications, Inc. (“MetroPCS”) and its consolidated subsidiaries (collectively, the “Company”). MetroPCS indirectly owns, through its wholly-owned subsidiaries, 85% of the limited liability company member interest in Royal Street Communications, LLC (“Royal Street Communications”). The consolidated financial statements include the balances and results of operations of MetroPCS and its wholly-owned subsidiaries as well as the balances and results of operations of Royal Street Communications and its wholly-owned subsidiaries (collectively “Royal Street”). The Company consolidates its interest in Royal Street in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46-R, “Consolidation of Variable Interest Entities,” because Royal Street is a variable interest entity and the Company will absorb all of Royal Street’s expected losses. All intercompany accounts and transactions between the Company and Royal Street have been eliminated in the consolidated financial statements. The redeemable minority interest in Royal Street is included in long-term liabilities. The condensed consolidated interim balance sheets as of June 30, 2007 and December 31, 2006, the condensed consolidated statements of income and comprehensive income and cash flows for the periods ended June 30, 2007 and 2006, and the related footnotes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

     The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting of normal, recurring adjustments) which are, in the opinion of management, necessary to state fairly the results for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the fiscal year.

     The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

     Federal Universal Service Fund (“FUSF”) and E-911 fees are assessed by various governmental authorities in connection with the services that the Company provides to its customers. The Company reports these fees on a gross basis in services revenues and cost of service on the accompanying statements of income and comprehensive income. For the three months ended June 30, 2007 and 2006, the Company recorded approximately $25.3 million and $10.4 million, respectively, of FUSF and E-911 fees. For the six months ended June 30, 2007 and 2006, the Company recorded approximately $45.2 million and $19.1 million, respectively, of FUSF and E-911 fees. Sales, use and excise taxes are reported on a net basis in selling, general and administrative expenses on the accompanying statements of income and comprehensive income.

     On March 14, 2007, the Company’s board of directors approved a 3 for 1 stock split by means of a stock dividend of two shares of common stock for each share of common stock issued and outstanding at the close of business on March 14, 2007. Unless otherwise indicated, all share numbers and per share prices included in the accompanying unaudited condensed consolidated interim financial statements give effect to the stock split.

     On April 24, 2007, the Company consummated its initial public offering (the “Offering”) of 57,500,000 shares of common stock priced at $23.00 per share (less underwriting discounts and commissions). The Company offered 37,500,000 shares of common stock and certain of the Company’s existing stockholders offered 20,000,000 shares of common stock in the Offering, which included 7,500,000 shares sold by the Company’s existing stockholders pursuant to the underwriters’ exercise of their over-allotment option. Concurrent with the Offering, all outstanding shares of preferred stock, including accrued but unpaid dividends, were converted into 150,962,690 shares of common stock. The shares began trading on April 19, 2007 on The New York Stock Exchange under the symbol “PCS”.

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

2. Share-Based Payments:

     In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment,” (“SFAS No. 123(R)”), the Company has recognized stock-based compensation expense in an amount equal to the fair value of share-based payments, which includes stock options granted to employees. SFAS No. 123(R) replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” (“SFAS No. 123”) and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related interpretations (“APB No. 25”). The Company adopted SFAS No. 123(R) on January 1, 2006. The Company records stock-based compensation expense in cost of service and selling, general and administrative expenses. Stock-based compensation expense recognized under SFAS No. 123(R) was $7.7 million and $2.2 million for the three months ended June 30, 2007 and 2006, respectively. Cost of service for the three months ended June 30, 2007 and 2006, includes $0.5 million and $0.5 million, respectively, of stock-based compensation. For the three months ended June 30, 2007 and 2006, selling, general and administrative expenses include $7.2 million and $1.7 million of stock-based compensation, respectively. Stock-based compensation expense recognized under SFAS No. 123(R) was $11.9 million and $4.0 million for the six months ended June 30, 2007 and 2006, respectively. Cost of service for the six months ended June 30, 2007 and 2006, includes $0.7 million and $0.5 million, respectively, of stock-based compensation. For the six months ended June 30, 2007 and 2006, selling, general and administrative expenses include $11.2 million and $3.5 million of stock-based compensation, respectively.

     On April 18, 2007, the Company granted stock options to purchase an aggregate of 5,480,448 shares of the Company’s common stock to certain employees. The exercise price for the option grants is $23.00, which was the price at which the Company agreed to sell its common stock to the underwriters in the Offering. The stock options granted generally vest on a four-year vesting schedule with 25% vesting on the first anniversary date of the award and the remainder pro-rata on a monthly basis thereafter. The grant date fair value of these options approximated $57.3 million.

3. Short-Term Investments:

     Short-term investments consisted of the following (in thousands):

		As of June 30, 2007
						Gross				Gross				Aggregate
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
Auction rate securities		$	783,938			$	2			$	(81	)		$	783,859
Corporate bonds			740,306				1,780				(3	)			742,083
Certificates of deposit			13,500				—				(4	)			13,496
Total short-term investments		$	1,537,744			$	1,782			$	(88	)		$	1,539,438

		As of December 31, 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

     The cost and aggregate fair values of short-term investments by contractual maturity at June 30, 2007 were as follows (in thousands):

						Aggregate
		Amortized				Fair
		Cost				Value
Less than one year		$	646,680			$	648,453
Due in 1 - 2 years			—				—
Due in 2 - 5 years			—				—
Due after 5 years			891,064				890,985
Total		$	1,537,744			$	1,539,438

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

4. Property and Equipment:

     Property and equipment, net, consisted of the following (in thousands):

		June 30,				December 31,
		2007				2006
Construction-in-progress		$	363,275			$	193,856
Network infrastructure			1,506,877				1,329,986
Office equipment			36,708				31,065
Leasehold improvements			26,151				21,721
Furniture and fixtures			7,003				5,903
Vehicles			207				207
			1,940,221				1,582,738
Accumulated depreciation			(405,819	)			(326,576	)
Property and equipment, net		$	1,534,402			$	1,256,162

5. Accounts Payable and Accrued Expenses:

     Accounts payable and accrued expenses consisted of the following (in thousands):

		June 30,				December 31,
		2007				2006
Accounts payable		$	96,140			$	90,084
Book overdraft			80,364				21,288
Accrued accounts payable			97,971				111,974
Accrued liabilities			14,328				9,405
Payroll and employee benefits			17,118				20,645
Accrued interest			34,913				24,529
Taxes, other than income			57,519				42,882
Income taxes			4,185				4,874
Accounts payable and accrued expenses		$	402,538			$	325,681

6. Long-Term Debt:

     Long-term debt consisted of the following (in thousands):

		June 30,				December 31,
		2007				2006
91/4% Senior Notes		$	1,400,000			$	1,000,000
Senior Secured Credit Facility			1,588,000				1,596,000
Total long-term debt			2,988,000				2,596,000
Add: unamortized premium on debt			23,355				—
Total debt			3,011,355				2,596,000
Less: current maturities			(16,000	)			(16,000	)
Total long-term debt		$	2,995,355			$	2,580,000

   $1.4 Billion 9¹/4% Senior Notes

     On November 3, 2006, MetroPCS Wireless, Inc. (“Wireless”) completed the sale of $1.0 billion of 9¹/4% Senior Notes due 2014 (the “9¹/4% Senior Notes”). The 9¹/4% Senior Notes are unsecured obligations and are jointly and severally, fully and unconditionally guaranteed by MetroPCS, MetroPCS, Inc., and all of Wireless’ direct and indirect wholly-owned subsidiaries, but are not guaranteed by Royal Street. Interest is payable on the 9¹/4% Senior Notes on May 1 and November 1 of each year, beginning on May 1, 2007. Wireless may, at its option, redeem some or all of the 9¹/4% Senior Notes at any time on or after November 1, 2010 for the redemption prices set forth in the indenture governing the 9¹/4% Senior Notes. In addition, Wireless may also redeem up to 35% of the aggregate principal amount of the 9¹/4% Senior Notes with the net cash proceeds of certain sales of equity securities.

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

     On November 3, 2006, Wireless also entered into a registration rights agreement. Under the registration rights agreement, Wireless agreed to file a registration statement with the United States Securities and Exchange Commission (“SEC”) relating to an offer to exchange and issue notes equal to the outstanding principal amount of the 9¹/4% Senior Notes prior to the earlier of (i) 365 days after the closing date of the 9¹/4% Senior Notes and (ii) 30 days following the date that MetroPCS or any of its subsidiaries, other than Royal Street, consummates a public offering of its capital stock. In addition, Wireless agreed to use all commercially reasonable efforts to cause such registration statement to be declared effective by the SEC on or prior to 180 days after the filing of the registration statement and consummate the exchange offer within 30 business days after the registration statement has been declared effective by the SEC. Alternatively, if Wireless is unable to consummate the exchange offer or if holders of the 9¹/4% Senior Notes are unable to participate in the exchange offer for certain specified reasons, then Wireless must use commercially reasonable efforts to file a shelf registration statement within the times specified in the registration rights agreement to facilitate the resale of the 9¹/4% Senior Notes. If (i) Wireless fails to file a registration statement by the applicable deadline, (ii) any such registration statement has not been declared effective by the SEC by the applicable deadline, (iii) the exchange offer has not been consummated by the applicable deadline or (iv) any registration statement required by the registration rights agreement is filed and declared effective but thereafter ceases to be effective or fails to be usable for its intended purpose without being cured under the terms of the registration rights agreement, then Wireless must pay each holder liquidated damages in an amount equal to $0.05 per week per $1,000 in principal amount of 9¹/4% Senior Notes for each week or portion thereof that the default continues for the first 90-day period immediately following the occurrence of the default. The amount of liquidated damages increases by an additional $0.05 per week per $1,000 in principal amount of the 9¹/4% Senior Notes with respect to each subsequent 90-day period until all defaults have been cured, up to a maximum amount of liquidated damages of $0.20 per week per $1,000 in principal amount of 9¹/4% Senior Notes. On April 24, 2007, MetroPCS closed the Offering (See Note 8). Under the terms of the registration rights agreement, Wireless was required to file a registration statement related to the exchange offer with the SEC by May 24, 2007. On May 15, 2007, Wireless filed such required initial registration statement on Form S-4 (the “Existing Exchange Offer Registration Statement”).

     On June 6, 2007, Wireless completed the sale of an additional $400.0 million of 9¹/4% Senior Notes (the “Additional Notes”) under the existing indenture at a price equal to 105.875% of the principal amount of such Additional Notes. Wireless intends to use the approximately $421.0 million in net proceeds from the Additional Notes for general corporate purposes, which could include financing participation in and acquisition of additional spectrum in the Federal Communications Commission’s (“FCC”) upcoming 700 MHz auction. On June 6, 2007, Wireless entered into a registration rights agreement in connection with the consummation of the sale of the Additional Notes. Under the terms of this registration rights agreement, Wireless agreed to amend the Existing Exchange Offer Registration Statement within 120 days of the date of the registration rights agreement to include the Additional Notes. Wireless also agreed to use commercially reasonable efforts to have such registration statement declared effective on or prior to November 12, 2007 and to commence and consummate the exchange offer as soon as practicable thereafter. Alternatively, if Wireless is unable to consummate the exchange offer or if holders of the Additional Notes cannot participate in the exchange offer for certain specified reasons, then Wireless must use commercially reasonable efforts to file a shelf registration statement within the times specified in the registration rights agreement to facilitate resale of the Additional Notes. If (i) Wireless fails to file the amendment to the Existing Exchange Offer Registration Statement by the applicable deadline, (ii) have such registration statement declared effective by the applicable deadline, (iii) consummate the exchange offer by the applicable deadline or, in the alternative, have the shelf registration statement declared effective, Wireless will be required to pay certain liquidated damages as provided in the registration rights agreement which are substantially the same as those for the 9¹/4% Senior Notes.

Senior Secured Credit Facility

     On November 3, 2006, Wireless entered into a secured credit facility, pursuant to which Wireless may borrow up to $1.7 billion, as amended, (the “Senior Secured Credit Facility”). The Senior Secured Credit Facility consists of a $1.6 billion term loan facility and a $100.0 million revolving credit facility. The term loan facility is repayable in quarterly installments in annual aggregate amounts equal to 1% of the initial aggregate principal amount of $1.6 billion. The term loan facility will mature in seven years and the revolving credit facility will mature in five years.

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

     The facilities under the Senior Secured Credit Facility are guaranteed by MetroPCS, MetroPCS, Inc. and each of Wireless’ direct and indirect present and future wholly-owned domestic subsidiaries. The facilities are not guaranteed by Royal Street, but Wireless pledged the promissory note that Royal Street has given it in connection with amounts borrowed by Royal Street from Wireless and the limited liability company member interest held in Royal Street Communications. The Senior Secured Credit Facility contains customary events of default, including cross defaults. The obligations are also secured by the capital stock of Wireless as well as substantially all of Wireless’ present and future assets and the capital stock and substantially all of the assets of each of its direct and indirect present and future wholly-owned subsidiaries (except as prohibited by law and certain permitted exceptions), but excludes Royal Street.

     The interest rate on the outstanding debt under the Senior Secured Credit Facility is variable. The rate as of June 30, 2007 was 7.391%. On November 21, 2006, Wireless entered into a three-year interest rate protection agreement to manage the Company’s interest rate risk exposure and fulfill a requirement of the Senior Secured Credit Facility. The agreement covers a notional amount of $1.0 billion and effectively converts this portion of Wireless’ variable rate debt to fixed rate debt. The quarterly interest settlement periods began on February 1, 2007. The interest rate protection agreement expires on February 1, 2010. This financial instrument is included in long-term investments at fair market value, which was approximately $8.6 million and $1.9 million as of June 30, 2007 and December 31, 2006, respectively. The change in fair value is reported in accumulated other comprehensive income in the consolidated balance sheets, net of income taxes. On February 20, 2007, Wireless entered into an amendment to the Senior Secured Credit Facility. Under the amendment, the margin used to determine the Senior Secured Credit Facility interest rate was reduced to 2.25% from 2.50%.

     As of June 30, 2007, there was a total of approximately $1.6 billion outstanding under the Senior Secured Credit Facility, of which $16.0 million is reported in current maturities of long-term debt and approximately $1.6 billion is reported as long-term debt on the accompanying consolidated balance sheets.

7. Income Taxes:

     The Company records income taxes pursuant to SFAS No. 109, “Accounting for Income Taxes,” (“SFAS No. 109”). SFAS No. 109 uses an asset and liability approach to account for income taxes, wherein deferred taxes are provided for book and tax basis differences for assets and liabilities. In the event differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities result in deferred tax assets, a valuation allowance is provided for a portion or all of the deferred tax assets when there is sufficient uncertainty regarding the Company’s ability to recognize the benefits of the assets in future years.

     On January 1, 2007, the Company adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes,” (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109. FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition issues. The adoption of FIN 48 did not have a significant impact on the Company’s financial statements. There was no cumulative effect adjustment related to adopting FIN 48. As of January 1, 2007, the amount of unrecognized tax benefits was $23.4 million of which $22.6 million would, if recognized, decrease the Company’s effective tax rate.

     The Company files income tax returns in the US federal and certain state jurisdictions and is subject to examinations by the IRS and other taxing authorities. Federal examinations of income tax returns filed by the Company and any of its subsidiaries for the years ending prior to January 1, 2004 are complete. The State of California is in the process of examining the Company’s income tax returns for the years 2002 through 2003 and the Company has entered the appeals process. At this time, the Company cannot accurately predict when any issues raised in the California audit will be fully resolved.

     The Company classifies interest and penalties related to unrecognized tax benefits as income tax expense. As of January 1, 2007, current liabilities included a total of $1.6 million and non-current liabilities included a total of $8.8

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

million in accrued interest and penalties. The amount of interest (after-tax) and penalties included in income tax expense for the three and six months ended June 30, 2007 totaled $0.5 million and $1.1 million, respectively.

     The Company does not expect that the total amount of unrecognized tax benefits for the positions included as of the date of the adoption will significantly increase or decrease within the next twelve months.

8. Stockholders’ Equity:

     Common Stock Issued to Directors

     Non-employee members of MetroPCS’ Board of Directors receive compensation for serving on the Board of Directors, as defined in MetroPCS’ Non-Employee Director Remuneration Plan. The annual retainer provided under the Non-Employee Director Remuneration Plan may be paid, at the election of each non-employee director, in cash, common stock, or a combination of cash and common stock. During the six months ended June 30, 2007 and 2006, non-employee members of the Board of Directors were issued 31,230 and 43,845 shares of common stock, respectively, as payment of their annual retainer.

     Stockholder Rights Plan

     On March 27, 2007, in connection with the Offering, the Company adopted a Stockholder Rights Plan. Under the Stockholder Rights Plan, each share of the Company’s common stock includes one right to purchase one one-thousandth of a share of series A junior participating preferred stock. The rights will separate from the common stock and become exercisable (1) ten calendar days after public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial ownership of 15% of the Company’s outstanding common stock or (2) ten business days following the start of a tender offer or exchange offer that would result in a person’s acquiring beneficial ownership of 15% of the Company’s outstanding common stock. A 15% beneficial owner is referred to as an “acquiring person” under the Stockholder Rights Plan.

     Initial Public Offering

     On April 24, 2007, upon consummation of the Offering, the Company’s Third Amended and Restated Certificate of Incorporation (the “Restated Certificate”), as filed with the Delaware Secretary of State, became effective. The Restated Certificate provides for two classes of capital stock to be designated, respectively, Common Stock and Preferred Stock. The total number of shares which the Company is authorized to issue is 1,100,000,000 shares. 1,000,000,000 shares are Common Stock, par value $0.0001 per share, and 100,000,000 shares are Preferred Stock, par value $0.0001 per share. The Restated Certificate does not distinguish classes of common stock or preferred stock.

9. Net Income Per Common Share:

     The following table sets forth the computation of basic and diluted net income per common share for the periods indicated (in thousands, except share and per share data):

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2007				2006				2007				2006
Basic EPS—Two Class Method:
Net income		$	58,094			$	22,989			$	94,446			$	41,359
Accrued dividends and accretion:
Series D Preferred Stock			(1,349	)			(5,355	)			(6,647	)			(10,653	)
Series E Preferred Stock			(211	)			(833	)			(1,036	)			(1,658	)
Net income applicable to common stock		$	56,534			$	16,801			$	86,763			$	29,048
Amount allocable to common shareholders			90.9	%			57.1	%			75.6	%			57.0	%
Rights to undistributed earnings		$	51,398			$	9,586			$	65,618			$	16,559
Weighted average shares outstanding—basic			296,670,880				155,829,673				227,238,734				155,503,804
Net income per common share—basic		$	0.17			$	0.06			$	0.29			$	0.11
Diluted EPS:
Rights to undistributed earnings		$	51,398			$	9,586			$	65,618			$	16,559
Weighted average shares outstanding—basic			296,670,880				155,829,673				227,238,734				155,503,804
Effect of dilutive securities:
Warrants			—				69,488				—				296,952
Stock options			9,813,437				3,450,985				8,659,355				3,517,533
Weighted average shares outstanding—diluted			306,484,317				159,350,145				235,898,089				159,318,289
Net income per common share—diluted		$	0.17			$	0.06			$	0.28			$	0.10

     Net income per common share is computed in accordance with EITF 03-6,“Participating Securities and the Two-Class Method under FASB Statement No. 128” (“EITF 03-6”). Under EITF 03-6, the preferred stock is considered a “participating security” for purposes of computing earnings per common share and, therefore, the preferred stock is included in the computation of basic and diluted net income per common share using the two-class method, except during periods of net losses. Preferred stock was included in the computation of basic and diluted net income per common share through April 24, 2007, the date of conversion to common stock as a result of the Offering. When determining basic earnings per common share under EITF 03-6, undistributed earnings for a period are allocated to a participating security based on the contractual participation rights of the security to share in those earnings as if all of the earnings for the period had been distributed.

     For the three months ended June 30, 2007 and 2006, 4.5 million and 9.3 million, respectively, of stock options were excluded from the calculation of diluted net income per common share since the effect was anti-dilutive. For the six months ended June 30, 2007 and 2006, 2.3 million and 8.2 million, respectively, of stock options were excluded from the calculation of diluted net income per common share since the effect was anti-dilutive.

     For the three months ended June 30, 2007 and 2006, 36.5 million and 137.7 million, respectively, of convertible shares of Series D Preferred Stock were excluded from the calculation of diluted net income per common share since the effect was anti-dilutive. For the six months ended June 30, 2007 and 2006, 89.1 million and 136.1 million, respectively, of convertible shares of Series D Preferred Stock were excluded from the calculation of diluted net income per common share since the effect was anti-dilutive.

     For the three months ended June 30, 2007 and 2006, 1.5 million and 5.8 million, respectively, of convertible shares of Series E Preferred Stock were excluded from the calculation of diluted net income per common share since the effect was anti-dilutive. For the six months ended June 30, 2007 and 2006, 3.7 million and 5.7 million, respectively, of convertible shares of Series E Preferred Stock were excluded from the calculation of diluted net income per common share since the effect was anti-dilutive.

10. Commitments and Contingencies:

     The Company has entered into pricing agreements with various handset manufacturers for the purchase of wireless handsets at specified prices. The terms of these agreements expire on various dates during the year ending December 31, 2007. In addition, the Company entered into an agreement with a handset manufacturer for the purchase of 475,000 handsets at a specified price by September 30, 2007.

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

AWS Licenses Acquired in Auction 66

     Spectrum allocated for advanced wireless services (“AWS”) currently is utilized by a variety of categories of commercial and governmental users. To foster the orderly clearing of the spectrum, the FCC adopted a transition and cost sharing plan pursuant to which incumbent non-governmental users could be reimbursed for relocating out of the band and the costs of relocation would be shared by AWS licensees benefiting from the relocation. The FCC has established a plan where the AWS licensee and the incumbent non-governmental user are to negotiate voluntarily for three years and then, if no agreement has been reached, the incumbent licensee is subject to mandatory relocation where the AWS licensee can force the incumbent non-governmental licensee to relocate at the AWS licensee’s expense. The spectrum allocated for AWS currently is utilized also by governmental users. The FCC rules provide that a portion of the money raised in Auction 66 will be used to reimburse the relocation costs of governmental users from the AWS band. However, not all governmental users are obligated to relocate and some such users may delay relocation for some time. For the three and six months ended June 30, 2007, the Company incurred approximately $0.2 million and $0.4 million, respectively, in microwave relocation costs. No relocation costs were incurred for the three and six months ended June 30, 2006.

   FCC Katrina Order

     The FCC recently released an Order which requires the Company to have an emergency back-up power source for all assets that are normally powered from local alternating current commercial power including mobile switching offices and cell sites. This was initially to become effective on August 10, 2007, however the FCC, on its own motion, has delayed the effective date for 60 days to October 9, 2007. We are currently evaluating our compliance with this Order, but we may be required to purchase additional equipment, spend additional capital, seek and receive additional state and local permits, authorizations and approvals, and incur additional operating expenses to comply with this Order and such costs could be material.

Patent Litigation

     On June 14, 2006, Leap Wireless International, Inc. and Cricket Communications, Inc., or collectively Leap, filed suit against the Company in the United States District Court for the Eastern District of Texas, Marshall Division, Civil Action No. 2-06CV-240-TJW and amended on June 16, 2006, for infringement of U.S. Patent No. 6,813,497 “Method for Providing Wireless Communication Services and Network and System for Delivering of Same,” or the ‘497 Patent, issued to Leap. The complaint seeks both injunctive relief and monetary damages for the Company’s alleged infringement of such patent. On August 3, 2006, the Company (i) answered the complaint, (ii) raised a number of affirmative defenses, and (iii) together with two related entities, counterclaimed against Leap and several related entities and certain current and former employees of Leap, including Leap’s CEO.

     The Company has also tendered Leap’s claims to the manufacturer of its network infrastructure equipment, Alcatel Lucent, for indemnity and defense. Lucent has declined to indemnify and defend the Company. The Company has filed a petition in state district court in Harrison County, Texas for a declaratory ruling that Lucent is obligated to cooperate, indemnify, defend and hold the Company harmless from the Leap patent infringement action, for specific performance, for injunctive relief and for breach of contract. In its counterclaims, the Company claims that it does not infringe any valid or enforceable claim of the ‘497 Patent. Certain of the Leap defendants, including its CEO, answered the Company’s counterclaims on October 13, 2006. In its answer, Leap and its CEO denied the Company’s allegations and asserted affirmative defenses to its counterclaims. In connection with denying a motion to dismiss by certain individual defendants, the court concluded that the Company’s claims against those defendants were compulsory counterclaims. On April 3, 2007, the Court held a Scheduling Conference at which the Court set the date for the claim construction hearing for December 2007 and the trial date for August 2008. The Company plans to vigorously defend against Leap’s claims relating to the ‘497 Patent.

     If Leap were successful in its claim for injunctive relief, the Company could be enjoined from operating its business in the manner it currently operates, which could require the Company to expend additional capital to change certain of its technologies and operating practices, or could prevent the Company from offering some or all of its services using some or all of its existing systems. In addition, if Leap were successful in its claim for monetary damage, the Company could be forced to pay Leap substantial damages for past infringement and/or ongoing royalties on a portion of the Company’s revenues, which could materially adversely impact its financial performance.

   Litigation

     The Company is involved in various claims and legal actions arising in the ordinary course of business. The ultimate disposition of these matters is not expected to have a material adverse impact on the Company’s financial position, results of operations or liquidity.

     The Company is involved in various claims and legal actions in relation to claims of patent infringement. The ultimate disposition of these matters is not expected to have a material adverse impact on the Company’s financial position, results of operations or liquidity.

11. Rescission Offer:

     Certain options granted under the Company’s 1995 Stock Option Plan and 2004 Equity Incentive Plan may not have been exempt from registration or qualification under federal securities laws and the securities laws of certain states. As a result, on April 27, 2007, the Company’s Board of Directors approved a rescission offer to the holders of certain options and on June 13, 2007, the Company commenced a rescission offer to the holders of unexercised and outstanding options to purchase 924,454 shares of our common stock. If this rescission offer was accepted by the holders of all such options, the Company would be required to make aggregate payments of up to approximately $1.4 million, which includes statutory interest. This rescission offer may not terminate a purchaser’s right to rescind a sale of a security that was not registered as required.

     The Company accounts for options which have been issued that may be subject to rescission claims as a put liability based on the price to be paid for equity to be repurchased. Since equity instruments subject to rescission are redeemable at the holder’s option or upon the occurrence of an uncertain event not solely within the Company’s control, such equity instruments under the SEC’s interpretation of GAAP, should be reported as claims outside of stockholders’ equity, regardless of how remote the redemption event may be. Therefore, the Company has reported $1.4 million as options subject to rescission in the accompanying consolidated balance sheet as of June 30, 2007. The rescission offer expired on July 13, 2007 and no holders of options subject to the rescission offer accepted the

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

rescission offer. Accordingly, the $1.4 million of options subject to rescission will be reclassified to additional paid-in capital during the third quarter of 2007.

12. Supplemental Cash Flow Information:

		Six Months
		Ended June 30,
		2007				2006
Cash paid for interest		$	90,049			$	23,643
Cash paid for income taxes			893				525

     Non-cash investing activities:

     Net increases in the Company’s accrued purchases of property, plant and equipment were $10.1 million and $24.6 million for the six months ended June 30, 2007 and 2006, respectively.

     Non-cash financing activities:

     MetroPCS accrued dividends of $6.5 million and $10.4 million related to the Series D Preferred Stock for the six months ended June 30, 2007 and 2006, respectively.

     MetroPCS accrued dividends of $0.9 million and $1.5 million related to the Series E Preferred Stock for the six months ended June 30, 2007 and 2006, respectively.

13. Related-Party Transactions:

     One of the Company’s current directors is a general partner of various investment funds affiliated with one of the Company’s greater than 5% stockholders. These funds own in the aggregate an approximate 17% interest in a company that provides services to the Company’s customers, including handset insurance programs and roadside assistance services. Pursuant to the Company’s agreement with this related party, the Company bills its customers directly for these services and remits the fees collected from its customers for these services to the related party. During the three months ended June 30, 2007 and 2006, the Company received fees of approximately $1.4 million and $0.6 million, respectively, as compensation for providing this billing and collection service. During the six months ended June 30, 2007 and 2006, the Company received fees of approximately $2.5 million and $1.1 million, respectively, as compensation for providing this billing and collection service. In addition, the Company also sells handsets to this related party. For the three months ended June 30, 2007 and 2006, the Company sold approximately $3.6 million and $3.5 million in handsets, respectively, to the related party. For the six months ended June 30, 2007 and 2006, the Company sold approximately $6.8 million and $6.7 million in handsets, respectively, to the related party. As of June 30, 2007 and December 31, 2006, the Company owed approximately $3.6 million and $3.0 million, respectively, to this related party for fees collected from its customers that are included in accounts payable and accrued expenses on the accompanying consolidated balance sheets. As of June 30, 2007 receivables from this related party in the amount of approximately $1.0 million are included in accounts receivable. As of December 31, 2006, receivables from this related party in the amount of approximately $0.8 million and $0.1 million, respectively, are included in accounts receivable and other current assets, respectively.

     One of the Company’s current directors is a general partner of various investment funds affiliated with one of the Company’s greater than 5% stockholders. These funds own an interest in a company that provides cell site leases to the Company. During the three months ended June 30, 2007 and 2006, the Company recorded rent expense of approximately $0.1 million and $0.1 million, respectively, for cell site leases. During the six months ended June 30, 2007 and 2006, the Company recorded rent expense of approximately $0.1 million and $0.1 million, respectively, for cell site leases. As of June 30, 2007 and December 31, 2006, the Company owed approximately $0.1 million and $0.1 million, respectively, to this related party for deferred rent liability related to these cell site leases that is included in deferred rents on the accompanying consolidated balance sheets.

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

14. Segment Information:

     Operating segments are defined by SFAS No. 131, “Disclosure About Segments of an Enterprise and Related Information,” (“SFAS No. 131”), as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Chairman of the Board and Chief Executive Officer.

     As of June 30, 2007, the Company had twelve operating segments based on geographic region within the United States: Atlanta, Dallas/Ft. Worth, Detroit, Miami, San Francisco, Sacramento, Tampa/Sarasota/Orlando, Los Angeles, New York, Philadelphia, Boston and Las Vegas. Each of these operating segments provides wireless voice and data services and products to customers in its service areas or is currently constructing a network in order to provide these services. These services include unlimited local and long distance calling, voicemail, caller ID, call waiting, text messaging, picture and multimedia messaging, international long distance and text messaging, ringtones, games and content applications, unlimited directory assistance, ring back tones, nationwide roaming, mobile Internet browsing, push e-mail and other value-added services.

     The Company aggregates its operating segments into two reportable segments: Core Markets and Expansion Markets.

	•		Core Markets, which include Atlanta, Miami, San Francisco, and Sacramento, are aggregated because they are reviewed on an aggregate basis by the chief operating decision maker, they are similar in 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, Los Angeles, New York, Philadelphia, Boston and Las Vegas, 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.

     General corporate overhead, which includes expenses such as corporate employee labor costs, rent and utilities, legal, accounting and auditing expenses, is allocated equally across all operating segments. Corporate marketing and advertising expenses are allocated equally to the operating segments, beginning in the period during which the Company launches service in that operating segment. Expenses associated with the Company’s national data center and national operations center are allocated based on the average number of customers in each operating segment. There are no transactions between reportable segments.

     Interest expense, interest income, gain/loss on extinguishment of debt and income taxes are not allocated to the segments in the computation of segment operating results for internal evaluation purposes.

						Expansion
Three Months Ended June 30, 2007		Core Markets				Markets				Other				Total
		(in thousands)
Service revenues		$	356,547			$	122,794			$	—			$	479,341
Equipment revenues			52,102				19,733				—				71,835
Total revenues			408,649				142,527				—				551,176
Cost of service (1)			110,606				51,621				—				162,227
Cost of equipment			89,689				43,750				—				133,439
Selling, general and administrative expenses (2)			44,388				38,329				—				82,717
Adjusted EBITDA (3)			167,869				12,577				—
Depreciation and amortization			28,212				11,533				1,379				41,124
Stock-based compensation expense			3,904				3,749				—				7,653
Income (loss) from operations			136,401				(2,907	)			(1,432	)			132,062
Interest expense			—				—				49,168				49,168
Accretion of put option in majority-owned subsidiary			—				—				254				254
Interest and other income			—				—				(14,494	)			(14,494	)
Income (loss) before provision for income taxes			136,401				(2,907	)			(36,360	)			97,134

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

						Expansion
Three Months Ended June 30, 2006		Core Markets				Markets				Other				Total
						(in thousands)
Service revenues		$	281,143			$	26,700			$	—			$	307,843
Equipment revenues			48,559				11,792				—				60,351
Total revenues			329,702				38,492				—				368,194
Cost of service (1)			82,205				25,292				—				107,497
Cost of equipment			82,716				29,289				—				112,005
Selling, general and administrative expenses (2)			38,004				22,260				—				60,264
Adjusted EBITDA (deficit) (3)			127,182				(36,596	)			—
Depreciation and amortization			26,664				4,944				708				32,316
Stock-based compensation expense			405				1,753				—				2,158
Income (loss) from operations			98,817				(44,010	)			(708	)			54,099
Interest expense			—				—				21,713				21,713
Accretion of put option in majority-owned subsidiary			—				—				203				203
Interest and other income			—				—				(6,147	)			(6,147	)
Gain on extinguishment of debt			—				—				(27	)			(27	)
Income (loss) before provision for income taxes			98,817				(44,010	)			(16,450	)			38,357

						Expansion
Six Months Ended June 30, 2007		Core Markets				Markets				Other				Total
						(in thousands)
Service revenues		$	693,481			$	225,376			$	—			$	918,857
Equipment revenues			120,370				48,635				—				169,005
Total revenues			813,851				274,011				—				1,087,862
Cost of service (1)			211,046				96,516				—				307,562
Cost of equipment			202,929				103,818				—				306,747
Selling, general and administrative expenses (2)			87,684				67,970				—				155,654
Adjusted EBITDA (3)			318,191				11,572				—
Depreciation and amortization			56,317				21,597				2,590				80,504
Stock-based compensation expense			5,999				5,865				—				11,864
Income (loss) from operations			253,626				(16,084	)			(2,804	)			234,738
Interest expense			—				—				98,144				98,144
Accretion of put option in majority-owned subsidiary			—				—				492				492
Interest and other income			—				—				(21,651	)			(21,651	)
Income (loss) before provision for income taxes			253,626				(16,084	)			(79,789	)			157,753

						Expansion
Six Months Ended June 30, 2006		Core Markets				Markets				Other				Total
						(in thousands)
Service revenues		$	545,741			$	37,519			$	—			$	583,260
Equipment revenues			98,606				15,789				—				114,395
Total revenues			644,347				53,308				—				697,655
Cost of service (1)			161,137				38,850				—				199,987
Cost of equipment			173,644				39,272				—				212,916
Selling, general and administrative expenses (2)			75,480				36,221				—				111,701
Adjusted EBITDA (deficit) (3)			236,302				(59,282	)			—
Depreciation and amortization			51,671				6,491				1,414				59,576
Stock-based compensation expense			2,216				1,753				—				3,969
Income (loss) from operations			170,390				(67,878	)			(1,414	)			101,098
Interest expense			—				—				42,597				42,597
Accretion of put option in majority-owned subsidiary			—				—				360				360
Interest and other income			—				—				(10,719	)			(10,719	)
Gain on extinguishment of debt			—				—				(244	)			(244	)
Income (loss) before provision for income taxes			170,390				(67,878	)			(33,408	)			69,104

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

(3)

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 the Company’s ability to meet future debt service, capital expenditures and working capital requirements and to fund future growth.

     The following table reconciles segment Adjusted EBITDA (deficit) for the three and six months ended June 30, 2007 and 2006 to consolidated income before provision for income taxes:

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2007				2006				2007				2006
						(in thousands)
Segment Adjusted EBITDA (Deficit):
Core Markets Adjusted EBITDA		$	167,869			$	127,182			$	318,191			$	236,302
Expansion Markets Adjusted EBITDA (Deficit)			12,577				(36,596	)			11,572				(59,282	)
Total			180,446				90,586				329,763				177,020
Depreciation and amortization			(41,124	)			(32,316	)			(80,504	)			(59,576	)
Gain (loss) on disposal of assets			393				(2,013	)			(2,657	)			(12,377	)
Stock-based compensation expense			(7,653	)			(2,158	)			(11,864	)			(3,969	)
Interest expense			(49,168	)			(21,713	)			(98,144	)			(42,597	)
Accretion of put option in majority-owned subsidiary			(254	)			(203	)			(492	)			(360	)
Interest and other income			14,494				6,147				21,651				10,719
Gain on extinguishment of debt			—				27				—				244
Consolidated income before provision for income taxes		$	97,134			$	38,357			$	157,753			$	69,104

15. Guarantor Subsidiaries:

     In connection with Wireless’ sale of the 9¹/4% Senior Notes and the entry into the Senior Secured Credit Facility, MetroPCS and all of MetroPCS’ subsidiaries, other than Wireless and Royal Street (the “guarantor subsidiaries”), provided guarantees on the 9¹/4% Senior Notes, the Additional Notes and Senior Secured Credit Facility. These guarantees are full and unconditional as well as joint and several. Certain provisions of the Senior Secured Credit Facility restrict the ability of the guarantor subsidiaries to transfer funds to Wireless. Royal Street (the “non-guarantor subsidiaries”) is not a guarantor of the 9¹/4% Senior Notes or the Senior Secured Credit Facility.

     The following information presents condensed consolidating balance sheets as of June 30, 2007 and December 31, 2006, condensed consolidating statements of income for the three and six months ended June 30, 2007 and 2006, and condensed consolidating statements of cash flows for the six months ended June 30, 2007 and 2006 of the parent company (MetroPCS), the issuer (Wireless), the guarantor subsidiaries and the non-guarantor subsidiaries. Investments in subsidiaries held by the parent company and the issuer have been presented using the equity method of accounting.

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

Consolidated Balance Sheet
As of June 30, 2007

														Non-
										Guarantor				Guarantor
		Parent				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
										(in thousands)
CURRENT ASSETS:
Cash and cash equivalents		$	57,332			$	143,032			$	335			$	27,137			$	—			$	227,836
Short-term investments			845,886				693,552				—				—				—				1,539,438
Inventories, net			—				83,360				6,640				—				—				90,000
Accounts receivable, net			—				27,579				—				1,954				—				29,533
Prepaid expenses			165				13,066				29,425				2,011				—				44,667
Deferred charges			—				25,423				—				—				—				25,423
Deferred tax asset			—				815				—				—				—				815
Current receivable from subsidiaries			—				14,163				—				—				(14,163)				—
Other current assets			988				4,930				14,598				482				—				20,998
Total current assets			904,371				1,005,920				50,998				31,584				(14,163	)			1,978,710
Property and equipment, net			—				53,727				1,312,388				168,287				—				1,534,402
Long-term investment			—				8,573				—				—				—				8,573
Investment in subsidiaries			411,139				1,156,883				—				—				(1,568,022	)			—
FCC licenses			—				—				1,779,296				293,599				—				2,072,895
Microwave relocation costs			—				—				9,600				—				—				9,600
Long-term receivable from subsidiaries			—				555,953				—				—				(555,953	)			—
Other assets			—				44,918				5,680				11,567				—				62,165
Total assets		$	1,315,510			$	2,825,974			$	3,157,962			$	505,037			$	(2,138,138	)		$	5,666,345
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	325			$	169,593			$	193,107			$	39,513			$	—			$	402,538
Current payable to parent			—				—				—				14,163				(14,163	)			—
Current maturities of long-term debt			—				16,000				—				—				—				16,000
Deferred revenue			—				17,404				85,465				—				—				102,869
Advances to subsidiaries			(527,257	)			(1,049,924	)			1,577,181				—				—				—
Other current liabilities			—				43				4,048				137				—				4,228
Total current liabilities			(526,932	)			(846,884	)			1,859,801				53,813				(14,163	)			525,635
Long-term debt			—				2,995,355				—				—				—				2,995,355
Long-term debt to parent			—				—				—				555,953				(555,953	)			—
Deferred tax liabilities			—				241,308				—				—				—				241,308
Deferred rents			—				—				25,167				1,130				—				26,297
Redeemable minority interest			—				4,521				—				—				—				4,521
Other long-term liabilities			—				20,535				8,324				1,928				—				30,787
Total liabilities			(526,932	)			2,414,835				1,893,292				612,824				(570,116	)			3,823,903
COMMITMENTS AND CONTINGENCIES (See Note 10)
OPTIONS SUBJECT TO RESCISSION			1,437				—				—				—				—				1,437
STOCKHOLDERS’ EQUITY:
Preferred stock			—				—				—				—				—				—
Common stock			34				—				—				20,000				(20,000	)			34
Additional paid-in capital			1,502,291				—				—				—				—				1,502,291
Retained earnings (deficit)			332,453				405,564				1,264,670				(127,787	)			(1,542,447	)			332,453
Accumulated other comprehensive (loss) income			6,227				5,575				—				—				(5,575	)			6,227
Total stockholders’ equity			1,841,005				411,139				1,264,670				(107,787	)			(1,568,022	)			1,841,005
Total liabilities and stockholders’ equity		$	1,315,510			$	2,825,974			$	3,157,962			$	505,037			$	(2,138,138	)		$	5,666,345

MetroPCS Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)

Consolidated Balance Sheet
As of December 31, 2006

														Non-
										Guarantor				Guarantor
		Parent				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
										(In thousands)
CURRENT ASSETS:
Cash and cash equivalents		$	15,714			$	99,301			$	257			$	46,226			$	—			$	161,498
Short-term investments			45,365				345,286				—				—				—				390,651
Restricted short-term investments			—				556				—				51				—				607
Inventories, net			—				81,339				11,576				—				—				92,915
Accounts receivable, net			—				29,348				—				1,005				(2,213	)			28,140
Prepaid expenses			—				8,107				23,865				1,137				—				33,109
Deferred charges			—				26,509				—				—				—				26,509
Deferred tax asset			—				815				—				—				—				815
Current receivable from subsidiaries			—				4,734				—				—				(4,734	)			—
Other current assets			97				9,478				15,354				120				(766	)			24,283
Total current assets			61,176				605,473				51,052				48,539				(7,713	)			758,527
Property and equipment, net			—				14,077				1,158,442				83,643				—				1,256,162
Long-term investments			—				1,865				—				—				—				1,865
Investment in subsidiaries			320,783				939,009				—				—				(1,259,792	)			—
FCC licenses			1,391,410				—				387,876				293,599				—				2,072,885
Microwave relocation costs			—				—				9,187				—				—				9,187
Long-term receivable from subsidiaries			—				456,070				—				—				(456,070	)			—
Other assets			399				51,477				4,078				5,810				(7,268	)			54,496
Total assets		$	1,773,768			$	2,067,971			$	1,610,635			$	431,591			$	(1,730,843	)		$	4,153,122
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	401			$	138,953			$	161,663			$	29,614			$	(4,950	)		$	325,681
Current maturities of long-term debt			—				16,000				—				4,734				(4,734	)			16,000
Deferred revenue			—				19,030				71,471				—				—				90,501
Advances to subsidiaries			865,612				(1,207,821	)			341,950				—				259				—
Other current liabilities			—				31				3,416				757				(757	)			3,447
Total current liabilities			866,013				(1,033,807	)			578,500				35,105				(10,182	)			435,629
Long-term debt			—				2,580,000				—				4,540				(4,540	)			2,580,000
Long-term note to parent			—				—				—				456,070				(456,070	)			—
Deferred tax liabilities			7				177,190				—				—				—				177,197
Deferred rents			—				—				21,784				419				—				22,203
Redeemable minority interest			—				4,029				—				—				—				4,029
Other long-term liabilities			—				19,517				6,285				514				—				26,316
Total liabilities			866,020				1,746,929				606,569				496,648				(470,792	)			3,245,374
COMMITMENTS AND CONTINGENCIES (See Note 10)
SERIES D PREFERRED STOCK			443,368				—				—				—				—				443,368
SERIES E PREFERRED STOCK			51,135				—				—				—				—				51,135
STOCKHOLDERS’ EQUITY:
Preferred stock			—				—				—				—				—				—
Common stock			16				—				—				—				—				16
Additional paid-in capital			166,315				—				—				20,000				(20,000	)			166,315
Retained earnings (deficit)			245,690				319,863				1,004,066				(85,057	)			(1,238,872	)			245,690
Accumulated other comprehensive income			1,224				1,179				—				—				(1,179	)			1,224
Total stockholders’ equity			413,245				321,042				1,004,066				(65,057	)			(1,260,051	)			413,245
Total liabilities and stockholders’ equity		$	1,773,768			$	2,067,971			$	1,610,635			$	431,591			$	(1,730,843	)		$	4,153,122