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 September 30, 2007

OR

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 þ No o

     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 October 31, 2007, there were 347,430,336 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 September 30, 2007 and December 31, 2006			1
Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2007 and 2006			2
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 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			27
Item 3. Quantitative and Qualitative Disclosures about Market Risk			49
Item 4. Controls and Procedures			50
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			51
Item 1A. Risk Factors			52
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			58
SIGNATURES			59
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

		September 30,				December 31,
		2007				2006
CURRENT ASSETS:
Cash and cash equivalents		$	1,464,260			$	161,498
Short-term investments			242,179				390,651
Restricted short-term investments			—				607
Inventories, net			96,090				92,915
Accounts receivable (net of allowance for uncollectible accounts of $2,562 and $1,950 at September 30, 2007 and December 31, 2006, respectively)			34,362				28,140
Prepaid expenses			53,382				33,109
Deferred charges			30,449				26,509
Deferred tax asset			815				815
Other current assets			27,837				24,283
Total current assets			1,949,374				758,527
Property and equipment, net			1,669,175				1,256,162
Long-term investments			—				1,865
FCC licenses			2,072,895				2,072,885
Microwave relocation costs			9,749				9,187
Other assets			63,987				54,496
Total assets		$	5,765,180			$	4,153,122
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	410,527			$	325,681
Current maturities of long-term debt			16,000				16,000
Deferred revenue			108,258				90,501
Other current liabilities			3,860				3,447
Total current liabilities			538,645				435,629
Long-term debt, net			2,990,778				2,580,000
Deferred tax liabilities			269,006				177,197
Deferred rents			28,615				22,203
Redeemable minority interest			4,775				4,029
Other long-term liabilities			40,311				26,316
Total liabilities			3,872,130				3,245,374
COMMITMENTS AND CONTINGENCIES (See Note 11)
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 September 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 September 30, 2007 and December 31, 2006, respectively; Liquidation preference of $54,019 at December 31, 2006			—				51,135
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 September 30, 2007 and December 31, 2006			—				—
Common Stock, par value $0.0001 per share, 1,000,000,000 shares authorized, 346,919,900 and 157,052,097 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively			35				16
Additional paid-in capital			1,511,569				166,315
Retained earnings			385,561				245,690
Accumulated other comprehensive (loss) income			(4,115	)			1,224
Total stockholders’ equity			1,893,050				413,245
Total liabilities and stockholders’ equity		$	5,765,180			$	4,153,122

The accompanying notes are an integral part of these condensed consolidated financial statements.

MetroPCS Communications, Inc. and Subsidiaries

		For the three months ended								For the nine months ended
		September 30,								September 30,
		2007				2006				2007				2006
REVENUES:
Service revenues		$	489,131			$	332,920			$	1,407,988			$	916,179
Equipment revenues			67,607				63,196				236,612				177,592
Total revenues			556,738				396,116				1,644,600				1,093,771
OPERATING EXPENSES:
Cost of service (excluding depreciation and amortization expense of $40,247, $33,315, $112,073 and $87,602, shown separately below)			163,671				113,524				471,233				313,510
Cost of equipment			131,179				117,982				437,925				330,898
Selling, general and administrative expenses (excluding depreciation and amortization expense of $5,246, $3,296, $13,923 and $8,585, shown separately below)			84,496				60,220				240,150				171,921
Depreciation and amortization			45,493				36,611				125,996				96,187
(Gain) loss on disposal of assets			(1,239	)			(1,615	)			1,419				10,763
Total operating expenses			423,600				326,722				1,276,723				923,279
Income from operations			133,138				69,394				367,877				170,492
OTHER EXPENSE (INCOME):
Interest expense			54,574				24,811				152,718				67,408
Accretion of put option in majority-owned subsidiary			254				203				746				564
Interest and other income			(23,317	)			(4,386	)			(44,968	)			(15,106	)
Impairment loss on investment securities			15,007				—				15,007				—
Gain on extinguishment of debt			—				—				—				(244	)
Total other expense			46,518				20,628				123,503				52,622
Income before provision for income taxes			86,620				48,766				244,374				117,870
Provision for income taxes			(33,512	)			(19,500	)			(96,820	)			(47,245	)
Net income			53,108				29,266				147,554				70,625
Accrued dividends on Series D Preferred Stock			—				(5,295	)			(6,499	)			(15,711	)
Accrued dividends on Series E Preferred Stock			—				(756	)			(929	)			(2,244	)
Accretion on Series D Preferred Stock			—				(118	)			(148	)			(355	)
Accretion on Series E Preferred Stock			—				(85	)			(107	)			(254	)
Net income applicable to Common Stock		$	53,108			$	23,012			$	139,871			$	52,061
Net income		$	53,108			$	29,266			$	147,554			$	70,625
Other comprehensive income:
Unrealized gain (loss) on available-for-sale securities, net of tax			3,961				(330	)			6,363				(847	)
Unrealized (loss) gain on cash flow hedging derivative, net of tax			(9,286	)			(335	)			(4,157	)			896
Reclassification adjustment for gains included in net income, net of tax			(5,016	)			(107	)			(7,545	)			(622	)
Comprehensive income		$	42,767			$	28,494			$	142,215			$	70,052
Net income per common share:
Basic		$	0.15			$	0.08			$	0.44			$	0.19
Diluted		$	0.15			$	0.08			$	0.43			$	0.19
Weighted average shares:
Basic			346,844,393				156,003,088				267,545,403				155,672,061
Diluted			356,638,145				159,644,818				276,482,986				159,525,993

The accompanying notes are an integral part of these condensed consolidated financial statements.

MetroPCS Communications, Inc. and Subsidiaries

		For the nine months ended
		September 30,
		2007				2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	147,554			$	70,625
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			125,996				96,187
Provision for uncollectible accounts receivable			30				64
Deferred rent expense			6,582				5,365
Cost of abandoned cell sites			4,876				2,069
Non-cash interest expense			2,657				3,702
Loss on disposal of assets			1,419				10,763
Gain on extinguishment of debt			—				(244	)
Gain on sale of investments			(8,523	)			(1,875	)
Accretion of asset retirement obligation			899				469
Accretion of put option in majority-owned subsidiary			746				564
Impairment loss on investment securities			15,007				—
Deferred income taxes			95,257				41,792
Stock-based compensation expense			18,971				7,750
Changes in assets and liabilities:
Inventories			(3,348	)			(220	)
Accounts receivable			(6,252	)			(7,542	)
Prepaid expenses			(10,268	)			(7,365	)
Deferred charges			(3,941	)			(8,172	)
Other assets			(16,057	)			(2,974	)
Accounts payable and accrued expenses			49,584				49,121
Deferred revenue			17,785				22,055
Other liabilities			1,476				2,554
Net cash provided by operating activities			440,450				284,688
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment			(525,701	)			(453,864	)
Change in prepaid purchases of property and equipment			(9,523	)			2,427
Proceeds from sale of property and equipment			604				2,548
Cash used in business acquisitions			(669	)			—
Purchase of investments			(3,358,427	)			(737,088	)
Proceeds from sale of investments			3,501,457				900,189
Change in restricted cash and investments			294				(3,291	)
Purchases of FCC licenses			—				(176	)
Deposit to FCC for licenses			—				(200,000	)
Microwave relocation costs			(547	)			—
Net cash used in investing activities			(392,512	)			(489,255	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in book overdraft			23,021				22,993
Proceeds from bridge credit agreements			—				200,000
Proceeds from 91/4% Senior Notes			423,500				—
Proceeds from initial public offering			862,500				—
Debt issuance costs			(3,120	)			(15,313	)
Cost of raising capital			(44,225	)			—
Repayment of debt			(12,000	)			(2,446	)
Proceeds from minority interest in majority-owned subsidiary			—				2,000
Proceeds from exercise of stock options			5,148				889
Net cash provided by financing activities			1,254,824				208,123
INCREASE IN CASH AND CASH EQUIVALENTS			1,302,762				3,556
CASH AND CASH EQUIVALENTS, beginning of period			161,498				112,709
CASH AND CASH EQUIVALENTS, end of period		$	1,464,260			$	116,265

The accompanying notes are an integral part of these condensed consolidated financial statements.

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 September 30, 2007 and December 31, 2006, the condensed consolidated statements of income and comprehensive income and cash flows for the periods ended September 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 service revenues and cost of service on the accompanying statements of income and comprehensive income. For the three months ended September 30, 2007 and 2006, the Company recorded approximately $24.7 million and $9.1 million, respectively, of FUSF and E-911 fees. For the nine months ended September 30, 2007 and 2006, the Company recorded approximately $69.9 million and $28.2 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, MetroPCS 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). MetroPCS offered 37,500,000 shares of common stock and certain of MetroPCS’ existing stockholders offered 20,000,000 shares of common stock in the Offering, which included 7,500,000 shares sold by MetroPCS’ 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 $7.1 million and $3.8 million for the three months ended September 30, 2007 and 2006, respectively. Cost of service for the three months ended September 30, 2007 and 2006 includes $0.6 million and $0.5 million, respectively, of stock-based compensation. For the three months ended September 30, 2007 and 2006, selling, general and administrative expenses include $6.5 million and $3.3 million, respectively, of stock-based compensation. Stock-based compensation expense recognized under SFAS No. 123(R) was $19.0 million and $7.8 million for the nine months ended September 30, 2007 and 2006, respectively. Cost of service for the nine months ended September 30, 2007 and 2006 includes $1.3 million and $1.0 million, respectively, of stock-based compensation. For the nine months ended September 30, 2007 and 2006, selling, general and administrative expenses include $17.7 million and $6.8 million, respectively, of stock-based compensation.

     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 stock 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 stock options approximated $57.3 million.

3. Short-Term Investments:

     The Company has historically invested its substantial cash balances in, among other things, securities issued and fully guaranteed by the United States or any state, highly rated commercial paper and auction rate securities, money market funds meeting certain criteria, and demand deposits. These investments are subject to credit, liquidity, market and interest rate risk. The Company has made investments of approximately $134.0 million in certain “AAA” rated auction rate securities that are collateralized debt obligations with a portion of the underlying collateral being mortgage securities or related to mortgage securities. As a result of the lack of liquidity in this market, these securities have failed to attract a buyer at scheduled auctions for these securities. As a result, the Company recognized an other-than-temporary impairment loss on investment securities in the amount of $15.0 million during the period ended September 30, 2007. Such loss increased $17.1 million during the one month ended October 31, 2007 based on statements received from the Company’s broker. Management believes that any future additional impairment charges will not have a material effect on the Company’s liquidity.

4. Property and Equipment:

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

		September 30,				December 31,
		2007				2006
Construction-in-progress		$	276,332			$	193,856
Network infrastructure			1,761,076				1,329,986
Office equipment			42,238				31,065
Leasehold improvements			28,326				21,721
Furniture and fixtures			8,596				5,903
Vehicles			207				207
			2,116,775				1,582,738
Accumulated depreciation			(447,600	)			(326,576	)
Property and equipment, net		$	1,669,175			$	1,256,162

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

5. FCC Licenses and Microwave Relocation Costs:

     The Company operates broadband PCS networks under licenses granted by the FCC for a particular geographic area on spectrum allocated by the FCC for broadband PCS services. In addition, in November 2006, the Company acquired a number of advanced wireless services (“AWS”) licenses which can be used to provide services comparable to the PCS services provided by the Company, and other advanced wireless services. The PCS and AWS licenses included the obligation to relocate existing fixed microwave users of the use of the Company’s licensed spectrum if the Company’s spectrum interferes with their systems and/or reimburse other carriers (according to FCC rules) that relocated prior users if the relocation benefits the Company’s system. Additionally, the Company incurred costs related to microwave relocation in constructing its PCS and AWS networks. The PCS and AWS licenses and microwave relocation costs are recorded at cost. Although PCS licenses are issued with a stated term, ten years in the case of the PCS licenses and fifteen years in the case of the AWS licenses, the renewal of PCS and AWS licenses is generally a routine matter without substantial cost and the Company has determined that no legal, regulatory, contractual, competitive, economic, or other factors currently exist that limit the useful life of its PCS and AWS licenses. The carrying value of FCC licenses and microwave relocation costs was approximately $2.1 billion as of September 30, 2007.

     The Company’s primary indefinite-lived intangible assets are its FCC licenses. Based on the requirements of SFAS No. 142, “Goodwill and Other Intangible Assets,” (“SFAS No. 142”) the Company tests investments in its FCC licenses for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value of its FCC licenses might be impaired. The Company performs its annual FCC license impairment test as of each September 30th. The impairment test consists of a comparison of the estimated fair value with the carrying value. The Company estimates the fair value of its FCC licenses using a discounted cash flow model. Cash flow projections and assumptions, although subject to a degree of uncertainty, are based on a combination of the Company’s historical performance and trends, its business plans and management’s estimate of future performance, giving consideration to existing and anticipated competitive economic conditions. Other assumptions include the Company’s weighted average cost of capital and long-term rate of growth for its business. The Company believes that its estimates are consistent with assumptions that marketplace participants would use to estimate fair value. The Company corroborates its determination of fair value of the FCC licenses, using the discounted cash flow approach described above, with other market-based valuation metrics. Furthermore, the Company segregates its FCC licenses by regional clusters for the purpose of performing the impairment test because each geographical region is unique. An impairment loss would be recorded as a reduction in the carrying value of the related indefinite-lived intangible asset and charged to results of operations.

     For the license impairment test performed as of September 30, 2007, the fair value of the FCC licenses was in excess of its carrying value and no impairment has been recognized through September 30, 2007.

6. Accounts Payable and Accrued Expenses:

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

		September 30,				December 31,
		2007				2006
Accounts payable		$	121,720			$	90,084
Book overdraft			44,309				21,288
Accrued accounts payable			107,018				111,974
Accrued liabilities			12,290				9,405
Payroll and employee benefits			19,570				20,645
Accrued interest			67,375				24,529
Taxes, other than income			34,532				42,882
Income taxes			3,713				4,874
Accounts payable and accrued expenses		$	410,527			$	325,681

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

7. Long-Term Debt:

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

		September 30,				December 31,
		2007				2006
91/4% Senior Notes		$	1,400,000			$	1,000,000
Senior Secured Credit Facility			1,584,000				1,596,000
Total long-term debt			2,984,000				2,596,000
Add: unamortized premium on debt			22,778				—
Total debt			3,006,778				2,596,000
Less: current maturities			(16,000	)			(16,000	)
Total long-term debt		$	2,990,778			$	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 “Initial Notes”). The Initial 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 Initial 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 Initial Notes at any time on or after November 1, 2010 for the redemption prices set forth in the indenture governing the Initial Notes. In addition, Wireless may also redeem up to 35% of the aggregate principal amount of the Initial Notes with the net cash proceeds of certain sales of equity securities.

     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 Initial Notes prior to the earlier of (i) 365 days after the closing date of the Initial 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 Initial 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 Initial 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 Initial 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 Initial 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 Initial Notes. On April 24, 2007, MetroPCS closed the Offering (See Note 9). 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 due 2014 (the “Additional Notes”) under the existing indenture at a price equal to 105.875% of the principal amount of such Additional Notes. 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

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

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, 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 will be required to pay certain liquidated damages as provided in the registration rights agreement which are substantially the same as those for the Initial Notes. On October 10, 2007, Wireless filed such required amendment to the Existing Exchange Offer Registration Statement (“Amended Exchange Offer Registration Statement”). On October 11, 2007, the SEC declared the Amended Exchange Offer Registration Statement effective. The exchange offer expired at 5:00 p.m. New York City time on November 7, 2007, with all the Initial and Additional Notes being tendered for exchange and the exchange offer was consummated on November 13, 2007.

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.

     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 September 30, 2007 was 7.370%. 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 other long-term liabilities at fair market value, which was a loss of approximately $7.9 million as of September 30, 2007. At December 31, 2006, this financial instrument was reported in long-term investments at fair market value, which was approximately $1.9 million. The change in fair value is reported in accumulated other comprehensive (loss) 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 on the base rate used to determine the Senior Secured Credit Facility interest rate was reduced to 2.25% from 2.50%.

     As of September 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.

8. 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

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

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 million in accrued interest and penalties. The amount of interest (after-tax) and penalties included in income tax expense for the three and nine months ended September 30, 2007 totaled $0.4 million and $1.5 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.

Michigan Business Tax

     On July 12, 2007, the Michigan Governor signed into law a new Michigan Business Tax (“MBT Act”) which restructures the state business tax by replacing the Michigan Single Business Tax with a new two-part tax on business income and modified gross receipts, collectively referred to as the (“BIT/GRT tax”). On September 30, 2007, the Michigan Governor signed into law a BIT/GRT tax future deduction which is intended to offset the increased deferred tax liability and expense associated with the MBT Act. Because the main provision of the BIT/GRT tax imposes a two-part tax on business income and modified gross receipts, the Company believes the BIT/GRT tax and related future deduction should be accounted for under the provisions of SFAS No. 109 regarding the recognition of deferred taxes. In accordance with SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax law should be included in tax expense attributable to continuing operations in the period that includes the enactment date. Although the effective date of the MBT Act is January 1, 2008, certain effects of the change should be reflected in the financial statements of the first interim or annual reporting period that includes July 12 and September 30, 2007. The Company has recorded a deferred tax liability and offsetting asset of $3.1 million as of September 30, 2007 relating to the MBT Act and future deduction.

9. 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 nine months ended September 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.

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

     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% or more of the Company’s outstanding common stock. A beneficial owner holding 15% or more of MetroPCS’ common stock 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.

10. 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):

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
		2007				2006				2007				2006
Basic EPS—Two Class Method:
Net income		$	53,108			$	29,266			$	147,554			$	70,625
Accrued dividends and accretion:
Series D Preferred Stock			—				(5,413	)			(6,647	)			(16,066	)
Series E Preferred Stock			—				(841	)			(1,036	)			(2,498	)
Net income applicable to common stock		$	53,108			$	23,012			$	139,871			$	52,061
Amount allocable to common shareholders			100.0	%			57.1	%			84.6	%			57.0	%
Rights to undistributed earnings		$	53,108			$	13,136			$	118,388			$	29,691
Weighted average shares outstanding—basic			346,844,393				156,003,088				267,545,403				155,672,061
Net income per common share—basic		$	0.15			$	0.08			$	0.44			$	0.19
Diluted EPS:
Rights to undistributed earnings		$	53,108			$	13,136			$	118,388			$	29,691
Weighted average shares outstanding—basic			346,844,393				156,003,088				267,545,403				155,672,061
Effect of dilutive securities:
Warrants			—				—				—				147,258
Stock options			9,793,752				3,641,730				8,937,583				3,706,674
Weighted average shares outstanding—diluted			356,638,145				159,644,818				276,482,986				159,525,993
Net income per common share—diluted		$	0.15			$	0.08			$	0.43			$	0.19

     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

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

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 September 30, 2007 and 2006, 6.3 million and 2.6 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 nine months ended September 30, 2007 and 2006, 3.6 million and 2.7 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 September 30, 2006, 139.4 million 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 nine months ended September 30, 2007 and 2006, 59.1 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 September 30, 2006, 5.8 million of convertible shares of Series E Preferred Stock were excluded from the calculation of diluted net income per common share since the effect was anti-dilutive. For the nine months ended September 30, 2007 and 2006, 2.5 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.

11. Commitments and Contingencies:

     The Company has entered into pricing agreements with various handset manufacturers for the purchase of wireless handsets at specified prices. The terms of these agreements expire on various dates during the year ending December 31, 2007. Total commitments outstanding under these pricing agreements are approximately $33.9 million as of September 30, 2007.

AWS Licenses Acquired in Auction 66

     Spectrum allocated for AWS currently is utilized by a variety of categories of commercial and governmental users. To foster the orderly clearing of the spectrum, the FCC adopted a transition and cost sharing plan pursuant to which incumbent non-governmental users could be reimbursed for relocating out of the band and the costs of relocation would be shared by AWS licensees benefiting from the relocation. The FCC has established a plan where the AWS licensee and the incumbent non-governmental user are to negotiate voluntarily for three years and then, if no agreement has been reached, the incumbent licensee is subject to mandatory relocation where the AWS licensee can force the incumbent non-governmental licensee to relocate at the AWS licensee’s expense. The spectrum allocated for AWS currently is utilized also by governmental users. The FCC rules provide that a portion of the money raised in Auction 66 will be used to reimburse the relocation costs of governmental users from the AWS band. However, not all governmental users are obligated to relocate and some such users may delay relocation for some time. For the three and nine months ended September 30, 2007, the Company incurred approximately $0.2 million and $0.5 million, respectively, in microwave relocation costs. No relocation costs were incurred for the three and nine months ended September 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. On October 3, 2007, the FCC released its Order on Reconsideration, or Reconsideration Order, addressing the petitions for reconsideration of the original Order. The Reconsideration Order requires the Company to have an emergency backup power source for all assets necessary to maintain communications that are normally powered from local commercial power, including those assets located inside mobile switching offices and cell sites, and the Company must maintain emergency backup power for a minimum of twenty-four hours for assets that are normally powered from local commercial power and located inside mobile switching offices, and eight hours for assets that are normally powered from local commercial power and at other locations, including cell sites and DAS

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

nodes. The Company will not be required to comply with these minimum backup power requirements where the Company can demonstrate that such compliance is precluded by: (i) federal, state, tribal or local law; (ii) risk to safety of life or health; or (iii) private legal obligation or agreement. In addition, within 6 months of the effective date of the order, which is the date of federal register publication announcing OMB approval of the information collection requirements, the Company will be required to file a report with the FCC providing certain information with respect to compliance with the backup power requirements. In cases where the Company identifies assets that were designed with less than the required emergency backup power capacity and that is not precluded from compliance, the Company must comply with the backup power requirement or, within 12 months from the effective date of the rule, file with the FCC a certified emergency backup power compliance plan. That plan must certify that and describe how the Company will provide emergency backup power to 100 percent of the area covered by any non-compliant asset in the event of a commercial power failure. If the Company is required to comply with the Reconsideration Order the Company 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.

     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. On October 31, 2007, the Court administratively closed the suit and removed from its calendar the dates for the claim construction hearing and trial. Additionally, the Court stayed all discovery for a period not to exceed 6 months and the parties may not seek to reopen the case until 90 days after the Court administratively closed the suit. If the Court reinstates the suit at the request of either party, the Court will most likely set a new claims construction hearing date and trial date. 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.

     The Company has also tendered Leap’s claims to the manufacturer of its network infrastructure equipment, Alcatel Lucent, for indemnity and defense. Alcatel 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 Alcatel 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. On September 14, 2007, Alcatel Lucent responded to the Company’s petition and requested that the court dismiss, abate, stay and deny every claim in the Company’s petition asserted against Alcatel Lucent and order the Company to amend its petition. On October 12, 2007, the Company responded to Alcatel Lucent’s request and a hearing has been scheduled for December 6, 2007 on Alcatel Lucent’s request. The Company plans to vigorously prosecute its petition.

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

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.

12. Supplemental Cash Flow Information:

		Nine Months
		Ended September 30,
		2007				2006
		(in thousands)
Cash paid for interest		$	112,641			$	34,225
Cash paid for income taxes			1,128				525

     Non-cash investing activities:

     Net increases in the Company’s accrued purchases of property, plant and equipment were $11.2 million and $34.8 million for the nine months ended September 30, 2007 and 2006, respectively.

     Non-cash financing activities:

     MetroPCS accrued dividends of $6.5 million and $15.7 million related to the Series D Preferred Stock for the nine months ended September 30, 2007 and 2006, respectively.

     MetroPCS accrued dividends of $0.9 million and $2.2 million related to the Series E Preferred Stock for the nine months ended September 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 20% 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. Accruals for the fees that the Company collected from its customers are included in accounts payable and accrued expenses on the accompanying consolidated balance sheets. The Company had the following transactions with this related party (in millions):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Fees received by the Company as compensation for providing billing and collection services		$	1.6			$	0.7			$	4.1			$	1.9
Handsets sold to the related party			2.3				3.1				9.0				9.8

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

		September 30,				December 31,
		2007				2006
Accruals for fees collected from customers		$	3.4			$	3.0
Receivables from the related party which were included in:
Accounts receivable			0.8				0.8
Other current assets			0.2				0.1

     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 September 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 nine months ended September 30, 2007 and 2006, the Company recorded rent expense of approximately $0.2 million and $0.2 million, respectively, for cell site leases. As of September 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.

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 September 30, 2007, the Company had twelve operating segments based on geographic region within the United States: Atlanta, Dallas/Ft. Worth, Detroit, Los Angeles, Miami, Sacramento, San Francisco, Tampa/Orlando/Jacksonville, Boston, Las Vegas, New York and Philadelphia. 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, enhanced directory assistance, 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, mobile instant messaging, 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, Sacramento and San Francisco, 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, Los Angeles, Tampa/Orlando/Jacksonville, Boston, Las Vegas, New York and Philadelphia, 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.

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

						Expansion
Three Months Ended September 30, 2007		Core Markets				Markets				Other				Total
		(in thousands)
Service revenues		$	358,245			$	130,886			$	—			$	489,131
Equipment revenues			48,165				19,442				—				67,607
Total revenues			406,410				150,328				—				556,738
Cost of service (1)			108,077				55,594				—				163,671
Cost of equipment			87,232				43,947				—				131,179
Selling, general and administrative expenses (2)			40,651				43,845				—				84,496
Adjusted EBITDA (3)			170,983				13,516				—
Depreciation and amortization			30,691				12,769				2,033				45,493
Stock-based compensation expense			532				6,575				—				7,107
Income (loss) from operations			140,752				(5,587	)			(2,027	)			133,138
Interest expense			—				—				54,574				54,574
Accretion of put option in majority-owned subsidiary			—				—				254				254
Interest and other income			—				—				(23,317	)			(23,317	)
Impairment loss on investment securities			—				—				15,007				15,007
Income (loss) before provision for income taxes			140,752				(5,587	)			(48,545	)			86,620

						Expansion
Three Months Ended September 30, 2006		Core Markets				Markets				Other				Total
		(in thousands)
Service revenues		$	285,313			$	47,607			$	—			$	332,920
Equipment revenues			50,594				12,602				—				63,196
Total revenues			335,907				60,209				—				396,116
Cost of service (1)			83,498				30,026				—				113,524
Cost of equipment			87,614				30,368				—				117,982
Selling, general and administrative expenses (2)			38,541				21,679				—				60,220
Adjusted EBITDA (deficit) (3)			128,283				(20,112	)			—
Depreciation and amortization			28,796				6,890				925				36,611
Stock-based compensation expense			2,030				1,751				—				3,781
Income (loss) from operations			98,864				(28,545	)			(925	)			69,394
Interest expense			—				—				24,811				24,811
Accretion of put option in majority-owned subsidiary			—				—				203				203
Interest and other income			—				—				(4,386	)			(4,386	)
Income (loss) before provision for income taxes			98,864				(28,545	)			(21,553	)			48,766

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

						Expansion
Nine Months Ended September 30, 2007		Core Markets				Markets				Other				Total
		(in thousands)
Service revenues		$	1,051,727			$	356,261			$	—			$	1,407,988
Equipment revenues			168,535				68,077				—				236,612
Total revenues			1,220,262				424,338				—				1,644,600
Cost of service (1)			319,123				152,110				—				471,233
Cost of equipment			290,160				147,765				—				437,925
Selling, general and administrative expenses (2)			128,335				111,815				—				240,150
Adjusted EBITDA (3)			489,175				25,088				—
Depreciation and amortization			87,008				34,365				4,623				125,996
Stock-based compensation expense			6,532				12,439				—				18,971
Income (loss) from operations			394,378				(21,670	)			(4,831	)			367,877
Interest expense			—				—				152,718				152,718
Accretion of put option in majority-owned subsidiary			—				—				746				746
Interest and other income			—				—				(44,968	)			(44,968	)
Impairment loss on investment securities			—				—				15,007				15,007
Income (loss) before provision for income taxes			394,378				(21,670	)			(128,334	)			244,374

						Expansion
Nine Months Ended September 30, 2006		Core Markets				Markets				Other				Total
		(in thousands)
Service revenues		$	831,053			$	85,126			$	—			$	916,179
Equipment revenues			149,200				28,392				—				177,592
Total revenues			980,253				113,518				—				1,093,771
Cost of service (1)			244,636				68,874				—				313,510
Cost of equipment			261,258				69,640				—				330,898
Selling, general and administrative expenses (2)			114,021				57,900				—				171,921
Adjusted EBITDA (deficit) (3)			364,585				(79,393	)			—
Depreciation and amortization			80,467				13,381				2,339				96,187
Stock-based compensation expense			4,246				3,504				—				7,750
Income (loss) from operations			269,735				(96,904	)			(2,339	)			170,492
Interest expense			—				—				67,408				67,408
Accretion of put option in majority-owned subsidiary			—				—				564				564
Interest and other income			—				—				(15,106	)			(15,106	)
Gain on extinguishment of debt			—				—				(244	)			(244	)
Income (loss) before provision for income taxes			269,735				(96,904	)			(54,961	)			117,870

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

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
		2007				2006				2007				2006
		(in thousands)
Segment Adjusted EBITDA (Deficit):
Core Markets Adjusted EBITDA		$	170,983			$	128,283			$	489,175			$	364,585
Expansion Markets Adjusted EBITDA (Deficit)			13,516				(20,112	)			25,088				(79,393	)
Total			184,499				108,171				514,263				285,192
Depreciation and amortization			(45,493	)			(36,611	)			(125,996	)			(96,187	)
Gain (loss) on disposal of assets			1,239				1,615				(1,419	)			(10,763	)
Stock-based compensation expense			(7,107	)			(3,781	)			(18,971	)			(7,750	)
Interest expense			(54,574	)			(24,811	)			(152,718	)			(67,408	)
Accretion of put option in majority-owned subsidiary			(254	)			(203	)			(746	)			(564	)
Interest and other income			23,317				4,386				44,968				15,106
Impairment loss on investment securities			(15,007	)			—				(15,007	)			—
Gain on extinguishment of debt			—				—				—				244
Consolidated income before provision for income taxes		$	86,620			$	48,766			$	244,374			$	117,870

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

15. Guarantor Subsidiaries:

     In connection with Wireless’ sale of the 9¹/4% Senior Notes due 2014 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 Initial Notes and the Additional Notes (referred to together as the “9¹/4% Senior Notes”) and Senior Secured Credit Facility. These guarantees are full and unconditional as well as joint and several. Certain provisions of the Senior Secured Credit Facility restrict the ability of Wireless to loan funds to MetroPCS. However, Wireless is allowed to make certain permitted payments to MetroPCS under the terms of the Senior Secured Credit Facility. 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 September 30, 2007 and December 31, 2006, condensed consolidating statements of income for the three and nine months ended September 30, 2007 and 2006, and condensed consolidating statements of cash flows for the nine months ended September 30, 2007 and 2006 of the parent company (MetroPCS), the issuer (Wireless), the guarantor subsidiaries and the non-guarantor subsidiaries (Royal Street). 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 September 30, 2007

														Non-
										Guarantor				Guarantor
		Parent				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
		(in thousands)
CURRENT ASSETS:
Cash and cash equivalents		$	685,458			$	672,979			$	384			$	105,439			$	—			$	1,464,260
Short-term investments			215,822				26,357				—				—				—				242,179
Inventories, net			—				89,344				6,746				—				—				96,090
Accounts receivable, net			—				32,065				—				2,297				—				34,362
Prepaid expenses			82				10,391				39,622				3,287				—				53,382
Deferred charges			—				30,449				—				—				—				30,449
Deferred tax asset			—				815				—				—				—				815
Current receivable from subsidiaries			—				147,844				—				—				(147,844	)			—
Other current assets			2,690				6,153				18,543				451				—				27,837
Total current assets			904,052				1,016,397				65,295				111,474				(147,844	)			1,949,374
Property and equipment, net			—				23,225				1,389,570				256,380				—				1,669,175
Investment in subsidiaries			456,486				1,279,472				—				—				(1,735,958	)			—
FCC licenses			—				—				1,779,296				293,599				—				2,072,895
Microwave relocation costs			—				—				9,749				—				—				9,749
Long-term receivable from subsidiaries			—				609,074				—				—				(609,074	)			—
Other assets			1,229				43,813				6,361				12,584				—				63,987
Total assets		$	1,361,767			$	2,971,981			$	3,250,271			$	674,037			$	(2,492,876	)		$	5,765,180
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	1,181			$	167,940			$	195,283			$	46,123			$	—			$	410,527
Current payable to parent			—				—				—				147,844				(147,844	)			—
Current maturities of long-term debt			—				16,000				—				—				—				16,000
Deferred revenue			—				21,107				87,151				—				—				108,258
Advances to subsidiaries			(532,464	)			(982,933	)			1,515,397				—				—				—
Other current liabilities			—				29				3,730				101				—				3,860
Total current liabilities			(531,283	)			(777,857	)			1,801,561				194,068				(147,844	)			538,645
Long-term debt			—				2,990,778				—				—				—				2,990,778
Long-term debt to parent			—				—				—				609,074				(609,074	)			—
Deferred tax liabilities			—				269,006				—				—				—				269,006
Deferred rents			—				—				26,734				1,881				—				28,615
Redeemable minority interest			—				4,775				—				—				—				4,775
Other long-term liabilities			—				28,793				8,902				2,616				—				40,311
Total liabilities			(531,283	)			2,515,495				1,837,197				807,639				(756,918	)			3,872,130
COMMITMENTS AND CONTINGENCIES (See Note 11)
STOCKHOLDERS’ EQUITY:
Preferred stock			—				—				—				—				—				—
Common stock			35				—				—				—				—				35
Additional paid-in capital			1,511,569				—				—				20,000				(20,000	)			1,511,569
Retained earnings (deficit)			385,561				461,221				1,413,074				(153,602	)			(1,720,693	)			385,561
Accumulated other comprehensive (loss) income			(4,115	)			(4,735	)			—				—				4,735				(4,115	)
Total stockholders’ equity			1,893,050				456,486				1,413,074				(133,602	)			(1,735,958	)			1,893,050
Total liabilities and stockholders’ equity		$	1,361,767			$	2,971,981			$	3,250,271			$	674,037			$	(2,492,876	)		$	5,765,180

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 11)
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