Item 8. Financial Statements and Supplementary Data
To the Board of Directors and Stockholders of T-Mobile US, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i)(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii)(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii)(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
T-Mobile US, Inc.
Cash equivalents consist of highly liquid money market funds and U.S. Treasury securities with remaining maturities of three months or less at the date of purchase.
Inventories
Inventories consist primarily of wireless devices and accessories, which are valued at the lower of cost or market.net realizable value. Cost is determined using standard cost, which approximates average cost. Shipping and handling costs paid to wireless device and accessories vendors andas well as costs to refurbish used devices recovered through our device upgrade programs are included in the standard cost of inventory. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of disposal and transportation. We record inventory write-downs to net realizable value for obsolete and slow-moving items based on inventory turnover trends and historical experience.
Deferred Purchase Price Assets
In connection with the sales of certain service and EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price assets measured at fair value that are based on a discounted cash flow model using unobservable Level 3 inputs, including estimated customer default rates and credit worthiness. See Note 4 – Sales of Certain Receivables for further information.
Long-Lived Assets
Long-lived assets include assets that do not have indefinite lives, such as property and equipment and othercertain intangible assets. Substantially all of our long-lived assets are located in the U.S., including Puerto Rico and the U.S. Virgin Islands. We assess potential impairments to our long-lived assets when events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If any indicators of impairment are present, we test recoverability. The carrying value of a long-lived asset or asset group is not recoverable if itthe carrying value exceeds the sum of the estimated undiscounted future cash flows expected to be generated from the use and eventual disposition of the asset or asset group. If the estimated undiscounted future cash flows do not exceed the asset or asset group’s carrying amount, then an impairment loss is recorded, measured as the amount by which the carrying amount of a long-lived asset or asset group exceeds its estimated fair value.
During the second quarter of 2022, we determined that the retirement of the legacy Sprint CDMA and LTE wireless networks triggered the need to separately assess the Wireline long-lived asset group for impairment and the results of this assessment indicated that certain Wireline long-lived assets were impaired. See Note 16 - Wireline for further information.
Property and Equipment
Property and equipment consists of buildings and equipment, wireless communicationcommunications systems, leasehold improvements, capitalized software, leased wireless devices and construction in progress. Buildings and equipment include certain network server equipment. Wireless communicationcommunications systems include assets to operate our wireless network and ITinformation technology data centers, including tower assets, and leasehold improvements assets related to the liability for theand asset retirement of long-lived assets and capital leases.costs. Leasehold improvements include asset improvements other than those related to the wireless network.
Property and equipment are recorded at cost less accumulated depreciation and impairments, if any, in Property and equipment, net on our Consolidated Balance Sheets. We generally depreciate property and equipment over the period the property and equipment provide economic benefit.benefit using the straight-line method. Depreciable life studies are performed periodically to confirm the appropriateness of usefuldepreciable lives for certain categories of property and equipment. These studies take into account actual usage, physical wear and tear, replacement history and assumptions about technology evolution. When these factors indicate the useful life of an asset is different from the previous assessment, the remaining book value is depreciated prospectively over the adjusted remaining
estimated useful life. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the related lease term.
We introduced JUMP! On Demand, which allows customers to lease a device over a period of up to 18 months and upgrade it for a new device up to one time per month. To date, all of our leased devices were classified as operating leases. At operating lease inception, leased wireless devices are transferred from inventory to property and equipment. Leased wireless devices are depreciated to their estimated residual value over the period expected to provide utility to us, which is generally shorter than the lease term and considers expected losses. Revenues associated with the leased wireless devices, net of incentives, are generally recognized over the lease term. Upon device upgrade or at lease end, customers must return or purchase their device. Returned devices transferred from Property and equipment, net are recorded as inventory and are valued at the lower of cost or market with any write-down to market recognized as Cost of equipment sales in our Consolidated Statements of Comprehensive Income.
Costs of major replacements and improvements are capitalized. Repair and maintenance expenditures which do not enhance or extend the asset’s useful life are charged to operating expenses as incurred. Construction costs, labor and overhead incurred in the expansion or enhancement of our wireless network are capitalized. Capitalization commences with pre-construction period administrative and technical activities, which includesinclude obtaining leases, zoning approvals and building permits, and ceases at the point at which the asset is ready for its intended use. We capitalize interest associated with the acquisition or construction of certain property and equipment. Capitalized interest is reported as a reduction in interest expense and depreciated over the useful life of the related assets.
Future obligations related to capital leases are included in Short-term debt and Long-term debt in our Consolidated Balance Sheets. Depreciation of assets held under capital leases is included in Depreciation and amortization expense in our Consolidated Statements of Comprehensive Income.
We record an asset retirement obligation for the estimated fair value of legal obligations associated with the retirement of tangible long-lived assets and a corresponding increase in the carrying amount of the related asset in the period in which the
obligation is incurred. In periods subsequent to initial measurement, we recognize changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate. Over time, the liability is accreted to its present value and the capitalized cost is depreciated over the estimated useful life of the asset. Our obligations relate primarily to certain legal obligations to remediate leased property on which our network infrastructure and administrative assets are located.
We capitalize certain costs incurred in connection with developing or acquiring internal use software. Capitalization of software costs commences once the final selection of the specific software solution has been made and management authorizes and commits to funding the software project.project and ceases once the project is ready for its intended use. Capitalized software costs are included in Property and equipment, net inon our Consolidated Balance Sheets and are amortized on a straight-line basis over the estimated useful life of the asset. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred.
Device Leases
Through the Merger, we acquired device lease contracts in which Sprint is the lessor (the “Sprint Flex Lease Program”), substantially all of which are classified as operating leases, as well as the associated fixed assets (i.e., the leased devices). These leased devices were recorded as fixed assets at their acquisition date fair value and presented within Property and equipment, net on our Consolidated Balance Sheets. Beginning in 2021, we discontinued offering the Sprint Flex lease program and are shifting customer device financing to EIP plans.
Our leasing programs (“Leasing Programs”), which include JUMP! On Demand and the Sprint Flex Lease Program, allow customers to lease a device (handset or tablet) generally over an initial period of 18 months and upgrade the device with a new device when eligibility requirements are met. We depreciate leased devices to their estimated residual value, on a group basis, using the straight-line method over the estimated useful life of the device. The estimated useful life reflects the period for which we estimate the group of leased devices will provide utility to us, which may be longer than the initial lease term based on customer options in the Sprint Flex Lease program to renew the lease on a month-to-month basis after the initial lease term concludes. In determining the estimated useful life, we consider the lease term (e.g., 18 months and month-to-month renewal options for the Sprint Flex Lease Program), trade-in activity and write-offs for lost and stolen devices. Lost and stolen devices are incorporated into the estimates of depreciation expense and recognized as an adjustment to accumulated depreciation when the loss event occurs. Our policy of using the group method of depreciation has been applied to acquired leased devices as well as leases originated subsequent to the Merger. Acquired leased devices are grouped based on the age of the device. Revenues associated with the leased devices, net of lease incentives, are generally recognized on a straight-line basis over the lease term.
For arrangements in which we are the lessor of devices, we separate lease and non-lease components.
Upon device upgrade or at lease end, customers in the JUMP! On Demand lease program must return or purchase their device, and customers in the Sprint Flex Lease Program have the option to return or purchase their device or to renew their lease on a month-to-month basis. The purchase price of the device is established at lease commencement and is based on the type of device leased and any down payment made. The Leasing Programs do not contain any residual value guarantees or variable lease payments, and there are no restrictions or covenants imposed by these leases. Returned devices, including those received upon device upgrade, are transferred from Property and equipment, net to Inventory on our Consolidated Balance Sheets and are valued at the lower of cost or net realizable value, with any write-down recognized as Cost of equipment sales on our Consolidated Statements of Comprehensive Income.
Other Intangible Assets
Intangible assets that do not have indefinite useful lives are amortized over their estimated useful lives.
Through the Merger, we acquired lease agreements (the “Agreements”) with various educational and non-profit institutions that provide us with the right to use Federal Communications Commission (“FCC”) spectrum licenses (Educational Broadband Services or “EBS spectrum”) in the 2.5 GHz band. In addition to the Agreements with educational institutions and private owners who hold the licenses, we also acquired direct ownership of spectrum licenses previously acquired by Sprint through government auctions or other acquisitions.
The Agreements with educational and certain non-profit institutions are typically for terms of five to 10 years with automatic renewal provisions, bringing the total term of the Agreements up to 30 years. A majority of the Agreements include a right of first refusal to acquire, lease or otherwise use the license at the end of the automatic renewal periods.
Leased FCC spectrum licenses are recorded as executory contracts whereby, as a result of business combination accounting, an intangible asset or liability is recorded reflecting the extent to which contractual terms are favorable or unfavorable to current market rates. These intangible assets or liabilities are amortized over the estimated remaining useful life of the lease agreements. Contractual lease payments are recognized on a straight-line basis over the remaining term of the arrangement, including renewals, and are presented in Costs of services on our Consolidated Statements of Comprehensive Income.
Customer lists and the Sprint trade name are amortized using the sum-of-the-years-digitssum-of-the-years digits method over the expected period in which the relationshipasset is expected to contribute to future cash flows. Reacquired rights are amortized on a straight-line basis over the remaining term of the Management Agreement (as defined in Note 2 – Business Combinations), which represents the period of expected economic benefit. The remaining finite-lived intangible assets are amortized using the straight-line method.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill
Goodwill consists of the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination.combination and is assigned to our one reporting unit: wireless.
Spectrum Licenses
Spectrum licenses are carried at costs incurred to acquire the spectrum licenses and the costs to prepare the spectrum licenses for their intended use, such as costs to clear acquired spectrum licenses. The Federal Communications Commission (“FCC”)FCC issues spectrum licenses which provide us with the exclusive right to utilize designated radio frequency spectrum within specific geographic service areas to provide wireless communicationcommunications services. While spectrumSpectrum licenses are issued for a fixed period of time, typically for up to fifteen years,15 years; however, the FCC has granted license renewals routinely and at a nominal cost. The spectrum licenses held by usacquired expire at various dates. Wedates and we believe we will be able to meet all requirements necessary to secure
renewal of our spectrum licenses at a nominal costs.cost. Moreover, we determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our spectrum licenses. The utility of radio frequency spectrum does not diminish while activated on our network nor does it otherwise deteriorate over time. Therefore, we determined the spectrum licenses should be treated as indefinite-lived intangible assets.
At times, we enter into agreements to sell or exchange spectrum licenses. Upon entering into the arrangement, if the transaction has been deemed to have commercial substance, spectrum licenses are reviewed for impairment andimpairment. The licenses are transferred at their carrying value, net ofas adjusted for any impairment recognized, to assets held for sale, which is included in Other current assets inon our Consolidated Balance Sheets until approval and completion of the exchange or sale. Upon closing of the transaction, spectrum licenses acquired as part of an exchange of nonmonetary assets are valuedrecorded at fair value and the difference between the fair value of the spectrum licenses obtained, bookcarrying value of the spectrum licenses transferred and cash paid, if any, is recognized as a gain and included in Gainsor loss on disposal of spectrum licenses included in Selling, general and administrative expenses on our Consolidated Statements of Comprehensive Income. Our fair value estimates of spectrum licenses are based on information for which there is little or no observable market data. If the transaction lacks commercial substance or the fair value is not measurable, the acquired spectrum licenses are recorded at the bookour carrying value of the spectrum assets transferred or exchanged.
The spectrum licenses we hold plus the spectrum leases enhance the overall value of our spectrum licenses as the collective value is higher than the value of individual bands of spectrum within a specific geography. This value is derived from the ability to provide wireless service to customers across large geographic areas and maintain the same or similar wireless connectivity quality. This enhanced value from combining owned and leased spectrum licenses is referred to as an aggregation premium.
The aggregation premium is a component of the overall fair value of our owned FCC spectrum licenses, which are recorded as indefinite-lived intangible assets.
Impairment
We assess the carrying value of our goodwill and other indefinite-lived intangible assets, such as our spectrum licenses,license portfolio, for potential impairment annually as of December 31 or more frequently, if events or changes in circumstances indicate such assets might be impaired.
We test goodwill on a reporting unit basis by comparing the estimated fair value of the reporting unit to its book value. If the fair value exceeds the book value, then no impairment is measured. As of December 31, 2022, we have identified one reporting
unit for which discrete financial information is available and results are regularly reviewed by management: wireless. The wireless reporting unit consists of all the assets and liabilities of T-Mobile US, Inc.
When assessing goodwill for impairment we may elect to first perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. If we do not perform a qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of the singlea reporting unit is less than its carrying amount, we perform a quantitative test. We recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. In 2022, we employed a qualitative approach to assess the wireless reporting unit. The fair value of the wireless reporting unit is determined using a market approach, which is based on market capitalization. We recognize market capitalization is subject to volatility and will monitor changes in market capitalization to determine whether declines, if any, necessitate an interim impairment review. In the event market capitalization does decline below its book value, we will consider the length, severity and reasons for the decline when assessing whether potential impairment exists, including considering whether a control premium should be added to the market capitalization. We believe short-term fluctuations in share price may not necessarily reflect the underlying aggregate fair value. No events or change in circumstances have occurred that indicate the fair value of the wireless reporting unit may be below its carrying amount at December 31, 2022.
We test our spectrum licenses for impairment on an aggregate basis, consistent with our management of the overall business at a national level. We may elect to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of an intangible asset is less than its carrying value. If we do not perform the qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of the intangible asset is less than its carrying amount, we calculate the estimated fair value of the intangible asset. If the estimated fair value of the spectrum licenses is lower than their carrying amount, an impairment loss is recognized for the difference. In 2022, we employed the qualitative method.
We estimate fair value of spectrum licenses using the Greenfield methodology. The Greenfield methodology which is an income approach, to estimatevalues the price at which an orderly transaction to sellspectrum licenses by calculating the cash flow generating potential of a hypothetical start-up company that goes into business with no assets except for the asset would take place between market participants at the measurement date underto be valued (in this case, spectrum licenses) and makes investments required to build an operation comparable to current market conditions.
Guarantee Liabilities
We offer a device trade-in program, Just Upgrade My Phone (“JUMP!”), which provides eligible customers a specified-price trade-in right to upgrade their device. Upon enrollment, participating customers must finance the purchase of a device on an EIP and have a qualifying T-Mobile monthly wireless service plan, which is treated as a single multiple-element arrangement when entered into at or near the same time. Upon a qualifying JUMP! program upgrade, the customer’s remaining EIP balance is settled provided they trade-in their eligible used device in good working condition and purchase a new device from us on a new EIP.
For customers who enroll in JUMP!, we recognize a liability and reduce revenue for the portion of revenue which represents the estimated fairuse. The value of the specified-price trade-in right guarantee. The guarantee liability is valued based on various economic and customer behavioral assumptions, which requires judgment, including estimatingspectrum licenses can be considered as equal to the customer's remaining EIP balance at trade-in, the expected fairpresent value of the used device at trade-in,cash flows of this hypothetical start-up company. We base the assumptions underlying the Greenfield methodology on a combination of market participant data and our historical results, trends and business plans. Future cash flows in the probabilityGreenfield methodology are based on estimates and timingassumptions of trade-in. We assess our guarantee liability at each reporting date to determine if factsmarket participant revenues, EBITDA margin, network build-out period and a long-term growth rate for a market participant. The cash flows are discounted using a weighted-average cost of capital. No events or change in circumstances wouldhave occurred that indicate the incurrence of an incremental contingent liability is probable and if so, reasonably estimable. The recognition and subsequent adjustments of the contingent guarantee liability as a result of these assessments are recorded as adjustments to revenue. When customers upgrade their device, the difference between the EIP balance credit to the customer and the fair value of the returned device is recorded againstSpectrum licenses may be below their carrying amount at December 31, 2022.
The valuation approaches utilized to estimate fair value for the guarantee liabilities.purposes of the impairment tests of goodwill and spectrum licenses require the use of assumptions and estimates, which involve a degree of uncertainty. If actual results or future expectations are not consistent with the assumptions used in our estimate of fair value, it may result in the recording of significant impairment charges on goodwill or spectrum licenses. The most significant assumptions within the valuation models are the discount rate, revenues, EBITDA margins, capital expenditures and long-term growth rate.
Fair Value Measurements
We carry certain assets and liabilities at fair value. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs based on the observability as of the measurement date, is as follows:
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Level 1 | Quoted prices in active markets for identical assets or liabilities; |
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Level 2 | Observable inputs other than the quoted prices in active markets for identical assets and liabilities; and |
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Level 3 | Unobservable inputs for which there is little or no market data, which require us to develop assumptions of what market participants would use in pricing the asset or liability. |
Level 1 Quoted prices in active markets for identical assets or liabilities;
Level 2 Observable inputs other than the quoted prices in active markets for identical assets and liabilities; and
Level 3 Unobservable inputs for which there is little or no market data, which require us to develop assumptions of what market participants would use in pricing the asset or liability.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities being measured within the fair value hierarchy.
The carrying values of cashCash and cash equivalents, short-term investments, accountsAccounts receivable, accountsAccounts receivable from affiliates and accountsAccounts payable and accrued liabilities approximate fair value due to the short-term maturities of these instruments. The carrying values of EIP receivables approximate fair value as the receivables are recorded at their present value netusing an imputed interest rate. With the exception of unamortized discount and allowance for credit losses. Therecertain long-term fixed-rate debt, there were no financial instruments with a carrying value materially different from their fair value, based on quoted market prices or ratesvalue. See Note 7 – Fair Value Measurements for a comparison of the same or similar instruments, or internal valuation models.carrying values and fair values of our short-term and long-term debt.
Derivative Financial Instruments
Derivative financial instruments primarily relate to embedded derivatives for certain components of the reset feature of the Senior Reset Notes to affiliates, which are required to be bifurcatedrecognized as either assets or liabilities and are recorded on the Consolidated Balance Sheetsmeasured at fair value. Changes in fair value are recognized in Interest expense to affiliates in our Consolidated Statements of Comprehensive Income. We do not enter into derivative positionsuse derivatives for trading or speculative purposes.
For derivative instruments designated as cash flow hedges associated with forecasted debt issuances, changes in fair value are reported as a component of Accumulated other comprehensive loss until reclassified into Interest expense, net in the same period the hedged transaction affects earnings. Unrealized gains on derivatives designated in qualifying cash flow hedge relationships are recorded at fair value as assets, and unrealized losses are recorded at fair value as liabilities.
We did not have any significant derivative instruments outstanding as of December 31, 2022 or 2021.
Revenue Recognition
We primarily generate our revenue from providing wireless communications services to customers and selling or leasing devices and accessories. We offer our wireless services and devicesaccessories to customers, which may be comprised of multiplecustomers. Our contracts entered into with a customer at or near the same time. In recognizing revenue, we assess such agreements as a single bundled arrangement thatcustomers may involve multiple deliverables,more than one performance obligation, which include wireless services, wireless devices or a combination thereof, and we allocate revenuethe transaction price between each deliverableperformance obligation based on theits relative standalone selling prices of each deliverable on a standalone basis.price.
Wireless Communications Services Revenue
We generate our wireless servicecommunications services revenues from providing access to, and usage of, our wireless communications network. Service revenues also include revenues earned for providing value addedpremium services to customers, such as handsetdevice insurance services. Service revenuescontracts are billed monthly either in advance or arrears, or are prepaid. Generally, service revenue is recognized as we satisfy our performance obligation to transfer service to our customers. We typically satisfy our stand-ready performance obligations, including unlimited wireless services, evenly over the contract term. For usage-based and prepaid wireless services, we satisfy our performance obligations when services are rendered.
The enforceable duration of our contracts with customers is typically one month. However, promotional EIP bill credits offered to a customer on an equipment sale that are paid over time and are recognized whencontingent on the customer maintaining a service is rendered and all other revenue recognition criteria have been met. Revenues that are not reasonably assured to be collectible are recorded on a cash basis as payments are received. The recognition of prepaid revenue is deferred until services are rendered or the customer’s rights tocontract may result in an extended service expire unused. Generally, incentives given to customers are recorded as a reduction to revenue. We recognize service revenues for Data Stash plans when such services are delivered and the data is consumed, or at time of forfeiture or expiration. Revenues relating to unused data that is carried over to the following month are deferred and valuedcontract based on their relative standalone selling price. Revenuewhether a substantive penalty is recorded gross for arrangements involving the resale of third-party services where we are considered the primary obligor anddeemed to exist.
Revenue is recorded net of associated costs incurredpaid to another party for performance obligations where we arrange for the other party to transfer goods or services wherebyto the customer (i.e., when we are not consideredacting as an agent). For example, performance obligations relating to services provided by third-party content providers where we neither control a right to the primary obligor.content provider’s service nor control the underlying service itself are presented net because we are acting as an agent.
Consideration payable to a customer is treated as a reduction of the total transaction price, unless the payment is in exchange for a distinct good or service, such as certain commissions paid to dealers, in which case the payment is treated as a purchase of that distinct good or service.
Federal Universal Service Fund (“USF”) and other feesstate USF are assessed by various governmental authorities in connection with the services we provide to our customers.customers and are included in Cost of services. When we separately bill and collect these regulatory fees from customers, they are recorded gross in Total service revenues and cost of services inon our Consolidated Statements of Comprehensive Income. For the years ended December 31, 2017, 20162022, 2021 and 2015,2020, we recorded approximately $258$185 million, $409$216 million and $334$267 million, respectively, of USF fees on a gross basis.
We have made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer (e.g., sales, use, value added, and some excise taxes).
Wireline Revenue
Performance obligations related to our Wireline customers include the provision of domestic and international data communications services. Wireline revenues are included in Other service revenues on our Consolidated Statements of Comprehensive Income.
Equipment Revenues
We generate equipment revenues from the sale or lease of mobile communication devices and accessories. DeviceEquipment revenues related to device and accessory sales revenues are generallytypically recognized at a point in time when control of the products are delivereddevice or accessory is transferred to and accepted by, the customer or dealer. We defer a portionhave elected to account for shipping and handling activities that occur after control of equipment revenues and costthe related good transfers as fulfillment activities instead of equipment sales for expectedassessing such activities as performance obligations. We estimate variable consideration (e.g., device returns or certain payments to indirect dealers) primarily based on historical experience. Equipment sales not probable of collection are generally recorded as payments are received. Our assessment of collectibility considers contract terms such as down payments that reduce our exposure to credit risk.
We offer certain customers the option to pay for devices and accessories in installments using an EIP. Equipment salesGenerally, we recognize as a reduction of the total transaction price the effects of a financing component in contracts where customers purchase their devices and accessories on an EIP with a term of more than one year, including those financing components that are not reasonably assuredconsidered to be collectible are recorded onsignificant to the contract. However, we have elected the practical expedient of not recognizing the effects of a cash basis as payments are received.significant financing component for contracts where we expect, at contract inception, that the period between the transfer of a performance obligation to a customer and the customer’s payment for that performance obligation will be one year or less.
In addition, for customers enrolled in JUMP!, we separate the JUMP! trade-in right from the multiple element arrangement at its fair value and defer the portion of revenue which represents the fair value of the trade-in right. See Guarantee Liabilities section above for further information.
We introduced JUMP! On Demand, which allowsOur Leasing Programs allow customers to lease a device over a period of up to 18 months and upgrade their leased wirelessthe device forwith a new device up to one time per month. Leasedwhen eligibility requirements are met. To date, substantially all of our leased wireless devices are accounted for as operating leases and estimated contract consideration is allocated between lease and non-lease elements (such as service and equipment performance obligations) based on the relative standalone selling price of each performance obligation in the contract. Lease revenues are recorded as equipment revenues and recognized as earned on a straight-line basis over the lease term. The residual valueLease revenues on contracts not probable of purchased leased devices is recorded as equipment revenuescollection are limited to the amount of payments received. See “Property and cost of equipment sales. See Property and Equipment sectionEquipment” above for further information.
Rent ExpenseImputed Interest on EIP Receivables
For EIP greater than 12 months, we record the effects of financing on all EIP receivables regardless of whether or not the financing is considered to be significant. The imputation of interest results in a discount of the EIP receivable, thereby adjusting the transaction price of the contract with the customer, which is then allocated to the performance obligations of the arrangement.
For transactions where we recognize a significant financing component, judgment is required to determine the discount rate. For EIP sales, the discount rate used to adjust the transaction price primarily reflects current market interest rates and the estimated credit risk of the customer. Customer credit behavior is inherently uncertain. See “Receivables and Allowance for Credit Losses” above, for additional discussion on how we assess credit risk.
For receivables associated with an end service customer in which the sale of the device was not directly to the end customer (sell-in model or devices sourced directly from OEM), the effect of imputing interest is recognized as a reduction to service revenue over the service contract period. In these transactions, the provision of wireless communications services is the only performance obligation as the device sale was recognized when transferred to the dealer.
Contract Balances
Generally, our devices and service plans are available at standard prices, which are maintained on price lists and published on our website and/or within our retail stores.
For contracts that involve more than one product or service that are identified as separate performance obligations, the transaction price is allocated to the performance obligations based on their relative standalone selling prices. The standalone selling price is the price at which we would sell the good or service separately to a customer and is most commonly evidenced by the price at which we sell that good or service separately in similar circumstances and to similar customers.
A contract asset is recorded when revenue is recognized in advance of our right to receive consideration (i.e., we must perform additional services in order to receive consideration). Amounts are recorded as receivables when our right to consideration is unconditional. When consideration is received, or we have an unconditional right to consideration in advance of delivery of goods or services, a contract liability is recorded. The transaction price can include non-refundable upfront fees, which are allocated to the identifiable performance obligations.
Contract assets are included in Other current assets and Other assets and contract liabilities are included in Deferred revenue on our Consolidated Balance Sheets. See Note 10 – Revenue from Contracts with Customers for further information.
Contract Modifications
Our service contracts allow customers to frequently modify their contracts without incurring penalties, in many cases. Each time a contract is modified, we evaluate the change in scope or price of the contract to determine if the modification should be treated as a separate contract, as if there is a termination of the existing contract and creation of a new contract, or if the modification should be considered a change associated with the existing contract. We typically do not have significant impacts from contract modifications.
Contract Costs
We haveincur certain incremental costs to obtain a contract that we expect to recover, such as sales commissions. We record an asset when these incremental costs to obtain a contract are incurred and amortize them on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates.
We capitalize postpaid sales commissions for service activation as costs to acquire a contract and amortize them on a straight-line basis over the estimated period of benefit, currently 24 months. For capitalized contract costs, determining the amortization period over which such costs are recognized as well as assessing the indicators of impairment may require judgment. Prepaid commissions are expensed as incurred as their estimated period of benefit does not extend beyond 12 months. Commissions paid upon device upgrade are not capitalized if the remaining customer contract is less than one year. Commissions paid when the customer has a lease are treated as initial direct costs and recognized over the lease term.
Incremental costs to obtain equipment contracts (e.g., commissions paid on device and accessory sales) are recognized when the equipment is transferred to the customer. See Note 10 – Revenue from Contracts with Customers for further information.
Leases
Cell Site, Retail Store and Office Facility Leases
We are a lessee for non-cancelable operating and financing leases for cell sites, switch sites, retail locations, corporate officesstores, network equipment, office facilities and dedicated transportation lines, some of which have escalating rentals during the initial lease term and during subsequent optional renewal periods.dark fiber. We recognize renta right-of-use asset and lease liability for operating leases based on the net present value of future minimum lease payments. The right-of-use asset for an operating lease is based on the lease liability. Lease expense is recognized on a straight-line basis over the non-cancelable lease term and renewal periods that are considered reasonably assured atcertain.
In addition, we have financing leases for certain network equipment. We recognize a right-of-use asset and lease liability for financing leases based on the inceptionnet present value of future minimum lease payments. The right-of-use asset for a finance lease is based on the lease liability. Expense for our financing leases is comprised of the lease. amortization expense associated with the right-of-use asset and interest expense recognized based on the effective interest method.
We consider several factors in assessing whether renewal periods are reasonably assuredcertain of being exercised, including the continued maturation of our nationwide network, nationwide, technological advances within the telecommunications industry and the availability of alternative sites. We have concluded we are not reasonably certain to exercise the options to extend or terminate our leases. Therefore, as of the lease commencement date, our lease terms generally do not include these options. We include options to extend or terminate a lease when we are reasonably certain that we will exercise that option.
In determining the discount rate used to measure the right-of-use asset and lease liability, we use rates implicit in the lease, or if not readily available, we use our incremental borrowing rate. Our incremental borrowing rate is based on an estimated secured rate comprised of a risk-free rate plus a credit spread as secured by our assets. Determining a credit spread as secured by our assets may require significant judgment.
Certain of our lease agreements include rental payments based on changes in the consumer price index (“CPI”). Lease liabilities are not remeasured as a result of changes in the CPI; instead, changes in the CPI are treated as variable lease payments and are excluded from the measurement of the right-of-use asset and lease liability. These payments are recognized in the period in which the related obligation is incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Generally, we elected the practical expedient to not separate lease and non-lease components in arrangements where we are the lessee. For arrangements in which we are the lessor of wireless handset devices, we did not elect this practical expedient. We did not elect the short-term lease recognition exemption; as such, leases with terms shorter than 12 months are included as a right-of-use asset and lease liability.
Rental revenues and expenses associated with co-location tower sites are presented on a net basis under Topic 842. See Note 18 – Leases for further information.
Cell Tower Monetization Transactions
In 2012, we entered into a prepaid master lease arrangement in which we as the lessor provided the rights to utilize tower sites and we leased back space on certain of those towers.Prior to the Merger, Sprint entered into a similar lease-out and leaseback arrangement that we assumed in the Merger.
These arrangements are treated as failed sale leasebacks in which the proceeds received are reported as a financing obligation. The principal payments on the tower obligations are included in Other, net within Net cash provided by (used in) financing activities on our Consolidated Statements of Cash Flows.Our historical tower site asset costs are reported in Property and equipment, net on our Consolidated Balance Sheets and are depreciated. See Note 9 – Tower Obligations for further information.
Sprint Retirement Pension Plan
Through the Merger, we acquired the assets and assumed the liabilities associated with the Sprint Retirement Pension Plan (the “Pension Plan”), which is a defined benefit pension plan providing post-retirement benefits to certain employees. As of December 31, 2005, the Pension Plan was amended to freeze benefit plan accruals for participants.
The investments in the Pension Plan are measured at fair value on a recurring basis each quarter using quoted market prices or the net asset value per share as a practical expedient. The projected benefit obligations associated with the Pension Plan are determined based on actuarial models utilizing mortality tables and discount rates applied to the expected benefit term. See Note 11 – Employee Compensation and Benefit Plans for further information on the Pension Plan.
Advertising Expense
We expense the cost of advertising and other promotional expenditures to market our services and products as incurred. For the years ended December 31, 2017, 20162022, 2021 and 2015,2020, advertising expenses included in Selling, general and administrative expenses inon our Consolidated Statements of Comprehensive Income were $1.8$2.3 billion, $1.7$2.2 billion and $1.6$1.8 billion, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized based on temporary differences between the consolidated financial statementstatements and tax bases of assets and liabilities using enacted tax rates expected to be in effect when these differences are realized. A valuation allowance is recorded when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of a deferred tax asset depends on the ability to generate sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions within the carryforward periods available.
We account for uncertainty in income taxes recognized in theon our consolidated financial statements in accordance with the accounting guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return. We assess whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position and adjust the unrecognized tax benefits in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) consists of adjustments, net of tax, related to unrealized gains (losses) on available-for-sale securities.reclassification of loss from cash flow hedges, foreign currency translation and pension and other postretirement benefits. This is reported in Accumulated other comprehensive incomeloss as a separate component of stockholders’ equity until realized in earnings.
Stock-Based Compensation
Stock-based compensation costexpense for stock awards, which include restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”), is measured at fair value on the grant date and recognized as expense, net of expected forfeitures, over the related service period. The fair value of stock awards is based on the closing price of our common stock on the date of grant. RSUs are recognized as expense using the straight-line method. PRSUs are recognized as expense following a graded vesting schedule.schedule with their performance re-assessed and updated on a quarterly basis, or more frequently as changes in facts and circumstances warrant.
Share Repurchases
On September 8, 2022, our Board of Directors authorized a stock repurchase program for up to $14.0 billion of our common stock through September 30, 2023 (the “2022 Stock Repurchase Program”). The cost of repurchased shares, including equity reacquisition costs, is included in Treasury stock on our Consolidated Balance Sheets. We accrue the cost of repurchased shares, and exclude such shares from the calculation of basic and diluted earnings per share, as of the trade date. We recognize a liability for share repurchases which have not settled and for which cash has not been paid in Other current liabilities on our Consolidated Balance Sheets. Cash payments to reacquire our shares, including equity reacquisition costs, are included in Repurchases of common stock on our Consolidated Statements of Cash Flows. See Note 15 - Repurchases of Common Stock for more information about our 2022 Stock Repurchase Program.
Earnings Per Share
Basic earnings per share is computed by dividing Net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by giving effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of outstanding stock options, RSUs and PRSUs, calculated using the treasury stock method, and prior to the conversion of our preferred stock, potentially dilutive common shares included mandatory convertible preferred stock calculated using the if-converted method. See Note 12 -17 – Earnings Per Share for further information.
Our Board of Directors authorized a share repurchase program during the fourth quarter of 2017. Repurchased shares are retired and reduce the number of shares issued and outstanding. See Note 10 - Repurchases of Common Stock for further information.
Variable Interest Entities
VIEs are entities whichthat lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, have equity investors whichthat do not have the ability to make significant decisions relating to the entity's operations through voting rights, do not have the obligation to absorb the expected losses or do not have the right to receive the residual returns of the entity. The most common type of VIE is a special purpose entity (“SPE”). SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. SPEs are generally structured to insulate investors from claims on the SPE'sSPEs’ assets by creditors of other entities, including the creditors of the seller of the assets.assets, these SPEs are commonly referred to as being bankruptcy remote.
The primary beneficiary is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party which has both the power to direct the activities of an entity that most significantly impact the VIE's economic performance, and through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE which could potentially be significant to the VIE. We consolidate VIEs when we are deemed to be the primary beneficiary or when the VIE cannot be deconsolidated. See Note 4 – Sales of Certain Receivables, Note 8 – Debt and Note 9 – Tower Obligations for further information.
In assessing which party is the primary beneficiary, all the facts and circumstances are considered, including each party’s role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE (such as asset managers and
servicers) or have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE.
Change in Accounting PrincipleDevice Purchases Cash Flow Presentation
Effective January 1, 2017, the imputed discount on EIP receivables, whichWe classify all device purchases, whether acquired for sale or lease, as operating cash outflows as our predominant strategy is amortized over the financed installment term using the effective interest method,to sell devices to customers rather than lease them. See Note 21 – Additional Financial Information for disclosures ofLeased devices transferred from inventory to property and was previously presented within Interest income in our Consolidated Statements of Comprehensive Income, is now presented within Other revenues in our Consolidated Statements of Comprehensive Income. We believe this presentation is preferable because it provides a better representation of amounts earnedequipment and Returned leased devices transferred from our major ongoing operationsproperty and aligns with industry practice thereby enhancing comparability. We have applied this change retrospectively and presented the effect on the years ended December 31, 2017, 2016 and 2015, in the tables below:equipment to inventory.
|
| | | | | | | | | | | |
| Year Ended December 31, 2017 |
(in millions) | Unadjusted | | Change in Accounting Principle | | As Adjusted |
Other revenues | $ | 789 |
| | $ | 280 |
| | $ | 1,069 |
|
Total revenues | 40,324 |
| | 280 |
| | 40,604 |
|
Operating income | 4,608 |
| | 280 |
| | 4,888 |
|
Interest income | 297 |
| | (280 | ) | | 17 |
|
Total other expense, net | (1,447 | ) | | (280 | ) | | (1,727 | ) |
Net income | 4,536 |
| | — |
| | 4,536 |
|
|
| | | | | | | | | | | |
| Year Ended December 31, 2016 |
(in millions) | As Filed | | Change in Accounting Principle | | As Adjusted |
Other revenues | $ | 671 |
| | $ | 248 |
| | $ | 919 |
|
Total revenues | 37,242 |
| | 248 |
| | 37,490 |
|
Operating income | 3,802 |
| | 248 |
| | 4,050 |
|
Interest income | 261 |
| | (248 | ) | | 13 |
|
Total other expense, net | (1,475 | ) | | (248 | ) | | (1,723 | ) |
Net income | 1,460 |
| | — |
| | 1,460 |
|
|
| | | | | | | | | | | |
| Year Ended December 31, 2015 |
(in millions) | As Filed | | Change in Accounting Principle | | As Adjusted |
Other revenues | $ | 514 |
| | $ | 414 |
| | $ | 928 |
|
Total revenues | 32,053 |
| | 414 |
| | 32,467 |
|
Operating income | 2,065 |
| | 414 |
| | 2,479 |
|
Interest income | 420 |
| | (414 | ) | | 6 |
|
Total other expense, net | (1,087 | ) | | (414 | ) | | (1,501 | ) |
Net income | 733 |
| | — |
| | 733 |
|
The change in accounting principle did not have an impact on basic or diluted earnings per share for the years ended December 31, 2017, 2016 and 2015 or Accumulated deficit as of December 31, 2017 and 2016.
Accounting Pronouncements Adopted During the Current Year
Reference Rate Reform
In January 2017,March 2020, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU 2017-04, “Intangibles - Goodwill and OtherAccounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 350)848): Simplifying the Test for Goodwill Impairment.” The amendments in this update eliminate the requirement to perform step twoFacilitation of the goodwill impairment test, which requires a hypothetical purchase price allocation consistent with the principles in determining fair valuesEffects of assets acquired and liabilities assumed in a business combination, when an impairment is determined to have occurred. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited by the amount of goodwill in that reporting unit. We adopted this new guidance in the fourth quarter of 2017. The implementation of this standard did not have an impactReference Rate Reform on our consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)Financial Reporting,” (“ASU 2014-09”), and has since modified the standard with several ASUs.ASU 2021-01, “Reference Rate Reform (Topic 848): Scope” and ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848” (together, the “reference rate reform standard”). The reference rate reform standard provides temporary optional expedients and allows for certain exceptions to applying existing GAAP for contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued as a result of reference rate reform. The reference rate reform standard is effectiveavailable for us,adoption through December 31, 2024, and we adopted the standard, onoptional expedients for contract modifications must be elected for all arrangements within a given Accounting Standards Codification (“ASC”) Topic or Industry Subtopic. As of January 1, 2018.
The standard requires entities to recognize revenue through the application of a five-step model, which includes: identification of the contract; identification of the performance obligations; determination of the transaction price; allocation of the transaction price to the performance obligations; and recognition of revenue as the entity satisfies the performance obligations.
The guidance permits two methods of adoption, the full retrospective method applying the standard to each prior reporting period presented, or the modified retrospective method with a cumulative effect of initially applying the guidance recognized at the date of initial application. The standard also allows entities to apply certain practical expedients at their discretion. We will adopt the standard using the modified retrospective method with a cumulative catch up adjustment and will provide additional disclosures comparing results to previous GAAP in our 2018 consolidated financial statements. We plan2022, we have elected to apply the new revenuepractical expedients provided by the reference rate reform standard onlyfor all ASC Topics and Industry Subtopics related to contractseligible contract modifications as they occur. This election did not completed ashave a material impact on our consolidated financial statements for the year ended December 31, 2022, and the impact of applying the date of initial application, referredelection to as open contracts.
The most significant judgments and impacts upon adoption of the standard include the following items:
Upon adoption, we will defer (i.e. capitalize) incrementalfuture eligible contract acquisition costs and recognize (i.e. amortize) them over the term of the initial contract and anticipated renewal contracts to which the costs relate. Deferred contract costs have an average amortization period of approximately 24 months, subject to being monitored every period to reflect any significant change in assumptions. In addition, the deferred contract cost assetmodifications that occur through December 31, 2024, is assessed for impairment on a
periodic basis. We are utilizing the practical expedient permitting expensing of costs to obtain a contract when the expected amortization period is one year or less which typically results in expensing commissions paid to acquire branded prepaid service contracts. As a result, incremental contract acquisition costs paid on open contracts of approximately $150 million arealso not expected to be capitalizedmaterial.
Contract Assets and subsequently amortized upon adoption on January 1, 2018 asContract Liabilities Acquired in a cumulative effect adjustment to equity, which consists primarily of commissions paid to acquire branded postpaid service contracts. Contract costs capitalized for new contracts will accumulate during 2018 as deferred assets. As a result, we expect there to be a net benefit to operating income during 2018. As capitalized costs amortize into expense over time the accretive benefit to operating income anticipated in 2018 is expected to moderate in 2019 and become insignificant in 2020 as the timing benefits of deferring these costs dissipate.Business Combination
Under the new standard, certain commissions paid to dealers previously recognized as a reduction to revenues will be recorded as commission costs in Selling, general and administrative expense. During 2017 such commission costs were approximately $425 million.
Promotional bill credits offered to customers on equipment sales that are paid over time and are contingent on the customer maintaining a service contract results in an extended service contract term with multiple performance obligations, which impacts the allocation and timing of revenue recognition between service revenue and equipment revenue. A contract asset will be recorded when control of the equipment transfers to the customer, and subsequently recognized as a reduction to service revenue over the extended contract term. Contract assets of approximately $140 million are expected to be capitalized upon adoption on January 1, 2018 as a cumulative effect adjustment.
We are recognizing the financing component in our EIP contracts, including those financing components that are not considered to be significant to the contract. This application is consistent with our current practice of imputing interest.
We have implemented significant new revenue accounting systems, processes and internal controls over revenue recognition to assist us in the application of the new standard.
The cumulative effect of initially applying the new revenue standard on January 1, 2018 is estimated to be a decrease to Accumulated deficit of approximately $220 million.
In February 2016,October 2021, the FASB issued ASU 2016-02, “Leases2021-08, “Business Combinations (Topic 842).805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” The standard requiresamends ASC 805 such that contract assets and contract liabilities acquired in a business combination are added to the list of exceptions to the recognition and measurement principles such that they are recognized and measured in accordance with ASC 606. As of January 1, 2022, we have elected to adopt this standard, and it will be applied prospectively to all lessees to report a right-of-use assetbusiness combinations occurring after this date.
Accounting Pronouncements Not Yet Adopted
Troubled Debt Restructurings and a lease liability for most leases. The income statement recognition is similar to existing lease accountingVintage Disclosures
In March 2022, the FASB issued ASU 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and is based on lease classification.Vintage Disclosures.” The standard requires lesseeseliminates the accounting guidance within ASC 310-40 for troubled debt restructurings by creditors while enhancing disclosure requirements for certain loan refinancings and lessors to classify most leases using principles similar to existing lease accounting. For lessors,restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, for public business entities, the standard modifiesrequires disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases within the classification criteriascope of ASC 326-20. The standard will become effective for us beginning January 1, 2023, and the accountingwill be applied prospectively, with an option for sales-type and direct financing leases. We are currently evaluating the standard, which will require recognizing and measuring leases at the beginning of the earliest period presented using a modified retrospective approach. Our evaluation includes assessing whichapplication for provisions related to recognition and measurement of our arrangements qualify as a lease, and aggregating lease data and related information as well as determining whether previous conclusionstroubled debt restructurings. Early adoption is permitted for certain transactions, such as failed sale leaseback arrangements under Topic 840, would change under Topic 842.us at any time. We plan to adopt the standard when it becomes effective for us beginning January 1, 2019, and2023. We expect the adoption of the standard will resultto impact our disclosure of current period write-offs for certain receivables, but do not expect other updates in the recognition of right-of-use assets and lease liabilities that have not previously been recorded, which will have a material impact on our consolidated financial statements.
We are in the process of implementing significant new lease accounting systems, processes and internal controls over lease recognition which will ultimately assist in the application of the new standard.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The standard requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectibility of the reported amount. The standard will become effective for us beginning January 1, 2020, and will require a cumulative-effect adjustment to Accumulated deficit as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). Early adoption is permitted for us as of January 1, 2019. We are currently evaluating the impact this guidance will have on our consolidated financial statements and the timing of adoption.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The standard is intended to reduce current diversity in practice and provides guidance on how certain cash receipts and payments are presented and classified in the statement of cash flows. The standard is effective for us, and we adopted the standard, on January 1, 2018. The standard will require a retrospective approach. The standard will impact the presentation of cash flows related to beneficial interests in securitization transactions, which is the deferred purchase price,
resulting in a reclassification of cash inflows from Operating activities to Investing activities of approximately $4.3 billion and $3.5 billion for the years ended December 31, 2017 and 2016, respectively, in our Consolidated Statements of Cash Flows. The standard will also impact the presentation of cash payments for debt prepayment or debt extinguishment costs, resulting in a reclassification of cash outflows from Operating activities to Financing activities of $188 million for the year ended December 31, 2017, in our consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, “Accounting for Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory.” The standard requires that the income tax impact of intra-entity sales and transfers of property, except for inventory, be recognized when the transfer occurs. The standard will become effective for us beginning January 1, 2018, and will require any deferred taxes not yet recognized on intra-entity transfers to be recorded to retained earnings under a modified retrospective approach. The implementation of this standard is not expected to have a material impact on our consolidated financial statements.
Note 2 – Business Combinations
Business Combination Agreement and Amendments
On April 29, 2018, we entered into a Business Combination Agreement with Sprint and the other parties named therein (as amended, the “Business Combination Agreement”) for the Merger. The Business Combination Agreement was subsequently amended to provide that, following the closing of the Merger and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”), SoftBank would indemnify us against certain specified matters and the loss of value arising out of, or resulting from, cessation of access to spectrum under certain circumstances and subject to certain limitations and qualifications.
On February 20, 2020, T-Mobile, SoftBank and Deutsche Telekom AG (“DT”) entered into a letter agreement (the “Letter Agreement”). Pursuant to the Letter Agreement, SoftBank agreed to cause its applicable affiliates to surrender to T-Mobile, for no additional consideration, an aggregate of 48,751,557 shares of T-Mobile common stock (such number of shares, the “SoftBank Specified Shares Amount”), effective immediately following the Effective Time (as defined in the Business Combination Agreement), making SoftBank’s exchange ratio 11.31 shares of Sprint common stock for each share of T-Mobile common stock. This resulted in an effective exchange ratio of approximately 11.00 shares of Sprint common stock for each share of T-Mobile common stock immediately following the closing of the Merger, an increase from the originally agreed 9.75 shares. Sprint stockholders, other than SoftBank, received the original fixed exchange ratio of 0.10256 shares of T-Mobile common stock for each share of Sprint common stock, or the equivalent of approximately 9.75 shares of Sprint common stock for each share of T-Mobile common stock.
The Letter Agreement requires T-Mobile to issue to SoftBank 48,751,557 shares of T-Mobile common stock, subject to the terms and conditions set forth in the Letter Agreement, for no additional consideration, if certain conditions are met. The issuance of these shares is contingent on the trailing 45-day volume-weighted average price per share of T-Mobile common stock on the NASDAQ Global Select Market being equal to or greater than $150.00, at any time during the period commencing on April 1, 2022 and ending on December 31, 2025. If the threshold price is not met, then none of the SoftBank Specified Shares Amount will be issued.
Closing of Sprint Merger
On April 1, 2020, we completed the Merger, and as a result, Sprint and its subsidiaries became wholly owned consolidated subsidiaries of T-Mobile. Sprint was the fourth-largest telecommunications company in the U.S., offering a comprehensive range of wireless and wireline communication products and services. As a combined company, we have been able to rapidly launch a broad and deep nationwide 5G network, accelerate innovation, increase competition in the U.S. wireless and broadband industries and achieve significant synergies and cost reductions by eliminating redundancies within the combined network as well as other business processes and operations.
Upon completion of the Merger, each share of Sprint common stock was exchanged for 0.10256 shares of T-Mobile common stock, or 9.75 shares of Sprint common stock for each share of T-Mobile common stock. After adjustments, including the holdback of the SoftBank Specified Shares Amount and fractional shares, we issued 373,396,310 shares of T-Mobile common stock to Sprint stockholders. The fair value of the T-Mobile common stock provided in exchange for Sprint common stock was approximately $31.3 billion.
Additional components of consideration included the repayment of certain of Sprint’s debt, replacement of equity awards attributable to pre-combination services, contingent consideration and a cash payment received from SoftBank for certain reimbursed Merger expenses.
Immediately following the closing of the Merger and the surrender of the SoftBank Specified Shares Amount, pursuant to the Letter Agreement described above, DT and SoftBank held, directly or indirectly, approximately 43.6% and 24.7%, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 31.7% of the outstanding T-Mobile common stock held by other stockholders. See Note 14 – SoftBank Equity Transaction for ownership details as of December 31, 2022.
Consideration Transferred
The acquisition-date fair value of consideration transferred in the Merger totaled $40.8 billion, comprised of the following: | | | | | |
(in millions) | April 1, 2020 |
Fair value of T-Mobile common stock issued to Sprint stockholders (1) | $ | 31,328 | |
Fair value of T-Mobile replacement equity awards attributable to pre-combination service (2) | 323 | |
Repayment of Sprint’s debt (including accrued interest and prepayment penalties) (3) | 7,396 | |
| |
Fair value of contingent consideration (4) | 1,882 | |
Payment received from selling stockholder (5) | (102) | |
Total consideration exchanged | $ | 40,827 | |
(1) Represents the fair value of T-Mobile common stock issued to Sprint stockholders pursuant to the Business Combination Agreement, less shares surrendered by SoftBank pursuant to the Letter Agreement. The fair value is based on 373,396,310 shares of T-Mobile common stock issued at an exchange ratio of 0.10256 shares of T-Mobile common stock per share of Sprint common stock, less 48,751,557 T-Mobile shares surrendered by SoftBank which are treated as contingent consideration, and the closing price per share of T-Mobile common stock on NASDAQ on March 31, 2020, of $83.90, as shares were transferred to Sprint stockholders prior to the opening of markets on April 1, 2020.
(2) Equity-based awards held by Sprint employees prior to the acquisition date have been replaced with T-Mobile equity-based awards. The portion of the equity-based awards that relates to services performed by the employee prior to the acquisition date is included within consideration transferred, and includes stock options, restricted stock units and performance-based restricted stock units.
(3) Represents the cash consideration paid concurrent with the close of the Merger to retire certain Sprint debt, as required by change in control provisions of the debt, plus interest and prepayment penalties.
(4) Represents the fair value of the SoftBank Specified Shares Amount contingent consideration that may be issued as set forth in the Letter Agreement.
(5) Represents receipt of a cash payment from SoftBank for certain reimbursed Merger expenses.
The SoftBank Specified Shares Amount was determined to be contingent consideration with an acquisition-date fair value of $1.9 billion. We estimated the fair value using the income approach, a probability-weighted discounted cash flow model, whereby a Monte Carlo simulation method estimated the probability of different outcomes as the likelihood of achieving the 45-day volume-weighted average price threshold is not easily predicted. This fair value measurement is based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement as defined in ASC 820: Fair Value Measurement. The key assumptions in applying the income approach include the estimated future share-price volatility, which was based on historical market trends and the estimated future performance of T-Mobile.
The maximum amount of contingent consideration that could be issued to SoftBank has an estimated value of $7.3 billion, based on SoftBank Specified Shares Amount of 48,751,557 multiplied by the defined volume-weighted average price per share of $150.00. The contingent consideration that could be delivered to SoftBank is classified within equity and is not subject to remeasurement.
Fair Value of Assets Acquired and Liabilities Assumed
We accounted for the Merger as a business combination. The identifiable assets acquired and liabilities assumed of Sprint were recorded at their fair values as of the acquisition date and consolidated with those of T-Mobile. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires the use of significant judgment regarding estimates and assumptions. For the fair values of the assets acquired and liabilities assumed, we used the cost, income and market approaches, including market participant assumptions.
The following table summarizes the fair values for each major class of assets acquired and liabilities assumed at the acquisition date. We retained the services of certified valuation specialists to assist with assigning values to certain acquired assets and assumed liabilities.
| | | | | |
(in millions) | April 1, 2020 |
Cash and cash equivalents | $ | 2,084 | |
Accounts receivable | 1,775 | |
Equipment installment plan receivables | 1,088 | |
Inventory | 658 | |
Prepaid expenses | 140 | |
Assets held for sale | 1,908 | |
Other current assets | 637 | |
Property and equipment | 18,435 | |
Operating lease right-of-use assets | 6,583 | |
Financing lease right-of-use assets | 291 | |
Goodwill | 9,423 | |
Spectrum licenses | 45,400 | |
Other intangible assets | 6,280 | |
Equipment installment plan receivables due after one year, net | 247 | |
Other assets (1) | 540 | |
Total assets acquired | 95,489 | |
Accounts payable and accrued liabilities | 5,015 | |
Short-term debt | 2,760 | |
Deferred revenue | 508 | |
Short-term operating lease liabilities | 1,818 | |
Short-term financing lease liabilities | 8 | |
Liabilities held for sale | 475 | |
Other current liabilities | 681 | |
Long-term debt | 29,037 | |
Tower obligations | 950 | |
Deferred tax liabilities | 3,478 | |
Operating lease liabilities | 5,615 | |
Financing lease liabilities | 12 | |
| |
Other long-term liabilities | 4,305 | |
Total liabilities assumed | 54,662 | |
| |
Total consideration transferred | $ | 40,827 | |
(1) Included in Other assets acquired is $80 million in restricted cash.
Amounts initially disclosed for the estimated values of certain acquired assets and liabilities assumed were adjusted through March 31, 2021 (the close of the measurement period) based on information arising after the initial valuation.
Intangible Assets and Liabilities
Goodwill with an assigned value of $9.4 billion represents the excess of the consideration transferred over the fair values of assets acquired and liabilities assumed. The goodwill recognized includes synergies expected to be achieved from the operations of the combined company, the assembled workforce of Sprint and intangible assets that do not qualify for separate recognition. Expected synergies from the Merger include the cost savings from the planned integration of network infrastructure, facilities, personnel and systems. None of the goodwill resulting from the Merger is deductible for tax purposes. All of the goodwill acquired is allocated to the wireless reporting unit.
Other intangible assets include $4.9 billion of customer relationships with a weighted-average useful life of eight years and tradenames of $207 million with a useful life of two years. Leased spectrum arrangements that have favorable (asset) and unfavorable (liability) terms compared to current market rates were assigned fair values of $745 million and $125 million, respectively, with 18-year and 19-year weighted-average useful lives, respectively.
The fair value of Spectrum licenses of $45.4 billion was estimated using the income approach, specifically a Greenfield model. This fair value measurement is based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement as defined in ASC 820: Fair Value Measurement. The key assumptions in applying the income approach include the discount rate, estimated market share, estimated capital and operating expenditures, forecasted service revenue and a long-term growth rate for a hypothetical market participant that enters the wireless industry and builds a nationwide wireless network.
Acquired Receivables
The fair value of the assets acquired includes Accounts receivable of $1.8 billion and EIP receivables of $1.3 billion. The UPB under these contracts as of April 1, 2020, the date of the Merger, was $1.8 billion and $1.6 billion, respectively. The difference between the fair value and the UPB primarily represents amounts expected to be uncollectible.
Indemnification Assets and Contingent Liabilities
Pursuant to Amendment No. 2 to the Business Combination Agreement, SoftBank agreed to indemnify us against certain specified matters and losses. As of the acquisition date, we recorded a contingent liability and an offsetting indemnification asset for the expected reimbursement by SoftBank for certain Lifeline matters. The liability is presented in Accounts payable and accrued liabilities, and the indemnification asset is presented in Other current assets within our acquired assets and liabilities at the acquisition date. In November 2020, we entered into a consent decree with the FCC to resolve certain Lifeline matters, which resulted in a payment of $200 million by SoftBank. Final resolution of these matters could require making additional reimbursements and paying additional fines and penalties, which we do not expect to have a significant impact on our financial results. We expect that any additional liabilities related to these matters would be indemnified and reimbursed by SoftBank.
Deferred Taxes
As a result of the Merger, we acquired deferred tax assets for which a valuation allowance reserve is deemed to be necessary, as well as additional uncertain tax benefit reserves. As of the date of the Merger, the amount of the valuation allowance reserve and uncertain tax benefit reserves was $851 million and $660 million, respectively.
Pro Forma Information
The following unaudited pro forma financial information gives effect to the Transactions as if they had been completed on January 1, 2019. The unaudited pro forma information was prepared in accordance with the requirements of ASC 805: Business Combinations, which is a different basis than pro forma information prepared under Article 11 of Regulation S-X (“Article 11”). As such, they are not directly comparable with historical results for stand-alone T-Mobile prior to April 1, 2020, historical results for T-Mobile from April 1, 2020 that reflect the Transactions and are inclusive of the results and operations of Sprint, nor our previously provided pro forma financials prepared in accordance with Article 11. The pro forma results for the years ended December 31, 2020 and 2019 include the impact of several significant nonrecurring pro forma adjustments to previously reported operating results. The pro forma adjustments are based on historically reported transactions by the respective companies. The pro forma results do not include any anticipated synergies or other expected benefits of the acquisition. | | | | | | | | | | | | | | | |
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| Year Ended December 31, | | |
(in millions) | 2020 | | | | 2019 | | |
Total revenues | $ | 74,681 | | | | | $ | 70,607 | | | |
Income from continuing operations | 3,302 | | | | | 185 | | | |
Income from discontinued operations, net of tax | 677 | | | | | 1,594 | | | |
Net income | 3,979 | | | | | 1,792 | | | |
Significant nonrecurring pro forma adjustments include:
•Transaction costs of $559 million that were incurred during the year ended December 31, 2020 are assumed to have occurred on the pro forma close date of January 1, 2019, and are recognized as if incurred in the first quarter of 2019;
•The Prepaid Business divested on July 1, 2020, is assumed to have been classified as discontinued operations as of January 1, 2019, and the related activities are presented in Income from discontinued operations, net of tax;
•Permanent financing issued and debt redemptions occurring in connection with the closing of the Merger are assumed to have occurred on January 1, 2019, and historical interest expense associated with repaid borrowings is removed;
•Tangible and intangible assets are assumed to be recorded at their estimated fair values as of January 1, 2019 and are depreciated or amortized over their estimated useful lives; and
•Accounting policies of Sprint are conformed to those of T-Mobile including depreciation for leased devices, distribution arrangements with Brightstar US, Inc., amortization of costs to acquire a contract and certain tower lease transactions.
The selected unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations would have been had the Transactions actually occurred on January 1, 2019, nor do they purport to project the future consolidated results of operations.
For the periods subsequent to the Merger close date, the acquired Sprint subsidiaries contributed total revenues and operating income of $20.5 billion and $1.3 billion, respectively, for the year ended December 31, 2020, that were included on our Consolidated Statements of Comprehensive Income.
Regulatory Matters
The Transactions were the subject of various legal and regulatory proceedings involving a number of state and federal agencies. In connection with those proceedings and the approval of the Transactions, we have certain commitments and other obligations to various state and federal agencies and certain nongovernmental organizations. See Note 19 – Commitments and Contingencies for further information.
Prepaid Transaction
On July 26, 2019, we entered into the Asset Purchase Agreement with Sprint and DISH, pursuant to which, following the consummation of the Merger, DISH would acquire the Prepaid Business.
On June 17, 2020, T-Mobile, Sprint and DISH entered into the First Amendment to the Asset Purchase Agreement. Pursuant to the First Amendment of the Asset Purchase Agreement, T-Mobile, Sprint and DISH agreed to proceed with the closing of the Prepaid Transaction, in accordance with the Asset Purchase Agreement, on July 1, 2020, subject to the terms and conditions of the Asset Purchase Agreement and the terms and conditions of the Consent Decree.
On July 1, 2020, pursuant to the Asset Purchase Agreement, we completed the Prepaid Transaction. Upon closing of the Prepaid Transaction, we received $1.4 billion from DISH for the Prepaid Business, subject to working capital adjustments. See Note 12 – Discontinued Operations for further information.
Shenandoah Personal Communications Company Affiliate Relationship
Sprint PCS (specifically Sprint Spectrum L.P.) was party to a variety of publicly filed agreements with Shentel, pursuant to which Shentel was the exclusive provider of Sprint PCS’s wireless mobility communications network products in certain parts of Maryland, North Carolina, Virginia, West Virginia, Kentucky, Ohio and Pennsylvania. Pursuant to one such agreement, the Sprint PCS Management Agreement, dated November 5, 1999 (as amended, supplemented and modified from time to time, the “Management Agreement”), Sprint PCS was granted an option to purchase Shentel’s Wireless Assets used to provide services pursuant to the Management Agreement. On August 26, 2020, Sprint, now our indirect subsidiary, on behalf of and as the direct or indirect owner of Sprint PCS, exercised its option by delivering a binding notice of exercise to Shentel.
On May 28, 2021, T-Mobile USA, Inc., a Delaware corporation and our direct wholly owned subsidiary, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Shentel, for the acquisition of the Wireless Assets for an aggregate purchase price of approximately $1.9 billion in cash, subject to certain adjustments prescribed by the Management Agreement and such additional adjustments agreed by the parties.
Closing of Shentel Wireless Assets Acquisition
On July 1, 2021, upon the completion of certain customary conditions, including the receipt of certain regulatory approvals, we closed on the acquisition of the Wireless Assets pursuant to the Purchase Agreement, and as a result, T-Mobile became the legal owner of the Wireless Assets. Through this transaction, we reacquired the exclusive rights to deliver Sprint’s wireless network services in Shentel’s former affiliate territory and simplified our operations. Concurrently, and as agreed to through the Purchase Agreement, T-Mobile and Shentel entered into certain separate transactions, including the effective settlement of the pre-existing arrangements between T-Mobile and Shentel under the Management Agreement.
In exchange, T-Mobile transferred cash of approximately $2.0 billion, approximately $1.9 billion of which was determined to be consideration transferred for the Wireless Assets and the remainder of which was determined to relate to separate transactions, primarily associated with the effective settlement of pre-existing arrangements between T-Mobile and Shentel. Accordingly, these separate transactions are not included in the calculation of the consideration transferred in exchange for the Wireless Assets, and the settlement of pre-existing arrangements between T-Mobile and Shentel did not result in material gains or losses.
Prior to the acquisition of the Wireless Assets, revenues generated from our affiliate relationship with Shentel were presented as Wholesale and other service revenues. Upon the close of the transaction, revenues generated from postpaid customers within the reacquired territory are presented as Postpaid revenues on our Consolidated Statements of Comprehensive Income. The financial results of the Wireless Assets since the closing through December 31, 2021, were not material to our Consolidated Statements of Comprehensive Income, nor were they material to our prior period consolidated results on a pro forma basis.
Fair Value of Assets Acquired and Liabilities Assumed
We accounted for the acquisition of the Wireless Assets as a business combination. The identifiable assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date and consolidated with those of T-Mobile. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires the use of significant judgment regarding estimates and assumptions. For the fair values of the assets acquired and liabilities assumed, we used the cost, income and market approaches, including market participant assumptions.
The following table summarizes the fair values for each major class of assets acquired and liabilities assumed at the acquisition date. We retained the services of certified valuation specialists to assist with assigning values to certain acquired assets and assumed liabilities.
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(in millions) | July 1, 2021 |
Inventory | $ | 2 | |
Property and equipment | 136 | |
Operating lease right-of-use assets | 308 | |
Goodwill | 1,035 | |
Other intangible assets | 770 | |
Other assets | 7 | |
Total assets acquired | 2,258 | |
Short-term operating lease liabilities | 73 | |
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Operating lease liabilities | 264 | |
Other long-term liabilities | 35 | |
Total liabilities assumed | 372 | |
Total consideration transferred | $ | 1,886 | |
Intangible Assets and Liabilities
Goodwill with an assigned value of $1.0 billion, substantially all of which is deductible for tax purposes, represents the anticipated cost savings from the operations of the combined company resulting from the planned integration of network infrastructure and facilities, the assembled workforce hired concurrently with the acquisition of Wireless Assets, and the intangible assets that do not qualify for separate recognition. All of the goodwill acquired is allocated to the wireless reporting unit.
Other intangible assets include $770 million of reacquired rights to provide services in Shentel’s former affiliate territory which is being amortized on a straight-line basis over a useful life of approximately nine years in line with the remaining term of the Management Agreement upon the acquisition of the Wireless Assets, which represents the period of expected economic benefits associated with the reacquisition of such rights. This fair value measurement is based on significant inputs not observable in the market, and therefore, represents a Level 3 measurement as defined in ASC 820. The key assumptions in applying the income approach include forecasted subscriber growth rates, revenue over an estimated period of time, the discount rate, estimated capital expenditures, estimated income taxes and the long-term growth rate, as well as forecasted earnings before interest, taxes, depreciation and amortization (“EBITDA”) margins.
Note 3 – Receivables and Related Allowance for Credit Losses
We maintain an allowance for credit losses by applying an expected credit loss model. Each period, management assesses the appropriateness of the level of allowance for credit losses by considering credit risk inherent within each portfolio segment as of the end of the period.
We consider a receivable past due when a customer has not paid us by the contractually specified payment due date. Account balances are written off against the allowance for credit losses if collection efforts are unsuccessful and the receivable balance is deemed uncollectible (customer default), based on factors such as customer credit ratings as well as the length of time the amounts are past due.
Our portfolio of receivables is comprised of two portfolio segments,segments: accounts receivable and EIP receivables. Our accounts
Accounts Receivable Portfolio Segment
Accounts receivable segment primarily consistsbalances are predominately comprised of amounts currently due from customers including service(e.g., for wireless communications services and leasedmonthly device receivables,lease payments), device insurance administrators, wholesale partners, non-consolidated affiliates, other carriers and third-party retail channels.
We estimate credit losses associated with our accounts receivable portfolio segment using an expected credit loss model, which utilizes an aging schedule methodology based on historical information and adjusted for asset-specific considerations, current economic conditions and reasonable and supportable forecasts.
Our approach considers a number of factors, including our overall historical credit losses, net of recoveries, and payment experience, as well as current collection trends such as write-off frequency and severity. We also consider other qualitative factors such as current and forecasted macroeconomic conditions.
We consider the need to adjust our estimate of credit losses for reasonable and supportable forecasts of future macroeconomic conditions. To do so, we monitor external forecasts of changes in real U.S. gross domestic product and forecasts of consumer credit behavior for comparable credit exposures. We also periodically evaluate other macroeconomic indicators such as unemployment rates to assess their level of correlation with our historical credit loss statistics.
EIP Receivables Portfolio Segment
Based upon customer credit profiles at the time of customer origination, we classify the EIP receivablereceivables segment into two customer classes of “Prime” and “Subprime.” Prime customer receivables are those with lower delinquencycredit risk and Subprime customer receivables are those with higher delinquencycredit risk. Subprime customersCustomers may be required to make a down payment on their equipment purchases.purchases if their assessed credit risk exceeds established underwriting thresholds. In addition, certain customers within the Subprime category aremay be required to pay an advancea deposit.
To determine a customer’s credit profile and assist in determining their credit class, we use a proprietary credit scoring model that measures the credit quality of a customer at the time of application for wireless communications service usingleveraging several factors, such as credit bureau information and consumer credit risk scores, as well as service and servicedevice plan characteristics.
Installment receivables acquired in the Merger are included in EIP receivables. We applied our proprietary credit scoring model to the customers acquired in the Merger with an outstanding EIP receivable balance. Based on tenure, consumer credit risk score and credit profile, these acquired customers were classified into our customer classes of Prime or Subprime. For EIP receivables acquired in the Merger, the difference between the fair value and UPB of the receivable at the acquisition date is accreted to interest income over the contractual life of the receivable using the effective interest method. EIP receivables had a combined weighted-average effective interest rate of 8.0% and 5.6% as of December 31, 2022, and 2021, respectively.
The following table summarizes the EIP receivables, including imputed discounts and related allowance for credit losses: | | | | | | | | | | | |
(in millions) | December 31, 2022 | | December 31, 2021 |
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EIP receivables, gross | $ | 8,480 | | | $ | 8,207 | |
Unamortized imputed discount | (483) | | | (378) | |
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EIP receivables, net of unamortized imputed discount | 7,997 | | | 7,829 | |
Allowance for credit losses | (328) | | | (252) | |
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EIP receivables, net of allowance for credit losses and imputed discount | $ | 7,669 | | | $ | 7,577 | |
Classified on our consolidated balance sheets as: | | | |
Equipment installment plan receivables, net of allowance for credit losses and imputed discount | $ | 5,123 | | | $ | 4,748 | |
Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount | 2,546 | | | 2,829 | |
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EIP receivables, net of allowance for credit losses and imputed discount | $ | 7,669 | | | $ | 7,577 | |
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(in millions) | December 31, 2017 | | December 31, 2016 |
EIP receivables, gross | $ | 3,960 |
| | $ | 3,230 |
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Unamortized imputed discount | (264 | ) | | (195 | ) |
EIP receivables, net of unamortized imputed discount | 3,696 |
| | 3,035 |
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Allowance for credit losses | (132 | ) | | (121 | ) |
EIP receivables, net | $ | 3,564 |
| | $ | 2,914 |
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Classified on the balance sheet as: | | | |
Equipment installment plan receivables, net | $ | 2,290 |
| | $ | 1,930 |
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Equipment installment plan receivables due after one year, net | 1,274 |
| | 984 |
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EIP receivables, net | $ | 3,564 |
| | $ | 2,914 |
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To determineMany of our loss estimation techniques rely on delinquency-based models; therefore, delinquency is an important indicator of credit quality in the appropriate levelestablishment of theour allowance for credit losses we consider a number offor EIP receivables. We manage our EIP receivables portfolio segment using delinquency and customer credit class as key credit quality indicators, including historical credit losses and timely payment experience as well as current collection trends such as write-off frequency and severity, agingindicators.
The following table presents the amortized cost of the receivable portfolio, credit quality of the customer base and other qualitative factors such as macro-economic conditions.
We write off account balances if collection efforts are unsuccessful and the receivable balance is deemed uncollectible, based onour EIP receivables by delinquency status, customer credit qualityclass and the agingyear of the receivable.
For EIP receivables, subsequent to the initial determination of the imputed discount, we assess the need for and, if necessary, recognize an allowance for credit losses to the extent the amount of estimated probable losses on the gross EIP receivable balances exceed the remaining unamortized imputed discount balances.
The EIP receivables had weighted average effective imputed interest rates of 9.6% and 9.0%origination as of December 31, 20172022:
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| Originated in 2022 | | Originated in 2021 | | Originated prior to 2021 | | Total EIP Receivables, net of unamortized imputed discounts |
(in millions) | Prime | | Subprime | | Prime | | Subprime | | Prime | | Subprime | | Prime | | Subprime | | Grand total |
Current - 30 days past due | $ | 3,278 | | | $ | 2,362 | | | $ | 1,288 | | | $ | 742 | | | $ | 122 | | | $ | 45 | | | $ | 4,688 | | | $ | 3,149 | | | $ | 7,837 | |
31 - 60 days past due | 21 | | | 34 | | | 9 | | | 13 | | | 1 | | | 1 | | | 31 | | | 48 | | | 79 | |
61 - 90 days past due | 9 | | | 18 | | | 4 | | | 7 | | | — | | | — | | | 13 | | | 25 | | | 38 | |
More than 90 days past due | 9 | | | 17 | | | 5 | | | 9 | | | 1 | | | 2 | | | 15 | | | 28 | | | 43 | |
EIP receivables, net of unamortized imputed discount | $ | 3,317 | | | $ | 2,431 | | | $ | 1,306 | | | $ | 771 | | | $ | 124 | | | $ | 48 | | | $ | 4,747 | | | $ | 3,250 | | | $ | 7,997 | |
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We estimate credit losses on our EIP receivables segment by applying an expected credit loss model, which relies on historical loss data adjusted for current conditions to calculate default probabilities or an estimate for the frequency of customer default. Our assessment of default probabilities or frequency includes receivables delinquency status, historical loss experience, how long the receivables have been outstanding and 2016, respectively.customer credit ratings, as well as customer tenure. We multiply these estimated default probabilities by our estimated loss given default, which is the estimated amount or severity of the default loss after adjusting for estimated recoveries.
As we do for our accounts receivable portfolio segment, we consider the need to adjust our estimate of credit losses on EIP receivables for reasonable and supportable forecasts of economic conditions through monitoring external forecasts and periodic internal statistical analyses.
Activity for the years ended December 31, 2017, 2016,2022, 2021 and 2015,2020, in the allowance for credit losses and unamortized imputed discount balances for the accounts receivable and EIP receivablereceivables segments were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 | | December 31, 2020 |
(in millions) | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total | | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total |
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Allowance for credit losses and imputed discount, beginning of period | $ | 146 | | | $ | 630 | | | $ | 776 | | | $ | 194 | | | $ | 605 | | | $ | 799 | | | $ | 61 | | | $ | 399 | | | $ | 460 | |
Beginning balance adjustment due to implementation of the new credit loss standard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 91 | | | 91 | |
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Bad debt expense | 433 | | | 593 | | | 1,026 | | | 231 | | | 221 | | | 452 | | | 338 | | | 264 | | | 602 | |
Write-offs, net of recoveries | (412) | | | (518) | | | (930) | | | (279) | | | (248) | | | (527) | | | (205) | | | (175) | | | (380) | |
Change in imputed discount on short-term and long-term EIP receivables | N/A | | 262 | | | 262 | | | N/A | | 187 | | | 187 | | | N/A | | 171 | | | 171 | |
Impact on the imputed discount from sales of EIP receivables | N/A | | (156) | | | (156) | | | N/A | | (135) | | | (135) | | | N/A | | (145) | | | (145) | |
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Allowance for credit losses and imputed discount, end of period | $ | 167 | | | $ | 811 | | | $ | 978 | | | $ | 146 | | | $ | 630 | | | $ | 776 | | | $ | 194 | | | $ | 605 | | | $ | 799 | |
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| December 31, 2017 | | December 31, 2016 | | December 31, 2015 |
(in millions) | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total | | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total | | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total |
Allowance for credit losses and imputed discount, beginning of period | $ | 102 |
| | $ | 316 |
| | $ | 418 |
| | $ | 116 |
| | $ | 333 |
| | $ | 449 |
| | $ | 83 |
| | $ | 448 |
| | $ | 531 |
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Bad debt expense | 104 |
| | 284 |
| | 388 |
| | 227 |
| | 250 |
| | 477 |
| | 182 |
| | 365 |
| | 547 |
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Write-offs, net of recoveries | (120 | ) | | (273 | ) | | (393 | ) | | (241 | ) | | (277 | ) | | (518 | ) | | (149 | ) | | (333 | ) | | (482 | ) |
Change in imputed discount on short-term and long-term EIP receivables | N/A |
| | 252 |
| | 252 |
| | N/A |
| | 186 |
| | 186 |
| | N/A |
| | (84 | ) | | (84 | ) |
Impact on the imputed discount from sales of EIP receivables | N/A |
| | (183 | ) | | (183 | ) | | N/A |
| | (176 | ) | | (176 | ) | | N/A |
| | (63 | ) | | (63 | ) |
Allowance for credit losses and imputed discount, end of period | $ | 86 |
| | $ | 396 |
| | $ | 482 |
| | $ | 102 |
| | $ | 316 |
| | $ | 418 |
| | $ | 116 |
| | $ | 333 |
| | $ | 449 |
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Credit loss activity increased during 2022, as activity normalized relative to muted Pandemic levels in 2021 and other macroeconomic trends contributed to adverse scenarios and presented additional uncertainty due to, for example, the potential effects associated with higher inflation, rising interest rates and changes in the Federal Reserve’s monetary policy, as well as geopolitical risks, including the war in Ukraine.
Management considersOff-Balance-Sheet Credit Exposures
We do not have material off-balance-sheet credit exposures as of December 31, 2022. In connection with the agingsales of receivablescertain service and EIP accounts receivable pursuant to be an important credit indicator. The following table provides delinquency status for the EIP portfolio segmentsale arrangements, we have deferred purchase price assets included on our Consolidated Balance Sheets measured at fair value that are based on a gross basis, which we actively monitor as part of our currentdiscounted cash flow model using Level 3 inputs, including customer default rates and credit risk management practicesworthiness, dilutions and policies:
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| December 31, 2017 | | December 31, 2016 |
(in millions) | Prime | | Subprime | | Total EIP Receivables, gross | | Prime | | Subprime | | Total EIP Receivables, gross |
Current - 30 days past due | $ | 1,727 |
| | $ | 2,133 |
| | $ | 3,860 |
| | $ | 1,375 |
| | $ | 1,735 |
| | $ | 3,110 |
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31 - 60 days past due | 17 |
| | 29 |
| | 46 |
| | 27 |
| | 38 |
| | 65 |
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61 - 90 days past due | 6 |
| | 16 |
| | 22 |
| | 7 |
| | 16 |
| | 23 |
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More than 90 days past due | 8 |
| | 24 |
| | 32 |
| | 10 |
| | 22 |
| | 32 |
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Total receivables, gross | $ | 1,758 |
| | $ | 2,202 |
| | $ | 3,960 |
| | $ | 1,419 |
| | $ | 1,811 |
| | $ | 3,230 |
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Note 34 – Sales of Certain Receivables for further information.
Note 4 – Sales of Certain Receivables
We have enteredregularly enter into transactions to sell certain service accounts receivable and EIP accounts receivables. The transactions, including our continuing involvement with the sold receivables and the respective impacts to our consolidated financial statements, are described below.
Sales of Service Receivables
Overview of the Transaction
In 2014, we entered into an arrangement to sell certain service accounts receivables on a revolving basis and in November 2016, the arrangement was amended to increase the maximum funding commitment to $950 million (the “service receivable sale arrangement”) and extend the scheduled expiration date to March 2018. In February 2018, the service receivable sale arrangement was again amended to extend the scheduled expiration date to March 2019. As of December 31, 2017 and 2016, the service receivable sale arrangement provided funding of $880 million and $907 million, respectively. Sales of receivables occur daily and are settled on a monthly basis. The receivables consist of service charges currently due from customers and are short-term in nature.
In connection with the service receivable sale arrangement, we formed a wholly-owned subsidiary, which qualifies as a bankruptcy remote entity, to sell service accounts receivables (the “Service BRE”). The Service BRE does not qualify as a VIE, and due to the significant level of control we exercise over the entity, it is consolidated. Pursuant to the arrangement, certain of our wholly-owned subsidiaries transfer selected receivables to the Service BRE. The Service BRE then sells the receivables to an unaffiliated entity (the “Service VIE”), which was established to facilitate the sale of beneficial ownership interests in the receivables to certain third parties.
Variable Interest Entity
We determined that the Service VIE qualifies as a VIE as it lacks sufficient equity to finance its activities. We have a variable interest in the Service VIE, but are not the primary beneficiary as we lack the power to direct the activities that most significantly impact the Service VIE’s economic performance. Those activities include committing the Service VIE to legal agreements to purchase or sell assets, selecting which receivables are purchased in the service receivable sale arrangement, determining whether the Service VIE will sell interests in the purchased service receivables to other parties, funding of the entity and servicing of receivables. We do not hold the power to direct the key decisions underlying these activities. For example, while we act as the servicer of the sold receivables, which is considered a significant activity of the Service VIE, we are acting as an agent in our capacity as the servicer and the counterparty to the service receivable sale arrangement has the ability to remove us as the servicing agent of the receivables at will with no recourse available to us. As we have determined we are not the primary beneficiary, the balances and results of the Service VIE are not included in our consolidated financial statements.
The following table summarizes the carrying amounts and classification of assets, which consists primarily of the deferred purchase price and liabilities included in our Consolidated Balance Sheets that relate to our variable interest in the Service VIE:
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(in millions) | December 31, 2017 | | December 31, 2016 |
Other current assets | $ | 236 |
| | $ | 207 |
|
Accounts payable and accrued liabilities | 25 |
| | 17 |
|
Other current liabilities | 180 |
| | 129 |
|
Sales of EIP Receivables
Overview of the Transaction
In 2015, we entered into an arrangement to sell certain EIP accounts receivables on a revolving basis and in August 2017,(the “EIP sale arrangement”). The maximum funding commitment of the EIP sale arrangement was amended to reduce the maximum funding commitment to $1.2 billion (the “EIP sale arrangement”) and extendis $1.3 billion. On November 2, 2022, we extended the scheduled expiration date to November 2018. In December 2017,of the EIP sale arrangement was again amended to increase the maximum funding commitment to $1.3 billion. November 18, 2023.
As of both December 31, 20172022 and 2016,2021, the EIP sale arrangement provided funding of $1.3 billion and $1.2 billion, respectively.billion. Sales of EIP receivables occur daily and are settled on a monthly basis. The receivables consist of customer EIP balances, which require monthly customer payments for up to 24 months.
In connection with this EIP sale arrangement, we formed a wholly-ownedwholly owned subsidiary, which qualifies as a bankruptcy remote entity (the “EIP BRE”). Pursuant to the EIP sale arrangement, our wholly-owned subsidiary transfers selected receivables are transferred to the EIP BRE. The EIP BRE then sells the receivables to a non-consolidated and unaffiliated third-party entity forover which we do not exercise any level
of control, nor does the third-party entity qualify as a VIE.
Variable Interest Entity
We determined that the EIP BRE is a VIE as its equity investment at risk lacks the obligation to absorb a certain portion of its expected losses. We have a variable interest in the EIP BRE and have determined that we are the primary beneficiary based on our ability to direct the activities which most significantly impact the EIP BRE’s economic performance. Those activities include selecting which receivables are transferred into the EIP BRE and sold in the EIP sale arrangement and funding of the EIP BRE. Additionally, our equity interest in the EIP BRE obligates us to absorb losses and gives us the right to receive benefits from the EIP BRE that could potentially be significant to the EIP BRE. Accordingly, we determined that we are the primary beneficiary, and include the balances and results of operations of the EIP BRE inon our consolidated financial statements.
The following table summarizes the carrying amounts and classification of assets, which consistsconsist primarily of the deferred purchase price, and liabilities included inon our Consolidated Balance Sheets that relate with respect to the EIP BRE: | | | | | | | | | | | |
(in millions) | December 31, 2022 | | December 31, 2021 |
Other current assets | $ | 344 | | | $ | 424 | |
Other assets | 136 | | | 125 | |
| | | |
|
| | | | | | | |
(in millions) | December 31, 2017 | | December 31, 2016 |
Other current assets | $ | 403 |
| | $ | 371 |
|
Other assets | 109 |
| | 83 |
|
Other long-term liabilities | 3 |
| | 4 |
|
In addition, the EIP BRE is a separate legal entity with its own separate creditors who will be entitled, prior to any liquidation of the EIP BRE, to be satisfied prior to any value in the EIP BRE becoming available to us. Accordingly, the assets of the EIP BRE may not be used to settle our general obligations and creditors of the EIP BRE have limited recourse to our general credit.
Sales of Service Accounts Receivable
Overview of the Transaction
In 2014, we entered into an arrangement to sell certain service accounts receivable on a revolving basis (the “service receivable sale arrangement”). The maximum funding commitment of the service receivable sale arrangement is $950 million and the facility expires in February 2023. As of both December 31, 2022 and 2021, the service receivable sale arrangement provided funding of $775 million. Sales of receivables occur daily and are settled on a monthly basis. The receivables consist of service charges currently due from customers and are short-term in nature.
In connection with the service receivable sale arrangement, we formed a wholly owned subsidiary, which qualifies as a bankruptcy remote entity, to sell service accounts receivable (the “Service BRE”).
Pursuant to the service receivable sale arrangement, selected receivables are transferred to the Service BRE. The Service BRE then sells the receivables to a non-consolidated and unaffiliated third party entity over which we do not exercise any level of control, nor does the third party qualify as a VIE.
Variable Interest Entity
Prior to the March 2021 amendment of the service receivable sale arrangement, the Service BRE did not qualify as a VIE, but due to the significant level of control we exercised over the entity, it was consolidated.
In March 2021, the amendment to the service receivable sale arrangement triggered a VIE reassessment, and we determined that the Service BRE now qualifies as a VIE. We have a variable interest in the Service BRE and have determined that we are the primary beneficiary based on our ability to direct the activities that most significantly impact the Service BRE’s economic performance. Those activities include selecting which receivables are transferred into the Service BRE and sold in the service receivable sale arrangement and funding the Service BRE. Additionally, our equity interest in the Service BRE obligates us to absorb losses and gives us the right to receive benefits from the Service BRE that could potentially be significant to the Service BRE. Accordingly, we include the balances and results of operations of the Service BRE on our consolidated financial statements.
The following table summarizes the carrying amounts and classification of assets, which consist primarily of the deferred purchase price, and liabilities included on our Consolidated Balance Sheets with respect to the Service BRE: | | | | | | | | | | | |
(in millions) | December 31, 2022 | | December 31, 2021 |
Other current assets | $ | 214 | | | $ | 231 | |
| | | |
Other current liabilities | 389 | | | 348 | |
In addition, the Service BRE is a separate legal entity with its own separate creditors who will be entitled, prior to any liquidation of the Service BRE, to be satisfied prior to any value in the Service BRE becoming available to us. Accordingly, the assets of the Service BRE may not be used to settle our general obligations, and creditors of the Service BRE have limited recourse to our general credit.
SalesSpectrum Licenses
Spectrum licenses are carried at costs incurred to acquire the spectrum licenses and the costs to prepare the spectrum licenses for their intended use, such as costs to clear acquired spectrum licenses. The FCC issues spectrum licenses which provide us with the exclusive right to utilize designated radio frequency spectrum within specific geographic service areas to provide wireless communications services. Spectrum licenses are issued for a fixed period of Receivablestime, typically up to 15 years; however, the FCC has granted license renewals routinely and at a nominal cost. The spectrum licenses acquired expire at various dates and we believe we will be able to meet all requirements necessary to secure renewal of our spectrum licenses at a nominal cost. Moreover, we determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our spectrum licenses. The utility of radio frequency spectrum does not diminish while activated on our network nor does it otherwise deteriorate over time. Therefore, we determined the spectrum licenses should be treated as indefinite-lived intangible assets.
At times, we enter into agreements to sell or exchange spectrum licenses. Upon entering into the arrangement, if the transaction has been deemed to have commercial substance, spectrum licenses are reviewed for impairment. The licenses are transferred at their carrying value, as adjusted for any impairment recognized, to assets held for sale, which is included in Other current assets on our Consolidated Balance Sheets until approval and completion of the exchange or sale. Upon closing of the transaction, spectrum licenses acquired as part of an exchange of nonmonetary assets are recorded at fair value and the difference between the fair value of the spectrum licenses obtained, carrying value of the spectrum licenses transferred and cash paid, if any, is recognized as a gain or loss on disposal of spectrum licenses included in Selling, general and administrative expenses on our Consolidated Statements of Comprehensive Income. Our fair value estimates of spectrum licenses are based on information for which there is little or no observable market data. If the transaction lacks commercial substance or the fair value is not measurable, the acquired spectrum licenses are recorded at our carrying value of the spectrum assets transferred or exchanged.
The transfersspectrum licenses we hold plus the spectrum leases enhance the overall value of our spectrum licenses as the collective value is higher than the value of individual bands of spectrum within a specific geography. This value is derived from the ability to provide wireless service receivablesto customers across large geographic areas and maintain the same or similar wireless connectivity quality. This enhanced value from combining owned and leased spectrum licenses is referred to as an aggregation premium.
The aggregation premium is a component of the overall fair value of our owned FCC spectrum licenses, which are recorded as indefinite-lived intangible assets.
Impairment
We assess the carrying value of our goodwill and other indefinite-lived intangible assets, such as our spectrum license portfolio, for potential impairment annually as of December 31 or more frequently, if events or changes in circumstances indicate such assets might be impaired.
We test goodwill on a reporting unit basis by comparing the estimated fair value of the reporting unit to its book value. If the fair value exceeds the book value, then no impairment is measured. As of December 31, 2022, we have identified one reporting
unit for which discrete financial information is available and results are regularly reviewed by management: wireless. The wireless reporting unit consists of all the assets and liabilities of T-Mobile US, Inc.
When assessing goodwill for impairment we may elect to first perform a qualitative assessment to determine if the quantitative impairment test is necessary. If we do not perform a qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we perform a quantitative test. We recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. In 2022, we employed a qualitative approach to assess the wireless reporting unit. The fair value of the wireless reporting unit is determined using a market approach, which is based on market capitalization. We recognize market capitalization is subject to volatility and will monitor changes in market capitalization to determine whether declines, if any, necessitate an interim impairment review. In the event market capitalization does decline below its book value, we will consider the length, severity and reasons for the decline when assessing whether potential impairment exists, including considering whether a control premium should be added to the market capitalization. We believe short-term fluctuations in share price may not necessarily reflect the underlying aggregate fair value. No events or change in circumstances have occurred that indicate the fair value of the wireless reporting unit may be below its carrying amount at December 31, 2022.
We test our spectrum licenses for impairment on an aggregate basis, consistent with our management of the overall business at a national level. We may elect to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of an intangible asset is less than its carrying value. If we do not perform the qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of the intangible asset is less than its carrying amount, we calculate the estimated fair value of the intangible asset. If the estimated fair value of the spectrum licenses is lower than their carrying amount, an impairment loss is recognized for the difference. In 2022, we employed the qualitative method.
We estimate fair value of spectrum licenses using the Greenfield methodology. The Greenfield methodology values the spectrum licenses by calculating the cash flow generating potential of a hypothetical start-up company that goes into business with no assets except for the asset to be valued (in this case, spectrum licenses) and makes investments required to build an operation comparable to current use. The value of the spectrum licenses can be considered as equal to the present value of the cash flows of this hypothetical start-up company. We base the assumptions underlying the Greenfield methodology on a combination of market participant data and our historical results, trends and business plans. Future cash flows in the Greenfield methodology are based on estimates and assumptions of market participant revenues, EBITDA margin, network build-out period and a long-term growth rate for a market participant. The cash flows are discounted using a weighted-average cost of capital. No events or change in circumstances have occurred that indicate the fair value of the Spectrum licenses may be below their carrying amount at December 31, 2022.
The valuation approaches utilized to estimate fair value for the purposes of the impairment tests of goodwill and spectrum licenses require the use of assumptions and estimates, which involve a degree of uncertainty. If actual results or future expectations are not consistent with the assumptions used in our estimate of fair value, it may result in the recording of significant impairment charges on goodwill or spectrum licenses. The most significant assumptions within the valuation models are the discount rate, revenues, EBITDA margins, capital expenditures and long-term growth rate.
Fair Value Measurements
We carry certain assets and liabilities at fair value. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs based on the observability as of the measurement date, is as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities;
Level 2 Observable inputs other than the quoted prices in active markets for identical assets and liabilities; and
Level 3 Unobservable inputs for which there is little or no market data, which require us to develop assumptions of what market participants would use in pricing the asset or liability.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities being measured within the fair value hierarchy.
The carrying values of Cash and cash equivalents, Accounts receivable, Accounts receivable from affiliates and Accounts payable and accrued liabilities approximate fair value due to the short-term maturities of these instruments. The carrying values of EIP receivables approximate fair value as the receivables are recorded at their present value using an imputed interest rate. With the exception of certain long-term fixed-rate debt, there were no financial instruments with a carrying value materially different from their fair value. See Note 7 – Fair Value Measurements for a comparison of the carrying values and fair values of our short-term and long-term debt.
Derivative Financial Instruments
Derivative financial instruments are recognized as either assets or liabilities and are measured at fair value. We do not use derivatives for trading or speculative purposes.
For derivative instruments designated as cash flow hedges associated with forecasted debt issuances, changes in fair value are reported as a component of Accumulated other comprehensive loss until reclassified into Interest expense, net in the same period the hedged transaction affects earnings. Unrealized gains on derivatives designated in qualifying cash flow hedge relationships are recorded at fair value as assets, and unrealized losses are recorded at fair value as liabilities.
We did not have any significant derivative instruments outstanding as of December 31, 2022 or 2021.
Revenue Recognition
We primarily generate our revenue from providing wireless communications services and selling or leasing devices and accessories to customers. Our contracts with customers may involve more than one performance obligation, which include wireless services, wireless devices or a combination thereof, and we allocate the transaction price between each performance obligation based on its relative standalone selling price.
Wireless Communications Services Revenue
We generate our wireless communications services revenues from providing access to, and usage of, our wireless communications network. Service revenues also include revenues earned for providing premium services to customers, such as device insurance services. Service contracts are billed monthly either in advance or arrears, or are prepaid. Generally, service revenue is recognized as we satisfy our performance obligation to transfer service to our customers. We typically satisfy our stand-ready performance obligations, including unlimited wireless services, evenly over the contract term. For usage-based and prepaid wireless services, we satisfy our performance obligations when services are rendered.
The enforceable duration of our contracts with customers is typically one month. However, promotional EIP bill credits offered to a customer on an equipment sale that are paid over time and are contingent on the customer maintaining a service contract may result in an extended service contract based on whether a substantive penalty is deemed to exist.
Revenue is recorded net of costs paid to another party for performance obligations where we arrange for the other party to transfer goods or services to the non-consolidated entitiescustomer (i.e., when we are acting as an agent). For example, performance obligations relating to services provided by third-party content providers where we neither control a right to the content provider’s service nor control the underlying service itself are presented net because we are acting as an agent.
Consideration payable to a customer is treated as a reduction of the total transaction price, unless the payment is in exchange for a distinct good or service, such as certain commissions paid to dealers, in which case the payment is treated as a purchase of that distinct good or service.
Federal Universal Service Fund (“USF”) and state USF are assessed by various governmental authorities in connection with the services we provide to our customers and are included in Cost of services. When we separately bill and collect these regulatory fees from customers, they are recorded gross in Total service revenues on our Consolidated Statements of Comprehensive Income. For the years ended December 31, 2022, 2021 and 2020, we recorded approximately $185 million, $216 million and $267 million, respectively, of USF fees on a gross basis.
We have made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer (e.g., sales, use, value added, and some excise taxes).
Wireline Revenue
Performance obligations related to our Wireline customers include the provision of domestic and international data communications services. Wireline revenues are included in Other service revenues on our Consolidated Statements of Comprehensive Income.
Equipment Revenues
We generate equipment revenues from the sale or lease of mobile communication devices and accessories. Equipment revenues related to device and accessory sales are typically recognized at a point in time when control of the device or accessory is transferred to the customer or dealer. We have elected to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities instead of assessing such activities as performance obligations. We estimate variable consideration (e.g., device returns or certain payments to indirect dealers) primarily based on historical experience. Equipment sales not probable of collection are generally recorded as payments are received. Our assessment of collectibility considers contract terms such as down payments that reduce our exposure to credit risk.
We offer certain customers the option to pay for devices and accessories in installments using an EIP. Generally, we recognize as a reduction of the total transaction price the effects of a financing component in contracts where customers purchase their devices and accessories on an EIP with a term of more than one year, including those financing components that are not considered to be significant to the contract. However, we have elected the practical expedient of not recognizing the effects of a significant financing component for contracts where we expect, at contract inception, that the period between the transfer of a performance obligation to a customer and the customer’s payment for that performance obligation will be one year or less.
Our Leasing Programs allow customers to lease a device over a period of up to 18 months and upgrade the device with a new device when eligibility requirements are met. To date, substantially all of our leased wireless devices are accounted for as operating leases and estimated contract consideration is allocated between lease and non-lease elements (such as service and equipment performance obligations) based on the relative standalone selling price of each performance obligation in the contract. Lease revenues are recorded as equipment revenues and recognized as earned on a straight-line basis over the lease term. Lease revenues on contracts not probable of collection are limited to the amount of payments received. See “Property and Equipment” above for further information.
Imputed Interest on EIP Receivables
For EIP greater than 12 months, we record the effects of financing on all EIP receivables regardless of whether or not the financing is considered to be significant. The imputation of interest results in a discount of the EIP receivable, thereby adjusting the transaction price of the contract with the customer, which is then allocated to the performance obligations of the arrangement.
For transactions where we recognize a significant financing component, judgment is required to determine the discount rate. For EIP sales, the discount rate used to adjust the transaction price primarily reflects current market interest rates and the estimated credit risk of financial assets. Oncethe customer. Customer credit behavior is inherently uncertain. See “Receivables and Allowance for Credit Losses” above, for additional discussion on how we assess credit risk.
For receivables associated with an end service customer in which the sale of the device was not directly to the end customer (sell-in model or devices sourced directly from OEM), the effect of imputing interest is recognized as a reduction to service revenue over the service contract period. In these transactions, the provision of wireless communications services is the only performance obligation as the device sale was recognized when transferred to the dealer.
Contract Balances
Generally, our devices and service plans are available at standard prices, which are maintained on price lists and published on our website and/or within our retail stores.
For contracts that involve more than one product or service that are identified for sale,as separate performance obligations, the receivabletransaction price is allocated to the performance obligations based on their relative standalone selling prices. The standalone selling price is the price at which we would sell the good or service separately to a customer and is most commonly evidenced by the price at which we sell that good or service separately in similar circumstances and to similar customers.
A contract asset is recorded atwhen revenue is recognized in advance of our right to receive consideration (i.e., we must perform additional services in order to receive consideration). Amounts are recorded as receivables when our right to consideration is unconditional. When consideration is received, or we have an unconditional right to consideration in advance of delivery of goods or services, a contract liability is recorded. The transaction price can include non-refundable upfront fees, which are allocated to the loweridentifiable performance obligations.
Contract assets are included in Other current assets and Other assets and contract liabilities are included in Deferred revenue on our Consolidated Balance Sheets. See Note 10 – Revenue from Contracts with Customers for further information.
Contract Modifications
Our service contracts allow customers to frequently modify their contracts without incurring penalties, in many cases. Each time a contract is modified, we evaluate the change in scope or price of costthe contract to determine if the modification should be treated as a separate contract, as if there is a termination of the existing contract and creation of a new contract, or fair value. Upon sale,if the modification should be considered a change associated with the existing contract. We typically do not have significant impacts from contract modifications.
Contract Costs
We incur certain incremental costs to obtain a contract that we derecognizeexpect to recover, such as sales commissions. We record an asset when these incremental costs to obtain a contract are incurred and amortize them on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates.
We capitalize postpaid sales commissions for service activation as costs to acquire a contract and amortize them on a straight-line basis over the estimated period of benefit, currently 24 months. For capitalized contract costs, determining the amortization period over which such costs are recognized as well as assessing the indicators of impairment may require judgment. Prepaid commissions are expensed as incurred as their estimated period of benefit does not extend beyond 12 months. Commissions paid upon device upgrade are not capitalized if the remaining customer contract is less than one year. Commissions paid when the customer has a lease are treated as initial direct costs and recognized over the lease term.
Incremental costs to obtain equipment contracts (e.g., commissions paid on device and accessory sales) are recognized when the equipment is transferred to the customer. See Note 10 – Revenue from Contracts with Customers for further information.
Leases
Cell Site, Retail Store and Office Facility Leases
We are a lessee for non-cancelable operating and financing leases for cell sites, switch sites, retail stores, network equipment, office facilities and dark fiber. We recognize a right-of-use asset and lease liability for operating leases based on the net carrying amountpresent value of future minimum lease payments. The right-of-use asset for an operating lease is based on the lease liability. Lease expense is recognized on a straight-line basis over the non-cancelable lease term and renewal periods that are considered reasonably certain.
In addition, we have financing leases for certain network equipment. We recognize a right-of-use asset and lease liability for financing leases based on the net present value of future minimum lease payments. The right-of-use asset for a finance lease is based on the lease liability. Expense for our financing leases is comprised of the receivables. amortization expense associated with the right-of-use asset and interest expense recognized based on the effective interest method.
We recognizeconsider several factors in assessing whether renewal periods are reasonably certain of being exercised, including the continued maturation of our nationwide network, technological advances within the telecommunications industry and the availability of alternative sites. We have concluded we are not reasonably certain to exercise the options to extend or terminate our leases. Therefore, as of the lease commencement date, our lease terms generally do not include these options. We include options to extend or terminate a lease when we are reasonably certain that we will exercise that option.
In determining the discount rate used to measure the right-of-use asset and lease liability, we use rates implicit in the lease, or if not readily available, we use our incremental borrowing rate. Our incremental borrowing rate is based on an estimated secured rate comprised of a risk-free rate plus a credit spread as secured by our assets. Determining a credit spread as secured by our assets may require significant judgment.
Certain of our lease agreements include rental payments based on changes in the consumer price index (“CPI”). Lease liabilities are not remeasured as a result of changes in the CPI; instead, changes in the CPI are treated as variable lease payments and are excluded from the measurement of the right-of-use asset and lease liability. These payments are recognized in the period in which the related obligation is incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Generally, we elected the practical expedient to not separate lease and non-lease components in arrangements where we are the lessee. For arrangements in which we are the lessor of wireless handset devices, we did not elect this practical expedient. We did not elect the short-term lease recognition exemption; as such, leases with terms shorter than 12 months are included as a right-of-use asset and lease liability.
Rental revenues and expenses associated with co-location tower sites are presented on a net cashbasis under Topic 842. See Note 18 – Leases for further information.
Cell Tower Monetization Transactions
In 2012, we entered into a prepaid master lease arrangement in which we as the lessor provided the rights to utilize tower sites and we leased back space on certain of those towers.Prior to the Merger, Sprint entered into a similar lease-out and leaseback arrangement that we assumed in the Merger.
These arrangements are treated as failed sale leasebacks in which the proceeds received are reported as a financing obligation. The principal payments on the tower obligations are included in Other, net within Net cash provided by operating(used in) financing activities inon our Consolidated Statements of Cash Flows.Our historical tower site asset costs are reported in Property and equipment, net on our Consolidated Balance Sheets and are depreciated. See Note 9 – Tower Obligations for further information.
The proceeds are net ofSprint Retirement Pension Plan
Through the deferred purchase price, consisting ofMerger, we acquired the assets and assumed the liabilities associated with the Sprint Retirement Pension Plan (the “Pension Plan”), which is a receivable from the purchasers that entitles usdefined benefit pension plan providing post-retirement benefits to certain collections onemployees. As of December 31, 2005, the receivables. We recognizePension Plan was amended to freeze benefit plan accruals for participants.
The investments in the collection of the deferred purchase price in Net cash provided by operating activities as it is dependent on collection of the customer receivables and is not subject to significant interest rate risk. The deferred purchase price represents a financial asset that is primarily tied to the creditworthiness of the customers and which can be settled in such a way that we may not recover substantially all of our recorded investment, due to default by the customers on the underlying receivables. We elected, at inception, to measure the deferred purchase pricePension Plan are measured at fair value on a recurring basis each quarter using quoted market prices or the net asset value per share as a practical expedient. The projected benefit obligations associated with changes in fair valuethe Pension Plan are determined based on actuarial models utilizing mortality tables and discount rates applied to the expected benefit term. See Note 11 – Employee Compensation and Benefit Plans for further information on the Pension Plan.
Advertising Expense
We expense the cost of advertising and other promotional expenditures to market our services and products as incurred. For the years ended December 31, 2022, 2021 and 2020, advertising expenses included in Selling, general and administrative expenses on our Consolidated Statements of Comprehensive Income were $2.3 billion, $2.2 billion and $1.8 billion, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized based on temporary differences between the consolidated financial statements and tax bases of assets and liabilities using enacted tax rates expected to be in effect when these differences are realized. A valuation allowance is recorded when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of a deferred tax asset depends on the ability to generate sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions within the carryforward periods available.
We account for uncertainty in income taxes recognized on our consolidated financial statements in accordance with the accounting guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return. We assess whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position and adjust the unrecognized tax benefits in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) consists of adjustments, net of tax, related to reclassification of loss from cash flow hedges, foreign currency translation and pension and other postretirement benefits. This is reported in Accumulated other comprehensive loss as a separate component of stockholders’ equity until realized in earnings.
Stock-Based Compensation
Stock-based compensation expense for stock awards, which include restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”), is measured at fair value on the grant date and recognized as expense, net of expected forfeitures, over the related service period. The fair value of stock awards is based on the closing price of our common stock on the date of grant. RSUs are recognized as expense using the straight-line method. PRSUs are recognized as expense following a graded vesting schedule with their performance re-assessed and updated on a quarterly basis, or more frequently as changes in facts and circumstances warrant.
Share Repurchases
On September 8, 2022, our Board of Directors authorized a stock repurchase program for up to $14.0 billion of our common stock through September 30, 2023 (the “2022 Stock Repurchase Program”). The cost of repurchased shares, including equity reacquisition costs, is included in Treasury stock on our Consolidated Balance Sheets. We accrue the cost of repurchased shares, and exclude such shares from the calculation of basic and diluted earnings per share, as of the trade date. We recognize a liability for share repurchases which have not settled and for which cash has not been paid in Other current liabilities on our Consolidated Balance Sheets. Cash payments to reacquire our shares, including equity reacquisition costs, are included in Repurchases of common stock on our Consolidated Statements of Cash Flows. See Note 15 - Repurchases of Common Stock for more information about our 2022 Stock Repurchase Program.
Earnings Per Share
Basic earnings per share is computed by dividing Net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by giving effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of outstanding stock options, RSUs and PRSUs, calculated using the treasury stock method. See Note 17 – Earnings Per Share for further information.
Variable Interest Entities
VIEs are entities that lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, have equity investors that do not have the ability to make significant decisions relating to the entity's operations through voting rights, do not have the obligation to absorb the expected losses or do not have the right to receive the residual returns of the entity. The most common type of VIE is a special purpose entity (“SPE”). SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. SPEs are generally structured to insulate investors from claims on the SPEs’ assets by creditors of other entities, including the creditors of the seller of the assets, these SPEs are commonly referred to as being bankruptcy remote.
The primary beneficiary is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party which has both the power to direct the activities of an entity that most significantly impact the VIE's economic performance, and through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE which could potentially be significant to the VIE. We consolidate VIEs when we are deemed to be the primary beneficiary or when the VIE cannot be deconsolidated. See Note 4 – Sales of Certain Receivables, Note 8 – Debt and Note 9 – Tower Obligations for further information.
In assessing which party is the primary beneficiary, all the facts and circumstances are considered, including each party’s role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE (such as asset managers and
servicers) or have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE.
Device Purchases Cash Flow Presentation
We classify all device purchases, whether acquired for sale or lease, as operating cash outflows as our predominant strategy is to sell devices to customers rather than lease them. See Note 21 – Additional Financial Information for disclosures ofLeased devices transferred from inventory to property and equipment and Returned leased devices transferred from property and equipment to inventory.
Accounting Pronouncements Adopted During the Current Year
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” and has since modified the standard with ASU 2021-01, “Reference Rate Reform (Topic 848): Scope” and ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848” (together, the “reference rate reform standard”). The reference rate reform standard provides temporary optional expedients and allows for certain exceptions to applying existing GAAP for contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued as a result of reference rate reform. The reference rate reform standard is available for adoption through December 31, 2024, and the optional expedients for contract modifications must be elected for all arrangements within a given Accounting Standards Codification (“ASC”) Topic or Industry Subtopic. As of January 1, 2022, we have elected to apply the practical expedients provided by the reference rate reform standard for all ASC Topics and Industry Subtopics related to eligible contract modifications as they occur. This election did not have a material impact on our consolidated financial statements for the year ended December 31, 2022, and the impact of applying the election to future eligible contract modifications that occur through December 31, 2024, is also not expected to be material.
Contract Assets and Contract Liabilities Acquired in a Business Combination
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” The standard amends ASC 805 such that contract assets and contract liabilities acquired in a business combination are added to the list of exceptions to the recognition and measurement principles such that they are recognized and measured in accordance with ASC 606. As of January 1, 2022, we have elected to adopt this standard, and it will be applied prospectively to all business combinations occurring after this date.
Accounting Pronouncements Not Yet Adopted
Troubled Debt Restructurings and Vintage Disclosures
In March 2022, the FASB issued ASU 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The standard eliminates the accounting guidance within ASC 310-40 for troubled debt restructurings by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, for public business entities, the standard requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20. The standard will become effective for us beginning January 1, 2023, and will be applied prospectively, with an option for modified retrospective application for provisions related to recognition and measurement of troubled debt restructurings. Early adoption is permitted for us at any time. We plan to adopt the standard when it becomes effective for us beginning January 1, 2023. We expect the adoption of the standard to impact our disclosure of current period write-offs for certain receivables, but do not expect other updates in the standard to have a material impact on our consolidated financial statements.
Note 2 – Business Combinations
Business Combination Agreement and Amendments
On April 29, 2018, we entered into a Business Combination Agreement with Sprint and the other parties named therein (as amended, the “Business Combination Agreement”) for the Merger. The Business Combination Agreement was subsequently amended to provide that, following the closing of the Merger and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”), SoftBank would indemnify us against certain specified matters and the loss of value arising out of, or resulting from, cessation of access to spectrum under certain circumstances and subject to certain limitations and qualifications.
On February 20, 2020, T-Mobile, SoftBank and Deutsche Telekom AG (“DT”) entered into a letter agreement (the “Letter Agreement”). Pursuant to the Letter Agreement, SoftBank agreed to cause its applicable affiliates to surrender to T-Mobile, for no additional consideration, an aggregate of 48,751,557 shares of T-Mobile common stock (such number of shares, the “SoftBank Specified Shares Amount”), effective immediately following the Effective Time (as defined in the Business Combination Agreement), making SoftBank’s exchange ratio 11.31 shares of Sprint common stock for each share of T-Mobile common stock. This resulted in an effective exchange ratio of approximately 11.00 shares of Sprint common stock for each share of T-Mobile common stock immediately following the closing of the Merger, an increase from the originally agreed 9.75 shares. Sprint stockholders, other than SoftBank, received the original fixed exchange ratio of 0.10256 shares of T-Mobile common stock for each share of Sprint common stock, or the equivalent of approximately 9.75 shares of Sprint common stock for each share of T-Mobile common stock.
The Letter Agreement requires T-Mobile to issue to SoftBank 48,751,557 shares of T-Mobile common stock, subject to the terms and conditions set forth in the Letter Agreement, for no additional consideration, if certain conditions are met. The issuance of these shares is contingent on the trailing 45-day volume-weighted average price per share of T-Mobile common stock on the NASDAQ Global Select Market being equal to or greater than $150.00, at any time during the period commencing on April 1, 2022 and ending on December 31, 2025. If the threshold price is not met, then none of the SoftBank Specified Shares Amount will be issued.
Closing of Sprint Merger
On April 1, 2020, we completed the Merger, and as a result, Sprint and its subsidiaries became wholly owned consolidated subsidiaries of T-Mobile. Sprint was the fourth-largest telecommunications company in the U.S., offering a comprehensive range of wireless and wireline communication products and services. As a combined company, we have been able to rapidly launch a broad and deep nationwide 5G network, accelerate innovation, increase competition in the U.S. wireless and broadband industries and achieve significant synergies and cost reductions by eliminating redundancies within the combined network as well as other business processes and operations.
Upon completion of the Merger, each share of Sprint common stock was exchanged for 0.10256 shares of T-Mobile common stock, or 9.75 shares of Sprint common stock for each share of T-Mobile common stock. After adjustments, including the holdback of the SoftBank Specified Shares Amount and fractional shares, we issued 373,396,310 shares of T-Mobile common stock to Sprint stockholders. The fair value of the T-Mobile common stock provided in exchange for Sprint common stock was approximately $31.3 billion.
Additional components of consideration included the repayment of certain of Sprint’s debt, replacement of equity awards attributable to pre-combination services, contingent consideration and a cash payment received from SoftBank for certain reimbursed Merger expenses.
Immediately following the closing of the Merger and the surrender of the SoftBank Specified Shares Amount, pursuant to the Letter Agreement described above, DT and SoftBank held, directly or indirectly, approximately 43.6% and 24.7%, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 31.7% of the outstanding T-Mobile common stock held by other stockholders. See Note 14 – SoftBank Equity Transaction for ownership details as of December 31, 2022.
Consideration Transferred
The acquisition-date fair value of consideration transferred in the Merger totaled $40.8 billion, comprised of the following: | | | | | |
(in millions) | April 1, 2020 |
Fair value of T-Mobile common stock issued to Sprint stockholders (1) | $ | 31,328 | |
Fair value of T-Mobile replacement equity awards attributable to pre-combination service (2) | 323 | |
Repayment of Sprint’s debt (including accrued interest and prepayment penalties) (3) | 7,396 | |
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Fair value of contingent consideration (4) | 1,882 | |
Payment received from selling stockholder (5) | (102) | |
Total consideration exchanged | $ | 40,827 | |
(1) Represents the fair value of T-Mobile common stock issued to Sprint stockholders pursuant to the Business Combination Agreement, less shares surrendered by SoftBank pursuant to the Letter Agreement. The fair value is based on 373,396,310 shares of T-Mobile common stock issued at an exchange ratio of 0.10256 shares of T-Mobile common stock per share of Sprint common stock, less 48,751,557 T-Mobile shares surrendered by SoftBank which are treated as contingent consideration, and the closing price per share of T-Mobile common stock on NASDAQ on March 31, 2020, of $83.90, as shares were transferred to Sprint stockholders prior to the opening of markets on April 1, 2020.
(2) Equity-based awards held by Sprint employees prior to the acquisition date have been replaced with T-Mobile equity-based awards. The portion of the equity-based awards that relates to services performed by the employee prior to the acquisition date is included within consideration transferred, and includes stock options, restricted stock units and performance-based restricted stock units.
(3) Represents the cash consideration paid concurrent with the close of the Merger to retire certain Sprint debt, as required by change in control provisions of the debt, plus interest and prepayment penalties.
(4) Represents the fair value of the SoftBank Specified Shares Amount contingent consideration that may be issued as set forth in the Letter Agreement.
(5) Represents receipt of a cash payment from SoftBank for certain reimbursed Merger expenses.
The SoftBank Specified Shares Amount was determined to be contingent consideration with an acquisition-date fair value of $1.9 billion. We estimated the fair value using the income approach, a probability-weighted discounted cash flow model, whereby a Monte Carlo simulation method estimated the probability of different outcomes as the likelihood of achieving the 45-day volume-weighted average price threshold is not easily predicted. This fair value measurement is based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement as defined in ASC 820: Fair Value Measurement. The key assumptions in applying the income approach include the estimated future share-price volatility, which was based on historical market trends and the estimated future performance of T-Mobile.
The maximum amount of contingent consideration that could be issued to SoftBank has an estimated value of $7.3 billion, based on SoftBank Specified Shares Amount of 48,751,557 multiplied by the defined volume-weighted average price per share of $150.00. The contingent consideration that could be delivered to SoftBank is classified within equity and is not subject to remeasurement.
Fair Value of Assets Acquired and Liabilities Assumed
We accounted for the Merger as a business combination. The identifiable assets acquired and liabilities assumed of Sprint were recorded at their fair values as of the acquisition date and consolidated with those of T-Mobile. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires the use of significant judgment regarding estimates and assumptions. For the fair values of the assets acquired and liabilities assumed, we used the cost, income and market approaches, including market participant assumptions.
The following table summarizes the fair values for each major class of assets acquired and liabilities assumed at the acquisition date. We retained the services of certified valuation specialists to assist with assigning values to certain acquired assets and assumed liabilities.
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(in millions) | April 1, 2020 |
Cash and cash equivalents | $ | 2,084 | |
Accounts receivable | 1,775 | |
Equipment installment plan receivables | 1,088 | |
Inventory | 658 | |
Prepaid expenses | 140 | |
Assets held for sale | 1,908 | |
Other current assets | 637 | |
Property and equipment | 18,435 | |
Operating lease right-of-use assets | 6,583 | |
Financing lease right-of-use assets | 291 | |
Goodwill | 9,423 | |
Spectrum licenses | 45,400 | |
Other intangible assets | 6,280 | |
Equipment installment plan receivables due after one year, net | 247 | |
Other assets (1) | 540 | |
Total assets acquired | 95,489 | |
Accounts payable and accrued liabilities | 5,015 | |
Short-term debt | 2,760 | |
Deferred revenue | 508 | |
Short-term operating lease liabilities | 1,818 | |
Short-term financing lease liabilities | 8 | |
Liabilities held for sale | 475 | |
Other current liabilities | 681 | |
Long-term debt | 29,037 | |
Tower obligations | 950 | |
Deferred tax liabilities | 3,478 | |
Operating lease liabilities | 5,615 | |
Financing lease liabilities | 12 | |
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Other long-term liabilities | 4,305 | |
Total liabilities assumed | 54,662 | |
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Total consideration transferred | $ | 40,827 | |
(1) Included in Other assets acquired is $80 million in restricted cash.
Amounts initially disclosed for the estimated values of certain acquired assets and liabilities assumed were adjusted through March 31, 2021 (the close of the measurement period) based on information arising after the initial valuation.
Intangible Assets and Liabilities
Goodwill with an assigned value of $9.4 billion represents the excess of the consideration transferred over the fair values of assets acquired and liabilities assumed. The goodwill recognized includes synergies expected to be achieved from the operations of the combined company, the assembled workforce of Sprint and intangible assets that do not qualify for separate recognition. Expected synergies from the Merger include the cost savings from the planned integration of network infrastructure, facilities, personnel and systems. None of the goodwill resulting from the Merger is deductible for tax purposes. All of the goodwill acquired is allocated to the wireless reporting unit.
Other intangible assets include $4.9 billion of customer relationships with a weighted-average useful life of eight years and tradenames of $207 million with a useful life of two years. Leased spectrum arrangements that have favorable (asset) and unfavorable (liability) terms compared to current market rates were assigned fair values of $745 million and $125 million, respectively, with 18-year and 19-year weighted-average useful lives, respectively.
The fair value of Spectrum licenses of $45.4 billion was estimated using the income approach, specifically a Greenfield model. This fair value measurement is based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement as defined in ASC 820: Fair Value Measurement. The key assumptions in applying the income approach include the discount rate, estimated market share, estimated capital and operating expenditures, forecasted service revenue and a long-term growth rate for a hypothetical market participant that enters the wireless industry and builds a nationwide wireless network.
Acquired Receivables
The fair value of the assets acquired includes Accounts receivable of $1.8 billion and EIP receivables of $1.3 billion. The UPB under these contracts as of April 1, 2020, the date of the Merger, was $1.8 billion and $1.6 billion, respectively. The difference between the fair value and the UPB primarily represents amounts expected to be uncollectible.
Indemnification Assets and Contingent Liabilities
Pursuant to Amendment No. 2 to the Business Combination Agreement, SoftBank agreed to indemnify us against certain specified matters and losses. As of the acquisition date, we recorded a contingent liability and an offsetting indemnification asset for the expected reimbursement by SoftBank for certain Lifeline matters. The liability is presented in Accounts payable and accrued liabilities, and the indemnification asset is presented in Other current assets within our acquired assets and liabilities at the acquisition date. In November 2020, we entered into a consent decree with the FCC to resolve certain Lifeline matters, which resulted in a payment of $200 million by SoftBank. Final resolution of these matters could require making additional reimbursements and paying additional fines and penalties, which we do not expect to have a significant impact on our financial results. We expect that any additional liabilities related to these matters would be indemnified and reimbursed by SoftBank.
Deferred Taxes
As a result of the Merger, we acquired deferred tax assets for which a valuation allowance reserve is deemed to be necessary, as well as additional uncertain tax benefit reserves. As of the date of the Merger, the amount of the valuation allowance reserve and uncertain tax benefit reserves was $851 million and $660 million, respectively.
Pro Forma Information
The following unaudited pro forma financial information gives effect to the Transactions as if they had been completed on January 1, 2019. The unaudited pro forma information was prepared in accordance with the requirements of ASC 805: Business Combinations, which is a different basis than pro forma information prepared under Article 11 of Regulation S-X (“Article 11”). As such, they are not directly comparable with historical results for stand-alone T-Mobile prior to April 1, 2020, historical results for T-Mobile from April 1, 2020 that reflect the Transactions and are inclusive of the results and operations of Sprint, nor our previously provided pro forma financials prepared in accordance with Article 11. The pro forma results for the years ended December 31, 2020 and 2019 include the impact of several significant nonrecurring pro forma adjustments to previously reported operating results. The pro forma adjustments are based on historically reported transactions by the respective companies. The pro forma results do not include any anticipated synergies or other expected benefits of the acquisition. | | | | | | | | | | | | | | | |
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| Year Ended December 31, | | |
(in millions) | 2020 | | | | 2019 | | |
Total revenues | $ | 74,681 | | | | | $ | 70,607 | | | |
Income from continuing operations | 3,302 | | | | | 185 | | | |
Income from discontinued operations, net of tax | 677 | | | | | 1,594 | | | |
Net income | 3,979 | | | | | 1,792 | | | |
Significant nonrecurring pro forma adjustments include:
•Transaction costs of $559 million that were incurred during the year ended December 31, 2020 are assumed to have occurred on the pro forma close date of January 1, 2019, and are recognized as if incurred in the first quarter of 2019;
•The Prepaid Business divested on July 1, 2020, is assumed to have been classified as discontinued operations as of January 1, 2019, and the related activities are presented in Income from discontinued operations, net of tax;
•Permanent financing issued and debt redemptions occurring in connection with the closing of the Merger are assumed to have occurred on January 1, 2019, and historical interest expense associated with repaid borrowings is removed;
•Tangible and intangible assets are assumed to be recorded at their estimated fair values as of January 1, 2019 and are depreciated or amortized over their estimated useful lives; and
•Accounting policies of Sprint are conformed to those of T-Mobile including depreciation for leased devices, distribution arrangements with Brightstar US, Inc., amortization of costs to acquire a contract and certain tower lease transactions.
The selected unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations would have been had the Transactions actually occurred on January 1, 2019, nor do they purport to project the future consolidated results of operations.
For the periods subsequent to the Merger close date, the acquired Sprint subsidiaries contributed total revenues and operating income of $20.5 billion and $1.3 billion, respectively, for the year ended December 31, 2020, that were included on our Consolidated Statements of Comprehensive Income.
Regulatory Matters
The Transactions were the subject of various legal and regulatory proceedings involving a number of state and federal agencies. In connection with those proceedings and the approval of the Transactions, we have certain commitments and other obligations to various state and federal agencies and certain nongovernmental organizations. See Note 19 – Commitments and Contingencies for further information.
Prepaid Transaction
On July 26, 2019, we entered into the Asset Purchase Agreement with Sprint and DISH, pursuant to which, following the consummation of the Merger, DISH would acquire the Prepaid Business.
On June 17, 2020, T-Mobile, Sprint and DISH entered into the First Amendment to the Asset Purchase Agreement. Pursuant to the First Amendment of the Asset Purchase Agreement, T-Mobile, Sprint and DISH agreed to proceed with the closing of the Prepaid Transaction, in accordance with the Asset Purchase Agreement, on July 1, 2020, subject to the terms and conditions of the Asset Purchase Agreement and the terms and conditions of the Consent Decree.
On July 1, 2020, pursuant to the Asset Purchase Agreement, we completed the Prepaid Transaction. Upon closing of the Prepaid Transaction, we received $1.4 billion from DISH for the Prepaid Business, subject to working capital adjustments. See Note 12 – Discontinued Operations for further information.
Shenandoah Personal Communications Company Affiliate Relationship
Sprint PCS (specifically Sprint Spectrum L.P.) was party to a variety of publicly filed agreements with Shentel, pursuant to which Shentel was the exclusive provider of Sprint PCS’s wireless mobility communications network products in certain parts of Maryland, North Carolina, Virginia, West Virginia, Kentucky, Ohio and Pennsylvania. Pursuant to one such agreement, the Sprint PCS Management Agreement, dated November 5, 1999 (as amended, supplemented and modified from time to time, the “Management Agreement”), Sprint PCS was granted an option to purchase Shentel’s Wireless Assets used to provide services pursuant to the Management Agreement. On August 26, 2020, Sprint, now our indirect subsidiary, on behalf of and as the direct or indirect owner of Sprint PCS, exercised its option by delivering a binding notice of exercise to Shentel.
On May 28, 2021, T-Mobile USA, Inc., a Delaware corporation and our direct wholly owned subsidiary, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Shentel, for the acquisition of the Wireless Assets for an aggregate purchase price of approximately $1.9 billion in cash, subject to certain adjustments prescribed by the Management Agreement and such additional adjustments agreed by the parties.
Closing of Shentel Wireless Assets Acquisition
On July 1, 2021, upon the completion of certain customary conditions, including the receipt of certain regulatory approvals, we closed on the acquisition of the Wireless Assets pursuant to the Purchase Agreement, and as a result, T-Mobile became the legal owner of the Wireless Assets. Through this transaction, we reacquired the exclusive rights to deliver Sprint’s wireless network services in Shentel’s former affiliate territory and simplified our operations. Concurrently, and as agreed to through the Purchase Agreement, T-Mobile and Shentel entered into certain separate transactions, including the effective settlement of the pre-existing arrangements between T-Mobile and Shentel under the Management Agreement.
In exchange, T-Mobile transferred cash of approximately $2.0 billion, approximately $1.9 billion of which was determined to be consideration transferred for the Wireless Assets and the remainder of which was determined to relate to separate transactions, primarily associated with the effective settlement of pre-existing arrangements between T-Mobile and Shentel. Accordingly, these separate transactions are not included in the calculation of the consideration transferred in exchange for the Wireless Assets, and the settlement of pre-existing arrangements between T-Mobile and Shentel did not result in material gains or losses.
Prior to the acquisition of the Wireless Assets, revenues generated from our affiliate relationship with Shentel were presented as Wholesale and other service revenues. Upon the close of the transaction, revenues generated from postpaid customers within the reacquired territory are presented as Postpaid revenues on our Consolidated Statements of Comprehensive Income. The financial results of the Wireless Assets since the closing through December 31, 2021, were not material to our Consolidated Statements of Comprehensive Income, nor were they material to our prior period consolidated results on a pro forma basis.
Fair Value of Assets Acquired and Liabilities Assumed
We accounted for the acquisition of the Wireless Assets as a business combination. The identifiable assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date and consolidated with those of T-Mobile. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires the use of significant judgment regarding estimates and assumptions. For the fair values of the assets acquired and liabilities assumed, we used the cost, income and market approaches, including market participant assumptions.
The following table summarizes the fair values for each major class of assets acquired and liabilities assumed at the acquisition date. We retained the services of certified valuation specialists to assist with assigning values to certain acquired assets and assumed liabilities.
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(in millions) | July 1, 2021 |
Inventory | $ | 2 | |
Property and equipment | 136 | |
Operating lease right-of-use assets | 308 | |
Goodwill | 1,035 | |
Other intangible assets | 770 | |
Other assets | 7 | |
Total assets acquired | 2,258 | |
Short-term operating lease liabilities | 73 | |
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Operating lease liabilities | 264 | |
Other long-term liabilities | 35 | |
Total liabilities assumed | 372 | |
Total consideration transferred | $ | 1,886 | |
Intangible Assets and Liabilities
Goodwill with an assigned value of $1.0 billion, substantially all of which is deductible for tax purposes, represents the anticipated cost savings from the operations of the combined company resulting from the planned integration of network infrastructure and facilities, the assembled workforce hired concurrently with the acquisition of Wireless Assets, and the intangible assets that do not qualify for separate recognition. All of the goodwill acquired is allocated to the wireless reporting unit.
Other intangible assets include $770 million of reacquired rights to provide services in Shentel’s former affiliate territory which is being amortized on a straight-line basis over a useful life of approximately nine years in line with the remaining term of the Management Agreement upon the acquisition of the Wireless Assets, which represents the period of expected economic benefits associated with the reacquisition of such rights. This fair value measurement is based on significant inputs not observable in the market, and therefore, represents a Level 3 measurement as defined in ASC 820. The key assumptions in applying the income approach include forecasted subscriber growth rates, revenue over an estimated period of time, the discount rate, estimated capital expenditures, estimated income taxes and the long-term growth rate, as well as forecasted earnings before interest, taxes, depreciation and amortization (“EBITDA”) margins.
Note 3 – Receivables and Related Allowance for Credit Losses
We maintain an allowance for credit losses by applying an expected credit loss model. Each period, management assesses the appropriateness of the level of allowance for credit losses by considering credit risk inherent within each portfolio segment as of the end of the period.
We consider a receivable past due when a customer has not paid us by the contractually specified payment due date. Account balances are written off against the allowance for credit losses if collection efforts are unsuccessful and the receivable balance is deemed uncollectible (customer default), based on factors such as customer credit ratings as well as the length of time the amounts are past due.
Our portfolio of receivables is comprised of two portfolio segments: accounts receivable and EIP receivables.
Accounts Receivable Portfolio Segment
Accounts receivable balances are predominately comprised of amounts currently due from customers (e.g., for wireless communications services and monthly device lease payments), device insurance administrators, wholesale partners, non-consolidated affiliates, other carriers and third-party retail channels.
We estimate credit losses associated with our accounts receivable portfolio segment using an expected credit loss model, which utilizes an aging schedule methodology based on historical information and adjusted for asset-specific considerations, current economic conditions and reasonable and supportable forecasts.
Our approach considers a number of factors, including our overall historical credit losses, net of recoveries, and payment experience, as well as current collection trends such as write-off frequency and severity. We also consider other qualitative factors such as current and forecasted macroeconomic conditions.
We consider the need to adjust our estimate of credit losses for reasonable and supportable forecasts of future macroeconomic conditions. To do so, we monitor external forecasts of changes in real U.S. gross domestic product and forecasts of consumer credit behavior for comparable credit exposures. We also periodically evaluate other macroeconomic indicators such as unemployment rates to assess their level of correlation with our historical credit loss statistics.
EIP Receivables Portfolio Segment
Based upon customer credit profiles at the time of customer origination, we classify the EIP receivables segment into two customer classes of “Prime” and “Subprime.” Prime customer receivables are those with lower credit risk and Subprime customer receivables are those with higher credit risk. Customers may be required to make a down payment on their equipment purchases if their assessed credit risk exceeds established underwriting thresholds. In addition, certain customers within the Subprime category may be required to pay a deposit.
To determine a customer’s credit profile and assist in determining their credit class, we use a proprietary credit scoring model that measures the credit quality of a customer leveraging several factors, such as credit bureau information and consumer credit risk scores, as well as service and device plan characteristics.
Installment receivables acquired in the Merger are included in EIP receivables. We applied our proprietary credit scoring model to the customers acquired in the Merger with an outstanding EIP receivable balance. Based on tenure, consumer credit risk score and credit profile, these acquired customers were classified into our customer classes of Prime or Subprime. For EIP receivables acquired in the Merger, the difference between the fair value and UPB of the receivable at the acquisition date is accreted to interest income over the contractual life of the receivable using the effective interest method. EIP receivables had a combined weighted-average effective interest rate of 8.0% and 5.6% as of December 31, 2022, and 2021, respectively.
The following table summarizes the EIP receivables, including imputed discounts and related allowance for credit losses: | | | | | | | | | | | |
(in millions) | December 31, 2022 | | December 31, 2021 |
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EIP receivables, gross | $ | 8,480 | | | $ | 8,207 | |
Unamortized imputed discount | (483) | | | (378) | |
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EIP receivables, net of unamortized imputed discount | 7,997 | | | 7,829 | |
Allowance for credit losses | (328) | | | (252) | |
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EIP receivables, net of allowance for credit losses and imputed discount | $ | 7,669 | | | $ | 7,577 | |
Classified on our consolidated balance sheets as: | | | |
Equipment installment plan receivables, net of allowance for credit losses and imputed discount | $ | 5,123 | | | $ | 4,748 | |
Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount | 2,546 | | | 2,829 | |
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EIP receivables, net of allowance for credit losses and imputed discount | $ | 7,669 | | | $ | 7,577 | |
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Many of our loss estimation techniques rely on delinquency-based models; therefore, delinquency is an important indicator of credit quality in the establishment of our allowance for credit losses for EIP receivables. We manage our EIP receivables portfolio segment using delinquency and customer credit class as key credit quality indicators.
The following table presents the amortized cost of our EIP receivables by delinquency status, customer credit class and year of origination as of December 31, 2022:
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| Originated in 2022 | | Originated in 2021 | | Originated prior to 2021 | | Total EIP Receivables, net of unamortized imputed discounts |
(in millions) | Prime | | Subprime | | Prime | | Subprime | | Prime | | Subprime | | Prime | | Subprime | | Grand total |
Current - 30 days past due | $ | 3,278 | | | $ | 2,362 | | | $ | 1,288 | | | $ | 742 | | | $ | 122 | | | $ | 45 | | | $ | 4,688 | | | $ | 3,149 | | | $ | 7,837 | |
31 - 60 days past due | 21 | | | 34 | | | 9 | | | 13 | | | 1 | | | 1 | | | 31 | | | 48 | | | 79 | |
61 - 90 days past due | 9 | | | 18 | | | 4 | | | 7 | | | — | | | — | | | 13 | | | 25 | | | 38 | |
More than 90 days past due | 9 | | | 17 | | | 5 | | | 9 | | | 1 | | | 2 | | | 15 | | | 28 | | | 43 | |
EIP receivables, net of unamortized imputed discount | $ | 3,317 | | | $ | 2,431 | | | $ | 1,306 | | | $ | 771 | | | $ | 124 | | | $ | 48 | | | $ | 4,747 | | | $ | 3,250 | | | $ | 7,997 | |
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We estimate credit losses on our EIP receivables segment by applying an expected credit loss model, which relies on historical loss data adjusted for current conditions to calculate default probabilities or an estimate for the frequency of customer default. Our assessment of default probabilities or frequency includes receivables delinquency status, historical loss experience, how long the receivables have been outstanding and customer credit ratings, as well as customer tenure. We multiply these estimated default probabilities by our estimated loss given default, which is the estimated amount or severity of the default loss after adjusting for estimated recoveries.
As we do for our accounts receivable portfolio segment, we consider the need to adjust our estimate of credit losses on EIP receivables for reasonable and supportable forecasts of economic conditions through monitoring external forecasts and periodic internal statistical analyses.
Activity for the years ended December 31, 2022, 2021 and 2020, in the allowance for credit losses and unamortized imputed discount balances for the accounts receivable and EIP receivables segments were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 | | December 31, 2020 |
(in millions) | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total | | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total |
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Allowance for credit losses and imputed discount, beginning of period | $ | 146 | | | $ | 630 | | | $ | 776 | | | $ | 194 | | | $ | 605 | | | $ | 799 | | | $ | 61 | | | $ | 399 | | | $ | 460 | |
Beginning balance adjustment due to implementation of the new credit loss standard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 91 | | | 91 | |
| | | | | | | | | | | | | | | | | |
Bad debt expense | 433 | | | 593 | | | 1,026 | | | 231 | | | 221 | | | 452 | | | 338 | | | 264 | | | 602 | |
Write-offs, net of recoveries | (412) | | | (518) | | | (930) | | | (279) | | | (248) | | | (527) | | | (205) | | | (175) | | | (380) | |
Change in imputed discount on short-term and long-term EIP receivables | N/A | | 262 | | | 262 | | | N/A | | 187 | | | 187 | | | N/A | | 171 | | | 171 | |
Impact on the imputed discount from sales of EIP receivables | N/A | | (156) | | | (156) | | | N/A | | (135) | | | (135) | | | N/A | | (145) | | | (145) | |
| | | | | | | | | | | | | | | | | |
Allowance for credit losses and imputed discount, end of period | $ | 167 | | | $ | 811 | | | $ | 978 | | | $ | 146 | | | $ | 630 | | | $ | 776 | | | $ | 194 | | | $ | 605 | | | $ | 799 | |
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Credit loss activity increased during 2022, as activity normalized relative to muted Pandemic levels in 2021 and other macroeconomic trends contributed to adverse scenarios and presented additional uncertainty due to, for example, the potential effects associated with higher inflation, rising interest rates and changes in the Federal Reserve’s monetary policy, as well as geopolitical risks, including the war in Ukraine.
Off-Balance-Sheet Credit Exposures
We do not have material off-balance-sheet credit exposures as of December 31, 2022. In connection with the sales of certain service and EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price is determinedassets included on our Consolidated Balance Sheets measured at fair value that are based on a discounted cash flow model which uses primarily unobservableusing Level 3 inputs, (Level 3 inputs), including customer default rates. Asrates and credit worthiness, dilutions and recoveries. See Note 4 – Sales of December 31, 2017 and 2016, our deferred purchase price relatedCertain Receivables for further information.
Note 4 – Sales of Certain Receivables
We regularly enter into transactions to the sales ofsell certain service receivablesaccounts receivable and EIP receivables was $745 million and $659 million, respectively.
receivables. The following table summarizes the impacts of the sale of certain service receivables and EIP receivables intransactions, including ourConsolidated Balance Sheets:
|
| | | | | | | |
(in millions) | December 31, 2017 | | December 31, 2016 |
Derecognized net service receivables and EIP receivables | $ | 2,725 |
| | $ | 2,502 |
|
Other current assets | 639 |
| | 578 |
|
of which, deferred purchase price | 636 |
| | 576 |
|
Other long-term assets | 109 |
| | 83 |
|
of which, deferred purchase price | 109 |
| | 83 |
|
Accounts payable and accrued liabilities | 25 |
| | 17 |
|
Other current liabilities | 180 |
| | 129 |
|
Other long-term liabilities | 3 |
| | 4 |
|
Net cash proceeds since inception | 2,058 |
| | 2,030 |
|
Of which: | | | |
Change in net cash proceeds during the year-to-date period | 28 |
| | 536 |
|
Net cash proceeds funded by reinvested collections | 2,030 |
| | 1,494 |
|
We recognized losses from sales of receivables of $299 million, $228 million and $204 million for the years ended December 31, 2017, 2016 and 2015, respectively. These losses from sales of receivables were recognized in Selling, general and administrative expense in our Consolidated Statements of Comprehensive Income. Losses from sales of receivables include adjustments to the receivables’ fair values and changes in fair value of the deferred purchase price.
Continuing Involvement
Pursuant to the sale arrangements described above, we have continuing involvement with the servicesold receivables and the respective impacts to our consolidated financial statements, are described below.
Sales of EIP Receivables
Overview of the Transaction
In 2015, we entered into an arrangement to sell certain EIP receivables we sell as we service the receivables and are required to repurchase certain receivables, including ineligible receivables, aged receivables and receivables where write-off is imminent. We continue to service the customers and their related receivables, including facilitating customer payment collection, in exchange for a monthly servicing fee. As the receivables are sold on a revolving basis (the “EIP sale arrangement”). The maximum funding commitment of the customer payment collectionsEIP sale arrangement is $1.3 billion. On November 2, 2022, we extended the scheduled expiration date of the EIP sale arrangement to November 18, 2023.
As of both December 31, 2022 and 2021, the EIP sale arrangement provided funding of $1.3 billion. Sales of EIP receivables occur daily and are settled on sold receivables may be reinvested in new receivable sales. While servicing the receivables,a monthly basis.
In connection with this EIP sale arrangement, we apply the same policies and procedures to the sold receivablesformed a wholly owned subsidiary, which qualifies as we apply to our owned receivables, and we continue to maintain normal relationships with our customers.a bankruptcy remote entity (the “EIP BRE”). Pursuant to the EIP sale arrangement, underselected receivables are transferred to the EIP BRE. The EIP BRE then sells the receivables to a non-consolidated and unaffiliated third-party entity over which we do not exercise any level
of control, nor does the third-party entity qualify as a VIE.
Variable Interest Entity
We determined that the EIP BRE is a VIE as its equity investment at risk lacks the obligation to absorb a certain circumstances,portion of its expected losses. We have a variable interest in the EIP BRE and have determined that we are requiredthe primary beneficiary based on our ability to deposit cash or replacementdirect the activities which most significantly impact the EIP BRE’s economic performance. Those activities include selecting which receivables primarily for contracts terminated by customers underare transferred into the EIP BRE and sold in the EIP sale arrangement and funding of the EIP BRE. Additionally, our JUMP! Program.
In addition, we have continuing involvement withequity interest in the sold receivables as we mayEIP BRE obligates us to absorb losses and gives us the right to receive benefits from the EIP BRE that could potentially be responsible for absorbing additional credit losses pursuantsignificant to the sale arrangements. Our maximum exposure to loss related toEIP BRE. Accordingly, we include the involvement withbalances and results of operations of the service receivablesEIP BRE on our consolidated financial statements.
The following table summarizes the carrying amounts and EIP receivables sold under the sale arrangements was $1.3 billion asclassification of December 31, 2017. The maximum exposure to loss,assets, which is a required disclosure under GAAP, represents an estimated loss that would be incurred under severe, hypothetical circumstances whereby we would not receiveconsist primarily of the deferred purchase price, portionincluded on our Consolidated Balance Sheets with respect to the EIP BRE: | | | | | | | | | | | |
(in millions) | December 31, 2022 | | December 31, 2021 |
Other current assets | $ | 344 | | | $ | 424 | |
Other assets | 136 | | | 125 | |
| | | |
In addition, the EIP BRE is a separate legal entity with its own separate creditors who will be entitled, prior to any liquidation of the contractual proceeds withheld byEIP BRE, to be satisfied prior to any value in the purchasersEIP BRE becoming available to us. Accordingly, the assets of the EIP BRE may not be used to settle our general obligations and would also be requiredcreditors of the EIP BRE have limited recourse to repurchaseour general credit.
Sales of Service Accounts Receivable
Overview of the Transaction
In 2014, we entered into an arrangement to sell certain service accounts receivable on a revolving basis (the “service receivable sale arrangement”). The maximum amountfunding commitment of the service receivable sale arrangement is $950 million and the facility expires in February 2023. As of both December 31, 2022 and 2021, the service receivable sale arrangement provided funding of $775 million. Sales of receivables pursuantoccur daily and are settled on a monthly basis. The receivables consist of service charges currently due from customers and are short-term in nature.
In connection with the service receivable sale arrangement, we formed a wholly owned subsidiary, which qualifies as a bankruptcy remote entity, to sell service accounts receivable (the “Service BRE”).
Pursuant to the service receivable sale arrangements without consideration forarrangement, selected receivables are transferred to the Service BRE. The Service BRE then sells the receivables to a non-consolidated and unaffiliated third party entity over which we do not exercise any recovery. Aslevel of control, nor does the third party qualify as a VIE.
Variable Interest Entity
Prior to the March 2021 amendment of the service receivable sale arrangement, the Service BRE did not qualify as a VIE, but due to the significant level of control we believeexercised over the probabilityentity, it was consolidated.
In March 2021, the amendment to the service receivable sale arrangement triggered a VIE reassessment, and we determined that the Service BRE now qualifies as a VIE. We have a variable interest in the Service BRE and have determined that we are the primary beneficiary based on our ability to direct the activities that most significantly impact the Service BRE’s economic performance. Those activities include selecting which receivables are transferred into the Service BRE and sold in the service receivable sale arrangement and funding the Service BRE. Additionally, our equity interest in the Service BRE obligates us to absorb losses and gives us the right to receive benefits from the Service BRE that could potentially be significant to the Service BRE. Accordingly, we include the balances and results of these circumstances occurring is remote,operations of the maximum exposure to loss is not an indication ofService BRE on our expected loss.consolidated financial statements.
Note 4 – Property and Equipment
The components of property and equipment were as follows:
|
| | | | | | | | | |
(in millions) | Useful Lives | | December 31, 2017 | | December 31, 2016 |
Buildings and equipment | Up to 40 years | | $ | 2,066 |
| | $ | 1,657 |
|
Wireless communications systems | Up to 20 years | | 32,706 |
| | 29,272 |
|
Leasehold improvements | Up to 12 years | | 1,182 |
| | 1,068 |
|
Capitalized software | Up to 10 years | | 10,563 |
| | 8,488 |
|
Leased wireless devices | Up to 18 months | | 1,209 |
| | 2,624 |
|
Construction in progress | | | 1,771 |
| | 2,613 |
|
Accumulated depreciation and amortization | | | (27,301 | ) | | (24,779 | ) |
Property and equipment, net | | | $ | 22,196 |
| | $ | 20,943 |
|
The following table summarizes the carrying amounts and classification of assets, which consist primarily of the deferred purchase price, and liabilities included on our Consolidated Balance Sheets with respect to the Service BRE: | | | | | | | | | | | |
(in millions) | December 31, 2022 | | December 31, 2021 |
Other current assets | $ | 214 | | | $ | 231 | |
| | | |
Other current liabilities | 389 | | | 348 | |
Wireless communication systems include capital lease agreements for network equipmentIn addition, the Service BRE is a separate legal entity with varying expiration terms through 2031. Capital lease assets and accumulated amortization were $2.4 billion and $533 million, and $1.6 billion and $300 million, asits own separate creditors who will be entitled, prior to any liquidation of December 31, 2017 and 2016, respectively.
We capitalize interest associated with the acquisition or construction of certain property and equipment and spectrum intangible assets. We recognized capitalized interest of $136 million, $142 million and $230 million for the years ended December 31, 2017, 2016 and 2015, respectively.
The components of leased wireless devices under our JUMP! On Demand program were as follows:
|
| | | | | | | |
(in millions) | December 31, 2017 | | December 31, 2016 |
Leased wireless devices, gross | $ | 1,209 |
| | $ | 2,624 |
|
Accumulated depreciation | (417 | ) | | (1,193 | ) |
Leased wireless devices, net | $ | 792 |
| | $ | 1,431 |
|
Future minimum payments expectedService BRE, to be received oversatisfied prior to any value in the lease term relatedService BRE becoming available to us. Accordingly, the leased wireless devices, which exclude optional residual buy-out amounts at the endassets of the lease term, are summarized below:Service BRE may not be used to settle our general obligations, and creditors of the Service BRE have limited recourse to our general credit.
|
| | | |
(in millions) | Total |
Year Ended December 31, | |
2018 | $ | 485 |
|
2019 | 104 |
|
Total | $ | 589 |
|
Total depreciation expense relating to property and equipment was $5.8 billion, $6.0 billion and $4.4 billion for the years ended December 31, 2017, 2016 and 2015, respectively. Included in the total depreciation expense for the years ended December 31, 2017, 2016 and 2015 was $1.0 billion, $1.5 billion and $312 million, respectively, related to leased wireless devices.
For the years ended December 31, 2017, 2016 and 2015, we recorded additional depreciation expense of $63 million, $101 million and $85 million, respectively, as a result of adjustments to useful lives of network equipment expected to be replaced in connection with our network transformation and decommissioning the MetroPCS CDMA network and redundant network cell sites.
Asset retirement obligations are primarily for certain legal obligations to remediate leased property on which our network infrastructure and administrative assets are located.
Activity in our asset retirement obligations was as follows:
|
| | | | | | | |
(in millions) | December 31, 2017 | | December 31, 2016 |
Asset retirement obligations, beginning of year | $ | 539 |
| | $ | 483 |
|
Liabilities incurred | 25 |
| | 50 |
|
Liabilities settled | (16 | ) | | (67 | ) |
Accretion expense | 27 |
| | 24 |
|
Changes in estimated cash flows | (13 | ) | | 49 |
|
Asset retirement obligations, end of year | $ | 562 |
| | $ | 539 |
|
| | | |
Classified on the balance sheet as: | | | |
Other current liabilities | $ | 3 |
| | $ | 16 |
|
Other long-term liabilities | 559 |
| | 523 |
|
Asset retirement obligations | $ | 562 |
| | $ | 539 |
|
The corresponding assets, net of accumulated depreciation, related to asset retirement obligations were $220 million and $258 million as of December 31, 2017 and 2016, respectively.
Note 5 – Goodwill, Spectrum Licenses and Other Intangible Assets
Goodwill
There were no changes in carrying values of goodwill for the years ended December 31, 2017 and 2016.
Spectrum LicensesDeferred Purchase Price Assets
In connection with the sales of certain service and EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price assets measured at fair value that are based on a discounted cash flow model using unobservable Level 3 inputs, including estimated customer default rates and credit worthiness. See Note 4 – Sales of Certain Receivables for further information.
Long-Lived Assets
Long-lived assets include assets that do not have indefinite lives, such as property and equipment and certain intangible assets. Substantially all of our long-lived assets are located in the U.S., including Puerto Rico and the U.S. Virgin Islands. We assess potential impairments to our long-lived assets when events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If any indicators of impairment are present, we test recoverability. The following table summarizescarrying value of a long-lived asset or asset group is not recoverable if the carrying value exceeds the sum of the estimated undiscounted future cash flows expected to be generated from the use and eventual disposition of the asset or asset group. If the estimated undiscounted future cash flows do not exceed the asset or asset group’s carrying amount, then an impairment loss is recorded, measured as the amount by which the carrying amount of a long-lived asset or asset group exceeds its estimated fair value.
During the second quarter of 2022, we determined that the retirement of the legacy Sprint CDMA and LTE wireless networks triggered the need to separately assess the Wireline long-lived asset group for impairment and the results of this assessment indicated that certain Wireline long-lived assets were impaired. See Note 16 - Wireline for further information.
Property and Equipment
Property and equipment consists of buildings and equipment, wireless communications systems, leasehold improvements, capitalized software, leased wireless devices and construction in progress. Buildings and equipment include certain network server equipment. Wireless communications systems include assets to operate our spectrum license activitywireless network and information technology data centers, including tower assets, leasehold improvements and asset retirement costs. Leasehold improvements include asset improvements other than those related to the wireless network.
Property and equipment are recorded at cost less accumulated depreciation and impairments, if any, in Property and equipment, net on our Consolidated Balance Sheets. We generally depreciate property and equipment over the period the property and equipment provide economic benefit using the straight-line method. Depreciable life studies are performed periodically to confirm the appropriateness of depreciable lives for certain categories of property and equipment. These studies take into account actual usage, physical wear and tear, replacement history and assumptions about technology evolution. When these factors indicate the useful life of an asset is different from the previous assessment, the remaining book value is depreciated prospectively over the adjusted remaining estimated useful life. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the related lease term.
Costs of major replacements and improvements are capitalized. Repair and maintenance expenditures which do not enhance or extend the asset’s useful life are charged to operating expenses as incurred. Construction costs, labor and overhead incurred in the expansion or enhancement of our wireless network are capitalized. Capitalization commences with pre-construction period administrative and technical activities, which include obtaining zoning approvals and building permits, and ceases at the point at which the asset is ready for its intended use. We capitalize interest associated with the acquisition or construction of certain property and equipment. Capitalized interest is reported as a reduction in interest expense and depreciated over the useful life of the related assets.
We record an asset retirement obligation for the years ended December 31, 2017 and 2016:
|
| | | | | | | |
(in millions) | December 31, 2017 | | December 31, 2016 |
Spectrum licenses, beginning of year | $ | 27,014 |
| | $ | 23,955 |
|
Spectrum license acquisitions | 8,599 |
| | 3,334 |
|
Spectrum licenses transferred to held for sale | (271 | ) | | (324 | ) |
Costs to clear spectrum | 24 |
| | 49 |
|
Spectrum licenses, end of year | $ | 35,366 |
| | $ | 27,014 |
|
We had the following spectrum license transactions during 2017:
In March 2017, we closed on an agreement with a third party for the exchange of certain AWS and PCS spectrum licenses. Upon closing of the transaction, we recorded the spectrum licenses received at their estimated fair value of approximately $123 millionlegal obligations associated with the retirement of tangible long-lived assets and a corresponding increase in the carrying amount of the related asset in the period in which the
obligation is incurred. In periods subsequent to initial measurement, we recognize changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate. Over time, the liability is accreted to its present value and the capitalized cost is depreciated over the estimated useful life of the asset. Our obligations relate primarily to certain legal obligations to remediate leased property on which our network infrastructure and administrative assets are located.
We capitalize certain costs incurred in connection with developing or acquiring internal use software. Capitalization of software costs commences once the final selection of the specific software solution has been made and management authorizes and commits to funding the software project and ceases once the project is ready for its intended use. Capitalized software costs are included in Property and equipment, net on our Consolidated Balance Sheets and are amortized on a straight-line basis over the estimated useful life of the asset. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred.
Device Leases
Through the Merger, we acquired device lease contracts in which Sprint is the lessor (the “Sprint Flex Lease Program”), substantially all of which are classified as operating leases, as well as the associated fixed assets (i.e., the leased devices). These leased devices were recorded as fixed assets at their acquisition date fair value and presented within Property and equipment, net on our Consolidated Balance Sheets. Beginning in 2021, we discontinued offering the Sprint Flex lease program and are shifting customer device financing to EIP plans.
Our leasing programs (“Leasing Programs”), which include JUMP! On Demand and the Sprint Flex Lease Program, allow customers to lease a device (handset or tablet) generally over an initial period of 18 months and upgrade the device with a new device when eligibility requirements are met. We depreciate leased devices to their estimated residual value, on a group basis, using the straight-line method over the estimated useful life of the device. The estimated useful life reflects the period for which we estimate the group of leased devices will provide utility to us, which may be longer than the initial lease term based on customer options in the Sprint Flex Lease program to renew the lease on a month-to-month basis after the initial lease term concludes. In determining the estimated useful life, we consider the lease term (e.g., 18 months and month-to-month renewal options for the Sprint Flex Lease Program), trade-in activity and write-offs for lost and stolen devices. Lost and stolen devices are incorporated into the estimates of depreciation expense and recognized as an adjustment to accumulated depreciation when the loss event occurs. Our policy of using the group method of depreciation has been applied to acquired leased devices as well as leases originated subsequent to the Merger. Acquired leased devices are grouped based on the age of the device. Revenues associated with the leased devices, net of lease incentives, are generally recognized on a gainstraight-line basis over the lease term.
For arrangements in which we are the lessor of $37 million includeddevices, we separate lease and non-lease components.
Upon device upgrade or at lease end, customers in Gainsthe JUMP! On Demand lease program must return or purchase their device, and customers in the Sprint Flex Lease Program have the option to return or purchase their device or to renew their lease on disposala month-to-month basis. The purchase price of spectrum licenses inthe device is established at lease commencement and is based on the type of device leased and any down payment made. The Leasing Programs do not contain any residual value guarantees or variable lease payments, and there are no restrictions or covenants imposed by these leases. Returned devices, including those received upon device upgrade, are transferred from Property and equipment, net to Inventory on our Consolidated Balance Sheets and are valued at the lower of cost or net realizable value, with any write-down recognized as Cost of equipment sales on our Consolidated Statements of Comprehensive Income.
| |
• | In April 2017, the FCC announced that we were the winning bidder of 1,525 licenses in the 600 MHz spectrum auction for an aggregate price of $8.0 billion. At inception of the auction in June 2016, we deposited $2.2 billion with the FCC which, based on the outcome of the auction, was sufficient to cover our down payment obligation due in April 2017. In May 2017, we paid the FCC the remaining $5.8 billion of the purchase price using cash reserves and by issuing debt to Deutsche Telekom AG (“DT”), our majority stockholder, pursuant to existing purchase commitments. See Note 7 - Debt for further information. The licenses are included in Spectrum licenses as of December 31, 2017, in our Consolidated Balance Sheets. We began deployment of these licenses on our network in the third quarter of 2017. |
In September 2017,Other Intangible Assets
Intangible assets that do not have indefinite useful lives are amortized over their estimated useful lives.
Through the Merger, we closed on an agreementacquired lease agreements (the “Agreements”) with a third party forvarious educational and non-profit institutions that provide us with the exchange of certain AWS and PCS spectrum licenses. Upon closing of the transaction, we recorded theright to use Federal Communications Commission (“FCC”) spectrum licenses received at their estimated fair value of
approximately $115 million(Educational Broadband Services or “EBS spectrum”) in the 2.5 GHz band. In addition to the Agreements with educational institutions and recognized a gain of $29 million included in Gains on disposalprivate owners who hold the licenses, we also acquired direct ownership of spectrum licenses previously acquired by Sprint through government auctions or other acquisitions.
The Agreements with educational and certain non-profit institutions are typically for terms of five to 10 years with automatic renewal provisions, bringing the total term of the Agreements up to 30 years. A majority of the Agreements include a right of first refusal to acquire, lease or otherwise use the license at the end of the automatic renewal periods.
Leased FCC spectrum licenses are recorded as executory contracts whereby, as a result of business combination accounting, an intangible asset or liability is recorded reflecting the extent to which contractual terms are favorable or unfavorable to current market rates. These intangible assets or liabilities are amortized over the estimated remaining useful life of the lease agreements. Contractual lease payments are recognized on a straight-line basis over the remaining term of the arrangement, including renewals, and are presented in Costs of services on our Consolidated Statements of Comprehensive Income.
In September 2017, we entered intoCustomer lists and the Sprint trade name are amortized using the sum-of-the-years digits method over the period in which the asset is expected to contribute to future cash flows. Reacquired rights are amortized on a Unit Purchase Agreement (“UPA”) to acquirestraight-line basis over the remaining equity in Iowa Wireless Services, LLC (“IWS”), a 54% owned unconsolidated subsidiary, for a purchase price of $25 million. On January 1, 2018, we closed on the purchase agreement and received the IWS spectrum licenses, among other assets. As of December 31, 2017, we accounted for our existing investment in IWS under the equity method as we had significant influence, but not control.
In December 2017, we closed on an agreement with a third party for the exchange of certain AWS and PCS spectrum licenses. Upon closingterm of the
transaction, we recordedManagement Agreement (as defined in Note 2 – Business Combinations), which represents the spectrum licenses received at their estimated fair valueperiod of approximately $352 million and recognized a gain of $168 million included in Gains on disposal of spectrum licenses in our Consolidated Statements of Comprehensive Income.expected economic benefit. The remaining finite-lived intangible assets are amortized using the straight-line method.
We had the following spectrum license transactions during 2016:
We closed on an agreement with AT&T Inc. for the acquisition and exchange of certain spectrum licenses. Upon closing of the transaction during the first quarter of 2016, we recorded the spectrum licenses received at their estimated fair value of approximately $1.2 billion and recognized a gain of $636 million included in Gains on disposal of spectrum licenses in our Consolidated Statements of Comprehensive Income.
We closed on agreements with multiple third parties for the purchase and exchange of certain spectrum licenses for $1.3 billion in cash. Upon closing of the transactions, we recorded spectrum licenses received at their estimated fair values totaling approximately $1.7 billion and recognized gains of $199 million included in Gains on disposal of spectrum licenses in our Consolidated Statements of Comprehensive Income.
We closed on an agreement with a third party for the purchase of certain spectrum licenses covering approximately 11 million people for approximately $420 million during the fourth quarter of 2016.
Goodwill and Other Intangible Assets Impairment Assessments
Our impairment assessment of goodwill and indefinite-lived intangible assets (spectrum licenses) resulted in no impairment as of December 31, 2017 and 2016.
OtherIndefinite-Lived Intangible Assets
The components of Other intangible assets were as follows:Goodwill
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Useful Lives | | December 31, 2017 | | December 31, 2016 |
(in millions) | | Gross Amount | | Accumulated Amortization | | Net Amount | | Gross Amount | | Accumulated Amortization | | Net Amount |
Customer lists | Up to 6 years | | $ | 1,104 |
| | $ | (1,016 | ) | | $ | 88 |
| | $ | 1,104 |
| | $ | (894 | ) | | $ | 210 |
|
Trademarks and patents | Up to 19 years | | 307 |
| | (192 | ) | | 115 |
| | 303 |
| | (156 | ) | | 147 |
|
Other | Up to 28 years | | 49 |
| | (35 | ) | | 14 |
| | 50 |
| | (31 | ) | | 19 |
|
Other intangible assets | | | $ | 1,460 |
| | $ | (1,243 | ) | | $ | 217 |
| | $ | 1,457 |
| | $ | (1,081 | ) | | $ | 376 |
|
Amortization expense for intangible assets subject to amortization was $163 million, $220 million and $276 million for the years ended December 31, 2017, 2016 and 2015, respectively.
The estimated aggregate future amortization expense for intangible assets subject to amortization are summarized below:
|
| | | |
(in millions) | Estimated Future Amortization |
Year Ending December 31, | |
2018 | $ | 105 |
|
2019 | 52 |
|
2020 | 35 |
|
2021 | 14 |
|
2022 | 4 |
|
Thereafter | 7 |
|
Total | $ | 217 |
|
Note 6 – Fair Value Measurements and Derivative Instruments
Embedded Derivative Instruments
In connection with the business combination with MetroPCS, we issued senior reset notes to Deutsche Telekom. The interest rates were adjusted at the reset dates to rates defined in the applicable supplemental indentures to manage interest rate risk related to the senior reset notes. We determined certain componentsGoodwill consists of the reset feature are required to be bifurcated fromexcess of the senior reset notes and separately accounted for as embedded derivative instruments. As of December 31, 2017 and 2016, there were no embedded derivatives subject to interest rate volatility related to the Senior Reset Notes to affiliates.
The fair value of our embedded derivatives was determined using a lattice-based valuation model by determiningpurchase price over the fair value of the senior reset notes with and without the embedded derivatives included. The fair value of the senior reset notes with the embedded derivatives utilizes the contractual term of each senior reset note, reset rates calculated based on the spread between specified yield curves and the yield curve on certain T-Mobile long-term debt adjusted pursuant to the applicable supplemental indentures and interest rate volatility. Interest rate volatility is a significant unobservable input (Level 3) as it is derived based on weighted risk-free rate volatility and credit spread volatility. Significant increases or decreases in the weighting of risk-free volatility and credit spread volatility, in isolation, would resultidentifiable net assets acquired in a higher or lower fair value of the embedded derivatives. The embedded derivatives were classified as Level 3 in the fair value hierarchy.business combination and is assigned to our one reporting unit: wireless.
The fair value of embedded derivative instruments by balance sheet location and level were as follows:
|
| | | | | | | | | | | | | | | |
| December 31, 2017 |
(in millions) | Level 1 | | Level 2 | | Level 3 | | Total |
Other long-term liabilities | $ | — |
| | $ | — |
| | $ | 66 |
| | $ | 66 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2016 |
(in millions) | Level 1 | | Level 2 | | Level 3 | | Total |
Other long-term liabilities | $ | — |
| | $ | — |
| | $ | 118 |
| | $ | 118 |
|
The following table summarizes the gain (loss) activity related to embedded derivatives instruments recognized in Interest expense to affiliates:
|
| | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2017 | | 2016 | | 2015 |
Embedded derivatives | $ | 52 |
| | $ | 25 |
| | $ | (148 | ) |
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The carrying amounts and fair values of our assets and liabilities measured at fair value on a recurring basis included in our Consolidated Balance Sheets were as follows:
|
| | | | | | | | | | | | | | | | | |
| Level within the Fair Value Hierarchy | | December 31, 2017 | | December 31, 2016 |
(in millions) | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Assets: | | | | | | | | | |
Deferred purchase price assets | 3 | | $ | 745 |
| | $ | 745 |
| | $ | 659 |
| | $ | 659 |
|
Liabilities: | | | | | | | | | |
Guarantee liabilities | 3 | | 105 |
| | 105 |
| | 135 |
| | 135 |
|
The principal amounts and fair values of our short-term and long-term debt included in our Consolidated Balance Sheets were as follows:
|
| | | | | | | | | | | | | | | | | |
| Level within the Fair Value Hierarchy | | December 31, 2017 | | December 31, 2016 |
(in millions) | | Principal Amount | | Fair Value | | Principal Amount | | Fair Value |
Liabilities: | | | | | | | | | |
Senior Notes to third parties | 1 | | $ | 11,850 |
| | $ | 12,540 |
| | $ | 18,600 |
| | $ | 19,584 |
|
Senior Notes to affiliates | 2 | | 7,500 |
| | 7,852 |
| | — |
| | — |
|
Incremental Term Loan Facility to affiliates | 2 | | 4,000 |
| | 4,020 |
| | — |
| | — |
|
Senior Reset Notes to affiliates | 2 | | 3,100 |
| | 3,260 |
| | 5,600 |
| | 5,955 |
|
Senior Secured Term Loans | 2 | | — |
| | — |
| | 1,980 |
| | 2,005 |
|
Long-term Debt
The fair value of our Senior Notes to third parties was determined based on quoted market prices in active markets, and therefore was classified as Level 1 within the fair value hierarchy. The fair values of the Senior Notes to affiliates, Incremental Term Loan Facility to affiliates, Senior Reset Notes to affiliates and Senior Secured Term Loans were determined based on a discounted cash flow approach using quoted prices of instruments with similar terms and maturities and an estimate for our standalone credit risk. Accordingly, our Senior Notes to affiliates, Incremental Term Loan Facility to affiliates, Senior Reset Notes to affiliates and Senior Secured Term Loans were classified as Level 2 within the fair value hierarchy.
Although we have determined the estimated fair values using available market information and commonly accepted valuation methodologies, considerable judgment was required in interpreting market data to develop fair value estimates for the Senior Notes to affiliates, Incremental Term Loan Facility to affiliates, Senior Reset Notes to affiliates and Senior Secured Term Loans to affiliates. The fair value estimates were based on information available as of December 31, 2017 and 2016. As such, our estimates are not necessarily indicative of the amount we could realize in a current market exchange.
Deferred Purchase Price Assets
In connection with the sales of certain service and EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price assets measured at fair value that are based on a discounted cash flow model using unobservable Level 3 inputs, including estimated customer default rates and credit worthiness. See Note 4 – Sales of Certain Receivables for further information.
Long-Lived Assets
Long-lived assets include assets that do not have indefinite lives, such as property and equipment and certain intangible assets. Substantially all of our long-lived assets are located in the U.S., including Puerto Rico and the U.S. Virgin Islands. We assess potential impairments to our long-lived assets when events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If any indicators of impairment are present, we test recoverability. The carrying value of a long-lived asset or asset group is not recoverable if the carrying value exceeds the sum of the estimated undiscounted future cash flows expected to be generated from the use and eventual disposition of the asset or asset group. If the estimated undiscounted future cash flows do not exceed the asset or asset group’s carrying amount, then an impairment loss is recorded, measured as the amount by which the carrying amount of a long-lived asset or asset group exceeds its estimated fair value.
During the second quarter of 2022, we determined that the retirement of the legacy Sprint CDMA and LTE wireless networks triggered the need to separately assess the Wireline long-lived asset group for impairment and the results of this assessment indicated that certain Wireline long-lived assets were impaired. See Note 16 - Wireline for further information.
Property and Equipment
Property and equipment consists of buildings and equipment, wireless communications systems, leasehold improvements, capitalized software, leased wireless devices and construction in progress. Buildings and equipment include certain network server equipment. Wireless communications systems include assets to operate our wireless network and information technology data centers, including tower assets, leasehold improvements and asset retirement costs. Leasehold improvements include asset improvements other than those related to the wireless network.
Property and equipment are recorded at cost less accumulated depreciation and impairments, if any, in Property and equipment, net on our Consolidated Balance Sheets. We generally depreciate property and equipment over the period the property and equipment provide economic benefit using the straight-line method. Depreciable life studies are performed periodically to confirm the appropriateness of depreciable lives for certain categories of property and equipment. These studies take into account actual usage, physical wear and tear, replacement history and assumptions about technology evolution. When these factors indicate the useful life of an asset is different from the previous assessment, the remaining book value is depreciated prospectively over the adjusted remaining estimated useful life. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the related lease term.
Costs of major replacements and improvements are capitalized. Repair and maintenance expenditures which do not enhance or extend the asset’s useful life are charged to operating expenses as incurred. Construction costs, labor and overhead incurred in the expansion or enhancement of our wireless network are capitalized. Capitalization commences with pre-construction period administrative and technical activities, which include obtaining zoning approvals and building permits, and ceases at the point at which the asset is ready for its intended use. We capitalize interest associated with the acquisition or construction of certain property and equipment. Capitalized interest is reported as a reduction in interest expense and depreciated over the useful life of the related assets.
We record an asset retirement obligation for the estimated fair value of legal obligations associated with the retirement of tangible long-lived assets and a corresponding increase in the carrying amount of the related asset in the period in which the
obligation is incurred. In periods subsequent to initial measurement, we recognize changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate. Over time, the liability is accreted to its present value and the capitalized cost is depreciated over the estimated useful life of the asset. Our obligations relate primarily to certain legal obligations to remediate leased property on which our network infrastructure and administrative assets are located.
We capitalize certain costs incurred in connection with developing or acquiring internal use software. Capitalization of software costs commences once the final selection of the specific software solution has been made and management authorizes and commits to funding the software project and ceases once the project is ready for its intended use. Capitalized software costs are included in Property and equipment, net on our Consolidated Balance Sheets and are amortized on a straight-line basis over the estimated useful life of the asset. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred.
Device Leases
Through the Merger, we acquired device lease contracts in which Sprint is the lessor (the “Sprint Flex Lease Program”), substantially all of which are classified as operating leases, as well as the associated fixed assets (i.e., the leased devices). These leased devices were recorded as fixed assets at their acquisition date fair value and presented within Property and equipment, net on our Consolidated Balance Sheets. Beginning in 2021, we discontinued offering the Sprint Flex lease program and are shifting customer device financing to EIP plans.
Our leasing programs (“Leasing Programs”), which include JUMP! On Demand and the Sprint Flex Lease Program, allow customers to lease a device (handset or tablet) generally over an initial period of 18 months and upgrade the device with a new device when eligibility requirements are met. We depreciate leased devices to their estimated residual value, on a group basis, using the straight-line method over the estimated useful life of the device. The estimated useful life reflects the period for which we estimate the group of leased devices will provide utility to us, which may be longer than the initial lease term based on customer options in the Sprint Flex Lease program to renew the lease on a month-to-month basis after the initial lease term concludes. In determining the estimated useful life, we consider the lease term (e.g., 18 months and month-to-month renewal options for the Sprint Flex Lease Program), trade-in activity and write-offs for lost and stolen devices. Lost and stolen devices are incorporated into the estimates of depreciation expense and recognized as an adjustment to accumulated depreciation when the loss event occurs. Our policy of using the group method of depreciation has been applied to acquired leased devices as well as leases originated subsequent to the Merger. Acquired leased devices are grouped based on the age of the device. Revenues associated with the leased devices, net of lease incentives, are generally recognized on a straight-line basis over the lease term.
For arrangements in which we are the lessor of devices, we separate lease and non-lease components.
Upon device upgrade or at lease end, customers in the JUMP! On Demand lease program must return or purchase their device, and customers in the Sprint Flex Lease Program have the option to return or purchase their device or to renew their lease on a month-to-month basis. The purchase price of the device is established at lease commencement and is based on the type of device leased and any down payment made. The Leasing Programs do not contain any residual value guarantees or variable lease payments, and there are no restrictions or covenants imposed by these leases. Returned devices, including those received upon device upgrade, are transferred from Property and equipment, net to Inventory on our Consolidated Balance Sheets and are valued at the lower of cost or net realizable value, with any write-down recognized as Cost of equipment sales on our Consolidated Statements of Comprehensive Income.
Other Intangible Assets
Intangible assets that do not have indefinite useful lives are amortized over their estimated useful lives.
Through the Merger, we acquired lease agreements (the “Agreements”) with various educational and non-profit institutions that provide us with the right to use Federal Communications Commission (“FCC”) spectrum licenses (Educational Broadband Services or “EBS spectrum”) in the 2.5 GHz band. In addition to the Agreements with educational institutions and private owners who hold the licenses, we also acquired direct ownership of spectrum licenses previously acquired by Sprint through government auctions or other acquisitions.
The Agreements with educational and certain non-profit institutions are typically for terms of five to 10 years with automatic renewal provisions, bringing the total term of the Agreements up to 30 years. A majority of the Agreements include a right of first refusal to acquire, lease or otherwise use the license at the end of the automatic renewal periods.
Leased FCC spectrum licenses are recorded as executory contracts whereby, as a result of business combination accounting, an intangible asset or liability is recorded reflecting the extent to which contractual terms are favorable or unfavorable to current market rates. These intangible assets or liabilities are amortized over the estimated remaining useful life of the lease agreements. Contractual lease payments are recognized on a straight-line basis over the remaining term of the arrangement, including renewals, and are presented in Costs of services on our Consolidated Statements of Comprehensive Income.
Customer lists and the Sprint trade name are amortized using the sum-of-the-years digits method over the period in which the asset is expected to contribute to future cash flows. Reacquired rights are amortized on a straight-line basis over the remaining term of the Management Agreement (as defined in Note 2 – Business Combinations), which represents the period of expected economic benefit. The remaining finite-lived intangible assets are amortized using the straight-line method.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill
Goodwill consists of the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination and is assigned to our one reporting unit: wireless.
Spectrum Licenses
Spectrum licenses are carried at costs incurred to acquire the spectrum licenses and the costs to prepare the spectrum licenses for their intended use, such as costs to clear acquired spectrum licenses. The FCC issues spectrum licenses which provide us with the exclusive right to utilize designated radio frequency spectrum within specific geographic service areas to provide wireless communications services. Spectrum licenses are issued for a fixed period of time, typically up to 15 years; however, the FCC has granted license renewals routinely and at a nominal cost. The spectrum licenses acquired expire at various dates and we believe we will be able to meet all requirements necessary to secure renewal of our spectrum licenses at a nominal cost. Moreover, we determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our spectrum licenses. The utility of radio frequency spectrum does not diminish while activated on our network nor does it otherwise deteriorate over time. Therefore, we determined the spectrum licenses should be treated as indefinite-lived intangible assets.
At times, we enter into agreements to sell or exchange spectrum licenses. Upon entering into the arrangement, if the transaction has been deemed to have commercial substance, spectrum licenses are reviewed for impairment. The licenses are transferred at their carrying value, as adjusted for any impairment recognized, to assets held for sale, which is included in Other current assets on our Consolidated Balance Sheets until approval and completion of the exchange or sale. Upon closing of the transaction, spectrum licenses acquired as part of an exchange of nonmonetary assets are recorded at fair value and the difference between the fair value of the spectrum licenses obtained, carrying value of the spectrum licenses transferred and cash paid, if any, is recognized as a gain or loss on disposal of spectrum licenses included in Selling, general and administrative expenses on our Consolidated Statements of Comprehensive Income. Our fair value estimates of spectrum licenses are based on information for which there is little or no observable market data. If the transaction lacks commercial substance or the fair value is not measurable, the acquired spectrum licenses are recorded at our carrying value of the spectrum assets transferred or exchanged.
The spectrum licenses we hold plus the spectrum leases enhance the overall value of our spectrum licenses as the collective value is higher than the value of individual bands of spectrum within a specific geography. This value is derived from the ability to provide wireless service to customers across large geographic areas and maintain the same or similar wireless connectivity quality. This enhanced value from combining owned and leased spectrum licenses is referred to as an aggregation premium.
The aggregation premium is a component of the overall fair value of our owned FCC spectrum licenses, which are recorded as indefinite-lived intangible assets.
Impairment
We assess the carrying value of our goodwill and other indefinite-lived intangible assets, such as our spectrum license portfolio, for potential impairment annually as of December 31 or more frequently, if events or changes in circumstances indicate such assets might be impaired.
We test goodwill on a reporting unit basis by comparing the estimated fair value of the reporting unit to its book value. If the fair value exceeds the book value, then no impairment is measured. As of December 31, 2022, we have identified one reporting
unit for which discrete financial information is available and results are regularly reviewed by management: wireless. The wireless reporting unit consists of all the assets and liabilities of T-Mobile US, Inc.
When assessing goodwill for impairment we may elect to first perform a qualitative assessment to determine if the quantitative impairment test is necessary. If we do not perform a qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we perform a quantitative test. We recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. In 2022, we employed a qualitative approach to assess the wireless reporting unit. The fair value of the wireless reporting unit is determined using a market approach, which is based on market capitalization. We recognize market capitalization is subject to volatility and will monitor changes in market capitalization to determine whether declines, if any, necessitate an interim impairment review. In the event market capitalization does decline below its book value, we will consider the length, severity and reasons for the decline when assessing whether potential impairment exists, including considering whether a control premium should be added to the market capitalization. We believe short-term fluctuations in share price may not necessarily reflect the underlying aggregate fair value. No events or change in circumstances have occurred that indicate the fair value of the wireless reporting unit may be below its carrying amount at December 31, 2022.
We test our spectrum licenses for impairment on an aggregate basis, consistent with our management of the overall business at a national level. We may elect to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of an intangible asset is less than its carrying value. If we do not perform the qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of the intangible asset is less than its carrying amount, we calculate the estimated fair value of the intangible asset. If the estimated fair value of the spectrum licenses is lower than their carrying amount, an impairment loss is recognized for the difference. In 2022, we employed the qualitative method.
We estimate fair value of spectrum licenses using the Greenfield methodology. The Greenfield methodology values the spectrum licenses by calculating the cash flow generating potential of a hypothetical start-up company that goes into business with no assets except for the asset to be valued (in this case, spectrum licenses) and makes investments required to build an operation comparable to current use. The value of the spectrum licenses can be considered as equal to the present value of the cash flows of this hypothetical start-up company. We base the assumptions underlying the Greenfield methodology on a combination of market participant data and our historical results, trends and business plans. Future cash flows in the Greenfield methodology are based on estimates and assumptions of market participant revenues, EBITDA margin, network build-out period and a long-term growth rate for a market participant. The cash flows are discounted using a weighted-average cost of capital. No events or change in circumstances have occurred that indicate the fair value of the Spectrum licenses may be below their carrying amount at December 31, 2022.
The valuation approaches utilized to estimate fair value for the purposes of the impairment tests of goodwill and spectrum licenses require the use of assumptions and estimates, which involve a degree of uncertainty. If actual results or future expectations are not consistent with the assumptions used in our estimate of fair value, it may result in the recording of significant impairment charges on goodwill or spectrum licenses. The most significant assumptions within the valuation models are the discount rate, revenues, EBITDA margins, capital expenditures and long-term growth rate.
Fair Value Measurements
We carry certain assets and liabilities at fair value. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs based on the observability as of the measurement date, is as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities;
Level 2 Observable inputs other than the quoted prices in active markets for identical assets and liabilities; and
Level 3 Unobservable inputs for which there is little or no market data, which require us to develop assumptions of what market participants would use in pricing the asset or liability.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities being measured within the fair value hierarchy.
The carrying values of Cash and cash equivalents, Accounts receivable, Accounts receivable from affiliates and Accounts payable and accrued liabilities approximate fair value due to the short-term maturities of these instruments. The carrying values of EIP receivables approximate fair value as the receivables are recorded at their present value using an imputed interest rate. With the exception of certain long-term fixed-rate debt, there were no financial instruments with a carrying value materially different from their fair value. See Note 7 – Fair Value Measurements for a comparison of the carrying values and fair values of our short-term and long-term debt.
Derivative Financial Instruments
Derivative financial instruments are recognized as either assets or liabilities and are measured at fair value. We do not use derivatives for trading or speculative purposes.
For derivative instruments designated as cash flow hedges associated with forecasted debt issuances, changes in fair value are reported as a component of Accumulated other comprehensive loss until reclassified into Interest expense, net in the same period the hedged transaction affects earnings. Unrealized gains on derivatives designated in qualifying cash flow hedge relationships are recorded at fair value as assets, and unrealized losses are recorded at fair value as liabilities.
We did not have any significant derivative instruments outstanding as of December 31, 2022 or 2021.
Revenue Recognition
We primarily generate our revenue from providing wireless communications services and selling or leasing devices and accessories to customers. Our contracts with customers may involve more than one performance obligation, which include wireless services, wireless devices or a combination thereof, and we allocate the transaction price between each performance obligation based on its relative standalone selling price.
Wireless Communications Services Revenue
We generate our wireless communications services revenues from providing access to, and usage of, our wireless communications network. Service revenues also include revenues earned for providing premium services to customers, such as device insurance services. Service contracts are billed monthly either in advance or arrears, or are prepaid. Generally, service revenue is recognized as we satisfy our performance obligation to transfer service to our customers. We typically satisfy our stand-ready performance obligations, including unlimited wireless services, evenly over the contract term. For usage-based and prepaid wireless services, we satisfy our performance obligations when services are rendered.
The enforceable duration of our contracts with customers is typically one month. However, promotional EIP bill credits offered to a customer on an equipment sale that are paid over time and are contingent on the customer maintaining a service contract may result in an extended service contract based on whether a substantive penalty is deemed to exist.
Revenue is recorded net of costs paid to another party for performance obligations where we arrange for the other party to transfer goods or services to the customer (i.e., when we are acting as an agent). For example, performance obligations relating to services provided by third-party content providers where we neither control a right to the content provider’s service nor control the underlying service itself are presented net because we are acting as an agent.
Consideration payable to a customer is treated as a reduction of the total transaction price, unless the payment is in exchange for a distinct good or service, such as certain commissions paid to dealers, in which case the payment is treated as a purchase of that distinct good or service.
Federal Universal Service Fund (“USF”) and state USF are assessed by various governmental authorities in connection with the services we provide to our customers and are included in Cost of services. When we separately bill and collect these regulatory fees from customers, they are recorded gross in Total service revenues on our Consolidated Statements of Comprehensive Income. For the years ended December 31, 2022, 2021 and 2020, we recorded approximately $185 million, $216 million and $267 million, respectively, of USF fees on a gross basis.
We have made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer (e.g., sales, use, value added, and some excise taxes).
Wireline Revenue
Performance obligations related to our Wireline customers include the provision of domestic and international data communications services. Wireline revenues are included in Other service revenues on our Consolidated Statements of Comprehensive Income.
Equipment Revenues
We generate equipment revenues from the sale or lease of mobile communication devices and accessories. Equipment revenues related to device and accessory sales are typically recognized at a point in time when control of the device or accessory is transferred to the customer or dealer. We have elected to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities instead of assessing such activities as performance obligations. We estimate variable consideration (e.g., device returns or certain payments to indirect dealers) primarily based on historical experience. Equipment sales not probable of collection are generally recorded as payments are received. Our assessment of collectibility considers contract terms such as down payments that reduce our exposure to credit risk.
We offer certain customers the option to pay for devices and accessories in installments using an EIP. Generally, we recognize as a reduction of the total transaction price the effects of a financing component in contracts where customers purchase their devices and accessories on an EIP with a term of more than one year, including those financing components that are not considered to be significant to the contract. However, we have elected the practical expedient of not recognizing the effects of a significant financing component for contracts where we expect, at contract inception, that the period between the transfer of a performance obligation to a customer and the customer’s payment for that performance obligation will be one year or less.
Our Leasing Programs allow customers to lease a device over a period of up to 18 months and upgrade the device with a new device when eligibility requirements are met. To date, substantially all of our leased wireless devices are accounted for as operating leases and estimated contract consideration is allocated between lease and non-lease elements (such as service and equipment performance obligations) based on the relative standalone selling price of each performance obligation in the contract. Lease revenues are recorded as equipment revenues and recognized as earned on a straight-line basis over the lease term. Lease revenues on contracts not probable of collection are limited to the amount of payments received. See “Property and Equipment” above for further information.
Imputed Interest on EIP Receivables
For EIP greater than 12 months, we record the effects of financing on all EIP receivables regardless of whether or not the financing is considered to be significant. The imputation of interest results in a discount of the EIP receivable, thereby adjusting the transaction price of the contract with the customer, which is then allocated to the performance obligations of the arrangement.
For transactions where we recognize a significant financing component, judgment is required to determine the discount rate. For EIP sales, the discount rate used to adjust the transaction price primarily reflects current market interest rates and the estimated credit risk of the customer. Customer credit behavior is inherently uncertain. See “Receivables and Allowance for Credit Losses” above, for additional discussion on how we assess credit risk.
For receivables associated with an end service customer in which the sale of the device was not directly to the end customer (sell-in model or devices sourced directly from OEM), the effect of imputing interest is recognized as a reduction to service revenue over the service contract period. In these transactions, the provision of wireless communications services is the only performance obligation as the device sale was recognized when transferred to the dealer.
Contract Balances
Generally, our devices and service plans are available at standard prices, which are maintained on price lists and published on our website and/or within our retail stores.
For contracts that involve more than one product or service that are identified as separate performance obligations, the transaction price is allocated to the performance obligations based on their relative standalone selling prices. The standalone selling price is the price at which we would sell the good or service separately to a customer and is most commonly evidenced by the price at which we sell that good or service separately in similar circumstances and to similar customers.
A contract asset is recorded when revenue is recognized in advance of our right to receive consideration (i.e., we must perform additional services in order to receive consideration). Amounts are recorded as receivables when our right to consideration is unconditional. When consideration is received, or we have an unconditional right to consideration in advance of delivery of goods or services, a contract liability is recorded. The transaction price can include non-refundable upfront fees, which are allocated to the identifiable performance obligations.
Contract assets are included in Other current assets and Other assets and contract liabilities are included in Deferred revenue on our Consolidated Balance Sheets. See Note 10 – Revenue from Contracts with Customers for further information.
Contract Modifications
Our service contracts allow customers to frequently modify their contracts without incurring penalties, in many cases. Each time a contract is modified, we evaluate the change in scope or price of the contract to determine if the modification should be treated as a separate contract, as if there is a termination of the existing contract and creation of a new contract, or if the modification should be considered a change associated with the existing contract. We typically do not have significant impacts from contract modifications.
Contract Costs
We incur certain incremental costs to obtain a contract that we expect to recover, such as sales commissions. We record an asset when these incremental costs to obtain a contract are incurred and amortize them on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates.
We capitalize postpaid sales commissions for service activation as costs to acquire a contract and amortize them on a straight-line basis over the estimated period of benefit, currently 24 months. For capitalized contract costs, determining the amortization period over which such costs are recognized as well as assessing the indicators of impairment may require judgment. Prepaid commissions are expensed as incurred as their estimated period of benefit does not extend beyond 12 months. Commissions paid upon device upgrade are not capitalized if the remaining customer contract is less than one year. Commissions paid when the customer has a lease are treated as initial direct costs and recognized over the lease term.
Incremental costs to obtain equipment contracts (e.g., commissions paid on device and accessory sales) are recognized when the equipment is transferred to the customer. See Note 10 – Revenue from Contracts with Customers for further information.
Leases
Cell Site, Retail Store and Office Facility Leases
We are a lessee for non-cancelable operating and financing leases for cell sites, switch sites, retail stores, network equipment, office facilities and dark fiber. We recognize a right-of-use asset and lease liability for operating leases based on the net present value of future minimum lease payments. The right-of-use asset for an operating lease is based on the lease liability. Lease expense is recognized on a straight-line basis over the non-cancelable lease term and renewal periods that are considered reasonably certain.
In addition, we have financing leases for certain network equipment. We recognize a right-of-use asset and lease liability for financing leases based on the net present value of future minimum lease payments. The right-of-use asset for a finance lease is based on the lease liability. Expense for our financing leases is comprised of the amortization expense associated with the right-of-use asset and interest expense recognized based on the effective interest method.
We consider several factors in assessing whether renewal periods are reasonably certain of being exercised, including the continued maturation of our nationwide network, technological advances within the telecommunications industry and the availability of alternative sites. We have concluded we are not reasonably certain to exercise the options to extend or terminate our leases. Therefore, as of the lease commencement date, our lease terms generally do not include these options. We include options to extend or terminate a lease when we are reasonably certain that we will exercise that option.
In determining the discount rate used to measure the right-of-use asset and lease liability, we use rates implicit in the lease, or if not readily available, we use our incremental borrowing rate. Our incremental borrowing rate is based on an estimated secured rate comprised of a risk-free rate plus a credit spread as secured by our assets. Determining a credit spread as secured by our assets may require significant judgment.
Certain of our lease agreements include rental payments based on changes in the consumer price index (“CPI”). Lease liabilities are not remeasured as a result of changes in the CPI; instead, changes in the CPI are treated as variable lease payments and are excluded from the measurement of the right-of-use asset and lease liability. These payments are recognized in the period in which the related obligation is incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Generally, we elected the practical expedient to not separate lease and non-lease components in arrangements where we are the lessee. For arrangements in which we are the lessor of wireless handset devices, we did not elect this practical expedient. We did not elect the short-term lease recognition exemption; as such, leases with terms shorter than 12 months are included as a right-of-use asset and lease liability.
Rental revenues and expenses associated with co-location tower sites are presented on a net basis under Topic 842. See Note 18 – Leases for further information.
Cell Tower Monetization Transactions
In 2012, we entered into a prepaid master lease arrangement in which we as the lessor provided the rights to utilize tower sites and we leased back space on certain of those towers.Prior to the Merger, Sprint entered into a similar lease-out and leaseback arrangement that we assumed in the Merger.
These arrangements are treated as failed sale leasebacks in which the proceeds received are reported as a financing obligation. The principal payments on the tower obligations are included in Other, net within Net cash provided by (used in) financing activities on our Consolidated Statements of Cash Flows.Our historical tower site asset costs are reported in Property and equipment, net on our Consolidated Balance Sheets and are depreciated. See Note 9 – Tower Obligations for further information.
Sprint Retirement Pension Plan
Through the Merger, we acquired the assets and assumed the liabilities associated with the Sprint Retirement Pension Plan (the “Pension Plan”), which is a defined benefit pension plan providing post-retirement benefits to certain employees. As of December 31, 2005, the Pension Plan was amended to freeze benefit plan accruals for participants.
The investments in the Pension Plan are measured at fair value on a recurring basis each quarter using quoted market prices or the net asset value per share as a practical expedient. The projected benefit obligations associated with the Pension Plan are determined based on actuarial models utilizing mortality tables and discount rates applied to the expected benefit term. See Note 11 – Employee Compensation and Benefit Plans for further information on the Pension Plan.
Advertising Expense
We expense the cost of advertising and other promotional expenditures to market our services and products as incurred. For the years ended December 31, 2022, 2021 and 2020, advertising expenses included in Selling, general and administrative expenses on our Consolidated Statements of Comprehensive Income were $2.3 billion, $2.2 billion and $1.8 billion, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized based on temporary differences between the consolidated financial statements and tax bases of assets and liabilities using enacted tax rates expected to be in effect when these differences are realized. A valuation allowance is recorded when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of a deferred tax asset depends on the ability to generate sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions within the carryforward periods available.
We account for uncertainty in income taxes recognized on our consolidated financial statements in accordance with the accounting guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return. We assess whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position and adjust the unrecognized tax benefits in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) consists of adjustments, net of tax, related to reclassification of loss from cash flow hedges, foreign currency translation and pension and other postretirement benefits. This is reported in Accumulated other comprehensive loss as a separate component of stockholders’ equity until realized in earnings.
Stock-Based Compensation
Stock-based compensation expense for stock awards, which include restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”), is measured at fair value on the grant date and recognized as expense, net of expected forfeitures, over the related service period. The fair value of stock awards is based on the closing price of our common stock on the date of grant. RSUs are recognized as expense using the straight-line method. PRSUs are recognized as expense following a graded vesting schedule with their performance re-assessed and updated on a quarterly basis, or more frequently as changes in facts and circumstances warrant.
Share Repurchases
On September 8, 2022, our Board of Directors authorized a stock repurchase program for up to $14.0 billion of our common stock through September 30, 2023 (the “2022 Stock Repurchase Program”). The cost of repurchased shares, including equity reacquisition costs, is included in Treasury stock on our Consolidated Balance Sheets. We accrue the cost of repurchased shares, and exclude such shares from the calculation of basic and diluted earnings per share, as of the trade date. We recognize a liability for share repurchases which have not settled and for which cash has not been paid in Other current liabilities on our Consolidated Balance Sheets. Cash payments to reacquire our shares, including equity reacquisition costs, are included in Repurchases of common stock on our Consolidated Statements of Cash Flows. See Note 15 - Repurchases of Common Stock for more information about our 2022 Stock Repurchase Program.
Earnings Per Share
Basic earnings per share is computed by dividing Net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by giving effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of outstanding stock options, RSUs and PRSUs, calculated using the treasury stock method. See Note 17 – Earnings Per Share for further information.
Variable Interest Entities
VIEs are entities that lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, have equity investors that do not have the ability to make significant decisions relating to the entity's operations through voting rights, do not have the obligation to absorb the expected losses or do not have the right to receive the residual returns of the entity. The most common type of VIE is a special purpose entity (“SPE”). SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. SPEs are generally structured to insulate investors from claims on the SPEs’ assets by creditors of other entities, including the creditors of the seller of the assets, these SPEs are commonly referred to as being bankruptcy remote.
The primary beneficiary is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party which has both the power to direct the activities of an entity that most significantly impact the VIE's economic performance, and through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE which could potentially be significant to the VIE. We consolidate VIEs when we are deemed to be the primary beneficiary or when the VIE cannot be deconsolidated. See Note 4 – Sales of Certain Receivables, Note 8 – Debt and Note 9 – Tower Obligations for further information.
In assessing which party is the primary beneficiary, all the facts and circumstances are considered, including each party’s role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE (such as asset managers and
servicers) or have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE.
Device Purchases Cash Flow Presentation
We classify all device purchases, whether acquired for sale or lease, as operating cash outflows as our predominant strategy is to sell devices to customers rather than lease them. See Note 21 – Additional Financial Information for disclosures ofLeased devices transferred from inventory to property and equipment and Returned leased devices transferred from property and equipment to inventory.
Accounting Pronouncements Adopted During the Current Year
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” and has since modified the standard with ASU 2021-01, “Reference Rate Reform (Topic 848): Scope” and ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848” (together, the “reference rate reform standard”). The reference rate reform standard provides temporary optional expedients and allows for certain exceptions to applying existing GAAP for contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued as a result of reference rate reform. The reference rate reform standard is available for adoption through December 31, 2024, and the optional expedients for contract modifications must be elected for all arrangements within a given Accounting Standards Codification (“ASC”) Topic or Industry Subtopic. As of January 1, 2022, we have elected to apply the practical expedients provided by the reference rate reform standard for all ASC Topics and Industry Subtopics related to eligible contract modifications as they occur. This election did not have a material impact on our consolidated financial statements for the year ended December 31, 2022, and the impact of applying the election to future eligible contract modifications that occur through December 31, 2024, is also not expected to be material.
Contract Assets and Contract Liabilities Acquired in a Business Combination
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” The standard amends ASC 805 such that contract assets and contract liabilities acquired in a business combination are added to the list of exceptions to the recognition and measurement principles such that they are recognized and measured in accordance with ASC 606. As of January 1, 2022, we have elected to adopt this standard, and it will be applied prospectively to all business combinations occurring after this date.
Accounting Pronouncements Not Yet Adopted
Troubled Debt Restructurings and Vintage Disclosures
In March 2022, the FASB issued ASU 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The standard eliminates the accounting guidance within ASC 310-40 for troubled debt restructurings by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, for public business entities, the standard requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20. The standard will become effective for us beginning January 1, 2023, and will be applied prospectively, with an option for modified retrospective application for provisions related to recognition and measurement of troubled debt restructurings. Early adoption is permitted for us at any time. We plan to adopt the standard when it becomes effective for us beginning January 1, 2023. We expect the adoption of the standard to impact our disclosure of current period write-offs for certain receivables, but do not expect other updates in the standard to have a material impact on our consolidated financial statements.
Note 2 – Business Combinations
Business Combination Agreement and Amendments
On April 29, 2018, we entered into a Business Combination Agreement with Sprint and the other parties named therein (as amended, the “Business Combination Agreement”) for the Merger. The Business Combination Agreement was subsequently amended to provide that, following the closing of the Merger and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”), SoftBank would indemnify us against certain specified matters and the loss of value arising out of, or resulting from, cessation of access to spectrum under certain circumstances and subject to certain limitations and qualifications.
On February 20, 2020, T-Mobile, SoftBank and Deutsche Telekom AG (“DT”) entered into a letter agreement (the “Letter Agreement”). Pursuant to the Letter Agreement, SoftBank agreed to cause its applicable affiliates to surrender to T-Mobile, for no additional consideration, an aggregate of 48,751,557 shares of T-Mobile common stock (such number of shares, the “SoftBank Specified Shares Amount”), effective immediately following the Effective Time (as defined in the Business Combination Agreement), making SoftBank’s exchange ratio 11.31 shares of Sprint common stock for each share of T-Mobile common stock. This resulted in an effective exchange ratio of approximately 11.00 shares of Sprint common stock for each share of T-Mobile common stock immediately following the closing of the Merger, an increase from the originally agreed 9.75 shares. Sprint stockholders, other than SoftBank, received the original fixed exchange ratio of 0.10256 shares of T-Mobile common stock for each share of Sprint common stock, or the equivalent of approximately 9.75 shares of Sprint common stock for each share of T-Mobile common stock.
The Letter Agreement requires T-Mobile to issue to SoftBank 48,751,557 shares of T-Mobile common stock, subject to the terms and conditions set forth in the Letter Agreement, for no additional consideration, if certain conditions are met. The issuance of these shares is contingent on the trailing 45-day volume-weighted average price per share of T-Mobile common stock on the NASDAQ Global Select Market being equal to or greater than $150.00, at any time during the period commencing on April 1, 2022 and ending on December 31, 2025. If the threshold price is not met, then none of the SoftBank Specified Shares Amount will be issued.
Closing of Sprint Merger
On April 1, 2020, we completed the Merger, and as a result, Sprint and its subsidiaries became wholly owned consolidated subsidiaries of T-Mobile. Sprint was the fourth-largest telecommunications company in the U.S., offering a comprehensive range of wireless and wireline communication products and services. As a combined company, we have been able to rapidly launch a broad and deep nationwide 5G network, accelerate innovation, increase competition in the U.S. wireless and broadband industries and achieve significant synergies and cost reductions by eliminating redundancies within the combined network as well as other business processes and operations.
Upon completion of the Merger, each share of Sprint common stock was exchanged for 0.10256 shares of T-Mobile common stock, or 9.75 shares of Sprint common stock for each share of T-Mobile common stock. After adjustments, including the holdback of the SoftBank Specified Shares Amount and fractional shares, we issued 373,396,310 shares of T-Mobile common stock to Sprint stockholders. The fair value of the T-Mobile common stock provided in exchange for Sprint common stock was approximately $31.3 billion.
Additional components of consideration included the repayment of certain of Sprint’s debt, replacement of equity awards attributable to pre-combination services, contingent consideration and a cash payment received from SoftBank for certain reimbursed Merger expenses.
Immediately following the closing of the Merger and the surrender of the SoftBank Specified Shares Amount, pursuant to the Letter Agreement described above, DT and SoftBank held, directly or indirectly, approximately 43.6% and 24.7%, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 31.7% of the outstanding T-Mobile common stock held by other stockholders. See Note 14 – SoftBank Equity Transaction for ownership details as of December 31, 2022.
Consideration Transferred
The acquisition-date fair value of consideration transferred in the Merger totaled $40.8 billion, comprised of the following: | | | | | |
(in millions) | April 1, 2020 |
Fair value of T-Mobile common stock issued to Sprint stockholders (1) | $ | 31,328 | |
Fair value of T-Mobile replacement equity awards attributable to pre-combination service (2) | 323 | |
Repayment of Sprint’s debt (including accrued interest and prepayment penalties) (3) | 7,396 | |
| |
Fair value of contingent consideration (4) | 1,882 | |
Payment received from selling stockholder (5) | (102) | |
Total consideration exchanged | $ | 40,827 | |
(1) Represents the fair value of T-Mobile common stock issued to Sprint stockholders pursuant to the Business Combination Agreement, less shares surrendered by SoftBank pursuant to the Letter Agreement. The fair value is based on 373,396,310 shares of T-Mobile common stock issued at an exchange ratio of 0.10256 shares of T-Mobile common stock per share of Sprint common stock, less 48,751,557 T-Mobile shares surrendered by SoftBank which are treated as contingent consideration, and the closing price per share of T-Mobile common stock on NASDAQ on March 31, 2020, of $83.90, as shares were transferred to Sprint stockholders prior to the opening of markets on April 1, 2020.
(2) Equity-based awards held by Sprint employees prior to the acquisition date have been replaced with T-Mobile equity-based awards. The portion of the equity-based awards that relates to services performed by the employee prior to the acquisition date is included within consideration transferred, and includes stock options, restricted stock units and performance-based restricted stock units.
(3) Represents the cash consideration paid concurrent with the close of the Merger to retire certain Sprint debt, as required by change in control provisions of the debt, plus interest and prepayment penalties.
(4) Represents the fair value of the SoftBank Specified Shares Amount contingent consideration that may be issued as set forth in the Letter Agreement.
(5) Represents receipt of a cash payment from SoftBank for certain reimbursed Merger expenses.
The SoftBank Specified Shares Amount was determined to be contingent consideration with an acquisition-date fair value of $1.9 billion. We estimated the fair value using the income approach, a probability-weighted discounted cash flow model, whereby a Monte Carlo simulation method estimated the probability of different outcomes as the likelihood of achieving the 45-day volume-weighted average price threshold is not easily predicted. This fair value measurement is based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement as defined in ASC 820: Fair Value Measurement. The key assumptions in applying the income approach include the estimated future share-price volatility, which was based on historical market trends and the estimated future performance of T-Mobile.
The maximum amount of contingent consideration that could be issued to SoftBank has an estimated value of $7.3 billion, based on SoftBank Specified Shares Amount of 48,751,557 multiplied by the defined volume-weighted average price per share of $150.00. The contingent consideration that could be delivered to SoftBank is classified within equity and is not subject to remeasurement.
Fair Value of Assets Acquired and Liabilities Assumed
We accounted for the Merger as a business combination. The identifiable assets acquired and liabilities assumed of Sprint were recorded at their fair values as of the acquisition date and consolidated with those of T-Mobile. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires the use of significant judgment regarding estimates and assumptions. For the fair values of the assets acquired and liabilities assumed, we used the cost, income and market approaches, including market participant assumptions.
The following table summarizes the fair values for each major class of assets acquired and liabilities assumed at the acquisition date. We retained the services of certified valuation specialists to assist with assigning values to certain acquired assets and assumed liabilities.
| | | | | |
(in millions) | April 1, 2020 |
Cash and cash equivalents | $ | 2,084 | |
Accounts receivable | 1,775 | |
Equipment installment plan receivables | 1,088 | |
Inventory | 658 | |
Prepaid expenses | 140 | |
Assets held for sale | 1,908 | |
Other current assets | 637 | |
Property and equipment | 18,435 | |
Operating lease right-of-use assets | 6,583 | |
Financing lease right-of-use assets | 291 | |
Goodwill | 9,423 | |
Spectrum licenses | 45,400 | |
Other intangible assets | 6,280 | |
Equipment installment plan receivables due after one year, net | 247 | |
Other assets (1) | 540 | |
Total assets acquired | 95,489 | |
Accounts payable and accrued liabilities | 5,015 | |
Short-term debt | 2,760 | |
Deferred revenue | 508 | |
Short-term operating lease liabilities | 1,818 | |
Short-term financing lease liabilities | 8 | |
Liabilities held for sale | 475 | |
Other current liabilities | 681 | |
Long-term debt | 29,037 | |
Tower obligations | 950 | |
Deferred tax liabilities | 3,478 | |
Operating lease liabilities | 5,615 | |
Financing lease liabilities | 12 | |
| |
Other long-term liabilities | 4,305 | |
Total liabilities assumed | 54,662 | |
| |
Total consideration transferred | $ | 40,827 | |
(1) Included in Other assets acquired is $80 million in restricted cash.
Amounts initially disclosed for the estimated values of certain acquired assets and liabilities assumed were adjusted through March 31, 2021 (the close of the measurement period) based on information arising after the initial valuation.
Intangible Assets and Liabilities
Goodwill with an assigned value of $9.4 billion represents the excess of the consideration transferred over the fair values of assets acquired and liabilities assumed. The goodwill recognized includes synergies expected to be achieved from the operations of the combined company, the assembled workforce of Sprint and intangible assets that do not qualify for separate recognition. Expected synergies from the Merger include the cost savings from the planned integration of network infrastructure, facilities, personnel and systems. None of the goodwill resulting from the Merger is deductible for tax purposes. All of the goodwill acquired is allocated to the wireless reporting unit.
Other intangible assets include $4.9 billion of customer relationships with a weighted-average useful life of eight years and tradenames of $207 million with a useful life of two years. Leased spectrum arrangements that have favorable (asset) and unfavorable (liability) terms compared to current market rates were assigned fair values of $745 million and $125 million, respectively, with 18-year and 19-year weighted-average useful lives, respectively.
The fair value of Spectrum licenses of $45.4 billion was estimated using the income approach, specifically a Greenfield model. This fair value measurement is based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement as defined in ASC 820: Fair Value Measurement. The key assumptions in applying the income approach include the discount rate, estimated market share, estimated capital and operating expenditures, forecasted service revenue and a long-term growth rate for a hypothetical market participant that enters the wireless industry and builds a nationwide wireless network.
Acquired Receivables
The fair value of the assets acquired includes Accounts receivable of $1.8 billion and EIP receivables of $1.3 billion. The UPB under these contracts as of April 1, 2020, the date of the Merger, was $1.8 billion and $1.6 billion, respectively. The difference between the fair value and the UPB primarily represents amounts expected to be uncollectible.
Indemnification Assets and Contingent Liabilities
Pursuant to Amendment No. 2 to the Business Combination Agreement, SoftBank agreed to indemnify us against certain specified matters and losses. As of the acquisition date, we recorded a contingent liability and an offsetting indemnification asset for the expected reimbursement by SoftBank for certain Lifeline matters. The liability is presented in Accounts payable and accrued liabilities, and the indemnification asset is presented in Other current assets within our acquired assets and liabilities at the acquisition date. In November 2020, we entered into a consent decree with the FCC to resolve certain Lifeline matters, which resulted in a payment of $200 million by SoftBank. Final resolution of these matters could require making additional reimbursements and paying additional fines and penalties, which we do not expect to have a significant impact on our financial results. We expect that any additional liabilities related to these matters would be indemnified and reimbursed by SoftBank.
Deferred Taxes
As a result of the Merger, we acquired deferred tax assets for which a valuation allowance reserve is deemed to be necessary, as well as additional uncertain tax benefit reserves. As of the date of the Merger, the amount of the valuation allowance reserve and uncertain tax benefit reserves was $851 million and $660 million, respectively.
Pro Forma Information
The following unaudited pro forma financial information gives effect to the Transactions as if they had been completed on January 1, 2019. The unaudited pro forma information was prepared in accordance with the requirements of ASC 805: Business Combinations, which is a different basis than pro forma information prepared under Article 11 of Regulation S-X (“Article 11”). As such, they are not directly comparable with historical results for stand-alone T-Mobile prior to April 1, 2020, historical results for T-Mobile from April 1, 2020 that reflect the Transactions and are inclusive of the results and operations of Sprint, nor our previously provided pro forma financials prepared in accordance with Article 11. The pro forma results for the years ended December 31, 2020 and 2019 include the impact of several significant nonrecurring pro forma adjustments to previously reported operating results. The pro forma adjustments are based on historically reported transactions by the respective companies. The pro forma results do not include any anticipated synergies or other expected benefits of the acquisition. | | | | | | | | | | | | | | | |
| | | | | |
| Year Ended December 31, | | |
(in millions) | 2020 | | | | 2019 | | |
Total revenues | $ | 74,681 | | | | | $ | 70,607 | | | |
Income from continuing operations | 3,302 | | | | | 185 | | | |
Income from discontinued operations, net of tax | 677 | | | | | 1,594 | | | |
Net income | 3,979 | | | | | 1,792 | | | |
Significant nonrecurring pro forma adjustments include:
•Transaction costs of $559 million that were incurred during the year ended December 31, 2020 are assumed to have occurred on the pro forma close date of January 1, 2019, and are recognized as if incurred in the first quarter of 2019;
•The Prepaid Business divested on July 1, 2020, is assumed to have been classified as discontinued operations as of January 1, 2019, and the related activities are presented in Income from discontinued operations, net of tax;
•Permanent financing issued and debt redemptions occurring in connection with the closing of the Merger are assumed to have occurred on January 1, 2019, and historical interest expense associated with repaid borrowings is removed;
•Tangible and intangible assets are assumed to be recorded at their estimated fair values as of January 1, 2019 and are depreciated or amortized over their estimated useful lives; and
•Accounting policies of Sprint are conformed to those of T-Mobile including depreciation for leased devices, distribution arrangements with Brightstar US, Inc., amortization of costs to acquire a contract and certain tower lease transactions.
The selected unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations would have been had the Transactions actually occurred on January 1, 2019, nor do they purport to project the future consolidated results of operations.
For the periods subsequent to the Merger close date, the acquired Sprint subsidiaries contributed total revenues and operating income of $20.5 billion and $1.3 billion, respectively, for the year ended December 31, 2020, that were included on our Consolidated Statements of Comprehensive Income.
Regulatory Matters
The Transactions were the subject of various legal and regulatory proceedings involving a number of state and federal agencies. In connection with those proceedings and the approval of the Transactions, we have certain commitments and other obligations to various state and federal agencies and certain nongovernmental organizations. See Note 19 – Commitments and Contingencies for further information.
Prepaid Transaction
On July 26, 2019, we entered into the Asset Purchase Agreement with Sprint and DISH, pursuant to which, following the consummation of the Merger, DISH would acquire the Prepaid Business.
On June 17, 2020, T-Mobile, Sprint and DISH entered into the First Amendment to the Asset Purchase Agreement. Pursuant to the First Amendment of the Asset Purchase Agreement, T-Mobile, Sprint and DISH agreed to proceed with the closing of the Prepaid Transaction, in accordance with the Asset Purchase Agreement, on July 1, 2020, subject to the terms and conditions of the Asset Purchase Agreement and the terms and conditions of the Consent Decree.
On July 1, 2020, pursuant to the Asset Purchase Agreement, we completed the Prepaid Transaction. Upon closing of the Prepaid Transaction, we received $1.4 billion from DISH for the Prepaid Business, subject to working capital adjustments. See Note 12 – Discontinued Operations for further information.
Shenandoah Personal Communications Company Affiliate Relationship
Sprint PCS (specifically Sprint Spectrum L.P.) was party to a variety of publicly filed agreements with Shentel, pursuant to which Shentel was the exclusive provider of Sprint PCS’s wireless mobility communications network products in certain parts of Maryland, North Carolina, Virginia, West Virginia, Kentucky, Ohio and Pennsylvania. Pursuant to one such agreement, the Sprint PCS Management Agreement, dated November 5, 1999 (as amended, supplemented and modified from time to time, the “Management Agreement”), Sprint PCS was granted an option to purchase Shentel’s Wireless Assets used to provide services pursuant to the Management Agreement. On August 26, 2020, Sprint, now our indirect subsidiary, on behalf of and as the direct or indirect owner of Sprint PCS, exercised its option by delivering a binding notice of exercise to Shentel.
On May 28, 2021, T-Mobile USA, Inc., a Delaware corporation and our direct wholly owned subsidiary, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Shentel, for the acquisition of the Wireless Assets for an aggregate purchase price of approximately $1.9 billion in cash, subject to certain adjustments prescribed by the Management Agreement and such additional adjustments agreed by the parties.
Closing of Shentel Wireless Assets Acquisition
On July 1, 2021, upon the completion of certain customary conditions, including the receipt of certain regulatory approvals, we closed on the acquisition of the Wireless Assets pursuant to the Purchase Agreement, and as a result, T-Mobile became the legal owner of the Wireless Assets. Through this transaction, we reacquired the exclusive rights to deliver Sprint’s wireless network services in Shentel’s former affiliate territory and simplified our operations. Concurrently, and as agreed to through the Purchase Agreement, T-Mobile and Shentel entered into certain separate transactions, including the effective settlement of the pre-existing arrangements between T-Mobile and Shentel under the Management Agreement.
In exchange, T-Mobile transferred cash of approximately $2.0 billion, approximately $1.9 billion of which was determined to be consideration transferred for the Wireless Assets and the remainder of which was determined to relate to separate transactions, primarily associated with the effective settlement of pre-existing arrangements between T-Mobile and Shentel. Accordingly, these separate transactions are not included in the calculation of the consideration transferred in exchange for the Wireless Assets, and the settlement of pre-existing arrangements between T-Mobile and Shentel did not result in material gains or losses.
Prior to the acquisition of the Wireless Assets, revenues generated from our affiliate relationship with Shentel were presented as Wholesale and other service revenues. Upon the close of the transaction, revenues generated from postpaid customers within the reacquired territory are presented as Postpaid revenues on our Consolidated Statements of Comprehensive Income. The financial results of the Wireless Assets since the closing through December 31, 2021, were not material to our Consolidated Statements of Comprehensive Income, nor were they material to our prior period consolidated results on a pro forma basis.
Fair Value of Assets Acquired and Liabilities Assumed
We accounted for the acquisition of the Wireless Assets as a business combination. The identifiable assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date and consolidated with those of T-Mobile. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires the use of significant judgment regarding estimates and assumptions. For the fair values of the assets acquired and liabilities assumed, we used the cost, income and market approaches, including market participant assumptions.
The following table summarizes the fair values for each major class of assets acquired and liabilities assumed at the acquisition date. We retained the services of certified valuation specialists to assist with assigning values to certain acquired assets and assumed liabilities.
| | | | | |
(in millions) | July 1, 2021 |
Inventory | $ | 2 | |
Property and equipment | 136 | |
Operating lease right-of-use assets | 308 | |
Goodwill | 1,035 | |
Other intangible assets | 770 | |
Other assets | 7 | |
Total assets acquired | 2,258 | |
Short-term operating lease liabilities | 73 | |
| |
| |
Operating lease liabilities | 264 | |
Other long-term liabilities | 35 | |
Total liabilities assumed | 372 | |
Total consideration transferred | $ | 1,886 | |
Intangible Assets and Liabilities
Goodwill with an assigned value of $1.0 billion, substantially all of which is deductible for tax purposes, represents the anticipated cost savings from the operations of the combined company resulting from the planned integration of network infrastructure and facilities, the assembled workforce hired concurrently with the acquisition of Wireless Assets, and the intangible assets that do not qualify for separate recognition. All of the goodwill acquired is allocated to the wireless reporting unit.
Other intangible assets include $770 million of reacquired rights to provide services in Shentel’s former affiliate territory which is being amortized on a straight-line basis over a useful life of approximately nine years in line with the remaining term of the Management Agreement upon the acquisition of the Wireless Assets, which represents the period of expected economic benefits associated with the reacquisition of such rights. This fair value measurement is based on significant inputs not observable in the market, and therefore, represents a Level 3 measurement as defined in ASC 820. The key assumptions in applying the income approach include forecasted subscriber growth rates, revenue over an estimated period of time, the discount rate, estimated capital expenditures, estimated income taxes and the long-term growth rate, as well as forecasted earnings before interest, taxes, depreciation and amortization (“EBITDA”) margins.
Note 3 – Receivables and Related Allowance for Credit Losses
We maintain an allowance for credit losses by applying an expected credit loss model. Each period, management assesses the appropriateness of the level of allowance for credit losses by considering credit risk inherent within each portfolio segment as of the end of the period.
We consider a receivable past due when a customer has not paid us by the contractually specified payment due date. Account balances are written off against the allowance for credit losses if collection efforts are unsuccessful and the receivable balance is deemed uncollectible (customer default), based on factors such as customer credit ratings as well as the length of time the amounts are past due.
Our portfolio of receivables is comprised of two portfolio segments: accounts receivable and EIP receivables.
Accounts Receivable Portfolio Segment
Accounts receivable balances are predominately comprised of amounts currently due from customers (e.g., for wireless communications services and monthly device lease payments), device insurance administrators, wholesale partners, non-consolidated affiliates, other carriers and third-party retail channels.
We estimate credit losses associated with our accounts receivable portfolio segment using an expected credit loss model, which utilizes an aging schedule methodology based on historical information and adjusted for asset-specific considerations, current economic conditions and reasonable and supportable forecasts.
Our approach considers a number of factors, including our overall historical credit losses, net of recoveries, and payment experience, as well as current collection trends such as write-off frequency and severity. We also consider other qualitative factors such as current and forecasted macroeconomic conditions.
We consider the need to adjust our estimate of credit losses for reasonable and supportable forecasts of future macroeconomic conditions. To do so, we monitor external forecasts of changes in real U.S. gross domestic product and forecasts of consumer credit behavior for comparable credit exposures. We also periodically evaluate other macroeconomic indicators such as unemployment rates to assess their level of correlation with our historical credit loss statistics.
EIP Receivables Portfolio Segment
Based upon customer credit profiles at the time of customer origination, we classify the EIP receivables segment into two customer classes of “Prime” and “Subprime.” Prime customer receivables are those with lower credit risk and Subprime customer receivables are those with higher credit risk. Customers may be required to make a down payment on their equipment purchases if their assessed credit risk exceeds established underwriting thresholds. In addition, certain customers within the Subprime category may be required to pay a deposit.
To determine a customer’s credit profile and assist in determining their credit class, we use a proprietary credit scoring model that measures the credit quality of a customer leveraging several factors, such as credit bureau information and consumer credit risk scores, as well as service and device plan characteristics.
Installment receivables acquired in the Merger are included in EIP receivables. We applied our proprietary credit scoring model to the customers acquired in the Merger with an outstanding EIP receivable balance. Based on tenure, consumer credit risk score and credit profile, these acquired customers were classified into our customer classes of Prime or Subprime. For EIP receivables acquired in the Merger, the difference between the fair value and UPB of the receivable at the acquisition date is accreted to interest income over the contractual life of the receivable using the effective interest method. EIP receivables had a combined weighted-average effective interest rate of 8.0% and 5.6% as of December 31, 2022, and 2021, respectively.
The following table summarizes the EIP receivables, including imputed discounts and related allowance for credit losses: | | | | | | | | | | | |
(in millions) | December 31, 2022 | | December 31, 2021 |
| | | |
| | | |
EIP receivables, gross | $ | 8,480 | | | $ | 8,207 | |
Unamortized imputed discount | (483) | | | (378) | |
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EIP receivables, net of unamortized imputed discount | 7,997 | | | 7,829 | |
Allowance for credit losses | (328) | | | (252) | |
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EIP receivables, net of allowance for credit losses and imputed discount | $ | 7,669 | | | $ | 7,577 | |
Classified on our consolidated balance sheets as: | | | |
Equipment installment plan receivables, net of allowance for credit losses and imputed discount | $ | 5,123 | | | $ | 4,748 | |
Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount | 2,546 | | | 2,829 | |
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EIP receivables, net of allowance for credit losses and imputed discount | $ | 7,669 | | | $ | 7,577 | |
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Many of our loss estimation techniques rely on delinquency-based models; therefore, delinquency is an important indicator of credit quality in the establishment of our allowance for credit losses for EIP receivables. We manage our EIP receivables portfolio segment using delinquency and customer credit class as key credit quality indicators.
The following table presents the amortized cost of our EIP receivables by delinquency status, customer credit class and year of origination as of December 31, 2022:
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| Originated in 2022 | | Originated in 2021 | | Originated prior to 2021 | | Total EIP Receivables, net of unamortized imputed discounts |
(in millions) | Prime | | Subprime | | Prime | | Subprime | | Prime | | Subprime | | Prime | | Subprime | | Grand total |
Current - 30 days past due | $ | 3,278 | | | $ | 2,362 | | | $ | 1,288 | | | $ | 742 | | | $ | 122 | | | $ | 45 | | | $ | 4,688 | | | $ | 3,149 | | | $ | 7,837 | |
31 - 60 days past due | 21 | | | 34 | | | 9 | | | 13 | | | 1 | | | 1 | | | 31 | | | 48 | | | 79 | |
61 - 90 days past due | 9 | | | 18 | | | 4 | | | 7 | | | — | | | — | | | 13 | | | 25 | | | 38 | |
More than 90 days past due | 9 | | | 17 | | | 5 | | | 9 | | | 1 | | | 2 | | | 15 | | | 28 | | | 43 | |
EIP receivables, net of unamortized imputed discount | $ | 3,317 | | | $ | 2,431 | | | $ | 1,306 | | | $ | 771 | | | $ | 124 | | | $ | 48 | | | $ | 4,747 | | | $ | 3,250 | | | $ | 7,997 | |
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We estimate credit losses on our EIP receivables segment by applying an expected credit loss model, which relies on historical loss data adjusted for current conditions to calculate default probabilities or an estimate for the frequency of customer default. Our assessment of default probabilities or frequency includes receivables delinquency status, historical loss experience, how long the receivables have been outstanding and customer credit ratings, as well as customer tenure. We multiply these estimated default probabilities by our estimated loss given default, which is the estimated amount or severity of the default loss after adjusting for estimated recoveries.
As we do for our accounts receivable portfolio segment, we consider the need to adjust our estimate of credit losses on EIP receivables for reasonable and supportable forecasts of economic conditions through monitoring external forecasts and periodic internal statistical analyses.
Activity for the years ended December 31, 2022, 2021 and 2020, in the allowance for credit losses and unamortized imputed discount balances for the accounts receivable and EIP receivables segments were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 | | December 31, 2020 |
(in millions) | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total | | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total |
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Allowance for credit losses and imputed discount, beginning of period | $ | 146 | | | $ | 630 | | | $ | 776 | | | $ | 194 | | | $ | 605 | | | $ | 799 | | | $ | 61 | | | $ | 399 | | | $ | 460 | |
Beginning balance adjustment due to implementation of the new credit loss standard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 91 | | | 91 | |
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Bad debt expense | 433 | | | 593 | | | 1,026 | | | 231 | | | 221 | | | 452 | | | 338 | | | 264 | | | 602 | |
Write-offs, net of recoveries | (412) | | | (518) | | | (930) | | | (279) | | | (248) | | | (527) | | | (205) | | | (175) | | | (380) | |
Change in imputed discount on short-term and long-term EIP receivables | N/A | | 262 | | | 262 | | | N/A | | 187 | | | 187 | | | N/A | | 171 | | | 171 | |
Impact on the imputed discount from sales of EIP receivables | N/A | | (156) | | | (156) | | | N/A | | (135) | | | (135) | | | N/A | | (145) | | | (145) | |
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Allowance for credit losses and imputed discount, end of period | $ | 167 | | | $ | 811 | | | $ | 978 | | | $ | 146 | | | $ | 630 | | | $ | 776 | | | $ | 194 | | | $ | 605 | | | $ | 799 | |
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Credit loss activity increased during 2022, as activity normalized relative to muted Pandemic levels in 2021 and other macroeconomic trends contributed to adverse scenarios and presented additional uncertainty due to, for example, the potential effects associated with higher inflation, rising interest rates and changes in the Federal Reserve’s monetary policy, as well as geopolitical risks, including the war in Ukraine.
Off-Balance-Sheet Credit Exposures
We do not have material off-balance-sheet credit exposures as of December 31, 2022. In connection with the sales of certain service and EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price assets included on our Consolidated Balance Sheets measured at fair value that are based on a discounted cash flow model using Level 3 inputs, including customer default rates and credit worthiness, dilutions and recoveries. See Note 4 – Sales of Certain Receivables for further information.
Note 4 – Sales of Certain Receivables
We regularly enter into transactions to sell certain service accounts receivable and EIP receivables. The transactions, including our continuing involvement with the sold receivables and the respective impacts to our consolidated financial statements, are described below.
Sales of EIP Receivables
Overview of the Transaction
In 2015, we entered into an arrangement to sell certain EIP receivables on a revolving basis (the “EIP sale arrangement”). The maximum funding commitment of the EIP sale arrangement is $1.3 billion. On November 2, 2022, we extended the scheduled expiration date of the EIP sale arrangement to November 18, 2023.
As of both December 31, 2022 and 2021, the EIP sale arrangement provided funding of $1.3 billion. Sales of EIP receivables occur daily and are settled on a monthly basis.
In connection with this EIP sale arrangement, we formed a wholly owned subsidiary, which qualifies as a bankruptcy remote entity (the “EIP BRE”). Pursuant to the EIP sale arrangement, selected receivables are transferred to the EIP BRE. The EIP BRE then sells the receivables to a non-consolidated and unaffiliated third-party entity over which we do not exercise any level
of control, nor does the third-party entity qualify as a VIE.
Variable Interest Entity
We determined that the EIP BRE is a VIE as its equity investment at risk lacks the obligation to absorb a certain portion of its expected losses. We have a variable interest in the EIP BRE and have determined that we are the primary beneficiary based on our ability to direct the activities which most significantly impact the EIP BRE’s economic performance. Those activities include selecting which receivables are transferred into the EIP BRE and sold in the EIP sale arrangement and funding of the EIP BRE. Additionally, our equity interest in the EIP BRE obligates us to absorb losses and gives us the right to receive benefits from the EIP BRE that could potentially be significant to the EIP BRE. Accordingly, we include the balances and results of operations of the EIP BRE on our consolidated financial statements.
The following table summarizes the carrying amounts and classification of assets, which consist primarily of the deferred purchase price, included on our Consolidated Balance Sheets with respect to the EIP BRE: | | | | | | | | | | | |
(in millions) | December 31, 2022 | | December 31, 2021 |
Other current assets | $ | 344 | | | $ | 424 | |
Other assets | 136 | | | 125 | |
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In addition, the EIP BRE is a separate legal entity with its own separate creditors who will be entitled, prior to any liquidation of the EIP BRE, to be satisfied prior to any value in the EIP BRE becoming available to us. Accordingly, the assets of the EIP BRE may not be used to settle our general obligations and creditors of the EIP BRE have limited recourse to our general credit.
Sales of Service Accounts Receivable
Overview of the Transaction
In 2014, we entered into an arrangement to sell certain service accounts receivable on a revolving basis (the “service receivable sale arrangement”). The maximum funding commitment of the service receivable sale arrangement is $950 million and the facility expires in February 2023. As of both December 31, 2022 and 2021, the service receivable sale arrangement provided funding of $775 million. Sales of receivables occur daily and are settled on a monthly basis. The receivables consist of service charges currently due from customers and are short-term in nature.
In connection with the service receivable sale arrangement, we formed a wholly owned subsidiary, which qualifies as a bankruptcy remote entity, to sell service accounts receivable (the “Service BRE”).
Pursuant to the service receivable sale arrangement, selected receivables are transferred to the Service BRE. The Service BRE then sells the receivables to a non-consolidated and unaffiliated third party entity over which we do not exercise any level of control, nor does the third party qualify as a VIE.
Variable Interest Entity
Prior to the March 2021 amendment of the service receivable sale arrangement, the Service BRE did not qualify as a VIE, but due to the significant level of control we exercised over the entity, it was consolidated.
In March 2021, the amendment to the service receivable sale arrangement triggered a VIE reassessment, and we determined that the Service BRE now qualifies as a VIE. We have a variable interest in the Service BRE and have determined that we are the primary beneficiary based on our ability to direct the activities that most significantly impact the Service BRE’s economic performance. Those activities include selecting which receivables are transferred into the Service BRE and sold in the service receivable sale arrangement and funding the Service BRE. Additionally, our equity interest in the Service BRE obligates us to absorb losses and gives us the right to receive benefits from the Service BRE that could potentially be significant to the Service BRE. Accordingly, we include the balances and results of operations of the Service BRE on our consolidated financial statements.
The following table summarizes the carrying amounts and classification of assets, which consist primarily of the deferred purchase price, and liabilities included on our Consolidated Balance Sheets with respect to the Service BRE: | | | | | | | | | | | |
(in millions) | December 31, 2022 | | December 31, 2021 |
Other current assets | $ | 214 | | | $ | 231 | |
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Other current liabilities | 389 | | | 348 | |
In addition, the Service BRE is a separate legal entity with its own separate creditors who will be entitled, prior to any liquidation of the Service BRE, to be satisfied prior to any value in the Service BRE becoming available to us. Accordingly, the assets of the Service BRE may not be used to settle our general obligations, and creditors of the Service BRE have limited recourse to our general credit.
Sales of Receivables
The transfers of service receivables and EIP receivables to the non-consolidated entities are accounted for as sales of financial assets. Once identified for sale, the receivable is recorded at the lower of cost or fair value. Upon sale, we derecognize the net carrying amount of the receivables.
We recognize the cash proceeds received upon sale in Net cash provided by operating activities on our Consolidated Statements of Cash Flows. We recognize proceeds net of the deferred purchase price, consisting of a receivable from the purchasers that entitles us to certain collections on the receivables. We recognize the collection of the deferred purchase price in Net cash used in investing activities on our Consolidated Statements of Cash Flows as Proceeds related to beneficial interests in securitization transactions.
The deferred purchase price represents a financial asset that is primarily tied to the creditworthiness of the customers and which can be settled in such a way that we may not recover substantially all of our recorded investment, due to default by the customers on the underlying receivables. At inception, we elected to measure the deferred purchase price at fair value with changes in fair value included in Selling, general and administrative expense on our Consolidated Statements of Comprehensive Income. The fair value of the deferred purchase price is determined based on a discounted cash flow model which uses primarily Level 3 inputs, including customer default rates. As of December 31, 2022 and 2021, our deferred purchase price related to the sales of service receivables and EIP receivables was $692 million and $779 million, respectively.
The following table summarizes the impact of the sale of certain service accounts receivable and EIP receivables on our Consolidated Balance Sheets: | | | | | | | | | | | |
(in millions) | December 31, 2022 | | December 31, 2021 |
Derecognized net service accounts receivable and EIP receivables | $ | 2,410 | | | $ | 2,492 | |
Other current assets | 558 | | | 655 | |
of which, deferred purchase price | 556 | | | 654 | |
Other long-term assets | 136 | | | 125 | |
of which, deferred purchase price | 136 | | | 125 | |
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Other current liabilities | 389 | | | 348 | |
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Net cash proceeds since inception | 1,697 | | | 1,754 | |
Of which: | | | |
Change in net cash proceeds during the year-to-date period | (57) | | | 39 | |
Net cash proceeds funded by reinvested collections | 1,754 | | | 1,715 | |
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We recognized losses from sales of receivables, including changes in fair value of the deferred purchase price, of $214 million, $15 million and $36 million for the years ended December 31, 2022, 2021 and 2020, respectively, in Selling, general and administrative expense on our Consolidated Statements of Comprehensive Income.
As of both December 31, 2022 and 2021, the total principal balance of outstanding transferred service receivables and EIP receivables was $1.0 billion.
Continuing Involvement
Pursuant to the sale arrangements described above, we have continuing involvement with the service accounts receivable and EIP receivables we sell as we service the receivables, are required to repurchase certain receivables, including ineligible receivables, aged receivables and receivables where a write-off is imminent, and may be responsible for absorbing credit losses through reduced collections on our deferred purchase price assets. We continue to service the customers and their related receivables, including facilitating customer payment collection, in exchange for a monthly servicing fee. As the receivables are sold on a revolving basis, the customer payment collections on sold receivables may be reinvested in new receivable sales. At the direction of the purchasers of the sold receivables, we apply the same policies and procedures while servicing the sold receivables as we apply to our owned receivables, and we continue to maintain normal relationships with our customers.
Note 5 – Property and Equipment
The components of property and equipment, excluding amounts transferred to held for sale, were as follows: | | | | | | | | | | | | | | | | | |
(in millions) | Useful Lives | | December 31, 2022 | | December 31, 2021 |
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Land | | | $ | 109 | | | $ | 225 | |
Buildings and equipment | Up to 30 years | | 4,659 | | | 4,344 | |
Wireless communications systems | Up to 20 years | | 61,738 | | | 57,114 | |
Leasehold improvements | Up to 10 years | | 2,326 | | | 2,160 | |
Capitalized software | Up to 10 years | | 20,342 | | | 18,243 | |
Leased wireless devices | Up to 16 months | | 1,415 | | | 3,832 | |
Construction in progress | N/A | | 4,599 | | | 3,703 | |
Accumulated depreciation and amortization | | | (53,102) | | | (49,818) | |
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Property and equipment, net | | | $ | 42,086 | | | $ | 39,803 | |
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Total depreciation expense relating to property and equipment and financing lease right-of-use assets was $12.7 billion, $15.2 billion and $13.1 billion for the years ended December 31, 2022, 2021 and 2020, respectively. These amounts include depreciation expense related to leased wireless devices of $1.1 billion for the year ended December 31, 2022 and $3.1 billion for each of the years ended December 31, 2021 and 2020.
We capitalize interest associated with the acquisition or construction of certain property and equipment and spectrum intangible assets. We recognized capitalized interest of $61 million, $210 million and $440 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Asset retirement obligations are primarily for certain legal obligations to remediate leased property on which our network infrastructure and administrative assets are located.
Activity in our asset retirement obligations was as follows: | | | | | | | | | | | |
(in millions) | Year Ended December 31, 2022 | | Year Ended December 31, 2021 |
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Asset retirement obligations, beginning of year | $ | 1,899 | | | $ | 1,817 | |
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Liabilities incurred | 10 | | | 54 | |
Liabilities settled | (379) | | | (173) | |
Accretion expense | 65 | | | 62 | |
Changes in estimated cash flows | 292 | | | 139 | |
Transfers to held for sale | (35) | | | — | |
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Asset retirement obligations, end of period | $ | 1,852 | | | $ | 1,899 | |
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Classified on the consolidated balance sheets as: | | | |
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Other current liabilities | $ | 267 | | | $ | 216 | |
Other long-term liabilities | 1,585 | | | 1,683 | |
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The corresponding assets, net of accumulated depreciation and excluding amounts transferred to held for sale, related to asset retirement obligations were $546 million and $613 million as of December 31, 2022 and 2021, respectively.
Postpaid Billing System Impairment
In connection with the continuing integration of the businesses following the Merger, we evaluated the long-term billing system architecture strategy for our postpaid customers. In order to facilitate customer migration from the Sprint legacy billing platform, our postpaid billing system replacement plan and associated development will no longer serve our future needs. As a result, we recorded a non-cash impairment of $200 million related to capitalized software development costs for the year ended December 31, 2020. The expense is included in Impairment expense on our Consolidated Statements of Comprehensive Income.
Wireline Impairment
Previously, the operation of the legacy Sprint CDMA and LTE wireless networks was supported by the legacy Sprint Wireline network. During the second quarter of 2022, we retired the legacy Sprint CDMA network and began the orderly shut-down of the LTE network. We determined that the retirement of the legacy Sprint CDMA and LTE wireless networks triggered the need to assess the Wireline long-lived assets for impairment, as these assets no longer support our wireless network and the associated customers and cash flows in a significant manner. The results of this assessment indicated that certain Wireline long-lived assets were impaired. See Note 16 - Wireline for further information.
Note 6 – Goodwill, Spectrum License Transactions and Other Intangible Assets
Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2022 and 2021, are as follows: | | | | | |
(in millions) | Goodwill |
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Balance as of December 31, 2020, net of accumulated impairment losses of $10,984 | $ | 11,117 | |
Purchase price adjustments of goodwill in 2021 | 22 | |
Goodwill from acquisitions in 2021 | 1,049 | |
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Balance as of December 31, 2021 | 12,188 | |
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Goodwill from acquisitions in 2022 | 46 | |
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Balance as of December 31, 2022 | $ | 12,234 | |
Accumulated impairment losses at December 31, 2022 | $ | (10,984) | |
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Goodwill Impairment Assessment
Certain non-financial assets, including goodwill and indefinite-lived intangible assets such as Spectrum licenses, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, these assets are required to be assessed for impairment when events or circumstances indicate that carrying value may not be recoverable, and at least annually for goodwill and indefinite-lived intangible assets. The nonrecurring measurements of the fair value of these assets, for which observable market information may be limited, are classified within Level 3 of the fair value hierarchy. In the event an impairment is required, the asset is adjusted to its estimated fair value using market-based assumptions, to the extent they are available, as well as other assumptions that may require significant judgement.
For our annual assessment of the wireless reporting unit, we employed a qualitative approach. The fair value of the wireless reporting unit was estimated using a market approach, which is based on market capitalization. In addition to performing an assessment under the market approach we also considered any events or change in circumstances that occurred, noting no indication that the fair value of the wireless reporting unit may be below its carrying amount at December 31, 2022.
In the year ended December 31, 2020, we recognized a goodwill impairment of $218 million for the Layer3 reporting unit. The impairment was the result of our enhanced in-home broadband opportunity following the Merger, along with the acquisition of certain content rights, which has created a strategic shift in our TVisionTM services offering. The expense is included in Impairment expense on our Consolidated Statements of Comprehensive Income.
Intangible Assets
Identifiable Intangible Assets Acquired from the Merger
The following table summarizes the fair value of the intangible assets acquired in the Merger: | | | | | | | | | | | |
| Weighted-Average Useful Life (in years) | | Fair Value as of April 1, 2020 (in millions) |
Spectrum licenses | Indefinite-lived | | $ | 45,400 | |
Tradenames (1) | 2 years | | 207 | |
Customer relationships | 8 years | | 4,900 | |
Favorable spectrum leases | 18 years | | 745 | |
Other intangible assets | 7 years | | 428 | |
Total intangible assets acquired | | | $ | 51,680 | |
(1) Tradenames include the Sprint brand.
The fair value of spectrum licenses includes the value associated with aggregating a nationwide portfolio of owned and leased spectrum.
Favorable spectrum leases represent a contract where the market rate is higher than the future contractual lease payments. We lease this spectrum from third parties who hold the spectrum licenses. As these contracts pertain to intangible assets, they are excluded from the lease accounting guidance (ASC 842) and are accounted for as service contracts in which the expense is recognized on a straight-line basis over the lease term. Favorable spectrum leases of $745 million were recorded as an intangible asset as a result of purchase accounting and are being amortized on a straight-line basis over the associated remaining lease term. Additionally, we recognized unfavorable spectrum lease liabilities of $125 million, which are also amortized over their respective remaining lease terms and are included in Other liabilities on our Consolidated Balance Sheets.
The customer relationship intangible assets represent the value associated with the acquired Sprint customers. The customer relationship intangible assets are amortized using the sum-of-the-years digits method over periods of up to eight years.
Other intangible assets are amortized over the remaining period that the asset is expected to provide a benefit to us.
Identifiable Intangible Assets Acquired in the Shentel Acquisition
We reacquired certain rights under the Management Agreement in connection with the acquisition of the Wireless Assets that provided us the ability to fully do business in Shentel’s former affiliate territories. We recognized an intangible asset for these reacquired rights at its fair value of $770 million as of July 1, 2021. The reacquired rights intangible asset is being amortized on a straight-line basis over a useful life of approximately nine years in line with the remaining term of the Management Agreement upon the acquisition of the Wireless Assets.
Spectrum Licenses
The following table summarizes our spectrum license activity for the years ended December 31, 2022, 2021 and 2020: | | | | | | | | | | | | | | | | | |
(in millions) | 2022 | | 2021 | | 2020 |
Spectrum licenses, beginning of year | $ | 92,606 | | | $ | 82,828 | | | $ | 36,465 | |
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Spectrum license acquisitions | 3,152 | | | 9,545 | | | 1,023 | |
Spectrum licenses acquired in Merger | — | | | — | | | 45,400 | |
Spectrum licenses transferred to held for sale | (64) | | | (28) | | | (83) | |
Costs to clear spectrum | 104 | | | 261 | | | 23 | |
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Spectrum licenses, end of year | $ | 95,798 | | | $ | 92,606 | | | $ | 82,828 | |
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Spectrum Transactions
In March 2021, the FCC announced that we were the winning bidder of 142 licenses in Auction 107 (C-band spectrum) for an aggregate purchase price of $9.3 billion, excluding relocation costs. We expect to incur an additional $767 million in fixed relocation costs, which will be paid through 2024.
In January 2022, the FCC announced that we were the winning bidder of 199 licenses in Auction 110 (mid-band spectrum) for an aggregate purchase price of $2.9 billion. At inception of Auction 110 in September 2021, we deposited $100 million. We paid the FCC the remaining $2.8 billion for the licenses won in the auction in February 2022. On May 4, 2022, the FCC issued to us the licenses won in Auction 110. The licenses are included in Spectrum licenses on our Consolidated Balance Sheets as of December 31, 2022.
In September 2022, the FCC announced that we were the winning bidder of 7,156 licenses in Auction 108 (2.5 GHz spectrum) for an aggregate price of $304 million. At inception of Auction 108 in June 2022, we deposited $65 million. We paid the FCC the remaining $239 million for the licenses won in the auction in September 2022. The aggregate cash payments made to the FCC are included in Other assets on our Consolidated Balance Sheets as of December 31, 2022, and will remain there until the corresponding licenses are received. The timing of when the licenses will be issued will be determined by the FCC after all post-auction procedures have been completed.
Cash payments to acquire spectrum licenses and payments for costs to clear spectrum are included in Purchases of spectrum licenses and other intangible assets, including deposits, on our Consolidated Statements of Cash Flows for the year ended December 31, 2022.
As of December 31, 2022, the activities that are necessary to get the C-band, mid-band and 2.5 GHz spectrum ready for its intended use have not begun; as such, capitalization of the interest associated with the costs of acquiring these spectrum licenses has not begun.
License Purchase Agreements
DISH Network Corporation
On July 1, 2020, we and DISH Network Corporation (“DISH”) entered into a license purchase agreement (the “DISH License Purchase Agreement”) pursuant to which DISH has the option to purchase certain 800 MHz spectrum licenses for a total of approximately $3.6 billion in a transaction to be completed, subject to an application for FCC approval, by July 1, 2023, or within five days of FCC approval, whichever date is later.
In the event DISH breaches the DISH License Purchase Agreement or fails to deliver the purchase price following the satisfaction or waiver of all closing conditions, DISH is liable to pay us a fee of $72 million. Additionally, if DISH does not exercise the option to purchase the 800 MHz spectrum licenses, we are required, unless otherwise approved under the Consent Decree, to offer the licenses for sale through an auction. If the specified minimum price of $3.6 billion is not met in the auction, we would be relieved of the obligation to sell the licenses.
Channel 51 License Co LLC and LB License Co, LLC
On August 8, 2022, we, Channel 51 License Co LLC and LB License Co, LLC (together with Channel 51 License Co LLC, the “Sellers”) entered into License Purchase Agreements pursuant to which we will acquire spectrum in the 600 MHz band from the Sellers in exchange for total cash consideration of $3.5 billion. The licenses will be acquired without any associated networks, but are currently being utilized through exclusive leasing arrangements with the Sellers.
The parties have agreed that closing will occur within 180 days after the receipt of required regulatory approvals, and payment of the $3.5 billion purchase price will occur no later than 40 days after the date of such closing. We anticipate the transactions will close in mid- to late-2023.
Impairment Assessment
For our assessment of Spectrum license impairment, we employed a qualitative approach. No events or change in circumstances have occurred that indicate the fair value of the Spectrum licenses may be below its carrying amount at December 31, 2022.
Other Intangible Assets
The components of Other intangible assets were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Useful Lives | | December 31, 2022 | | December 31, 2021 |
(in millions) | | Gross Amount | | Accumulated Amortization | | Net Amount | | Gross Amount | | Accumulated Amortization | | Net Amount |
| | | | | | | | | | | | | |
Customer relationships | Up to 8 years | | $ | 4,883 | | | $ | (2,732) | | | $ | 2,151 | | | $ | 4,879 | | | $ | (1,863) | | | $ | 3,016 | |
Reacquired rights | Up to 9 years | | 770 | | | (139) | | | 631 | | | 770 | | | (46) | | | 724 | |
Tradenames and patents | Up to 19 years | | 196 | | | (117) | | | 79 | | | 171 | | | (91) | | | 80 | |
Favorable spectrum leases | Up to 27 years | | 705 | | | (113) | | | 592 | | | 728 | | | (74) | | | 654 | |
Other | Up to 10 years | | 353 | | | (298) | | | 55 | | | 377 | | | (118) | | | 259 | |
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Other intangible assets | | | $ | 6,907 | | | $ | (3,399) | | | $ | 3,508 | | | $ | 6,925 | | | $ | (2,192) | | | $ | 4,733 | |
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Amortization expense for intangible assets subject to amortization was $1.2 billion, $1.3 billion and $1.2 billion for the years ended December 31, 2022, 2021 and 2020, respectively.
The estimated aggregate future amortization expense for intangible assets subject to amortization is summarized below: | | | | | |
(in millions) | Estimated Future Amortization |
| |
Twelve Months Ending December 31, | |
2023 | $ | 881 | |
2024 | 726 | |
2025 | 573 | |
2026 | 419 | |
2027 | 292 | |
Thereafter | 617 | |
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Total | $ | 3,508 | |
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Substantially all of the estimated future amortization expense is associated with intangible assets acquired in the Merger and through our acquisitions of affiliates.
Note 7 – Fair Value Measurements
The carrying values of Cash and cash equivalents, Accounts receivable and Accounts payable and accrued liabilities approximate fair value due to the short-term maturities of these instruments. The carrying values of EIP receivables approximate fair value as the receivables are recorded at their present value using an imputed interest rate.
Derivative Financial Instruments
Periodically, we use derivatives to manage exposure to market risk, such as interest rate risk. We designate certain derivatives as hedging instruments in a qualifying hedge accounting relationship to help minimize significant, unplanned fluctuations in cash flows or fair values caused by designated market risks, such as interest rate volatility. We do not use derivatives for trading or speculative purposes.
Cash flows associated with qualifying hedge derivative instruments are presented in the same category on our Consolidated Statements of Cash Flows as the item being hedged. For fair value hedges, the change in the fair value of the derivative instruments is recognized in earnings through the same income statement line item as the change in the fair value of the hedged item. For cash flow hedges, the change in the fair value of the derivative instruments is reported in Other comprehensive income (loss) and recognized in earnings when the hedged item is recognized in earnings, again, through the same income statement line item.
We did not have any significant derivative instruments outstanding as of December 31, 2022 or 2021.
Interest Rate Lock Derivatives
During the three months ended March 31, 2020, we made net collateral transfers to certain of our derivative counterparties totaling $580 million, which are included inNet cash related to derivative contracts under collateral exchange arrangements within Net cash used in investing activities on our Consolidated Statements of Cash Flows.
Between April 2 and April 6, 2020, in connection with the issuance of an aggregate of $19.0 billion of Senior Secured Notes, we terminated our interest rate lock derivatives.
At the time of termination, the interest rate lock derivatives were a liability of $2.3 billion, of which $1.2 billion was cash-collateralized. The cash flows associated with the settlement of interest rate lock derivatives are presented on a gross basis on our Consolidated Statements of Cash Flows, with the total cash payments to settle the swaps of $2.3 billion presented in changes in Other current and long-term liabilities within Net cash provided by operating activities and the return of cash collateral of $1.2 billion presented as an inflow in Net cash related to derivative contracts under collateral exchange arrangements within Net cash used in investing activities for the year ended December 31, 2020.
Aggregate changes in the fair value of the interest rate lock derivatives, net of tax and amortization, of $1.3 billion and $1.5 billion are presented in Accumulated other comprehensive loss on our Consolidated Balance Sheets as of December 31, 2022 and 2021, respectively.
For the years ended December 31, 2022, 2021 and 2020, $203 million, $189 million and $128 million, respectively, were amortized from Accumulated other comprehensive loss into Interest expense, net, on our Consolidated Statements of Comprehensive Income. We expect to amortize $219 million of the Accumulated other comprehensive loss associated with the derivatives into Interest expense, net, over the 12 months ending December 31, 2023.
Deferred Purchase Price Assets
In connection with the sales of certain service and EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price assets measured at fair value that are based on a discounted cash flow model using unobservable Level 3 inputs, including customer default rates. See Note 34 – Sales of Certain Receivables for further information.information.
Guarantee LiabilitiesThe carrying amounts of our deferred purchase price assets, which are measured at fair value on a recurring basis and are included on our Consolidated Balance Sheets, were $692 million and $779 million as of December 31, 2022 and 2021, respectively. Fair value was equal to the carrying amount at December 31, 2022 and 2021.
We offer certain device trade-in programs, including JUMP!, which provide eligible customers a specified-price trade-in right to upgrade their device. For customers who are enrolled in a device trade-in program, we defer the portion of equipment revenues which represents the estimatedDebt
The fair value of the specified-price trade-in right guarantee incorporating the expected probabilityour Senior Notes to third parties was determined based on quoted market prices in active markets, and timing of the handset upgrade and the estimated fair value of the used handset which is returned. Accordingly, our guarantee liabilitiestherefore were classified as Level 31 within the fair value hierarchy. When customers upgrade their device, the difference between the trade-inThe fair value of our Senior Notes to affiliates was determined based on a discounted cash flow approach using market interest rates of instruments with similar terms and maturities and an estimate for our standalone credit risk. Accordingly, our Senior Notes to the customer andaffiliates were classified as Level 2 within the fair value hierarchy. The fair value of our ABS Notes was determined based on quoted prices in inactive markets for identical instruments and observable changes in market interest rates, both of which are Level 2 inputs, as well as projected changes in cash collections on the underlying pool of receivables securing the ABS Notes, which is a Level 3 input. Due to the overcollateralization of the returned device is recorded againstABS Notes, projected changes in cash collections, such as changes resulting from customer default rates, on the guarantee liabilities. Guarantee liabilities are includedpool of receivables securing such notes do not significantly affect the fair value estimate of the ABS Notes and therefore such notes were classified as Level 2 within the fair value hierarchy.
Although we have determined the estimated fair values using available market information and commonly accepted valuation methodologies, considerable judgment was required in Other current liabilities in our Consolidated Balance Sheets.
interpreting market data to develop fair value estimates for the Senior Notes to affiliates. The total estimated remaining gross EIP receivable balances of all enrolled handset upgrade program customers, which are the
remaining EIP amounts underlying the JUMP! guarantee, including EIP receivables that have been sold, was $2.5 billionfair value estimates were based on information available as of December 31, 2017. This is2022 and 2021. As such, our estimates are not an indicationnecessarily indicative of the amount we could realize in a current market exchange.
The carrying amounts and fair values of our expected loss exposureshort-term and long-term debt included on our Consolidated Balance Sheets were as it does not considerfollows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level within the Fair Value Hierarchy | | December 31, 2022 | | December 31, 2021 |
(in millions) | | Carrying Amount (1) | | Fair Value (1) | | Carrying Amount (1) | | Fair Value (1) |
Liabilities: | | | | | | | | | |
Senior Notes to third parties (2) | 1 | | $ | 66,582 | | | $ | 59,011 | | | $ | 30,309 | | | $ | 32,093 | |
Senior Notes to affiliates | 2 | | 1,495 | | | 1,460 | | | 3,739 | | | 3,844 | |
Senior Secured Notes to third parties (2) | 1 | | 3,117 | | | 2,984 | | | 40,098 | | | 42,393 | |
ABS Notes to third parties | 2 | | 746 | | | 744 | | | — | | | — | |
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(1) Excludes $20 million and $47 million as of December 31, 2022, and 2021, respectively, in other financial liabilities as the expectedcarrying values approximate fair value primarily due to the short-term maturities of these instruments.
(2) Following the achievement of an investment grade issuer rating from each of the used handset orthree main credit rating agencies and entry into an amendment to our Credit Agreement, the probabilitySenior Secured Notes (which exclude, for the avoidance of doubt, the Spectrum-Backed Notes), are no longer secured and timinghave been reclassified to Senior Notes to third parties as of September 30, 2022, within the trade-in.
Note 78 – Debt for additional information.
Note 8 – Debt
Debt was as follows: | | | | | | | | | | | | | |
(in millions) | | | December 31, 2022 | | December 31, 2021 |
4.000% Senior Notes to affiliates due 2022 | | | $ | — | | | $ | 1,000 | |
4.000% Senior Notes due 2022 | | | — | | | 500 | |
5.375% Senior Notes to affiliates due 2022 | | | — | | | 1,250 | |
6.000% Senior Notes due 2022 | | | — | | | 2,280 | |
7.875% Senior Notes due 2023 | | | 4,250 | | | 4,250 | |
7.125% Senior Notes due 2024 | | | 2,500 | | | 2,500 | |
3.500% Senior Notes due 2025 | | | 3,000 | | | 3,000 | |
4.738% Series 2018-1 A-1 Notes due 2025 | | | 1,181 | | | 1,706 | |
7.625% Senior Notes due 2025 | | | 1,500 | | | 1,500 | |
1.500% Senior Notes due 2026 | | | 1,000 | | | 1,000 | |
2.250% Senior Notes due 2026 | | | 1,800 | | | 1,800 | |
2.625% Senior Notes due 2026 | | | 1,200 | | | 1,200 | |
7.625% Senior Notes due 2026 | | | 1,500 | | | 1,500 | |
3.750% Senior Notes due 2027 | | | 4,000 | | | 4,000 | |
5.375% Senior Notes due 2027 | | | 500 | | | 500 | |
2.050% Senior Notes due 2028 | | | 1,750 | | | 1,750 | |
4.750% Senior Notes due 2028 | | | 1,500 | | | 1,500 | |
4.750% Senior Notes to affiliates due 2028 | | | 1,500 | | | 1,500 | |
4.910% Class A Senior ABS Notes due 2028 | | | 750 | | | — | |
5.152% Series 2018-1 A-2 Notes due 2028 | | | 1,838 | | | 1,838 | |
6.875% Senior Notes due 2028 | | | 2,475 | | | 2,475 | |
2.400% Senior Notes due 2029 | | | 500 | | | 500 | |
2.625% Senior Notes due 2029 | | | 1,000 | | | 1,000 | |
3.375% Senior Notes due 2029 | | | 2,350 | | | 2,350 | |
3.875% Senior Notes due 2030 | | | 7,000 | | | 7,000 | |
2.250% Senior Notes due 2031 | | | 1,000 | | | 1,000 | |
2.550% Senior Notes due 2031 | | | 2,500 | | | 2,500 | |
2.875% Senior Notes due 2031 | | | 1,000 | | | 1,000 | |
3.500% Senior Notes due 2031 | | | 2,450 | | | 2,450 | |
2.700% Senior Notes due 2032 | | | 1,000 | | | 1,000 | |
8.750% Senior Notes due 2032 | | | 2,000 | | | 2,000 | |
5.200% Senior Notes due 2033 | | | 1,250 | | | — | |
4.375% Senior Notes due 2040 | | | 2,000 | | | 2,000 | |
3.000% Senior Notes due 2041 | | | 2,500 | | | 2,500 | |
4.500% Senior Notes due 2050 | | | 3,000 | | | 3,000 | |
3.300% Senior Notes due 2051 | | | 3,000 | | | 3,000 | |
3.400% Senior Notes due 2052 | | | 2,800 | | | 2,800 | |
5.650% Senior Notes due 2053 | | | 1,000 | | | — | |
3.600% Senior Notes due 2060 | | | 1,700 | | | 1,700 | |
5.800% Senior Notes due 2062 | | | 750 | | | — | |
Other debt | | | 20 | | | 47 | |
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Unamortized premium on debt to third parties | | | 1,335 | | | 1,740 | |
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Unamortized discount on debt to affiliates | | | — | | | (5) | |
Unamortized discount on debt to third parties | | | (199) | | | (200) | |
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Debt issuance costs and consent fees | | | (240) | | | (238) | |
Total debt | | | 71,960 | | | 74,193 | |
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Less: Current portion of Senior Notes to affiliates | | | — | | | 2,245 | |
Less: Current portion of Senior Notes and other debt to third parties | | | 5,164 | | | 3,378 | |
Total long-term debt | | | $ | 66,796 | | | $ | 68,570 | |
Classified on the consolidated balance sheets as: | | | | | |
Long-term debt | | | $ | 65,301 | | | $ | 67,076 | |
Long-term debt to affiliates | | | 1,495 | | | 1,494 | |
Total long-term debt | | | $ | 66,796 | | | $ | 68,570 | |
Our effective interest rate, excluding the impact of derivatives and capitalized interest, was approximately 3.9% and 4.1% for the years ended December 31, 2022 and 2021, respectively, on weighted-average debt outstanding of $72.5 billion and $74.0 billion for the years ended December 31, 2022 and 2021, respectively. The weighted-average debt outstanding was
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(in millions) | December 31, 2017 | | December 31, 2016 |
5.250% Senior Notes due 2018 | $ | — |
| | $ | 500 |
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6.464% Senior Notes due 2019 | — |
| | 1,250 |
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6.288% Senior Reset Notes to affiliates due 2019 | — |
| | 1,250 |
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6.542% Senior Notes due 2020 | — |
| | 1,250 |
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6.625% Senior Notes due 2020 | — |
| | 1,000 |
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6.366% Senior Reset Notes to affiliates due 2020 | — |
| | 1,250 |
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6.250% Senior Notes due 2021 | — |
| | 1,750 |
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6.633% Senior Notes due 2021 | — |
| | 1,250 |
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5.300% Senior Notes to affiliates due 2021 | 2,000 |
| | — |
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8.097% Senior Reset Notes to affiliates due 2021 | 1,250 |
| | 1,250 |
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6.125% Senior Notes due 2022 | 1,000 |
| | 1,000 |
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6.731% Senior Notes due 2022 | — |
| | 1,250 |
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4.000% Senior Notes due 2022 | 500 |
| | — |
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4.000% Senior Notes to affiliates due 2022 | 1,000 |
| | — |
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8.195% Senior Reset Notes to affiliates due 2022 | 1,250 |
| | 1,250 |
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Incremental term loan facility to affiliates due 2022 | 2,000 |
| | — |
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6.000% Senior Notes due 2023 | 1,300 |
| | 1,300 |
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6.625% Senior Notes due 2023 | 1,750 |
| | 1,750 |
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6.836% Senior Notes due 2023 | 600 |
| | 600 |
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9.332% Senior Reset Notes to affiliates due 2023 | 600 |
| | 600 |
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6.000% Senior Notes due 2024 | 1,000 |
| | 1,000 |
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6.500% Senior Notes due 2024 | 1,000 |
| | 1,000 |
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6.000% Senior Notes to affiliates due 2024 | 1,350 |
| | — |
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6.000% Senior Notes to affiliates due 2024 | 650 |
| | — |
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Incremental term loan facility to affiliates due 2024 | 2,000 |
| | — |
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5.125% Senior Notes due 2025 | 500 |
| | — |
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6.375% Senior Notes due 2025 | 1,700 |
| | 1,700 |
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5.125% Senior Notes to affiliates due 2025 | 1,250 |
| | — |
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6.500% Senior Notes due 2026 | 2,000 |
| | 2,000 |
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5.375% Senior Notes due 2027 | 500 |
| | — |
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5.375% Senior Notes to affiliates Due 2027 | 1,250 |
| | — |
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Senior Secured Term Loans | — |
| | 1,980 |
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Capital leases | 1,824 |
| | 1,425 |
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Unamortized premium from purchase price allocation fair value adjustment | 78 |
| | 212 |
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Unamortized premium on debt to affiliates | 59 |
| | — |
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Unamortized discount on Senior Secured Term Loans | — |
| | (8 | ) |
Unamortized discount on affiliates Senior Notes | (73 | ) | | — |
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Debt issuance cost | (19 | ) | | (23 | ) |
Total debt | 28,319 |
| | 27,786 |
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Less: Current portion of Senior Secured Term Loans | — |
| | 20 |
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Less: Current portion of Senior Notes | 999 |
| | — |
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Less: Current portion of capital leases | 613 |
| | 334 |
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Total long-term debt | $ | 26,707 |
| | $ | 27,432 |
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Classified on the balance sheet as: | | | |
Long-term debt | $ | 12,121 |
| | $ | 21,832 |
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Long-term debt to affiliates | 14,586 |
| | 5,600 |
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Total long-term debt | $ | 26,707 |
| | $ | 27,432 |
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calculated by applying an average of the monthly ending balances of total short-term and long-term debt and short-term and long-term debt to affiliates, net of unamortized premiums, discounts, debt issuance costs and consent fees.
Senior Secured Notes
Debt
Following the achievement of an investment grade issuer rating from each of the three main credit rating agencies, on August 22, 2022, we entered into an amendment (“Credit Agreement Amendment”) to Third Partiesour Credit Agreement, dated April 1, 2020 to release the liens securing the obligations under the Credit Agreement. Upon effectiveness of the Credit Agreement Amendment, the liens securing the Senior Secured Notes were also automatically released, and our obligations under the Senior Secured Notes (thereafter, together with our other senior unsecured notes, “Senior Notes”), which for the avoidance of doubt exclude the Spectrum-Backed Notes, are no longer secured.
Senior Notes
The Senior Notes are guaranteed on a senior unsecured basis by the Company and certain of our consolidated subsidiaries. They are redeemable at our discretion, in whole or in part, at any time. The redemption price is calculated by reference to date on which such notes are redeemed and generally includes a premium that steps down gradually as the Senior Notes approach their par call date, on or after which they are redeemable at par. The amount of time by which the par call date precedes the maturity date of the respective series of Senior Notes varies from one to three years.
Issuances and Borrowings
During the year ended December 31, 2017,2022, we issued the following Senior Notes and ABS Notes: | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Principal Issuances | | Premiums/Discounts and Issuance Costs | | Net Proceeds from Issuance of Long-Term Debt | | Issue Date |
5.200% Senior Notes due 2033 | $ | 1,250 | | | $ | (8) | | | $ | 1,242 | | | September 15, 2022 |
5.650% Senior Notes due 2053 | 1,000 | | | (11) | | | 989 | | | September 15, 2022 |
5.800% Senior Notes due 2062 | 750 | | | (12) | | | 738 | | | September 15, 2022 |
Total of Senior Notes issued | $ | 3,000 | | | $ | (31) | | | $ | 2,969 | | | |
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4.910% Class A Senior ABS Notes due 2028 | 750 | | | (4) | | | 746 | | | October 12, 2022 |
Total of ABS Notes issued | $ | 750 | | | $ | (4) | | | $ | 746 | | | |
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(in millions) | Principal Issuances | | Issuance Costs | | Net Proceeds from Issuance of Long-Term Debt |
4.000% Senior Notes due 2022 | $ | 500 |
| | $ | 2 |
| | $ | 498 |
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5.125% Senior Notes due 2025 | 500 |
| | 2 |
| | 498 |
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5.375% Senior Notes due 2027 | 500 |
| | 1 |
| | 499 |
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Total of Senior Notes issued | $ | 1,500 |
| | $ | 5 |
| | $ | 1,495 |
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On March 16, 2017,September 15, 2022, T-Mobile USA and certain of its affiliates, as guarantors, issued a totalan aggregate of $1.5$3.0 billion of public Senior Notes with variousbearing interest ratesfrom 5.200% to 5.800% and maturity dates. Issuance costs relatedmaturing in 2033 to the public debt issuance totaled $5 million for the year ended December 31, 2017. We2062, and used the net proceeds of $1.495$3.0 billion from the transactionfor general corporate purposes, including among other things, share repurchases and refinancing of existing indebtedness on an ongoing basis.
Subsequent to redeem callable high yield debt.
On January 25, 2018, T-Mobile USA and certain of its affiliates, as guarantors, (i)December 31, 2022, on February 9, 2023, we issued $1.0 billion of public 4.500%4.950% Senior Notes due 2026 and (ii) issued $1.52028, $1.3 billion of public 4.750%5.050% Senior Notes due 2028.2033 and $750 million of 5.650% Senior Notes due 2053. We intend to use the net proceeds of $2.493$3.0 billion from the transaction to redeem up to $1.75 billion of 6.625% Senior Notes due 2023, and up to $600 million of 6.836% Senior Notes due 2023, with the balance to be used for general corporate purposes, including partial pay downwhich may include among other things, share repurchases and refinancing of borrowings under ourexisting indebtedness on an ongoing basis.
Credit Facilities
On October 17, 2022, we entered into an Amended and Restated Credit Agreement (the “October 2022 Credit Agreement”) with certain financial institutions named therein. The October 2022 Credit Agreement amends and restates in its entirety the Credit Agreement originally dated April 1, 2020, and provides for a $7.5 billion revolving credit facility, with DT. Issuance costs relatedincluding a letter of credit sub-facility of up to $1.5 billion, and a swingline loan sub-facility of up to $500 million. Commitments under the October 2022 Credit Agreement will mature on October 17, 2027, except as otherwise extended or replaced. Borrowings under the October 2022 Credit Agreement will bear interest based upon the applicable benchmark rate, depending on the type of loan and, in some cases, at our election, plus a margin that is determined by reference to the public debt issuance totaled approximately $7 million.credit rating of T-Mobile USA’s senior unsecured long-term debt. The October 2022 Credit Agreement contains customary representations, warranties and covenants, including a financial maintenance covenant of 4.5x with respect to T-Mobile USA, Inc.’s Leverage Ratio (as defined therein) commencing with the period ended December 31, 2022. As of December 31, 2022, we did not have an outstanding balance under this facility.
NotesNote Redemptions and Repayments
During the year ended December 31, 2017,2022, we made the following note redemptions:redemptions and repayments:
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(in millions) | Principal Amount | | | | | | Redemption or Repayment Date | | Redemption Price |
4.000% Senior Notes due 2022 | $ | 500 | | | | | | | March 16, 2022 | | 100.000 | % |
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4.000% Senior Notes to affiliates due 2022 | 1,000 | | | | | | | March 16, 2022 | | 100.000 | % |
5.375% Senior Notes to affiliates due 2022 | 1,250 | | | | | | | April 15, 2022 | | N/A |
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6.000% Senior Notes due 2022 | 2,280 | | | | | | | November 15, 2022 | | N/A |
Total Redemptions | $ | 5,030 | | | | | | | | | |
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4.738% Secured Series 2018-1 A-1 Notes due 2025 | $ | 525 | | | | | | | Various | | N/A |
Other debt | 1 | | | | | | | Various | | N/A |
Total Repayments | $ | 526 | | | | | | | | | |
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(in millions) | Principal Amount | | Write-off of Premiums, Discounts and Issuance Costs (1) | | Call Penalties (1) (2) | | Redemption Date | | Redemption Price |
6.625% Senior Notes due 2020 | $ | 1,000 |
| | $ | (45 | ) | | $ | 22 |
| | February 10, 2017 | | 102.208 | % |
5.250% Senior Notes due 2018 | 500 |
| | 1 |
| | 7 |
| | March 4, 2017 | | 101.313 | % |
6.250% Senior Notes due 2021 | 1,750 |
| | (71 | ) | | 55 |
| | April 1, 2017 | | 103.125 | % |
6.464% Senior Notes due 2019 | 1,250 |
| | — |
| | — |
| | April 28, 2017 | | 100.000 | % |
6.542% Senior Notes due 2020 | 1,250 |
| | — |
| | 21 |
| | April 28, 2017 | | 101.636 | % |
6.633% Senior Notes due 2021 | 1,250 |
| | — |
| | 41 |
| | April 28, 2017 | | 103.317 | % |
6.731% Senior Notes due 2022 | 1,250 |
| | — |
| | 42 |
| | April 28, 2017 | | 103.366 | % |
Total note redemptions | $ | 8,250 |
| | $ | (115 | ) | | $ | 188 |
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(1) | Write-off of premiums, discounts, issuance costs and call penalties are included in Other expense, net in our Consolidated Statements of Comprehensive Income. Write-off of premiums, discounts and issuance costs are included in Other, net within Net cash provided by operating activities in our Consolidated Statements of Cash Flows. |
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(2) | The call penalty is the excess paid over the principal amount. Call penalties are included within Net cash provided by operating activities in our Consolidated Statements of Cash Flows. |
Prior to December 31, 2017, we delivered a noticeOur losses on extinguishment of redemption on $1.0 billion aggregate principal amount of our 6.125% Senior Notes due 2022. The notesdebt were redeemed on January 15, 2018, at a redemption price equal to 103.063% of the principal amount of the notes (plus accrued and unpaid interest thereon). The redemption premium was approximately $31$184 million and $371 million for the write-off of issuance costs was approximately $1 million. The outstanding principal amount was reclassified from Long-term debt to Short-term debt in our Consolidated Balance Sheets as of December 31, 2017.
Debt to Affiliates
Issuances and Borrowings
During the yearyears ended December 31, 2017, we made the following borrowings:
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(in millions) | Net Proceeds from Issuance of Long-Term Debt | | Extinguishments | | Write-off of Discounts and Issuance Costs (1) |
LIBOR plus 2.00% Senior Secured Term Loan due 2022 | $ | 2,000 |
| | $ | — |
| | $ | — |
|
LIBOR plus 2.00% Senior Secured Term Loan due 2024 | 2,000 |
| | — |
| | — |
|
LIBOR plus 2.750% Senior Secured Term Loan (2) | — |
| | (1,980 | ) | | 13 |
|
Total | $ | 4,000 |
| | $ | (1,980 | ) | | $ | 13 |
|
| |
(1) | Write-off of discounts and issuance costs are included in Other expense, net in our Consolidated Statements of Comprehensive Income and Other, net within Net cash provided by operating activities in our Consolidated Statements of Cash Flows. |
| |
(2) | Our Senior Secured Term Loan extinguished during the year endedDecember 31, 2017 was Third Party debt.
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On January 25, 2017, T-Mobile USA, Inc. (“T-Mobile USA”),2021 and certain2020, respectively, and are included in Other expense, net on our Consolidated Statements of its affiliates, as guarantors, entered into an agreement to borrow $4.0 billion under a secured term loan facility (“Incremental Term Loan Facility”) with DT, our majority stockholder, to refinance $1.98 billionComprehensive Income. There was no loss on extinguishment of outstanding senior secured term loans under its Term Loan Credit Agreement dated November 9, 2015, with the remaining net proceeds from the transaction used to redeem callable high yield debt. The Incremental Term Loan Facility increased DT’s incremental term loan commitment provided to T-Mobile USA under that certain First Incremental Facility Amendment dated as of December 29, 2016, from $660 million to $2.0 billion and provided T-Mobile USA with an additional $2.0 billion incremental term loan commitment.
On January 31, 2017, the loans under the Incremental Term Loan Facility were drawn in two tranches: (i) $2.0 billion of which bears interest at a rate equal to a per annum rate of LIBOR plus a margin of 2.00% and matures on November 9, 2022, and (ii) $2.0 billion of which bears interest at a rate equal to a per annum rate of LIBOR plus a margin of 2.25% and matures on January 31, 2024. In July 2017, we repriced the $2.0 billion Incremental Term Loan Facility maturing on January 31, 2024, with DT by reducing the interest rate to a per annum rate of LIBOR plus a margin of 2.00%. No issuance fees were incurred related to this debt agreement for the year ended December 31, 2017.2022.
Asset-backed Notes
On March 31, 2017,October 12, 2022, we issued $750 million of 4.910% Class A Senior ABS Notes to third-party investors in a private placement transaction. Our ABS Notes are secured by $1.0 billion of gross EIP receivables and future collections on such receivables.
In connection with issuing the Incremental Term Loan Facility was amendedABS Notes, we formed a wholly owned subsidiary, which qualifies as a bankruptcy remote entity (the “ABS BRE”), and a trust (the “ABS Trust” and together with the ABS BRE, the “ABS Entities”), in which the ABS BRE holds a residual interest. The ABS BRE’s residual interest in the ABS Trust represents the rights to waive all interimfunds not needed to make required payments on the ABS Notes and other related payments and expenses.
Under the terms of the ABS Notes, our wholly owned subsidiary, T-Mobile Financial LLC (“FinCo”), and certain of our other wholly owned subsidiaries (collectively, the “Originators”) transfer EIP receivables to the ABS BRE, which in turn transfers such receivables to the ABS Trust, which issued the ABS Notes. The Class A senior ABS Notes have an expected weighted average life of approximately 2.5 years. Under the terms of the transaction, there is a two-year revolving period during which we may transfer additional receivables to the ABS Entities as collections on the receivables are received. The EIP receivables transferred to the ABS Entities and related assets, consisting primarily of restricted cash, will only be available for payment of the ABS Notes and expenses related thereto, payments to the Originators in respect of additional transfers of device payment plan agreement receivables, and other obligations arising from our ABS Notes transactions, and will not be available to pay our other obligations until the associated ABS Notes and related obligations are satisfied. The third-party investors in the Class A senior ABS Notes have legal recourse only to the assets of the ABS Trust securing the ABS Notes and do not have any recourse to T-Mobile with respect to the payment of principal payments.and interest. The outstandingreceivables transferred to the ABS Trust will only be available for payment of the ABS Notes and other obligations arising from the transaction and will not be available to pay any obligations or claims of T-Mobile’s creditors.
Under a parent support agreement, T-Mobile has agreed to guarantee the performance of the obligations of FinCo, which will continue to service the receivables, and the other T-Mobile entities participating in the transaction. However, T-Mobile does not guarantee any principal or interest on the ABS Notes or any payments on the underlying EIP receivables.
The ABS Notes are redeemable, in whole but not in part, on or after the payment date in November 2023. If redeemed on or after the payment date in November 2024, or if the aggregate principal balance will be due at maturity.
Duringof the year ended December 31, 2017, we issued the following Senior Notestransferred EIP receivables is equal to DT:
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| | | | | | | | | | | |
(in millions) | Principal Issuances (Redemptions) | | Discounts (1) | | Net Proceeds from Issuance of Long-Term Debt |
4.000% Senior Notes due 2022 | $ | 1,000 |
| | $ | (23 | ) | | $ | 977 |
|
5.125% Senior Notes due 2025 | 1,250 |
| | (28 | ) | | 1,222 |
|
5.375% Senior Notes due 2027 (2) | 1,250 |
| | (28 | ) | | 1,222 |
|
6.288% Senior Reset Notes due 2019 | (1,250 | ) | | — |
| | (1,250 | ) |
6.366% Senior Reset Notes due 2020 | (1,250 | ) | | — |
| | (1,250 | ) |
Total | $ | 1,000 |
| | $ | (79 | ) | | $ | 921 |
|
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(1) | Discounts reduce Proceeds from issuance of long-term debt and are included within Net cash (used in) provided by financing activities in our Consolidated Statements of Cash Flows. |
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(2) | In April 2017, we issued to DT $750 million in aggregate principal amountor less than 10% of the 5.375% Senior Notes due 2027, and in September 2017, we issued to DT the remaining $500 million in aggregate principal amount of the 5.375% Senior Notes due 2027. |
On March 13, 2017, DT agreed to purchase a total of $3.5 billion in aggregate principal amounts of Senior Notes with various interest rates and maturity dates (the “new DT Notes”).
Through net settlement in April 2017, we issued to DT a total of $3.0 billion in aggregate principal amountbalance of the new DT Notes and redeemed the $2.5 billion in outstanding aggregate principal amount of Senior Reset Notes with various interest rates and maturity dates (the “old DT Notes”).
The redemption prices of the old DT Notes were 103.144% and 103.183%, resulting in a total of $79 million in early redemption fees. These early redemption fees were recorded as discounts on theEIP receivables transferred upon issuance of the new DT Notes.ABS Notes, we can redeem the ABS Notes without incurring a Make-Whole Payment; otherwise, a Make-Whole Payment applies.
In September 2017, we issuedCash collections on the EIP receivables are required at certain specified times to DT $500 millionbe placed into segregated accounts. Deposits to the segregated accounts are considered restricted cash and are included in aggregate principal amount of 5.375% SeniorOther current assets on our Consolidated Balance Sheets.
Net proceeds of $746 million from the issuance of the new DTour ABS Notes were $921 million and are includedreflected in Proceeds from issuance of long-term debt inon our Consolidated Statements of Cash Flows.Flows in the year ended December 31, 2022. The ABS Notes issued and the assets securing this debt are included on our Consolidated Balance Sheets.
The expected maturities of our ABS Notes are as follows: | | | | | | | | | | | | | | | | | |
| | | Expected Maturities | | |
(in millions) | | 2024 | | 2025 | | | |
4.910% Class A Senior ABS Notes due 2028 | | | $ | 198 | | | $ | 552 | | | | | |
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Variable Interest Entities
The ABS Entities meet the definition of a VIE for which we have determined that we are the primary beneficiary as we have the power to direct the activities of the ABS Entities that most significantly impact their performance. Those activities include selecting which receivables are transferred into the ABS Entities, servicing such receivables, and funding of the ABS Entities. Additionally, our equity interest and residual interest in the ABS BRE and the ABS Trust, respectively, obligate us to absorb losses and gives us the right to receive benefits from the ABS Entities that could potentially be significant to the ABS Entities. Accordingly, we include the balances and results of operations of the ABS Entities in our consolidated financial statements.
The following table summarizes the carrying amounts and classification of assets and liabilities included in our Consolidated Balance Sheets with respect to the ABS Entities:
| | | | | |
| December 31, 2022 |
(in millions) |
Assets | |
Equipment installment plan receivables, net | $ | 652 | |
Equipment installment plan receivables due after one year, net | 281 | |
Other current assets | 73 | |
Liabilities | |
Accounts payable and accrued liabilities | 1 | |
| |
Long-term debt | 746 | |
Spectrum Financing
On May 9, 2017, we exercised our option under existing purchase agreements and issuedApril 1, 2020, in connection with the following Senior Notes to DT:
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| | | | | | | | | | | |
(in millions) | Principal Issuances | | Premium | | Net Proceeds from Issuance of Long-Term Debt |
5.300% Senior Notes due 2021 | $ | 2,000 |
| | $ | — |
| | $ | 2,000 |
|
6.000% Senior Notes due 2024 | 1,350 |
| | 40 |
| | 1,390 |
|
6.000% Senior Notes due 2024 | 650 |
| | 24 |
| | 674 |
|
Total | $ | 4,000 |
| | $ | 64 |
| | $ | 4,064 |
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The proceeds were used to fund a portionclosing of the purchase priceMerger, we assumed Sprint’s spectrum-backed notes, which are collateralized by the acquired, directly held and third-party leased Spectrum licenses (collectively, the “Spectrum Portfolio”) transferred to wholly owned bankruptcy-remote special purpose entities (collectively, the “Spectrum Financing SPEs”). As of spectrum licenses wonDecember 31, 2022 and 2021, the total outstanding obligations under these Notes was $3.0 billion and $3.5 billion, respectively.
In October 2016, certain subsidiaries of Sprint Communications, Inc. transferred the Spectrum Portfolio to the Spectrum Financing SPEs, which was used as collateral to raise an initial $3.5 billion in
senior secured notes (the “2016 Spectrum-Backed Notes”) bearing interest at 3.360% per annum under a $7.0 billion securitization program. The 2016 Spectrum-Backed Notes were repayable over a five-year term, with interest-only payments over the
600 MHz spectrum auction. Net proceeds from these issuances include $64 millionfirst four quarters and amortizing quarterly principal payments thereafter commencing December 2017 through September 2021. We fully repaid the 2016 Spectrum-Backed Notes in
debt premiums. See Note 5 - Goodwill, Spectrum Licenses and Other Intangible Assets for further information.2021.
On January 22,In March 2018, DT agreed to purchase $1.0Sprint issued approximately $3.9 billion in aggregate principal amount of 4.500% Seniorsenior secured notes (the “2018 Spectrum-Backed Notes” and together with the 2016 Spectrum-Backed Notes, due 2026 and $1.5the “Spectrum-Backed Notes”) under the existing $7.0 billion securitization program, consisting of two series of senior secured notes. The first series of notes totaled $2.1 billion in aggregate principal amount, bears interest at 4.738% per annum, and has quarterly interest-only payments until June 2021, with additional quarterly principal payments commencing in June 2021 through March 2025. As of 4.750% Senior Notes due 2028 directly from T-Mobile USA and certainDecember 31, 2022, $525 million of its affiliates,the aggregate principal amount was classified as guarantors, with no underwriting discount (the “DT Notes”).
DT has agreed that the payment for the DTShort-term debt on our Consolidated Balance Sheets. The second series of notes will be made by delivery of $1.25totaled approximately $1.8 billion in aggregate principal amount, bears interest at 5.152% per annum, and has quarterly interest-only payments until June 2023, with additional quarterly principal payments commencing in June 2023 through March 2028. As of 8.097% Senior Reset Notes due 2021 and $1.25 billion inDecember 31, 2022, $276 million of the aggregate principal amount of 8.195% Senior Reset Notes due 2022 (collectively, the “DT Senior Reset Notes”) held by DT and which T-Mobile USA will have calledwas classified as
The closing of the issuance and sale of the DT notes to DT, and exchange of the DT Senior Reset Notes, is expected to occur on or about April 30, 2018.
Capital Leases
Capital lease agreements primarily relate to network equipment with varying expiration terms through 2031. Future minimum payments required under capital leases, including interest and maintenance, over their remaining terms are summarized below:
|
| | | |
(in millions) | Future Minimum Payments |
Year Ended December 31, | |
2018 | $ | 682 |
|
2019 | 634 |
|
2020 | 338 |
|
2021 | 151 |
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2022 | 67 |
|
Thereafter | 172 |
|
Total | $ | 2,044 |
|
Included in Total | |
Interest | $ | 169 |
|
Maintenance | 51 |
|
Financing Arrangements
We maintain a handset financing arrangement with Deutsche Bank AG (“Deutsche Bank”), which allows for up to $108 million in borrowings. Under the handset financing arrangement, we can effectively extend payment terms for invoices payable to certain handset vendors. The interest rate on the handset financing arrangement is determined based on LIBOR plus a specified margin per the arrangement. Obligations under the handset financing arrangement are included in Short-term debt inon our Consolidated Balance Sheets. InThe Spectrum Portfolio, which also serves as collateral for the Spectrum-Backed Notes, remains substantially identical to the original portfolio from October 2016.
Simultaneously with the October 2016 we utilizedoffering, Sprint Communications, Inc. entered into a long-term lease with the Spectrum Financing SPEs for the ongoing use of the Spectrum Portfolio. Sprint Communications, Inc. is required to make monthly lease payments to the Spectrum Financing SPEs in an aggregate amount that is market-based relative to the spectrum usage rights as of the closing date and repaid $100equal to $165 million per month. The lease payments, which are guaranteed by T-Mobile subsidiaries subsequent to the Merger, are sufficient to service all outstanding series of the 2016 Spectrum-Backed Notes and the lease also constitutes collateral for the senior secured notes. Because the Spectrum Financing SPEs are wholly owned T-Mobile subsidiaries subsequent to the Merger, these entities are consolidated and all intercompany activity has been eliminated.
Each Spectrum Financing SPE is a separate legal entity with its own separate creditors who will be entitled, prior to and upon the liquidation of the respective Spectrum Financing SPE, to be satisfied out of the Spectrum Financing SPE’s assets prior to any assets of such Spectrum Financing SPE becoming available to T-Mobile. Accordingly, the assets of each Spectrum Financing SPE are not available to satisfy the debts and other obligations owed to other creditors of T-Mobile until the obligations of such Spectrum Financing SPE under the financing arrangement. AsSpectrum-Backed Notes are paid in full. Certain provisions of December 31, 2017 and 2016, there was no outstanding balance.the Spectrum Financing facility require us to maintain specified cash collateral balances. Amounts associated with these balances are considered to be restricted cash.
WeRestricted Cash
Certain provisions of our debt agreements require us to maintain vendor financing arrangementsspecified cash collateral balances. Amounts associated with our primary network equipment suppliers. Under the respective agreements, we can obtain extended financing terms. The interest rate on the vendor financing arrangements is determined based on the difference between LIBOR and a specified margin per the agreements. Obligations under the vendor financing arrangementsthese balances are included in Short-term debt in our Consolidated Balance Sheets. In 2017, we utilized and repaid $300 million under the financing arrangement. As of December 31, 2017 and 2016, there was no outstanding balance.considered to be restricted cash.
Revolving Credit Facility and Standby Letters of Credit
We had an unsecured revolving credit facility with Deutsche Telekom which allowed for up to $500 million in borrowings. In December 2016, we terminated our $500 million unsecured revolving credit facility with Deutsche Telekom.
In December 2016, T-Mobile USA entered into a $2.5 billion revolving credit facility with Deutsche Telekom which comprised of (i) a three-year $1.0 billion unsecured revolving credit agreement and (ii) a three-year $1.5 billion secured revolving credit agreement. The applicable margin for the Unsecured Revolving Credit Facility ranges from 2.00% to 3.25% per annum for Eurodollar Rate loans. The applicable margin for the Secured Revolving Credit Facility ranges from 1.00% to 1.75% per annum for Eurodollar Rate loans. As of December 31, 2017 and 2016, there were no outstanding borrowings under the revolving credit facility.
In January 2018, we utilized proceeds under the revolving credit facility to redeem $1.0 billion in aggregate principal amount of our 6.125% Senior Notes due 2022 and for general corporate purposes. As of February 5, 2018, there were no outstanding borrowings on the revolving credit facility. The Proceeds and borrowings from the revolving credit facility are presented in Proceeds from borrowing on revolving credit facility and Repayments of revolving credit facility within Net cash (used in) provided by financing activities in our Consolidated Statements of Cash Flows.
For the purposes of securing our obligations to provide handsetdevice insurance services and for the purposes of securing our general purpose obligations, we maintain an agreement for standby letters of credit with JP Morgan Chase Bank, N.A. (“JP Morgan Chase”). For purposescertain financial institutions. We assumed certain of securing our general purpose obligations, we maintain a letterSprint’s standby letters of credit reimbursement agreement with Deutsche Bank.
The following table summarizesin the Merger. Our outstanding standby letters of credit under each agreement:were $352 million and $441 million as of December 31, 2022 and 2021, respectively. |
| | | | | | | |
(in millions) | December 31, 2017 | | December 31, 2016 |
JP Morgan Chase | $ | 20 |
| | $ | 20 |
|
Deutsche Bank | 59 |
| | 54 |
|
Total outstanding balance | $ | 79 |
| | $ | 74 |
|
Note 8 -9 – Tower Obligations
Existing CCI Tower Lease Arrangements
In 2012, we conveyed to Crown Castle International Corp. (“CCI”) the exclusive right to manage and operate approximately 7,100 T-Mobile-owned wireless communication6,200 tower sites (“CCI TowerLease Sites”) in exchange for net proceeds of $2.5 billion (“2012 Tower Transaction”). Rights to approximately 6,200 of the tower sites were transferred to CCI via a Master Prepaid Leasemaster prepaid lease with site lease terms ranging from 23 to 37 years (“CCI Lease Sites”), while the remaining tower sites were sold to CCI (“CCI Sales Sites”).years. CCI has fixed-price purchase options for these towersthe CCI Lease Sites totaling approximately $2.0 billion, basedexercisable annually on the estimated fair market valuea per-tranche basis at the end of the lease term.term during the period from December 31, 2035, through December 31, 2049. If CCI exercises its purchase option for any tranche, it must purchase all the towers in the tranche. We lease back a portion of the space at certain tower sites for an initial term of ten years, followed by optional renewals at customary terms.sites.
In 2015, we conveyed to Phoenix Tower International (“PTI”) the exclusive right to manage and operate approximately 600 T-Mobile-owned wireless communication tower sites (“PTI Tower Sites”) in exchange for net proceeds of approximately $140 million (“2015 Tower Transaction”). As of December 31, 2017, rights to approximately 200 of the tower sites remain operated
by PTI under a management agreement (“PTI Managed Sites”). We lease back space at certain tower sites for an initial term of ten years, followed by optional renewals at customary terms.
Assets and liabilities associated with the operation of certain of the tower sites were transferred to SPEs.special purpose entities (“SPEs”). Assets included ground lease agreements or deeds for the land on which the towers are situated, the towers themselves and existing subleasing agreements with other mobile network operator tenants whothat lease space at the tower sites. Liabilities included the obligation to pay ground lease rentals, property taxes and other executory costs. Upon closing of the 2012 Tower Transaction, CCI acquired all of the equity interests in the SPEs containing CCI Sales Sites and an option to acquire the CCI Lease Sites at the end of their respective lease terms and entered into a master lease agreement under which we agreed to lease back space at certain of the tower sites. Upon closing of the 2015 Tower Transaction, PTI acquired all of the equity interests in the SPEs containing PTI Sales Sites and entered into a master lease agreement under which we agreed to lease back space at certain of the tower sites.
We determined the SPEs containing the CCI Lease Sites (“Lease Site SPEs”) are VIEs as they lack sufficient equity to finance their activities. We have a variable interest in the Company's equity investment lacksLease Site SPEs but are not the primary beneficiary as we lack the power to direct the activities that most significantly impact the Lease Site SPEs’ economic performance of the VIEs.performance. These activities include managing tenants and underlying ground leases, performing repair and maintenance on the towers, the obligation to absorb expected losses and the right to receive the expected future residual returns from the purchase option to acquire the CCI Lease Sites. As we determined that we are not the primary beneficiary and do not have a controlling financial interest in the Lease Site SPEs, the balances and operating results of the Lease Site SPEs are not included inon our consolidated financial statements.
Due to our continuing involvement withHowever, we also considered if this arrangement resulted in the sale of the CCI Lease Sites for which we would derecognize the tower sites,assets. By assessing whether control had transferred, we determinedconcluded that transfer of control criteria, as discussed in the revenue standard, were not met. Accordingly, we were precluded from applying sale-leaseback accounting.recorded this arrangement as a financing whereby we recorded debt, a financial obligation, and the CCI Lease Sites tower assets remained on our Consolidated Balance Sheets. We recorded long-termlong-
term financial obligations in the amount of the net proceeds received and recognizedrecognize interest on the tower obligations at a rate of approximately 8% for the 2012 Tower Transaction and 5% for the 2015 Tower Transaction using the effective interest method.obligations. The tower obligations are increased by interest expense and amortized through contractual leaseback payments made by us to CCI or PTI and through estimated future net cash flows generated and retained by CCI or PTI from the operation of the tower sites. Our historical
Acquired CCI Tower Lease Arrangements
Prior to the Merger, Sprint entered into a lease-out and leaseback arrangement with Global Signal Inc., a third party that was subsequently acquired by CCI, that conveyed to CCI the exclusive right to manage and operate approximately 6,400 tower site asset costs continuesites (“Master Lease Sites”) via a master prepaid lease. These agreements were assumed upon the close of the Merger, at which point the remaining term of the lease-out was approximately 17 years with no renewal options. CCI has a fixed price purchase option for all (but not less than all) of the leased or subleased sites for approximately $2.3 billion, exercisable one year prior to bethe expiration of the agreement and ending 120 days prior to the expiration of the agreement. We lease back a portion of the space at certain tower sites.
We considered if this arrangement resulted in the sale of the Master Lease Sites for which we would derecognize the tower assets. By assessing whether control had transferred, we concluded that transfer of control criteria, as discussed in the revenue standard, were not met. Accordingly, we recorded this arrangement as a financing whereby we recorded debt, a financial obligation, and the Master Lease Sites tower assets remained on our Consolidated Balance Sheets.
As of the closing date of the Merger, we recognized Property and equipment with a fair value of $2.8 billion and tower obligations related to amounts owed to CCI under the leaseback of $1.1 billion. Additionally, we recognized $1.7 billion in Other long-term liabilities associated with contract terms that are unfavorable to current market rates, which include unfavorable terms associated with the fixed-price purchase option in 2037.
We recognize interest expense on the tower obligations. The tower obligations are increased by the interest expense and amortized through contractual leaseback payments made by us to CCI. The tower assets are reported in Property and equipment, net inon our Consolidated Balance Sheets and are depreciated.depreciated to their estimated residual values over the expected useful life of the towers, which is 20 years.
Leaseback Arrangement
On January 3, 2022, we entered into an agreement (the “Crown Agreement”) with CCI. The Crown Agreement extends the current term of the leasebacks by up to 12 years and modifies the leaseback payments for both the Existing CCI Tower Lease Arrangement and the Acquired CCI Tower Lease Arrangement. As a result of the Crown Agreement, there was an increase in our financing obligation as of the effective date of the Crown Agreement of approximately $1.2 billion, with a corresponding decrease to Other long-term liabilities associated with unfavorable contract terms. The modification resulted in a revised interest rate under the effective interest method for the tower obligations: 11.6% for the Existing CCI Tower Lease Arrangement and 5.3% for the Acquired CCI Tower Lease Arrangement. There were no changes made to either of our master prepaid leases with CCI.
The following table summarizes the impacts tobalances associated with both of the tower arrangements on our Consolidated Balance Sheets: | | | | | | | | | | | |
(in millions) | December 31, 2022 | | December 31, 2021 |
Property and equipment, net | $ | 2,379 | | | $ | 2,548 | |
Tower obligations | 3,934 | | | 2,806 | |
Other long-term liabilities | 554 | | | 1,712 | |
|
| | | | | | | |
(in millions) | December 31, 2017 | | December 31, 2016 |
Property and equipment, net | $ | 402 |
| | $ | 485 |
|
Long-term financial obligation | 2,590 |
| | 2,621 |
|
Future minimum payments related to the tower obligations are expected to be approximately $189$424 million in 2018, $379for the 12-month period ending December 31, 2023, $816 million in total for 2019both of the 12-month periods ending December 31, 2024 and 2020, $3812025, $788 million in total for 2021both of the 12-month periods ending December 31, 2026 and 20222027, and $1.0$4.5 billion in total for years thereafter.
We are contingently liable for future ground lease payments through the remaining term of the CCI Lease Sites and the Master Lease Sites. These contingent obligations are not included in the above tableOperating lease liabilities as any amount due is contractually owed by CCI based on the subleasing arrangement. See Under the arrangement, we remain primarily liable for ground lease payments on approximately 900 sites and have included lease liabilities of $246 million in our Operating lease liabilities as of December 31, 2022.
Note 1310 – CommitmentsRevenue from Contracts with Customers
Disaggregation of Revenue
We provide wireless communications services to three primary categories of customers:
•Postpaid customers generally include customers who are qualified to pay after receiving wireless communications services utilizing phones, High Speed Internet, tablets, wearables, DIGITS or other connected devices;
•Prepaid customers generally include customers who pay for wireless communications services in advance; and Contingencies
•Wholesale customers include Machine-to-Machine and Mobile Virtual Network Operator customers that operate on our network but are managed by wholesale partners.
Postpaid service revenues, including postpaid phone revenues and postpaid other revenues, were as follows: | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
(in millions) | | | | | 2022 | | 2021 | | 2020 |
Postpaid service revenues | | | | | | | | | |
| | | | | | | | | |
Postpaid phone revenues | | | | | $ | 41,711 | | | $ | 39,154 | | | $ | 33,939 | |
Postpaid other revenues | | | | | 4,208 | | | 3,408 | | | 2,367 | |
| | | | | | | | | |
Total postpaid service revenues | | | | | $ | 45,919 | | | $ | 42,562 | | | $ | 36,306 | |
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We operate as a single operating segment. The balances presented in each revenue line item on our Consolidated Statements of Comprehensive Income represent categories of revenue from contracts with customers disaggregated by type of product and service. Postpaid and prepaid service revenues also include revenues earned for further information.providing premium services to customers, such as device insurance services. Revenue generated from the lease of mobile communication devices is included in Equipment revenues on our Consolidated Statements of Comprehensive Income.
Equipment revenues from the lease of mobile communication devices were as follows: | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
(in millions) | | | | | 2022 | | 2021 | | 2020 |
Equipment revenues from the lease of mobile communication devices | | | | | $ | 1,430 | | | $ | 3,348 | | | $ | 4,181 | |
Contract Balances
The contract asset and contract liability balances from contracts with customers as of December 31, 2022, and 2021, were as follows: | | | | | | | | | | | | | |
(in millions) | Contract Assets | | Contract Liabilities | | |
| | | | | |
Balance as of December 31, 2021 | $ | 286 | | | $ | 763 | | | |
Balance as of December 31, 2022 | 534 | | | 748 | | | |
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Change | $ | 248 | | | $ | (15) | | | |
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Contract assets primarily represent revenue recognized for equipment sales with promotional bill credits offered to customers that are paid over time and are contingent on the customer maintaining a service contract.
Contract asset balances increased primarily due to an increase in promotions with an extended service contract, partially offset by billings on existing contracts and impairment, which is recognized as bad debt expense. The current portion of our contract assets of approximately $356 million and $219 million as of December 31, 2022, and 2021, respectively, was included in Other current assets on our Consolidated Balance Sheets.
Contract liabilities are recorded when fees are collected, or we have an unconditional right to consideration (a receivable) in advance of delivery of goods or services. Changes in contract liabilities are primarily related to the activity of prepaid customers. Contract liabilities are primarily included in Deferred revenueon our Consolidated Balance Sheets.
Revenues for the years ended December 31, 2022, 2021 and 2020, include the following: | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
(in millions) | | | | | 2022 | | 2021 | | 2020 |
Amounts included in the beginning of year contract liability balance | | | | | $ | 760 | | | $ | 767 | | | $ | 545 | |
Remaining Performance Obligations
As of December 31, 2022, the aggregate amount of transaction price allocated to remaining service performance obligations for postpaid contracts with subsidized devices and promotional bill credits that result in an extended service contract is $1.4 billion. We expect to recognize revenue as the service is provided on these postpaid contracts over an extended contract term of 24 months from the time of origination.
Information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less has been excluded from the above, which primarily consists of monthly service contracts.
Certain of our wholesale, roaming and service contracts include variable consideration based on usage and performance. This variable consideration has been excluded from the disclosure of remaining performance obligations. As of December 31, 2022, the aggregate amount of the contractual minimum consideration for wholesale, roaming and service contracts is $2.3 billion, $1.9 billion and $3.4 billion for 2023, 2024, and 2025 and beyond, respectively. These contracts have a remaining duration ranging from less than one year to seven years.
Contract Costs
The balance of deferred incremental costs to obtain contracts with customers was $1.9 billion and $1.5 billion as of December 31, 2022, and December 31, 2021, respectively, and is included in Other assets on our Consolidated Balance Sheets. Deferred contract costs incurred to obtain postpaid service contracts are amortized over a period of 24 months. The amortization period is monitored to reflect any significant change in assumptions. Amortization of deferred contract costs included in Selling, general and administrative expenses on our Consolidated Statements of Comprehensive Income were $1.5 billion, $1.1 billion and $865 million for the years ended December 31, 2022, 2021 and 2020, respectively.
The deferred contract cost asset is assessed for impairment on a periodic basis. There were no impairment losses recognized on deferred contract cost assets for the years ended December 31, 2022, 2021 and 2020.
Note 911 – Employee Compensation and Benefit Plans
Under our 2013 Omnibus Incentive Plan and the Sprint Corporation Amended and Restated 2015 Omnibus Incentive Plan that T-Mobile assumed in connection with the closing of the Merger (the “Incentive Plan”Plans”), we are authorized to issue up to 63101 million shares of our common stock. Under theour Incentive Plan,Plans, we can grant stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), and performance awards to eligible employees, consultants, advisors and non-employee directors. As of December 31, 2017,2022, there were approximately 15 million shares of common stock available for future grants under theour Incentive Plan.Plans.
In January 2018, we closed on our previously announced acquisition of Layer3 TV, Inc. (“Layer3 TV”). Upon closing, the Layer3 TV 2013 Stock Plan and stock restriction agreements between Layer3 and certain employees were added to the Registration Statement related to the Incentive Plan. See Note 15 - Subsequent Events for further information regarding the Layer3 TV acquisitions.
We grant RSUs to eligible employees, key executives and certain non-employee directors and performance-based restricted stock units (“PRSUs”)PRSUs to eligible key executives. RSUs entitle the grantee to receive shares of our common stock at the end ofupon vesting (with vesting generally occurring annually over a vesting period of generally up to 3 years,three-year service period), subject to continued service through the applicable vesting date. PRSUs entitle the holder to receive shares of our common stock at the end of a vestingperformance period of generally up to 3three years if the applicable performance goals are achieved and generally subject to continued employmentservice through the vestingapplicable performance period. The number of shares ultimately
received by the holder of PRSUs is dependent on our business performance against the specified performance goal(s) over a pre-established performance period. We also maintain an employee stock purchase plan (“ESPP”), under which eligible employees can purchase our common stock at a discounted price.
Stock-based compensation expense and related income tax benefits were as follows: | | | | | | | | | | | | | | | | | | | | | |
| | | As of and for the Year Ended December 31, |
(in millions, except shares, per share and contractual life amounts) | | | | | 2022 | | 2021 | | 2020 |
Stock-based compensation expense | | | | | $ | 596 | | | $ | 540 | | | $ | 694 | |
Income tax benefit related to stock-based compensation | | | | | $ | 114 | | | $ | 100 | | | $ | 132 | |
Weighted-average fair value per stock award granted | | | | | $ | 126.89 | | | $ | 116.11 | | | $ | 96.27 | |
Unrecognized compensation expense | | | | | $ | 635 | | | $ | 625 | | | $ | 592 | |
Weighted-average period to be recognized (years) | | | | | 1.8 | | 1.8 | | 1.9 |
Fair value of stock awards vested | | | | | $ | 743 | | | $ | 944 | | | $ | 1,315 | |
|
| | | | | | | | | | | |
(in millions, except shares, per share and contractual life amounts) | December 31, 2017 | | December 31, 2016 | | December 31, 2015 |
Stock-based compensation expense | $ | 306 |
| | $ | 235 |
| | $ | 201 |
|
Income tax benefit related to stock-based compensation | 73 |
| | 80 |
| | 71 |
|
Realized excess tax benefit | — |
| | — |
| | 79 |
|
Weighted average fair value per stock award granted | 60.21 |
| | 45.07 |
| | 35.56 |
|
Unrecognized compensation expense | 445 |
| | 389 |
| | 327 |
|
Weighted average period to be recognized (years) | 1.9 |
| | 2.0 |
| | 2.0 |
|
Fair value of stock awards vested | 503 |
| | 354 |
| | 445 |
|
Stock Awards
RSUUpon the completion of our Merger with Sprint, T-Mobile assumed Sprint’s stock compensation plans. In addition, pursuant to the Business Combination Agreement, at the Effective Time, each outstanding option to purchase Sprint common stock (other than under Sprint’s Employee Stock Purchase Plan), each award of time-based RSUs in respect of shares of Sprint common stock and PRSUeach award of performance-based RSUs in respect of shares of Sprint common stock, in each case, that was outstanding immediately prior to the Effective Time was automatically adjusted by the Exchange Ratio (as defined in the Business Combination Agreement) and converted into an equity award of the same type covering shares of T-Mobile common stock, on the same terms and conditions (including, if applicable, any continuing vesting requirements (but excluding any performance-based vesting conditions)) under the applicable Sprint plan and award agreement in effect immediately prior to the Effective Time (the “Assumed Awards”). The applicable amount of performance-based RSUs eligible for conversion was based on formulas and approximated 100% of target. Any accrued but unpaid dividend equivalents with respect to any such award of time-based RSUs or performance-based RSUs were assumed by T-Mobile at the Effective Time and became an obligation with respect to the applicable award of RSUs in respect of shares of T-Mobile common stock.
On April 22, 2020, we filed a Registration Statement on Form S-8 to register a total of 25,304,224 shares of common stock, representing those covered by the Sprint Corporation 1997 Long-Term Stock Incentive Program, the Sprint Corporation 2007 Omnibus Incentive Plan (the “Sprint 2007 Plan”) and the Sprint Corporation Amended and Restated 2015 Omnibus Incentive Plan (the “2015 Plan”) that T-Mobile assumed in connection with the closing of the Merger. This included 7,043,843 shares of T-Mobile common stock issuable upon exercise or settlement of the Assumed Awards held by current directors, officers, employees and consultants of T-Mobile or its subsidiaries who were directors, officers, employees and consultants of Sprint or its subsidiaries immediately prior to the Effective Time, as well as (i) 12,420,945 shares of T-Mobile common stock that remain available for issuance under the 2015 Plan and (ii) 5,839,436 additional shares of T-Mobile common stock subject to awards granted under the 2015 Plan that may become available for issuance under the 2015 Plan if any awards under the 2015 Plan are forfeited, lapse unexercised or are settled in cash.
The following activity occurred under the Incentive Plans during the year ended December 31, 2022:
Time-Based Restricted Stock Units | | | | | | | | | | | | | | | | | | | | | | | |
(in millions, except shares, per share and contractual life amounts) | Number of Units or Awards | | Weighted-Average Grant Date Fair Value | | Weighted-Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value |
| | | | | | | |
Nonvested, December 31, 2021 | 8,893,288 | | | $ | 105.96 | | | 0.8 | | $ | 1,031 | |
| | | | | | | |
Granted | 5,638,899 | | | 126.31 | | | | | |
Vested | (4,965,728) | | | 99.96 | | | | | |
Forfeited | (1,193,400) | | | 120.87 | | | | | |
| | | | | | | |
Nonvested, December 31, 2022 | 8,373,059 | | | 121.09 | | | 0.9 | | 1,172 | |
Performance-Based Restricted Stock Units | | | | | | | | | | | | | | | | | | | | | | | |
(in millions, except shares, per share and contractual life amounts) | Number of Units or Awards | | Weighted-Average Grant Date Fair Value | | Weighted-Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value |
| | | | | | | |
Nonvested, December 31, 2021 | 1,889,557 | | | $ | 108.97 | | | 1.0 | | $ | 219 | |
| | | | | | | |
Granted | 242,163 | | | 154.53 | | | | | |
Performance award achievement adjustments (1) | 89,975 | | | 88.59 | | | | | |
Vested | (831,163) | | | 94.79 | | | | | |
Forfeited | (29,749) | | | 123.11 | | | | | |
| | | | | | | |
Nonvested, December 31, 2022 | 1,360,783 | | | 124.09 | | | 0.8 | | 191 | |
(1)Represents PRSUs granted prior to 2022 for which the performance achievement period was completed in 2022, resulting in incremental unit awards. These PRSU awards are also included in the amount vested in 2022.
PRSUs included in the table above are shown at target. Share payout can range from 0% to 200% based on different performance outcomes. Weighted-average grant date fair value of RSU and PRSU awards:awards assumed through acquisition is based on the fair value on the date assumed.
|
| | | | | | | | | | | | |
(in millions, except shares, per share and contractual life amounts) | Number of Units(1) | | Weighted Average Grant Date Fair Value | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value |
Nonvested, December 31, 2016 | 15,715,391 |
| | $ | 37.93 |
| | 1.1 | | $ | 904 |
|
Granted | 7,133,359 |
| | 60.21 |
| | | | |
Vested | (8,338,271 | ) | | 35.47 |
| | | | |
Forfeited | (814,936 | ) | | 49.02 |
| | | | |
Nonvested, December 31, 2017 | 13,695,543 |
| | 50.38 |
| | 1.1 | | 870 |
|
| |
(1) | PRSUs included in the table above are shown at target. Share payout can range from 0 to 200% based on different performance outcomes. |
Payment of the underlying shares in connection with the vesting of stockRSU and PRSU awards generally triggers a tax obligation for the employee, which is required to be remitted to the relevant tax authorities. WeWith respect to RSUs and PRSUs settled in shares, we have agreed to withhold shares of common stock otherwise issuable under the awardRSU and PRSU awards to cover certain of these tax obligations, with the net shares issued to the employee accounted for as outstanding common stock. We withheld 2,754,7211,900,710, 2,511,512 and 2,605,8074,441,107 shares of common stock to cover tax obligations associated with the payment of shares upon vesting of stock awards and remitted cash of $166$243 million, $316 million and $121$439 million to the appropriate tax authorities for the years ended December 31, 20172022, 2021 and 2016,2020, respectively.
Employee Stock Purchase Plan
Our ESPP allows eligible employees to contribute up to 15% of their eligible earnings toward the semi-annual purchase of our shares of common stock at a discounted price, subject to an annual maximum dollar amount. Employees can purchase stock at a 15% discount applied to the closing stock price on the first or last day of the six-month offering period, whichever price is lower. The number of shares issued under our ESPP was 1,832,0432,079,086, 2,189,542 and 1,905,5342,144,036 for the years ended December 31, 20172022, 2021 and 2020, respectively. As of December 31, 2022, the number of securities remaining available for future sale and issuance under the ESPP was 4,985,230. Sprint’s ESPP was terminated prior to the Merger close and legacy Sprint employees were eligible to enroll in our ESPP on August 15, 2020.
Our ESPP provides for an annual increase in the aggregate number of shares of our common stock reserved for sale and authorized for issuance thereunder as of the first day of each fiscal year (beginning with fiscal year 2016) equal to the lesser of (i) 5,000,000 shares of our common stock, and (ii) the number of shares of T-Mobile common stock determined by the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”). For fiscal years 2016 respectively.through 2019, the Compensation Committee determined that no such increase in shares of our common stock was necessary. However, an additional 5,000,000 shares of our common stock were automatically added to the ESPP share reserve as of each of January 1, 2020 and January 1, 2021. No additional shares of our common stock were automatically added as of January 1, 2022 and 2023.
Stock Options
Stock Options
Prioroptions outstanding relate to the business combination, MetroPCS had established the MetroPCSMetro Communications, Inc. 2010 Equity Incentive Compensation Plan, the Amended and Restated MetroPCSMetro Communications, Inc. 2004 Equity Incentive Compensation Plan, the Layer3 TV, Inc. 2013 Stock Plan, the Sprint 2007 Plan and the Second Amended and Restated 1995 StockSprint 2015 Plan (collectively, the “Stock Option Plan (“Predecessor Plans”). Following stockholder approval ofNo stock option awards were granted during the Incentive Plan, no new awards have been or may be granted underyear ended December 31, 2022.
The following activity occurred under the PredecessorStock Option Plans: | | | | | | | | | | | | | | | | | |
| Shares | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Term (Years) |
Outstanding at December 31, 2021 | 695,844 | | | $ | 53.01 | | | 3.3 |
| | | | | |
| | | | | |
Exercised | (150,112) | | | 45.96 | | | |
Expired/canceled | (1,260) | | | 25.95 | | | |
Outstanding at December 31, 2022 | 544,472 | | | 55.02 | | | 2.4 |
Exercisable at December 31, 2022 | 544,472 | | | 55.02 | | | 2.4 |
Weighted-average grant date fair value of stock options assumed through acquisition is based on the fair value on the date assumed. |
| | | | | | | | |
| Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) |
Outstanding and exercisable, December 31, 2016 | 833,931 |
| | $ | 31.75 |
| | 2.3 |
Exercised | (450,873 | ) | | 44.18 |
| | |
Expired | (9,900 | ) | | 45.76 |
| | |
Outstanding and exercisable, December 31, 2017 | 373,158 |
| | 16.36 |
| | 2.8 |
Stock options exercised under the PredecessorStock Option Plans generated proceeds of approximately $21$7 million, $10 million and $29$48 million for the years ended December 31, 20172022, 2021 and 2016,2020, respectively.
The grant-date fair value of share-based incentive compensation awards attributable to post-combination services including restricted stock units and stock options, from the Merger was approximately $163 million.
Pension and Other Postretirement Benefits Plans
Upon the completion of our Merger with Sprint, we acquired the assets and assumed the liabilities associated with the Pension Plan as well as other postretirement employee benefit plans. As of December 31, 2005, the Pension Plan was amended to freeze benefit plan accruals for the participants. The plan assets acquired and obligations assumed were recognized at fair value on the Merger close date.
The objective for the investment portfolio of the Pension Plan is to achieve a long-term nominal rate of return, net of fees, that exceeds the Pension Plan's long-term expected rate of return on investments for funding purposes. To meet this objective, our investment strategy is governed by an asset allocation policy, whereby a targeted allocation percentage is assigned to each asset class as follows: 41% to equities; 44% to fixed income investments; 11% to real estate, infrastructure and private assets; and 4% to other investments including hedge funds. Actual allocations are allowed to deviate from target allocation percentages within a range for each asset class as defined in the investment policy. The long-term expected rate of return on plan assets was 5% and 4% for the years ended December 31, 2022 and 2021, respectively, while the actual rate of return on plan assets was (14)% and 8% for the years ended December 31, 2022 and 2021, respectively. The long-term expected rate of return on investments for funding purposes is 7% for the year ended December 31, 2023.
The components of net expense recognized for the Pension Plan were as follows: | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
(in millions) | | | 2022 | | 2021 | | |
| | | | | | | |
Interest on projected benefit obligations | | | $ | 65 | | | $ | 61 | | | |
Expected return on pension plan assets | | | (71) | | | (56) | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net pension expense | | | $ | (6) | | | $ | 5 | | | |
The net expense associated with the Pension Plan is included in Other expense, net on our Consolidated Statements of Comprehensive Income.
Investments of the Pension Plan are measured at fair value on a recurring basis, which is determined using quoted market prices or estimated fair values. As of December 31, 2022, 17% of the investment portfolio was valued at quoted prices in active markets for identical assets, 79% was valued using quoted prices for similar assets in active or inactive markets, or other observable inputs, and 4% was valued using unobservable inputs that are supported by little or no market activity. As of December 31, 2021, 14% of the investment portfolio was valued at quoted prices in active markets for identical assets, 81% was valued using quoted prices for similar assets in active or inactive markets, or other observable inputs, and 5% was valued using unobservable inputs that are supported by little or no market activity, the majority of which used the net asset value per share (or its equivalent) as a practical expedient to measure the fair value.
The fair values of our Pension Plan assets and certain other postretirement benefit plan assets in aggregate were $1.2 billion and $1.5 billion as of December 31, 2022 and 2021, respectively. Certain investments, as a practical expedient, are reported at estimated fair value, utilizing net asset values of $24 million as of December 31, 2022 which are part of our Plan assets. Our accumulated benefit obligations in aggregate were $1.6 billion and $2.2 billion as of December 31, 2022 and 2021,
respectively. As a result, the plans were underfunded by approximately $342 million and $633 million as of December 31, 2022 and 2021, respectively, and were recorded in Other long-term liabilities on our Consolidated Balance Sheets. In determining our pension obligation for the years ended December 31, 2022, and 2021, we used a weighted-average discount rate of 6% and 3%, respectively.
During the years ended December 31, 2022 and 2021, we made contributions of $37 million and $83 million, respectively, to the benefit plans. We expect to make contributions to the Plan of $32 million through the year ending December 31, 2023.
Future benefits expected to be paid are approximately $101 million for the year ending December 31, 2023, $210 million in total for the years ending December 31, 2024 and 2025, $219 million in total for the years ending December 31, 2026 and 2027, and $567 million in total thereafter.
Employee Retirement Savings Plan
We sponsor a retirement savings planplans for the majority of our employees under sectionSection 401(k) of the Internal Revenue Code and similar plans. The plans allow employees to contribute a portion of their pretaxpre-tax and post-tax income in accordance with specified guidelines. The plans provide that we match a percentage of employee contributions up to certain limits. Employer matching contributions were $87$175 million, $83$190 million and $73$179 million for the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively.
Legacy Long-Term Incentive Plan
Note 12 – Discontinued Operations
Prior
On July 26, 2019, we entered into an Asset Purchase Agreement with Sprint and DISH. On June 17, 2020, T-Mobile, Sprint and DISH entered into the First Amendment. Pursuant to the business combinationFirst Amendment to the Asset Purchase Agreement, T-Mobile, Sprint and DISH agreed to proceed with MetroPCS Communications, Inc., we maintained a performance-based Long-Term Incentive Plan (“LTIP”) which aligned to our long-term business strategy. Asthe closing of December 31, 2017 and 2016, there were no LTIP awards outstanding and no new awards are expected to be granted under the LTIP.
Compensation expense reported within operating expenses related to our LTIP and payments to participants related to our LTIP were as follows:
|
| | | | | | | | | | | |
(in millions) | December 31, 2017 | | December 31, 2016 | | December 31, 2015 |
Compensation expense | $ | — |
| | $ | — |
| | $ | 27 |
|
Payments | — |
| | 52 |
| | 57 |
|
Note 10 – Repurchases of Common Stock
On December 6, 2017, our Board of Directors authorized a stock repurchase program for up to $1.5 billion of our common stock through December 31, 2018. Under the repurchase program, repurchases can be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or otherwise, allPrepaid Transaction, in accordance with the rulesAsset Purchase Agreement, on July 1, 2020, subject to the terms and conditions of the Securities and Exchange Commission and other applicable legal requirements. The specific timing, price and size of purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations. The repurchase program does not obligate us to acquire any particular amount of common stock,Asset Purchase Agreement and the repurchase program may be suspended or discontinued at any time atterms and conditions of the Consent Decree.
On July 1, 2020, pursuant to the Asset Purchase Agreement, upon the terms and subject to the conditions thereof, we completed the Prepaid Transaction. Upon closing of the Prepaid Transaction, we received $1.4 billion from DISH for the Prepaid Business, subject to a working capital adjustment. The close of the Prepaid Transaction did not have a significant impact on our discretion. Repurchased shares are retired.Consolidated Statements of Comprehensive Income.
We also understand that Deutsche Telekom AG, our majority stockholder, or its affiliates, is considering plansThe results of the Prepaid Business include revenues and expenses directly attributable to purchase additional sharesthe operations disposed. Corporate and administrative expenses, including Interest expense, net, not directly attributable to the operations were not allocated to the Prepaid Business. The results of our common stock. Such purchases would likely take placethe Prepaid Business from April 1, 2020, through December 31, 2018,2020, are presented in Income from discontinued operations, net of tax on our Consolidated Statements of Comprehensive Income. There was no income from discontinued operations for the years ended December 31, 2022 or 2021.
The components of discontinued operations from the Merger close date of April 1, 2020, through December 31, 2020, were as follows: | | | | | | | | | |
(in millions) | Year Ended December 31, 2020 | | | | |
Major classes of line items constituting pretax income from discontinued operations | | | | | |
Prepaid revenues | $ | 973 | | | | | |
Roaming and other service revenues | 27 | | | | | |
Total service revenues | 1,000 | | | | | |
Equipment revenues | 270 | | | | | |
| | | | | |
Total revenues | 1,270 | | | | | |
Cost of services | 25 | | | | | |
Cost of equipment sales | 499 | | | | | |
Selling, general and administrative | 314 | | | | | |
Total operating expenses | 838 | | | | | |
Pretax income from discontinued operations | 432 | | | | | |
Income tax expense | (112) | | | | | |
Income from discontinued operations | $ | 320 | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Net cash provided by operating activities from the Prepaid Business included in the Consolidated Statements of Cash Flows for the year ended December 31, 2020, were $611 million, all in accordance withof which relates to the rulesoperations of the Securities and Exchange Commission and other applicable legal requirements.Prepaid Business during the three months ended June 30, 2020. There were no cash flows from investing or financing activities related to the Prepaid Business for the year ended December 31, 2020.
The following table summarizes information regarding repurchases of our common stock:Continuing Involvement
|
| | | | | | | | | | |
(In millions, except shares and per share price) | Number of Shares Repurchased | | Average Price Paid Per Share | | Total Purchase Price |
Year Ended December 31, 2017 | 7,010,889 |
| | $ | 63.34 |
| | $ | 444 |
|
FromUpon the inceptionclosing of the repurchase program through February 5, 2018,Prepaid Transaction, we repurchased approximately 12.3 million shares at an average price per share of $63.68and DISH entered into (i) a DISH License Purchase Agreement pursuant to which (a) DISH has the option to purchase certain 800 MHz spectrum licenses for a total of approximately $3.6 billion in a transaction to be completed, subject to certain additional closing conditions, following an application for FCC approval to be filed three years following the closing of the Merger and (b) we will have the option to lease back from DISH, as needed, a portion of the spectrum sold for an additional two years following the closing of the spectrum sale transaction, (ii) a Transition Services Agreement providing for our provisioning of transition services to DISH in connection with the Prepaid Business for a period of up to three years following the closing of the Prepaid Transaction, (iii) a Master Network Services Agreement providing for the provisioning of network services to customers of the Prepaid Business for a period of up to seven years following the closing of the Prepaid Transaction, and (iv) an Option to Acquire Tower and Retail Assets, offering DISH the option to acquire certain decommissioned towers and retail locations from us, subject to obtaining all necessary third-party consents, for a period of up to five years following the closing of the Prepaid Transaction.
In the event DISH breaches the DISH License Purchase Agreement or fails to deliver the purchase price following the satisfaction or waiver of all closing conditions, DISH’s sole liability is to pay us a fee of approximately $783$72 million. Additionally, if DISH does not exercise the option to purchase the 800 MHz spectrum licenses, we have an obligation to offer the licenses for sale through an auction. If the specified minimum price of $3.6 billion was not met in the auction, we would retain the licenses. As it is not probable that the sale of February 5, 2018, there was approximately $717 million800 MHz spectrum licenses will close within one year, the criteria for presentation as an asset held for sale is not met.
Cash flows associated with the Master Network Services Agreement and Transition Services Agreement are included in Net cash provided by operating activities on our Consolidated Statements of repurchase authority remaining.Cash Flows.
Note 1113 – Income Taxes
Our sources of Income (loss) before income taxes were as follows: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
U.S. income | $ | 3,116 | | | $ | 3,401 | | | $ | 3,493 | |
Foreign income (loss) | 30 | | | (50) | | | 37 | |
Income before income taxes | $ | 3,146 | | | $ | 3,351 | | | $ | 3,530 | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2017 | | 2016 | | 2015 |
U.S. | $ | 3,274 |
| | $ | 2,286 |
| | $ | 898 |
|
Puerto Rico | (113 | ) | | 41 |
| | 80 |
|
Income before income taxes | $ | 3,161 |
| | $ | 2,327 |
| | $ | 978 |
|
Income tax expense is summarized as follows: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Current tax (expense) benefit | | | | | |
Federal | $ | 22 | | | $ | (22) | | | $ | 17 | |
State | (64) | | | (89) | | | (84) | |
Foreign | (22) | | | (19) | | | (10) | |
Total current tax expense | (64) | | | (130) | | | (77) | |
Deferred tax (expense) benefit | | | | | |
Federal | (628) | | | (541) | | | (676) | |
State | 77 | | | 327 | | | (34) | |
Foreign | 59 | | | 17 | | | 1 | |
Total deferred tax expense | (492) | | | (197) | | | (709) | |
Total income tax expense | $ | (556) | | | $ | (327) | | | $ | (786) | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2017 | | 2016 | | 2015 |
Current tax benefit (expense) | | | | | |
Federal | $ | — |
| | $ | 66 |
| | $ | 30 |
|
State | (28 | ) | | (29 | ) | | (2 | ) |
Puerto Rico | (1 | ) | | 10 |
| | (17 | ) |
Total current tax benefit (expense) | (29 | ) | | 47 |
| | 11 |
|
Deferred tax benefit (expense) | | | | | |
Federal | 1,182 |
| | (804 | ) | | (281 | ) |
State | 173 |
| | (96 | ) | | 37 |
|
Puerto Rico | 49 |
| | (14 | ) | | (12 | ) |
Total deferred tax benefit (expense) | 1,404 |
| | (914 | ) | | (256 | ) |
Total income tax benefit (expense) | $ | 1,375 |
| | $ | (867 | ) | | $ | (245 | ) |
The reconciliation between the U.S. federal statutory income tax rate and our effective income tax rate is as follows: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Federal statutory income tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
State taxes, net of federal benefit | 4.5 | | | 4.5 | | | 4.8 | |
Effect of law and rate changes | (5.3) | | | (1.7) | | | (0.8) | |
Change in valuation allowance | (0.8) | | | (10.7) | | | (2.6) | |
Foreign taxes | 0.7 | | | 0.1 | | | 0.3 | |
Permanent differences | (0.2) | | | 0.3 | | | 0.4 | |
Federal tax credits | (2.4) | | | (2.5) | | | (0.9) | |
Equity-based compensation | (1.2) | | | (2.6) | | | (2.5) | |
Non-deductible compensation | 1.2 | | | 1.5 | | | 2.3 | |
Other, net | 0.2 | | | (0.1) | | | 0.3 | |
Effective income tax rate | 17.7 | % | | 9.8 | % | | 22.3 | % |
|
| | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Federal statutory income tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
Effect of the Tax Cuts and Jobs Act | (68.9 | ) | | — |
| | — |
|
Change in valuation allowance | (11.4 | ) | | 1.0 |
| | (3.2 | ) |
State taxes, net of federal benefit | 4.8 |
| | 4.0 |
| | (1.1 | ) |
Equity-based compensation | (2.4 | ) | | (2.2 | ) | | — |
|
Puerto Rico taxes, net of federal benefit | (1.5 | ) | | — |
| | 3.3 |
|
Permanent differences | 0.5 |
| | 0.6 |
| | 1.6 |
|
Federal tax credits, net of reserves | 0.3 |
| | (0.5 | ) | | (9.5 | ) |
Other, net | 0.1 |
| | (0.6 | ) | | (1.0 | ) |
Effective income tax rate | (43.5 | )% | | 37.3 | % | | 25.1 | % |
Significant components of deferred income tax assets and liabilities, tax effected, are as follows: | | | | | | | | | | | |
(in millions) | December 31, 2022 | | December 31, 2021 |
Deferred tax assets | | | |
Loss carryforwards | $ | 6,641 | | | $ | 4,414 | |
| | | |
Lease liabilities | 8,837 | | | 7,717 | |
| | | |
Reserves and accruals | 1,526 | | | 1,280 | |
Federal and state tax credits | 373 | | | 404 | |
| | | |
Other | 4,349 | | | 2,888 | |
Deferred tax assets, gross | 21,726 | | | 16,703 | |
Valuation allowance | (375) | | | (435) | |
Deferred tax assets, net | 21,351 | | | 16,268 | |
Deferred tax liabilities | | | |
Spectrum licenses | 18,341 | | | 18,060 | |
Property and equipment | 5,147 | | | 380 | |
Lease right-of-use assets | 7,461 | | | 6,761 | |
Other intangible assets | 519 | | | 769 | |
Other | 767 | | | 514 | |
Total deferred tax liabilities | 32,235 | | | 26,484 | |
Net deferred tax liabilities | $ | 10,884 | | | $ | 10,216 | |
| | | |
Classified on the consolidated balance sheets as: | | | |
Deferred tax liabilities | $ | 10,884 | | | $ | 10,216 | |
|
| | | | | | | |
(in millions) | December 31, 2017 | | December 31, 2016 |
Deferred tax assets | | | |
Loss carryforwards | $ | 1,576 |
| | $ | 1,442 |
|
Deferred rents | 759 |
| | 1,153 |
|
Reserves and accruals | 667 |
| | 1,058 |
|
Federal and state tax credits | 298 |
| | 284 |
|
Debt fair market value adjustment | — |
| | 83 |
|
Other | 403 |
| | 430 |
|
Deferred tax assets, gross | 3,703 |
| | 4,450 |
|
Valuation allowance | (273 | ) | | (573 | ) |
Deferred tax assets, net | 3,430 |
| | 3,877 |
|
Deferred tax liabilities | | | |
Spectrum licenses | 5,038 |
| | 6,952 |
|
Property and equipment | 1,840 |
| | 1,732 |
|
Other intangible assets | 41 |
| | 119 |
|
Other | 48 |
| | 12 |
|
Total deferred tax liabilities | 6,967 |
| | 8,815 |
|
Net deferred tax liabilities | $ | 3,537 |
| | $ | 4,938 |
|
| | | |
Classified on the balance sheet as: | | | |
Deferred tax liabilities | $ | 3,537 |
| | $ | 4,938 |
|
On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act of 2017 (“TCJA”) into legislation. The TCJA includes numerous changes to existing tax law, including a permanent reduction in the federal corporate income tax rate from 35% to 21%. The rate reduction takes effect on January 1, 2018. We recognized a net tax benefit of $2.2 billion associated with enactment of the TCJA in Income tax benefit (expense) in our Consolidated Statements of Comprehensive Income in the fourth quarter of 2017, primarily due to a re-measurement of deferred tax assets and liabilities.
The SEC has issued Staff Accounting Bulletin (“SAB”) No. 118 which permits the recording of provisional amounts related to the impact of the TCJA during a measurement period which is not to exceed one year from the enactment date of the TCJA. We have recorded an immaterial amount for provisional items related to the TCJA in our Consolidated Statements of Comprehensive Income.
As of December 31, 2017,2022, we have tax effected federal net operating loss (“NOL”) carryforwards of $1.0$5.6 billion, for federal income tax purposesstate NOL carryforwards of $1.6 billion and $832foreign NOL carryforwards of $31 million, for state income tax purposes, expiring through 2037.2042. Federal and certain state NOLs generated in and after 2018 do not expire. As of December 31, 2017,2022, our tax effected federal and state NOL carryforwards for financial reporting purposes were approximately $123$197 million and $242$444 million, respectively, less than our NOL carryforwards for federal and state income tax purposes, due to unrecognized tax benefits of the same amount. There were no differences in our foreign NOL carryforwards for financial reporting purposes and our NOL carryforwards for foreign income tax purposes as of December 31, 2022. The unrecognized tax benefit amounts exclude offsetting tax effects of $132 million in other jurisdictions.
As of December 31, 2017,2022, we have available Alternative Minimum Tax (“AMT”) credit carryforwards of $86 million. Under the TCJA, the AMT credits will be fully recovered by 2021. We also have research and development, and foreign tax and other general business credit carryforwards with a combined value of $198$704 million for federal income tax purposes, an immaterial amount of which beginbegins to expire in 2018.2023.
As of December 31, 20172022, 2021 and 2016,2020, our valuation allowance was $273$375 million, $435 million and $573$878 million, respectively. The change in the valuation allowance isfrom December 31, 2021 to December 31, 2022 primarily related to a net reduction in the valuation allowance against deferred tax assets in statecertain foreign jurisdictions that resulted in the recognition of $359 million in net tax benefits in 2017, partially offset byresulting from legal entity reorganizations. The change from December 31, 2020 to December 31, 2021 primarily related to a $26 million valuation allowance established during 2017 for the impact of the TCJA on certain tax credits and a $33 million increasereduction in the valuation allowance associated with the reduced federal benefit of state items.against deferred tax
During 2017, due to ongoing analysis of positive and negative evidence relatedassets we determined that $319 million of the valuation allowance in certain state jurisdictions was no longer necessary. Positive evidence supporting the releaseresulting from legal entity reorganizations of a portion of the valuation allowance included reaching a position of cumulative income over a three-year period in certain state jurisdictions as well as projecting sustained earnings in those jurisdictions. Due to this positive evidence, we reduced the valuation allowance which resulted in a decrease to Deferred tax liabilities in our Consolidated
Balance Sheets. We will continue to monitor positive and negative evidence related to the utilization of the remaining deferred tax assets for which a valuation allowance continues to be provided.legacy Sprint entities. It is possible that our valuation allowance may change within the next twelve12 months.
We file income tax returns in the U.S. federal jurisdiction and in various state jurisdictions and in Puerto Rico.foreign jurisdictions. We are currently under a scope-limited examination by the U.S. Internal Revenue Service (“IRS”)IRS and separate examinations by various states. Management does not believe the resolution of any of the audits will result in a material change to our financial condition, results of operations or cash flows. The IRS has concluded its audits of our federal tax returns through the 20132009 tax year; however, NOL and other carryforwards for certain audited periods remain open for examination. We are generally closed to U.S. federal, state and Puerto Ricoforeign examination for years prior to 1998.2003 are generally closed.
A reconciliation of the beginning and ending amount of unrecognized tax benefits were as follows: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Unrecognized tax benefits, beginning of year | $ | 1,217 | | | $ | 1,159 | | | $ | 514 | |
Gross increases to tax positions in prior periods | 31 | | | 73 | | | 6 | |
Gross decreases to tax positions in prior periods | (65) | | | (123) | | | (28) | |
Gross increases to current period tax positions | 77 | | | 72 | | | 45 | |
Gross increases due to current period business acquisitions | — | | | 36 | | | 624 | |
Gross decreases due to settlements with taxing authorities | (3) | | | — | | | (2) | |
Gross decreases due to statute of limitations lapse | (3) | | | — | | | — | |
Unrecognized tax benefits, end of year | $ | 1,254 | | | $ | 1,217 | | | $ | 1,159 | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2017 | | 2016 | | 2015 |
Unrecognized tax benefits, beginning of year | $ | 410 |
| | $ | 411 |
| | $ | 388 |
|
Gross decreases to tax positions in prior periods | (10 | ) | | (5 | ) | | (112 | ) |
Gross increases to current period tax positions | 12 |
| | 4 |
| | 135 |
|
Unrecognized tax benefits, end of year | $ | 412 |
| | $ | 410 |
| | $ | 411 |
|
As of December 31, 20172022, 2021 and 2016,2020, we had $254$962 million, $932 million and $168$857 million, respectively, in unrecognized tax benefits that, if recognized, would affect our annual effective tax rate. Penalties and interest on income tax assessments are included in Selling, general and administrative expenses and Interest expense, respectively, inon our Consolidated Statements of Comprehensive Income. The accrued interest and penalties associated with unrecognized tax benefits are insignificant. It is possible that the amount of unrecognized tax benefits related to our uncertain tax positions may change within the next 12 months.
Note 1214 – SoftBank Equity Transaction
On June 22, 2020, we entered into a Master Framework Agreement (the “Master Framework Agreement”) by and among the Company, SoftBank, SoftBank Group Capital Ltd, a wholly owned subsidiary of SoftBank (“SBGC”), Delaware Project 4 L.L.C., a wholly owned subsidiary of SoftBank, Delaware Project 6 L.L.C., a wholly owned subsidiary of SoftBank, Claure Mobile LLC (“CM LLC”), DT, and T-Mobile Agent LLC, a wholly owned subsidiary of the Company.
In connection with the Master Framework Agreement, DT waived the restriction on the transfer under its Proxy, Lock-Up and ROFR Agreement, dated April 1, 2020, with SoftBank (the “SoftBank Proxy Agreement”) with respect to approximately 198 million shares of our common stock held by SoftBank (the “Released Shares”). Under the terms of the Master Framework Agreement and the agreements contemplated thereby, SBGC sold the Released Shares to us and we entered into several transactions to sell an equivalent number of our common shares (the “SoftBank Monetization”). In 2020, we settled our involvement with all such transactions with no net impact to our Consolidated Statements of Comprehensive Income and we received a payment from SoftBank for $304 millionfor our role in facilitating the SoftBank Monetization. The payment received from SoftBank, net of tax, of $230 million was recorded as Additional paid-in capital on our Consolidated Balance Sheets and is presented as a reduction of Repurchases of common stock in Net cash (used in) provided by financing activities on our Consolidated Statements of Cash Flows.
Ownership Following the SoftBank Monetization
The SoftBank Proxy Agreement remains in effect with respect to the remaining shares of our common stock held by SoftBank and any SoftBank Specified Shares Amount that may be issued to SoftBank. In addition, on June 22, 2020, DT, CM LLC, and Marcelo Claure, a member of our board of directors, entered into a Proxy, Lock-Up and ROFR Agreement (the “Claure Proxy Agreement,” together with the SoftBank Proxy Agreement, the “Proxy Agreements”), pursuant to which any shares of our common stock acquired after June 22, 2020 by Mr. Claure or CM LLC, an entity controlled by Mr. Claure, other than shares acquired as a result of Mr. Claure’s role as a director or officer of the Company, will be voted in the manner as directed by DT.
As of December 31, 2022, DT and SoftBank held, directly or indirectly, approximately 49.0% and 3.2%, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 47.8% of the outstanding T-Mobile common stock held by other stockholders.
Accordingly, as a result of the Proxy Agreements, DT has voting control as of December 31, 2022 over approximately 52.7% of the outstanding T-Mobile common stock.
Note 15 – Repurchases of Common Stock
2022 Stock Repurchase Program
On September 8, 2022, our Board of Directors authorized our 2022 Stock Repurchase Program for up to $14.0 billion of our common stock through September 30, 2023. Under the 2022 Stock Repurchase Program, repurchases can be made from time to time using a variety of methods, which may include open market purchases, 10b5-1 plans, privately negotiated transactions or other methods. The specific timing, price and size of repurchases will depend on prevailing stock prices, general economic and market conditions, and other considerations. The 2022 Stock Repurchase Program does not obligate us to acquire any particular amount of common stock, and the 2022 Stock Repurchase Program may be suspended or discontinued at any time at our discretion. Repurchased shares will be held as Treasury stock on our Consolidated Balance Sheets.
During the year ended December 31, 2022, we repurchased 21,361,409 shares of our common stock at an average price per share of $140.44 for a total purchase price of $3.0 billion, all of which were purchased under the 2022 Stock Repurchase Program. All shares purchased during the year ended December 31, 2022, were purchased at market price. As of December 31, 2022, we had up to $11.0 billion remaining under the 2022 Stock Repurchase Program.
Subsequent to December 31, 2022, from January 1, 2023 through February 10, 2023, we repurchased 14,676,718 shares of our common stock at an average price per share of $145.70 for a total purchase price of $2.1 billion. As of February 10, 2023, we had up to $8.9 billion remaining under the 2022 Stock Repurchase Program.
Note 16 – Wireline
Sale of the Wireline Business
On September 6, 2022, two of our wholly owned subsidiaries, Sprint Communications and Sprint LLC, and Cogent Infrastructure, Inc., entered into the Wireline Sale Agreement, pursuant to which the Buyer will acquire the Wireline Business. The Wireline Sale Agreement provides that, upon the terms and conditions set forth therein, the Buyer will purchase all of the issued and outstanding membership interests (the “Purchased Interests”) of a Delaware limited liability company that holds certain assets and liabilities relating to the Wireline Business.
The parties have agreed to a $1 purchase price in consideration for the Purchased Interests, subject to customary adjustments set forth in the Wireline Sale Agreement. In addition, at the consummation of the Wireline Transaction (the “Closing”), a T-Mobile affiliate will enter into a commercial agreement for IP transit services, pursuant to which T-Mobile will pay to the Buyer an aggregate of $700 million, consisting of (i) $350 million in equal monthly installments during the first year after the Closing and (ii) $350 million in equal monthly installments over the subsequent 42 months. The Closing is subject to customary closing conditions, including the receipt of certain required regulatory approvals and consents. Subject to the satisfaction or waiver of certain conditions and other terms and conditions of the Wireline Sale Agreement, the Wireline Transaction is expected to close mid-year 2023.
As a result of the Wireline Sale Agreement and related anticipated Wireline Transaction, we concluded that the Wireline Business met the held for sale criteria upon entering into the Wireline Sale Agreement. As such, the assets and liabilities of the Wireline Business disposal group are classified as held for sale and presented within Other current assets and Other current liabilities on our Consolidated Balance Sheets as of December 31, 2022.
The components of assets and liabilities held for sale presented within Other current assets and Other current liabilities, respectively, on our Consolidated Balance Sheets as of December 31, 2022, were as follows:
| | | | | |
(in millions) | December 31, 2022 |
Assets | |
| |
Cash and cash equivalents | $ | 27 | |
Accounts receivable, net | 34 | |
Prepaid expenses | 2 | |
Other current assets | 3 | |
| |
Property and equipment, net | 505 | |
Operating lease right-of-use assets | 125 | |
Other intangible assets, net | 7 | |
Other assets | 8 | |
Remeasurement of disposal group held for sale to fair value less remaining costs to sell (1) | (377) | |
Assets held for sale | $ | 334 | |
Liabilities | |
| |
Accounts payable and accrued liabilities | $ | 63 | |
Deferred revenue | 4 | |
Short-term operating lease liabilities | 60 | |
| |
| |
| |
Operating lease liabilities | 250 | |
Other long-term liabilities | 38 | |
Liabilities held for sale | 415 | |
Liabilities held for sale, net | $ | (81) | |
| |
(1) Excludes amounts related to the establishment of liabilities for contractual and other payments associated with the Wireline Transaction, including the $700 million of fees payable for IP transit services discounted to present value and other payments to the Buyer anticipated in connection with the Wireline Transaction.
In connection with the expected sale of the Wireline Business and classification of related assets and liabilities as held for sale, we recognized a pre-tax loss of $1.1 billion during the year ended December 31, 2022, which is included within Loss on disposal group held for sale on our Consolidated Statements of Comprehensive Income.
The components of the Loss on disposal group held for sale on our Consolidated Statements of Comprehensive Income for the year ended December 31, 2022, were as follows:
| | | | | | | |
(in millions) | Year Ended December 31, 2022 | | |
Write-down of Wireline Business net assets | $ | 305 | | | |
| | | |
Accrual of total estimated costs to sell | 76 | | | |
Recognition of liability for IP transit services agreement (1) | 641 | | | |
Recognition of other obligations to Buyer to be paid at or after Closing | 65 | | | |
Loss on disposal group held for sale | $ | 1,087 | | | |
| | | |
(1) We will continue to recognize accretion expense through the expiration of the agreement which will be included in Interest expense, net separate from the Loss on disposal group held for sale on our Consolidated Statements of Comprehensive Income.
The present value of the liability for fees payable for IP transit services has been recognized as a component of Loss on disposal group held for sale as we have not currently identified any path to utilize such services in our continuing operations and have committed to execute the agreement as a closing condition for the Wireline Transaction. We will continue to evaluate potential uses on an ongoing basis over the life of the agreement. Approximately $117 million and $531 million of this liability, including accrued interest, is presented within Other current liabilities and Other long-term liabilities, respectively, on our Consolidated Balance Sheets as of December 31, 2022, in accordance with the expected timing of the related payments. Approximately $30 million and $35 million for contractual and other payments associated with the Wireline Transaction are presented within Other current liabilities and Other long-term liabilities, respectively, on our Consolidated Balance Sheets as of December 31, 2022, in accordance with the expected timing of the related payments.
We do not consider the sale of the Wireline Business to be a strategic shift that will have a major effect on the Company’s operations and financial results, and therefore it does not qualify for reporting as a discontinued operation.
Other Wireline Asset Sales
Separate from the Wireline Transaction, we recognized a gain on disposal of $121 million during the year ended December 31, 2022, all of which relates to the sale of certain IP addresses held by the Wireline Business to other third parties during the three months ended September 30, 2022. The gain on disposal is included as a reduction to Selling, general and administrative expenses on our Consolidated Statements of Comprehensive Income.
Wireline Impairment
We provide wireline communication services to domestic and international customers via the legacy Sprint Wireline U.S. long-haul fiber network (including non-U.S. extensions thereof) acquired through the Merger. The legacy Sprint Wireline network is primarily comprised of owned property and equipment, including land, buildings, communication systems and data processing equipment, fiber optic cable and operating lease right-of-use assets. Previously, the operation of the legacy Sprint CDMA and LTE wireless networks was supported by the legacy Sprint Wireline network. During the second quarter of 2022, we retired the legacy Sprint CDMA network and began the orderly shut-down of the LTE network.
We assess long-lived assets for impairment when events or circumstances indicate that they might be impaired. During the second quarter of 2022, we determined that the retirement of the legacy Sprint CDMA and LTE wireless networks triggered the need to assess the Wireline long-lived assets for impairment, as these assets no longer support our wireless network and the associated customers and cash flows in a significant manner. In evaluating whether the Wireline long-lived assets were impaired, we estimated the fair value of these assets using a combination of the cost, income and market approaches, including market participant assumptions. The fair value measurement of the Wireline assets was estimated using significant inputs not observable in the market (Level 3).
The results of this assessment indicated that certain Wireline long-lived assets were impaired, and as a result, we recorded non-cash impairment expense of $477 million during the year ended December 31, 2022, all of which relates to the impairment recognized during the three months ended June 30, 2022, of which $258 million is related to Wireline Property and equipment, $212 million is related to Operating lease right-of-use assets and $7 million is related to Other intangible assets. In measuring and allocating the impairment expense to individual Wireline long-lived assets, we did not impair the long-lived assets below their individual fair values. The expense is included within Impairment expense on our Consolidated Statements of Comprehensive Income.
Note 17 – Earnings Per Share
The computation of basic and diluted earnings per share was as follows: | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
(in millions, except shares and per share amounts) | | | | | 2022 | | 2021 | | 2020 |
| | | | | | | | | |
Income from continuing operations | | | | | $ | 2,590 | | | $ | 3,024 | | | $ | 2,744 | |
Income from discontinued operations, net of tax | | | | | — | | | — | | | 320 | |
Net income | | | | | $ | 2,590 | | | $ | 3,024 | | | $ | 3,064 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Weighted-average shares outstanding – basic | | | | | 1,249,763,934 | | | 1,247,154,988 | | | 1,144,206,326 | |
Effect of dilutive securities: | | | | | | | | | |
Outstanding stock options and unvested stock awards | | | | | 5,612,835 | | | 7,614,938 | | | 10,543,102 | |
| | | | | | | | | |
| | | | | | | | | |
Weighted-average shares outstanding – diluted | | | | | 1,255,376,769 | | | 1,254,769,926 | | | 1,154,749,428 | |
| | | | | | | | | |
Basic earnings per share: | | | | | | | | | |
Continuing operations | | | | | $ | 2.07 | | | $ | 2.42 | | | $ | 2.40 | |
Discontinued operations | | | | | — | | | — | | | 0.28 | |
Earnings per share – basic | | | | | $ | 2.07 | | | $ | 2.42 | | | $ | 2.68 | |
| | | | | | | | | |
Diluted earnings per share: | | | | | | | | | |
Continuing operations | | | | | $ | 2.06 | | | $ | 2.41 | | | $ | 2.37 | |
Discontinued operations | | | | | — | | | — | | | 0.28 | |
Earnings per share – diluted | | | | | $ | 2.06 | | | $ | 2.41 | | | $ | 2.65 | |
| | | | | | | | | |
Potentially dilutive securities: | | | | | | | | | |
Outstanding stock options and unvested stock awards | | | | | 16,616 | | | 139,619 | | | 80,180 | |
SoftBank contingent consideration (1) | | | | | 48,751,557 | | | 48,751,557 | | | 36,630,268 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
(1) Represents the weighted-average SoftBank Specified Shares that are contingently issuable from the acquisition date of April 1, 2020, pursuant to a letter agreement dated February 20, 2020, between T-Mobile, SoftBank and DT. |
| | | | | | | | | | | |
| Year Ended December 31, |
(in millions, except shares and per share amounts) | 2017 | | 2016 | | 2015 |
Net income | $ | 4,536 |
| | $ | 1,460 |
| | $ | 733 |
|
Less: Dividends on mandatory convertible preferred stock | (55 | ) | | (55 | ) | | (55 | ) |
Net income attributable to common stockholders - basic | 4,481 |
| | 1,405 |
| | 678 |
|
Add: Dividends related to mandatory convertible preferred stock | 55 |
| | — |
| | — |
|
Net income attributable to common stockholders - diluted | $ | 4,536 |
| | $ | 1,405 |
| | $ | 678 |
|
| | | | | |
Weighted average shares outstanding - basic | 831,850,073 |
| | 822,470,275 |
| | 812,994,028 |
|
Effect of dilutive securities: | | | | | |
Outstanding stock options and unvested stock awards | 9,200,873 |
| | 10,584,270 |
| | 9,623,910 |
|
Mandatory convertible preferred stock | 30,736,504 |
| | — |
| | — |
|
Weighted average shares outstanding - diluted | 871,787,450 |
| | 833,054,545 |
| | 822,617,938 |
|
| | | | | |
Earnings per share - basic | $ | 5.39 |
| | $ | 1.71 |
| | $ | 0.83 |
|
Earnings per share - diluted | $ | 5.20 |
| | $ | 1.69 |
| | $ | 0.82 |
|
| | | | | |
Potentially dilutive securities: | | | | | |
Outstanding stock options and unvested stock awards | 33,980 |
| | 3,528,683 |
| | 4,842,370 |
|
Mandatory convertible preferred stock | — |
| | 32,238,000 |
| | 32,238,000 |
|
As of December 15, 2017, 2031, 2022, we had authorized 100 million shares of our preferred stock, converted to approximately 32 million shareswith a par value of our common stock at a conversion rate of 1.6119 common shares for each share of previously outstanding$0.00001 per share. There was no preferred stock outstanding as of December 31, 2022 and certain cash-in-lieu of fractional shares.
2021. Potentially dilutive securities were not included in the computation of diluted earnings per share if to do so would have been anti-dilutive.
The SoftBank Specified Shares Amount of 48,751,557 shares of T-Mobile common stock was determined to be contingent consideration for the Merger and is not dilutive until the defined volume-weighted average price per share is reached.
Note 1318 – CommitmentsLeases
Lessee
We are a lessee for non-cancelable operating and Contingencies
Commitments
Operating Leases
We have non-cancellable operatingfinancing leases for cell sites, switch sites, retail stores, network equipment and office facilities with contractual terms expiringthat generally extend through 2027.2035. Additionally, we lease dark fiber through non-cancelable operating leases with contractual terms that generally extend through 2040. The majority of cell site leases have an initiala non-cancelable term of five to ten15 years with several renewal options.options that can extend the lease term for five to 50 years. In addition, we have operatingfinancing leases for dedicated transportation linesnetwork equipment that generally have a non-cancelable lease term of three to five years. The financing leases do not have renewal options and contain a bargain purchase option at the end of the lease.
On January 3, 2022, we entered into the Crown Agreement with varying expirationCCI that modified the terms of our leased towers from CCI. The Crown Agreement modifies the monthly rental payments we will pay for sites currently leased by us, extends the non-cancellable lease term for the majority of our sites through 2024. Our commitments under theseDecember 2033 and will allow us the flexibility to facilitate our network integration and decommissioning activities through new site builds and termination of duplicate tower locations. The initial non-cancellable term is through December 31, 2033, followed by three optional five-year renewals. As a result of this modification, we remeasured the associated right-of use assets and lease liabilities resulting in an increase of $5.3 billion to each on the effective date of the modification, with a corresponding gross increase to both deferred tax liabilities and assets of $1.3 billion.
The components of lease expense were as follows: | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
(in millions) | | | | | 2022 | | 2021 | | 2020 |
Operating lease expense | | | | | $ | 6,514 | | | $ | 5,921 | | | $ | 4,438 | |
Financing lease expense: | | | | | | | | | |
Amortization of right-of-use assets | | | | | 733 | | | 738 | | | 681 | |
Interest on lease liabilities | | | | | 68 | | | 69 | | | 81 | |
Total financing lease expense | | | | | 801 | | | 807 | | | 762 | |
Variable lease expense | | | | | 484 | | | 429 | | | 328 | |
Total lease expense | | | | | $ | 7,799 | | | $ | 7,157 | | | $ | 5,528 | |
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Information relating to the lease term and discount rate is as follows:
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| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Weighted-Average Remaining Lease Term (Years) | | | | | |
Operating leases | 10 | | 9 | | 10 |
Financing leases | 2 | | 3 | | 3 |
Weighted-Average Discount Rate | | | | | |
Operating leases | 4.1 | % | | 3.6 | % | | 3.9 | % |
Financing leases | 3.2 | % | | 2.5 | % | | 3.3 | % |
Maturities of lease liabilities as of December 31, 2022, were as follows: | | | | | | | | | | | |
(in millions) | Operating Leases | | Finance Leases |
Twelve Months Ending December 31, | | | |
2023 | $ | 4,847 | | | $ | 1,216 | |
2024 | 4,466 | | | 923 | |
2025 | 3,953 | | | 411 | |
2026 | 3,694 | | | 48 | |
2027 | 3,367 | | | 19 | |
Thereafter | 21,453 | | | 11 | |
Total lease payments | 41,780 | | | 2,628 | |
Less: imputed interest | 8,104 | | | 97 | |
Total | $ | 33,676 | | | $ | 2,531 | |
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Interest payments for financing leases are approximately $2.4 billion in 2018, $4.1 billion in totalwere $68 million, $69 million and $79 million for 2019the years ended December 31, 2022, 2021 and 2020, $2.7 billion in total for 2021 and 2022 and $2.3 billion in total for years thereafter.respectively.
As of December 31, 2017,2022, we have additional operating leases for commercial properties that have not yet commenced with future lease payments of approximately $265 million.
As of December 31, 2022, we were contingently liable for future ground lease payments related to thecertain tower obligations. These contingent obligations are not included in the above table as the amounts dueowed are contractually owed by CCI based on the subleasing arrangement. See Note 89 – Tower Obligations for further information.
Total rent expenseLessor
The components of leased wireless devices under operating leases, including dedicated transportation lines, was $2.9 billion, $2.8 billion and $2.8 billionour Leasing Programs were as follows: | | | | | | | | | | | | | | | | | |
(in millions) | Average Remaining Useful Life | | December 31, 2022 | | December 31, 2021 |
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Leased wireless devices, gross | 8 months | | $ | 1,415 | | | $ | 3,832 | |
Accumulated depreciation | | | (1,146) | | | (2,373) | |
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Leased wireless devices, net | | | $ | 269 | | | $ | 1,459 | |
In February 2018, we extendedFuture minimum payments expected to be received over the leaseslease term related to our corporate headquarters facility. These agreements will increase our minimumleased wireless devices, which exclude optional residual buy-out amounts at the end of the lease payments by approximately $400 million interm, are summarized below: | | | | | |
(in millions) | Expected Payments |
Twelve Months Ending December 31, | |
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2023 | $ | 126 | |
2024 | 15 | |
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Total | $ | 141 | |
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Wireline Impairment
During the aggregate.second quarter of 2022, we determined that the retirement of the legacy Sprint CDMA and LTE wireless networks triggered the need to separately assess the Wireline long-lived asset group for impairment and the results of this assessment indicated that certain Wireline property and equipment was impaired. See Note 16 - Wireline for further information.
Note 19 – Commitments and Contingencies
Purchase Commitments
We have commitments for non-dedicated transportation lines with varying expiration terms that generally extend through 2028.2038. In addition, we have commitments to purchase spectrum licenses, wireless devices, network services, equipment, software, marketing sponsorship agreements and other items in the ordinary course of business, with various terms through 2028.2043.
Our purchase commitments are approximately $4.5 billion for the 12-month period ending December 31, 2023, $4.9 billion in total for both of the 12-month periods ending December 31, 2024 and 2025, $2.8 billion in total for both of the 12-month periods ending December 31, 2026 and 2027, and $2.8 billion in total thereafter. These amounts are not reflective of our entire anticipated purchases under the related agreements but are determined based on the non-cancelable quantities or termination amounts to which we are contractually obligated.
Spectrum Leases
We have contractuallease spectrum from various parties. These leases include service obligations to the lessors. Certain spectrum leases provide for minimum lease payments, additional charges, renewal options and escalation clauses. Leased spectrum agreements have varying expiration terms that generally extend through 2050. We expect that all renewal periods in our spectrum leases will be exercised by us. Certain spectrum leases also include purchase certain goodsoptions and servicesright-of-first refusal clauses in which we are provided the opportunity to exercise our purchase option if the lessor receives a purchase offer from various other parties. a third party. The purchase of the leased spectrum is at our option and therefore the option price is not included in the commitments below.
Our purchase obligationsspectrum lease and service credit commitments, including renewal periods, are approximately $2.1 billion$315 million for the 12-month period ending December 31, 2023, $587 million in 2018, $2.2total for both of the 12-month periods ending December 31, 2024 and 2025, $634 million in total for both of the 12-month periods ending December 31, 2026 and 2027, and $4.6 billion in total for 2019 and 2020, $1.5 billion in total for 2021 and 2022 and $1.0 billion in total for years thereafter.
In September 2017,On August 8, 2022, we entered into a UPALicense Purchase Agreements to acquire spectrum in the remaining equity600 MHz band from Channel 51
License Co LLC and LB License Co, LLC in IWS, a 54% owned unconsolidated subsidiary,exchange for a purchase pricetotal cash consideration of $25 million. In January 2018, we closed on the purchase agreement$3.5 billion. The agreements remain subject to regulatory approval and received the IWS spectrum licenses, among other assets. are excluded from our reported commitments above.See Note 5 - Goodwill, 6 – Goodwill, Spectrum LicensesLicense Transactions and Other IntangibleIntangible Assets for further information.additional details.
On January 22, 2018, we completed our acquisition of television innovator Layer3 TV for consideration of approximately $325 million, subject to customary working capital and other post-closing adjustments. Upon closing of the transaction, Layer3 TV became a wholly-owned consolidated subsidiary. This transaction represents an opportunity for us to acquire a unique and complementary service and represents a progression in our video strategy, which began with Binge On, was strengthened with Netflix On Us, and will expand further with Layer3 TV’s management, technology, and content relationships which will enable us to bring the Un-carrier philosophy to video.
Our first-quarter 2018 operating results will include the results of Layer3 TV from the date of acquisition. Our consolidated balance sheet will include the assets and liabilities of Layer3 TV, such as intangibles assets acquired, which are being appraised by a third-party and include various assumptions in determining fair value.
Renewable Energy Purchase Agreements
In January 2017, T-Mobile USA entered into a REPA with Red Dirt Wind Project, LLC. The agreement is based on the expected operation of a wind energy-generating facility located in Oklahoma and will remain in effect until the twelfth anniversary of the facility’s entry into commercial operation. The facility began commercial operations in January 2018. The REPA consists of two components: (1) an energy forward agreement that is net settled based on energy prices and the energy output generated by the facility and (2) a commitment to purchase the renewable energy credits (“RECs”) associated with the energy output generated by the facility. T-Mobile USA will net settle the forward agreement and acquire the RECs monthly by paying, or receiving, an aggregate net payment based on two variables (1) the facility’s energy output, which has an estimated
maximum capacity of approximately 160 megawatts and (2) the difference between (a) an initial fixed price, subject to annual escalation, and (b) current local marginal energy prices during the monthly settlement period. We have determined that the REPA does not meet the definition of a derivative because the expected energy output of the facility may not be reliably estimated (the arrangement lacks a notional amount). The REPA does not contain any unconditional purchase obligations because amounts under the agreement are not fixed and determinable. Our participation in the REPA did not require an upfront investment or capital commitment. We do not control the activities that most significantly impact the energy-generating facility nor do we receive specific energy output from it. No amounts were settled under the agreement during the year ended December 31, 2017.
In August 2017, T-Mobile USA entered into a REPA with Solomon Forks Wind Project, LLC. The agreement is based on the expected operation of a wind energy-generating facility located in Kansas and will remain in effect until the fifteenth anniversary of the facility’s entry into commercial operation. Commercial operation of the facility is expected to occur by the end of 2018. The REPA consists of two components: (1) an energy forward agreement that is net settled based on energy prices and the energy output generated by the facility and (2) a commitment to purchase the environmental attributes (“EACs”) associated with the energy output generated by the facility. T-Mobile USA will net settle the forward agreement and acquire the EACs monthly by paying, or receiving, an aggregate net payment based on two variables (1) the facility’s energy output, which has an estimated maximum capacity of approximately 160 megawatts and (2) the difference between (a) an initial fixed price, subject to annual escalation, and (b) current local marginal energy prices during the monthly settlement period. We have determined that the REPA does not meet the definition of a derivative because the expected energy output of the facility may not be reliably estimated (the arrangement lacks a notional amount). The REPA does not contain any unconditional purchase obligations because amounts under the agreement are not fixed and determinable. Our participation in the REPA did not require an upfront investment or capital commitment. We do not control the activities that most significantly impact the energy-generating facility nor do we receive specific energy output from it. No amounts were settled under the agreement during the year ended December 31, 2017.
Contingencies and Litigation
Litigation and Regulatory Matters
We are involved in various lawsuits and disputes, claims, government agency investigations and enforcement actions, and other proceedings (“Litigation and Regulatory Matters”) that arise in the ordinary course of business, which include claims of patent infringement (most of which are asserted by non-practicing entities primarily seeking monetary damages), class actions, and proceedings to enforce FCC or other government agency rules and regulations. TheThose Litigation and Regulatory Matters described above have progressed toare at various stages, and some of them may proceed to trial, arbitration, hearing, or other adjudication that could result in fines, penalties, or awards of monetary or injunctive relief in the coming 12 months if they are not otherwise resolved. We have established an accrual with respect to certain of these matters, where appropriate, which isappropriate. The accruals are reflected inon our consolidated
financial statements, but that we dothey are not consider,considered to be, individually or in the aggregate, material. An accrual is established when we believe it is both probable that a loss has been incurred and an amount can be reasonably estimated. For other matters, where we have not determined that a loss is probable or because the amount of loss cannot be reasonably estimated, we have not recorded an accrual due to various factors typical in contested proceedings, including, but not limited to:to, uncertainty concerning legal theories and their resolution by courts or regulators;regulators, uncertain damage theories and demands;demands, and a less than fully developed factual record. WhileFor Litigation and Regulatory Matters that may result in a contingent gain, we recognize such gains on our consolidated financial statements when the gain is realized or realizable. We recognize legal costs expected to be incurred in connection with Litigation and Regulatory Matters as they are incurred. Except as otherwise specified below, we do not expect that the ultimate resolution of these proceedings,Litigation and Regulatory Matters, individually or in the aggregate, will have a material adverse effect on our financial position, but we note that an unfavorable outcome of some or all of these proceedingsthe specific matters identified below or other matters that we are or may become involved in could have a material adverse impact on results of operations or cash flows for a particular period. This assessment is based on our current understanding of relevant facts and circumstances. As such, our view of these matters is subject to inherent uncertainties and may change in the future.
On February 28, 2020, we received a Notice of Apparent Liability for Forfeiture and Admonishment from the FCC, which proposed a penalty against us for allegedly violating section 222 of the Communications Act and the FCC’s regulations governing the privacy of customer information. In the first quarter of 2020, we recorded an accrual for an estimated payment amount. We maintained the accrual as of December 31, 2022, and that accrual was included in Accounts payable and accrued liabilities on our Consolidated Balance Sheets.
On April 1, 2020, in connection with the closing of the Merger, we assumed the contingencies and litigation matters of Sprint. Those matters include a wide variety of disputes, claims, government agency investigations and enforcement actions, and other proceedings. These matters include, among other things, certain ongoing FCC and state government agency investigations into Sprint’s Lifeline program. In September 2019, Sprint notified the FCC that it had claimed monthly subsidies for serving subscribers even though these subscribers may not have met usage requirements under Sprint's usage policy for the Lifeline program, due to an inadvertent coding issue in the system used to identify qualifying subscriber usage that occurred in July 2017 while the system was being updated. Sprint has made a number of payments to reimburse the federal government and certain states for excess subsidy payments.
We note that pursuant to Amendment No. 2, dated as of February 20, 2020, to the Business Combination Agreement, SoftBank agreed to indemnify us against certain specified matters and losses, including those relating to the Lifeline matters described above. Resolution of these matters could require making additional reimbursements and paying additional fines and penalties, which we do not expect to have a significant impact on our financial results. We expect that any additional liabilities related to these indemnified matters would be indemnified and reimbursed by SoftBank.
On June 1, 2021, a putative shareholder class action and derivative lawsuit was filed in the Delaware Court of Chancery, Dinkevich v. Deutsche Telekom AG, et al., Case No. C.A. No. 2021-0479, against DT, SoftBank and certain of our current and former officers and directors, asserting breach of fiduciary duty claims relating to the repricing amendment to the Business Combination Agreement, and to SoftBank’s monetization of its T-Mobile shares. We are also named as a nominal defendant in the case. We are unable to predict the potential outcome of these claims.
In October 2020, we notified Mobile Virtual Network Operators (“MVNOs”) using the legacy Sprint CDMA network that we planned to retire that network on December 31, 2021. In response to that notice, DISH, which had Boost Mobile customers who used the legacy Sprint CDMA network, made several efforts to prevent us from retiring the CDMA network until mid-2023, including pursuing a Petition for Modification and related proceedings pursuant to the California Public Utilities Commission’s (the “CPUC”) April 2020 decision concerning the Merger. As of June 30, 2022, the orderly decommissioning of the legacy Sprint CDMA network had been completed, although certain of the CPUC proceedings remain in process.
On August 12, 2021, we became aware of a cybersecurity issue involving unauthorized access to T-Mobile’s systems (the “August 2021 cyberattack”). We immediately began an investigation and engaged cybersecurity experts to assist with the assessment of the incident and to help determine what data was impacted. Our investigation uncovered that the perpetrator had illegally gained access to certain areas of our systems on or about March 18, 2021, but only gained access to and took data of current, former, and prospective customers beginning on or about August 3, 2021. With the assistance of our outside cybersecurity experts, we located and closed the unauthorized access to our systems and identified current, former and prospective customers whose information was impacted and notified them, consistent with state and federal requirements. We also undertook a number of other measures to demonstrate our continued support and commitment to data privacy and protection. We also coordinated with law enforcement. Our forensic investigation is complete, and we believe we have a full view of the data compromised.
As a result of the August 2021 cyberattack, we have become subject to numerous lawsuits, including mass arbitration claims and multiple class action lawsuits that have been filed in numerous jurisdictions seeking, among other things, unspecified monetary damages, costs and attorneys’ fees arising out of the August 2021 cyberattack. In December 2021, the Judicial Panel on Multidistrict Litigation consolidated the federal class action lawsuits in the U.S. District Court for the Western District of Missouri under the caption In re: T-Mobile Customer Data Security Breach Litigation, Case No. 21-md-3019-BCW. On July 22, 2022, we entered into an agreement to settle the lawsuit. On July 26, 2022, we received preliminary approval of the proposed settlement, which remains subject to final court approval. The court conducted a final approval hearing on January 20, 2023, and we await a ruling from the court.If approved by the court, under the terms of the proposed settlement, we would pay an aggregate of $350 million to fund claims submitted by class members, the legal fees of plaintiffs’ counsel and the costs of administering the settlement. We would also commit to an aggregate incremental spend of $150 million for data security and related technology in 2022 and 2023. We anticipate that, upon court approval, the settlement will provide a full release of all claims arising out of the August 2021 cyberattack by class members, who do not opt out, against all defendants, including us, our subsidiaries and affiliates, and our directors and officers. The settlement contains no admission of liability, wrongdoing or responsibility by any of the defendants. We have the right to terminate the settlement agreement under certain conditions.
If approved by the court, we anticipate that this settlement of the class action, along with other settlements of separate consumer claims that have been previously completed or are currently pending, will resolve substantially all of the claims brought to date by our current, former and prospective customers who were impacted by the 2021 cyberattack. In connection with the proposed class action settlement and the separate settlements, we recorded a total pre-tax charge of approximately $400 million during the three months ended June 30, 2022. The expense is included within Selling, general and administrative expenses on our Consolidated Statements of Comprehensive Income. During the year ended December 31, 2022, we recognized $100 million in reimbursements from insurance carriers for costs incurred related to the August 2021 cyberattack, which is included as a reduction to Selling, general and administrative expenses on our Consolidated Statements of Comprehensive Income. The ultimate resolution of the class action depends on whether we will be able to obtain court approval of the proposed settlement, the number of plaintiffs who opt-out of the proposed settlement and whether the proposed settlement will be appealed.
In addition, in September 2022, a purported Company shareholder filed a derivative action in the Delaware Chancery Court under the caption Harper v. Sievert et al., Case No. 2022-0819-SG, against our current directors and certain of our former directors, alleging claims for breach of fiduciary duty relating to the Company’s cybersecurity practices. We are also named as a nominal defendant in the lawsuit. We are unable at this time to predict the potential outcome of this lawsuit or whether we may be subject to further private litigation.
We have also received inquiries from various government agencies, law enforcement and other governmental authorities related to the August 2021 cyberattack which could result in substantial fines or penalties. We are responding to these inquiries and cooperating fully with these agencies and regulators. However, we cannot predict the timing or outcome of any of these matters, or whether we may be subject to further regulatory inquiries, investigations, or enforcement actions.
In light of the inherent uncertainties involved in such matters and based on the information currently available to us, we believe it is reasonably possible that we could incur additional losses associated with these proceedings and inquiries, and we will continue to evaluate information as it becomes known and will record an estimate for losses at the time or times when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable. Ongoing legal and other costs related to these proceedings and inquiries, as well as any potential future actions, may be substantial, and losses associated with any adverse judgments, settlements, penalties or other resolutions of such proceedings and inquiries could be material to our business, reputation, financial condition, cash flows and operating results.
In 2022, we received $333 million in gross settlements of certain patent litigation assumed in the Merger. We recognized these settlements, net of legal fees, as a reduction to Selling, general and administrative expenses on our Consolidated Statements of Comprehensive Income during the year ended December 31, 2022.
On June 17, 2022, plaintiffs filed a putative antitrust class action complaint in the Northern District of Illinois, Dale et al. v. Deutsche Telekom AG, et al., Case No. 1:22-cv-03189, against DT, T-Mobile, and SoftBank, alleging that the Merger violated the antitrust laws and harmed competition in the U.S. retail cell service market. Plaintiffs seek injunctive relief and trebled monetary damages on behalf of a purported class of AT&T and Verizon customers who plaintiffs allege paid artificially inflated prices due to the Merger. We intend to vigorously defend this lawsuit, but we are unable to predict the potential outcome.
On January 5, 2023, we identified that a bad actor was obtaining data through a single API without authorization. Based on our investigation to date, the impacted API is only able to provide a limited set of customer account data, including name, billing address, email, phone number, date of birth, T-Mobile account number and information such as the number of lines on the account and plan features. The result from our investigation to date indicates that the bad actor(s) obtained data from this API
for approximately 37 million current postpaid and prepaid customer accounts, though many of these accounts did not include the full data set. We believe that the bad actor first retrieved data through the impacted API starting on or around November 25, 2022. We continue to investigate the incident and have notified individuals whose information was impacted consistent with state and federal requirements.
In connection with the January 2023 cyberattack, we have received notices of consumer class actions and regulatory inquires, to which we will respond to in due course and may incur significant expenses. However, we cannot predict the timing or outcome of any of these potential matters, or whether we may be subject to additional legal proceedings, claims, regulatory inquiries, investigations, or enforcement actions. In addition, we are unable to predict the full impact of this incident on customer behavior in the future, including whether a change in our customers’ behavior could negatively impact our results of operations on an ongoing basis, although we presently do not expect that it will have a material effect on our operations.
Note 1420 – Restructuring Costs
Upon close of the Merger, we began implementing restructuring initiatives to realize cost efficiencies and reduce redundancies. The major activities associated with the Merger restructuring initiatives to date include contract termination costs associated with the rationalization of retail stores, distribution channels, duplicative network and backhaul services and other agreements, severance costs associated with the integration of redundant processes and functions and the decommissioning of certain small cell sites and distributed antenna systems to achieve Merger synergies in network costs.
The following table summarizes the expenses incurred in connection with our Merger restructuring initiatives: | | | | | | | | | | | | | | | | | |
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(in millions) | Year Ended December 31, 2021 | | Year Ended December 31, 2022 | | Incurred to Date |
Contract termination costs | $ | 14 | | | $ | 231 | | | $ | 423 | |
Severance costs | 17 | | | 169 | | | 571 | |
Network decommissioning | 184 | | | 796 | | | 1,477 | |
Total restructuring plan expenses | $ | 215 | | | $ | 1,196 | | | $ | 2,471 | |
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The expenses associated with our Merger restructuring initiatives are included in Costs of services and Selling, general and administrative on our Consolidated Statements of Comprehensive Income.
Our Merger restructuring initiatives also include the acceleration or termination of certain of our operating and financing leases for cell sites, switch sites, retail stores, network equipment and office facilities. Incremental expenses associated with accelerating amortization of the right-of-use assets on lease contracts were $1.7 billion, $873 million and $153 million for the years ended December 31, 2022, 2021 and 2020, respectively, and are included in Costs of services and Selling, general and administrative on our Consolidated Statements of Comprehensive Income.
The changes in the liabilities associated with our Merger restructuring initiatives, including expenses incurred and cash payments, are as follows:
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(in millions) | December 31, 2021 | | Expenses Incurred | | Cash Payments | | Adjustments for Non-Cash Items (1) | | December 31, 2022 |
Contract termination costs | $ | 14 | | | $ | 231 | | | $ | (55) | | | $ | — | | | $ | 190 | |
Severance costs | 1 | | | 169 | | | (170) | | | — | | | — | |
Network decommissioning | 71 | | | 796 | | | (317) | | | (270) | | | 280 | |
Total | $ | 86 | | | $ | 1,196 | | | $ | (542) | | | $ | (270) | | | $ | 470 | |
(1) Non-cash items consist of the write-off of assets within Network decommissioning.
The liabilities accrued in connection with our Merger restructuring initiatives are presented in Accounts payable and accrued liabilities on our Consolidated Balance Sheets.
Our Merger restructuring activities are expected to occur over the next year with substantially all costs incurred by the end of fiscal year 2023, with the related cash outflows extending beyond 2023. We continue to evaluate additional restructuring initiatives, which are dependent on consultations and negotiation with certain counterparties and the expected impact on our business operations, which could affect the amount or timing of the restructuring costs and related payments.
Note 21 – Additional Financial Information
Supplemental Consolidated Balance Sheets Information
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities, excluding amounts classified as held for sale, are summarized as follows: | | | | | | | | | | | |
(in millions) | December 31, 2022 | | December 31, 2021 |
Accounts payable | $ | 7,213 | | | $ | 6,499 | |
Payroll and related benefits | 1,236 | | | 1,343 | |
Property and other taxes, including payroll | 1,657 | | | 1,830 | |
Accrued interest | 731 | | | 710 | |
Commissions and contract termination costs | 523 | | | 348 | |
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Toll and interconnect | 227 | | | 248 | |
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Other | 688 | | | 427 | |
Accounts payable and accrued liabilities | $ | 12,275 | | | $ | 11,405 | |
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(in millions) | December 31, 2017 | | December 31, 2016 |
Accounts payable | $ | 6,182 |
| | $ | 5,163 |
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Payroll and related benefits | 614 |
| | 559 |
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Property and other taxes, including payroll | 620 |
| | 525 |
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Interest | 253 |
| | 423 |
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Commissions | 324 |
| | 159 |
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Network decommissioning | 92 |
| | 101 |
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Toll and interconnect | 109 |
| | 85 |
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Advertising | 46 |
| | 44 |
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Other | 288 |
| | 93 |
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Accounts payable and accrued liabilities | $ | 8,528 |
| | $ | 7,152 |
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Book overdrafts included in accounts payable and accrued liabilities were $455$720 million and $356$378 million as of December 31, 20172022, and 2016,2021, respectively.
Hurricane Impacts
During the third and fourth quarters of 2017, our operations in Texas, Florida and Puerto Rico experienced losses related to hurricanes. The impact to operating income for the year ended December 31, 2017, from lost revenue, assets damaged or destroyed and other hurricane related costs was a decrease of $201 million, net of insurance recoveries. We expect additional expenses to be incurred and customer activity to be impacted in the first quarter of 2018, primarily related to our operations in Puerto Rico. We have recognized insurance recoveries related to those hurricane losses in the amount of approximately $93 million for the year ended December 31, 2017 as an offset to the costs incurred within Cost of services in our Consolidated Statements of Comprehensive Income and as an increase to Other current assets in our Consolidated Balance Sheets. We continue to assess the damage of the hurricanes and work with our insurance carriers to submit claims for property damage and business interruption. We expect to record additional insurance recoveries related to these hurricanes in future periods.
Supplemental Consolidated Statements of Comprehensive Income Information
Related Party Transactions
We have related party transactions associated with Deutsche TelekomDT or its affiliates in the ordinary course of business, which are included in the consolidated financial statements.Consolidated Financial Statements.
During the year ended December 31, 2022, we redeemed $2.3 billion aggregate principal amount of our 4.000% and 5.375% Senior Notes to affiliates due 2022. See Note 8 - Debt for further information.
The following table summarizes the impact of significant transactions with Deutsche TelekomDT or its affiliates included in operatingOperating expenses in the Consolidated Statements of Comprehensive Income: | | | | | | | | | | | | | | | | | | | | | |
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(in millions) | | | | | 2022 | | 2021 | | 2020 |
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Fees incurred for use of the T-Mobile brand | | | | | $ | 80 | | | $ | 80 | | | $ | 83 | |
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International long distance agreement | | | | | 25 | | | 37 | | | 47 | |
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(in millions) | 2017 | | 2016 | | 2015 |
Discount related to roaming expenses | $ | — |
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Fees incurred for use of the T-Mobile brand | 79 |
| | 74 |
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International long distance agreement | 55 |
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We have an agreement with Deutsche TelekomDT for the reimbursement of certain administrative expenses, which were $11$4 million, $11$5 million and $2$6 million for the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively.
Note 15 – Subsequent Events
On January 22, 2018, we completed our acquisition of television innovator Layer3 TV for consideration of approximately $325 million, subject to customary working capital and other post-closing adjustments. See Note 13 - Commitments and Contingencies for further information.
In January 2018, we redeemed $1.0 billion aggregate principal amount of our 6.125% Senior Notes due 2022 and issued $1.0 billion of public 4.500% Senior Notes due 2026 and issued $1.5 billion of public 4.750% Senior Notes due 2028. Additionally in January 2018, DT agreed to purchase $1.0 billion in aggregate principal amount of 4.500% Senior Notes due 2026 and $1.5 billion in aggregate principal amount of 4.750% Senior Notes due 2028 directly from T-Mobile USA and certain of its affiliates, as guarantors, with no underwriting discount. See Note 7 - Debt for further information.
In February 2018, the service receivable sale arrangement was amended to extend the scheduled expiration date to March 2019. See Note 3 - Sales of Certain Receivables for further information.
Note 16 – Guarantor Financial Information
Pursuant to the applicable indentures and supplemental indentures, the long-term debt to affiliates and third parties, excluding Senior Secured Term Loans and capital leases, issued by T-Mobile USA (“Issuer”) is fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by T-Mobile (“Parent”) and certain of the Issuer’s 100% owned subsidiaries (“Guarantor Subsidiaries”).
In January 2017, T-Mobile USA, and certain of its affiliates, as guarantors, borrowed $4.0 billion under the Incremental Term Loan Facility to refinance $1.98 billion of outstanding secured term loans under its Term Loan Credit Agreement dated November 9, 2015, with the remaining net proceeds from the transaction intended to be used to redeem callable high yield debt.
In March 2017, T-Mobile USA and certain of its affiliates, as guarantors, (i) issued $500 million in aggregate principal amount of public 4.000% Senior Notes due 2022, (ii) issued $500 million in aggregate principal amount of public 5.125% Senior Notes due 2025 and (iii) issued $500 million in aggregate principal amount of public 5.375% Senior Notes due 2027.
In April 2017, T-Mobile USA and certain of its affiliates, as guarantors, (i) issued $1.0 billion in aggregate principal amount of 4.000% Senior Notes due 2022, (ii) issued $1.25 billion in aggregate principal amount of 5.125% Senior Notes due 2025 and (iii) issued $750 million in aggregate principal amount of 5.375% Senior Notes due 2027. Additionally, T-Mobile USA and certain of its affiliates, as guarantors, redeemed through net settlement, the $1.25 billion outstanding aggregate principal amount of the 6.288% Senior Reset Notes to affiliates due 2019 and $1.25 billion in aggregate principal amount of the 6.366% Senior Reset Notes to affiliates due 2020.
In May 2017, T-Mobile USA and certain of its affiliates, as guarantors, (i) issued $2.0 billion in aggregate principal amount of 5.300% Senior Notes due 2021, (ii) issued $1.35 billion in aggregate principal amount of 6.000% Senior Notes due 2024 and (iii) issued $650 million in aggregate principal amount of 6.000% Senior Notes due 2024.
In September 2017, T-Mobile USA and certain of its affiliates, as guarantors, issued the remaining $500 million in aggregate principal amount of 5.375% Senior Notes due 2027.
The guarantees of the Guarantor Subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The indentures and credit facilities governing the long-term debt contain covenants that, among other things, limit the ability of the Issuer and the Guarantor Subsidiaries to: incur more debt; pay dividends and make distributions; make certain investments; repurchase stock; create liens or other encumbrances; enter into transactions with affiliates; enter
into transactions that restrict dividends or distributions from subsidiaries; and merge, consolidate, or sell, or otherwise dispose of, substantially all of their assets. Certain provisions of each of the credit facilities, indentures and supplemental indentures relating to the long-term debt restrict the ability of the Issuer to loan funds or make payments to Parent. However, the Issuer and Guarantor Subsidiaries are allowed to make certain permitted payments to the Parent under the terms of the indentures and the supplemental indentures.
During the preparation of the condensed consolidating financial information of T-Mobile US, Inc. and Subsidiaries for the year ended December 31, 2017, it was determined that certain intercompany advances were misclassified in Net cash provided by (used in) operating activities and Net cash (used in) provided by financing activities in the Condensed Consolidating Statement of Cash Flows Information for the years ended December 31, 2016 and 2015, as filed in our 2016 Form 10-K. We have revised the Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries columns of the Condensed Consolidating Statement of Cash Flows Information to reclassify Intercompany advances, net from Net cash provided by (used in) operating activities to Net cash (used in) provided by financing activities. The impacts to the Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries columns for the year ended December 31, 2016 were $696 million, $625 million and $71 million, respectively. The impacts to the Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries columns for the year ended December 31, 2015 were $3.4 billion, $3.3 billion and $69 million, respectively. The revisions, which we have determined are not material, are eliminated upon consolidation and have no impact on our consolidated cash flows.
Presented below is the condensed consolidating financial information as of December 31, 2017 and December 31, 2016, and for the years ended December 31, 2017, 2016, and 2015.
Condensed Consolidating Balance Sheet Information
December 31, 2017
|
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Assets | | | | | | | | | | | |
Current assets | | | | | | | | | | | |
Cash and cash equivalents | $ | 74 |
| | $ | 1 |
| | $ | 1,086 |
| | $ | 58 |
| | $ | — |
| | $ | 1,219 |
|
Accounts receivable, net | — |
| | — |
| | 1,659 |
| | 256 |
| | — |
| | 1,915 |
|
Equipment installment plan receivables, net | — |
| | — |
| | 2,290 |
| | — |
| | — |
| | 2,290 |
|
Accounts receivable from affiliates | — |
| | — |
| | 22 |
| | — |
| | — |
| | 22 |
|
Inventories | — |
| | — |
| | 1,566 |
| | — |
| | — |
| | 1,566 |
|
Other current assets | — |
| | — |
| | 1,275 |
| | 628 |
| | — |
| | 1,903 |
|
Total current assets | 74 |
| | 1 |
| | 7,898 |
| | 942 |
| | — |
| | 8,915 |
|
Property and equipment, net (1) | — |
| | — |
| | 21,890 |
| | 306 |
| | — |
| | 22,196 |
|
Goodwill | — |
| | — |
| | 1,683 |
| | — |
| | — |
| | 1,683 |
|
Spectrum licenses | — |
| | — |
| | 35,366 |
| | — |
| | — |
| | 35,366 |
|
Other intangible assets, net | — |
| | — |
| | 217 |
| | — |
| | — |
| | 217 |
|
Investments in subsidiaries, net | 22,534 |
| | 40,988 |
| | — |
| | — |
| | (63,522 | ) | | — |
|
Intercompany receivables and note receivables | — |
| | 8,503 |
| | — |
| | — |
| | (8,503 | ) | | — |
|
Equipment installment plan receivables due after one year, net | — |
| | — |
| | 1,274 |
| | — |
| | — |
| | 1,274 |
|
Other assets | — |
| | 2 |
| | 814 |
| | 236 |
| | (140 | ) | | 912 |
|
Total assets | $ | 22,608 |
| | $ | 49,494 |
| | $ | 69,142 |
| | $ | 1,484 |
| | $ | (72,165 | ) | | $ | 70,563 |
|
Liabilities and Stockholders' Equity | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | |
Accounts payable and accrued liabilities | $ | — |
| | $ | 253 |
| | $ | 8,014 |
| | $ | 261 |
| | $ | — |
| | $ | 8,528 |
|
Payables to affiliates | — |
| | 146 |
| | 36 |
| | — |
| | — |
| | 182 |
|
Short-term debt | — |
| | 999 |
| | 613 |
| | — |
| | — |
| | 1,612 |
|
Deferred revenue | — |
| | — |
| | 779 |
| | — |
| | — |
| | 779 |
|
Other current liabilities | 17 |
| | — |
| | 192 |
| | 205 |
| | — |
| | 414 |
|
Total current liabilities | 17 |
| | 1,398 |
| | 9,634 |
| | 466 |
| | — |
| | 11,515 |
|
Long-term debt | — |
| | 10,911 |
| | 1,210 |
| | — |
| | — |
| | 12,121 |
|
Long-term debt to affiliates | — |
| | 14,586 |
| | — |
| | — |
| | — |
| | 14,586 |
|
Tower obligations (1) | — |
| | — |
| | 392 |
| | 2,198 |
| | — |
| | 2,590 |
|
Deferred tax liabilities | — |
| | — |
| | 3,677 |
| | — |
| | (140 | ) | | 3,537 |
|
Deferred rent expense | — |
| | — |
| | 2,720 |
| | — |
| | — |
| | 2,720 |
|
Negative carrying value of subsidiaries, net | — |
| | — |
| | 629 |
| | — |
| | (629 | ) | | — |
|
Intercompany payables and debt | 32 |
| | — |
| | 8,201 |
| | 270 |
| | (8,503 | ) | | — |
|
Other long-term liabilities | — |
| | 65 |
| | 866 |
| | 4 |
| | — |
| | 935 |
|
Total long-term liabilities | 32 |
| | 25,562 |
| | 17,695 |
| | 2,472 |
| | (9,272 | ) | | 36,489 |
|
Total stockholders' equity (deficit) | 22,559 |
| | 22,534 |
| | 41,813 |
| | (1,454 | ) | | (62,893 | ) | | 22,559 |
|
Total liabilities and stockholders' equity | $ | 22,608 |
| | $ | 49,494 |
| | $ | 69,142 |
| | $ | 1,484 |
| | $ | (72,165 | ) | | $ | 70,563 |
|
| |
(1) | Assets and liabilities for Non-Guarantor Subsidiaries are primarily included in VIEs related to the 2012 Tower Transaction. See Note 8 – Tower Obligations for further information. |
Condensed Consolidating Balance Sheet Information
December 31, 2016
|
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Assets | | | | | | | | | | | |
Current assets | | | | | | | | | | | |
Cash and cash equivalents | $ | 358 |
| | $ | 2,733 |
| | $ | 2,342 |
| | $ | 67 |
| | $ | — |
| | $ | 5,500 |
|
Accounts receivable, net | — |
| | — |
| | 1,675 |
| | 221 |
| | — |
| | 1,896 |
|
Equipment installment plan receivables, net | — |
| | — |
| | 1,930 |
| | — |
| | — |
| | 1,930 |
|
Accounts receivable from affiliates | — |
| | — |
| | 40 |
| | — |
| | — |
| | 40 |
|
Inventories | — |
| | — |
| | 1,111 |
| | — |
| | — |
| | 1,111 |
|
Asset purchase deposit | — |
| | — |
| | 2,203 |
| | — |
| | — |
| | 2,203 |
|
Other current assets | — |
| | — |
| | 972 |
| | 565 |
| | — |
| | 1,537 |
|
Total current assets | 358 |
| | 2,733 |
| | 10,273 |
| | 853 |
| | — |
| | 14,217 |
|
Property and equipment, net (1) | — |
| | — |
| | 20,568 |
| | 375 |
| | — |
| | 20,943 |
|
Goodwill | — |
| | — |
| | 1,683 |
| | — |
| | — |
| | 1,683 |
|
Spectrum licenses | — |
| | — |
| | 27,014 |
| | — |
| | — |
| | 27,014 |
|
Other intangible assets, net | — |
| | — |
| | 376 |
| | — |
| | — |
| | 376 |
|
Investments in subsidiaries, net | 17,682 |
| | 35,095 |
| | — |
| | — |
| | (52,777 | ) | | — |
|
Intercompany receivables and note receivables | 196 |
| | 6,826 |
| | — |
| | — |
| | (7,022 | ) | | — |
|
Equipment installment plan receivables due after one year, net | — |
| | — |
| | 984 |
| | — |
| | — |
| | 984 |
|
Other assets | — |
| | 7 |
| | 600 |
| | 262 |
| | (195 | ) | | 674 |
|
Total assets | $ | 18,236 |
| | $ | 44,661 |
| | $ | 61,498 |
| | $ | 1,490 |
| | $ | (59,994 | ) | | $ | 65,891 |
|
Liabilities and Stockholders' Equity | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | |
Accounts payable and accrued liabilities | $ | — |
| | $ | 423 |
| | $ | 6,474 |
| | $ | 255 |
| | $ | — |
| | $ | 7,152 |
|
Payables to affiliates | — |
| | 79 |
| | 46 |
| | — |
| | — |
| | 125 |
|
Short-term debt | — |
| | 20 |
| | 334 |
| | — |
| | — |
| | 354 |
|
Deferred revenue | — |
| | — |
| | 986 |
| | — |
| | — |
| | 986 |
|
Other current liabilities | — |
| | — |
| | 258 |
| | 147 |
| | — |
| | 405 |
|
Total current liabilities | — |
| | 522 |
| | 8,098 |
| | 402 |
| | — |
| | 9,022 |
|
Long-term debt | — |
| | 20,741 |
| | 1,091 |
| | — |
| | — |
| | 21,832 |
|
Long-term debt to affiliates | — |
| | 5,600 |
| | — |
| | — |
| | — |
| | 5,600 |
|
Tower obligations (1) | — |
| | — |
| | 400 |
| | 2,221 |
| | — |
| | 2,621 |
|
Deferred tax liabilities | — |
| | — |
| | 5,133 |
| | — |
| | (195 | ) | | 4,938 |
|
Deferred rent expense | — |
| | — |
| | 2,616 |
| | — |
| | — |
| | 2,616 |
|
Negative carrying value of subsidiaries, net | — |
| | — |
| | 568 |
| | — |
| | (568 | ) | | — |
|
Intercompany payables and debt | — |
| | — |
| | 6,785 |
| | 237 |
| | (7,022 | ) | | — |
|
Other long-term liabilities | — |
| | 116 |
| | 906 |
| | 4 |
| | — |
| | 1,026 |
|
Total long-term liabilities | — |
| | 26,457 |
| | 17,499 |
| | 2,462 |
| | (7,785 | ) | | 38,633 |
|
Total stockholders' equity (deficit) | 18,236 |
| | 17,682 |
| | 35,901 |
| | (1,374 | ) | | (52,209 | ) | | 18,236 |
|
Total liabilities and stockholders' equity | $ | 18,236 |
| | $ | 44,661 |
| | $ | 61,498 |
| | $ | 1,490 |
| | $ | (59,994 | ) | | $ | 65,891 |
|
| |
(1) | Assets and liabilities for Non-Guarantor Subsidiaries are primarily included in VIEs related to the 2012 Tower Transaction. See Note 8 – Tower Obligations for further information. |
Condensed Consolidating Statement of Comprehensive Income Information
Year Ended December 31, 2017
|
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Revenues | | | | | | | | | | | |
Service revenues | $ | — |
| | $ | — |
| | $ | 28,894 |
| | $ | 2,113 |
| | $ | (847 | ) | | $ | 30,160 |
|
Equipment revenues | — |
| | — |
| | 9,620 |
| | — |
| | (245 | ) | | 9,375 |
|
Other revenues | — |
| | 3 |
| | 879 |
| | 212 |
| | (25 | ) | | 1,069 |
|
Total revenues | — |
| | 3 |
| | 39,393 |
| | 2,325 |
| | (1,117 | ) | | 40,604 |
|
Operating expenses | | | | | | | | | | | |
Cost of services, exclusive of depreciation and amortization shown separately below | — |
| | — |
| | 6,076 |
| | 24 |
| | — |
| | 6,100 |
|
Cost of equipment sales | — |
| | — |
| | 10,849 |
| | 1,003 |
| | (244 | ) | | 11,608 |
|
Selling, general and administrative | — |
| | — |
| | 12,276 |
| | 856 |
| | (873 | ) | | 12,259 |
|
Depreciation and amortization | — |
| | — |
| | 5,914 |
| | 70 |
| | — |
| | 5,984 |
|
Gains on disposal of spectrum licenses | — |
| | — |
| | (235 | ) | | — |
| | — |
| | (235 | ) |
Total operating expense | — |
| | — |
| | 34,880 |
| | 1,953 |
| | (1,117 | ) | | 35,716 |
|
Operating income | — |
| | 3 |
| | 4,513 |
| | 372 |
| | — |
| | 4,888 |
|
Other income (expense) | | | | | | | | | | | |
Interest expense | — |
| | (811 | ) | | (109 | ) | | (191 | ) | | — |
| | (1,111 | ) |
Interest expense to affiliates | — |
| | (560 | ) | | (23 | ) | | — |
| | 23 |
| | (560 | ) |
Interest income | 1 |
| | 29 |
| | 10 |
| | — |
| | (23 | ) | | 17 |
|
Other (expense) income, net | — |
| | (88 | ) | | 16 |
| | (1 | ) | | — |
| | (73 | ) |
Total other income (expense), net | 1 |
| | (1,430 | ) | | (106 | ) | | (192 | ) | | — |
| | (1,727 | ) |
Income (loss) before income taxes | 1 |
| | (1,427 | ) | | 4,407 |
| | 180 |
| | — |
| | 3,161 |
|
Income tax benefit (expense) | — |
| | — |
| | 1,527 |
| | (152 | ) | | — |
| | 1,375 |
|
Earnings (loss) of subsidiaries | 4,535 |
| | 5,962 |
| | (57 | ) | | — |
| | (10,440 | ) | | — |
|
Net income | 4,536 |
| | 4,535 |
| | 5,877 |
| | 28 |
| | (10,440 | ) | | 4,536 |
|
Dividends on preferred stock | (55 | ) | | — |
| | — |
| | — |
| | — |
| | (55 | ) |
Net income attributable to common stockholders | $ | 4,481 |
| | $ | 4,535 |
| | $ | 5,877 |
| | $ | 28 |
| | $ | (10,440 | ) | | $ | 4,481 |
|
| | | | | | | | | | | |
Net Income | $ | 4,536 |
| | $ | 4,535 |
| | $ | 5,877 |
| | $ | 28 |
| | $ | (10,440 | ) | | $ | 4,536 |
|
Other comprehensive income, net of tax | | | | | | | | | | | |
Other comprehensive income, net of tax | 7 |
| | 7 |
| | 7 |
| | — |
| | (14 | ) | | 7 |
|
Total comprehensive income | $ | 4,543 |
| | $ | 4,542 |
| | $ | 5,884 |
| | $ | 28 |
| | $ | (10,454 | ) | | $ | 4,543 |
|
Condensed Consolidating Statement of Comprehensive Income Information
Year Ended December 31, 2016
|
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Parent | | Issuer | | Guarantor Subsidiaries (As adjusted - See Note 1) | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated (As adjusted - See Note 1) |
Revenues | | | | | | | | | | | |
Service revenues | $ | — |
| | $ | — |
| | $ | 26,613 |
| | $ | 2,023 |
| | $ | (792 | ) | | $ | 27,844 |
|
Equipment revenues | — |
| | — |
| | 9,145 |
| | — |
| | (418 | ) | | 8,727 |
|
Other revenues | — |
| | 3 |
| | 739 |
| (1) | 195 |
| | (18 | ) | | 919 |
|
Total revenues | — |
| | 3 |
| | 36,497 |
| (1) | 2,218 |
| | (1,228 | ) | | 37,490 |
|
Operating expenses | | | | | | | | | | | |
Cost of services, exclusive of depreciation and amortization shown separately below | — |
| | — |
| | 5,707 |
| | 24 |
| | — |
| | 5,731 |
|
Cost of equipment sales | — |
| | — |
| | 10,209 |
| | 1,027 |
| | (417 | ) | | 10,819 |
|
Selling, general and administrative | — |
| | — |
| | 11,321 |
| | 868 |
| | (811 | ) | | 11,378 |
|
Depreciation and amortization | — |
| | — |
| | 6,165 |
| | 78 |
| | — |
| | 6,243 |
|
Cost of MetroPCS business combination | — |
| | — |
| | 104 |
| | — |
| | — |
| | 104 |
|
Gains on disposal of spectrum licenses | — |
| | — |
| | (835 | ) | | — |
| | — |
| | (835 | ) |
Total operating expenses | — |
| | — |
| | 32,671 |
| | 1,997 |
| | (1,228 | ) | | 33,440 |
|
Operating income | — |
| | 3 |
| | 3,826 |
| (1) | 221 |
| | — |
| | 4,050 |
|
Other income (expense) | | | | | | | | | | | |
Interest expense | — |
| | (1,147 | ) | | (82 | ) | | (189 | ) | | — |
| | (1,418 | ) |
Interest expense to affiliates | — |
| | (312 | ) | | — |
| | — |
| | — |
| | (312 | ) |
Interest income (expense) | — |
| | 31 |
| | (18 | ) | (1) | — |
| | — |
| | 13 |
|
Other income (expense), net | — |
| | 2 |
| | (8 | ) | | — |
| | — |
| | (6 | ) |
Total other expense, net | — |
| | (1,426 | ) | | (108 | ) | (1) | (189 | ) | | — |
| | (1,723 | ) |
Income (loss) before income taxes | — |
| | (1,423 | ) | | 3,718 |
| | 32 |
| | — |
| | 2,327 |
|
Income tax expense | — |
| | — |
| | (857 | ) | | (10 | ) | | — |
| | (867 | ) |
Earnings (loss) of subsidiaries | 1,460 |
| | 2,883 |
| | (17 | ) | | — |
| | (4,326 | ) | | — |
|
Net income | 1,460 |
| | 1,460 |
| | 2,844 |
| | 22 |
| | (4,326 | ) | | 1,460 |
|
Dividends on preferred stock | (55 | ) | | — |
| | — |
| | — |
| | — |
| | (55 | ) |
Net income attributable to common stockholders | $ | 1,405 |
| | $ | 1,460 |
| | $ | 2,844 |
| | $ | 22 |
| | $ | (4,326 | ) | | $ | 1,405 |
|
| | | | | | | | | | | |
Net income | $ | 1,460 |
| | $ | 1,460 |
| | $ | 2,844 |
| | $ | 22 |
| | $ | (4,326 | ) | | $ | 1,460 |
|
Other comprehensive income, net of tax | | | | | | | | | | | |
Other comprehensive income, net of tax | 2 |
| | 2 |
| | 2 |
| | 2 |
| | (6 | ) | | 2 |
|
Total comprehensive income | $ | 1,462 |
| | $ | 1,462 |
| | $ | 2,846 |
| | $ | 24 |
| | $ | (4,332 | ) | | $ | 1,462 |
|
Condensed Consolidating Statement of Comprehensive Income Information
Year Ended December 31, 2015
|
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Parent | | Issuer | | Guarantor Subsidiaries (As adjusted - See Note 1) | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated (As adjusted - See Note 1) |
Revenues | | | | | | | | | | | |
Service revenues | $ | — |
| | $ | — |
| | $ | 23,748 |
| | $ | 1,669 |
| | $ | (596 | ) | | $ | 24,821 |
|
Equipment revenues | — |
| | — |
| | 7,148 |
| | — |
| | (430 | ) | | 6,718 |
|
Other revenues | — |
| | 1 |
| | 770 |
| (1) | 171 |
| | (14 | ) | | 928 |
|
Total revenues | — |
| | 1 |
| | 31,666 |
| (1) | 1,840 |
| | (1,040 | ) | | 32,467 |
|
Operating expenses | | | | | | | | | | | |
Cost of services, exclusive of depreciation and amortization shown separately below | — |
| | — |
| | 5,530 |
| | 24 |
| | — |
| | 5,554 |
|
Cost of equipment sales | — |
| | — |
| | 9,055 |
| | 720 |
| | (431 | ) | | 9,344 |
|
Selling, general and administrative | — |
| | — |
| | 10,065 |
| | 733 |
| | (609 | ) | | 10,189 |
|
Depreciation and amortization | — |
| | — |
| | 4,605 |
| | 83 |
| | — |
| | 4,688 |
|
Cost of MetroPCS business combination | — |
| | — |
| | 376 |
| | — |
| | — |
| | 376 |
|
Gains on disposal of spectrum licenses | — |
| | — |
| | (163 | ) | | — |
| | — |
| | (163 | ) |
Total operating expenses | — |
| | — |
| | 29,468 |
| | 1,560 |
| | (1,040 | ) | | 29,988 |
|
Operating income | — |
| | 1 |
| | 2,198 |
| (1) | 280 |
| | — |
| | 2,479 |
|
Other income (expense) | | | | | | | | | | | |
Interest expense | — |
| | (847 | ) | | (50 | ) | | (188 | ) | | — |
| | (1,085 | ) |
Interest expense to affiliates | — |
| | (411 | ) | | — |
| | — |
| | — |
| | (411 | ) |
Interest income | — |
| | 2 |
| | 4 |
| (1) | — |
| | — |
| | 6 |
|
Other expense, net | — |
| | (10 | ) | | — |
| | (1 | ) | | — |
| | (11 | ) |
Total other expense, net | — |
| | (1,266 | ) | | (46 | ) | (1) | (189 | ) | | — |
| | (1,501 | ) |
Income (loss) before income taxes | — |
| | (1,265 | ) | | 2,152 |
| | 91 |
| | — |
| | 978 |
|
Income tax expense | — |
| | — |
| | (214 | ) | | (31 | ) | | — |
| | (245 | ) |
Earnings (loss) of subsidiaries | 733 |
| | 1,998 |
| | (48 | ) | | — |
| | (2,683 | ) | | — |
|
Net income | 733 |
| | 733 |
| | 1,890 |
| | 60 |
| | (2,683 | ) | | 733 |
|
Dividends on preferred stock | (55 | ) | | — |
| | — |
| | — |
| | — |
| | (55 | ) |
Net income attributable to common stockholders | $ | 678 |
| | $ | 733 |
| | $ | 1,890 |
| | $ | 60 |
| | $ | (2,683 | ) | | $ | 678 |
|
| | | | | | | | | | | |
Net income | $ | 733 |
| | $ | 733 |
| | $ | 1,890 |
| | $ | 60 |
| | $ | (2,683 | ) | | $ | 733 |
|
Other comprehensive loss, net of tax | | | | | | | | | | | |
Other comprehensive loss, net of tax | (2 | ) | | (2 | ) | | (2 | ) | | — |
| | 4 |
| | (2 | ) |
Total comprehensive income | $ | 731 |
| | $ | 731 |
| | $ | 1,888 |
| | $ | 60 |
| | $ | (2,679 | ) | | $ | 731 |
|
Condensed Consolidating StatementSupplemental Consolidated Statements of Cash Flows Information
Year Ended December 31, 2017
The following table summarizes T-Mobile’s supplemental cash flow information:
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
(in millions) | | | | | 2022 | | 2021 | | 2020 |
Interest payments, net of amounts capitalized | | | | | $ | 3,485 | | | $ | 3,723 | | | $ | 2,733 | |
Operating lease payments | | | | | 4,205 | | | 6,248 | | | 4,619 | |
Income tax payments | | | | | 76 | | | 167 | | | 218 | |
Non-cash investing and financing activities | | | | | | | | | |
| | | | | | | | | |
Non-cash beneficial interest obtained in exchange for securitized receivables | | | | | 4,192 | | | 4,237 | | | 6,194 | |
Non-cash consideration for the acquisition of Sprint | | | | | — | | | — | | | 33,533 | |
Change in accounts payable and accrued liabilities for purchases of property and equipment | | | | | 133 | | | 366 | | | 589 | |
Leased devices transferred from inventory to property and equipment | | | | | 336 | | | 1,198 | | | 2,795 | |
Returned leased devices transferred from property and equipment to inventory | | | | | (396) | | | (1,437) | | | (1,460) | |
| | | | | | | | | |
Increase in Tower obligations from contract modification | | | | | 1,158 | | | — | | | — | |
Operating lease right-of-use assets obtained in exchange for lease obligations | | | | | 7,462 | | | 3,773 | | | 14,129 | |
Financing lease right-of-use assets obtained in exchange for lease obligations | | | | | 1,256 | | | 1,261 | | | 1,273 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Operating activities | | | | | | | | | | | |
Net cash provided by (used in) operating activities | $ | 1 |
| | $ | (1,613 | ) | | $ | 9,616 |
| | $ | 58 |
| | $ | (100 | ) | | $ | 7,962 |
|
| | | | | | | | | | | |
Investing activities | | | | | | | | | | | |
Purchases of property and equipment | — |
| | — |
| | (5,237 | ) | | — |
| | — |
| | (5,237 | ) |
Purchases of spectrum licenses and other intangible assets, including deposits | — |
| | — |
| | (5,828 | ) | | — |
| | — |
| | (5,828 | ) |
Equity investment in subsidiary | (308 | ) | | — |
| | — |
| | — |
| | 308 |
| | — |
|
Other, net | — |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
Net cash used in investing activities | (308 | ) | | — |
| | (11,064 | ) | | — |
| | 308 |
| | (11,064 | ) |
| | | | | | | | | | | |
Financing activities | | | | | | | | | | | |
Proceeds from issuance of long-term debt | — |
| | 10,480 |
| | — |
| | — |
| | — |
| | 10,480 |
|
Proceeds from borrowing on revolving credit facility, net | — |
| | 2,910 |
| | — |
| | — |
| | — |
| | 2,910 |
|
Repayments of revolving credit facility | — |
| | — |
| | (2,910 | ) | | — |
| | — |
| | (2,910 | ) |
Repayments of capital lease obligations | — |
| | — |
| | (486 | ) | | — |
| | — |
| | (486 | ) |
Repayments of short-term debt for purchases of inventory, property and equipment, net | — |
| | — |
| | (300 | ) | | — |
| | — |
| | (300 | ) |
Repayments of long-term debt | — |
| | — |
| | (10,230 | ) | | — |
| | — |
| | (10,230 | ) |
Proceeds from exercise of stock options | 21 |
| | — |
| | — |
| | — |
| | — |
| | 21 |
|
Repurchases of common shares | (427 | ) | | — |
| | — |
| | — |
| | — |
| | (427 | ) |
Intercompany advances, net | 484 |
| | (14,817 | ) | | 14,300 |
| | 33 |
| | — |
| | — |
|
Equity investment from parent | — |
| | 308 |
| | — |
| | — |
| | (308 | ) | | — |
|
Tax withholdings on share-based awards | — |
| | — |
| | (166 | ) | | — |
| | — |
| | (166 | ) |
Intercompany dividend paid | — |
| | — |
| | — |
| | (100 | ) | | 100 |
| | — |
|
Dividends on preferred stock | (55 | ) | | — |
| | — |
| | — |
| | — |
| | (55 | ) |
Other, net | — |
| | — |
| | (16 | ) | | — |
| | — |
| | (16 | ) |
Net cash provided by (used in) financing activities | 23 |
| | (1,119 | ) | | 192 |
| | (67 | ) | | (208 | ) | | (1,179 | ) |
Change in cash and cash equivalents | (284 | ) | | (2,732 | ) | | (1,256 | ) | | (9 | ) | | — |
| | (4,281 | ) |
Cash and cash equivalents | | | | | | | | | | | |
Beginning of period | 358 |
| | 2,733 |
| | 2,342 |
| | 67 |
| | — |
| | 5,500 |
|
End of period | $ | 74 |
| | $ | 1 |
| | $ | 1,086 |
| | $ | 58 |
| | $ | — |
| | $ | 1,219 |
|
Cash and cash equivalents, including restricted cash and cash held for sale
Condensed Consolidating StatementCash and cash equivalents, including restricted cash and cash held for sale, presented on our Consolidated Statements of Cash Flows Informationwere included on our Consolidated Balance Sheets as follows: | | | | | | | | | | | |
(in millions) | December 31, 2022 | | December 31, 2021 |
Cash and cash equivalents | $ | 4,507 | | | $ | 6,631 | |
Cash and cash equivalents held for sale (included in Other current assets) | 27 | | | — | |
Restricted cash (included in Other current assets) | 73 | | | — | |
Restricted cash (included in Other assets) | 67 | | | 72 | |
Cash and cash equivalents, including restricted cash and cash held for sale | $ | 4,674 | | | $ | 6,703 | |
Year Ended
Note 22 – Subsequent Events
Subsequent to December 31, 20162022, on January 5, 2023, we identified that a bad actor was obtaining data through a single API without authorization. Based on our investigation to date, the impacted API is only able to provide a limited set of customer account data, including name, billing address, email, phone number, date of birth, T-Mobile account number and information such as the number of lines on the account and plan features. See Note 19 – Commitments and Contingencies for additional information. |
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Operating activities | | | | | | | | | | | |
Net cash provided by (used in) operating activities | $ | 6 |
| | $ | (1,335 | ) | | $ | 7,541 |
| | $ | 33 |
| | $ | (110 | ) | | $ | 6,135 |
|
| | | | | | | | | | | |
Investing activities | | | | | | | | | | | |
Purchases of property and equipment | — |
| | — |
| | (4,702 | ) | | — |
| | — |
| | (4,702 | ) |
Purchases of spectrum licenses and other intangible assets, including deposits | — |
| | — |
| | (3,968 | ) | | — |
| | — |
| | (3,968 | ) |
Sales of short-term investments | — |
| | 2,000 |
| | 998 |
| | — |
| | — |
| | 2,998 |
|
Other, net | — |
| | — |
| | (8 | ) | | — |
| | — |
| | (8 | ) |
Net cash provided by (used in) investing activities | — |
| | 2,000 |
| | (7,680 | ) | | — |
| | — |
| | (5,680 | ) |
| | | | | | | | | | | |
Financing activities | | | | | | | | | | | |
Proceeds from issuance of long-term debt | — |
| | 997 |
| | — |
| | — |
| | — |
| | 997 |
|
Repayments of capital lease obligations | — |
| | — |
| | (205 | ) | | — |
| | — |
| | (205 | ) |
Repayments of short-term debt for purchases of inventory, property and equipment, net | — |
| | — |
| | (150 | ) | | — |
| | — |
| | (150 | ) |
Repayments of long-term debt | — |
| | — |
| | (20 | ) | | — |
| | — |
| | (20 | ) |
Intercompany advances, net | — |
| | (696 | ) | | 625 |
| | 71 |
| | — |
| | — |
|
Proceeds from exercise of stock options | 29 |
| | — |
| | — |
| | — |
| | — |
| | 29 |
|
Tax withholdings on share-based awards | — |
| | — |
| | (121 | ) | | — |
| | — |
| | (121 | ) |
Intercompany dividend paid | — |
| | — |
| | — |
| | (110 | ) | | 110 |
| | — |
|
Dividends on preferred stock | (55 | ) | | — |
| | — |
| | — |
| | — |
| | (55 | ) |
Other, net | — |
| | — |
| | (12 | ) | | — |
| | — |
| | (12 | ) |
Net cash (used in) provided by financing activities | (26 | ) | | 301 |
| | 117 |
| | (39 | ) | | 110 |
| | 463 |
|
Change in cash and cash equivalents | (20 | ) | | 966 |
| | (22 | ) | | (6 | ) | | — |
| | 918 |
|
Cash and cash equivalents | | | | | | | | | | | |
Beginning of period | 378 |
| | 1,767 |
| | 2,364 |
| | 73 |
| | — |
| | 4,582 |
|
End of period | $ | 358 |
| | $ | 2,733 |
| | $ | 2,342 |
| | $ | 67 |
| | $ | — |
| | $ | 5,500 |
|
Condensed Consolidating Statement of Cash Flows Information
Year EndedSubsequent to December 31, 20152022, on February 9, 2023, we issued $1.0 billion of 4.950% Senior Notes due 2028, $1.3 billion of 5.050% Senior Notes due 2033 and $750 million of 5.650% Senior Notes due 2053. See Note 8 – Debt for additional information. |
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Operating activities | | | | | | | | | | | |
Net cash provided by (used in) operating activities | $ | (1 | ) | | $ | (1,147 | ) | | $ | 6,652 |
| | $ | 85 |
| | $ | (175 | ) | | $ | 5,414 |
|
| | | | | | | | | | | |
Investing activities | | | | | | | | | | | |
Purchases of property and equipment | — |
| | — |
| | (4,724 | ) | | — |
| | — |
| | (4,724 | ) |
Purchases of spectrum licenses and other intangible assets, including deposits | — |
| | — |
| | (1,935 | ) | | — |
| | — |
| | (1,935 | ) |
Purchases of short-term investments | — |
| | (1,999 | ) | | (998 | ) | | — |
| | — |
| | (2,997 | ) |
Investment in subsidiaries | (1,905 | ) | | — |
| | — |
| | — |
| | 1,905 |
| | — |
|
Other, net | — |
| | — |
| | 96 |
| | — |
| | — |
| | 96 |
|
Net cash used in investing activities | (1,905 | ) | | (1,999 | ) | | (7,561 | ) | | — |
| | 1,905 |
| | (9,560 | ) |
| | | | | | | | | | | |
Financing activities | | | | | | | | | | | |
Proceeds from capital contribution | — |
| | 1,905 |
| | — |
| | — |
| | (1,905 | ) | | — |
|
Proceeds from issuance of long-term debt | — |
| | 3,979 |
| | — |
| | — |
| | — |
| | 3,979 |
|
Proceeds from tower obligations | — |
| | 140 |
| | — |
| | — |
| | — |
| | 140 |
|
Repayments of capital lease obligations | — |
| | — |
| | (57 | ) | | — |
| | — |
| | (57 | ) |
Repayments of short-term debt for purchases of inventory, property and equipment, net | — |
| | — |
| | (564 | ) | | — |
| | — |
| | (564 | ) |
Intercompany advances, net | — |
| | (3,357 | ) | | 3,288 |
| | 69 |
| | — |
| | — |
|
Proceeds from exercise of stock options | 47 |
| | — |
| | — |
| | — |
| | — |
| | 47 |
|
Intercompany dividend paid | — |
| | — |
| | — |
| | (175 | ) | | 175 |
| | — |
|
Tax withholdings on share-based awards | — |
| | — |
| | (156 | ) | | — |
| | — |
| | (156 | ) |
Dividends on preferred stock | (41 | ) | | — |
| | (14 | ) | | — |
| | — |
| | (55 | ) |
Other, net | — |
| | — |
| | 79 |
| | — |
| | — |
| | 79 |
|
Net cash provided by (used in) financing activities | 6 |
| | 2,667 |
| | 2,576 |
| | (106 | ) | | (1,730 | ) | | 3,413 |
|
Change in cash and cash equivalents | (1,900 | ) | | (479 | ) | | 1,667 |
| | (21 | ) | | — |
| | (733 | ) |
Cash and cash equivalents | | | | | | | | | | | |
Beginning of period | 2,278 |
| | 2,246 |
| | 697 |
| | 94 |
| | — |
| | 5,315 |
|
End of period | $ | 378 |
| | $ | 1,767 |
| | $ | 2,364 |
| | $ | 73 |
| | $ | — |
| | $ | 4,582 |
|
Supplementary Data
Quarterly Financial Information (Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
(in millions, except shares and per share amounts) | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Full Year |
2017 | | | | | | | | | |
Total revenues | $ | 9,613 |
| | $ | 10,213 |
| | $ | 10,019 |
| | $ | 10,759 |
| | $ | 40,604 |
|
Operating income | 1,037 |
| | 1,416 |
| | 1,323 |
| | 1,112 |
| | 4,888 |
|
Net income | 698 |
| | 581 |
| | 550 |
| | 2,707 |
| | 4,536 |
|
Dividends on preferred stock | (14 | ) | | (14 | ) | | (13 | ) | | (14 | ) | | (55 | ) |
Net income attributable to common stockholders | 684 |
| | 567 |
| | 537 |
| | 2,693 |
| | 4,481 |
|
Earnings per share | | | | | | | | | |
Basic | $ | 0.83 |
| | $ | 0.68 |
| | $ | 0.65 |
| | $ | 3.22 |
| | $ | 5.39 |
|
Diluted | 0.80 |
| | 0.67 |
| | 0.63 |
| | 3.11 |
| | 5.20 |
|
Weighted average shares outstanding | | | | | | | | | |
Basic | 827,723,034 |
| | 830,971,528 |
| | 831,189,779 |
| | 837,416,683 |
| | 831,850,073 |
|
Diluted | 869,395,250 |
| | 870,456,447 |
| | 871,420,065 |
| | 871,501,578 |
| | 871,787,450 |
|
Net income includes: | | | | | | | | | |
Gains on disposal of spectrum licenses | $ | (37 | ) | | $ | (1 | ) | | $ | (29 | ) | | $ | (168 | ) | | $ | (235 | ) |
2016 | | | | | | | | | |
Total revenues (1) | $ | 8,664 |
| | $ | 9,287 |
| | $ | 9,305 |
| | $ | 10,234 |
| | $ | 37,490 |
|
Operating income (1) | 1,168 |
| | 833 |
| | 1,048 |
| | 1,001 |
| | 4,050 |
|
Net income | 479 |
| | 225 |
| | 366 |
| | 390 |
| | 1,460 |
|
Dividends on preferred stock | (14 | ) | | (14 | ) | | (13 | ) | | (14 | ) | | (55 | ) |
Net income attributable to common stockholders | 465 |
| | 211 |
| | 353 |
| | 376 |
| | 1,405 |
|
Earnings per share | | | | | | | | | |
Basic | $ | 0.57 |
| | $ | 0.26 |
| | $ | 0.43 |
| | $ | 0.46 |
| | $ | 1.71 |
|
Diluted | 0.56 |
| | 0.25 |
| | 0.42 |
| | 0.45 |
| | 1.69 |
|
Weighted average shares outstanding | | | | | | | | | |
Basic | 819,431,761 |
| | 822,434,490 |
| | 822,998,697 |
| | 824,982,734 |
| | 822,470,275 |
|
Diluted | 859,382,827 |
| | 829,752,956 |
| | 832,257,819 |
| | 867,262,400 |
| | 833,054,545 |
|
Net income includes: | | | | | | | | | |
Cost of MetroPCS business combination | $ | 36 |
| | $ | 59 |
| | $ | 15 |
| | $ | (6 | ) | | $ | 104 |
|
Gains on disposal of spectrum licenses | (636 | ) | | — |
| | (199 | ) | | — |
| | (835 | ) |
| |
(1) | The amortized imputed discount on EIP receivables previously recognized as Interest income has been retrospectively re-classified as Other revenues. See Note 1 - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for further information. |
EarningsSubsequent to December 31, 2022, from January 1, 2023, through February 10, 2023, we repurchased 14,676,718 shares of our common stock at an average price per share is computed independentlyof $145.70 for each quarter and the suma total purchase price of the quarters may not equal earnings per share$2.1 billion. See Note 15 – Repurchases of Common Stock for the full year.additional information.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure information required to be disclosed in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls are also designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Form 10-K.
The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits 31.1 and 31.2, respectively, to this Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, during our most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions;transactions, providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles;principles, providing reasonable assurance that receipts and expenditures are made in accordance with management authorization;authorization, and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2017.2022.
The effectiveness of our internal control over financial reporting as of December 31, 20172022 has been audited by PricewaterhouseCoopersDeloitte & Touche LLP, an independent registered public accounting firm, as stated in their report herein.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III. OTHER INFORMATION
Item 10. Directors, Executive Officers and Corporate Governance
We maintain a code of ethics applicable to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Treasurer, and Controller, which is a “Code of Ethics for Senior Financial Officers” as defined by applicable rules of the SEC. This code is publicly available on our website at investor.t-mobile.com. If we make any amendments to this code other than technical, administrative or other non-substantive amendments, or grant any waivers, including implicit waivers, from a provision of this code we will disclose the nature of the amendment or waiver, its effective date and to whom it applies on our website at investor.t-mobile.com or in a Current Report on Form 8-K filed with the SEC.
The remaining information required by this item, including information about our Directors, Executive Officers and Audit Committee, iswill be incorporated by reference to thefrom our definitive Proxy Statement for our 2018 Annual Meeting of Stockholders, which willto be filed with the SEC no later than 120 days after December 31, 2017.pursuant to Regulation 14A or will be included in an amendment to this Report.
Item 11. Executive Compensation
The information required by this item iswill be incorporated by reference to thefrom our definitive Proxy Statement for our 2018 Annual Meeting of Stockholders, which willto be filed with the SEC no later than 120 days after December 31, 2017.pursuant to Regulation 14A or will be included in an amendment to this Report.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item iswill be incorporated by reference to thefrom our definitive Proxy Statement for our 2018 Annual Meeting of Stockholders, which willto be filed with the SEC no later than 120 days after December 31, 2017.pursuant to Regulation 14A or will be included in an amendment to this Report.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item iswill be incorporated by reference to thefrom our definitive Proxy Statement for our 2018 Annual Meeting of Stockholders, which willto be filed with the SEC no later than 120 days after December 31, 2017.pursuant to Regulation 14A or will be included in an amendment to this Report.
Item 14. Principal AccountingAccountant Fees and Services
The information required by this item iswill be incorporated by reference to thefrom our definitive Proxy Statement for our 2018 Annual Meeting of Stockholders, which willto be filed with the SEC no later than 120 days after December 31, 2017.pursuant to Regulation 14A or will be included in an amendment to this Report.
PART IV.
Item 15. Exhibits,Exhibit and Financial Statement Schedules
(a) Documents filed as a part of this Form 10-K:10-K
1. Financial Statements
The following financial statements are included in Part II, Item 8 of this Form 10-K:
Report of Independent Registered Public Accounting Firm (PCAOB ID: 34)
Report of Independent Registered Public Accounting Firm (PCAOB ID: 238)
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statement of Stockholders’ Equity
Notes to the Consolidated Financial Statements
2. Financial Statement Schedules
All other schedules have been omitted because they are not required, not applicable or the required information is otherwise included.
3. Exhibits
See the Index to Exhibits immediately following Item“Item 16. Form 10-K SummarySummary” of this Form 10-K.
Item 16. Form 10–K Summary
None.
INDEX TO EXHIBITS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of Filing | | Exhibit Number | | Included Herewith |
2.1 | | Business Combination Agreement, dated as of April 29, 2018, by and among T-Mobile US, Inc., Huron Merger Sub LLC, Superior Merger Sub Corporation, Sprint Corporation, Starburst I, Inc., Galaxy Investment Holdings, Inc., and for the limited purposes set forth therein, Deutsche Telekom AG, Deutsche Telekom Holding B.V. and SoftBank Group Corp. | | 8-K | | 4/30/2018 | | 2.1 | | |
2.2 | | Amendment No. 1, dated as of July 26, 2019, to the Business Combination Agreement, dated as of April 29, 2018, by and among T-Mobile US, Inc., Huron Merger Sub LLC, Superior Merger Sub Corporation, Sprint Corporation, Starburst I, Inc., Galaxy Investment Holdings, Inc., and for the limited purposes set forth therein, Deutsche Telekom AG, Deutsche Telekom Holding B.V., and SoftBank Group Corp. | | 8-K | | 7/26/2019 | | 2.2 | | |
2.3 | | Amendment No. 2, dated as of February 20, 2020, to the Business Combination Agreement, dated as of April 29, 2018, by and among T-Mobile US, Inc., Huron Merger Sub LLC, Superior Merger Sub Corporation, Sprint Corporation, Starburst I, Inc., Galaxy Investment Holdings, Inc., and for the limited purposes set forth therein, Deutsche Telekom AG, Deutsche Telekom Holding B.V., and SoftBank Group Corp. | | 8-K | | 2/20/2020 | | 2.1 | | |
2.4 | | | | 8-K | | 7/26/2019 | | 2.1 | | |
2.5 | | | | 8-K | | 6/17/2020 | | 2.1 | | |
2.6 | | | | 8-K | | 6/1/2021 | | 2.1 | | |
2.7 | | | | 10-Q | | 8/3/2021 | | 2.2 | | |
2.8* | | | | 8-K | | 9/7/2022 | | 2.1 | | |
3.1 | | | | 8-K | | 4/1/2020 | | 3.1 | | |
3.2 | | | | 8-K | | 4/1/2020 | | 3.2 | | |
4.1 | | | | 8-K | | 5/2/2013 | | 4.1 | | |
4.2 | | | | 8-K | | 5/2/2013 | | 4.12 | | |
4.3 | | | | 10-Q | | 10/28/2014 | | 4.3 | | |
4.4 | | | | 10-Q | | 10/27/2015 | | 4.3 | | |
4.5 | | | | 8-K | | 3/16/2017 | | 4.3 | | |
|
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
2.1 | | | | 8-K | | 10/3/2012 | | 2.1 | |
|
2.2 | | | | 8-K | | 12/7/2012 | | 2.1 | |
|
2.3 | | | | 8-K | | 4/15/2013 | | 2.1 | |
|
3.1 | | | | 8-K | | 5/2/2013 | | 3.1 | |
|
3.2 | | | | 8-K | | 5/2/2013 | | 3.2 | |
|
3.3 | | | | 8-K | | 12/15/2014 | | 3.1 | |
|
4.1 | | | | 8-K | | 9/21/2010 | | 4.1 | |
|
4.2 | | | | 8-K | | 9/21/2010 | | 4.2 | |
|
4.3 | | | | 8-K | | 11/17/2010 | | 4.1 | |
|
4.4 | | | | 10-K | | 3/1/2011 | | 10.19(d) | |
|
4.5 | | | | 10-K | | 3/1/2011 | | 10.19(e) | |
|
4.6 | | | | 8-K | | 12/17/2012 | | 4.1 | |
|
4.7 | | | | 8-K | | 12/17/2012 | | 4.2 | |
|
4.8 | | | | 8-K | | 5/2/2013 | | 4.15 | |
|
4.9 | | | | 10-Q | | 8/8/2013 | | 4.19 | |
|
4.10 | | | | 10-Q | | 10/28/2014 | | 4.2 | |
|
4.11 | | | | 10-Q | | 10/27/2015 | | 4.2 | |
|
4.12 | | | | 10-Q | | 10/24/2016 | | 4.1 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of Filing | | Exhibit Number | | Included Herewith |
4.6 | | | | 8-K | | 1/25/2018 | | 4.2 | | |
4.7 | | | | 10-Q | | 5/1/2018 | | 4.5 | | |
4.8 | | | | 8-K | | 5/4/2018 | | 4.2 | | |
4.9 | | | | 8-K | | 5/21/2018 | | 4.1 | | |
4.10 | | | | 8-K | | 12/21/2018 | | 4.1 | | |
4.11 | | | | 10-Q | | 10/28/2019 | | 4.1 | | |
4.12 | | | | 10-Q/A | | 8/10/2020 | | 4.12 | | |
4.13 | | | | 8-K | | 1/14/2021 | | 4.2 | | |
4.14 | | | | 8-K | | 1/14/2021 | | 4.3 | | |
4.15 | | | | 8-K | | 1/14/2021 | | 4.4 | | |
4.16 | | | | 8-K | | 3/23/2021 | | 4.2 | | |
4.17 | | | | 8-K | | 3/23/2021 | | 4.3 | | |
4.18 | | | | 8-K | | 3/23/2021 | | 4.4 | | |
|
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
4.13 | | | | 8-K | | 3/22/2013 | | 4.1 | |
|
4.14 | | | | 8-K | | 3/22/2013 | | 4.2 | |
|
4.15 | | | | 8-K | | 3/22/2013 | | 4.3 | |
|
4.16 | | | | 8-K | | 3/22/2013 | | 4.4 | |
|
4.17 | | | | 8-K | | 3/22/2013 | | 4.5 | |
|
4.18 | | | | 10-Q | | 8/8/2013 | | 4.17 | |
|
4.19 | | | | 8-K | | 5/2/2013 | | 4.16 | |
|
4.20 | | | | 10-Q | | 8/8/2013 | | 4.20 | |
|
4.21 | | | | 10-Q | | 10/28/2014 | | 4.1 | |
|
4.22 | | | | 10-Q | | 10/27/2015 | | 4.1 | |
|
4.23 | | | | 10-Q | | 10/24/2016 | | 4.2 | |
|
4.24 | | | |
| |
| |
| | X |
4.25 | | | | 8-K | | 5/2/2013 | | 4.1 | |
|
4.26 | | | | 8-K | | 5/2/2013 | | 4.2 | |
|
4.27 | | | | 8-K | | 5/2/2013 | | 4.3 | |
|
4.28 | | | | 8-K | | 5/2/2013 | | 4.4 | |
|
4.29 | | | | 8-K | | 5/2/2013 | | 4.5 | |
|
4.30 | | | | 8-K | | 5/2/2013 | | 4.6 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of Filing | | Exhibit Number | | Included Herewith |
4.19 | | | | 10-Q | | 8/3/2021 | | 4.3 | | |
| | | | | | | | | | |
4.20 | | | | 8-K | | 4/13/2020 | | 4.1 | | |
4.21 | | | | 8-K | | 4/13/2020 | | 4.2 | | |
4.22 | | | | 8-K | | 4/13/2020 | | 4.3 | | |
4.23 | | | | 8-K | | 4/13/2020 | | 4.4 | | |
4.24 | | | | 8-K | | 4/13/2020 | | 4.5 | | |
4.25 | | | | 8-K | | 4/13/2020 | | 4.6 | | |
4.26 | | | | 8-K | | 6/26/2020 | | 4.2 | | |
4.27 | | | | 8-K | | 6/26/2020 | | 4.3 | | |
4.28 | | | | 8-K | | 6/26/2020 | | 4.4 | | |
4.29 | | | | 8-K | | 10/6/2020 | | 4.4 | | |
4.30 | | | | 8-K | | 10/6/2020 | | 4.5 | | |
4.31 | | | | 8-K | | 10/6/2020 | | 4.6 | | |
|
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
4.31 | | | | 8-K | | 5/2/2013 | | 4.7 | |
|
4.32 | | | | 8-K | | 5/2/2013 | | 4.8 | |
|
4.33 | | | | 8-K | | 5/2/2013 | | 4.9 | |
|
4.34 | | | | 8-K | | 5/2/2013 | | 4.10 | |
|
4.35 | | | | 8-K | | 5/2/2013 | | 4.11 | |
|
4.36 | | | | 8-K | | 5/2/2013 | | 4.12 | |
|
4.37 | | | | 10-Q | | 8/8/2013 | | 4.18 | |
|
4.38 | | | | 8-K | | 8/22/2013 | | 4.1 | |
|
4.39 | | | | 8-K | | 11/22/2013 | | 4.1 | |
|
4.40 | | | | 8-K | | 11/22/2013 | | 4.2 | |
|
4.41 | | | | 10-Q | | 10/28/2014 | | 4.3 | |
|
4.42 | | | | 8-K | | 9/5/2014 | | 4.1 | |
|
4.43 | | | | 8-K | | 9/5/2014 | | 4.2 | |
|
4.44 | | | | 10-Q | | 10/27/2015 | | 4.3 | |
|
4.45 | | | | 8-K | | 11/5/2015 | | 4.1 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of Filing | | Exhibit Number | | Included Herewith |
4.32 | | | | 8-K | | 10/6/2020 | | 4.7 | | |
4.33 | | | | 8-K | | 10/28/2020 | | 4.4 | | |
4.34 | | | | 8-K | | 10/28/2020 | | 4.5 | | |
4.35 | | | | 8-K | | 10/28/2020 | | 4.6 | | |
4.36 | | | | 8-K | | 10/28/2020 | | 4.7 | | |
4.37 | | | | S-4 | | 3/30/2021 | | 4.19 | | |
4.38 | | | | 8-K | | 8/13/2021 | | 4.3 | | |
4.39 | | | | 8-K | | 8/13/2021 | | 4.4 | | |
4.40 | | | | 8-K | | 12/6/2021 | | 4.3 | | |
4.41 | | | | 8-K | | 12/6/2021 | | 4.4 | | |
4.42 | | | | 8-K | | 12/6/2021 | | 4.5 | | |
4.43 | | | | 8-K | | 9/15/2022 | | 4.1 | | |
4.44 | | | | 8-K | | 9/15/2022 | | 4.2 | | |
|
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
4.46 | | | | 8-K | | 4/1/2016 | | 4.1 | |
|
4.47 | | | | 10-Q | | 10/24/2016 | | 4.3 | |
|
4.48 | | | | 8-K | | 3/16/2017 | | 4.1 | |
|
4.49 | | | | 8-K | | 3/16/2017 | | 4.2 | |
|
4.50 | | | | 8-K | | 3/16/2017 | | 4.3 | |
|
4.51 | | | | 8-K | | 4/28/2017 | | 4.1 | |
|
4.52 | | | | 8-K | | 4/28/2017 | | 4.2 | |
|
4.53 | | | | 8-K | | 4/28/2017 | | 4.3 | |
|
4.54 | | | | 8-K | | 5/9/2017 | | 4.1 | |
|
4.55 | | | | 8-K | | 5/9/2017 | | 4.2 | |
|
4.56 | | | |
| |
| |
| | X |
4.57 | | | | 8-K | | 1/25/2018 | | 4.1 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of Filing | | Exhibit Number | | Included Herewith |
4.45 | | | | 8-K | | 9/15/2022 | | 4.3 | | |
4.46 | | | | 8-K | | 9/15/2022 | | 4.4 | | |
4.47 | | | | 10-Q (SEC File No. 001-04721) | | 11/2/1998 | | 4(b) | | |
4.48 | | | | 8-K (SEC File No. 001-04721) | | 2/3/1999 | | 4(b) | | |
4.49 | | | | 8-K (SEC File No. 001-04721) | | 10/29/2001 | | 99 | | |
4.50 | | | | 8-K (SEC File No. 001-04721) | | 9/11/2013 | | 4.5 | | |
4.51 | | | | 8-K (SEC File No. 001-04721) | | 5/18/2018 | | 4.1 | | |
4.52 | | Fifth Supplemental Indenture, dated as of April 1, 2020, by and among Sprint Capital Corporation, Sprint Communications, Inc., Sprint Corporation, T-Mobile US, Inc., T-Mobile USA, Inc. and The Bank of New York Mellon Trust Company, N.A. (as successor to Bank One, N.A.), as trustee. | | 10-Q/A | | 8/10/2020 | | 4.19 | | |
4.53 | | | | 8-K (SEC File No. 001-04721) | | 9/11/2013 | | 4.1 | | |
4.54 | | | | 8-K (SEC File No. 001-04721) | | 9/11/2013 | | 4.3 | | |
4.55 | | | | 8-K (SEC File No. 001-04721) | | 12/12/2013 | | 4.1 | | |
4.56 | | | | 8-K (SEC File No. 001-04721) | | 2/24/2015 | | 4.1 | | |
|
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
4.58 | | | | 8-K | | 1/25/2018 | | 4.2 | |
|
4.59 | | | | 8-K | | 5/2/2013 | | 4.13 | |
|
10.1 | | | | 10-Q | | 8/8/2013 | | 10.1 | |
|
10.2 | | | | 10-Q | | 8/8/2013 | | 10.2 | |
|
10.3 | | | | 10-Q | | 8/8/2013 | | 10.3 | |
|
10.4 | | MPL Site Master Lease Agreement, dated as of November 30, 2012, by and among Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc. and CCTMO LLC. | | 10-Q | | 8/8/2013 | | 10.4 | |
|
10.5 | | First Amendment to MPL Site Master Lease Agreement, dated as of November 30, 2012, by and among Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc. and CCTMO LLC. | | 10-Q | | 8/8/2013 | | 10.5 | |
|
10.6 | | Sale Site Master Lease Agreement, dated as of November 30, 2012, by and among Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc., T3 Tower 1 LLC and T3 Tower 2 LLC. | | 10-Q | | 8/8/2013 | | 10.6 | |
|
10.7 | | First Amendment to Sale Site Master Lease Agreement, dated as of November 30, 2012, by and Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc., T3 Tower 1 LLC and T3 Tower 2 LLC. | | 10-Q | | 8/8/2013 | | 10.7 | |
|
10.8 | | Management Agreement, dated as of November 30, 2012, by and among Suncom Wireless Operating Company, L.L.C., Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Property Company, L.L.C., T-Mobile USA Tower LLC, T-Mobile West Tower LLC, CCTMO LLC, T3 Tower 1 LLC and T3 Tower 2 LLC. | | 10-Q | | 8/8/2013 | | 10.8 | |
|
10.9 | | | | 8-K | | 5/2/2013 | | 10.1 | |
|
10.10 | | | | 10-Q | | 8/8/2013 | | 10.10 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of Filing | | Exhibit Number | | Included Herewith |
4.57 | | | | 8-K (SEC File No. 001-04721) | | 2/22/2018 | | 4.1 | | |
4.58 | | | | 8-K (SEC File No. 001-04721) | | 5/14/2018 | | 4.1 | | |
4.59 | | Eighth Supplemental Indenture, dated as of April 1, 2020, by and among Sprint Corporation, Sprint Communications, Inc., T-Mobile US, Inc., T-Mobile USA, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee. | | 10-Q/A | | 8/10/2020 | | 4.36 | | |
4.60 | | | | 8-K (SEC File No. 001-04721) | | 11/2/2016 | | 4.1 | | |
4.61 | | | | 8-K (SEC File No. 001-04721) | | 3/12/2018 | | 4.1 | | |
4.62 | | | | 8-K (SEC File No. 001-04721) | | 6/6/2018 | | 4.1 | | |
4.63 | | | | 10-Q (SEC File No. 001-04721) | | 1/31/2019 | | 4.1 | | |
4.64 | | | | 8-K (SEC File No. 001-04721) | | 3/21/2018 | | 10.1 | | |
4.65 | | | | 13D | | 4/2/2020 | | 6 | | |
4.66 | | | | 13D/A | | 6/24/2020 | | 49 | | |
4.67 | | | | 10-K | | 2/11/2022 | | 4.75 | | |
10.1 | | | | 10-Q | | 8/8/2013 | | 10.1 | | |
10.2 | | | | 10-Q | | 8/8/2013 | | 10.2 | | |
10.3 | | | | 10-K | | 2/7/2019 | | 10.3 | | |
|
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
10.11 | | | | 8-K | | 5/2/2013 | | 10.2 | |
|
10.12 | | Credit Agreement, dated as of May 1, 2013, among T-Mobile USA, Inc., as Borrower, Deutsche Telekom AG, as Lender, the other lenders party thereto from time to time, and JPMorgan Chase Bank, N.A., as Administrative Agent. | | 8-K | | 5/2/2013 | | 4.14 | |
|
10.13 | | Amendment No. 1, dated as of November 15, 2013, to the Credit Agreement, dated May 1, 2013, among T-Mobile US, Inc., T-Mobile USA, Inc., each of the Subsidiaries signatory thereto, Deutsche Telekom AG and the other lenders party thereto from time to time, and JPMorgan Chase Bank, N.A., as Administrative Agent. | | 8-K | | 11/20/2013 | | 10.1 | |
|
10.14 | | Amendment No. 2, dated as of September 3, 2014, to the Credit Agreement, dated as of May 1, 2013, among T-Mobile USA, Inc., Deutsche Telekom AG and the other lenders party thereto from time to time, and JPMorgan Chase Bank, N.A., as Administrative Agent. | | 8-K | | 9/5/2014 | | 10.1 | |
|
10.15 | | Amendment No. 3, dated as of November 2, 2015, to the Credit Agreement, dated as of May 1, 2013, among T-Mobile USA, Inc., Deutsche Telekom AG and the other lenders party thereto from time to time, and JPMorgan Chase Bank N.A., as Administrative Agent. | | 8-K | | 11/5/2015 | | 10.2 | |
|
10.16 | | | | 8-K | | 3/22/2013 | | 10.1 | |
|
10.17 | | | | 8-K | | 8/22/2013 | | 10.1 | |
|
10.18 | | | | 8-K | | 1/6/2014 | | 10.1 | |
|
10.19 | | | | 8-K | | 1/6/2014 | | 10.2 | |
|
10.20 | | | | 10-K | | 2/14/2017 | | 10.29 | |
|
10.21 | | | | 8-K | | 3/4/2014 | | 10.1 | |
|
10.22 | | Joinder and First Amendment to the Receivables Sale and Conveyancing Agreement, dated as of November 28, 2014, among Powertel/Memphis, Inc., Triton PCS Holdings Company L.L.C., T-Mobile West LLC, T-Mobile Central LLC, T-Mobile Northeast LLC and T-Mobile South LLC, as sellers, and T-Mobile PCS Holdings LLC, as purchaser. | | 10-K | | 2/19/2015 | | 10.55 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of Filing | | Exhibit Number | | Included Herewith |
10.4 | | | | 10-Q | | 8/8/2013 | | 10.3 | | |
10.5 | | MPL Site Master Lease Agreement, dated as of November 30, 2012, by and among Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc. and CCTMO LLC. | | 10-Q | | 8/8/2013 | | 10.4 | | |
10.6 | | First Amendment, dated as of November 30, 2012, to MPL Site Master Lease Agreement, dated as of November 30, 2012, by and among Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc. and CCTMO LLC. | | 10-Q | | 8/8/2013 | | 10.5 | | |
10.7 | | Second Amendment, dated as of October 31, 2014, to MPL Site Master Lease Agreement, dated as of November 30, 2012, by and among Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc.
| | 10-K | | 2/7/2019 | | 10.7 | | |
10.8 | | Sale Site Master Lease Agreement, dated as of November 30, 2012, by and among Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc., T3 Tower 1 LLC and T3 Tower 2 LLC. | | 10-Q | | 8/8/2013 | | 10.6 | | |
10.9 | | First Amendment, dated as of November 30, 2012, to Sale Site Master Lease Agreement, dated as of November 30, 2012, by and Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc., T3 Tower 1 LLC and T3 Tower 2 LLC. | | 10-Q | | 8/8/2013 | | 10.7 | | |
10.10 | | Second Amendment, dated as of October 31, 2014, to Sale Site Master Lease Agreement, dated as of November 30, 2012, by and Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc., T3 Tower 1 LLC and T3 Tower 2 LLC. | | 10-K | | 2/7/2019 | | 10.10 | | |
10.11 | | | | 10-K | | 2/7/2019 | | 10.11 | | |
10.12 | | Management Agreement, dated as of November 30, 2012, by and among Suncom Wireless Operating Company, L.L.C., Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Property Company, L.L.C., T-Mobile USA Tower LLC, T-Mobile West Tower LLC, CCTMO LLC, T3 Tower 1 LLC and T3 Tower 2 LLC. | | 10-Q | | 8/8/2013 | | 10.8 | | |
|
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
10.23 | | Joinder and Second Amendment to the Receivables Sale and Conveyancing Agreement, dated as of January 9, 2015, among SunCom Wireless Operating Company, LLC, Powertel/Memphis, Inc., Triton PCS Holdings Company L.L.C., T-Mobile West LLC, T-Mobile Central LLC, T-Mobile Northeast LLC and T-Mobile South LLC, as sellers, and T-Mobile PCS Holdings LLC, as purchaser. | | 10-Q | | 4/28/2015 | | 10.5 | |
|
10.24 | | | | 8-K | | 3/4/2014 | | 10.2 | |
|
10.25 | | | | 10-K | | 2/19/2015 | | 10.56 | |
|
10.26 | | | | 10-Q | | 4/28/2015 | | 10.6 | |
|
10.27 | | | | 10-K | | 2/14/2017 | | 10.33 | |
|
10.28 | | | | 10-Q | | 7/20/2017 | | 10.1 | |
|
10.29 | | Second Amended and Restated Master Receivables Purchase Agreement, dated as of November 30, 2016, among T-Mobile Airtime Funding LLC, as funding seller, Billing Gate One LLC, as purchaser, Landesbank Hessen-Thüringen Girozentrale, as bank purchasing agent, The Bank of Tokyo Mitsubishi UFJ, Ltd., as bank collection agent, T-Mobile PCS Holdings LLC, as servicer, and T-Mobile US, Inc., as performance guarantor. | | 8-K | | 12/6/2016 | | 10.1 | |
|
10.30 | | First Amendment to Second Amended and Restated Master Receivables Purchase Agreement, dated as of May 5, 2017, among T-Mobile Airtime Funding LLC, as funding seller, Billing Gate One LLC, as purchaser, Landesbank Hessen-Thüringen Girozentrale, as bank purchasing agent, The Bank of Tokyo Mitsubishi UFJ, Ltd., as bank collection agent, T-Mobile PCS Holdings LLC, as servicer, and T-Mobile US, Inc., as performance guarantor. | | 10-Q | | 7/20/2017 | | 10.2 | |
|
10.31 | | Third Amended and Restated Master Receivables Purchase Agreement, dated as of February 5, 2018, among T-Mobile Airtime Funding LLC, as funding seller, Billing Gate One LLC, as purchaser, Landesbank Hessen-Thüringen Girozentrale, as bank purchasing agent, The Bank of Tokyo Mitsubishi UFJ, Ltd., as bank collection agent, TMobile PCS Holdings LLC, as servicer, and T-Mobile US, Inc., as performance guarantor. | |
| |
| |
| | X |
10.32 | | | | 8-K | | 11/12/2015 | | 10.1 | |
|
10.33 | | | | 10-Q | | 4/24/2017 | | 10.3 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of Filing | | Exhibit Number | | Included Herewith |
10.13 | | | | S-3ASR | | 6/22/2020 | | 4.2 | | |
10.14 | | | | 8-K | | 4/30/2018 | | 10.3 | | |
10.15 | | | | 8-K | | 2/20/2020 | | 10.1 | | |
10.16 | | | | 8-K | | 5/2/2013 | | 10.2 | | |
10.17 | | | | 10-Q | | 7/26/2019 | | 10.5 | | |
10.18 | | | | 8-K | | 4/1/2020 | | 10.3 | | |
10.19* | | | | 10-Q | | 11/5/2020 | | 10.1 | | |
10.20* | | | | 10-Q | | 11/5/2020 | | 10.2 | | |
10.21 | | | | | | | | | | X |
10.22 | | | | 8-K (SEC File No. 001-04721) | | 11/2/2016 | | 10.1 | | |
10.23 | | | | 8-K (SEC File No. 001-04721) | | 11/2/2016 | | 10.2 | | |
10.24 | | First Amendment to Intra-Company Spectrum Lease Agreement, dated as of March 12, 2018, among Sprint Spectrum License Holder, LLC, Sprint Spectrum License Holder II LLC and Sprint Spectrum License Holder III LLC, Sprint Communications, Inc., Sprint Intermediate HoldCo LLC, Sprint Intermediate HoldCo II LLC, Sprint Intermediate HoldCo III LLC. | | 8-K (SEC File No. 001-04721) | | 3/12/2018 | | 10.1 | | |
10.25 | | Second Amendment to Intra-Company Spectrum Lease Agreement, dated as of June 6, 2018, among Sprint Spectrum License Holder, LLC, Sprint Spectrum License Holder II LLC and Sprint Spectrum License Holder III LLC, Sprint Communications, Inc., Sprint Intermediate HoldCo LLC, Sprint Intermediate HoldCo II LLC, Sprint Intermediate HoldCo III LLC, Sprint Corporation and the subsidiary guarantors. | | 8-K (SEC File No. 001-04721) | | 6/6/2018 | | 10.1 | | |
10.26 | | | | 10-Q/A | | 8/10/2020 | | 10.13 | | |
|
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
10.34 | | | | 10-Q | | 4/24/2017 | | 10.4 | |
|
10.35 | | | | 10-Q | | 4/24/2017 | | 10.5 | |
|
10.36 | | | | 8-K | | 7/27/2017 | | 10.1 | |
|
10.37 | | First Incremental Facility Amendment, dated as of December 29, 2016, to the Term Loan Credit Agreement, dated as of November 9, 2015, by and among T-Mobile USA, Inc., the several banks and other financial institutions or entities from time to time parties thereto as lenders, and Deutsche Bank AG New York Branch, as administrative agent. | | 8-K | | 12/30/2016 | | 10.3 | |
|
10.38 | | Second Incremental Facility Amendment, dated as of January 25, 2017, to the Term Loan Credit Agreement, dated as of November 9, 2015, as amended by that certain First Incremental Facility Amendment dated as of December 29, 2016, by and among T-Mobile USA, Inc., the several banks and other financial institutions or entities from time to time parties thereto as lenders, and Deutsche Bank AG New York Branch, as administrative agent. | | 8-K | | 1/25/2017 | | 10.1 | |
|
10.39 | | | | 8-K | | 6/8/2016 | | 10.1 | |
|
10.40 | | | | 10-K | | 2/14/2017 | | 10.41 | |
|
10.41 | | | | 10-Q | | 10/23/2017 | | 10.2 | |
|
10.42 | | Amended and Restated Receivables Purchase and Administration Agreement, dated as of June 6, 2016, by and among T-Mobile Handset Funding LLC, as transferor, T-Mobile Financial LLC, as servicer, T-Mobile US, Inc., as performance guarantor, Royal Bank of Canada, as administrative agent, and certain financial institutions party thereto from time to time. | | 8-K | | 6/8/2016 | | 10.2 | |
|
10.43 | | First Amendment, dated as of July 27, 2016, to the Amended and Restated Receivables Purchase and Administration Agreement, dated as of June 6, 2016, by and among T-Mobile Handset Funding LLC, as transferor, T-Mobile Financial LLC, as servicer, T-Mobile US, Inc., as performance guarantor, Royal Bank of Canada, as administrative agent, and certain financial institutions party thereto. | | 10-Q | | 10/24/2016 | | 10.1 | |
|
10.44 | | Second Amendment, dated as of October 31, 2016, to the Amended and Restated Receivables Purchase and Administration Agreement, dated as of June 6, 2016, by and among T-Mobile Handset Funding LLC, as transferor, T-Mobile Financial LLC, as servicer, T-Mobile US, Inc., as performance guarantor, Royal Bank of Canada, as administrative agent, and certain financial institutions party thereto. | | 10-K | | 2/14/2017 | | 10.46 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of Filing | | Exhibit Number | | Included Herewith |
10.27 | | | | 10-Q | | 8/3/2021 | | 10.3 | | |
10.28 | | Master Framework Agreement, dated as of June 22, 2020, by and among SoftBank Group Corp., SoftBank Group Capital Ltd, Delaware Project 4 L.L.C., Delaware Project 6 L.L.C., Claure Mobile LLC, Deutsche Telekom AG, T-Mobile US, Inc. and T-Mobile Agent LLC. | | 8-K | | 6/26/2020 | | 10.1 | | |
10.29 | | | | 10-Q | | 7/29/2022 | | 10.1 | | |
10.30* | | | | 10-Q | | 10/27/2022 | | 10.1 | | |
10.31* | | | | 10-Q | | 10/27/2022 | | 10.2 | | |
10.32** | | | | 10-K | | 2/9/2020 | | 10.61 | | |
10.33** | | | | 10-Q | | 5/6/2020 | | 10.6 | | |
10.34** | | | | 10-K | | 2/6/2020 | | 10.65 | | |
10.35** | | | | 10-Q | | 5/6/2020 | | 10.4 | | |
10.36** | | | | 10-Q | | 5/1/2018 | | 10.9 | | |
10.37** | | | | 10-K | | 2/8/2018 | | 10.76 | | |
10.38** | | | | 10-K | | 2/25/2014 | | 10.39 | | |
10.39** | |
| | 10-K | | 2/7/2019 | | 10.75 | | |
10.40** | | | | 10-K | | 2/23/2021 | | 10.70 | | |
10.41** | | | | 8-K | | 10/25/2013 | | 10.1 | | |
10.42** | | | | 10-Q | | 8/8/2013 | | 10.20 | | |
10.43** | | | | Schedule 14A | | 4/26/2018 | | Annex A | | |
10.44** | | | | 10-Q | | 8/8/2013 | | 10.21 | | |
10.45** | | | | 10-Q | | 5/4/2021 | | 10.4 | | |
10.46** | | | | S-8 | | 2/19/2015 | | 99.1 | | |
10.47** | | | | 8-K (SEC File No. 001-04721) | | 9/20/2013 | | 10.2 | | |
10.48** | | | | 10-Q (SEC File No. 001-04721) | | 2/6/2017 | | 10.1 | | |
|
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
10.45 | | Third Amendment, dated as of December 23, 2016, to the Amended and Restated Receivables Purchase and Administration Agreement, dated as of June 6, 2016, by and among T-Mobile Handset Funding LLC, as transferor, T-Mobile Financial LLC, as servicer, T-Mobile US, Inc., as performance guarantor, Royal Bank of Canada, as administrative agent, and certain financial institutions party thereto. | | 10-K | | 2/14/2017 | | 10.47 | |
|
10.46 | | Fourth Amendment, dated as of May 18, 2017, to the Amended and Restated Receivables Purchase and Administration Agreement, dated as of June 6, 2016, by and among T-Mobile Handset Funding LLC, as transferor, T-Mobile Financial LLC, as servicer, T-Mobile US, Inc., as performance guarantor, Royal Bank of Canada, as administrative agent, and certain financial institutions party thereto. | | 10-Q | | 7/20/2017 | | 10.3 | |
|
10.47 | | Second Amended and Restated Receivables Purchase and Administration Agreement, dated as of August 21, 2017, by and among T-Mobile Handset Funding LLC, as transferor, T-Mobile Financial LLC, as servicer, T-Mobile US, Inc., as performance guarantor, Royal Bank of Canada, as administrative agent, and certain financial institutions party thereto | | 10-Q | | 10/23/2017 | | 10.3 | |
|
10.48 | | First Amendment, dated as of December 18, 2017, to the Second Amended and Restated Receivables Purchase and Administrative Agreement, dated as of August 21, 2017, by and among T-Mobile Handset Funding LLC, as transferor, T-Mobile Financial LLC, as servicer, T-Mobile US, Inc., as performance guarantor, Royal Bank of Canada, as administrative agent, and certain financial institutions party thereto. | | | | | | | | X |
10.49 | | | | 8-K | | 3/7/2016 | | 1.1 | |
|
10.50 | | | | 8-K | | 11/2/2016 | | 10.1 | |
|
10.51 | | | | 8-K | | 4/26/2016 | | 1.1 | |
|
10.52 | | | | 8-K | | 11/2/2016 | | 10.2 | |
|
10.53 | | | | 8-K | | 4/29/2016 | | 1.1 | |
|
10.54 | | | | 8-K | | 11/2/2016 | | 10.3 | |
|
10.55 | | | | 8-K | | 3/16/2017 | | 10.1 | |
|
10.56 | | | | 8-K | | 12/30/2016 | | 10.1 | |
|
|
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
10.57 | | | | 8-K | | 12/30/2016 | | 10.2 | |
|
10.58 | | | | 8-K | | 1/25/2018 | | 10.1 | |
|
10.59* | | | | S-1/A | | 2/27/2007 | | 10.1(a) | |
|
10.60* | | | | Schedule 14A | | 4/19/2010 | | Annex A | |
|
10.61* | | | | 10-Q | | 8/9/2010 | | 10.2 | |
|
10.62* | | | | 10-Q | | 10/30/2012 | | 10.1 | |
|
10.63* | | | | 10-K | | 3/1/2013 | | 10.9(a) | |
|
10.64* | | | | 10-K | | 3/1/2013 | | 10.9(b) | |
|
10.65* | | | | 10-Q | | 8/9/2010 | | 10.5 | |
|
10.66* | | | | 10-K | | 2/29/2012 | | 10.12 | |
|
10.67* | | | | 10-K | | 3/1/2013 | | 10.12(b) | |
|
10.68* | | | | 8-K | | 5/2/2013 | | 10.3 | |
|
10.69* | | | |
| |
| |
| | X |
10.70* | | | | 8-K | | 5/2/2013 | | 10.4 | |
|
10.71* | | | | 10-Q | | 8/8/2013 | | 10.17 | |
|
10.72* | | | | 10-K | | 2/25/2014 | | 10.35 | |
|
10.73* | | | | 8-K | | 2/26/2015 | | 10.1 | |
|
10.74* | | | | 10-Q | | 4/24/2017 | | 10.7 | |
|
10.75* | | | | 10-Q | | 4/24/2017 | | 10.6 | |
|
10.76* | | | |
| |
| |
| | X |
10.77* | | | | 10-K | | 2/25/2014 | | 10.39 | |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed HereinIncluded Herewith |
10.78*10.49** | | | | 10-Q (SEC File No. 001-04721) | | 8/8/2014 | | 10.12 | | |
10.50** | | | | 8-K | | 10/25/2013 | | 10.1 | |
|
10.79* | | | | 10-Q | | 8/8/2013 | | 10.20 | |
|
10.80* | | | | 10-Q | | 8/8/2013 | | 10.21 | |
|
10.81* | | | | 10-K10-Q (SEC File No. 001-04721) | | 2/25/20148/3/2017 | | 10.4510.3 | |
|
10.82*10.51** | | | | 8-K10-Q | | 6/5/4/20132021 | | 10.210.1 | |
|
10.83*10.52** | | | | 10-Q | | 5/4/2021 | | 10.2 | | |
10.53** | | | | 10-Q | | 8/8/20135/6/2020 | | 10.2410.7 | |
|
10.84*10.54** | | | | 10-Q | | 8/8/20135/6/2020 | | 10.2510.8 | |
|
10.85* | | | | | | | | | | |
10.55** | | | | 8-K | | 6/4/2013 | | 10.2 | | |
10.56** | | | | 10-K10-Q | | 2/19/20155/4/2021 | | 10.4310.3 | |
|
10.86* | | | | 10-K | | 2/19/2015 | | 10.44 | |
|
10.87* | | | | S-8 | | 2/19/2015 | | 99.1 | |
|
10.88*10.57** | | Amended Director Compensation Program effective as of May 1, 2013 (amended June 4, 2014 and further amended on June 1, 2015, June 16, 2016, June 13, 2017, June 13, 2019 and June 13, 2017)4, 2020). | | 10-Q10-Q/A | | 7/20/20178/10/2020 | | 10.410.30 | |
|
12.110.58** | | | | 10-Q | | 5/6/2022 | | 10.1 | | X |
21.1 | | | |
| |
| |
| | X |
23.122.1 | | | | | | | | | | X |
23.1 | | | | | | | | | | X |
23.2 | | | |
| |
| |
| | X |
24.1 | | Power of Attorney, pursuant to which amendments to this Form 10-K may be filed (included on the signature page contained in Part IV of the Form 10-K). | |
| |
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| | X |
31.1 | | | |
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| | X |
31.2 | | | |
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| | X |
32.1*** | | | |
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| | X |
32.2*** | | | |
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| | X |
101.INS | | XBRL Instance Document.Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
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101.SCH | | XBRL Taxonomy Extension Schema Document. | |
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| | X |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. | |
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| | X |
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101.DEF | | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of Filing | | Exhibit Number | | Included Herewith |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. | |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. | |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. | |
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| | X |
104 | | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).
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* | | Certain confidential information contained in this exhibit has been omitted because it is both (i) not material and (ii) would likely cause competitive harm if publicly disclosed. |
** | | Indicates a management contract or compensatory plan or arrangement. |
*** | | Furnished herein.herewith. |
| | Certain instruments defining the rights of holders of long-term debt securities of the registrant and its consolidated subsidiaries are omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The registrant hereby undertakes to furnish to the SEC, upon request, copies of any such instruments. |
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| | T-MOBILE US, INC. | |
| | | |
February 14, 2023 | | T-MOBILE US, INC./s/ G. Michael Sievert | |
| | | |
February 7, 2018 | | /s/ John J. Legere | |
| | John J. Legere
President and G. Michael Sievert Chief Executive Officer
| |
Each person whose signature appears below constitutes and appoints John J. LegereG. Michael Sievert and J. Braxton Carter,Peter Osvaldik, and each or eitherany of them, his or her true and lawful attorney-in-fact and agent, each acting alone, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments or supplements (including post-effective amendments) to this Report, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of February 7, 2018.
| | | | | | | | |
Signature | | Title |
| | |
/s/ G. Michael Sievert | | Chief Executive Officer and |
G. Michael Sievert | | Director (Principal Executive Officer) |
| | | | | | | | |
| | |
Signature | | Title |
| | |
/s/ John J. LegerePeter Osvaldik | | Executive Vice President and Chief ExecutiveFinancial Officer and |
John J. LegerePeter Osvaldik | | Director (Principal Executive(Principal Financial Officer) |
| | | | | | | | |
| | |
/s/ Dara Bazzano | | Senior Vice President, Finance and Chief Accounting |
/s/ J. Braxton CarterDara Bazzano | | Executive Vice President and Chief Financial Officer |
J. Braxton Carter | | (Principal Financial (Principal Accounting Officer) |
| | | | | | | | |
| | |
/s/ Timotheus Höttges | | Chairman of the Board |
/s/ Peter OsvaldikTimotheus Höttges | | Senior Vice President, Finance and Chief Accounting |
Peter Osvaldik | | Officer (Principal Accounting Officer) |
| | | | | | | | |
| | |
/s/ Marcelo Claure | | Director |
/s/ Timotheus HöttgesMarcelo Claure | | Chairman of the Board |
Timotheus Höttges | | |
| | | | | | | | |
| | |
/s/ Srikant M. Datar | | Director |
/s/ W. Michael BarnesSrikant M. Datar | | Director |
W. Michael Barnes | | |
| | | | | | | | |
| | |
/s/ Srinivasan Gopalan | | Director |
/s/ Thomas DannenfeldtSrinivasan Gopalan | | Director |
Thomas Dannenfeldt | | |
| | | | | | | | |
| | |
/s/ Bavan Holloway | | Director |
/s/ Srikant DatarBavan Holloway | | Director |
Srikant Datar | | |
| | | | | | | | |
| | |
/s/ Christian P. Illek | | Director |
/s/ Lawrence H. GuffeyChristian P. Illek | | Director |
Lawrence H. Guffey | | |
| | | | | | | | |
| | |
/s/ Raphael Kübler | | Director |
/s/ Bruno JacobfeuerbornRaphael Kübler | | Director |
Bruno Jacobfeuerborn | | |
| | | | | | | | |
| | |
/s/ Thorsten Langheim | | Director |
/s/ Raphael KüblerThorsten Langheim | | Director |
Raphael Kübler | | |
| | | | | | | | |
| | |
/s/ Dominique Leroy | | Director |
/s/ Thorsten LangheimDominique Leroy | | Director |
Thorsten Langheim | | |
| | | | | | | | |
| | |
/s/ Letitia A. Long | | Director |
/s/ TeresaLetitia A. TaylorLong | | Director |
Teresa A. Taylor | | |
| | | | | | | | |
| | |
/s/ Teresa A. Taylor | | Director |
Teresa A. Taylor | | |
| | | | | | | | |
| | |
/s/ Kelvin R. Westbrook | | Director |
Kelvin R. Westbrook | | |