UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| |
x
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017March 31, 2022
or
| |
¨☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-33409
T-MOBILE US, INC.
(Exact name of registrant as specified in its charter)
|
| | | | | | | |
DELAWAREDelaware | | 20-0836269 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
12920 SE 38th Street, Bellevue, Washington | | 98006-1350 |
(Address of principal executive offices) | | (Zip Code) |
| | |
(425) 378-4000 |
| | |
| | |
|
12920 SE 38th Street
Bellevue,Washington
(Address of principal executive offices)
98006-1350
(Zip Code) | | | | | |
| |
| (425) | 378-4000 |
| (Registrant’s telephone number, including area code) |
| Securities registered pursuant to Section 12(b) of the Act: |
| | | | | | | | | | | | | | |
| Title of each class | | Trading Symbol | | Name of each exchange on which registered |
| Common Stock, par value $0.00001 per share | | TMUS | | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
| Large accelerated filer | ☒ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
Large accelerated filer x Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
|
| | | | |
| Class | | Shares Outstanding as of October 19, 2017 |
April 29, 2022 |
Common Stock, $0.00001 par value $0.00001 per share | 1,253,584,833 | 831,964,098 |
|
T-Mobile US, Inc.
Form 10-Q
For the Quarter Ended September 30, 2017March 31, 2022
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
T-Mobile US, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| | | (in millions, except share and per share amounts) | September 30,
2017 | | December 31,
2016 | (in millions, except share and per share amounts) | March 31,
2022 | | December 31,
2021 |
| Assets | | | | Assets | |
| Current assets | | | | Current assets | |
| | Cash and cash equivalents | $ | 739 |
| | $ | 5,500 |
| Cash and cash equivalents | $ | 3,245 | | | $ | 6,631 | |
| Accounts receivable, net of allowances of $86 and $102 | 1,734 |
| | 1,896 |
| |
| Equipment installment plan receivables, net | 2,136 |
| | 1,930 |
| |
| Accounts receivable from affiliates | 24 |
| | 40 |
| |
| Inventories | 999 |
| | 1,111 |
| |
| Asset purchase deposit | — |
| | 2,203 |
| |
| Accounts receivable, net of allowance for credit losses of $164 and $146 | | Accounts receivable, net of allowance for credit losses of $164 and $146 | 4,016 | | | 4,194 | |
| Equipment installment plan receivables, net of allowance for credit losses and imputed discount of $522 and $494 | | Equipment installment plan receivables, net of allowance for credit losses and imputed discount of $522 and $494 | 5,061 | | | 4,748 | |
| | Inventory | | Inventory | 2,715 | | | 2,567 | |
| Prepaid expenses | | Prepaid expenses | 727 | | | 746 | |
| Other current assets | 1,817 |
| | 1,537 |
| Other current assets | 1,691 | | | 2,005 | |
| | Total current assets | 7,449 |
| | 14,217 |
| Total current assets | 17,455 | | | 20,891 | |
| Property and equipment, net | 21,570 |
| | 20,943 |
| Property and equipment, net | 40,006 | | | 39,803 | |
| Operating lease right-of-use assets | | Operating lease right-of-use assets | 31,449 | | | 26,959 | |
| Financing lease right-of-use assets | | Financing lease right-of-use assets | 3,287 | | | 3,322 | |
| Goodwill | 1,683 |
| | 1,683 |
| Goodwill | 12,234 | | | 12,188 | |
| Spectrum licenses | 35,007 |
| | 27,014 |
| Spectrum licenses | 92,661 | | | 92,606 | |
| Other intangible assets, net | 256 |
| | 376 |
| Other intangible assets, net | 4,448 | | | 4,733 | |
| Equipment installment plan receivables due after one year, net | 1,100 |
| | 984 |
| |
| Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount of $127 and $136 | | Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount of $127 and $136 | 2,837 | | | 2,829 | |
| | Other assets | 858 |
| | 674 |
| Other assets | 6,276 | | | 3,232 | |
| | Total assets | $ | 67,923 |
| | $ | 65,891 |
| Total assets | $ | 210,653 | | | $ | 206,563 | |
| Liabilities and Stockholders' Equity | | | | Liabilities and Stockholders' Equity | | | |
| Current liabilities | | | | Current liabilities | |
| | Accounts payable and accrued liabilities | $ | 6,071 |
| | $ | 7,152 |
| Accounts payable and accrued liabilities | $ | 11,134 | | | $ | 11,405 | |
| Payables to affiliates | 288 |
| | 125 |
| |
| | Short-term debt | 558 |
| | 354 |
| Short-term debt | 2,865 | | | 3,378 | |
| Short-term debt to affiliates | | Short-term debt to affiliates | 1,250 | | | 2,245 | |
| Deferred revenue | 790 |
| | 986 |
| Deferred revenue | 842 | | | 856 | |
| Short-term operating lease liabilities | | Short-term operating lease liabilities | 3,252 | | | 3,425 | |
| Short-term financing lease liabilities | | Short-term financing lease liabilities | 1,121 | | | 1,120 | |
| | Other current liabilities | 396 |
| | 405 |
| Other current liabilities | 959 | | | 1,070 | |
| | Total current liabilities | 8,103 |
| | 9,022 |
| Total current liabilities | 21,423 | | | 23,499 | |
| | Long-term debt | 13,163 |
| | 21,832 |
| Long-term debt | 66,861 | | | 67,076 | |
| Long-term debt to affiliates | 14,586 |
| | 5,600 |
| Long-term debt to affiliates | 1,494 | | | 1,494 | |
| Tower obligations | 2,599 |
| | 2,621 |
| Tower obligations | 4,037 | | | 2,806 | |
| Deferred tax liabilities | 5,535 |
| | 4,938 |
| Deferred tax liabilities | 10,410 | | | 10,216 | |
| Deferred rent expense | 2,693 |
| | 2,616 |
| |
| Operating lease liabilities | | Operating lease liabilities | 31,187 | | | 25,818 | |
| Financing lease liabilities | | Financing lease liabilities | 1,447 | | | 1,455 | |
| | Other long-term liabilities | 967 |
| | 1,026 |
| Other long-term liabilities | 3,818 | | | 5,097 | |
| | Total long-term liabilities | 39,543 |
| | 38,633 |
| Total long-term liabilities | 119,254 | | | 113,962 | |
| Commitments and contingencies (Note 10) |
|
| |
|
| |
| Commitments and contingencies (Note 11) | | Commitments and contingencies (Note 11) | 0 | | 0 |
| Stockholders' equity | | | | Stockholders' equity | |
| 5.50% Mandatory Convertible Preferred Stock Series A, par value $0.00001 per share, 100,000,000 shares authorized; 20,000,000 and 20,000,000 shares issued and outstanding; $1,000 and $1,000 aggregate liquidation value | — |
| | — |
| |
| Common Stock, par value $0.00001 per share, 1,000,000,000 shares authorized; 833,418,809 and 827,768,818 shares issued, 831,963,343 and 826,357,331 shares outstanding | — |
| | — |
| |
| | Common Stock, par value $0.00001 per share, 2,000,000,000 shares authorized; 1,254,917,883 and 1,250,751,148 shares issued, 1,253,352,700 and 1,249,213,681 shares outstanding | | Common Stock, par value $0.00001 per share, 2,000,000,000 shares authorized; 1,254,917,883 and 1,250,751,148 shares issued, 1,253,352,700 and 1,249,213,681 shares outstanding | — | | | — | |
| Additional paid-in capital | 39,058 |
| | 38,846 |
| Additional paid-in capital | 73,420 | | | 73,292 | |
| Treasury stock, at cost, 1,455,466 and 1,411,487 shares issued | (4 | ) | | (1 | ) | |
| Accumulated other comprehensive income | 4 |
| | 1 |
| |
| Treasury stock, at cost, 1,565,183 and 1,537,468 shares issued | | Treasury stock, at cost, 1,565,183 and 1,537,468 shares issued | (16) | | | (13) | |
| Accumulated other comprehensive loss | | Accumulated other comprehensive loss | (1,329) | | | (1,365) | |
| Accumulated deficit | (18,781 | ) | | (20,610 | ) | Accumulated deficit | (2,099) | | | (2,812) | |
| | Total stockholders' equity | 20,277 |
| | 18,236 |
| Total stockholders' equity | 69,976 | | | 69,102 | |
| Total liabilities and stockholders' equity | $ | 67,923 |
| | $ | 65,891 |
| Total liabilities and stockholders' equity | $ | 210,653 | | | $ | 206,563 | |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
T-Mobile US, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
| | | | | Three Months Ended March 31, |
| (in millions, except share and per share amounts) | | (in millions, except share and per share amounts) | | 2022 | | 2021 | |
| Revenues | | Revenues | | | |
| | Postpaid revenues | | Postpaid revenues | | $ | 11,201 | | | $ | 10,303 | | |
| Prepaid revenues | | Prepaid revenues | | 2,455 | | | 2,351 | | |
| Wholesale and other service revenues | | Wholesale and other service revenues | | 1,472 | | | 1,538 | | |
| | Total service revenues | | Total service revenues | | 15,128 | | | 14,192 | | |
| Equipment revenues | | Equipment revenues | | 4,694 | | | 5,346 | | |
| Other revenues | | Other revenues | | 298 | | | 221 | | |
| | Total revenues | | Total revenues | | 20,120 | | | 19,759 | | |
| Operating expenses | | Operating expenses | | | | | |
| | Cost of services, exclusive of depreciation and amortization shown separately below | | Cost of services, exclusive of depreciation and amortization shown separately below | | 3,727 | | | 3,384 | | |
| Cost of equipment sales, exclusive of depreciation and amortization shown separately below | | Cost of equipment sales, exclusive of depreciation and amortization shown separately below | | 5,946 | | | 5,142 | | |
| Selling, general and administrative | | Selling, general and administrative | | 5,056 | | | 4,805 | | |
| | Depreciation and amortization | | Depreciation and amortization | | 3,585 | | | 4,289 | | |
| | Total operating expenses | | Total operating expenses | | 18,314 | | | 17,620 | | |
| Operating income | | Operating income | | 1,806 | | | 2,139 | | |
| Other expense | | Other expense | | | | | |
| | Interest expense, net | | Interest expense, net | | (864) | | | (835) | | |
| | Other expense, net | | Other expense, net | | (11) | | | (125) | | |
| | Total other expense, net | | Total other expense, net | | (875) | | | (960) | | |
| | Income before income taxes | | Income before income taxes | | 931 | | | 1,179 | | |
| Income tax expense | | Income tax expense | | (218) | | | (246) | | |
| | Net income | | Net income | | $ | 713 | | | $ | 933 | | |
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| (in millions, except share and per share amounts) | | | (As Adjusted - See Note 1) | | | | (As Adjusted - See Note 1) | |
| Revenues | | | | | | | | |
| Branded postpaid revenues | $ | 4,920 |
| | $ | 4,647 |
| | $ | 14,465 |
| | $ | 13,458 |
| |
| Branded prepaid revenues | 2,376 |
| | 2,182 |
| | 7,009 |
| | 6,326 |
| |
| Wholesale revenues | 274 |
| | 238 |
| | 778 |
| | 645 |
| |
| Roaming and other service revenues | 59 |
| | 66 |
| | 151 |
| | 170 |
| |
| Total service revenues | 7,629 |
| | 7,133 |
| | 22,403 |
| | 20,599 |
| |
| Equipment revenues | 2,118 |
| | 1,948 |
| | 6,667 |
| | 5,987 |
| |
| Other revenues | 272 |
| | 224 |
| | 775 |
| | 670 |
| |
| Total revenues | 10,019 |
| | 9,305 |
| | 29,845 |
| | 27,256 |
| |
| Operating expenses | | | | | | | | |
| Cost of services, exclusive of depreciation and amortization shown separately below | 1,594 |
| | 1,436 |
| | 4,520 |
| | 4,286 |
| |
| Cost of equipment sales | 2,617 |
| | 2,539 |
| | 8,149 |
| | 7,532 |
| |
| Selling, general and administrative | 3,098 |
| | 2,898 |
| | 8,968 |
| | 8,419 |
| |
| Depreciation and amortization | 1,416 |
| | 1,568 |
| | 4,499 |
| | 4,695 |
| |
| Cost of MetroPCS business combination | — |
| | 15 |
| | — |
| | 110 |
| |
| Gains on disposal of spectrum licenses | (29 | ) | | (199 | ) | | (67 | ) | | (835 | ) | |
| Total operating expense | 8,696 |
| | 8,257 |
| | 26,069 |
| | 24,207 |
| |
| Operating income | 1,323 |
| | 1,048 |
| | 3,776 |
| | 3,049 |
| |
| Other income (expense) | | | | | | | | |
| Interest expense | (253 | ) | | (376 | ) | | (857 | ) | | (1,083 | ) | |
| Interest expense to affiliates | (167 | ) | | (76 | ) | | (398 | ) | | (248 | ) | |
| Interest income | 2 |
| | 3 |
| | 15 |
| | 9 |
| |
| Other income (expense), net | 1 |
| | (1 | ) | | (89 | ) | | (6 | ) | |
| Total other expense, net | (417 | ) | | (450 | ) | | (1,329 | ) | | (1,328 | ) | |
| Income before income taxes | 906 |
| | 598 |
| | 2,447 |
| | 1,721 |
| |
| Income tax expense | (356 | ) | | (232 | ) | | (618 | ) | | (651 | ) | |
| | Net income | 550 |
| | 366 |
| | 1,829 |
| | 1,070 |
| Net income | | $ | 713 | | | $ | 933 | | |
| Dividends on preferred stock | (13 | ) | | (13 | ) | | (41 | ) | | (41 | ) | |
| Net income attributable to common stockholders | $ | 537 |
| | $ | 353 |
| | $ | 1,788 |
| | $ | 1,029 |
| |
| Other comprehensive income (loss), net of tax | | Other comprehensive income (loss), net of tax | | | |
| | | | | | | | | |
| Net Income | $ | 550 |
| | $ | 366 |
| | $ | 1,829 |
| | $ | 1,070 |
| |
| Other comprehensive income, net of tax | | | | | | | | |
| Unrealized gain on available-for-sale securities, net of tax effect $0, $1, $2 and $1 | 1 |
| | 2 |
| | 3 |
| | 2 |
| |
| Unrealized gain on cash flow hedges, net of tax effect of $13 and $12 | | Unrealized gain on cash flow hedges, net of tax effect of $13 and $12 | | 37 | | | 34 | | |
| | Unrealized (loss) gain on foreign currency translation adjustment, net of tax effect of $0 and $0 | | Unrealized (loss) gain on foreign currency translation adjustment, net of tax effect of $0 and $0 | | (1) | | | 2 | | |
| | Other comprehensive income | 1 |
| | 2 |
| | 3 |
| | 2 |
| Other comprehensive income | | 36 | | | 36 | | |
| Total comprehensive income | $ | 551 |
| | $ | 368 |
| | $ | 1,832 |
| | $ | 1,072 |
| Total comprehensive income | | $ | 749 | | | $ | 969 | | |
| Earnings per share | | | | | | | | Earnings per share | | | | | |
| | Basic | | Basic | | $ | 0.57 | | | $ | 0.75 | | |
| | Diluted | | Diluted | | $ | 0.57 | | | $ | 0.74 | | |
| Weighted-average shares outstanding | | Weighted-average shares outstanding | | | |
| Basic | $ | 0.65 |
| | $ | 0.43 |
| | $ | 2.15 |
| | $ | 1.25 |
| Basic | | 1,250,505,999 | | | 1,243,520,026 | | |
| Diluted | $ | 0.63 |
| | $ | 0.42 |
| | $ | 2.10 |
| | $ | 1.24 |
| Diluted | | 1,255,368,592 | | | 1,252,783,564 | | |
| Weighted average shares outstanding | | | | | | | | |
| Basic | 831,189,779 |
| | 822,998,697 |
| | 829,974,146 |
| | 821,626,675 |
| |
| Diluted | 871,420,065 |
| | 832,257,819 |
| | 871,735,511 |
| | 831,241,027 |
| |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
T-Mobile US, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| (in millions) | 2017 | | 2016 | | 2017 | | 2016 | (in millions) | | 2022 | | 2021 | |
| Operating activities | | | | | | | | Operating activities | | | |
| | Net income | $ | 550 |
| | $ | 366 |
| | $ | 1,829 |
| | $ | 1,070 |
| Net income | | $ | 713 | | | $ | 933 | | |
| Adjustments to reconcile net income to net cash provided by operating activities |
| | | | | | | Adjustments to reconcile net income to net cash provided by operating activities | | | |
| Depreciation and amortization | 1,416 |
| | 1,568 |
| | 4,499 |
| | 4,695 |
| Depreciation and amortization | | 3,585 | | | 4,289 | | |
| Stock-based compensation expense | 82 |
| | 59 |
| | 221 |
| | 171 |
| Stock-based compensation expense | | 141 | | | 138 | | |
| Deferred income tax expense | 347 |
| | 219 |
| | 595 |
| | 623 |
| Deferred income tax expense | | 185 | | | 211 | | |
| Bad debt expense | 123 |
| | 118 |
| | 298 |
| | 358 |
| Bad debt expense | | 210 | | | 82 | | |
| Losses from sales of receivables | 67 |
| | 59 |
| | 242 |
| | 157 |
| |
| Deferred rent expense | 21 |
| | 32 |
| | 61 |
| | 97 |
| |
| Gains on disposal of spectrum licenses | (29 | ) | | (199 | ) | | (67 | ) | | (835 | ) | |
| Losses (gains) from sales of receivables | | Losses (gains) from sales of receivables | | 46 | | | (18) | | |
| | Losses on redemption of debt | | Losses on redemption of debt | | — | | | 101 | | |
| | Changes in operating assets and liabilities | | | | | | | | Changes in operating assets and liabilities | | | |
| Accounts receivable | (119 | ) | | (155 | ) | | (166 | ) | | (462 | ) | Accounts receivable | | (984) | | | 96 | | |
| Equipment installment plan receivables | (154 | ) | | 104 |
| | (520 | ) | | 556 |
| Equipment installment plan receivables | | (535) | | | (727) | | |
| Inventories | 113 |
| | 301 |
| | (28 | ) | | (497 | ) | Inventories | | (93) | | | 279 | | |
| Deferred purchase price from sales of receivables | 6 |
| | (16 | ) | | (12 | ) | | (199 | ) | |
| Operating lease right-of-use assets | | Operating lease right-of-use assets | | 1,469 | | | 1,124 | | |
| Other current and long-term assets | (184 | ) | | (98 | ) | | (330 | ) | | 31 |
| Other current and long-term assets | | (4) | | | 54 | | |
| Accounts payable and accrued liabilities | (12 | ) | | (731 | ) | | (607 | ) | | (1,568 | ) | Accounts payable and accrued liabilities | | (59) | | | (1,384) | | |
| Other current and long term liabilities | 60 |
| | 112 |
| | (84 | ) | | 326 |
| |
| Short- and long-term operating lease liabilities | | Short- and long-term operating lease liabilities | | (771) | | | (1,369) | | |
| Other current and long-term liabilities | | Other current and long-term liabilities | | (163) | | | (217) | | |
| Other, net | 75 |
| | 1 |
| | (27 | ) | | 10 |
| Other, net | | 105 | | | 69 | | |
| | Net cash provided by operating activities | 2,362 |
| | 1,740 |
| | 5,904 |
| | 4,533 |
| Net cash provided by operating activities | | 3,845 | | | 3,661 | | |
| Investing activities | | | | | | | | Investing activities | | | | | |
| Purchases of property and equipment, including capitalized interest of $29, $17, $111 and $71 | (1,441 | ) | | (1,159 | ) | | (4,316 | ) | | (3,843 | ) | |
| | Purchases of property and equipment, including capitalized interest of ($15) and ($84) | | Purchases of property and equipment, including capitalized interest of ($15) and ($84) | | (3,381) | | | (3,183) | | |
| Purchases of spectrum licenses and other intangible assets, including deposits | (15 | ) | | (705 | ) | | (5,820 | ) | | (3,544 | ) | Purchases of spectrum licenses and other intangible assets, including deposits | | (2,843) | | | (8,922) | | |
| Sales of short-term investments | — |
| | — |
| | — |
| | 2,998 |
| |
| | Proceeds related to beneficial interests in securitization transactions | | Proceeds related to beneficial interests in securitization transactions | | 1,185 | | | 891 | | |
| | Acquisition of companies, net of cash and restricted cash acquired | | Acquisition of companies, net of cash and restricted cash acquired | | (52) | | | (29) | | |
| | Other, net | 1 |
| | 5 |
| | (2 | ) | | 3 |
| Other, net | | (1) | | | 4 | | |
| | Net cash used in investing activities | (1,455 | ) | | (1,859 | ) | | (10,138 | ) | | (4,386 | ) | Net cash used in investing activities | | (5,092) | | | (11,239) | | |
| Financing activities | | | | | | | | Financing activities | | | | | |
| | Proceeds from issuance of long-term debt | 500 |
| | — |
| | 10,480 |
| | 997 |
| Proceeds from issuance of long-term debt | | — | | | 6,763 | | |
| Proceeds from borrowing on revolving credit facility | 1,055 |
| | — |
| | 2,910 |
| | — |
| |
| Repayments of revolving credit facility | (1,735 | ) | | — |
| | (2,910 | ) | | — |
| |
| Repayments of capital lease obligations | (141 | ) | | (54 | ) | | (350 | ) | | (133 | ) | |
| Repayments of short-term debt for purchases of inventory, property and equipment, net | (4 | ) | | — |
| | (296 | ) | | (150 | ) | |
| | Repayments of financing lease obligations | | Repayments of financing lease obligations | | (302) | | | (287) | | |
| Repayments of short-term debt for purchases of inventory, property and equipment and other financial liabilities | | Repayments of short-term debt for purchases of inventory, property and equipment and other financial liabilities | | — | | | (55) | | |
| Repayments of long-term debt | — |
| | (5 | ) | | (10,230 | ) | | (15 | ) | Repayments of long-term debt | | (1,632) | | | (2,219) | | |
| | Tax withholdings on share-based awards | (6 | ) | | (3 | ) | | (101 | ) | | (52 | ) | Tax withholdings on share-based awards | | (172) | | | (218) | | |
| Dividends on preferred stock | (13 | ) | | (13 | ) | | (41 | ) | | (41 | ) | |
| | Cash payments for debt prepayment or debt extinguishment costs | | Cash payments for debt prepayment or debt extinguishment costs | | — | | | (65) | | |
| Other, net | (5 | ) | | 8 |
| | 11 |
| | 17 |
| Other, net | | (30) | | | (45) | | |
| | Net cash (used in) provided by financing activities | (349 | ) | | (67 | ) | | (527 | ) | | 623 |
| Net cash (used in) provided by financing activities | | (2,136) | | | 3,874 | | |
| Change in cash and cash equivalents | 558 |
| | (186 | ) | | (4,761 | ) | | 770 |
| |
| Cash and cash equivalents | | | | | | | | |
| Change in cash and cash equivalents, including restricted cash | | Change in cash and cash equivalents, including restricted cash | | (3,383) | | | (3,704) | | |
| Cash and cash equivalents, including restricted cash | | Cash and cash equivalents, including restricted cash | | | |
| Beginning of period | 181 |
| | 5,538 |
| | 5,500 |
| | 4,582 |
| Beginning of period | | 6,703 | | | 10,463 | | |
| End of period | $ | 739 |
| | $ | 5,352 |
| | $ | 739 |
| | $ | 5,352 |
| End of period | | $ | 3,320 | | | $ | 6,759 | | |
| Supplemental disclosure of cash flow information | | | | | | | | |
| Interest payments, net of amounts capitalized, $0, $0, $79 and $0 of which recorded as debt discount (Note 7) | $ | 343 |
| | $ | 478 |
| | $ | 1,565 |
| | $ | 1,292 |
| |
| Income tax payments | 2 |
| | 4 |
| | 23 |
| | 23 |
| |
| Changes in accounts payable for purchases of property and equipment | (141 | ) | | (79 | ) | | (458 | ) | | (307 | ) | |
| Leased devices transferred from inventory to property and equipment | 262 |
| | 234 |
| | 775 |
| | 1,175 |
| |
| Returned leased devices transferred from property and equipment to inventory | (165 | ) | | (186 | ) | | (635 | ) | | (422 | ) | |
| Issuance of short-term debt for financing of property and equipment | 1 |
| | — |
| | 291 |
| | 150 |
| |
| Assets acquired under capital lease obligations | 138 |
| | 384 |
| | 735 |
| | 679 |
| |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
T-Mobile US, Inc.
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions, except shares) | | | Common Stock Outstanding | | Treasury Shares at Cost | | Par Value and Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total Stockholders' Equity |
| Balance as of December 31, 2021 | | | 1,249,213,681 | | | $ | (13) | | | $ | 73,292 | | | $ | (1,365) | | | $ | (2,812) | | | $ | 69,102 | |
| Net income | | | — | | | — | | | — | | | — | | | 713 | | | 713 | |
| Other comprehensive income | | | — | | | — | | | — | | | 36 | | | — | | | 36 | |
| | | | | | | | | | | | | |
| Stock-based compensation | | | — | | | — | | | 157 | | | — | | | — | | | 157 | |
| Exercise of stock options | | | 49,647 | | | — | | | 2 | | | — | | | — | | | 2 | |
| Stock issued for employee stock purchase plan | | | 1,276,725 | | | — | | | 138 | | | — | | | — | | | 138 | |
| Issuance of vested restricted stock units | | | 4,210,669 | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | |
| Shares withheld related to net share settlement of stock awards and stock options | | | (1,370,306) | | | — | | | (172) | | | — | | | — | | | (172) | |
| | | | | | | | | | | | | |
| Transfers with NQDC plan | | | (27,716) | | | (3) | | | 3 | | | — | | | — | | | — | |
| | | | | | | | | | | | | |
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| Balance as of March 31, 2022 | | | 1,253,352,700 | | | $ | (16) | | | $ | 73,420 | | | $ | (1,329) | | | $ | (2,099) | | | $ | 69,976 | |
| | | | | | | | | | | | | |
| Balance as of December 31, 2020 | | | 1,241,805,706 | | | $ | (11) | | | $ | 72,772 | | | $ | (1,581) | | | $ | (5,836) | | | $ | 65,344 | |
| Net income | | | — | | | — | | | — | | | — | | | 933 | | | 933 | |
| Other comprehensive income | | | — | | | — | | | — | | | 36 | | | — | | | 36 | |
| | | | | | | | | | | | | |
| Stock-based compensation | | | — | | | — | | | 154 | | | — | | | — | | | 154 | |
| Exercise of stock options | | | 80,802 | | | — | | | 3 | | | — | | | — | | | 3 | |
| Stock issued for employee stock purchase plan | | | 1,272,253 | | | — | | | 125 | | | — | | | — | | | 125 | |
| Issuance of vested restricted stock units | | | 5,421,839 | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | |
| Shares withheld related to net share settlement of stock awards and stock options | | | (1,785,987) | | | — | | | (218) | | | — | | | — | | | (218) | |
| | | | | | | | | | | | | |
| Transfers with NQDC plan | | | (21,438) | | | (3) | | | 3 | | | — | | | — | | | — | |
| | | | | | | | | | | | | |
| Balance as of March 31, 2021 | | | 1,246,773,175 | | | $ | (14) | | | $ | 72,839 | | | $ | (1,545) | | | $ | (4,903) | | | $ | 66,377 | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
T-Mobile US, Inc.
Index for Notes to the Condensed Consolidated Financial Statements
T-Mobile US, Inc.
(Unaudited)T-Mobile US, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 1 – Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements of T-Mobile US, Inc. (“T-Mobile,” “we,” “our,” “us” or the “Company”) include all adjustments of a normal recurring nature necessary for the fair presentation of the results for the interim periods presented. The results for the interim periods are not necessarily indicative of those for the full year. The condensed consolidated financial statements should be read in conjunction with our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016.2021.
The condensed consolidated financial statements include the balances and results of operations of T-Mobile and our consolidated subsidiaries. We consolidate majority-owned subsidiaries over which we exercise control, as well as variable interest entities (“VIE”VIEs”) where we are deemed to be the primary beneficiary and VIEs which cannot be deconsolidated, such as those related to Towerour obligations (Tower obligations are included in VIEs related to the 2012 Tower Transaction. See Note 8 - Tower Obligations included in the Annual Report on Form 10-Kpay for the year ended December 31, 2016).management and operation of certain of our wireless communications tower sites. Intercompany transactions and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”) requires our management to make estimates and assumptions whichthat affect the financial statements and accompanying notes. Estimates are based on historical experience, where applicable, and other assumptions which ourthat management believes are reasonable under the circumstances. These estimatesEstimates are inherently subject to judgment and actual results could differ from those estimates.
Change in Accounting Principle
Effective January 1, 2017, the imputed discount on Equipment Installment Plan (“EIP”) receivables, which is amortized over the financed installment term using the effective interest method, and was previously presented within Interest income in our Condensed Consolidated Statements of Comprehensive Income, is now presented within Other revenues in our Condensed Consolidated Statements of Comprehensive Income. We believe this presentation is preferable because it provides a better representation of amounts earned from our major ongoing operations and aligns with industry practice thereby enhancing comparability. We have applied this change retrospectively and presented the effect on the three and nine months ended September 30, 2017 and 2016, in the tables below:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 |
| (in millions) | Unadjusted | | Change in Accounting Principle | | As Adjusted | | As Filed | | Change in Accounting Principle | | As Adjusted |
| Other revenues | $ | 198 |
| | $ | 74 |
| | $ | 272 |
| | $ | 165 |
| | $ | 59 |
| | $ | 224 |
|
| Total revenues | 9,945 |
| | 74 |
| | 10,019 |
| | 9,246 |
| | 59 |
| | 9,305 |
|
| Operating income | 1,249 |
| | 74 |
| | 1,323 |
| | 989 |
| | 59 |
| | 1,048 |
|
| Interest income | 76 |
| | (74 | ) | | 2 |
| | 62 |
| | (59 | ) | | 3 |
|
| Total other expense, net | (343 | ) | | (74 | ) | | (417 | ) | | (391 | ) | | (59 | ) | | (450 | ) |
| Net income | 550 |
| | — |
| | 550 |
| | 366 |
| | — |
| | 366 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
| (in millions) | Unadjusted | | Change in Accounting Principle | | As Adjusted | | As Filed | | Change in Accounting Principle | | As Adjusted |
| Other revenues | $ | 571 |
| | $ | 204 |
| | $ | 775 |
| | $ | 481 |
| | $ | 189 |
| | $ | 670 |
|
| Total revenues | 29,641 |
| | 204 |
| | 29,845 |
| | 27,067 |
| | 189 |
| | 27,256 |
|
| Operating income | 3,572 |
| | 204 |
| | 3,776 |
| | 2,860 |
| | 189 |
| | 3,049 |
|
| Interest income | 219 |
| | (204 | ) | | 15 |
| | 198 |
| | (189 | ) | | 9 |
|
| Total other expense, net | (1,125 | ) | | (204 | ) | | (1,329 | ) | | (1,139 | ) | | (189 | ) | | (1,328 | ) |
| Net income | 1,829 |
| | — |
| | 1,829 |
| | 1,070 |
| | — |
| | 1,070 |
|
The change in accounting principle did not have an impact on basic or diluted earnings per share for the three and nine months ended September 30, 2017 and 2016, or Accumulated deficit as of September 30, 2017 or December 31, 2016.
Accounting Pronouncements Not Yet Adopted During the Current Year
Reference Rate Reform
In May 2014,March 2020, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue from Contracts with CustomersAccounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 606)848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” (“ASU 2014-09”), and has since modified the standard with several ASUs.ASU 2021-01, “Reference Rate Reform (Topic 848): Scope” (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, 2022, and we will adopt 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 entities2022, we have elected to apply certainthe practical expedients at their discretion. We are adoptingprovided by the reference rate reform standard using the modified retrospective method with a cumulative catch up adjustmentfor all ASC Topics and will provide additional disclosures comparing resultsIndustry Subtopics related to previous GAAP.
We currently anticipate this standard will have a material impact on our consolidated financial statements. While we are continuing to assess all potential impacts of the standard, we currently believe the most significant potential impacts include the following items:
Whether our EIP contracts contain a significant financing component, which is similar to our current practice of imputing interest, and would similarly impact the amount of revenue recognized at the time of an EIP sale and whether oreligible contract modifications as they occur. This election did not a portion of the revenue is recognized as interest and included in other revenues, rather than equipment revenues. We currently expect to recognize the financing component in our EIP contracts, including those financing components that are not considered to be significant to the contract. We believe that this application will be consistent with our current practice of imputing interest.
As we currently expense contract acquisition costs, we believe that the requirement to defer incremental contract acquisition costs and recognize them over the term of the initial contract and anticipated renewal contracts to which the costs relate will have a significant impact to our consolidated financial statements. We plan to utilize the practical expedient permitting expensing of costs to obtain a contract when the expected amortization period is one year or less which we expect will typically result in expensing commissions paid to acquire branded prepaid service contracts. Currently, we believe that incremental contract acquisition costs of approximately $450 million to $550 million that were incurred during the nine months ended September 30, 2017, which consists primarily of commissions paid to acquire branded postpaid service contracts, would require capitalization and amortization under the new standard. We expect that deferred contract costs will have an average amortization period of approximately 24 months, subject to being monitored and updated every period to reflect any significant change in assumptions. In addition, the deferred contract cost asset will be assessed for impairment on a periodic basis.
We expect that promotional bill credits offered to customers on equipment sales that are paid over time and are contingent on the customer maintaining a service contract will result in extended service contracts, which impacts the allocation and timing of revenue recognition between service revenue and equipment revenue.
Overall, with the exception of the aforementioned impacts, we do not expect that the new standard will result in a substantive change to the method of allocation of contract revenues between various services and equipment, nor to the timing of when revenues are recognized for most of our service contracts.
We are still in the process of evaluating these impacts, and our initial assessment may change due to changes in the terms and mix of the contractual arrangements we have with customers. New products or offerings, or changes to current offerings may yield significantly different impacts than currently expected.
We are in the process of implementing significant new revenue accounting systems, processes and internal controls over revenue recognition which will assist us in the application of the new standard.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The standard requires all lessees to report a right-of-use asset and a lease liability for most leases. The income statement recognition is similar to existing lease accounting and is based on lease classification. The standard requires lessees and lessors to classify most leases using principles similar to existing lease accounting. For lessors, the standard modifies the classification criteria and the accounting 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. We plan to adopt the standard when it becomes effective for us beginning January 1, 2019, and expect the adoption of the standard will result 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 condensed consolidated financial statements.statements for the three months ended March 31, 2022, and the impact of applying the election to future eligible contract modifications that occur through December 31, 2022 is also not expected to be material.
We areContract Assets and Contract Liabilities Acquired 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.a Business Combination
In June 2016,October 2021, the FASB issued ASU 2016-13,2021-08, “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 - Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.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 a financial asset (or a groupdisclosure of financial assets) measured at amortized cost basis to be presented atcurrent-period gross write-offs by year of origination for financing receivables and net investments in leases within the net amount expected to be collected. The measurementscope 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.ASC 326-20. The standard will become effective for us beginning January 1, 2020,2023, and will require a cumulative-effect adjustmentshould be applied prospectively, with an option for modified retrospective application for provisions related to Accumulated deficit asrecognition and measurement of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach).troubled debt restructurings. Early adoption is permitted for us as of January 1, 2019.at any time. We are currently evaluating the impact this guidance will have on our condensed 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 will adopt 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 $1.0 billion for the three months ended September 30, 2017 and 2016, and $2.8 billion for the nine months ended September 30, 2017 and 2016, in our condensed consolidated statement 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 nine months ended September 30, 2017, in our condensed consolidated statement of cash flows. We had no cash payments for debt prepayment or debt extinguishment costs for the three months ended September 30, 2017.
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. Early adoption is permitted. We are currently evaluating the standard, but expect that it will not have a material impact on our condensedfuture consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” The standard requires entities to include in their cash and cash-equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. The ASU does not define the terms “restricted cash” and “restricted cash equivalents.” The standard will be effective for us beginning January 1, 2018, and will require a retrospective approach. Early adoption is permitted. We are currently evaluating the standard, but expect that it will not have a material impact on our condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The standard eliminates the requirement to measure the implied fair value of goodwill by assigning the fair value of a reporting unit to all assets and liabilities within that unit (“the Step 2 test”) from the goodwill impairment test. 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. The standard will become effective for us beginning January 1, 2020, and must be applied to any annual or interim goodwill impairment assessments after that date. Early adoption is permitted. We are currently evaluating the standard and timing of adoption, but expect that it will not have a material impact on our condensed consolidated financial statements.
Note 2 – Significant TransactionsReceivables and Related Allowance for Credit Losses
Hurricane ImpactsWe 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 period end.
DuringWe consider a receivable past due when a customer has not paid us by the third quartercontractually 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 2017,time the amounts are past due.
Our portfolio of receivables is comprised of 2 portfolio segments: accounts receivable and equipment installment plan (“EIP”) receivables.
Accounts Receivable Portfolio Segment
Accounts receivable balances are predominately composed of amounts currently due from customers (e.g., for wireless 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 operationsaccounts 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 timely payment experience, as well as current collection trends such as write-off frequency and severity. We also consider other qualitative factors such as macro-economic conditions.
We consider the need to adjust our estimate of credit losses for reasonable and supportable forecasts of future economic conditions. To do so, we monitor external forecasts of changes in Texas, Floridareal U.S. gross domestic product and Puerto Rico experienced losses related to hurricanes. Based on our preliminary assessment, the negative impact to operating income and net incomeforecasts of consumer credit behavior for both the three and nine months ended September 30, 2017, from lost revenue, assets damaged or destroyed andcomparable credit exposures. We also periodically evaluate other hurricane related costs incurred was $148 million and $90 million, respectively. As of September 30, 2017, our loss assessment is ongoing and we expect additional expenses to be incurred and customer activity to be impacted in the fourth quarter of 2017, primarily related to our operations in Puerto Rico. We have not recognized any potential insurance recoveries related to those hurricane losseseconomic indicators such as we continueunemployment rates to assess the damage and worktheir level of correlation with our insurance carriers.historical credit loss statistics.
PurchaseEIP Receivables Portfolio Segment
Based upon customer credit profiles at the time of Iowa Wireless
On September 18, 2017,customer origination, we enteredclassify the EIP receivables segment into 2 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 Unit Purchase Agreement (“UPA”) to acquire the remaining equity in INS Wireless, Inc. (“INS”), a 54% owned unconsolidated subsidiary, for a purchase price of $25 million. We account for our existing investment in INS under the equity method as we have significant influence, but not control. Upon the close of the transaction, which is expecteddown payment on their equipment purchases if their assessed credit risk exceeds established underwriting thresholds. In addition, certain customers within the next six months, subject to regulatory approvals and customary closing conditions, INS will become a wholly-owned consolidated subsidiary.
Spectrum Transactions
During the nine months ended September 30, 2017, we entered into agreements with third parties for the exchange of certain spectrum licenses and were the winning bidder of 1,525 licenses in the 600 MHz spectrum auction. See Note 5 - Spectrum License Transactions for further information.
Debt
During the nine months ended September 30, 2017, we completed significant transactions with both third parties and affiliates related to the issuance, borrowing and redemption of debt. See Note 7 - Debt for further information.
Power Purchase Agreements
During the nine months ended September 30, 2017, we entered into two renewable energy purchase agreements with third parties. These agreements each consist of two components, an energy forward agreement that is net settled based on energy prices and the energy output generated by the facility and a commitment to purchase the energy credits associated with the energy output generated by the facility. See Note 10 – Commitments and Contingencies for further information.
Note 3 – Equipment Installment Plan Receivables
We offer certain retail customers the optionSubprime category may be required to pay fora deposit.
To determine a customer’s credit profile and assist in determining their devices and accessories in installments over a period of up to 24 months using an EIP.
The following table summarizes the EIP receivables:
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| (in millions) | September 30,
2017 | | December 31,
2016 |
| EIP receivables, gross | $ | 3,599 |
| | $ | 3,230 |
|
| Unamortized imputed discount | (233 | ) | | (195 | ) |
| EIP receivables, net of unamortized imputed discount | 3,366 |
| | 3,035 |
|
| Allowance for credit losses | (130 | ) | | (121 | ) |
| EIP receivables, net | $ | 3,236 |
| | $ | 2,914 |
|
| | | | |
| Classified on the balance sheet as: | | | |
| Equipment installment plan receivables, net | $ | 2,136 |
| | $ | 1,930 |
|
| Equipment installment plan receivables due after one year, net | 1,100 |
| | 984 |
|
| EIP receivables, net | $ | 3,236 |
| | $ | 2,914 |
|
Wecredit class, we use a proprietary credit scoring model that measures the credit quality of a customer at the time of application for mobile communications service using several factors, such as credit bureau information, consumer credit risk scores and service and device plan characteristics. Based upon customer credit profiles, we classify EIP receivables intohad a combined weighted-average effective interest rate of 5.7% and 5.6% as of March 31, 2022 and December 31, 2021, respectively.
EIP receivables for which invoices have not yet been generated for the customer are classified as Unbilled. EIP receivables for which invoices have been generated but which are not past the contractual due date are classified as Billed – Current. EIP receivables for which invoices have been generated and the payment is past the contractual due date are classified as Billed – Past Due.
The balance and aging offollowing table summarizes the EIP receivables, including imputed discounts and related allowance for credit losses: | | | | | | | | | | | |
| (in millions) | March 31,
2022 | | December 31,
2021 |
| | | |
| | | |
| EIP receivables, gross | $ | 8,547 | | | $ | 8,207 | |
| Unamortized imputed discount | (381) | | | (378) | |
| | | |
| EIP receivables, net of unamortized imputed discount | 8,166 | | | 7,829 | |
| Allowance for credit losses | (268) | | | (252) | |
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| EIP receivables, net of allowance for credit losses and imputed discount | $ | 7,898 | | | $ | 7,577 | |
| Classified on the condensed consolidated balance sheets as: | | | |
| Equipment installment plan receivables, net of allowance for credit losses and imputed discount | $ | 5,061 | | | $ | 4,748 | |
| Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount | 2,837 | | | 2,829 | |
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| EIP receivables, net of allowance for credit losses and imputed discount | $ | 7,898 | | | $ | 7,577 | |
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Many of our loss estimation techniques rely on a gross basis bydelinquency-based models; therefore, delinquency is an important indicator of credit category were as follows:
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| | September 30, 2017 | | December 31, 2016 |
| (in millions) | Prime | | Subprime | | Total | | Prime | | Subprime | | Total |
| Unbilled | $ | 1,471 |
| | $ | 1,903 |
| | $ | 3,374 |
| | $ | 1,343 |
| | $ | 1,686 |
| | $ | 3,029 |
|
| Billed – Current | 60 |
| | 90 |
| | 150 |
| | 51 |
| | 77 |
| | 128 |
|
| Billed – Past Due | 25 |
| | 50 |
| | 75 |
| | 25 |
| | 48 |
| | 73 |
|
| EIP receivables, gross | $ | 1,556 |
| | $ | 2,043 |
| | $ | 3,599 |
| | $ | 1,419 |
| | $ | 1,811 |
| | $ | 3,230 |
|
Activity for the nine months ended September 30, 2017 and 2016,quality in the unamortized imputed discount andestablishment 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 March 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 | $ | 1,434 | | | $ | 1,053 | | | $ | 2,895 | | | $ | 1,736 | | | $ | 602 | | | $ | 294 | | | $ | 4,931 | | | $ | 3,083 | | | $ | 8,014 | |
| 31 - 60 days past due | 8 | | | 8 | | | 25 | | | 33 | | | 5 | | | 6 | | | 38 | | | 47 | | | 85 | |
| 61 - 90 days past due | 1 | | | 1 | | | 9 | | | 15 | | | 2 | | | 3 | | | 12 | | | 19 | | | 31 | |
| More than 90 days past due | — | | | 1 | | | 9 | | | 16 | | | 3 | | | 7 | | | 12 | | | 24 | | | 36 | |
| EIP receivables, net of unamortized imputed discount | $ | 1,443 | | | $ | 1,063 | | | $ | 2,938 | | | $ | 1,800 | | | $ | 612 | | | $ | 310 | | | $ | 4,993 | | | $ | 3,173 | | | $ | 8,166 | |
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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 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 three months ended March 31, 2022 and 2021, in the allowance for credit losses and unamortized imputed discount balances for the accounts receivable and EIP receivables wassegments were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | March 31, 2021 | | |
| (in millions) | 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 | | | | | | | |
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| Bad debt expense | 96 | | | 114 | | | 210 | | | 28 | | | 54 | | | 82 | | | | | | | |
| Write-offs, net of recoveries | (78) | | | (99) | | | (177) | | | (79) | | | (54) | | | (133) | | | | | | | |
| Change in imputed discount on short-term and long-term EIP receivables | N/A | | 30 | | | 30 | | | N/A | | 66 | | | 66 | | | | | | | |
| Impact on the imputed discount from sales of EIP receivables | N/A | | (26) | | | (26) | | | N/A | | (35) | | | (35) | | | | | | | |
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| Allowance for credit losses and imputed discount, end of period | $ | 164 | | | $ | 649 | | | $ | 813 | | | $ | 143 | | | $ | 636 | | | $ | 779 | | | | | | | |
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| (in millions) | September 30,
2017 | | September 30,
2016 |
| Imputed discount and allowance for credit losses, beginning of period | $ | 316 |
| | $ | 333 |
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| Bad debt expense | 215 |
| | 185 |
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| Write-offs, net of recoveries | (205 | ) | | (201 | ) |
| Change in imputed discount on short-term and long-term EIP receivables | 163 |
| | 103 |
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| Impacts from sales of EIP receivables | (126 | ) | | (133 | ) |
| Imputed discount and allowance for credit losses, end of period | $ | 363 |
| | $ | 287 |
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The EIP receivables had weighted average effective imputed interest rates of 9.7% and 9.0%We do not have material, unmitigated off-balance-sheet credit exposures as of September 30, 2017March 31, 2022. In connection with the sales of certain service and December 31, 2016, respectively.
EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price assets included on our Condensed 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 43 – Sales of Certain Receivables for further information.
Note 3 – 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 condensed consolidated financial statements, are described below.
Sales of EIP Receivables
As of both March 31, 2022 and December 31, 2021, the EIP sale arrangement provided funding of $1.3 billion.
In connection with this EIP sale arrangement, we formed a wholly owned subsidiary, which qualifies as a bankruptcy remote entity (the “EIP BRE”). We consolidate the EIP BRE under the VIE model.
The following table summarizes the carrying amounts and classification of assets, which consist primarily of the deferred purchase price, and liabilities included on our Condensed Consolidated Balance Sheets with respect to the EIP BRE: | | | | | | | | | | | |
| (in millions) | March 31,
2022 | | December 31,
2021 |
| Other current assets | $ | 382 | | | $ | 424 | |
| Other assets | 108 | | | 125 | |
| Other long-term liabilities | 2 | | | — | |
Sales of Service ReceivablesAccounts Receivable
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 theThe maximum funding commitment toof the service receivable sale arrangement is $950 million (the “service receivable sale arrangement”) and extend the scheduled expiration date to March 2018.facility expires in February 2023. As of September 30, 2017both March 31, 2022 and December 31, 2016,2021, the service receivable sale arrangement provided funding of $899 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.$775 million.
In connection with the service receivable sale arrangement, we formed a wholly-ownedwholly owned subsidiary, which qualifies as a bankruptcy remote entity, to sell service accounts receivablesreceivable (the “Service BRE”). TheWe consolidate the Service BRE does not qualify as aunder the 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.model.
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 results of the Service VIE are not consolidated into our condensed 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 Condensed Consolidated Balance Sheets that relate with respect to our variable interest in the Service VIE:BRE: | | | | | | | | | | | |
| (in millions) | March 31,
2022 | | December 31,
2021 |
| Other current assets | $ | 231 | | | $ | 231 | |
| | | |
| Other current liabilities | 317 | | | 348 | |
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| (in millions) | September 30,
2017 | | December 31,
2016 |
| Other current assets | $ | 225 |
| | $ | 207 |
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| Accounts payable and accrued liabilities | 13 |
| | 17 |
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| Other current liabilities | 155 |
| | 129 |
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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 was amended to reduce the maximum funding commitment to $1.2 billion (the “EIP sale arrangement”) and extend the scheduled expiration date to November 2018. As of both September 30, 2017 and December 31, 2016, the EIP sale arrangement provided funding of $1.2 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 paymentsIndex for up to 24 months.
In connection with this EIP sale arrangement, we formed a wholly-owned subsidiary, which qualifies as a bankruptcy remote entity (the “EIP BRE”). PursuantNotes to the EIP sale arrangement, our wholly-owned subsidiary transfers selected receivables to the EIP BRE. The EIP BRE then sells the receivables to a non-consolidated and unaffiliated third-party entity for which we do not exercise any level of control, nor does the 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 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 in our condensed 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 Condensed Consolidated Balance Sheets that relate to the EIP BRE:
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| (in millions) | September 30,
2017 | | December 31,
2016 |
| Other current assets | $ | 357 |
| | $ | 371 |
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| Other assets | 90 |
| | 83 |
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| Other long-term liabilities | 2 |
| | 4 |
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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 Receivables
The transfersfollowing table summarizes the impact of the sale of certain 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 net cash proceeds in Net cash provided by operating activities inon our Condensed Consolidated Statements of Cash Flows.Balance Sheets: | | | | | | | | | | | |
| (in millions) | March 31,
2022 | | December 31,
2021 |
| Derecognized net service receivables and EIP receivables | $ | 2,480 | | | $ | 2,492 | |
| Other current assets | 613 | | | 655 | |
| of which, deferred purchase price | 611 | | | 654 | |
| Other long-term assets | 108 | | | 125 | |
| of which, deferred purchase price | 108 | | | 125 | |
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| Other current liabilities | 317 | | | 348 | |
| Other long-term liabilities | 2 | | | — | |
| Net cash proceeds since inception | 1,750 | | | 1,754 | |
| Of which: | | | |
| Change in net cash proceeds during the year-to-date period | (4) | | | 39 | |
| Net cash proceeds funded by reinvested collections | 1,754 | | | 1,715 | |
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The proceeds are 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 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 thatAt inception, 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 price at fair value with changes in fair value included in Selling, general and administrative expense inon our Condensed 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 unobservableLevel 3 inputs, (Level 3 inputs), including customer default rates. As of September 30, 2017March 31, 2022 and December 31, 2016,2021, our deferred purchase price related to the sales of service receivables and EIP receivables was $671$719 million and $659$779 million, respectively.
The following table summarizes the impacts of the sale of certain service receivables and EIP receivables in our Condensed Consolidated Balance Sheets:
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| (in millions) | September 30,
2017 | | December 31,
2016 |
| Derecognized net service receivables and EIP receivables | $ | 2,362 |
| | $ | 2,502 |
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| Other current assets | 582 |
| | 578 |
|
| of which, deferred purchase price | 581 |
| | 576 |
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| Other long-term assets | 90 |
| | 83 |
|
| of which, deferred purchase price | 90 |
| | 83 |
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| Accounts payable and accrued liabilities | 13 |
| | 17 |
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| Other current liabilities | 155 |
| | 129 |
|
| Other long-term liabilities | 2 |
| | 4 |
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| Net cash proceeds since inception | 1,963 |
| | 2,030 |
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| Of which: | | | |
| Change in net cash proceeds during the year-to-date period | (67 | ) | | 536 |
|
| Net cash proceeds funded by reinvested collections | 2,030 |
| | 1,494 |
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We recognized lossesa loss from sales of receivables, of $67 million and $59 million for the three months ended September 30, 2017 and 2016, respectively, and $242 million and $157 million for the nine months ended September 30, 2017 and 2016, respectively. These losses from sales of receivables were recognized in Selling, general and administrative expense in our Condensed Consolidated Statements of Comprehensive Income. Losses from sales of receivables include adjustments to the receivables’ fair values andincluding changes in fair value of the deferred purchase price.price, of $46 million and a gain of $18 million for the three months ended March 31, 2022 and 2021, respectively, in Selling, general and administrative expense on our Condensed Consolidated Statements of Comprehensive Income.
Continuing Involvement
Pursuant to the sale arrangements described above, we have continuing involvement with the service receivables and 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.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. While servicingAt the direction of the purchasers of the sold receivables, we apply the same policies and procedures towhile servicing the sold receivables as we apply to our owned receivables, and we continue to maintain normal relationships with our customers. Pursuant to the EIP sale arrangement, under certain circumstances, we are required to deposit cash or replacement EIP receivables primarily for contracts terminated by customers under our Just Upgrade My Phone (“JUMP!”) Program.
In addition, we have continuing involvement with the sold receivables as we may be responsible for absorbing additional credit losses pursuant to the sale arrangements. Our maximum exposure to loss related to the involvement with the service receivables and EIP receivables sold under the sale arrangements was $1.2 billion as of September 30, 2017. The maximum exposure to loss, which is a required disclosure under GAAP, represents an estimated loss that would be incurred under severe, hypothetical circumstances whereby we would not receive the deferred purchase price portion of the contractual proceeds withheld by the purchasers and would also be required to repurchase the maximum amount of receivables pursuant to the sale arrangements without consideration for any recovery. As we believe the probability of these circumstances occurring is remote, the maximum exposure to loss is not an indication of our expected loss.
Note 54 – Spectrum License Transactions
The following table summarizes our spectrum license activity duringfor the ninethree months ended September 30, 2017:March 31, 2022: | | | | | | | | | |
| (in millions) | 2022 | | | | |
| Spectrum licenses, beginning of year | $ | 92,606 | | | | | |
| | | | | |
| Spectrum license acquisitions | 55 | | | | | |
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| Spectrum licenses, end of period | $ | 92,661 | | | | | |
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| (in millions) | Spectrum Licenses |
| Balance at December 31, 2016 | $ | 27,014 |
|
| Spectrum license acquisitions | 8,247 |
|
| Spectrum licenses transferred to held for sale | (271 | ) |
| Costs to clear spectrum | 17 |
|
| Balance at September 30, 2017 | $ | 35,007 |
|
Spectrum License Exchange
In March 2017, we closed on an agreement with a third party forJanuary 2022, the exchange of certain spectrum licenses. Upon closing of the transaction, we recorded the spectrum licenses received at their estimated fair value of approximately $123 million and recognized a gain of $37 million included in Gains on disposal of spectrum licenses in our Condensed Consolidated Statements of Comprehensive Income.
In September 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 $115 million and recognized a gain of $29 million included in Gains on disposal of spectrum licenses in our Condensed Consolidated Statements of Comprehensive Income.
In September 2017, we entered into an agreement with a third party for the exchange of certain AWS and PCS spectrum licenses. The transaction is expected to close during the first quarter of 2018, subject to regulatory approvals and customary closing conditions. Our spectrum licenses to be transferred as part of the exchange transaction were reclassified as assets held for sale and were included in Other current assets in our Condensed Consolidated Balance Sheetsat their carrying value of $184 million as of September 30, 2017.
Spectrum License Purchase
In September 2017, we entered into a UPA to purchase the remaining equity of INS. We expect to receive the INS spectrum licenses at the close of the transaction within the next 6 months, subject to regulatory approvals and customary closing conditions. See Note 2 - Significant Transactions for further information.
Broadcast Incentive Auction
In April 2017, the Federal Communications Commission (the “FCC”)FCC announced that we were the winning bidder of 1,525199 licenses in the 600 MHz spectrum auctionAuction 110 (mid-band spectrum) for an aggregate purchase price of $8.0$2.9 billion. At inception of the auctionAuction 110 in June 2016,September 2021, 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$100 million. We paid the FCC the remaining $5.8$2.8 billion offor the purchase price usinglicenses won in the auction in February 2022.
The aggregate cash
reserves and by issuing debtpayments made to
Deutsche Telekom AG (“DT”), our majority stockholder, pursuant to existing purchase commitments. See Note 7 - Debt for further information. The licensesthe FCC are included in Spectrum licensesOther assets as of September 30, 2017, onMarch 31, 2022 in our Condensed Consolidated Balance Sheets,. We began deployment and will remain there until the corresponding licenses are received. The timing of thesewhen the licenses onwill be issued will be determined by the FCC after all post-auction procedures have been completed, which we expect to occur in mid-2022. 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 in our network inCondensed Consolidated Statements of Cash Flows for the third quarter of 2017.three months ended March 31, 2022.
Note 65 – Fair Value Measurements
The carrying values of cashCash and cash equivalents, short-term investments, accountsAccounts receivable accounts receivable from affiliates, accountsand Accounts payable and borrowings under our senior secured revolving credit facility with DTaccrued liabilities approximate fair value due to the short-term maturities of these instruments.
AssetsDerivative 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 (cash flow hedge) to help minimize significant, unplanned fluctuations in cash flows caused by 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 the Condensed Consolidated Statements of Cash Flows as the item being hedged. We did not have any significant derivative instruments outstanding as of March 31, 2022 and Liabilities Measured at Fair Value on a Recurring BasisDecember 31, 2021.
The carrying amounts and fair values ofInterest Rate Lock Derivatives
In April 2020, we terminated our assets and liabilities measured atinterest rate lock derivatives entered into in October 2018.
Aggregate changes in the fair value of the interest rate lock derivatives, net of tax and amortization, of $1.4 billion and $1.5 billion are presented in Accumulated other comprehensive loss on a recurring basis included in our Condensed Consolidated Balance Sheets were as follows:
|
| | | | | | | | | | | | | | | | | |
| | Level within the Fair Value Hierarchy | | September 30, 2017 | | December 31, 2016 |
| (in millions) | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| Assets: | | | | | | | | | |
| Deferred purchase price assets | 3 | | $ | 671 |
| | $ | 671 |
| | $ | 659 |
| | $ | 659 |
|
| Liabilities: | | | | | | | | | |
| Guarantee liabilities | 3 | | 121 |
| | 121 |
| | 135 |
| | 135 |
|
The principal amounts and fair values of our long-term debt included in our Condensed Consolidated Balance Sheets were as follows:
|
| | | | | | | | | | | | | | | | | |
| | Level within the Fair Value Hierarchy | | September 30, 2017 | | December 31, 2016 |
| (in millions) | | Principal Amount | | Fair Value | | Principal Amount | | Fair Value |
| Liabilities: | | | | | | | | | |
| Senior Notes to third parties | 1 | | $ | 11,850 |
| | $ | 12,605 |
| | $ | 18,600 |
| | $ | 19,584 |
|
| Senior Notes to affiliates | 2 | | 7,500 |
| | 7,897 |
| | — |
| | — |
|
| Incremental Term Loan Facility to affiliates | 2 | | 4,000 |
| | 4,020 |
| | — |
| | — |
|
| Senior Reset Notes to affiliates | 2 | | 3,100 |
| | 3,290 |
| | 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 September 30, 2017March 31, 2022 and December 31, 2016. As such, our estimates are not necessarily indicative2021, respectively.
For the three months ended March 31, 2022 and 2021, $50 million and $46 million, respectively, were amortized from Accumulated other comprehensive loss into Interest expense, net in the Condensed Consolidated Statements of Comprehensive Income. We expect to amortize $207 million of the amount we could realize in a current market exchange.Accumulated other comprehensive loss associated with the derivatives into Interest expense, net over the 12 months ended March 31, 2023.
Deferred Purchase Price Assets
In connection with the sales of certain service and EIP receivablesaccounts 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 43 – 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 Condensed Consolidated Balance Sheets, were $719 million and $779 million as of March 31, 2022 and December 31, 2021, respectively. Fair value was equal to the carrying amount at March 31, 2022 and December 31, 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 and timing of the handset upgradeSenior Secured Notes to third parties was determined based on quoted market prices in active markets, 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.
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. The fair value estimates were based on information available as of March 31, 2022 and December 31, 2021. As such, our estimates are not necessarily indicative of the returned device is recorded againstamount we could realize in a current market exchange.
The carrying amounts and fair values of our short-term and long-term debt included in Other current liabilities inon our Condensed Consolidated Balance Sheets. were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level within the Fair Value Hierarchy | | March 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 | 1 | | $ | 29,720 | | | $ | 29,682 | | | $ | 30,309 | | | $ | 32,093 | |
| Senior Notes to affiliates | 2 | | 2,744 | | | 2,774 | | | 3,739 | | | 3,844 | |
| Senior Secured Notes to third parties | 1 | | 39,964 | | | 38,274 | | | 40,098 | | | 42,393 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
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 $2.2 billion(1) Excludes $42 million and $47 million as of September 30, 2017. This is not an indication of our expected loss exposureMarch 31, 2022 and December 31, 2021, respectively, in other financial liabilities as it does not consider the expectedcarrying values approximate fair value primarily due to the short-term maturities of the used handset or the probability and timing of the trade-in.these instruments.
Note 76 – Debt
The following table sets forth the debt balances and activity as of, and for the ninethree months ended, September 30, 2017March 31, 2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | December 31,
2021 | | | | | | Note Redemptions (1) | | Repayments | | Reclassifications (1) | | Other (2) | | March 31,
2022 |
| Short-term debt | $ | 3,378 | | | | | | | $ | (500) | | | $ | (132) | | | $ | 132 | | | $ | (13) | | | $ | 2,865 | |
| Long-term debt | 67,076 | | | | | | | — | | | — | | | (132) | | | (83) | | | 66,861 | |
| Total debt to third parties | 70,454 | | | | | | | (500) | | | (132) | | | — | | | (96) | | | 69,726 | |
| Short-term debt to affiliates | 2,245 | | | | | | | (1,000) | | | — | | | — | | | 5 | | | 1,250 | |
| Long-term debt to affiliates | 1,494 | | | | | | | — | | | — | | | — | | | — | | | 1,494 | |
| Total debt | $ | 74,193 | | | | | | | $ | (1,500) | | | $ | (132) | | | $ | — | | | $ | (91) | | | $ | 72,470 | |
(1)Note redemptions and reclassifications are recorded net of related issuance costs, discounts and premiums. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | December 31,
2016 | | Issuances and Borrowings (1) | | Note Redemptions (1) | | Extinguishments (1) | | Repayments | | Other (2) | | September 30,
2017 |
| Short-term debt | $ | 354 |
| | $ | — |
| | $ | — |
| | $ | (20 | ) | | $ | — |
| | $ | 224 |
| | $ | 558 |
|
| Long-term debt | 21,832 |
| | 1,495 |
| | (8,365 | ) | | (1,947 | ) | | — |
| | 148 |
| | 13,163 |
|
| Total debt to third parties | 22,186 |
| | 1,495 |
| | (8,365 | ) | | (1,967 | ) | | — |
| | 372 |
| | 13,721 |
|
| Short-term debt to affiliates | — |
| | 2,910 |
| | — |
| | — |
| | (2,910 | ) | | — |
| | — |
|
| Long-term debt to affiliates | 5,600 |
| | 8,985 |
| | — |
| | — |
| | — |
| | 1 |
| | 14,586 |
|
| Total debt to affiliates | 5,600 |
| | 11,895 |
| | — |
| | — |
| | (2,910 | ) | | 1 |
| | 14,586 |
|
| Total debt | $ | 27,786 |
| | $ | 13,390 |
| | $ | (8,365 | ) | | $ | (1,967 | ) | | $ | (2,910 | ) | | $ | 373 |
| | $ | 28,307 |
|
| |
(1) | Issuances and borrowings, note redemptions and extinguishments are recorded net of related issuance costs, discounts and premiums. Issuances and borrowings for Short-term debt to affiliates represent net outstanding borrowings on our senior secured revolving credit facility. |
| |
(2) | Other includes: $299 million of issuances of short-term debt related to vendor financing arrangements, of which $291 million is related to financing of property and equipment. During the nine months ended September 30, 2017, we repaid $296 million under the vendor financing arrangements. As of September 30, 2017, vendor financing arrangements totaled $3 million. Vendor financing arrangements are included in Short-term debt within Total current liabilities in our Condensed Consolidated Balance Sheets. Additional activity in Other includes capital leases and the amortization of discounts and premiums. As of September 30, 2017 and December 31, 2016, capital lease liabilities totaled $1.8 billion and $1.4 billion, respectively. |
(2)Other includes the amortization of premiums, discounts, debt issuance costs and consent fees.
Debt
Our effective interest rate, excluding the impact of derivatives and capitalized interest, was approximately 3.9% and 4.3% for the three months ended March 31, 2022 and 2021, respectively, on weighted-average debt outstanding of $73.7 billion for both the three months ended March 31, 2022 and 2021. The weighted-average debt outstanding was 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 Third Partiesaffiliates, net of unamortized premiums, discounts, debt issuance costs and consent fees.
IssuancesNote Redemptions and BorrowingsRepayments
During the ninethree months ended September 30, 2017, we issued the following Senior Notes:
|
| | | | | | | | | | | |
| (in millions) | Principal Issuances | | Issuance Costs | | Net Proceeds from Issuance of Long-Term Debt |
| 4.000% Senior Notes due 2022 | $ | 500 |
| | $ | 2 |
| | $ | 498 |
|
| 5.125% Senior Notes due 2025 | 500 |
| | 2 |
| | 498 |
|
| 5.375% Senior Notes due 2027 | 500 |
| | 1 |
| | 499 |
|
| Total of Senior Notes Issued | $ | 1,500 |
| | $ | 5 |
| | $ | 1,495 |
|
On March 16, 2017, T-Mobile USA and certain of its affiliates, as guarantors, issued a total of $1.5 billion of public Senior Notes with various interest rates and maturity dates. Issuance costs related to the public debt issuance totaled $5 million for the nine months ended September 30, 2017. We used the net proceeds of $1.495 billion from the transaction to redeem callable high yield debt.
Notes Redemptions
During the nine months ended September 30, 2017,31, 2022, we made the following note redemptions:redemptions and repayments:
| | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Principal Amount | | | | | | Redemption or Repayment Date | | Redemption Price |
| 4.000% Senior Notes due 2022 | $ | 500 | | | | | | | March 16, 2022 | | 100.000 | % |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| 4.000% Senior Notes to affiliates due 2022 | 1,000 | | | | | | | March 16, 2022 | | 100.000 | % |
| | | | | | | | | |
| Total Redemptions | $ | 1,500 | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| 4.738% Secured Series 2018-1 A-1 Notes due 2025 | $ | 131 | | | | | | | Various | | N/A |
| Other debt | 1 | | | | | | | Various | | N/A |
| Total Repayments | $ | 132 | | | | | | | | | |
Subsequent to March 31, 2022, on April 15, 2022, we repaid at maturity $1.25 billion of our 5.375% Senior Notes to affiliates due 2022.
Note 7 – 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 6,200 tower sites (“CCI Lease Sites”) via a master prepaid lease with site lease terms ranging from 23 to 37 years. CCI has fixed-price purchase options for the CCI Lease Sites totaling approximately $2.0 billion, exercisable annually on a per-tranche basis at the end of the lease 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.
|
| | | | | | | | | | | | | | | | |
| (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 |
| | | | |
| |
(1) | Write-off of premiums, discounts, issuance costs and call penalties are included in Other income (expense), net in our Condensed 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 Condensed Consolidated Statements of Cash Flows. |
| |
(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 Condensed Consolidated Statements of Cash Flows. |
Assets and liabilities associated with the operation of the tower sites were transferred to 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 that lease space at the tower sites. Liabilities included the obligation to pay ground lease rentals, property taxes and other executory costs.
Debt
We determined the SPEs containing the CCI Lease Sites (“Lease Site SPEs”) are VIEs as they lack sufficient equity to Affiliatesfinance their activities. We have a variable interest in the Lease 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. 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 Lease Site SPEs are not included in our condensed consolidated financial statements.
IssuancesHowever, we also considered if this arrangement resulted in the sale of the CCI Lease Sites for which we would de-recognize 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 Borrowingsthe CCI Lease Sites tower assets remained on our Condensed Consolidated Balance Sheets. We recorded long-term financial obligations in the amount of the net proceeds received and recognize interest on the tower obligations. The tower obligations are increased by interest expense and amortized through contractual leaseback payments made by us to CCI and through net cash flows generated and retained by CCI from operation of the tower sites.
DuringAcquired CCI Tower Lease Arrangements
Prior to the nine months ended September 30, 2017,merger (the “Merger”) with Sprint Corporation (“Sprint”), 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 sites (“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 the 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 de-recognize 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 Condensed 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 on our Condensed Consolidated Balance Sheets and are depreciated to their estimated residual values over the following borrowings:expected useful life of the towers, which is 20 years.
|
| | | | | | | | | | | |
| (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 income (expense), net in our Condensed Consolidated Statements of Comprehensive Income and Other, net within Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows. |
| |
(2) | Our Senior Secured Term Loan extinguished during the nine months endedSeptember 30, 2017 was Third Party debt.
|
On January 25, 2017, T-Mobile USA, Inc. (“T-Mobile USA”), and certain of its affiliates, as guarantors,3, 2022, we entered into an agreement to borrow $4.0 billion under a secured term loan facility (“Incremental Term Loan Facility”(the “Crown Agreement”) with DT,CCI. The Crown Agreement extends the current term of the leasebacks by up to twelve 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 majority stockholder, to refinance $1.98 billion 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 datedfinancing obligation as of December 29, 2016, from $660 millionthe effective date of the agreement of approximately $1.2 billion, with a corresponding decrease to $2.0 billion and provided T-Mobile USAOther long-term liabilities associated with an additional $2.0 billion incremental term loan commitment.
On January 31, 2017, the loansunfavorable contract terms. The modification resulted in a revised interest rate under the Incremental Term Loan Facility were drawn in two tranches: (i) $2.0 billion of which bearseffective 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 agreementmethod for the nine months ended September 30, 2017.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.
On March 31, 2017, the Incremental Term Loan Facility was amended to waive all interim principal payments. The outstanding principal balance will be due at maturity.
the Condensed Consolidated Financial Statements
|
| | | | | | | | | | | |
| (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 |
|
| |
(1) | Discounts reduce Proceeds from issuance of long-term debt and are included within Net cash (used in) provided by financing activities in our Condensed Consolidated Statements of Cash Flows. |
| |
(2) | In April 2017, we issued to DT $750 million in aggregate principal amount 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 NotesThe following table summarizes the balances associated 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 amountboth 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 discountstower arrangements on the issuance of the new DT Notes.
In September 2017, we issued to DT $500 million in aggregate principal amount of 5.375% Senior Notes due 2027, which is the final tranche of the new DT Notes. We were not required to pay any underwriting fees or issuance costs in connection with the issuance of the notes.
Net proceeds from the issuance of the new DT Notes were $921 million and are included in Proceeds from issuance of long-term debt in our Condensed Consolidated
Statements of Cash Flows.Balance Sheets: | | | | | | | | | | | |
| (in millions) | March 31,
2022 | | December 31,
2021 |
| Property and equipment, net | $ | 2,505 | | | $ | 2,548 | |
| Tower obligations | 4,037 | | | 2,806 | |
| Other long-term liabilities | 554 | | | 1,712 | |
On May 9, 2017, we exercised our option under existing purchase agreements and issuedFuture minimum payments related to the following Senior Notes to DT:
|
| | | | | | | | | | | |
| (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 |
|
The proceeds were used to fund a portion oftower obligations are approximately $415 million for the purchase price of spectrum licenses won in the 600 MHz spectrum auction. Net proceeds from these issuances include $6412-month period ending March 31, 2023, $848 million in debt premiums. See Note 5 - Spectrum License Transactionstotal for further information.the 12-month periods ending March 31, 2024 and 2025, $774 million in total for the 12-month periods ending March 31, 2026 and 2027, and $4.8 billion in total thereafter.
Revolving Credit Facility
We had no outstanding borrowings under our $1.5 billion senior secured revolving credit facility with DT as of September 30, 2017 and December 31, 2016. 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 Condensed Consolidated Statements of Cash Flows.
Note 8 – Income TaxesRevenue from Contracts with Customers
WithinDisaggregation 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, wearables, DIGITS or other connected devices, which include tablets and SyncUP products;
•Prepaid customers generally include customers who pay for wireless communications services in advance; and
•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: | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| (in millions) | | | | | 2022 | | 2021 | | |
| Postpaid service revenues | | | | | | | | | |
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| Postpaid phone revenues | | | | | $ | 10,231 | | | $ | 9,483 | | | |
| Postpaid other revenues | | | | | 970 | | | 820 | | | |
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| Total postpaid service revenues | | | | | $ | 11,201 | | | $ | 10,303 | | | |
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We operate as a single operating segment. The balances presented in each revenue line item on our Condensed Consolidated Statements of Comprehensive Income we recorded an Income tax expenserepresent categories of $356revenue from contracts with customers disaggregated by type of product and service. Service revenues also include revenues earned for providing premium services to customers, such as device insurance services and customer-based, third-party services. Revenue generated from the lease of mobile communication devices is included in Equipment revenues on our Condensed Consolidated Statements of Comprehensive Income.
Equipment revenues from the lease of mobile communication devices were as follows: | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| (in millions) | | | | | 2022 | | 2021 | | |
| Equipment revenues from the lease of mobile communication devices | | | | | $ | 487 | | | $ | 1,041 | | | |
We provide wireline communication services to domestic and international customers. Wireline service revenues were $146 million and $232$197 million for the three months ended September 30, 2017March 31, 2022 and 2016, respectively,2021, respectively. Wireline service revenues are presented in Wholesale and $618other service revenues on our Condensed Consolidated Statements of Comprehensive Income.
Contract Balances
The contract asset and contract liability balances from contracts with customers as of March 31, 2022 and December 31, 2021, were as follows: | | | | | | | | | | | | | |
| (in millions) | Contract
Assets | | Contract Liabilities | | |
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| Balance as of December 31, 2021 | $ | 286 | | | $ | 763 | | | |
| Balance as of March 31, 2022 | 275 | | | 768 | | | |
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| Change | $ | (11) | | | $ | 5 | | | |
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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.
The change in the Contract asset balance includes customer activity related to new promotions, offset by billings on existing contracts and impairment which is recognized as bad debt expense. The current portion of our Contract assets of approximately $210 million and $651$219 million foras of March 31, 2022 and December 31, 2021, respectively, was included in Other current assets on our Condensed 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 nine months ended September 30, 2017 and 2016, respectively. The changeactivity of prepaid customers. Contract liabilities are primarily included in Deferred revenueon our Condensed Consolidated Balance Sheets.
Revenues for the three months ended September 30, 2017March 31, 2022 and 2021 include the following: | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| (in millions) | | | | | 2022 | | 2021 | | |
| Amounts included in the beginning of year contract liability balance | | | | | $ | 654 | | | $ | 683 | | | |
Remaining Performance Obligations
As of March 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 $798 million. We expect to recognize revenue as the service is provided on these postpaid contracts over an extended contract term of 24 months at 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 March 31, 2022, the aggregate amount of the contractual minimum consideration for wholesale, roaming and service contracts is $936 million, $1.0 billion and $2.7 billion for 2022, 2023, and 2024 and beyond, respectively. These contracts have a remaining duration ranging from less than one year to eight years.
Contract Costs
The balance of deferred incremental costs to obtain contracts with customers was primarily from higher income before income taxes.$1.6 billion and $1.5 billion as of March 31, 2022 and December 31, 2021, respectively, and is included in Other assets on our Condensed 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 for the nine months ended September
30, 2017 was primarily from a lower effective tax rate partially offset by higher income before income taxes. The effective tax rate was 39.3%in assumptions. Amortization of deferred contract costs is included in Selling, general and 38.8%administrative expenses on our Condensed Consolidated Statements of Comprehensive Income and were $324 million and $248 million for the three months ended September 30, 2017March 31, 2022 and 2016, respectively, and 25.3% and 37.8%2021, 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 ninethree months ended September 30, 2017March 31, 2022 and 2016, respectively. The change in the effective income tax rate2021.
During the first quarter of 2017, due to ongoing analysis of positive and negative evidence related to the utilization of the deferred tax assets, we determined that a portion of the valuation allowance was no longer necessary. Positive evidence supporting the release of a portion of the valuation allowance included reaching a position of cumulative income over a three-year period in the 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 Condensed 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. It is possible that we may release additional portions of the remaining valuation allowance within the next three months.Financial Statements
Note 9 – Earnings Per Share
The computation of basic and diluted earnings per share was as follows: | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| (in millions, except shares and per share amounts) | | | | | 2022 | | 2021 | | |
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| Net income | | | | | $ | 713 | | | $ | 933 | | | |
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| Weighted-average shares outstanding – basic | | | | | 1,250,505,999 | | | 1,243,520,026 | | | |
| Effect of dilutive securities: | | | | | | | | | |
| Outstanding stock options and unvested stock awards | | | | | 4,862,593 | | | 9,263,538 | | | |
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| Weighted-average shares outstanding – diluted | | | | | 1,255,368,592 | | | 1,252,783,564 | | | |
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| Earnings per share – basic | | | | | $ | 0.57 | | | $ | 0.75 | | | |
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| Earnings per share – diluted | | | | | $ | 0.57 | | | $ | 0.74 | | | |
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| Potentially dilutive securities: | | | | | | | | | |
| Outstanding stock options and unvested stock awards | | | | | 2,054,344 | | | 6 | | | |
SoftBank contingent consideration (1) | | | | | 48,751,557 | | | 48,751,557 | | | |
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(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 Deutsche Telekom AG (“DT”). |
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions, except shares and per share amounts) | 2017 | | 2016 | | 2017 | | 2016 |
| Net income | $ | 550 |
| | $ | 366 |
| | $ | 1,829 |
| | $ | 1,070 |
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| Less: Dividends on mandatory convertible preferred stock | (13 | ) | | (13 | ) | | (41 | ) | | (41 | ) |
| Net income attributable to common stockholders - basic | 537 |
| | 353 |
| | 1,788 |
| | 1,029 |
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| Add: Dividends related to mandatory convertible preferred stock | 13 |
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| | 41 |
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| Net income attributable to common stockholders - diluted | $ | 550 |
| | $ | 353 |
| | $ | 1,829 |
| | $ | 1,029 |
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| Weighted average shares outstanding - basic | 831,189,779 |
| | 822,998,697 |
| | 829,974,146 |
| | 821,626,675 |
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| Effect of dilutive securities: | | | | | | | |
| Outstanding stock options and unvested stock awards | 7,992,286 |
| | 9,259,122 |
| | 9,523,365 |
| | 9,614,352 |
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| Mandatory convertible preferred stock | 32,238,000 |
| | — |
| | 32,238,000 |
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| Weighted average shares outstanding - diluted | 871,420,065 |
| | 832,257,819 |
| | 871,735,511 |
| | 831,241,027 |
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| Earnings per share - basic | $ | 0.65 |
| | $ | 0.43 |
| | $ | 2.15 |
| | $ | 1.25 |
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| Earnings per share - diluted | $ | 0.63 |
| | $ | 0.42 |
| | $ | 2.10 |
| | $ | 1.24 |
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| Potentially dilutive securities: | | | | | | | |
| Outstanding stock options and unvested stock awards | — |
| | 278,675 |
| | 4,760 |
| | 287,375 |
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| Mandatory convertible preferred stock | — |
| | 32,238,000 |
| | — |
| | 32,238,000 |
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Unless converted earlier, each shareAs of March 31, 2022, we had authorized 100 million shares of preferred stock, will convert automatically on December 15, 2017 into between 1.6119 (the minimum conversion rate) and 1.9342 (the maximum conversion rate) shares of our common stock, subject to customary anti-dilution adjustments and depending on the applicable marketwith a par value of our common stock. Using the minimum conversion rate, we would issue 32,238,000 shares$0.00001 per share. There was no preferred stock outstanding as of our common stock upon conversion.
March 31, 2022 and 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 10 – Leases
Lessee
We are a lessee for non-cancelable operating and financing leases for cell sites, switch sites, retail stores, network equipment and office facilities with contractual terms that generally extend through 2035. Additionally, we lease dark fiber through non-cancelable operating leases with contractual terms that generally extend through 2041. The majority of cell site leases have a non-cancelable term of five to 15 years with several renewal options that can extend the lease term for five to 50 years. In addition, we have financing leases for network 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 CCI 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 December 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 3 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: | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| (in millions) | | | | | 2022 | | 2021 | | |
| Operating lease expense | | | | | $ | 1,748 | | | $ | 1,391 | | | |
| Financing lease expense: | | | | | | | | | |
| Amortization of right-of-use assets | | | | | 185 | | | 173 | | | |
| Interest on lease liabilities | | | | | 15 | | | 20 | | | |
| Total financing lease expense | | | | | 200 | | | 193 | | | |
| Variable lease expense | | | | | 127 | | | 95 | | | |
| Total lease expense | | | | | $ | 2,075 | | | $ | 1,679 | | | |
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As of March 31, 2022, the weighted-average remaining lease term and discount rate for operating leases were 10 years and 3.9%, respectively.
Maturities of lease liabilities as of March 31, 2022, were as follows: | | | | | | | | | | | |
| (in millions) | Operating Leases | | Finance Leases |
| Twelve Months Ending March 31, | | | |
| 2023 | $ | 4,199 | | | $ | 1,163 | |
| 2024 | 4,479 | | | 835 | |
| 2025 | 4,103 | | | 495 | |
| 2026 | 3,553 | | | 101 | |
| 2027 | 3,274 | | | 29 | |
| Thereafter | 23,509 | | | 25 | |
| Total lease payments | 43,117 | | | 2,648 | |
| Less: imputed interest | 8,678 | | | 80 | |
| Total | $ | 34,439 | | | $ | 2,568 | |
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Interest payments for financing leases were $15 million and $19 million for the three months ended March 31, 2022 and 2021, respectively.
As of March 31, 2022, we have additional operating leases for commercial properties that have not yet commenced with future lease payments of approximately $85 million.
Note 11 – Commitments and Contingencies
Commitments
Operating Leases and Purchase Commitments
DuringWe have commitments for non-dedicated transportation lines with varying expiration terms that generally extend through 2038. In addition, we have commitments to purchase wireless devices, network services, equipment, software, marketing sponsorship agreements and other items in the nine months ended September 30, 2017, we entered into a purchase commitmentordinary course of business, with a handset Original Equipment Manufacturer, resulting in a material increase to the future minimum payments for purchase commitments summarized below.various terms through 2043.
Future minimum payments for non-cancelable operating leases andOur purchase commitments are as follows:
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| (in millions) | Operating Leases | | Purchase Commitments |
| Year ending September 30, | | | |
| 2018 | $ | 2,397 |
| | $ | 2,477 |
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| 2019 | 2,153 |
| | 1,210 |
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| 2020 | 1,867 |
| | 1,015 |
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| 2021 | 1,472 |
| | 759 |
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| 2022 | 1,163 |
| | 661 |
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| Thereafter | 2,240 |
| | 904 |
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| Total | $ | 11,292 |
| | $ | 7,026 |
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Renewable Energy Purchase Agreements
In January 2017, T-Mobile USA entered into a REPA with Red Dirt Wind Project, LLC. The agreement isapproximately $4.4 billion for the twelve-month period ending March 31, 2023, $5.5 billion in total for each of the twelve-month periods ending March 31, 2024 and 2025, $2.4 billion in total for each of the twelve-month periods ending March 31, 2026 and 2027 and $3.1 billion in total thereafter. These amounts are not reflective of our entire anticipated purchases under the related agreements but are determined based on the expected operation ofnon-cancelable quantities or termination amounts to which we are contractually obligated.
Spectrum Leases
We lease 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 options and right-of-first refusal clauses in which we are provided the opportunity to exercise our purchase option if the lessor receives a wind energy-generating facility located in Oklahoma and will remain in effect until the twelfth anniversarypurchase offer from a third party.The purchase of the facility’s entry into commercial operation. Commercial operationleased spectrum is at our option and therefore the option price is not included in the commitments below.
Our spectrum lease and service credit commitments, including renewal periods, are approximately $345 million for the twelve-month period ending March 31, 2023, $627 million in total for each of the facility is expected to occur by the end of 2017. The REPA consists of two components: (1) an energy forward agreement that is net settled based on energy pricestwelve-month periods ending March 31, 2024 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 output2025, $623 million in total for each 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 fixedtwelve-month periods ending March 31, 2026 and determinable. Our participation2027 and $4.9 billion 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 nine months ended September 30, 2017.total thereafter.
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 nine months ended September 30, 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 numerous court actions alleging that we are infringing various patents. Virtually allclaims of the patent infringement cases(most of which are broughtasserted by non-practicing entities primarily seeking monetary damages), class actions, and effectively seek only monetary damages, although they occasionally seek injunctive relief as well. Theproceedings to enforce FCC or other government agency rules and regulations. Those 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 include an awardresult 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 in the condensed 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 in the condensed 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 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 March 31, 2022, and that accrual was included in Accounts payable and accrued liabilities on our Condensed Consolidated Balance Sheets. Note 11 – Guarantor Financial Information
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.
Pursuant
We note that pursuant to Amendment No. 2, dated as of February 20, 2020, to the applicable indenturesBusiness Combination Agreement, dated as of April 29, 2018, by and supplemental indentures,among the long-term debtCompany, Sprint and the other parties named therein (as amended, the “Business Combination Agreement”), SoftBank agreed to affiliatesindemnify us against certain specified matters and third parties, excluding Senior Secured Term Loanslosses, including those relating to the Lifeline matters described above. Resolution of these matters could require making additional reimbursements and capital leases, issuedpaying 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 T-Mobile USA (“Issuer”) is fullySoftBank.
On June 1, 2021, a putative shareholder class action and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by T-Mobile (“Parent”)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 Issuer’s 100% owned subsidiaries (“Guarantor Subsidiaries”).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. We intend to vigorously defend this lawsuit.
In January 2017, T-Mobile USA, and certainOctober 2020, we notified Mobile Virtual Network Operators (“MVNOs”) using the legacy Sprint CDMA network that we
planned to sunset that network on December 31, 2021. In response to that notice, DISH Network Corporation (“DISH”), which has Boost Mobile customers who use the legacy Sprint CDMA network, made several efforts to prevent us from sunsetting the CDMA network until mid-2023, including by urging the U.S. Department of its affiliates, as guarantors, borrowed $4.0 billionJustice to move for a finding of contempt under the Incremental Term Loan FacilityApril 1, 2020 Final Judgment entered by the U.S. District Court for the District of Columbia, and by pursuing a Petition for Modification and related proceedings pursuant to refinance $1.98 billion of outstanding secured term loans under its Term Loan Credit Agreement dated November 9, 2015,the California Public Utilities Commission’s (the “CPUC”) April 2020 decision concerning the Merger. We disagree with the remaining net proceeds frommerits of DISH’s positions and have opposed them. On October 22, 2021, we announced that we would delay the transaction intendedfull decommissioning of the legacy Sprint CDMA network for three months, until March 31, 2022, to, among other things, help ensure that DISH and other MVNOs fulfill their contractual responsibilities and transition customers off the legacy Sprint CDMA network before the decommissioning. In March 2022, the CPUC denied DISH’s Petition for Modification. We cannot predict the outcome of the other proceedings described above, but we intend to vigorously oppose any efforts to further delay the sunset of the legacy Sprint CDMA network. The orderly decommissioning of the legacy Sprint CDMA network began as planned on March 31, 2022, and is expected to be usedcompleted during the second fiscal quarter of 2022, and we will continue to redeem callable high yield debt.help ensure that DISH and other MVNOs fulfill their contractual responsibilities and transition customers off the legacy Sprint CDMA network before the decommissioning.
On August 12, 2021, we became aware of a potential 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 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. In addition, in November 2021, a purported Company shareholder filed a derivative action in the U.S. District Court for the Western District of Washington, Litwin v. Sievert et al., No. 2:21-cv-01599, against our current directors, alleging several claims concerning the Company’s cybersecurity practices. In April 2022, the Litwin case was voluntarily dismissed without prejudice. We are unable to predict at this time the potential outcome of any of the other claims described above or whether we may be subject to further private litigation. We intend to vigorously defend all of these lawsuits.
In addition, the Company has received inquiries from various government agencies, law enforcement and other governmental authorities related to the August 2021 cyberattack, which could result in fines or penalties. We are responding to these inquiries and cooperating fully with regulators. However, we cannot predict the timing or outcome of any of these inquiries, or whether we may be subject to further regulatory inquiries.
In light of the inherent uncertainties involved in such matters and based on the information currently available to us, as of the date of this Quarterly Report, we have not recorded any accruals for losses related to the above proceedings and inquiries, as any such amounts (or ranges of amounts) are not probable or estimable at this time. We believe it is reasonably possible that we could incur losses associated with these proceedings and inquiries, and the Company 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 proceedings and inquiries, 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 March 2017, T-Mobile USA2022, we received $220 million in settlement of certain patent litigation. We recognized the settlement, net of legal fees, as a reduction to Selling, general and administrative expenses on our Condensed Consolidated Statements of Comprehensive Income.
Note 12 – 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 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 synergies in network costs.
The following table summarizes the expenses incurred in connection with our restructuring initiatives: | | | | | | | | | | | | | |
| | | | | |
| (in millions) | | | Three Months Ended March 31, 2022 | | Incurred to Date |
| Contract termination costs | | | $ | — | | | $ | 192 | |
| Severance costs | | | 4 | | | 406 | |
| Network decommissioning | | | 133 | | | 814 | |
| Total restructuring plan expenses | | | $ | 137 | | | $ | 1,412 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
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The expenses associated with the restructuring initiatives are included in Costs of services and Selling, general and administrative on our Condensed Consolidated Statements of Comprehensive Income.
Our restructuring initiatives also include the acceleration or termination of certain of its affiliates,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 $464 million and $123 million for the three months ended March 31, 2022 and 2021, respectively, and are included in Costs of services and Selling, general and administrative on our Condensed Consolidated Statements of Comprehensive Income.
The changes in the liabilities associated with our restructuring initiatives, including expenses incurred and cash payments, are as guarantors, (i) issued $500follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | December 31,
2021 | | Expenses Incurred | | Cash Payments | | Adjustments for Non-Cash Items (1) | | March 31,
2022 |
| Contract termination costs | $ | 14 | | | $ | — | | | $ | (5) | | | $ | — | | | $ | 9 | |
| Severance costs | 1 | | | 4 | | | (3) | | | — | | | 2 | |
| Network decommissioning | 71 | | | 133 | | | (59) | | | (5) | | | 140 | |
| Total | $ | 86 | | | $ | 137 | | | $ | (67) | | | $ | (5) | | | $ | 151 | |
(1) Non-cash items consist of the write-off of assets within Network decommissioning.
The liabilities accrued in connection with our restructuring initiatives are presented in Accounts payable and accrued liabilities on our Condensed Consolidated Balance Sheets.
Our restructuring activities are expected to occur over the next two years with substantially all costs incurred by the end of fiscal year 2023. We are evaluating 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 13 – Additional Financial Information
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities are summarized as follows: | | | | | | | | | | | |
| (in millions) | March 31,
2022 | | December 31,
2021 |
| Accounts payable | $ | 6,739 | | | $ | 6,499 | |
| Payroll and related benefits | 842 | | | 1,343 | |
| Property and other taxes, including payroll | 1,764 | | | 1,830 | |
| Accrued interest | 825 | | | 710 | |
| Commissions | 270 | | | 348 | |
| | | |
| Toll and interconnect | 230 | | | 248 | |
| Advertising | 11 | | | 59 | |
| Other | 453 | | | 368 | |
| Accounts payable and accrued liabilities | $ | 11,134 | | | $ | 11,405 | |
Book overdrafts included in accounts payable were $405 million in aggregate principal amountand $378 million as of public 4.000% Senior Notes dueMarch 31, 2022 (ii) issued $500 million in aggregate principal amountand December 31, 2021, respectively.
Supplemental Condensed Consolidated Statements 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.Cash Flows Information
InThe following table summarizes T-Mobile’s supplemental cash flow information:
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| (in millions) | | | | | 2022 | | 2021 | | |
| Interest payments, net of amounts capitalized | | | | | $ | 778 | | | $ | 945 | | | |
| Operating lease payments | | | | | 1,048 | | | 1,651 | | | |
| Income tax payments | | | | | — | | | 22 | | | |
| Non-cash investing and financing activities | | | | | | | | | |
| | | | | | | | | |
| Non-cash beneficial interest obtained in exchange for securitized receivables | | | | | 1,018 | | | 1,381 | | | |
| | | | | | | | | |
| Change in accounts payable and accrued liabilities for purchases of property and equipment | | | | | (183) | | | (173) | | | |
| Leased devices transferred from inventory to property and equipment | | | | | 129 | | | 485 | | | |
| Returned leased devices transferred from property and equipment to inventory | | | | | (183) | | | (445) | | | |
| | | | | | | | | |
| Increase in Tower obligations from contract modification | | | | | 1,158 | | | — | | | |
| Operating lease right-of-use assets obtained in exchange for lease obligations | | | | | 5,975 | | | 911 | | | |
| Financing lease right-of-use assets obtained in exchange for lease obligations | | | | | 298 | | | 109 | | | |
Note 14 – Subsequent Events
Subsequent to March 31, 2022, on 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 due15, 2022, (ii) issuedwe repaid at maturity $1.25 billion in aggregate principal amount of 5.125% Senior Notes due 2025 and (iii) issued $750 million in aggregate principal amount ofour 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 amount2022.
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.
Presented below is the condensed consolidating financial information as of September 30, 2017 and December 31, 2016, and for the three and nine months ended September 30, 2017 and 2016.
Condensed Consolidating Balance Sheet Information
September 30, 2017
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
| Assets | | | | | | | | | | | |
| Current assets | | | | | | | | | | | |
| Cash and cash equivalents | $ | 29 |
| | $ | 2 |
| | $ | 678 |
| | $ | 30 |
| | $ | — |
| | $ | 739 |
|
| Accounts receivable, net | — |
| | — |
| | 1,504 |
| | 230 |
| | — |
| | 1,734 |
|
| Equipment installment plan receivables, net | — |
| | — |
| | 2,136 |
| | — |
| | — |
| | 2,136 |
|
| Accounts receivable from affiliates | — |
| | 6 |
| | 24 |
| | — |
| | (6 | ) | | 24 |
|
| Inventories | — |
| | — |
| | 999 |
| | — |
| | — |
| | 999 |
|
| Other current assets | — |
| | — |
| | 1,241 |
| | 576 |
| | — |
| | 1,817 |
|
| Total current assets | 29 |
| | 8 |
| | 6,582 |
| | 836 |
| | (6 | ) | | 7,449 |
|
Property and equipment, net (1) | — |
| | — |
| | 21,248 |
| | 322 |
| | — |
| | 21,570 |
|
| Goodwill | — |
| | — |
| | 1,683 |
| | — |
| | — |
| | 1,683 |
|
| Spectrum licenses | — |
| | — |
| | 35,007 |
| | — |
| | — |
| | 35,007 |
|
| Other intangible assets, net | — |
| | — |
| | 256 |
| | — |
| | — |
| | 256 |
|
| Investments in subsidiaries, net | 19,823 |
| | 37,943 |
| | — |
| | — |
| | (57,766 | ) | | — |
|
| Intercompany receivables and note receivables | 425 |
| | 8,903 |
| | — |
| | — |
| | (9,328 | ) | | — |
|
| Equipment installment plan receivables due after one year, net | — |
| | — |
| | 1,100 |
| | — |
| | — |
| | 1,100 |
|
| Other assets | — |
| | 3 |
| | 778 |
| | 292 |
| | (215 | ) | | 858 |
|
| Total assets | $ | 20,277 |
| | $ | 46,857 |
| | $ | 66,654 |
| | $ | 1,450 |
| | $ | (67,315 | ) | | $ | 67,923 |
|
| Liabilities and Stockholders' Equity | | | | | | | | | | | |
| Current liabilities | | | | | | | | | | | |
| Accounts payable and accrued liabilities | $ | — |
| | $ | 201 |
| | $ | 5,626 |
| | $ | 244 |
| | $ | — |
| | $ | 6,071 |
|
| Payables to affiliates | — |
| | 250 |
| | 38 |
| | — |
| | — |
| | 288 |
|
| Short-term debt | — |
| | 3 |
| | 555 |
| | — |
| | — |
| | 558 |
|
| Short-term debt to affiliates | — |
| | — |
| | 6 |
| | — |
| | (6 | ) | | — |
|
| Deferred revenue | — |
| | — |
| | 790 |
| | — |
| | — |
| | 790 |
|
| Other current liabilities | — |
| | — |
| | 219 |
| | 177 |
| | — |
| | 396 |
|
| Total current liabilities | — |
| | 454 |
| | 7,234 |
| | 421 |
| | (6 | ) | | 8,103 |
|
| Long-term debt | — |
| | 11,913 |
| | 1,250 |
| | — |
| | — |
| | 13,163 |
|
| Long-term debt to affiliates | — |
| | 14,586 |
| | — |
| | — |
| | — |
| | 14,586 |
|
Tower obligations (1) | — |
| | — |
| | 395 |
| | 2,204 |
| | — |
| | 2,599 |
|
| Deferred tax liabilities | — |
| | — |
| | 5,750 |
| | — |
| | (215 | ) | | 5,535 |
|
| Deferred rent expense | — |
| | — |
| | 2,693 |
| | — |
| | — |
| | 2,693 |
|
| Negative carrying value of subsidiaries, net | — |
| | — |
| | 596 |
| | — |
| | (596 | ) | | — |
|
| Intercompany payables and debt | — |
| | — |
| | 9,119 |
| | 209 |
| | (9,328 | ) | | — |
|
| Other long-term liabilities | — |
| | 81 |
| | 884 |
| | 2 |
| | — |
| | 967 |
|
| Total long-term liabilities | — |
| | 26,580 |
| | 20,687 |
| | 2,415 |
| | (10,139 | ) | | 39,543 |
|
| Total stockholders' equity (deficit) | 20,277 |
| | 19,823 |
| | 38,733 |
| | (1,386 | ) | | (57,170 | ) | | 20,277 |
|
| Total liabilities and stockholders' equity | $ | 20,277 |
| | $ | 46,857 |
| | $ | 66,654 |
| | $ | 1,450 |
| | $ | (67,315 | ) | | $ | 67,923 |
|
| |
(1) | Assets and liabilities for Non-Guarantor Subsidiaries are primarily included in VIEs related to the 2012 Tower Transaction. See Note 8 – Tower Obligations included in the Annual Report on Form 10-K for the year ended December 31, 2016. |
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 included in the Annual Report on Form 10-K for the year ended December 31, 2016. |
Condensed Consolidating Statement of Comprehensive Income Information
Three Months Ended September 30, 2017
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
| Revenues | | | | | | | | | | | |
| Service revenues | $ | — |
| | $ | — |
| | $ | 7,312 |
| | $ | 527 |
| | $ | (210 | ) | | $ | 7,629 |
|
| Equipment revenues | — |
| | — |
| | 2,160 |
| | — |
| | (42 | ) | | 2,118 |
|
| Other revenues | — |
| | — |
| | 224 |
| | 55 |
| | (7 | ) | | 272 |
|
| Total revenues | — |
| | — |
| | 9,696 |
| | 582 |
| | (259 | ) | | 10,019 |
|
| Operating expenses | | | | | | | | | | | |
| Cost of services, exclusive of depreciation and amortization shown separately below | — |
| | — |
| | 1,588 |
| | 6 |
| | — |
| | 1,594 |
|
| Cost of equipment sales | — |
| | — |
| | 2,418 |
| | 241 |
| | (42 | ) | | 2,617 |
|
| Selling, general and administrative | — |
| | — |
| | 3,106 |
| | 209 |
| | (217 | ) | | 3,098 |
|
| Depreciation and amortization | — |
| | — |
| | 1,399 |
| | 17 |
| | — |
| | 1,416 |
|
| Gains on disposal of spectrum licenses | — |
| | — |
| | (29 | ) | | — |
| | — |
| | (29 | ) |
| Total operating expense | — |
| | — |
| | 8,482 |
| | 473 |
| | (259 | ) | | 8,696 |
|
| Operating income | — |
| | — |
| | 1,214 |
| | 109 |
| | — |
| | 1,323 |
|
| Other income (expense) | | | | | | | | | | | |
| Interest expense | — |
| | (176 | ) | | (30 | ) | | (47 | ) | | — |
| | (253 | ) |
| Interest expense to affiliates | — |
| | (167 | ) | | (6 | ) | | — |
| | 6 |
| | (167 | ) |
| Interest income | — |
| | 7 |
| | 1 |
| | — |
| | (6 | ) | | 2 |
|
| Other expense, net | — |
| | 1 |
| | 1 |
| | (1 | ) | | — |
| | 1 |
|
| Total other expense, net | — |
| | (335 | ) | | (34 | ) | | (48 | ) | | — |
| | (417 | ) |
| Income (loss) before income taxes | — |
| | (335 | ) | | 1,180 |
| | 61 |
| | — |
| | 906 |
|
| Income tax expense | — |
| | — |
| | (335 | ) | | (21 | ) | | — |
| | (356 | ) |
| Earnings of subsidiaries | 550 |
| | 885 |
| | — |
| | — |
| | (1,435 | ) | | — |
|
| Net income | 550 |
| | 550 |
| | 845 |
| | 40 |
| | (1,435 | ) | | 550 |
|
| Dividends on preferred stock | (13 | ) | | — |
| | — |
| | — |
| | — |
| | (13 | ) |
| Net income attributable to common stockholders | $ | 537 |
| | $ | 550 |
| | $ | 845 |
| | $ | 40 |
| | $ | (1,435 | ) | | $ | 537 |
|
| | | | | | | | | | | | |
| Net Income | $ | 550 |
| | $ | 550 |
| | $ | 845 |
| | $ | 40 |
| | $ | (1,435 | ) | | $ | 550 |
|
| Other comprehensive income (loss), net of tax | | | | | | | | | | | |
| Other comprehensive income (loss), net of tax | 1 |
| | 1 |
| | 1 |
| | — |
| | (2 | ) | | 1 |
|
| Total comprehensive income | $ | 551 |
| | $ | 551 |
| | $ | 846 |
| | $ | 40 |
| | $ | (1,437 | ) | | $ | 551 |
|
Condensed Consolidating Statement of Comprehensive Income Information
Three Months Ended September 30, 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 | $ | — |
| | $ | — |
| | $ | 6,822 |
| | $ | 520 |
| | $ | (209 | ) | | $ | 7,133 |
|
| Equipment revenues | — |
| | — |
| | 2,049 |
| | — |
| | (101 | ) | | 1,948 |
|
| Other revenues | — |
| | — |
| | 180 |
| (1) | 48 |
| | (4 | ) | | 224 |
|
| Total revenues | — |
| | — |
| | 9,051 |
| (1) | 568 |
| | (314 | ) | | 9,305 |
|
| Operating expenses | | | | | | | | | | | |
| Cost of services, exclusive of depreciation and amortization shown separately below | — |
| | — |
| | 1,430 |
| | 6 |
| | — |
| | 1,436 |
|
| Cost of equipment sales | — |
| | — |
| | 2,340 |
| | 300 |
| | (101 | ) | | 2,539 |
|
| Selling, general and administrative | — |
| | — |
| | 2,884 |
| | 227 |
| | (213 | ) | | 2,898 |
|
| Depreciation and amortization | — |
| | — |
| | 1,549 |
| | 19 |
| | — |
| | 1,568 |
|
| Cost of MetroPCS business combination | — |
| | — |
| | 15 |
| | — |
| | — |
| | 15 |
|
| Gains on disposal of spectrum licenses | — |
| | — |
| | (199 | ) | | — |
| | — |
| | (199 | ) |
| Total operating expense | — |
| | — |
| | 8,019 |
| | 552 |
| | (314 | ) | | 8,257 |
|
| Operating income | — |
| | — |
| | 1,032 |
| (1) | 16 |
| | — |
| | 1,048 |
|
| Other income (expense) | | | | | | | | | | | |
| Interest expense | — |
| | (303 | ) | | (26 | ) | | (47 | ) | | — |
| | (376 | ) |
| Interest expense to affiliates | — |
| | (76 | ) | | — |
| | — |
| | — |
| | (76 | ) |
| Interest income | — |
| | 7 |
| | (4 | ) | (1) | — |
| | — |
| | 3 |
|
| Other expense, net | — |
| | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) |
| Total other expense, net | — |
| | (372 | ) | | (31 | ) | (1) | (47 | ) | | — |
| | (450 | ) |
| Income (loss) before income taxes | — |
| | (372 | ) | | 1,001 |
| | (31 | ) | | — |
| | 598 |
|
| Income tax (expense) benefit | — |
| | — |
| | (242 | ) | | 10 |
| | — |
| | (232 | ) |
| Earnings (loss) of subsidiaries | 366 |
| | 738 |
| | (4 | ) | | — |
| | (1,100 | ) | | — |
|
| Net income (loss) | 366 |
| | 366 |
| | 755 |
| | (21 | ) | | (1,100 | ) | | 366 |
|
| Dividends on preferred stock | (13 | ) | | — |
| | — |
| | — |
| | — |
| | (13 | ) |
| Net income attributable to common stockholders | $ | 353 |
| | $ | 366 |
| | $ | 755 |
| | $ | (21 | ) | | $ | (1,100 | ) | | $ | 353 |
|
| | | | | | | | | | | | |
| Net Income (loss) | $ | 366 |
| | $ | 366 |
| | $ | 755 |
| | $ | (21 | ) | | $ | (1,100 | ) | | $ | 366 |
|
| Other comprehensive income, net of tax | | | | | | | | | | | |
| Other comprehensive income, net of tax | 2 |
| | 2 |
| | 2 |
| | 2 |
| | (6 | ) | | 2 |
|
| Total comprehensive income (loss) | $ | 368 |
| | $ | 368 |
| | $ | 757 |
| | $ | (19 | ) | | $ | (1,106 | ) | | $ | 368 |
|
| |
(1)
| The amortized imputed discount on EIP receivables previously recognized as Interest income has been retrospectively reclassified as Other revenues. See Note 1 - Basis of Presentation for further detail. |
Condensed Consolidating Statement of Comprehensive Income Information
Nine Months Ended September 30, 2017
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
| Revenues | | | | | | | | | | | |
| Service revenues | $ | — |
| | $ | — |
| | $ | 21,457 |
| | $ | 1,580 |
| | $ | (634 | ) | | $ | 22,403 |
|
| Equipment revenues | — |
| | — |
| | 6,878 |
| | — |
| | (211 | ) | | 6,667 |
|
| Other revenues | — |
| | — |
| | 634 |
| | 158 |
| | (17 | ) | | 775 |
|
| Total revenues | — |
| | — |
| | 28,969 |
| | 1,738 |
| | (862 | ) | | 29,845 |
|
| Operating expenses | | | | | | | | | | | |
| Cost of services, exclusive of depreciation and amortization shown separately below | — |
| | — |
| | 4,502 |
| | 18 |
| | — |
| | 4,520 |
|
| Cost of equipment sales | — |
| | — |
| | 7,622 |
| | 738 |
| | (211 | ) | | 8,149 |
|
| Selling, general and administrative | — |
| | — |
| | 8,967 |
| | 652 |
| | (651 | ) | | 8,968 |
|
| Depreciation and amortization | — |
| | — |
| | 4,446 |
| | 53 |
| | — |
| | 4,499 |
|
| Gains on disposal of spectrum licenses | — |
| | — |
| | (67 | ) | | — |
| | — |
| | (67 | ) |
| Total operating expenses | — |
| | — |
| | 25,470 |
| | 1,461 |
| | (862 | ) | | 26,069 |
|
| Operating income | — |
| | — |
| | 3,499 |
| | 277 |
| | — |
| | 3,776 |
|
| Other income (expense) | | | | | | | | | | | |
| Interest expense | — |
| | (634 | ) | | (80 | ) | | (143 | ) | | — |
| | (857 | ) |
| Interest expense to affiliates | — |
| | (398 | ) | | (18 | ) | | — |
| | 18 |
| | (398 | ) |
| Interest income | — |
| | 24 |
| | 9 |
| | — |
| | (18 | ) | | 15 |
|
| Other expense, net | — |
| | (87 | ) | | (1 | ) | | (1 | ) | | — |
| | (89 | ) |
| Total other expense, net | — |
| | (1,095 | ) | | (90 | ) | | (144 | ) | | — |
| | (1,329 | ) |
| Income (loss) before income taxes | — |
| | (1,095 | ) | | 3,409 |
| | 133 |
| | — |
| | 2,447 |
|
| Income tax expense | — |
| | — |
| | (572 | ) | | (46 | ) | | — |
| | (618 | ) |
| Earnings (loss) of subsidiaries | 1,829 |
| | 2,924 |
| | (17 | ) | | — |
| | (4,736 | ) | | — |
|
| Net income | 1,829 |
| | 1,829 |
| | 2,820 |
| | 87 |
| | (4,736 | ) | | 1,829 |
|
| Dividends on preferred stock | (41 | ) | | — |
| | — |
| | — |
| | — |
| | (41 | ) |
| Net income attributable to common stockholders | $ | 1,788 |
| | $ | 1,829 |
| | $ | 2,820 |
| | $ | 87 |
| | $ | (4,736 | ) | | $ | 1,788 |
|
| | | | | | | | | | | | |
| Net Income | $ | 1,829 |
| | $ | 1,829 |
| | $ | 2,820 |
| | $ | 87 |
| | $ | (4,736 | ) | | $ | 1,829 |
|
| Other comprehensive income, net of tax | | | | | | | | | | | |
| Other comprehensive income, net of tax | 3 |
| | 3 |
| | 3 |
| | — |
| | (6 | ) | | 3 |
|
| Total comprehensive income | $ | 1,832 |
| | $ | 1,832 |
| | $ | 2,823 |
| | $ | 87 |
| | $ | (4,742 | ) | | $ | 1,832 |
|
Condensed Consolidating Statement of Comprehensive Income Information
Nine Months Ended September 30, 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 | $ | — |
| | $ | — |
| | $ | 19,683 |
| | $ | 1,500 |
| | $ | (584 | ) | | $ | 20,599 |
|
| Equipment revenues | — |
| | — |
| | 6,328 |
| | — |
| | (341 | ) | | 5,987 |
|
| Other revenues | — |
| | — |
| | 538 |
| (1) | 145 |
| | (13 | ) | | 670 |
|
| Total revenues | — |
| | — |
| | 26,549 |
| (1) | 1,645 |
| | (938 | ) | | 27,256 |
|
| Operating expenses | | | | | | | | | | | |
| Cost of services, exclusive of depreciation and amortization shown separately below | — |
| | — |
| | 4,268 |
| | 18 |
| | — |
| | 4,286 |
|
| Cost of equipment sales | — |
| | — |
| | 7,104 |
| | 768 |
| | (340 | ) | | 7,532 |
|
| Selling, general and administrative | — |
| | — |
| | 8,372 |
| | 645 |
| | (598 | ) | | 8,419 |
|
| Depreciation and amortization | — |
| | — |
| | 4,636 |
| | 59 |
| | — |
| | 4,695 |
|
| Cost of MetroPCS business combination | — |
| | — |
| | 110 |
| | — |
| | — |
| | 110 |
|
| Gains on disposal of spectrum licenses | — |
| | — |
| | (835 | ) | | — |
| | — |
| | (835 | ) |
| Total operating expenses | — |
| | — |
| | 23,655 |
| | 1,490 |
| | (938 | ) | | 24,207 |
|
| Operating income | — |
| | — |
| | 2,894 |
| (1) | 155 |
| | — |
| | 3,049 |
|
| Other income (expense) | | | | | | | | | | | |
| Interest expense | — |
| | (881 | ) | | (61 | ) | | (141 | ) | | — |
| | (1,083 | ) |
| Interest expense to affiliates | — |
| | (248 | ) | | — |
| | — |
| | — |
| | (248 | ) |
| Interest income | — |
| | 23 |
| | (14 | ) | (1) | — |
| | — |
| | 9 |
|
| Other expense, net | — |
| | — |
| | (6 | ) | | — |
| | — |
| | (6 | ) |
| Total other expense, net | — |
| | (1,106 | ) | | (81 | ) | (1) | (141 | ) | | — |
| | (1,328 | ) |
| Income (loss) before income taxes | — |
| | (1,106 | ) | | 2,813 |
| | 14 |
| | — |
| | 1,721 |
|
| Income tax expense | — |
| | — |
| | (643 | ) | | (8 | ) | | — |
| | (651 | ) |
| Earnings (loss) of subsidiaries | 1,070 |
| | 2,176 |
| | (15 | ) | | — |
| | (3,231 | ) | | — |
|
| Net income | 1,070 |
| | 1,070 |
| | 2,155 |
| | 6 |
| | (3,231 | ) | | 1,070 |
|
| Dividends on preferred stock | (41 | ) | | — |
| | — |
| | — |
| | — |
| | (41 | ) |
| Net income attributable to common stockholders | $ | 1,029 |
| | $ | 1,070 |
| | $ | 2,155 |
| | $ | 6 |
| | $ | (3,231 | ) | | $ | 1,029 |
|
| | | | | | | | | | | | |
| Net income | $ | 1,070 |
| | $ | 1,070 |
| | $ | 2,155 |
| | $ | 6 |
| | $ | (3,231 | ) | | $ | 1,070 |
|
| Other comprehensive income, net of tax | | | | | | | | | | | |
| Other comprehensive income, net of tax | 2 |
| | 2 |
| | 2 |
| | 2 |
| | (6 | ) | | 2 |
|
| Total comprehensive income | $ | 1,072 |
| | $ | 1,072 |
| | $ | 2,157 |
| | $ | 8 |
| | $ | (3,237 | ) | | $ | 1,072 |
|
| |
(1)
| The amortized imputed discount on EIP receivables previously recognized as Interest income has been retrospectively reclassified as Other revenues. See Note 1 - Basis of Presentation for further detail. |
Condensed Consolidating Statement of Cash Flows Information
Three Months Ended September 30, 2017 |
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
| Operating activities | | | | | | | | | | | |
| Net cash provided by (used in) operating activities | $ | (2 | ) | | $ | (1,554 | ) | | $ | 3,904 |
| | $ | 14 |
| | $ | — |
| | $ | 2,362 |
|
| | | | | | | | | | | | |
| Investing activities | | | | | | | | | | | |
| Purchases of property and equipment | — |
| | — |
| | (1,441 | ) | | — |
| | — |
| | (1,441 | ) |
| Purchases of spectrum licenses and other intangible assets, including deposits | — |
| | — |
| | (15 | ) | | — |
| | — |
| | (15 | ) |
| Other, net | — |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
| Net cash used in investing activities | — |
| | — |
| | (1,455 | ) | | — |
| | — |
| | (1,455 | ) |
| | | | | | | | | | | | |
| Financing activities | | | | | | | | | | | |
| Proceeds from issuance of long-term debt | — |
| | 500 |
| | — |
| | — |
| | — |
| | 500 |
|
| Proceeds from borrowing on revolving credit facility, net | — |
| | 1,055 |
| | — |
| | — |
| | — |
| | 1,055 |
|
| Repayments of revolving credit facility | — |
| | — |
| | (1,735 | ) | | — |
| | — |
| | (1,735 | ) |
| Repayments of capital lease obligations | — |
| | — |
| | (141 | ) | | — |
| | — |
| | (141 | ) |
| Repayments of short-term debt for purchases of inventory, property and equipment, net | — |
| | — |
| | (4 | ) | | — |
| | — |
| | (4 | ) |
| Tax withholdings on share-based awards | — |
| | — |
| | (6 | ) | | — |
| | — |
| | (6 | ) |
| Dividends on preferred stock | (13 | ) | | — |
| | — |
| | — |
| | — |
| | (13 | ) |
| Other, net | 1 |
| | — |
| | (6 | ) | | — |
| | — |
| | (5 | ) |
| Net cash (used in) provided by financing activities | (12 | ) | | 1,555 |
| | (1,892 | ) | | — |
| | — |
| | (349 | ) |
| Change in cash and cash equivalents | (14 | ) | | 1 |
| | 557 |
| | 14 |
| | — |
| | 558 |
|
| Cash and cash equivalents | | | | | | | | | | | |
| Beginning of period | 43 |
| | 1 |
| | 121 |
| | 16 |
| | — |
| | 181 |
|
| End of period | $ | 29 |
| | $ | 2 |
| | $ | 678 |
| | $ | 30 |
| | $ | — |
| | $ | 739 |
|
Condensed Consolidating Statement of Cash Flows Information
Three Months Ended September 30, 2016
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (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 |
| | $ | (84 | ) | | $ | 1,850 |
| | $ | 8 |
| | $ | (35 | ) | | $ | 1,740 |
|
| | | | | | | | | | | | |
| Investing activities | | | | | | | | | | | |
| Purchases of property and equipment | — |
| | — |
| | (1,159 | ) | | — |
| | — |
| | (1,159 | ) |
| Purchases of spectrum licenses and other intangible assets, including deposits | — |
| | — |
| | (705 | ) | | — |
| | — |
| | (705 | ) |
| Other, net | — |
| | — |
| | 5 |
| | — |
| | — |
| | 5 |
|
| Net cash used in investing activities | — |
| | — |
| | (1,859 | ) | | — |
| | — |
| | (1,859 | ) |
| | | | | | | | | | | | |
| Financing activities | | | | | | | | | | | |
| Repayments of capital lease obligations | — |
| | — |
| | (54 | ) | | — |
| | — |
| | (54 | ) |
| Repayments of long-term debt | — |
| | — |
| | (5 | ) | | — |
| | — |
| | (5 | ) |
| Tax withholdings on share-based awards | — |
| | — |
| | (3 | ) | | — |
| | — |
| | (3 | ) |
| Intercompany dividend paid | — |
| | — |
| | — |
| | (35 | ) | | 35 |
| | — |
|
| Dividends on preferred stock | (13 | ) | | — |
| | — |
| | — |
| | — |
| | (13 | ) |
| Other, net | 11 |
| | — |
| | (3 | ) | | — |
| | — |
| | 8 |
|
| Net cash used in financing activities | (2 | ) | | — |
| | (65 | ) | | (35 | ) | | 35 |
| | (67 | ) |
| Change in cash and cash equivalents | (1 | ) | | (84 | ) | | (74 | ) | | (27 | ) | | — |
| | (186 | ) |
| Cash and cash equivalents | | | | | | | | | | | |
| Beginning of period | 367 |
| | 2,683 |
| | 2,439 |
| | 49 |
| | — |
| | 5,538 |
|
| End of period | $ | 366 |
| | $ | 2,599 |
| | $ | 2,365 |
| | $ | 22 |
| | $ | — |
| | $ | 5,352 |
|
Condensed Consolidating Statement of Cash Flows Information
Nine Months Ended September 30, 2017 |
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
| Operating activities | | | | | | | | | | | |
| Net cash provided by (used in) operating activities | $ | — |
| | $ | (16,429 | ) | | $ | 22,370 |
| | $ | 43 |
| | $ | (80 | ) | | $ | 5,904 |
|
| | | | | | | | | | | | |
| Investing activities | | | | | | | | | | | |
| Purchases of property and equipment | — |
| | — |
| | (4,316 | ) | | — |
| | — |
| | (4,316 | ) |
| Purchases of spectrum licenses and other intangible assets, including deposits | — |
| | — |
| | (5,820 | ) | | — |
| | — |
| | (5,820 | ) |
| Equity investment in subsidiary | (308 | ) | | — |
| | — |
| | — |
| | 308 |
| | — |
|
| Other, net | — |
| | — |
| | (2 | ) | | — |
| | — |
| | (2 | ) |
| Net cash used in investing activities | (308 | ) | | — |
| | (10,138 | ) | | — |
| | 308 |
| | (10,138 | ) |
| | | | | | | | | | | | |
| 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 | — |
| | — |
| | (350 | ) | | — |
| | — |
| | (350 | ) |
| Repayments of short-term debt for purchases of inventory, property and equipment, net | — |
| | — |
| | (296 | ) | | — |
| | — |
| | (296 | ) |
| Repayments of long-term debt | — |
| | — |
| | (10,230 | ) | | — |
| | — |
| | (10,230 | ) |
| Equity investment from parent | — |
| | 308 |
| | — |
| | — |
| | (308 | ) | | — |
|
| Tax withholdings on share-based awards | — |
| | — |
| | (101 | ) | | — |
| | — |
| | (101 | ) |
| Intercompany dividend paid | — |
| | — |
| | — |
| | (80 | ) | | 80 |
| | — |
|
| Dividends on preferred stock | (41 | ) | | — |
| | — |
| | — |
| | — |
| | (41 | ) |
| Other, net | 20 |
| | — |
| | (9 | ) | | — |
| | — |
| | 11 |
|
| Net cash (used in) provided by financing activities | (21 | ) | | 13,698 |
| | (13,896 | ) | | (80 | ) | | (228 | ) | | (527 | ) |
| Change in cash and cash equivalents | (329 | ) | | (2,731 | ) | | (1,664 | ) | | (37 | ) | | — |
| | (4,761 | ) |
| Cash and cash equivalents | | | | | | | | | | | |
| Beginning of period | 358 |
| | 2,733 |
| | 2,342 |
| | 67 |
| | — |
| | 5,500 |
|
| End of period | $ | 29 |
| | $ | 2 |
| | $ | 678 |
| | $ | 30 |
| | $ | — |
| | $ | 739 |
|
Condensed Consolidating Statement of Cash Flows Information
Nine Months Ended September 30, 2016 |
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
| Operating activities | | | | | | | | | | | |
| Net cash provided by (used in) operating activities | $ | 4 |
| | $ | (2,165 | ) | | $ | 6,745 |
| | $ | 59 |
| | $ | (110 | ) | | $ | 4,533 |
|
| | | | | | | | | | | | |
| Investing activities | | | | | | | | | | | |
| Purchases of property and equipment | — |
| | — |
| | (3,843 | ) | | — |
| | — |
| | (3,843 | ) |
| Purchases of spectrum licenses and other intangible assets, including deposits | — |
| | — |
| | (3,544 | ) | | — |
| | — |
| | (3,544 | ) |
| Sales of short-term investments | — |
| | 2,000 |
| | 998 |
| | — |
| | — |
| | 2,998 |
|
| Other, net | — |
| | — |
| | 3 |
| | — |
| | — |
| | 3 |
|
| Net cash provided by (used in) investing activities | — |
| | 2,000 |
| | (6,386 | ) | | — |
| | — |
| | (4,386 | ) |
| | | | | | | | | | | | |
| Financing activities | | | | | | | | | | | |
| Proceeds from issuance of long-term debt | — |
| | 997 |
| | — |
| | — |
| | — |
| | 997 |
|
| Repayments of capital lease obligations | — |
| | — |
| | (133 | ) | | — |
| | — |
| | (133 | ) |
| Repayments of short-term debt for purchases of inventory, property and equipment, net | — |
| | — |
| | (150 | ) | | — |
| | — |
| | (150 | ) |
| Repayments of long-term debt | — |
| | — |
| | (15 | ) | | — |
| | — |
| | (15 | ) |
| Tax withholdings on share-based awards | — |
| | — |
| | (52 | ) | | — |
| | — |
| | (52 | ) |
| Intercompany dividend paid | — |
| | — |
| | — |
| | (110 | ) | | 110 |
| | — |
|
| Dividends on preferred stock | (41 | ) | | — |
| | — |
| | — |
| | — |
| | (41 | ) |
| Other, net | 25 |
| | — |
| | (8 | ) | | — |
| | — |
| | 17 |
|
| Net cash (used in) provided by financing activities | (16 | ) | | 997 |
| | (358 | ) | | (110 | ) | | 110 |
| | 623 |
|
| Change in cash and cash equivalents | (12 | ) | | 832 |
| | 1 |
| | (51 | ) | | — |
| | 770 |
|
| Cash and cash equivalents | | | | | | | | | | | |
| Beginning of period | 378 |
| | 1,767 |
| | 2,364 |
| | 73 |
| | — |
| | 4,582 |
|
| End of period | $ | 366 |
| | $ | 2,599 |
| | $ | 2,365 |
| | $ | 22 |
| | $ | — |
| | $ | 5,352 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Form 10-Q”) of T-Mobile US, Inc. (“T-Mobile,” “we,” “our,” “us” or the “Company”) includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including information concerning our future results of operations, are forward-looking statements. These forward-looking statements are generally identified by the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “could” or similar expressions. Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties andthat may cause actual results to differ materially from the forward-looking statements. The following important factors, along with the Risk Factors included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016,2021 and Part II, Item 1A of this Form 10-Q, could affect future results and cause those results to differ materially from those expressed in the forward-looking statements:
•adverse impact caused by the COVID-19 pandemic (the “Pandemic”), including supply chain shortages;
•competition, industry consolidation and changes in the market for wireless services;
•disruption, data loss or other security breaches, such as the criminal cyberattack we became aware of in August 2021;
•our inability to take advantage of technological developments on a timely basis;
•our inability to retain or motivate key personnel, hire qualified personnel or maintain our corporate culture;
•system failures and business disruptions, allowing for unauthorized use of or interference with our network and other systems;
•the scarcity and cost of additional wireless spectrum, and regulations relating to spectrum use;
•the impacts of the actions we have taken and conditions we have agreed to in connection with the regulatory proceedings and approvals of the Transactions (as defined below), including the acquisition by DISH Network Corporation (“DISH”) of the prepaid wireless business operated under the Boost Mobile and Sprint prepaid brands (excluding the Assurance brand Lifeline customers and the prepaid wireless customers of Shenandoah Personal Communications Company LLC and Swiftel Communications, Inc.), including customer accounts, inventory, contracts, intellectual property and certain other specified assets, and the assumption of certain related liabilities (collectively, the “Prepaid Transaction”), the complaint and proposed final judgment agreed to by us, Deutsche Telekom AG (“DT”), Sprint Corporation, now known as Sprint LLC (“Sprint”), SoftBank Group Corp. (“SoftBank”) and DISH with the U.S. District Court for the District of Columbia, which was approved by the Court on April 1, 2020, the proposed commitments filed with the Secretary of the Federal Communications Commission (“FCC”), which we announced on May 20, 2019, certain national security commitments and undertakings, and any other commitments or undertakings entered into, including but not limited to, those we have made to certain states and nongovernmental organizations (collectively, the “Government Commitments”), and the challenges in satisfying the Government Commitments in the required time frames and the significant cumulative costs incurred in tracking and monitoring compliance;
•adverse economic, political or politicalmarket conditions in the U.S. and international markets;markets, including changes resulting from increases in inflation, impacts of current geopolitical instability caused by the war in Ukraine, and those caused by the Pandemic;
competition•our inability to manage the ongoing commercial and transition services arrangements entered into in connection with the wireless services market, including new competitors entering the industry as technologies converge;Prepaid Transaction, and known or unknown liabilities arising in connection therewith;
•the effects of any future acquisition, investment, or merger involving us;
•any disruption or acquisition involving us, as well asfailure of our third parties (including key suppliers) to provide products or services for the effectsoperation of mergersour business;
•our substantial level of indebtedness and our inability to service our debt obligations in accordance with their terms or acquisitionsto comply with the restrictive covenants contained therein;
•changes in the technology, mediacredit market conditions, credit rating downgrades or an inability to access debt markets;
•restrictive covenants including the agreements governing our indebtedness and telecommunications industry;other financings;
challenges•the risk of future material weaknesses we may identify while we continue to work to integrate and align policies, principles and practices of the two companies following the Merger (as defined below), or any other failure by us to maintain effective internal controls, and the resulting significant costs and reputational damage;
•any changes in implementing our business strategiesregulations or funding our wireless operations,in the regulatory framework under which we operate;
•laws and regulations relating to the handling of privacy and data protection;
•unfavorable outcomes of existing or future legal proceedings, including payment for additional spectrum or network upgrades;these proceedings and inquiries relating to the criminal cyberattack we became aware of in August 2021;
•the possibility that we may be unable to renewadequately protect our spectrum licenses on attractive termsintellectual property rights or acquire be accused of infringing the intellectual property rights of others;
•our offering of regulated financial services products and exposure to a wide variety of state and federal regulations;
•new spectrum licenses at reasonableor amended tax laws or regulations or administrative interpretations and judicial decisions affecting the scope or application of tax laws or regulations;
•our exclusive forum provision as provided in our Certificate of Incorporation;
•interests of our significant stockholders that may differ from the interests of other stockholders;
•future sales of our common stock by DT and SoftBank and our inability to attract additional equity financing outside the United States due to foreign ownership limitations by the FCC;
•failure to realize the expected benefits and synergies of the merger (the “Merger”) with Sprint, pursuant to the Business Combination Agreement with Sprint and the other parties named therein (as amended, the “Business Combination Agreement”) and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”) in the expected time frames or in the amounts anticipated;
•any delay and costs and terms;
of, or difficulties in, managing growth in wireless data services, including network quality;
material changes in available technology;
the timing, scopeintegrating our business and financial impact of our deployment of advanced networkSprint’s business and operations, and unexpected additional operating costs, customer loss and business technologies;disruptions, including challenges in maintaining relationships with employees, customers, suppliers or vendors; and
the impact on our networks and business from major technology equipment failures;
breaches of our and/or our third party vendors’ networks, information technology and data security;
natural disasters, terrorist attacks or similar incidents;
existing or future litigation;
any changes in the regulatory environments in which we operate, including any increase in restrictions on the ability to operate our networks;
any•unanticipated difficulties, disruption, or failure ofsignificant delays in our third parties’ or key suppliers’ provisioning of products or services;long-term strategy to migrate Sprint’s legacy customers onto T-Mobile’s existing billing platforms.
material adverse changes in labor matters, including labor campaigns, negotiations or additional organizing activity, and any resulting financial, operational and/or reputational impact;
the ability to make payments on our debt or to repay our existing indebtedness when due;
adverse change in the ratings of our debt securities or adverse conditions in the credit markets;
changes in accounting assumptions that regulatory agencies, including the Securities and Exchange Commission (“SEC”), may require, which could result in an impact on earnings; and
changes in tax laws, regulations and existing standards and the resolution of disputes with any taxing jurisdictions.
Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. In this Form 10-Q, unless the context indicates otherwise, references to “T-Mobile,” “T-Mobile US,” “our Company,” “the Company,” “we,” “our,” and “us” refer to T-Mobile US, Inc., a Delaware corporation, and its wholly-owned subsidiaries.
Investors and others should note that we announce material financial and operational information to our investors using our investor relations website (https://investor.t-mobile.com), newsroom website (https://t-mobile.com/news), press releases, SEC filings and public conference calls and webcasts. We intend to also use thecertain social media accounts as means of disclosing information about us and our services and for complying with our disclosure obligations under Regulation FD (the @TMobileIR Twitter account (https://twitter.com/TMobileIR) and, the @JohnLegere@MikeSievert Twitter account (https://twitter.com/JohnLegere)MikeSievert), Facebook and Periscope accounts, which Mr. LegereSievert also uses as a means for personal communications and observations, and the @TMobileCFO Twitter Account (https://twitter.com/tmobilecfo) and our Chief Financial Officer’s LinkedIn account (https://www.linkedin.com/in/peter-osvaldik-3887394), both of which Mr. Osvaldik also uses as a means of disclosing information about the Companyfor personal communication and its services and for complying with its disclosure obligations under Regulation FD.observations). The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these social media channels in addition to following the Company’sour press releases, SEC filings and public conference calls and webcasts. The social media channels that we intend to use as a means of disclosing the information described above may be updated from time to time as listed on the Company’s investor relationsour Investor Relations website.
Overview
The objectives of our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are to provide users of our condensed consolidated financial statements with the following:
•A narrative explanation from the perspective of management of our financial condition, results of operations, cash flows, liquidity and certain other factors that may affect future results;
•Context to the condensed consolidated financial statements; and
•Information that allows assessment of the likelihood that past performance is indicative of future performance.
Our MD&A is provided as a supplement to, and should be read together with, our unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2022, included in Part I, Item 1 of this Form 10-Q, and audited Consolidated Financial Statementsconsolidated financial statements, included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2016.2021. Except as expressly stated, the financial condition and results of operations discussed throughout our MD&A are those of T-Mobile US, Inc. and its consolidated subsidiaries.
Sprint Merger and Integration Activities
Effective January 1, 2017,
Merger-Related Costs
Merger-related costs associated with the imputed discount on EIP receivables, which is amortized overMerger and acquisitions of affiliates generally include:
•Integration costs to achieve efficiencies in network, retail, information technology and back office operations, migrate customers to the financed installment term using the effective interest methodT-Mobile network and was previously recognized within Interest income in our Consolidated Statements of Comprehensive Income, is recognized within Other revenues in our Condensed Consolidated Statements of Comprehensive Income. We believe this presentation is preferable because it provides a better representation of amounts earned from the Company’s major ongoing operations and aligns with industry practice thereby enhancing comparability. We have applied this change retrospectivelybilling systems and the effectimpact of this change forlegal matters assumed as part of the threeMerger;
•Restructuring costs, including severance, store rationalization and nine months ended September 30, 2016, was a reclassificationnetwork decommissioning; and
•Transaction costs, including legal and professional services related to the completion of $59 million and $189 million, respectively, from Interest income to Other revenues. The amortization of imputed discount on our EIP receivables for the three and nine months ended September 30, 2017, was $74 million and $204 million, respectively. For additional information, see transactions.
In January 2017, Merger-related costs have been excluded from our calculations of Adjusted EBITDA and Core Adjusted EBITDA, which are non-GAAP financial measures, as we
introduced, Un-carrier Next, where monthly wireless service feesdo not consider these costs to be reflective of our ongoing operating performance. See “Adjusted EBITDA and
sales taxesCore Adjusted EBITDA” in the “Performance Measures” section of this MD&A. Net cash payments for Merger-related costs, including payments related to our restructuring plan, are included in the advertised monthly recurring charge for T-Mobile ONE. We also unveiled Kickback on T-Mobile ONE, where participating customers who use 2 GB or less of data in a month, will get up to a $10 credit per qualifying line on their next month’s bill. In addition, we introduced the Un-contract for T-Mobile ONE with the first-ever price guarantee on an unlimited 4G LTE plan which allows current T-Mobile ONE customers to keep their price for service until they decide to change it.
In September 2017, we introduced, Un-carrier Next: Netflix On Us, through an exclusive new partnership with Netflix where a standard monthly Netflix service plan is included at no charge to qualifying T-Mobile ONE customers on family plans.
During the third quarter of 2017, our operations in Texas, Florida and Puerto Rico experienced losses related to hurricanes. Based on our preliminary assessment, the approximate impacts for the three and nine months ended September 30, 2017, from lost revenue, assets damaged or destroyed and other hurricane related costs incurred are included in the table below. As of September 30, 2017, our loss assessment is ongoing and we expect additional expenses to be incurred and customer activity to be impacted in the fourth quarter of 2017, primarily related to our operations in Puerto Rico. We have not recognized any potential insurance recoveries related to those hurricane losses as we continue to assess the damage and work with our insurance carriers.
|
| | | | | | | |
| (in millions, except per share amounts, ARPU, ABPU, and bad debt expense and losses from sales of receivables as a percentage of total revenues) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2017 |
| Increase (Decrease) | | | |
| Revenues | | | |
| Branded postpaid revenues | $ | (20 | ) | | $ | (20 | ) |
| Of which, branded postpaid phone revenues | (19 | ) | | (19 | ) |
| Branded prepaid revenues | (11 | ) | | (11 | ) |
| Total service revenues | (31 | ) | | (31 | ) |
| Equipment revenues | (8 | ) | | (8 | ) |
| Total revenues | $ | (39 | ) | | $ | (39 | ) |
| | | | |
| Operating expenses | | | |
| Cost of services | $ | 69 |
| | $ | 69 |
|
| Cost of equipment sales | 4 |
| | 4 |
|
| Selling, general and administrative | 36 |
| | 36 |
|
| Of which, bad debt expense | 20 |
| | 20 |
|
| Total operating expense | $ | 109 |
| | $ | 109 |
|
| | | | |
| Operating income | $ | (148 | ) | | $ | (148 | ) |
| Net income | $ | (90 | ) | | $ | (90 | ) |
| | | | |
| Earnings per share - basic | $ | (0.11 | ) | | $ | (0.11 | ) |
| Earnings per share - diluted | $ | (0.10 | ) | | $ | (0.10 | ) |
| | | | |
| Operating measures | | | |
| Bad debt expense and losses from sales of receivables as a percentage of total revenues | 0.20 | % | | 0.07 | % |
| Branded postpaid phone ARPU | $ | (0.19 | ) | | $ | (0.07 | ) |
| Branded postpaid ABPU | $ | (0.18 | ) | | $ | (0.06 | ) |
| Branded prepaid ARPU | $ | (0.18 | ) | | $ | (0.06 | ) |
| | | | |
| Non-GAAP financial measures | | | |
| Adjusted EBITDA | $ | (148 | ) | | $ | (148 | ) |
Results of Operations
Highlights for the three months ended September 30, 2017, compared to the same period in 2016
Total revenues of $10.0 billion for the three months ended September 30, 2017, increased $714 million, or 8%. The increase was primarily driven by growth in service and equipment revenues as further discussed below. On September 1, 2016, we sold our marketing and distribution rights to certain existing T-Mobile co-branded customers to a current Mobile Virtual Network Operator (“MVNO”) partner for nominal consideration (the “MVNO Transaction”). The MVNO Transaction shifted Branded postpaid revenues to Wholesale revenues, but did not materially impact total revenues.
Service revenues of $7.6 billion for the three months ended September 30, 2017, increased $496 million, or 7%. The increase was primarily due to growth in our average branded customer base as a result of strong customer response to our Un-carrier initiatives, promotions and the success of our MetroPCS brand.
Equipment revenues of $2.1 billion for the three months ended September 30, 2017, increased $170 million, or 9%. The increase was primarily due to an increase from customer purchases of leased devices at the end of the lease term, the liquidation of returned customer handsets and a higher average revenue per device sold, partially offset by lower lease revenues.
Operating income of $1.3 billion for the three months ended September 30, 2017, increased $275 million, or 26%. The increase was primarily due to an increase in total service revenues and lower Depreciation and amortization, partially offset by higher Selling, general and administrative expenses, higher Cost of services expense and a decrease in Gains on disposal of spectrum licenses.
Net income of $550 million for the three months ended September 30, 2017, increased $184 million, or 50%. The increase was primarily due to higher operating income driven by the factors described above and a net decrease in interest expense, partially offset by higher income tax expense primarily due to an increase in income before income taxes and the negative impact from hurricanes. Net incomeincluded net, after-tax gains of $18 million and $122 million, for the three months ended September 30, 2017 and 2016, respectively.
Adjusted EBITDA (see “Performance Measures”), a non-GAAP financial measure, of $2.8 billion for the three months ended September 30, 2017, increased $133 million, or 5%. The increase was primarily due to higher operating income driven by the factors described above, partially offset by lower Gains on disposal of spectrum licenses. Adjusted EBITDA included pre-tax spectrum gains of $29 million and $199 million for the three months ended September 30, 2017 and 2016, respectively.
Net cash provided by operating activities on our Condensed Consolidated Statements of $2.4Cash Flows.
Merger-related costs are presented below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | | | | Three Months Ended March 31, | | Change | | |
| | | | | | | | 2022 | | 2021 | | | | $ | | % | | | | |
| Merger-related costs | | | | | | | | | | | | | | | | | | | | | |
| Cost of services, exclusive of depreciation and amortization | | | | | | | | | $ | 607 | | | $ | 136 | | | | | $ | 471 | | | 346 | % | | | | |
| Cost of equipment sales, exclusive of depreciation and amortization | | | | | | | | | 751 | | | 17 | | | | | 734 | | | NM | | | | |
| Selling, general and administrative | | | | | | | | | 55 | | | 145 | | | | | (90) | | | (62) | % | | | | |
| Total Merger-related costs | | | | | | | | | $ | 1,413 | | | $ | 298 | | | | | $ | 1,115 | | | 374 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash payments for Merger-related costs | | | | | | | | | $ | 893 | | | $ | 277 | | | | | $ | 616 | | | 222 | % | | | | |
NM - Not Meaningful
We expect to incur a total of $12.0 billion of Merger-related costs, excluding capital expenditures, of which $7.9 billion has been incurred since the beginning of 2018, including $700 million of costs incurred by Sprint prior to the Merger. We expect to incur the remaining $4.1 billion to complete our integration and restructuring activities over the next two years with substantially all costs incurred by the end of 2023.
Total Merger related costs for the twelve months ended December 31, 2022 are expected to be between $4.5 billion to $5.0 billion, including $1.4 billion incurred during the three months ended September 30, 2017, increased $622 million,March 31, 2022. We are evaluating 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 36% (see “Liquiditytiming of the restructuring costs and Capital Resources”).related payments. We expect our principal sources of funding to be sufficient to meet our liquidity requirements and anticipated payments associated with the restructuring initiatives.
Free Cash Flow, a non-GAAP financial measure,Restructuring
Upon the close of $921 million for the three months ended September 30, 2017, increased $340 million, or 59% (see “LiquidityMerger, we began implementing restructuring initiatives to realize cost efficiencies from the Merger. The major activities associated with the restructuring initiatives to date include:
•Contract termination costs associated with rationalization of retail stores, distribution channels, duplicative network and Capital Resources”).backhaul services and other agreements;
•Severance costs associated with the reduction of redundant processes and functions; and
•The decommissioning of certain small cell sites and distributed antenna systems to achieve synergies in network costs.
Highlights forFor more information regarding our restructuring activities, see Note 12 – Restructuring Costs of the nine months ended September 30, 2017, comparedNotes to the same period in 2016Condensed Consolidated Financial Statements.
Service revenues of $22.4 billion for the nine months ended September 30, 2017, increased $1.8 billion, or 9%. The increase was primarily due to growth in our average branded customer base asAnticipated Impacts
Synergies
As a result of strong customer responseour ongoing restructuring activities, we expect to realize synergies by eliminating redundancies within our Un-carrier initiatives, promotionscombined network as well as other business processes and the success of our MetroPCS brand.
Equipment revenues of $6.7 billion for the nine months ended September 30, 2017, increased $680 million, or 11%. The increase was primarily due to higher average revenue per device sold and an increaseoperations. For full-year 2022, we expect synergies from customer purchases of leased devices at the end of the lease term, partially offset by lower lease revenues.
Operating income of $3.8 billion for the nine months ended September 30, 2017, increased $727 million, or 24%. The increase was primarily due to higher Total service revenues and lower Depreciation and amortization, partially offset by lower Gains on disposal of spectrum licenses and higher Selling, general and administrative expense reductions of $2.3 billion to $2.4 billion and Cost of services expenses.
Net income of $1.8 billion for the nine months ended September 30, 2017, increased $759 million, or 71%. The increase was primarily due to higher operating income driven by the factors described above, a lower tax rate primarily due to a reduction in the valuation allowance against deferred tax assets and a net decrease in interestservice expense partially offset by the negative impact from hurricanes. Net income included net, after-tax gains of $41 million and $511 million, for the nine months ended September 30, 2017 and 2016, respectively.
Adjusted EBITDA, a non-GAAP financial measure, of $8.5 billion for the nine months ended September 30, 2017, increased $470 million, or 6%. The increase was primarily due to higher operating income driven by the factors described above, partially offset by lower Gains on disposal of spectrum licenses. Adjusted EBITDA included pre-tax spectrum gains of $67 million and $835 million for the nine months ended September 30, 2017 and 2016, respectively.
Net cash provided by operating activities of $5.9 billion for the nine months ended September 30, 2017, increased $1.4 billion, or 30% (see “Liquidity and Capital Resources”).
Free Cash Flow, a non-GAAP financial measure,reductions of $1.6 billion to $1.7 billion.
Other Potential Impacts
The operation of the legacy Sprint CDMA and LTE networks is partially supported by legacy Sprint’s Wireline network acquired through the Merger. We expect that the legacy Sprint CDMA and LTE networks will be decommissioned during 2022. In accordance with ASC 360-10, we assess long-lived assets for impairment when events or circumstances indicate that long-lived assets might be impaired. We expect that the decommissioning of the legacy Sprint CDMA and LTE networks will trigger impairments of certain Wireline long-lived assets as these assets will no longer support our wireless network and the associated customers and cash flows. The potential non-cash impairment charges are not expected to have a material impact on our condensed consolidated financial statements.
Cyberattack
As we previously reported, we were subject to a criminalcyberattack involving unauthorized access to T-Mobile’s systems. We promptly located and closed the unauthorized access to our systems. Our forensic investigation was completed in October 2021, although our overall investigation into the incident is ongoing. There are no material updates with respect to the August 2021 cyberattack and subsequent inquiries, investigations, litigations and remedial measures from our Annual Report on Form 10-K for the nine monthsyear ended September 30, 2017, increased $898 million,December 31, 2021, except as disclosed in Note 11 – Commitment and Contingencies. We have incurred certain cyberattack-related expenses that were not material and expect to continue to incur additional expenses in future periods, including costs to remediate the attack, provide additional customer support and enhance customer protection, only some of which may be covered and reimbursable by insurance. We also intend to commit substantial additional resources towards cybersecurity initiatives over the next several years.
COVID-19 Pandemic
The Pandemic has resulted in a widespread health crisis that has adversely affected businesses, economies and financial markets worldwide, and has caused significant volatility in the U.S. and international debt and equity markets. In addition, the Pandemic has resulted in economic uncertainty, which could affect our customers’ purchasing decisions and ability to make timely payments. Current and future Pandemic-related restrictions on, or 130% (see “Liquiditydisruptions of, transportation networks and Capital Resources”).supply chain shortages could impact our ability to acquire handsets or other end user devices in amounts sufficient to meet customer demand and to obtain the equipment required to meet our current and future network build-out plans. We will continue to monitor the Pandemic and its impacts and may adjust our actions as needed to continue to provide our products and services to our communities and employees.
As a critical communications infrastructure provider as designated by the government, our focus has been on providing crucial connectivity to our customers and impacted communities while ensuring the safety and well-being of our employees.
Results of Operations
Set forth below is a summary of our consolidated financial results: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | | | Change | | |
| (in millions) | | | | | | | | | 2022 | | 2021 | | | | $ | | % | | | | |
| Revenues | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Postpaid revenues | | | | | | | | | $ | 11,201 | | | $ | 10,303 | | | | | $ | 898 | | | 9 | % | | | | |
| Prepaid revenues | | | | | | | | | 2,455 | | | 2,351 | | | | | 104 | | | 4 | % | | | | |
| Wholesale and other service revenues | | | | | | | | | 1,472 | | | 1,538 | | | | | (66) | | | (4) | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Total service revenues | | | | | | | | | 15,128 | | | 14,192 | | | | | 936 | | | 7 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Equipment revenues | | | | | | | | | 4,694 | | | 5,346 | | | | | (652) | | | (12) | % | | | | |
| Other revenues | | | | | | | | | 298 | | | 221 | | | | | 77 | | | 35 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | | | | | | | | 20,120 | | | 19,759 | | | | | 361 | | | 2 | % | | | | |
| Operating expenses | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Cost of services, exclusive of depreciation and amortization shown separately below | | | | | | | | | 3,727 | | | 3,384 | | | | | 343 | | | 10 | % | | | | |
| Cost of equipment sales, exclusive of depreciation and amortization shown separately below | | | | | | | | | 5,946 | | | 5,142 | | | | | 804 | | | 16 | % | | | | |
| Selling, general and administrative | | | | | | | | | 5,056 | | | 4,805 | | | | | 251 | | | 5 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | | | | | | | 3,585 | | | 4,289 | | | | | (704) | | | (16) | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Total operating expenses | | | | | | | | | 18,314 | | | 17,620 | | | | | 694 | | | 4 | % | | | | |
| Operating income | | | | | | | | | 1,806 | | | 2,139 | | | | | (333) | | | (16) | % | | | | |
| Other income (expense) | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Interest expense, net | | | | | | | | | (864) | | | (835) | | | | | (29) | | | 3 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Other expense, net | | | | | | | | | (11) | | | (125) | | | | | 114 | | | (91) | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Total other expense, net | | | | | | | | | (875) | | | (960) | | | | | 85 | | | (9) | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Income before income taxes | | | | | | | | | 931 | | | 1,179 | | | | | (248) | | | (21) | % | | | | |
| Income tax expense | | | | | | | | | (218) | | | (246) | | | | | 28 | | | (11) | % | | | | |
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| Net income | | | | | | | | | $ | 713 | | | $ | 933 | | | | | $ | (220) | | | (24) | % | | | | |
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| Statement of Cash Flows Data | | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by operating activities | | | | | | | | | $ | 3,845 | | | $ | 3,661 | | | | | $ | 184 | | | 5 | % | | | | |
| Net cash used in investing activities | | | | | | | | | (5,092) | | | (11,239) | | | | | 6,147 | | | (55) | % | | | | |
| Net cash (used in) provided by financing activities | | | | | | | | | (2,136) | | | 3,874 | | | | | (6,010) | | | (155) | % | | | | |
| Non-GAAP Financial Measures | | | | | | | | | | | | | | | | | | | | | |
| Adjusted EBITDA | | | | | | | | | 6,950 | | | 6,905 | | | | | 45 | | | 1 | % | | | | |
| Core Adjusted EBITDA | | | | | | | | | 6,463 | | | 5,864 | | | | | 599 | | | 10 | % | | | | |
| Free Cash Flow | | | | | | | | | 1,649 | | | 1,304 | | | | 345 | | 26 | % | | | | |
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| | Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
| | 2017 | | 2016 | | $ | | % | | 2017 | | 2016 | | $ | | % |
| (in millions) | | | (As Adjusted - See Note 1) | | | | | | (As Adjusted - See Note 1) | | |
| Revenues | | | | | | | | | | | | | | | |
| Branded postpaid revenues | $ | 4,920 |
| | $ | 4,647 |
| | $ | 273 |
| | 6 | % | | $ | 14,465 |
| | $ | 13,458 |
| | $ | 1,007 |
| | 7 | % |
| Branded prepaid revenues | 2,376 |
| | 2,182 |
| | 194 |
| | 9 | % | | 7,009 |
| | 6,326 |
| | 683 |
| | 11 | % |
| Wholesale revenues | 274 |
| | 238 |
| | 36 |
| | 15 | % | | 778 |
| | 645 |
| | 133 |
| | 21 | % |
| Roaming and other service revenues | 59 |
| | 66 |
| | (7 | ) | | (11 | )% | | 151 |
| | 170 |
| | (19 | ) | | (11 | )% |
| Total service revenues | 7,629 |
| | 7,133 |
| | 496 |
| | 7 | % | | 22,403 |
| | 20,599 |
| | 1,804 |
| | 9 | % |
| Equipment revenues | 2,118 |
| | 1,948 |
| | 170 |
| | 9 | % | | 6,667 |
| | 5,987 |
| | 680 |
| | 11 | % |
| Other revenues | 272 |
| | 224 |
| | 48 |
| | 21 | % | | 775 |
| | 670 |
| | 105 |
| | 16 | % |
| Total revenues | 10,019 |
| | 9,305 |
| | 714 |
| | 8 | % | | 29,845 |
| | 27,256 |
| | 2,589 |
| | 9 | % |
| Operating expenses | | | | | | | | | | | | | | | |
| Cost of services, exclusive of depreciation and amortization shown separately below | 1,594 |
| | 1,436 |
| | 158 |
| | 11 | % | | 4,520 |
| | 4,286 |
| | 234 |
| | 5 | % |
| Cost of equipment sales | 2,617 |
| | 2,539 |
| | 78 |
| | 3 | % | | 8,149 |
| | 7,532 |
| | 617 |
| | 8 | % |
| Selling, general and administrative | 3,098 |
| | 2,898 |
| | 200 |
| | 7 | % | | 8,968 |
| | 8,419 |
| | 549 |
| | 7 | % |
| Depreciation and amortization | 1,416 |
| | 1,568 |
| | (152 | ) | | (10 | )% | | 4,499 |
| | 4,695 |
| | (196 | ) | | (4 | )% |
| Cost of MetroPCS business combination | — |
| | 15 |
| | (15 | ) | | NM |
| | — |
| | 110 |
| | (110 | ) | | NM |
|
| Gains on disposal of spectrum licenses | (29 | ) | | (199 | ) | | 170 |
| | (85 | )% | | (67 | ) | | (835 | ) | | 768 |
| | (92 | )% |
| Total operating expense | 8,696 |
| | 8,257 |
| | 439 |
| | 5 | % | | 26,069 |
| | 24,207 |
| | 1,862 |
| | 8 | % |
| Operating income | 1,323 |
| | 1,048 |
| | 275 |
| | 26 | % | | 3,776 |
| | 3,049 |
| | 727 |
| | 24 | % |
| Other income (expense) | | | | | | | | | | | | | | | |
| Interest expense | (253 | ) | | (376 | ) | | 123 |
| | (33 | )% | | (857 | ) | | (1,083 | ) | | 226 |
| | (21 | )% |
| Interest expense to affiliates | (167 | ) | | (76 | ) | | (91 | ) | | 120 | % | | (398 | ) | | (248 | ) | | (150 | ) | | 60 | % |
| Interest income | 2 |
| | 3 |
| | (1 | ) | | (33 | )% | | 15 |
| | 9 |
| | 6 |
| | 67 | % |
| Other income (expense), net | 1 |
| | (1 | ) | | 2 |
| | NM |
| | (89 | ) | | (6 | ) | | (83 | ) | | NM |
|
| Total other expense, net | (417 | ) | | (450 | ) | | 33 |
| | (7 | )% | | (1,329 | ) | | (1,328 | ) | | (1 | ) | | — | % |
| Income before income taxes | 906 |
| | 598 |
| | 308 |
| | 52 | % | | 2,447 |
| | 1,721 |
| | 726 |
| | 42 | % |
| Income tax expense | (356 | ) | | (232 | ) | | (124 | ) | | 53 | % | | (618 | ) | | (651 | ) | | 33 |
| | (5 | )% |
| Net income | $ | 550 |
| | $ | 366 |
| | $ | 184 |
| | 50 | % | | $ | 1,829 |
| | $ | 1,070 |
| | $ | 759 |
| | 71 | % |
| | | | | | | | | | | | | | | | |
| Net cash provided by operating activities | $ | 2,362 |
| | $ | 1,740 |
| | $ | 622 |
| | 36 | % | | $ | 5,904 |
| | $ | 4,533 |
| | $ | 1,371 |
| | 30 | % |
| Net cash used in investing activities | (1,455 | ) | | (1,859 | ) | | 404 |
| | (22 | )% | | (10,138 | ) | | (4,386 | ) | | (5,752 | ) | | 131 | % |
| Net cash (used in) provided by financing activities | (349 | ) | | (67 | ) | | (282 | ) | | 421 | % | | (527 | ) | | 623 |
| | (1,150 | ) | | (185 | )% |
| | | | | | | | | | | | | | | | |
| Non-GAAP Financial Measures | | | | | | | | | | | | | | | |
| Adjusted EBITDA | $ | 2,822 |
| | $ | 2,689 |
| | $ | 133 |
| | 5 | % | | $ | 8,502 |
| | $ | 8,032 |
| | $ | 470 |
| | 6 | % |
| Free Cash Flow | 921 |
| | 581 |
| | 340 |
| | 59 | % | | 1,588 |
| | 690 |
| | 898 |
| | 130 | % |
The following discussion and analysis is for the three and nine months ended September 30, 2017,March 31, 2022, compared to the same periodsperiod in 20162021 unless otherwise stated.
Total revenues increased $714$361 million, or 8%, for the three months ended and $2.6 billion, or 9%, for the nine months ended September 30, 2017, primarily due to higher2%. The components of these changes are discussed below.
Postpaid revenues from branded postpaid and prepaid customers as well as higher equipment revenues as discussed below.
Branded postpaid revenues increased $273 million, or 6%, for the three months ended and $1.0 billion, or 7%, for the nine months ended September 30, 2017.
The change for the three months ended September 30, 2017 was primarily from:
Growth in the customer base driven by strong customer response to our Un-carrier initiatives and promotions for services and devices; and
The positive impact from a decrease in the non-cash net revenue deferral for Data Stash; partially offset by
The MVNO Transaction;
Lower branded postpaid phone average revenue per user (“ARPU”); and
The negative impact from hurricanes of $20 million.
The change for the nine months ended September 30, 2017 was primarily from:
Growth in the customer base driven by strong customer response to our Un-carrier initiatives and promotions for services and devices, including the growing success of our business channel, T-Mobile for Business; and
The positive impact from a decrease in the non-cash net revenue deferral for Data Stash; partially offset by
The MVNO Transaction; and
The negative impact from hurricanes of $20 million.
Branded prepaid revenues increased $194$898 million, or 9%, forprimarily from:
•Higher average postpaid accounts; and
•Higher postpaid ARPA. See “Postpaid ARPA” in the three months ended and $683“Performance Measures” section of this MD&A.
Prepaid revenues increased $104 million, or 11%4%, for the nine months ended September 30, 2017, primarily from:
•Higher average branded prepaid customers primarily driven by growth in the customer base; andcustomers.
Higher branded prepaid ARPU from the success of our MetroPCS brand; partially offset by
The impact from the optimization of our third-party distribution channels; and
The negative impact from hurricanes of $11 million.
Wholesale revenues increased $36 million, or 15%, for the three months ended and $133 million, or 21%, for the nine months ended September 30, 2017, primarily from the impact of increased Wholesale revenues resulting from the MVNO Transaction.
Roaming and other service revenueswere essentially flat.
Equipment revenues decreased $7$652 million, or 11%12%, for the three months ended and $19 million, or 11%, for the nine months ended September 30, 2017.
Equipment revenues increased$170 million, or 9%, for the three months ended and $680 million, or 11%, for the nine months ended September 30, 2017.
The change for the three months ended September 30, 2017 was primarily from:
•A decrease of $554 million in lease revenues and a decrease of $139 million in customer purchases of leased devices primarily due to a lower number of customer devices under lease as a result of the continued strategic shift from device financing from leasing to EIP; partially offset by
•An increase of $137 million from the purchase of leased devices at the end of their lease term;
An increase of $116 million primarily related to proceeds from the liquidation of returned customer handsets in the third quarter of 2017;
An increase of $78$67 million in device sales revenuesrevenue, excluding purchased leased devices, primarily due to:
from:•An increase in the number of devices sold, including higher upgrade volume; partially offset by
Higher•Lower average revenue per device sold primarily due to an Original Equipment Manufacturer (“OEM”) recall of its smartphone devices inhigher promotions, which included promotions for Sprint customers to facilitate their migration to the third quarter of 2016 and a decrease in promotional spending; partially offset by
A 5% decrease in the number of devices sold. Device sales revenue is recognized at the time of sale; and
An increase of $22 million in SIM and upgrade revenue; partially offset by
A decrease of $194 million in lease revenues from declining JUMP! On Demand population due to shifting focus to our EIP financing option beginning in the first quarter of 2016; and
The negative impact from hurricanes of $8 million.
The change for the nine months ended September 30, 2017 was primarily from:
An increase of $413 million in device sales revenues excluding purchased leased devices, primarily due to:
Higher average revenue per device sold primarily due to an increase in high-end device mix and an OEM recall of its smartphone devices in the third quarter of 2016,T-Mobile network, partially offset by an increase in promotional spending;the high-end phone mix.
Other revenues were essentially flat.
Operating expenses increased $694 million, or 4%. The components of this change are discussed below.
Cost of services, exclusive of depreciation and amortization, increased $343 million, or 10%, primarily from:
•An increase of $471 million in Merger-related costs related to network decommissioning and integration costs; and
•Higher lease expenses related to a new tower master lease agreement; partially offset by
A 1% decrease in the number of devices sold. Device sales revenue is recognized at the time of sale;•Higher realized Merger synergies.
An increase of $366 million from the purchase of leased devices at the end of the lease term;
An increase of $137 million primarily related to proceeds from the liquidation of returned customer handsets in the third quarter of 2017; and
An increase of $117 million in SIM and upgrade revenue; partially offset by
A decrease of $345 million in lease revenues from declining JUMP! On Demand population due to shifting focus to our EIP financing option beginning in the first quarter of 2016; and
The negative impact from hurricanes of $8 million.
Under our JUMP! On Demand program, upon device upgrade or at lease end, customers must return or purchase their device. Revenue for purchased leased devices is recorded as equipment revenues when revenue recognition criteria have been met.
Gross EIP device financing to our customers increased by $115 million for the three months ended and $303 million for the nine months ended September 30, 2017, primarily due to growth in the gross amount of equipment financed on EIP. The increase was also due to certain customers on leased devices reaching the end of lease term who financed their devices over nine-month EIP.
Operating expenses increased $439 million, or 5%, for the three months ended and $1.9 billion, or 8%, for the nine months ended September 30, 2017, primarily from higher Cost of services, Cost of equipment sales Selling, general and administrative and lower Gains on disposal, exclusive of spectrum licenses, partially offset by lower Depreciationdepreciation and amortization, as discussed below.
Cost of servicesincreased $158$804 million, or 11%16%, for the three months ended and $234 million, or 5%, for the nine months ended September 30, 2017.
The change for the three months ended September 30, 2017 was primarily from:
Higher lease expenses associated with our network expansion;
The negative impact from hurricanes of $69 million; partially offset by
Lower regulatory expenses.
The change for the nine months ended September 30, 2017 was primarily from:
Higher lease expenses associated with network expansion; and
The negative impact from hurricanes of $69 million; partially offset by
Lower long distance and toll costs as we continue to renegotiate contracts with vendors; and
Lower regulatory expenses.
Cost of equipment sales increased $78 million, or 3%, for the three months ended and $617 million, or 8%, for the nine months ended September 30, 2017.
The change for the three months ended September 30, 2017 was primarily from:
•An increase of $66$987 millionin device cost of equipment sales, excluding purchased leased devices, primarily due to:
from:A higher average cost per device sold primarily from an OEM recall of its smartphone devices in the third quarter of 2016; partially offset by
A 5% decrease•An increase in the number of devices sold;sold, including higher upgrade volume, primarily to facilitate the migration of Sprint customers to the T-Mobile network; and
An increase of $58 million in lease•Higher average costs per device cost of equipment sales, primarilysold due to:
An increase in lease buyouts as leases began reaching their term dates in 2017; partially offset by
A decrease in device upgrades from fewer customers in the handset lease program.
These increases are partially offset by a decrease of $31 million in cost of equipment related to an increase in proceeds from the liquidationhigh-end device mix; partially offset by
•A decrease of returned customer handsets under our insurance programs; and
The negative impact from hurricanes of $4 million.
The change for the nine months ended September 30, 2017 was primarily from:
An increase of $483$284 million in device costcustomer purchases of equipment sales, excluding purchased leased devices primarily due to:
A higher average cost per device sold primarily from an increase in high-end device mix and an OEM recall of its smartphone devices in the third quarter of 2016; partially offset by
A 1% decrease in theto a lower number of customer devices sold; and
An increase of $245 million inunder lease device cost of equipment sales, primarily due to:
An increase in lease buyouts as leases began reaching their term dates in 2017; partially offset by
A decrease in device upgrades from fewer customers in the handset lease program.
These increases are partially offset by a decrease of $69 million primarily due to inventory adjustments related to obsolete inventory; and
The negative impact from hurricanes of $4 million.
Under our JUMP! On Demand program, upon device upgrade or at the endresult of the lease term,continued strategic shift from device financing from leasing to EIP.
•Merger-related costs, primarily to facilitate the migration of Sprint customers must return or purchase their device. The cost of purchased leased devices is recorded as Cost of equipment sales. Returned devices transferred from Property and equipment, net are recorded as inventory and are valued atto the lower of cost or market with any write-down to market recognized as Cost of equipment sales.
Selling, general and administrative increased $200T-Mobile network, were $751 million or 7%, for the three months ended and $549March 31, 2022, compared to $17 million or 7%, for the nine months ended September 30, 2017, primarily from strategic investments to support our growing customer base including higher employee related costs, promotional costs, commissions, and higher costs related to managed services and outsourced functions, partially offset by lower external labor costs. Additionally, the negative impact from hurricanes of $36 million contributed to the increase.
Depreciation and amortization decreased $152 million, or 10%, for the three months ended March 31, 2021.
Selling, general and $196administrative expenses increased $251 million, or 4%5%, primarily from:
•Higher bad debt expense primarily due to estimated credit losses normalizing from muted Pandemic levels, as well as higher EIP receivables driven by higher equipment sales and a mix shift in device financing; partially offset by
•Lower Merger-related costs and higher realized Merger synergies.
•Selling, general and administrative expenses for the ninethree months ended September 30, 2017,March 31, 2022 included $55 million of Merger-related costs primarily from:related to integration, restructuring and legal-related expenses, offset by legal settlement gains, compared to $145 million of Merger-related costs for the three months ended March 31, 2021.
Depreciation and amortization decreased $704 million, or 16%, primarily from:
•Lower depreciation expense related to our JUMP! On Demand programon leased devices resulting from a lower number of total customer devices under lease. Under our JUMP! On Demand program, the cost of a leased wireless device is depreciated over the lease term to its estimated residual value;lease; and
•Certain 4G-related network assets becoming fully depreciated; partially offset by
The•Higher depreciation expense, excluding leased devices, from the continued build-out of our 4G LTEnationwide 5G network.
Cost of MetroPCS business combination decreased $15 million for the three months ended and $110 million for the nine months ended September 30, 2017. On July 1, 2015, we officially completed the shutdown of the MetroPCS CDMA network. Network decommissioning costs primarily relate to the acceleration of lease costs for cell sites that would have otherwise been recognized as cost of services over the remaining lease term had we not decommissioned the cell sites. We do not expect to incur significant additional network decommissioning costs in 2017.
Gains on disposal of spectrum licenses decreased $170 million, or 85%, for the three months ended and $768 million, or 92%, for the nine months ended September 30, 2017. The change for the nine months ended September 30, 2017 was primarily from a $636 million gain from a spectrum license transaction with AT&T during the first quarter of 2016.
Net Income increased $184 million, or 50%, for the three months ended and $759 million, or 71%, for the nine months ended September 30, 2017, primarily from higher operating income and a net decrease in interest expense, partially offset by the negative impact from hurricanes of approximately $90 million. Net income for the three months ended September 30, 2017 was partially offset by higher income tax expense as discussed below. Net income for the nine months ended September 30, 2017 additionally included the impact from a lower tax rate as discussed below.
Operating income, the components of which are discussed above, decreased $333 million, or 16%.
Interest expense, net was essentially flat.
Other expense, net decreased $114 million, or 91%, primarily from lower losses on the extinguishment of debt.
Income before income taxes, the components of which are discussed above, was $931 million and include the negative impact from hurricanes, increased $275 million, or 26%, for the three months ended and $727 million, or 24%, for the nine months ended September 30, 2017.The negative impact from the hurricanes for the three and nine months ended September 30, 2017 was approximately $148 million.
Income tax expense increased $124 million, or 53%, for the three months ended and decreased $33 million, or 5%, for the nine months ended September 30, 2017.
The change$1.2 billion for the three months ended September 30, 2017 wasMarch 31, 2022 and 2021, respectively.
Income tax expense decreased $28 million, or 11%, primarily from higher incomefrom:
•Lower Income before income taxes. Thetaxes; partially offset by
•A higher effective tax rate, primarily from:
•A decrease in excess tax benefits related to the vesting of restricted stock awards; and
•Reduced benefits from tax credits.
Our effective tax rate was 39.3%23.3% and 38.8%20.9% for the three months ended September 30, 2017March 31, 2022 and 2016,2021, respectively.
The change forNet income, the nine months ended September 30, 2017 was primarily from:components of which are discussed above, decreased $220 million, or 24%, and included the following:
A lower effective•Merger-related costs, net of tax, rate which was 25.3% and 37.8% for the nine months ended September 30, 2017 and 2016, respectively, primarily due to a reduction in the valuation allowance against deferred tax assets in certain state jurisdictions that resulted in the recognition of $270 million in tax benefits in the first quarter of 2017 and the recognition of an additional $19 million in tax benefits through the third quarter of 2017. Total tax benefits related to the reduction in the valuation allowance were $289 million through September 30, 2017. The effective tax rate was further decreased by the recognition of $62 million of excess tax benefits related to share-based payments for the nine months ended September 30, 2017, compared to $24 million for the same period in 2016; partially offset by
Higher income before income taxes.
Interest expensedecreased $123 million, or 33%, for the three months ended and $226 million, or 21%, for the nine months ended September 30, 2017, primarily from:
The early extinguishment of our LIBOR plus 2.750% Senior Secured Term Loan and redemption of $8.3$1.1 billion of Senior Notes; partially offset by
The issuance of $1.5 billion of Senior Notes in March 2017.
The decrease for the nine months ended September 30, 2017 was also impacted by the issuance of $1.0 billion of Senior Notes in April 2016.
Interest expense to affiliates increased $91 million, or 120%, for the three months ended and $150 million, or 60%, for the nine months ended September 30, 2017, primarily from:
An increase in interest associated with a $4.0 billion secured Incremental Term Loan Facility with DT entered into in January 2017;
The issuance of $4.0 billion in Senior Notes to DT in May 2017; and
Draws on our Revolving Credit Facility; partially offset by
Lower interest rates achieved through refinancing $2.5 billion of Senior Reset Notes in April 2017.
The increase for the three months ended September 30, 2017, was also partially from the net issuance of $500 million in Senior Notes in April 2017.
See Note 7 – Debt of the NotesMarch 31, 2022, compared to the Condensed Consolidated Financial Statements for additional details.
Other income (expense), net remained flat for the three months ended and increased $83 million for the nine months ended September 30, 2017. The change for the nine months ended September 30, 2017 was primarily from:
A $73 million net loss recognized from the early redemption of certain Senior Notes; and
A $13 million net loss recognized from the refinancing of our outstanding Senior Secured Term Loans.
See Note 7 – Debt of the Notes to the Condensed Consolidated Financial Statements.
Net income included net, after-tax gains on disposal of spectrum licenses of $18 million and $122$220 million for the three months ended September 30, 2017March 31, 2021.
Guarantor Financial Information
In connection with our Merger with Sprint, we assumed certain registered debt to third parties issued by Sprint, Sprint Communications LLC, formerly known as Sprint Communications, Inc. (“Sprint Communications”) and 2016, respectively,Sprint Capital Corporation (collectively, the “Sprint Issuers”).
Pursuant to the applicable indentures and $41 millionsupplemental indentures, the Senior Notes to affiliates and $511 millionthird parties issued by T-Mobile USA, Inc. and the Sprint Issuers (collectively, the “Issuers”) are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by T-Mobile (“Parent”) and certain of Parent’s 100% owned subsidiaries (“Guarantor Subsidiaries”).
Pursuant to the applicable indentures and supplemental indentures, the Senior Secured Notes to third parties issued by T-Mobile USA, Inc. are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by Parent and the Guarantor
Subsidiaries, except for the nine months ended September 30, 2017guarantees of Sprint, Sprint Communications and 2016, respectively.Sprint Capital Corporation, which are provided on a senior unsecured basis.
Guarantor Subsidiaries
The guarantees of the Guarantor Subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The indentures, supplemental indentures and credit agreements governing the long-term debt contain covenants that, among other things, limit the ability of the Issuers or borrowers 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 agreements, indentures and supplemental indentures relating to the long-term debt restrict the ability of the Issuers or borrowers to loan funds or make payments to Parent. However, the Issuers or borrowers and Guarantor Subsidiaries are allowed to make certain permitted payments to Parent under the terms of the indentures, supplemental indentures and credit agreements.
Basis of Presentation
The following tables include summarized financial conditioninformation of the obligor groups of debt issued by T-Mobile USA, Inc., Sprint, Sprint Communications and Sprint Capital Corporation. The summarized financial information of each obligor group is presented on a combined basis with balances and transactions within the obligor group eliminated. Investments in and the equity in earnings of non-guarantor subsidiaries, which would otherwise be consolidated in accordance with GAAP, are excluded from the below summarized financial information pursuant to SEC Regulation S-X Rule 13-01.
The summarized balance sheet information for the consolidated obligor group of debt issued by T-Mobile USA, Inc. is presented in the table below: | | | | | | | | | | | | | | | |
| (in millions) | March 31, 2022 | | December 31, 2021 | | | | |
| Current assets | $ | 16,068 | | | $ | 19,522 | | | | | |
| Noncurrent assets | 182,515 | | | 174,980 | | | | | |
| Current liabilities | 20,188 | | | 22,195 | | | | | |
| Noncurrent liabilities | 122,025 | | | 115,126 | | | | | |
| Due to non-guarantors | 8,554 | | | 8,208 | | | | | |
| | | | | | | |
| Due to related parties | 2,815 | | | 3,842 | | | | | |
| | | | | | | |
The summarized results of operations information for the consolidated obligor group of debt issued by T-Mobile USA, Inc. is presented in the table below: | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 | | | | | | | | Year Ended
December 31, 2021 |
| (in millions) | | | | |
| Total revenues | $ | 19,477 | | | | | | | | | $ | 78,538 | |
| Operating income | 891 | | | | | | | | | 3,835 | |
| Net (loss) income | (48) | | | | | | | | | 402 | |
| Revenue from non-guarantors | 578 | | | | | | | | | 1,769 | |
| Operating expenses to non-guarantors | 653 | | | | | | | | | 2,655 | |
| Other expense to non-guarantors | (41) | | | | | | | | | (148) | |
| | | | | | | | | |
The summarized balance sheet information for the consolidated obligor group of debt issued by Sprint and Sprint Communications is presented in the table below: | | | | | | | | | | | | | |
| (in millions) | March 31, 2022 | | December 31, 2021 | | |
| Current assets | $ | 7,992 | | | $ | 11,969 | | | |
| Noncurrent assets | 12,038 | | | 10,347 | | | |
| Current liabilities | 13,237 | | | 15,136 | | | |
| Noncurrent liabilities | 69,674 | | | 70,262 | | | |
| | | | | |
| Due from non-guarantors | 88 | | | 1,787 | | | |
| Due to related parties | 2,815 | | | 3,842 | | | |
| | | | | |
The summarized results of operations information for the consolidated obligor group of debt issued by Sprint and Sprint Communications is presented in the table below: | | | | | | | | | | | |
| Three Months Ended March 31, 2022 | | Year Ended
December 31, 2021 |
| (in millions) |
| Total revenues | $ | 1 | | | $ | 7 | |
| Operating loss | (529) | | | (751) | |
| Net loss | (851) | | | (2,161) | |
| | | |
| | | |
| Other income, net, from non-guarantors | 337 | | | 1,706 | |
| | | |
The summarized balance sheet information for the consolidated obligor group of debt issued by Sprint Capital Corporation is presented in the table below: | | | | | | | | | | | |
| (in millions) | March 31, 2022 | | December 31, 2021 |
| Current assets | $ | 7,992 | | | $ | 11,969 | |
| Noncurrent assets | 21,043 | | | 19,375 | |
| Current liabilities | 13,307 | | | 15,208 | |
| Noncurrent liabilities | 75,125 | | | 75,753 | |
| | | |
| Due from non-guarantors | 9,093 | | | 10,814 | |
| Due to related parties | 2,815 | | | 3,842 | |
| | | |
The summarized results of operations information for the consolidated obligor group of debt issued by Sprint Capital Corporation is presented in the table below: | | | | | | | | | | | |
| Three Months Ended March 31, 2022 | | Year Ended
December 31, 2021 |
| (in millions) | |
| Total revenues | $ | 1 | | | $ | 7 | |
| Operating loss | (529) | | | (751) | |
| Net loss | (832) | | | (2,590) | |
| | | |
| | | |
| Other income, net, from non-guarantors | 430 | | | 2,076 | |
| | | |
Affiliates Whose Securities Collateralize the Senior Secured Notes
The collateral arrangements relating to securities of affiliates that collateralize the Senior Secured Notes are the same as those described in the section entitled “Affiliates Whose Securities Collateralize the Notes and the Guarantees” in the Company’s Registration Statement on Form S-4/A filed with the SEC on April 22, 2022, which section is incorporated herein by reference.
The assets, liabilities and results of operations of the Parent, Issuer and Guarantor Subsidiaries is substantially similar to ourcombined affiliates whose securities are pledged as collateral are not materially different than the corresponding amounts presented in the condensed consolidated financial condition. The most significant componentsstatements of the financial condition of our Non-Guarantor Subsidiaries were as follows:Company.
|
| | | | | | | | | | | | | | |
| | September 30,
2017 | | December 31,
2016 | | Change |
| (in millions) | | | $ | | % |
| Other current assets | $ | 576 |
| | $ | 565 |
| | $ | 11 |
| | 2 | % |
| Property and equipment, net | 322 |
| | 375 |
| | (53 | ) | | (14 | )% |
| Tower obligations | 2,204 |
| | 2,221 |
| | (17 | ) | | (1 | )% |
| Total stockholders' deficit | (1,386 | ) | | (1,374 | ) | | (12 | ) | | 1 | % |
The most significant components of the results of operations of our Non-Guarantor Subsidiaries were as follows:
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| | Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
| (in millions) | 2017 | | 2016 | $ | | % | 2017 | | 2016 | $ | | % |
| Service revenues | $ | 527 |
| | $ | 520 |
| | $ | 7 |
| | 1 | % | | $ | 1,580 |
| | $ | 1,500 |
| | $ | 80 |
| | 5 | % |
| Cost of equipment sales | 241 |
| | 300 |
| | (59 | ) | | (20 | )% | | 738 |
| | 768 |
| | (30 | ) | | (4 | )% |
| Selling, general and administrative | 209 |
| | 227 |
| | (18 | ) | | (8 | )% | | 652 |
| | 645 |
| | 7 |
| | 1 | % |
| Total comprehensive income (loss) | 40 |
| | (19 | ) | | 59 |
| | (311 | )% | | 87 |
| | 8 |
| | 79 |
| | 988 | % |
The change to the results of operations of our Non-Guarantor Subsidiaries for the three months ended September 30, 2017 was primarily from:
Higher Service revenues primarily due to the result of an increase in activity of the non-guarantor subsidiary that provides device insurance, primarily driven by growth in our customer base;
Lower Cost of equipment sales expenses primarily due to decrease in claims activity and lower device costs used; and
Lower Selling, general and administrative expenses primarily due to a decrease in program service fees, partially offset by higher costs to support our growing customer base.
The change to the results of operations of our Non-Guarantor Subsidiaries for the nine months ended September 30, 2017 was primarily from:
Higher Service revenues primarily due to the result of an increase in activity of the non-guarantor subsidiary that provides device insurance, primarily driven by growth in our customer base;
Lower Cost of equipment sales expenses primarily due to lower non-return fees charged to the customer; and
Higher Selling, general and administrative expenses primarily due to higher costs to support our growing customer base, partially offset by a decrease in program service fees.
All other results of operations of the Parent, Issuer and Guarantor Subsidiaries are substantially similar to the Company’s consolidated results of operations. See Note 11 – Guarantor Financial Information of the Notes to the Condensed Consolidated Financial Statements.
Performance Measures
In managing our business and assessing financial performance, we supplement the information provided by our condensed consolidated financial statements with other operating or statistical data and non-GAAP financial measures. These operating and financial measures are utilized by our management to evaluate our operating performance and, in certain cases, our ability to meet liquidity requirements. Although companies in the wireless industry may not define each of these measures in precisely the same way, we believe that these measures facilitate comparisons with other companies in the wireless industry on key operating and financial measures.
Total Postpaid Accounts
A postpaid account is generally defined as a billing account number that generates revenue. Postpaid accounts generally consist of customers that are qualified for postpaid service utilizing phones, High Speed Internet, wearables, DIGITS or other connected devices, which include tablets and SyncUp products, where they generally pay after receiving service.
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| As of March 31, | | Change | | | | | | |
| (in thousands) | 2022 | | 2021 | | # | | % | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Total postpaid customer accounts (1)(2) | 27,507 | | | 26,014 | | | 1,493 | | | 6 | % | | | | | | | | | | | | | | |
(1) Customers impacted by the decommissioning of the legacy Sprint CDMA network, who did not migrate to the T-Mobile network, have been excluded from our postpaid account base resulting in the removal of 57,000 postpaid accounts in the first quarter of 2022.
(2) In the first quarter of 2021, we acquired 4,000 postpaid accounts through our acquisition of an affiliate.
Total postpaid customer accounts increased 1,493,000, or 6%, primarily due to the continued focus on growing new relationships with customers driven by higher switching activity and growth in new and under-penetrated segments, including High Speed Internet.
Postpaid Net Account Additions
The following table sets forth the number of postpaid net account additions:
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| | | | | Three Months Ended March 31, | | Change | | |
| (in thousands) | | | | | | | | | 2022 | | 2021 | | | | # | | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Postpaid net account additions | | | | | | | | | 348 | | | 257 | | | | | 91 | | | 35 | % | | | | |
Postpaid net account additions increased 91,000, or 35%, primarily due to the continued focus on growing new relationships with customers driven by higher switching activity and growth in new and under-penetrated segments, including High Speed Internet.
Customers
A customer is generally defined as a SIM number with a unique T-Mobile identifier which is associated with an account that generates revenue. Branded customers generally include customers thatCustomers are qualified either for postpaid service utilizing phones, mobile broadbandHigh Speed Internet, wearables, DIGITS or other connected devices, (including tablets), or DIGITS,which include tablets and SyncUp products, where they generally pay after receiving service, or prepaid service, where they generally pay in advance. Wholesale customers include Machine to Machine (“M2M”) and MVNO customers that operate on our network, but are managed by wholesale partners.advance of receiving service.
The following table sets forth the number of ending customers: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, | | Change | | | | | | |
| (in thousands) | 2022 | | 2021 | | # | | % | | | | | | | | | | | | | | |
| Customers, end of period | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Postpaid phone customers (1) (2) | 70,656 | | | 67,402 | | | 3,254 | | | 5 | % | | | | | | | | | | | | | | |
Postpaid other customers (1) (2) | 17,767 | | | 15,170 | | | 2,597 | | | 17 | % | | | | | | | | | | | | | | |
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| Total postpaid customers | 88,423 | | | 82,572 | | | 5,851 | | | 7 | % | | | | | | | | | | | | | | |
| Prepaid customers | 21,118 | | | 20,865 | | | 253 | | | 1 | % | | | | | | | | | | | | | | |
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| Total customers | 109,541 | | | 103,437 | | | 6,104 | | | 6 | % | | | | | | | | | | | | | | |
Acquired customers, net of base adjustments (1) (2) | (558) | | | 12 | | | (570) | | | NM | | | | | | | | | | | | | | |
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| | September 30,
2017 | | September 30,
2016 | | Change |
| (in thousands) | # | | % |
| Customers, end of period | | | | | | | |
Branded postpaid phone customers (1) | 33,223 |
| | 30,364 |
| | 2,859 |
| | 9 | % |
Branded postpaid other customers (1) | 3,752 |
| | 2,866 |
| | 886 |
| | 31 | % |
| Total branded postpaid customers | 36,975 |
| | 33,230 |
| | 3,745 |
| | 11 | % |
| Branded prepaid customers | 20,519 |
| | 19,272 |
| | 1,247 |
| | 6 | % |
| Total branded customers | 57,494 |
| | 52,502 |
| | 4,992 |
| | 10 | % |
| Wholesale customers | 13,237 |
| | 16,852 |
| | (3,615 | ) | | (21 | )% |
| Total customers, end of period | 70,731 |
| | 69,354 |
| | 1,377 |
| | 2 | % |
Adjustments to branded postpaid phone customers (2) | — |
| | (1,365 | ) | | 1,365 |
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Adjustments to branded prepaid customers (2) | — |
| | (326 | ) | | 326 |
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Adjustments to wholesale customers (2) (3) | (160 | ) | | 1,691 |
| | (1,851 | ) | |
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| (1) | During the third quarter of 2017, we retitled our “Branded postpaid mobile broadband customers” category to “Branded postpaid other customers” and reclassified 253,000 DIGITS customers from our “Branded postpaid phone customers” category for the second quarter of 2017, when the DIGITS product was released. |
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(2) | The MVNO Transaction resulted in a transfer of branded postpaid phone customers and branded prepaid customers to wholesale customers on September 1, 2016. Prospectively from September 1, 2016, net customer additions for these customers are included within Wholesale customers. |
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(3) | We believe current and future regulatory changes have made the Lifeline program offered by our wholesale partners uneconomical. We will continue to support our wholesale partners offering the Lifeline program, but have excluded the Lifeline customers from our reported wholesale subscriber base resulting in the removal of 160,000 and 4,368,000 reported wholesale customers as of the beginning of the third quarter of 2017 and the beginning of the second quarter of 2017, respectively. No further Lifeline adjustments are expected in future periods. |
Branded Customers
Total branded customers increased 4,992,000, or 10%, primarily from:
Higher branded impacted by the decommissioning of the legacy Sprint CDMA network, who did not migrate to the T-Mobile network, have been excluded from our postpaid customer base resulting in the removal of 212,000 postpaid phone customers driven by strong customer response to our Un-carrier initiatives and promotional activities and the growing success of our business channel, T-Mobile for Business, partially offset by increased competitive activity349,000 postpaid other customers in the marketplacefirst quarter of 2022. In connection with our acquisition of companies, we included a base adjustment in the first quarter of 2022 to increase postpaid phone customers by 17,000 and less reliancereduce postpaid other customers by 14,000.
(2) In the first quarter of 2021, we acquired 11,000 postpaid phone customers and 1,000 postpaid other customers through our acquisition of an affiliate.
NM - Not Meaningful
Total customers increased 6,104,000, or 6%, primarily from:
•Higher postpaid phone customers, primarily due to the continued focus on add a line promotions;
Higher branded prepaidgrowing new relationships with customers, driven by higher switching activity and growth in new and under-penetrated segments;
•Higher postpaid other customers, primarily due to growth in other connected devices, including growth in High Speed Internet and wearable products; and
•Higher prepaid customers, primarily due to the continued success of our MetroPCS brandprepaid business due to promotional activity and continued growth from our distribution expansion,rate plan offers; partially offset by the optimizationlower prepaid industry demand associated with continued industry shift to postpaid plans.
Total customers included High Speed Internet customers of our third-party distribution channels;984,000 and
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• | Higher branded postpaid other customers primarily due to the launch of SyncUP DRIVETM and DIGITS.
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Wholesale
Wholesale customers decreased 3,615,000, or 21%, primarily due to Lifeline subscribers, which were excluded from our reported wholesale subscriber base 193,000 as of the beginning of the second quarter of 2017. This decrease was partially offset by the continued success of our M2M partnerships.March 31, 2022 and 2021, respectively.
Net Customer Additions
The following table sets forth the number of net customer additions (losses):additions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | Change | | |
| (in thousands) | | | | | | | 2022 | | 2021 | | | | # | | % | | | | |
| Net customer additions | | | | | | | | | | | | | | | | | | | | | |
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| Postpaid phone customers | | | | | | | | | 589 | | | 773 | | | | | (184) | | | (24) | % | | | | |
| Postpaid other customers | | | | | | | | | 729 | | | 437 | | | | | 292 | | | 67 | % | | | | |
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| Total postpaid customers | | | | | | | | | 1,318 | | | 1,210 | | | | | 108 | | | 9 | % | | | | |
| Prepaid customers | | | | | | | | | 62 | | | 151 | | | | | (89) | | | (59) | % | | | | |
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| Total customers | | | | | | | | | 1,380 | | | 1,361 | | | | | 19 | | | 1 | % | | | | |
| Acquired customers, net of base adjustments | | | | | | | | | (558) | | | 12 | | | | | (570) | | | NM | | | | |
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| | Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
| (in thousands) | 2017 | | 2016 | # | | % | 2017 | | 2016 | # | | % |
| Net customer additions (losses) | | | | | | | | | | | | | | | |
Branded postpaid phone customers (1) | 595 |
| | 851 |
| | (256 | ) | | (30 | )% | | 1,926 |
| | 2,374 |
| | (448 | ) | | (19 | )% |
Branded postpaid other customers (1) | 222 |
| | 118 |
| | 104 |
| | 88 | % | | 622 |
| | 526 |
| | 96 |
| | 18 | % |
| Total branded postpaid customers | 817 |
| | 969 |
| | (152 | ) | | (16 | )% | | 2,548 |
| | 2,900 |
| | (352 | ) | | (12 | )% |
| Branded prepaid customers | 226 |
| | 684 |
| | (458 | ) | | (67 | )% | | 706 |
| | 1,967 |
| | (1,261 | ) | | (64 | )% |
| Total branded customers | 1,043 |
| | 1,653 |
| | (610 | ) | | (37 | )% | | 3,254 |
| | 4,867 |
| | (1,613 | ) | | (33 | )% |
Wholesale customers (2) | 286 |
| | 317 |
| | (31 | ) | | (10 | )% | | 550 |
| | 1,205 |
| | (655 | ) | | (54 | )% |
| Total net customer additions | 1,329 |
| | 1,970 |
| | (641 | ) | | (33 | )% | | 3,804 |
| | 6,072 |
| | (2,268 | ) | | (37 | )% |
Adjustments to branded postpaid phone customers (1) | — |
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| | (253 | ) | | — |
| | (253 | ) | |
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Adjustments to branded postpaid other customers (1) | — |
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| | 253 |
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| | 253 |
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(1) | During the third quarter of 2017, we retitled our “Branded postpaid mobile broadband customers” category to “Branded postpaid other customers” and reclassified 253,000 DIGITS customer net additions from our “Branded postpaid phone customers” category for the second quarter of 2017, when the DIGITS product was released. |
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(2) | Net customer activity for Lifeline was excluded beginning in the second quarter of 2017 due to our determination based upon changes in the applicable government regulations that the Lifeline program offered by our wholesale partners is uneconomical. |
Branded Customers
Total branded net customer additions decreased 610,000,increased 19,000, or 37%1%, for the three months ended and 1,613,000, or 33%, for the nine months ended September 30, 2017.
The decrease for the three months ended September 30, 2017 was primarily from:
Lower branded prepaid•Higher postpaid other net customer additions, primarily due to higher MetroPCS deactivations from a growing customer basean increase in High Speed Internet customers, connected devices and increased competitive activity in the marketplace, andwearables; partially offset by
•Lower branded postpaid phone net customer additions primarily due to lower grossdriven by a focus on deepening Sprint customer additions from increased competitive activityrelationships in the marketplace, the split and shiftprior year in iPhone launch timing, and the negative impact from hurricanes;order to decrease churn, as Sprint customers historically had fewer lines per account, partially offset by
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• | Higher branded postpaid other net customer additions primarily driven by strength of SyncUP DRIVETM launched in the fourth quarter of 2016 as well as the launch of DIGITS in the second quarter of 2017.
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higher industry switching activity and lower churn; and
The decrease for the nine months ended September 30, 2017 was primarily from:
•Lower branded prepaid net customer additions primarily dueassociated with the continued industry shift to higher MetroPCS deactivations from a growing customer base and increased competitive activity in the marketplace. Additional decreases resulted from the optimization of our third party distribution channels, and
Lower branded postpaid phone net customer additions primarily due to lower gross customer additions from increased competitive activity in the marketplace and lower customer migrations,plans, partially offset by lower deactivations; partially offset by
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• | Higher branded postpaid other net customer additions primarily driven by strength of SyncUP DRIVETM launched in the fourth quarter of 2016 as well as the launch of DIGITS in the second quarter of 2017, partially offset by overall market softness of tablets.
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churn.
Wholesale
Wholesale•High Speed Internet net customer additions decreased 31,000, or 10%,included in postpaid other net customer additions were 329,000 and 93,000 for the three months ended March 31, 2022 and 655,000, or 54%,2021, respectively. High Speed Internet net customer additions included in prepaid net customer additions were 9,000 for the ninethree months ended September 30, 2017 from lower grossMarch 31, 2022. There were no prepaid High Speed Internet customer additions partially offset by lower customer deactivations. We believe current and future regulatory changes have madefor the Lifeline program offered by our wholesale partners uneconomical.three months ended March 31, 2021.
We will continue to support our wholesale partners offering the Lifeline program, but have excluded the Lifeline customers from our reported wholesale subscriber base resulting in the removal of 160,000 and 4,368,000 reported wholesale customers as of the beginning of the third quarter of 2017 and beginning of the second quarter of 2017, respectively. No further Lifeline adjustments are expected in future periods.
Customers Per Account
Customers per account is calculated by dividing the number of branded postpaid customers as of the end of the period by the number of branded postpaid accounts as of the end of the period. An account may include branded postpaid phone, mobile broadband, and DIGITS customers. We believe branded postpaid customers per account provides management, investors and analysts with useful information to evaluate our branded postpaid customer base on a per account basis.
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| | September 30,
2017 | | September 30,
2016 | | Change |
| | | # | | % |
| Branded postpaid customers per account | 2.92 |
| | 2.78 |
| | 0.14 |
| | 5 | % |
Branded postpaid customers per account increased 0.14 points, or 5%, primarily from growth of customers on family plan promotions.
Churn
Churn represents the number of customers whose service was disconnected as a percentage of the average number of customers during the specified period further divided by the number of months in the period. The number of customers whose service was disconnected is presented net of customers that subsequently have their service restored within a certain period of time. We believe that churn provides management, investors and analysts with useful information to evaluate customer retention and loyalty.
The following table sets forth the churn: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | Change | | |
| | | 2022 | | 2021 | | | | |
| Postpaid phone churn | | | | | | | 0.93 | % | | 0.98 | % | | | | -5 bps | | |
| Prepaid churn | | | | | | | 2.67 | % | | 2.78 | % | | | | -11 bps | | |
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| | Three Months Ended September 30, | | Bps Change | | Nine Months Ended September 30, | | Bps Change |
| 2017 | | 2016 | 2017 | | 2016 |
| Branded postpaid phone churn | 1.23 | % | | 1.32 | % | | -9 bps | | 1.18 | % | | 1.30 | % | | -12 bps |
| Branded prepaid churn | 4.25 | % | | 3.82 | % | | 43 bps | | 4.06 | % | | 3.86 | % | | 20 bps |
Branded postpaidPostpaid phone churn decreased 95 basis points, forprimarily from:
•Reduced Sprint churn as we progress through the three months ended and 12integration process; partially offset by
•More normalized switching activity relative to the muted Pandemic-driven conditions a year ago.
Prepaid churn decreased 11 basis points, for the nine months ended September 30, 2017, primarily duefrom:
•Promotional activity; partially offset by
•More normalized switching activity relative to the MVNO Transaction asmuted Pandemic-driven conditions a year ago.
Average Revenue Per Account
Average Revenue per Account (“ARPA”) represents the customers transferred hadaverage monthly postpaid service revenue earned per account. We believe postpaid ARPA provides management, investors and analysts with useful information to assess and evaluate our postpaid service revenue realization and assist in forecasting our future postpaid service revenues on a higher rateper account basis. We consider postpaid ARPA to be indicative of churn.
Branded prepaid churn increased 43 basis points forour revenue growth potential given the three months ended and 20 basis points for the nine months ended September 30, 2017, primarily due to higher MetroPCS churn from increased competitive activityincrease in the marketplace.average number of postpaid phone customers per account and increases in postpaid other customers, including High Speed Internet, wearables, DIGITS or other connected devices, which include tablets and SyncUp products.
The following table sets forth our operating measure ARPA: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in dollars) | | | | | Three Months Ended March 31, | | Change | | |
| | | | | | | | 2022 | | 2021 | | | $ | | % | | | |
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| Postpaid ARPA | | | | | | | | | $ | 136.53 | | | $ | 132.91 | | | | | $ | 3.62 | | | 3 | % | | | | |
Postpaid ARPA increased $3.62, or 3%, primarily from:
•Higher premium services, including Magenta Max; and
•An increase in customers per account, including from the success of High Speed Internet; partially offset by
•Increased promotional activity.
Average Revenue Per User Average Billings Per User
ARPU represents the average monthly service revenue earned from customers. We believe ARPU provides management, investors and analysts with useful information to assess and evaluate our service revenue realization per customer and assist in forecasting our future service revenues generated from our customer base. Branded postpaidPostpaid phone ARPU excludes mobile broadband and DIGITSpostpaid other customers and related revenues.revenues, which include High Speed Internet, wearables, DIGITS and other connected devices such as tablets and SyncUp products.
Average Billings Per User (“ABPU”) represents the average monthly customer billings, including monthly lease revenues and EIP billings before securitization, per customer. We believe branded postpaid ABPU provides management, investors and analysts with useful information to evaluate average branded postpaid customer billings as it is indicative of estimated cash collections, including device financing payments, from our customers each month.
The following tables illustrate the calculation oftable sets forth our operating measures ARPU and ABPU and reconcile these measures to the related service revenues:measure ARPU:
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| (in dollars) | | | | | Three Months Ended March 31, | | Change | | |
| | | | | | | | 2022 | | 2021 | | | $ | | % | | | |
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| Postpaid phone ARPU | | | | | | | | | $ | 48.41 | | | $ | 47.30 | | | | | $ | 1.11 | | | 2 | % | | | | |
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| Prepaid ARPU | | | | | | | | | $ | 39.19 | | | $ | 37.81 | | | | | $ | 1.38 | | | 4 | % | | | | |
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| (in millions, except average number of customers, ARPU and ABPU) | Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
| 2017 | | 2016 | | $ | | % | | 2017 | | 2016 | | $ | | % |
| Calculation of Branded Postpaid Phone ARPU | | | | | | | | | | | | | | | |
| Branded postpaid service revenues | $ | 4,920 |
| | $ | 4,647 |
| | $ | 273 |
| | 6 | % | | $ | 14,465 |
| | $ | 13,458 |
| | $ | 1,007 |
| | 7 | % |
| Less: Branded postpaid other revenues | (294 | ) | | (193 | ) | | (101 | ) | | 52 | % | | (774 | ) | | (568 | ) | | (206 | ) | | 36 | % |
| Branded postpaid phone service revenues | $ | 4,626 |
| | $ | 4,454 |
| | $ | 172 |
| | 4 | % | | $ | 13,691 |
| | $ | 12,890 |
| | $ | 801 |
| | 6 | % |
| Divided by: Average number of branded postpaid phone customers (in thousands) and number of months in period | 32,852 |
| | 30,836 |
| | 2,016 |
| | 7 | % | | 32,248 |
| | 30,364 |
| | 1,884 |
| | 6 | % |
Branded postpaid phone ARPU (1) | $ | 46.93 |
| | $ | 48.15 |
| | $ | (1.22 | ) | | (3 | )% | | $ | 47.17 |
| | $ | 47.17 |
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| Calculation of Branded Postpaid ABPU | | | | |
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| Branded postpaid service revenues | $ | 4,920 |
| | $ | 4,647 |
| | $ | 273 |
| | 6 | % | | $ | 14,465 |
| | $ | 13,458 |
| | $ | 1,007 |
| | 7 | % |
| EIP billings | 1,481 |
| | 1,394 |
| | 87 |
| | 6 | % | | 4,285 |
| | 4,062 |
| | 223 |
| | 5 | % |
| Lease revenues | 159 |
| | 353 |
| | (194 | ) | | (55 | )% | | 717 |
| | 1,062 |
| | (345 | ) | | (32 | )% |
| Total billings for branded postpaid customers | $ | 6,560 |
| | $ | 6,394 |
| | $ | 166 |
| | 3 | % | | $ | 19,467 |
| | $ | 18,582 |
| | $ | 885 |
| | 5 | % |
| Divided by: Average number of branded postpaid customers (in thousands) and number of months in period | 36,505 |
| | 33,632 |
| | 2,873 |
| | 9 | % | | 35,627 |
| | 32,966 |
| | 2,661 |
| | 8 | % |
| Branded postpaid ABPU | $ | 59.89 |
| | $ | 63.38 |
| | $ | (3.49 | ) | | (6 | )% | | $ | 60.71 |
| | $ | 62.63 |
| | $ | (1.92 | ) | | (3 | )% |
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| Calculation of Branded Prepaid ARPU | | | | |
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| Branded prepaid service revenues | $ | 2,376 |
| | $ | 2,182 |
| | $ | 194 |
| | 9 | % | | $ | 7,009 |
| | $ | 6,326 |
| | $ | 683 |
| | 11 | % |
| Divided by: Average number of branded prepaid customers (in thousands) and number of months in period | 20,336 |
| | 19,134 |
| | 1,202 |
| | 6 | % | | 20,119 |
| | 18,586 |
| | 1,533 |
| | 8 | % |
| Branded prepaid ARPU | $ | 38.93 |
| | $ | 38.01 |
| | $ | 0.92 |
| | 2 | % | | $ | 38.71 |
| | $ | 37.82 |
| | $ | 0.89 |
| | 2 | % |
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(1) | Branded postpaid phone ARPU includes the reclassification of 43,000 DIGITS average customers and related revenue to the “Branded postpaid other customers” category for the second quarter of 2017. |
Branded Postpaid Phone ARPU
Branded postpaidPostpaid phone ARPU decreased $1.22,increased $1.11, or 3%2%, for the three months ended and remained flat for the nine months ended September 30, 2017.
The change for the three months ended September 30, 2017 was primarily from:impacted by:
The continued adoption of T-Mobile ONE•Higher premium services, including taxes and fees and dilution from promotional activities; and
The negative impact from hurricanes of $0.19;Magenta Max; partially offset by
The transfer of customers as part of the MVNO transaction as those customers had lower ARPU; and•Increased promotional activity.
A decrease in the non-cash net revenue deferral for Data Stash.
Flat for the nine months ended September 30, 2017 primarily from:
A decrease in the non-cash net revenue deferral for Data Stash;
The transfer of customers as part of the MVNO transaction as those customers had lower ARPU; offset by
The continued adoption of T-Mobile ONE including taxes and fees and dilution from promotional activities; and
The negative impact from hurricanes of $0.07.
T-Mobile continues to expect that Branded postpaid phone ARPU in full-year 2017 will be generally stable compared to full-year 2016, with some quarterly variations driven by the actual migrations to T-Mobile ONE rate plans, inclusive of Un-carrier Next promotions.
Branded Postpaid ABPU
Branded postpaid ABPU decreased $3.49, or 6%, for the three months ended and $1.92, or 3%, for the nine months ended September 30, 2017.
The change for the three months ended September 30, 2017 was primarily from:
Lower lease revenues;
Lower branded postpaid phone ARPU;
Growth in the branded postpaid other customer base with lower ARPU; and
The negative impact from hurricanes of $0.18.
The change for the nine months ended September 30, 2017 was primarily from:
Lower lease revenues;
Growth in the branded postpaid other customer base with lower ARPU; and
The negative impact from hurricanes of $0.06.
Branded Prepaid ARPU
Branded prepaidPrepaid ARPU increased $0.92,$1.38, or 2%4%, for the three months ended and $0.89, or 2%, for the nine months ended September 30, 2017, comparedprimarily due to the same periods in 2016, primarily from continued growthhigher premium services.
Adjusted EBITDA and Core Adjusted EBITDA
Adjusted EBITDA represents earnings before Interest expense, net of Interest income, Income tax expense, Depreciation and amortization, non-cash Stock-basedstock-based compensation and certain income and expenses not reflective of T-Mobile’sour ongoing operating performance. Net income marginCore Adjusted EBITDA represents Net income divided by ServiceAdjusted EBITDA less device lease revenues. Adjusted EBITDA margin represents Adjusted EBITDA divided by Service revenues. Core Adjusted EBITDA margin represents Core Adjusted EBITDA divided by Service revenues.
Adjusted EBITDA, is aAdjusted EBITDA margin, Core Adjusted EBITDA and Core Adjusted EBITDA margin are non-GAAP financial measuremeasures utilized by our management to monitor the financial performance of our operations. We use Adjusted EBITDA internally as a metricmeasure to evaluate and compensate our personnel and management for their performance,performance. We use Adjusted EBITDA and Core Adjusted EBITDA as a benchmarkbenchmarks to evaluate our operating performance in comparison to our competitors. Management believes analysts and investors use Adjusted EBITDA and Core Adjusted EBITDA as a supplemental measuremeasures to evaluate overall operating performance and facilitate comparisons with other wireless communications services companies because it isthey are indicative of our ongoing operating performance and trends by excluding the impact of interest expense from financing, non-cash depreciation and amortization from capital investments, non-cash stock-based compensation and Merger-related costs including network decommissioning costs, as they are not indicative of our ongoing operating performance, as well as certain nonrecurring income and certain other nonrecurring expenses. Management believes analysts and investors use Core Adjusted EBITDA hasbecause it normalizes for the transition in the Company’s device financing strategy, by excluding the impact of device lease revenues from Adjusted EBITDA, to align with the exclusion of the related depreciation expense on leased devices from Adjusted EBITDA. Adjusted EBITDA, Adjusted EBITDA margin, Core Adjusted EBITDA and Core Adjusted EBITDA margin have limitations as an analytical tooltools and should not be considered in isolation or as a substitutesubstitutes for income from operations, net income or any other measure of financial performance reported in accordance with GAAP.
The following table illustrates the calculation of Adjusted EBITDA and Core Adjusted EBITDA and reconciles Adjusted EBITDA and Core Adjusted EBITDA to Net income, which we consider to be the most directly comparable GAAP financial measure:
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| | | | | Three Months Ended March 31, | | Change | | |
| (in millions) | | | | | | | 2022 | | 2021 | | | $ | | % | | | |
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| Net income | | | | | | | | | $ | 713 | | | $ | 933 | | | | | $ | (220) | | | (24) | % | | | | |
| Adjustments: | | | | | | | | | | | | | | | | | | | | | |
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| Interest expense, net | | | | | | | | | 864 | | | 835 | | | | | 29 | | | 3 | % | | | | |
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| Other expense, net | | | | | | | | | 11 | | | 125 | | | | | (114) | | | (91) | % | | | | |
| Income tax expense | | | | | | | | | 218 | | | 246 | | | | | (28) | | | (11) | % | | | | |
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| Operating income | | | | | | | | | 1,806 | | | 2,139 | | | | | (333) | | | (16) | % | | | | |
| Depreciation and amortization | | | | | | | | | 3,585 | | | 4,289 | | | | | (704) | | | (16) | % | | | | |
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Stock-based compensation (1) | | | | | | | | | 136 | | | 130 | | | | | 6 | | | 5 | % | | | | |
| Merger-related costs | | | | | | | | | 1,413 | | | 298 | | | | | 1,115 | | | 374 | % | | | | |
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Other, net (2) | | | | | | | | | 10 | | | 49 | | | | | (39) | | | (80) | % | | | | |
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| Adjusted EBITDA | | | | | | | | | 6,950 | | | 6,905 | | | | | 45 | | | 1 | % | | | | |
| Lease revenues | | | | | | | | | (487) | | | (1,041) | | | | | 554 | | | (53) | % | | | | |
| Core Adjusted EBITDA | | | | | | | | | $ | 6,463 | | | $ | 5,864 | | | | | $ | 599 | | | 10 | % | | | | |
| Net income margin (Net income divided by Service revenues) | | | | | | | | | 5 | % | | 7 | % | | | | | | -200 bps | | | | |
| Adjusted EBITDA margin (Adjusted EBITDA divided by Service revenues) | | | | | | | | | 46 | % | | 49 | % | | | | | | -300 bps | | | | |
| Core Adjusted EBITDA margin (Core Adjusted EBITDA divided by Service revenues) | | | | | | | | | 43 | % | | 41 | % | | | | | | 200 bps | | | | |
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| | Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
| (in millions) | 2017 | | 2016 | | $ | | % | | 2017 | | 2016 | | $ | | % |
| Net income | $ | 550 |
| | $ | 366 |
| | $ | 184 |
| | 50 | % | | $ | 1,829 |
| | $ | 1,070 |
| | $ | 759 |
| | 71 | % |
| Adjustments: | | | | |
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| Interest expense | 253 |
| | 376 |
| | (123 | ) | | (33 | )% | | 857 |
| | 1,083 |
| | (226 | ) | | (21 | )% |
| Interest expense to affiliates | 167 |
| | 76 |
| | 91 |
| | 120 | % | | 398 |
| | 248 |
| | 150 |
| | 60 | % |
Interest income (1) | (2 | ) | | (3 | ) | | 1 |
| | (33 | )% | | (15 | ) | | (9 | ) | | (6 | ) | | 67 | % |
| Other (income) expense, net | (1 | ) | | 1 |
| | (2 | ) | | (200 | )% | | 89 |
| | 6 |
| | 83 |
| | 1,383 | % |
| Income tax expense | 356 |
| | 232 |
| | 124 |
| | 53 | % | | 618 |
| | 651 |
| | (33 | ) | | (5 | )% |
Operating income (1) | 1,323 |
| | 1,048 |
| | 275 |
| | 26 | % | | 3,776 |
| | 3,049 |
| | 727 |
| | 24 | % |
| Depreciation and amortization | 1,416 |
| | 1,568 |
| | (152 | ) | | (10 | )% | | 4,499 |
| | 4,695 |
| | (196 | ) | | (4 | )% |
Cost of MetroPCS business combination (2) | — |
| | 15 |
| | (15 | ) | | (100 | )% | | — |
| | 110 |
| | (110 | ) | | (100 | )% |
Stock-based compensation (3) | 83 |
| | 57 |
| | 26 |
| | 46 | % | | 222 |
| | 171 |
| | 51 |
| | 30 | % |
Other, net (3) | — |
| | 1 |
| | (1 | ) | | (100 | )% | | 5 |
| | 7 |
| | (2 | ) | | (29 | )% |
Adjusted EBITDA (1) | $ | 2,822 |
| | $ | 2,689 |
| | $ | 133 |
| | 5 | % | | $ | 8,502 |
| | $ | 8,032 |
| | $ | 470 |
| | 6 | % |
| Net income margin (Net income divided by service revenues) | 7 | % | | 5 | % | |
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| | 200 bps |
| | 8 | % | | 5 | % | |
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| | 300 bps |
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Adjusted EBITDA margin (Adjusted EBITDA divided by service revenues) (1) | 37 | % | | 38 | % | |
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| | -100 bps |
| | 38 | % | | 39 | % | |
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| | -100 bps |
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(1) | The amortized imputed discount on EIP receivables previously recognized as Interest income has been retrospectively re-classified as Other revenues. See Note 1 - Basis of Presentation of the Notes to the Condensed Consolidated Financial Statements and table below for further detail. |
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(2) | Beginning in the first quarter of 2017, the Company will no longer separately present Cost of MetroPCS business combination as it is insignificant. |
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(3) | Stock-based compensation includes payroll tax impacts and may not agree to stock-based compensation expense in the consolidated financial statements. Other, net may not agree to the Condensed Consolidated Statements of Comprehensive Income primarily due to certain non-routine operating activities, such as other special items that would not be expected to reoccur, and are therefore excluded in Adjusted EBITDA. |
(1)Stock-based compensation includes payroll tax impacts and may not agree with stock-based compensation expense in the condensed consolidated financial statements. Additionally, certain stock-based compensation expenses associated with the Transactions have been included in Merger-related costs.
(2)Other, net may not agree with the Condensed Consolidated Statements of Comprehensive Income primarily due to certain non-routine operating activities, such as other special items that would not be expected to reoccur or are not reflective of T-Mobile’s ongoing operating performance, and are, therefore, excluded from Adjusted EBITDA and Core Adjusted EBITDA.
Core Adjusted EBITDA increased $133$599 million, or 5%10%, for the three months ended March 31, 2022. The components comprising Core Adjusted EBITDA are discussed further above.
The increase was primarily due to:
•Higher Total service revenues; and
•Lower Cost of services, excluding Merger-related costs; partially offset by
•Higher Selling, general and $470administrative expenses, excluding Merger-related costs; and
•Lower Equipment revenues, excluding Lease revenues.
Adjusted EBITDA increased $45 million, or 6%1%, for the nine months ended September 30, 2017.
The change for the three months ended September 30, 2017March 31, 2022. The change was primarily from:
An increase in branded postpaid and prepaid service revenues primarily due to strong customer response to our Un-carrier initiatives, the ongoing success of our promotional activities, and the continued strength of our MetroPCS brand; and
Lower losses on equipment;increase in Core Adjusted EBITDA, discussed above, partially offset by
Higher selling, general and administrative expenses;
Higher cost a decrease in Lease revenues of services expense;
Lower gains on disposal of spectrum licenses of $170$554 million; gains on disposal were $29 million for the three months ended September 30, 2017, compared to $199 million in the same period in 2016; and
March 31, 2022.The negative impact from hurricanes of $148 million.
The change for the nine months ended September 30, 2017 was primarily from:
An increase in branded postpaid and prepaid service revenues primarily due to strong customer response to our Un-carrier initiatives, the ongoing success of our promotional activities, and the continued strength of our MetroPCS brand; and
Higher wholesale revenues; partially offset by
Lower gains on disposal of spectrum licenses of $768 million; gains on disposal were $67 million for the nine months ended September 30, 2017, compared to $835 million in the same period in 2016;
Higher selling, general and administrative expenses;
Higher cost of services expense; and
The negative impact from hurricanes of $148 million.
Effective January 1, 2017, the imputed discount on EIP receivables, which was previously recognized within Interest income in our Condensed Consolidated Statements of Comprehensive Income, is recognized within Other revenues in our Condensed Consolidated Statements of Comprehensive Income. Due to this presentation, the imputed discount on EIP receivables is included in Adjusted EBITDA. See Note 1 - Basis of Presentation of Notes to the Condensed Consolidated Financial Statements for additional details.
We have applied this change retrospectively and presented the effect on the three and nine months ended September 30, 2016, in the table below.
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| | Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2016 |
| (in millions) | As Filed | | Change in Accounting Principle | | As Adjusted | | As Filed | | Change in Accounting Principle | | As Adjusted |
| Operating income | $ | 989 |
| | $ | 59 |
| | $ | 1,048 |
| | $ | 2,860 |
| | $ | 189 |
| | $ | 3,049 |
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| Interest income | 62 |
| | (59 | ) | | 3 |
| | 198 |
| | (189 | ) | | 9 |
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| Net income | 366 |
| | — |
| | 366 |
| | 1,070 |
| | — |
| | 1,070 |
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| Net income as a percentage of service revenue | 5 | % | | — | % | | 5 | % | | 5 | % | | — | % | | 5 | % |
| Adjusted EBITDA | 2,630 |
| | 59 |
| | 2,689 |
| | 7,843 |
| | 189 |
| | 8,032 |
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| Adjusted EBITDA margin (Adjusted EBITDA divided by service revenues) | 37 | % | | 1 | % | | 38 | % | | 38 | % | | 1 | % | | 39 | % |
Liquidity and Capital Resources
Our principal sources of liquidity are our cash and cash equivalents and cash generated from operations, proceeds from issuance of long-term debt capitaland common stock, financing leases, common and preferred stock, the sale of certain receivables financing arrangementsand the Revolving Credit Facility (as defined below). Further, the incurrence of vendor payablesadditional indebtedness may inhibit our ability to incur new debt under the terms governing our existing and future indebtedness, which effectively extend payment terms and secured and unsecured revolving credit facilities with DT.may make it more difficult for us to incur new debt in the future to finance our business strategy.
Cash Flows
The following is an analysisa condensed schedule of our cash flows for three and nine months ended September 30, 2017 and 2016:flows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | Change | | |
| (in millions) | | | | | | | | | 2022 | | 2021 | | | | $ | | % | | | | |
| Net cash provided by operating activities | | | | | | | | | $ | 3,845 | | | $ | 3,661 | | | | | $ | 184 | | | 5 | % | | | | |
| Net cash used in investing activities | | | | | | | | | (5,092) | | | (11,239) | | | | | 6,147 | | | (55) | % | | | | |
| Net cash (used in) provided by financing activities | | | | | | | | | (2,136) | | | 3,874 | | | | | (6,010) | | | (155) | % | | | | |
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| | Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
| (in millions) | 2017 | | 2016 | | $ | | % | | 2017 | | 2016 | | $ | | % |
| Net cash provided by operating activities | $ | 2,362 |
| | $ | 1,740 |
| | $ | 622 |
| | 36 | % | | $ | 5,904 |
| | $ | 4,533 |
| | $ | 1,371 |
| | 30 | % |
| Net cash used in investing activities | (1,455 | ) | | (1,859 | ) | | 404 |
| | (22 | )% | | (10,138 | ) | | (4,386 | ) | | (5,752 | ) | | 131 | % |
| Net cash (used in) provided by financing activities | (349 | ) | | (67 | ) | | (282 | ) | | 421 | % | | (527 | ) | | 623 |
| | (1,150 | ) | | (185 | )% |
Operating Activities
Net cash provided by operating activities increased $622$184 million, or 36%5%, primarily from:
•A $1.0 billion decrease in net cash outflows from changes in working capital, primarily due to lower use of cash from Accounts payable and accrued liabilities, Short- and long-term operating lease liabilities and Operating lease right-of-use assets, partially offset by higher use of cash from Accounts receivable and Inventories; partially offset by
•An $820 million decrease in Net income, adjusted for non-cash income and expense.
•Net cash provided by operating activities includes $893 million and $277 million in net payments for Merger-related costs for the three months ended March 31, 2022 and $1.4 billion, or 30%, for the nine months ended September 30, 2017, compared to the same periods in 2016.2021, respectively.
The change for the three months ended September 30, 2017 was primarily from:
Higher net income and higher non-cash adjustments to net incomeanda lower net use from working capital changes.
The change for the nine months ended September 30, 2017 was primarily from:
Higher Net income and higher non-cash adjustments to net income including from lower Gains on disposal of spectrum licenses and Depreciation and amortization. In total, changes in working capital were relatively flat as improvements in Accounts payable and accrued liabilities and Inventories were partially offset by changes in Equipment installment plan receivables. The change in EIP receivables was primarily due to a decrease in net cash proceeds from the sale of EIP receivables as the nine months ended September 30, 2016 benefited from net cash proceeds of $366 million primarily related to upsizing of the EIP securitization facility as well as an increase in devices financed on EIP.
Investing Activities
Net cash used in investing activities decreased $404 million for the three months ended and increased $5.8$6.1 billion, for the nine months ended September 30, 2017.
or 55%. The change for the three months ended September 30, 2017use of cash was primarily from:
•$3.4 billion in Purchases of property and equipment, including capitalized interest, from network integration related to the Merger and the accelerated build-out of our nationwide 5G network;
A $690 million decrease•$2.8 billion in Purchases of spectrum licenses and other intangible assets, including deposits;deposits, primarily due to $2.8 billion paid for spectrum licenses won at the conclusion of Auction 110 in February 2022; partially offset by
A $282 million increase•$1.2 billion in Purchases of property and equipment, including capitalized interest.
Proceeds related to beneficial interests in securitization transactions.
The change for the nine months ended September 30, 2017 was primarily from:
A $3.0 billion decrease in Sales of short-term investments;
A $2.3 billion increase in Purchases of spectrum licenses and other intangible assets, including deposits, primarily driven by our winning bid for 1,525 licenses in the 600 MHz spectrum auction during the second quarter of 2017; and
A $473 million increase in Purchases of property and equipment, including capitalized interest.
Financing Activities
Net cash provided by and used in financing activities increased $282 million to a use of $349 million in the three months ended and increased $1.2decreased $6.0 billion, to a use of $527 million in the nine months ended September 30, 2017.
or 155%. The use of cash in the three months ended September 30, 2017 was primarily from:
•$1.71.6 billion for Repayments of our revolving credit facility; partially offset by
$1.1 billion in Proceeds from borrowing on our revolving credit facility; and
$500 million in Proceeds from issuance of long-term debt.
The use of cash in the nine months ended September 30, 2017 was primarily from:
$10.2 billion for Repayments of long-term debt;
•$2.9 billion for302 million in Repayments of our revolving credit facility;
financing lease obligations; and•$350172 million for Repayments of capital lease obligations; and
in Tax withholdings on share-based awards.$296 million for Repayments of short-term debt for purchases of inventory, property and equipment, net; partially offset by
$10.5 billion in Proceeds from issuance of long-term debt; and
$2.9 billion in Proceeds from borrowing on our revolving credit facility.
Cash and Cash Equivalents
As of September 30, 2017,March 31, 2022, our Cash and cash equivalents were $739 million.$3.2 billion compared to $6.6 billion at December 31, 2021.
Free Cash Flow
Free Cash Flow represents netNet cash provided by operating activities less cash payments for purchasesPurchases of property and equipment.equipment, including Proceeds related to beneficial interests in securitization transactions, less Cash payments for debt prepayment or debt extinguishment. Free Cash Flow is a non-GAAP financial measure utilized by our management, investors and analysts of T-Mobile’sour financial information to evaluate cash available to pay debt and provide further investment in the business.
The following table illustrates the calculationbelow provides a reconciliation of Free Cash Flow and reconciles Free Cash Flow to Net cash provided by operating activities, which we consider to
be the most directly comparable GAAP financial measure:measure.
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| | | | | Three Months Ended March 31, | | Change | | |
| (in millions) | | | | | | | 2022 | | 2021 | | | | $ | | % | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by operating activities | | | | | | | | | $ | 3,845 | | | $ | 3,661 | | | | | $ | 184 | | | 5 | % | | | | |
| Cash purchases of property and equipment | | | | | | | | | (3,381) | | | (3,183) | | | | | (198) | | | 6 | % | | | | |
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| Proceeds related to beneficial interests in securitization transactions | | | | | | | | | 1,185 | | | 891 | | | | | 294 | | | 33 | % | | | | |
| Cash payments for debt prepayment or debt extinguishment costs | | | | | | | | | — | | | (65) | | | | | 65 | | | (100) | % | | | | |
| Free Cash Flow | | | | | | | | | $ | 1,649 | | | $ | 1,304 | | | | | $ | 345 | | | 26 | % | | | | |
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| | Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
| (in millions) | 2017 | | 2016 | | $ | | % | | 2017 | | 2016 | | $ | | % |
| Net cash provided by operating activities | $ | 2,362 |
| | $ | 1,740 |
| | $ | 622 |
| | 36 | % | | $ | 5,904 |
| | $ | 4,533 |
| | $ | 1,371 |
| | 30 | % |
| Cash purchases of property and equipment | (1,441 | ) | | (1,159 | ) | | (282 | ) | | 24 | % | | (4,316 | ) | | (3,843 | ) | | (473 | ) | | 12 | % |
| Free Cash Flow | $ | 921 |
| | $ | 581 |
| | $ | 340 |
| | 59 | % | | $ | 1,588 |
| | $ | 690 |
| | $ | 898 |
| | 130 | % |
Free Cash Flow increased $340$345 million, or 26%. The increase was primarily impacted by the following:
•Higher Proceeds related to beneficial interests in securitization transactions; and
•Higher Net cash provided by operating activities, as described above; partially offset by
•Higher Cash purchases of property and equipment, including capitalized interest.
•Free Cash Flow includes $893 million and $277 million in net payments for Merger-related costs for the three months ended March 31, 2022 and $898 million for2021, respectively.
Borrowing Capacity
We maintain a revolving credit facility (the “Revolving Credit Facility”) with an aggregate commitment amount of $5.5 billion. As of March 31, 2022, there was no outstanding balance under the nine months ended September 30, 2017 primarily from higher net cash provided by operating activities due to working capital changes, as described above, partially offset by higher purchases of property and equipment primarily due to new site development and capacity expansion.Revolving Credit Facility.
Debt Financing
As of September 30, 2017,March 31, 2022, our total debt was $28.3and financing lease liabilities were $75.0 billion, excluding our tower obligations, of which $27.7$68.4 billion was classified as long-term debt.debt and $1.4 billion was classified as long-term financing lease liabilities.
The following table sets forth the debt balances and activity as of, and for the nine months ended, September 30, 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | December 31,
2016 | �� | Issuances and Borrowings (1) | | Note Redemptions (1) | | Extinguishments (1) | | Repayments | | Other (2) | | September 30,
2017 |
| Short-term debt | $ | 354 |
| | $ | — |
| | $ | — |
| | $ | (20 | ) | | $ | — |
| | $ | 224 |
| | $ | 558 |
|
| Long-term debt | 21,832 |
| | 1,495 |
| | (8,365 | ) | | (1,947 | ) | | — |
| | 148 |
| | 13,163 |
|
| Total debt to third parties | 22,186 |
| | 1,495 |
| | (8,365 | ) | | (1,967 | ) | | — |
| | 372 |
| | 13,721 |
|
| Short-term debt to affiliates | — |
| | 2,910 |
| | — |
| | — |
| | (2,910 | ) | | — |
| | — |
|
| Long-term debt to affiliates | 5,600 |
| | 8,985 |
| | — |
| | — |
| | — |
| | 1 |
| | 14,586 |
|
| Total debt to affiliates | 5,600 |
| | 11,895 |
| | — |
| | — |
| | (2,910 | ) | | 1 |
| | 14,586 |
|
| Total debt | $ | 27,786 |
| | $ | 13,390 |
| | $ | (8,365 | ) | | $ | (1,967 | ) | | $ | (2,910 | ) | | $ | 373 |
| | $ | 28,307 |
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(1) | Issuances and borrowings, note redemptions and extinguishments are recorded net of related issuance costs, discounts and premiums. Issuances and borrowings for Short-term debt to affiliates represent net outstanding borrowings on our senior secured revolving credit facility. |
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(2) | Other includes: $299 million issuances of short-term debt related to vendor financing arrangements, of which $291 million is related to financing of property and equipment. During the nine months ended September 30, 2017, we repaid $296 million under the vendor financing arrangements. As of September 30, 2017, vendor financing arrangements totaled $3 million. Vendor financing arrangements are included in Short-term debt within Total current liabilities in our Condensed Consolidated Balance Sheets. Additional activity in Other includes capital leases and the amortization of discounts and premiums. As of September 30, 2017 and December 31, 2016, capital lease liabilities totaled $1.8 billion and $1.4 billion, respectively. |
Debt to Third Parties
Issuances and Borrowings
During the ninethree months ended September 30, 2017, we issued the following Senior Notes:
|
| | | | | | | | | | | |
| (in millions) | Principal Issuances | | Issuance Costs | | Net Proceeds from Issuance of Long-Term Debt |
| 4.000% Senior Notes due 2022 | $ | 500 |
| | $ | 2 |
| | $ | 498 |
|
| 5.125% Senior Notes due 2025 | 500 |
| | 2 |
| | 498 |
|
| 5.375% Senior Notes due 2027 | 500 |
| | 1 |
| | 499 |
|
| Total of Senior Notes Issued | $ | 1,500 |
| | $ | 5 |
| | $ | 1,495 |
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On March 16, 2017, T-Mobile USA and certain of its affiliates, as guarantors, issued a total of $1.5 billion of public Senior Notes with various interest rates and maturity dates. Issuance costs related to the public debt issuance totaled $5 million for the nine months ended September 30, 2017. We used the net proceeds of $1.495 billion from the transaction to redeem callable high yield debt.
Notes Redemptions
During the nine months ended September 30, 2017, we made the following note redemptions:
|
| | | | | | | | | | | | | | | | |
| (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 income (expense), net in our Condensed 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 Condensed 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 Condensed Consolidated Statements of Cash Flows. |
Debt to Affiliates
Issuances and Borrowings
During the nine months ended September 30, 2017, we made the following borrowings:
|
| | | | | | | | | | | |
| (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 |
| | $ | — |
| | $ | — |
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| 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 |
|
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(1) | Write-off of discounts and issuance costs are included in Other income (expense), net in our Condensed Consolidated Statements of Comprehensive Income and Other, net within Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows. |
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(2) | Our Senior Secured Term Loan extinguished during the nine months endedSeptember 30, 2017 was Third Party debt.
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On January 25, 2017, T-Mobile USA, Inc. (“T-Mobile USA”), and certain 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 billion 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 nine months ended September 30, 2017.
On March 31, 2017, the Incremental Term Loan Facility was amended to waive all interim principal payments. The outstanding principal balance will be due at maturity.
During the nine months ended September 30, 2017,2022, we issued the following Senior Notes to DT:
|
| | | | | | | | | | | |
| (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 ofrepaid short- and long-term debt and are included within Net cash (used in) provided by financing activities in our Condensed Consolidated Statements of Cash Flows. |
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(2) | In April 2017, we issued to DT $750 million in aggregate principal amount 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 inan aggregate principal amount of $1.6 billion. There were no new issuances or borrowings during the new DT Notes and redeemed the $2.5three months ended March 31, 2022.
Subsequent to March 31, 2022, on April 15, 2022, we repaid at maturity $1.25 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 the issuance of the new DT Notes.
In September 2017, we issued to DT $500 million in aggregate principal amount ofour 5.375% Senior Notes to affiliates due 2027, which is the final tranche2022.
For more information regarding our debt financing transactions, see Note 6 – Debt of the new DT Notes. We were not requiredNotes to pay any underwriting fees or issuance costs in connection with the issuance of the notes.
Net proceeds from the issuance of the new DT Notes were $921 million and are included in Proceeds from issuance of long-term debt in our Condensed Consolidated StatementsFinancial Statements.
On May 9, 2017, we exercised our option under existing purchase agreements and issued the following Senior Notes to DT:
|
| | | | | | | | | | | |
| (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 |
|
The proceedsIn January 2022, the FCC announced that we were used to fund a portionthe winning bidder of the199 licenses in Auction 110 (mid-band spectrum) for an aggregate purchase price of spectrum$2.9 billion. At the 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 600 MHzauction in February 2022.
For more information regarding our spectrum auction. Net proceeds from these issuances include $64 million in debt premiums. See licenses, see Note 5 - 4 – Spectrum License Transactions for further information. of the Notes to the Condensed Consolidated Financial Statements.
Revolving Credit FacilityOff-Balance Sheet Arrangements
We had no outstanding borrowings under our $1.5have arrangements, as amended from time to time, to sell certain EIP accounts receivable and service accounts receivable on a revolving basis as a source of liquidity. As of March 31, 2022, we derecognized net receivables of $2.5 billion senior secured revolving credit facility with DT asupon sale through these arrangements.
Future Sources and Uses of Cash Flows.Liquidity
We couldmay seek additional sources of liquidity, including through the issuance of additional long-term debt, in 2017, to continue to opportunistically acquire spectrum licenses or other assets in private party transactions or for the refinancing of existing long-term debt on an opportunistic basis. Excluding liquidity that could be needed for spectrum acquisitions, or for other assets, we expect our principal sources of funding to be sufficient to meet our anticipated liquidity needs for business operations for the next 12 months.months as well as our longer-term liquidity needs. Our intended use of any such funds is for general corporate purposes, including for capital expenditures, spectrum purchases, opportunistic investments and acquisitions, and redemption of high yield callable debt.debt, tower obligations and the execution of our integration plan.
We determine future liquidity requirements, for both operations and capital expenditures, based in large part upon projected financial and operating performance, and opportunities to acquire additional spectrum. We regularly review and update these projections for changes in current and projected financial and operating results, general economic conditions, the competitive landscape and other factors. We have incurred, and will incur, substantial expenses to comply with the Government Commitments, and we are also expected to incur substantial restructuring expenses in connection with integrating and coordinating T-Mobile’s and Sprint’s businesses, operations, policies and procedures. See “Restructuring” of this MD&A. While we have assumed that a certain level of Merger-related expenses will be incurred, factors beyond our control, including required consultation and negotiation with certain counterparties, could affect the total amount or the timing of these expenses. These expenses could exceed the costs historically borne by us and adversely affect our financial condition and results of operations. There are a number of additional risks and uncertainties, including those due to the impact of the Pandemic, that could cause our financial and operating results and capital requirements to differ materially from our projections, which could cause future liquidity to differ materially from our assessment.
The indentures, supplemental indentures and credit facilitiesagreements governing our long-term debt to affiliates and third parties, excluding capitalfinancing leases, contain covenants that, among other things, limit the ability of the IssuerIssuers or borrowers and the Guarantor Subsidiaries to:to incur more debt;debt, pay dividends and make distributions on our common stock;stock, make certain investments;investments, repurchase stock;stock, create liens or other encumbrances;encumbrances, enter into transactions with affiliates;affiliates, enter into transactions that restrict dividends or distributions from subsidiaries;subsidiaries, and merge, consolidate or sell, or otherwise dispose of, substantially all of their assets. Certain provisions of each of the credit facilities,agreements, indentures and supplemental indentures relating to the long-term debt to affiliates and third parties restrict the ability of the IssuerIssuers or borrowers to loan funds or make payments to the Parent. However, the Issuer isIssuers or borrowers are allowed to make certain permitted payments to the Parent under the terms of each of the credit facilities,agreements, indentures and supplemental indentures relating to the long-term debt to affiliates and third parties. We were in compliance with all restrictive debt covenants as of September 30, 2017.March 31, 2022.
CapitalFinancing Lease Facilities
We have entered into uncommitted capitalfinancing lease facilities with certain partners, whichthird parties that provide us with the ability to enter into capitalfinancing leases for network equipment and services. As of September 30, 2017,March 31, 2022, we have committed to $2.0$6.6 billion of capitalfinancing leases under these capitalfinancing lease facilities, of which $138 million and $735$299 million was executed during the three and nine months ended September 30, 2017, respectively.March 31, 2022. We expect to enter into up to an additional $165$901 million in capitalfinancing lease commitments during 2017.the year ending December 31, 2022.
Capital Expenditures
Our liquidity requirements have been driven primarily by capital expenditures for spectrum licenses, and the construction, expansion and upgrading of our network infrastructure.infrastructure and the integration of the networks, spectrum, technology, personnel, customer base and business practices of T-Mobile and Sprint. Property and equipment capital expenditures primarily relate to the integration of our network transformation,and spectrum licenses, including the build out of 700 MHz A-Blockacquired Sprint PCS and 2.5 GHz spectrum licenses. We expect cash purchases of propertylicenses and equipment to be in the range of $4.8 billion to $5.1 billion in 2017, excluding capitalized interest. We expect to be at the high end of the range. This does not include property and equipment obtained through capital lease agreements, leased wireless devices transferred from inventory or any additional purchases of spectrum licenses.
In April 2017, the Federal Communications Commission (the “FCC”) announced that we were the winning bidder of 1,525 licenses in theexisting 600 MHz spectrum auction for an aggregate pricelicenses as we build out our nationwide 5G network. We expect the majority of $8.0 billion. At the inception our remaining capital expenditures related to these efforts to occur in 2022, after which we expect a reduction in capital expenditure requirements.
For more information regarding our spectrum licenses, see Note 4 – Spectrum License Transactionsof 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 debt purchase commitments. See Note 7 - Debt of the Notes to the Condensed Consolidated Financial Statements for further information.Statements.
The $5.8 billion payment of the purchase price is included in Purchases of spectrum licenses and other intangible assets, including deposits within NetStockholder Returns
We have never declared or paid any cash
used in investing activities in our Condensed Consolidated Statements of Cash Flows. The licenses are included in Spectrum licenses as of September 30, 2017,dividends on our Condensed Consolidated Balance Sheets. We began deployment of these licensescommon stock, and we do not intend to declare or pay any cash dividends on our networkcommon stock in the third quarter of 2017. See Note 5 - Spectrum License Transactions of the Notes to the Condensed Consolidated Financial Statements for additional details.foreseeable future.
Off-Balance Sheet Arrangements
In 2015, we entered into an arrangement, as amended, to sell certain EIP accounts receivable on a revolving basis through November 2017 as an additional source of liquidity. In August 2017, the arrangement was amended to reduce the maximum funding commitment to $1.2 billion and extend the scheduled expiration date to November 2018. In 2014, we entered into an arrangement, as amended, to sell certain service accounts receivable on a revolving basis through March 2017 as an additional source of liquidity. In November 2016, the arrangement was amended to increase the maximum funding commitment to $950 million and extend the scheduled expiration date to March 2018. As of September 30, 2017, T-Mobile derecognized net receivables of $2.4 billion upon sale through these arrangements. See Note 4 – Sales of Certain Receivables of the Notes to the Condensed Consolidated Financial Statements.
Related-Party Transactions
During the nine months ended September 30, 2017, we entered into certain debt related transactions with affiliates. See Note 7 – Debt of the Notes to the Condensed Consolidated Financial Statements for additional details.
We alsomay use cash to repurchase shares of our common stock, subject to, among other things, approval by the Board of Directors and our sufficient access to sources of liquidity, including potentially debt capital markets.
Related Party Transactions
We have related party transactions associated with DT, SoftBank or itstheir affiliates in the ordinary course of business, including intercompany servicing and licensing.
As of April 29, 2022, DT and SoftBank held, directly or indirectly, approximately 48.3% and 3.2%, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 48.5% of the outstanding T-Mobile common stock held by other stockholders. As a result of the Proxy, Lock-Up and ROFR Agreement, dated April 1, 2020, by and between DT and SoftBank and the Proxy, Lock-Up and ROFR Agreement, dated June 22, 2020, by and among DT, Claure Mobile LLC, and Marcelo Claure, DT has voting control, as of April 29, 2022, over approximately 51.8% of the outstanding T-Mobile common stock.
Disclosure of Iranian Activities under Section 13(r) of the Securities Exchange Act of 1934
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act of 1934, as amended (“Exchange Act”). Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction. Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law.
As of the date of this report, we are not aware of any activity, transaction or dealing by us or any of our affiliates for the three months ended September 30, 2017,March 31, 2022, that requires disclosure in this report under Section 13(r) of the Exchange Act, except as set forth below with respect to affiliates that we do not control and that are our affiliates solely due to their common control with DT.either DT or SoftBank. We have relied upon DT and SoftBank for information regarding their respective activities, transactions and dealings.
DT, through certain of its non-U.S. subsidiaries, is party to roaming and interconnect agreements with the following mobile and fixed line telecommunication providers in Iran, some of which are or may be government-controlled entities: Gostaresh Ertebatat Taliya, Irancell Telecommunications Services Company, (“MTN Irancell”), Telecommunication Kish Company, Mobile Telecommunication Company of Iran, and Telecommunication Infrastructure Company of Iran. In addition, during the three months ended March 31, 2022, DT, through certain of its non-U.S. subsidiaries, provided basic telecommunications services to four customers in Germany identified on the Specially Designated Nationals and Blocked Persons List maintained by the U.S. Department of Treasury’s Office of Foreign Assets Control: Bank Melli, Europäisch-Iranische Handelsbank, CPG Engineering & Commercial Services GmbH and Golgohar Trade and Technology GmbH. These services have been terminated or are in the process of being terminated.For the three months ended September 30, 2017,March 31, 2022, gross revenues of all DT affiliates generated by roaming and
interconnection traffic and telecommunications services with Iranthe Iranian parties identified herein were less than $1.0$0.1 million, and the estimated net profits were less than $1.0$0.1 million.
In addition, DT, through certain of its non-U.S. subsidiaries operatingthat operate a fixed linefixed-line network in their respective European home countries (in particular Germany), provides telecommunications services in the ordinary course of business to the Embassy of Iran in those European countries. Gross revenues and net profits recorded from these activities for the three months ended September 30, 2017March 31, 2022 were less than $0.1 million. We understand that DT intends to continue these activities.
Separately, SoftBank, through one of its non-U.S. subsidiaries, provides roaming services in Iran through Irancell Telecommunications Services Company. During the three months ended March 31, 2022, SoftBank had no gross revenues from such services and no net profit was generated. We understand that the SoftBank subsidiary intends to continue such services. This subsidiary also provides telecommunications services in the ordinary course of business to accounts affiliated with the Embassy of Iran in Japan. During the three months ended March 31, 2022, SoftBank estimates that gross revenues and net profit generated by such services were both under $0.1 million. We understand that the SoftBank subsidiary is obligated under contract and intends to continue such services.
In addition, SoftBank, through one of its non-U.S. indirect subsidiaries, provides office supplies to the Embassy of Iran in Japan. SoftBank estimates that gross revenue and net profit generated by such services during the three months ended March 31, 2022, were both under $0.1 million. We understand that the SoftBank subsidiary intends to continue such activities.
Critical Accounting Policies and Estimates
Preparation of our condensed consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. There have been no material changes to the critical accounting policies and estimates as previously disclosed in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2016.2021, and which are hereby incorporated by reference herein.
Accounting Pronouncements Not Yet Adopted
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to the interest ratemarket risk as previously disclosed in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2016.2021.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures 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 include the use of a Disclosure Committee which is comprised of representatives from our Accounting, Legal, Treasury, Technology, Risk Management, Government Affairs and Investor Relations functions and 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. 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-Q.
The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) are filed as exhibits Exhibits 31.1 and 31.2, respectively, to this Form 10-Q.
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See For more information regarding the legal proceedings in which we are involved, see Note 10 -11 – Commitments and Contingencies of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for information regarding certain legal proceedings in which we are involved.Statements.
Item 1A. Risk Factors
ThereOther than the updated risk factor below, there have been no material changes in our risk factors as previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016.2021.
We have experienced criminal cyberattacks and could in the future be further harmed by disruption, data loss or other security breaches, whether directly or indirectly through third parties.
Our business involves the receipt, storage, and transmission of confidential information about our customers, such as sensitive personal, account and payment card information, confidential information about our employees and suppliers, and other sensitive information about our Company, such as our business plans, transactions, financial information, and intellectual property (collectively, “Confidential Information”). We are subject to persistent cyberattacks and threats to our networks, systems, and supply chain from a variety of bad actors, many of whom attempt to gain access to and compromise Confidential Information by exploiting bugs, errors, misconfigurations or other vulnerabilities in our networks and other systems (including purchased and third-party systems) or engaging in credential harvesting or social engineering. In some cases, these bad actors may obtain unauthorized access to Confidential Information utilizing credentials taken from our customers, employees, or third parties. Other bad actors aim to cause serious operational disruptions to our business or networks through other means, such as through ransomware or distributed denial of services attacks.
Cyberattacks against companies like ours have increased in frequency and potential harm over time, and the methods used to gain unauthorized access constantly evolve, making it increasingly difficult to anticipate, prevent, and/or detect incidents successfully in every instance. They are perpetrated by a variety of groups and persons, including state-sponsored parties, malicious actors, employees, contractors, or other unrelated third parties. Some of these persons reside in jurisdictions where law enforcement measures to address such attacks are ineffective or unavailable, and such attacks may even be perpetrated by or at the behest of foreign governments.
In addition, we routinely provide certain Confidential Information to third-party providers whose products and services are used in our business operations, including as part of our IT systems, such as cloud services. These third-party providers have experienced in the past, and will continue to experience in the future, cyberattacks that involve attempts to obtain unauthorized access to our Confidential Information and/or to create operational disruptions that could adversely affect our business, and these providers also face other security challenges common to all parties that collect and process information.
In August 2021, we disclosed that our systems were subject to a criminal cyberattack that compromised certain data of millions of our current customers, former customers, and prospective customers, including, in some instances, social security numbers, names, addresses, dates of birth and driver’s license/identification numbers. With the assistance of 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 have incurred certain cyberattack-related expenses, including costs to remediate the attack, provide additional customer support and enhance customer protection, and expect to incur additional expense in future periods resulting from the attack. For more information, see “Cyberattack” in the Overview section of MD&A. As a result of the August 2021 cyberattack, we are subject to numerous claims, lawsuits and regulatory inquiries, the ongoing costs of which may be material, and we may be subject to further regulatory inquiries and private litigation. For more information, see “– Contingencies and Litigation – Litigation and Regulatory Matters” in Note 11 – Commitments and Contingencies of the Notes to the Consolidated Financial Statements.” As a result of the August 2021 cyberattack, we may incur significant costs or experience other material financial impacts, which
may not be covered by, or may exceed the coverage limits of, our cyber insurance, and such costs and impacts may have a material adverse effect on our business, reputation, financial condition, cash flows and operating results.
In addition to the August 2021 cyberattack, we have experienced other unrelated immaterial incidents involving unauthorized access to certain Confidential Information. Typically, these incidents have involved attempts to commit fraud by taking control of a customer’s phone line, often by using compromised credentials. In other cases, the incidents have involved unauthorized access to certain of our customers’ private information, including credit card information, financial data, social security numbers or passwords, and to certain of our intellectual property.
Our procedures and safeguards to prevent unauthorized access to Confidential Information and to defend against cyberattacks seeking to disrupt our operations must be continually evaluated and enhanced to address the ever-evolving threat landscape and changing cybersecurity regulations. These preventative actions require the investment of significant resources and management time and attention. Additionally, we do not have control of the cybersecurity systems, breach prevention, and response protocols of our third-party providers. While T-Mobile may have contractual rights to assess the effectiveness of many of our providers’ systems and protocols, we do not have the means to know or assess the effectiveness of all of our providers’ systems and controls at all times. We cannot provide any assurances that actions taken by us, or our third-party providers will adequately repel a significant cyberattack or prevent or substantially mitigate the impacts of cybersecurity breaches or misuses of Confidential Information, unauthorized access to our networks or systems or exploits against third-party environments, or that we or our third-party providers, will be able to effectively identify, investigate, and remediate such incidents in a timely manner or at all. We expect to continue to be the target of cyberattacks, given the nature of our business, and we expect the same with respect to our third-party providers. Our inability to protect Confidential Information or to prevent operational disruptions from future cyberattacks may have a material adverse effect on our business, reputation, financial condition, cash flows, and operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
INDEX TO EXHIBITS
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| | | | | Incorporated by Reference | | |
| Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed/Furnished Herewith |
| | Fourth Amendment, dated as of July 25, 2017, to the Term Loan Credit Agreement, dated as of November 9, 2015, as amended, among T-Mobile USA, Inc., the lenders party thereto and Deutsche Bank AG New York Branch, as administrative agent and collateral agent. | | 8-K | | 7/27/2017 | | 10.1 | |
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| | X |
| | 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 from time to time. | |
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| | X |
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| | X |
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| | X |
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| | X |
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| | X |
| 101.INS | | XBRL Instance Document. | |
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| | X |
| 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 |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. | |
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| | X |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. | |
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| | X |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. | |
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| | X |
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| | | | Incorporated by Reference | | |
| Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
| 10.1* | | | | | | | | | | X |
| 10.2 | | | | | | | | | | X |
| 10.3 | | | | | | | | | | X |
| 10.4 | | Second Amendment to Fifth Amended and Restated Master Receivables Purchase Agreement, dated as of February 28, 2022, by and among T-Mobile Airtime Funding LLC, as transferor, T-Mobile USA, Inc., in its individual capacity and as servicer, T-Mobile US, Inc. and T-Mobile USA, Inc., as performance guarantors, The Toronto-Dominion Bank, as administrative agent, and certain financial institutions party thereto. | | | | | | | | X |
| 22.1 | | | | | | | | | | X |
| 31.1 | | | | | | | | | | X |
| 31.2 | | | | | | | | | | X |
| 32.1** | | | | | | | | | | X |
| 32.2** | | | | | | | | | | X |
| 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | | |
| 101.SCH | | XBRL Taxonomy Extension Schema Document. | | | | | | | | X |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. | | | | | | | | X |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. | | | | | | | | X |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. | | | | | | | | X |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase. | | | | | | | | X |
| 104 | | Cover Page Interactive Data File (the cover page XBRL tags) | | | | | | | | |
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| * | | Indicates a management contract or compensatory plan or arrangement |
| ** | | Furnished herein. |
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* | | Furnished herewith. |
Pursuant to the requirements 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.
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| | T-MOBILE US, INC. | |
| | | |
| May 6, 2022 | | T-MOBILE US, INC./s/ Peter Osvaldik | |
| | Peter Osvaldik | |
October 23, 2017 | | /s/ J. Braxton Carter | |
| | J. Braxton Carter
Executive Vice President and Chief Financial Officer | |
| | (Principal Financial Officer and Authorized Signatory) | |
