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, 20172023
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 |
20, 2023 |
Common Stock, $0.00001 par value $0.00001 per share | 1,156,475,060 | 831,964,098 |
|
T-Mobile US, Inc.
Form 10-Q
For the Quarter Ended September 30, 20172023
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) | September 30,
2023 | | December 31,
2022 |
| Assets | | | | Assets | |
| Current assets | | | | Current assets | |
| | Cash and cash equivalents | $ | 739 |
| | $ | 5,500 |
| Cash and cash equivalents | $ | 5,030 | | | $ | 4,507 | |
| 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 $166 and $167 | | Accounts receivable, net of allowance for credit losses of $166 and $167 | 4,500 | | | 4,445 | |
| Equipment installment plan receivables, net of allowance for credit losses and imputed discount of $610 and $667 | | Equipment installment plan receivables, net of allowance for credit losses and imputed discount of $610 and $667 | 4,470 | | | 5,123 | |
| | Inventory | | Inventory | 1,685 | | | 1,884 | |
| Prepaid expenses | | Prepaid expenses | 712 | | | 673 | |
| Other current assets | 1,817 |
| | 1,537 |
| Other current assets | 2,272 | | | 2,435 | |
| | Total current assets | 7,449 |
| | 14,217 |
| Total current assets | 18,669 | | | 19,067 | |
| Property and equipment, net | 21,570 |
| | 20,943 |
| Property and equipment, net | 41,080 | | | 42,086 | |
| Operating lease right-of-use assets | | Operating lease right-of-use assets | 27,568 | | | 28,715 | |
| Financing lease right-of-use assets | | Financing lease right-of-use assets | 3,390 | | | 3,257 | |
| Goodwill | 1,683 |
| | 1,683 |
| Goodwill | 12,234 | | | 12,234 | |
| Spectrum licenses | 35,007 |
| | 27,014 |
| Spectrum licenses | 96,689 | | | 95,798 | |
| Other intangible assets, net | 256 |
| | 376 |
| Other intangible assets, net | 2,824 | | | 3,508 | |
| 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 $130 and $144 | | Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount of $130 and $144 | 1,879 | | | 2,546 | |
| | Other assets | 858 |
| | 674 |
| Other assets | 4,246 | | | 4,127 | |
| | Total assets | $ | 67,923 |
| | $ | 65,891 |
| Total assets | $ | 208,579 | | | $ | 211,338 | |
| 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 | $ | 9,665 | | | $ | 12,275 | |
| Payables to affiliates | 288 |
| | 125 |
| |
| | Short-term debt | 558 |
| | 354 |
| Short-term debt | 3,437 | | | 5,164 | |
| | Deferred revenue | 790 |
| | 986 |
| Deferred revenue | 830 | | | 780 | |
| Short-term operating lease liabilities | | Short-term operating lease liabilities | 3,545 | | | 3,512 | |
| Short-term financing lease liabilities | | Short-term financing lease liabilities | 1,286 | | | 1,161 | |
| | Other current liabilities | 396 |
| | 405 |
| Other current liabilities | 2,948 | | | 1,850 | |
| | Total current liabilities | 8,103 |
| | 9,022 |
| Total current liabilities | 21,711 | | | 24,742 | |
| | Long-term debt | 13,163 |
| | 21,832 |
| Long-term debt | 70,365 | | | 65,301 | |
| Long-term debt to affiliates | 14,586 |
| | 5,600 |
| Long-term debt to affiliates | 1,496 | | | 1,495 | |
| Tower obligations | 2,599 |
| | 2,621 |
| Tower obligations | 3,819 | | | 3,934 | |
| Deferred tax liabilities | 5,535 |
| | 4,938 |
| Deferred tax liabilities | 12,900 | | | 10,884 | |
| Deferred rent expense | 2,693 |
| | 2,616 |
| |
| Operating lease liabilities | | Operating lease liabilities | 28,677 | | | 29,855 | |
| Financing lease liabilities | | Financing lease liabilities | 1,273 | | | 1,370 | |
| | Other long-term liabilities | 967 |
| | 1,026 |
| Other long-term liabilities | 3,640 | | | 4,101 | |
| | Total long-term liabilities | 39,543 |
| | 38,633 |
| Total long-term liabilities | 122,170 | | | 116,940 | |
| Commitments and contingencies (Note 10) |
|
| |
|
| |
| Commitments and contingencies (Note 13) | | Commitments and contingencies (Note 13) | | | |
| 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; 1,262,375,765 and 1,256,876,527 shares issued, 1,161,979,708 and 1,233,960,078 shares outstanding | | Common stock, par value $0.00001 per share, 2,000,000,000 shares authorized; 1,262,375,765 and 1,256,876,527 shares issued, 1,161,979,708 and 1,233,960,078 shares outstanding | — | | | — | |
| Additional paid-in capital | 39,058 |
| | 38,846 |
| Additional paid-in capital | 74,404 | | | 73,941 | |
| Treasury stock, at cost, 1,455,466 and 1,411,487 shares issued | (4 | ) | | (1 | ) | |
| Accumulated other comprehensive income | 4 |
| | 1 |
| |
| Accumulated deficit | (18,781 | ) | | (20,610 | ) | |
| Treasury stock, at cost, 100,396,057 and 22,916,449 shares | | Treasury stock, at cost, 100,396,057 and 22,916,449 shares | (14,092) | | | (3,016) | |
| Accumulated other comprehensive loss | | Accumulated other comprehensive loss | (949) | | | (1,046) | |
| Retained earnings (accumulated deficit) | | Retained earnings (accumulated deficit) | 5,335 | | | (223) | |
| | Total stockholders' equity | 20,277 |
| | 18,236 |
| Total stockholders' equity | 64,698 | | | 69,656 | |
| Total liabilities and stockholders' equity | $ | 67,923 |
| | $ | 65,891 |
| Total liabilities and stockholders' equity | $ | 208,579 | | | $ | 211,338 | |
|
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 September 30, | | Nine Months Ended September 30, |
| (in millions, except share and per share amounts) | | (in millions, except share and per share amounts) | 2023 | | 2022 | 2023 | | 2022 | |
| Revenues | | Revenues | | |
| | Postpaid revenues | | Postpaid revenues | $ | 12,288 | | | $ | 11,548 | | | $ | 36,220 | | | $ | 34,194 | | |
| Prepaid revenues | | Prepaid revenues | 2,473 | | | 2,484 | | | 7,334 | | | 7,408 | | |
| Wholesale and other service revenues | | Wholesale and other service revenues | 1,153 | | | 1,329 | | | 3,644 | | | 4,203 | | |
| | Total service revenues | | Total service revenues | 15,914 | | | 15,361 | | | 47,198 | | | 45,805 | | |
| Equipment revenues | | Equipment revenues | 3,076 | | | 3,855 | | | 9,964 | | | 12,679 | | |
| Other revenues | | Other revenues | 262 | | | 261 | | | 918 | | | 814 | | |
| | Total revenues | | Total revenues | 19,252 | | | 19,477 | | | 58,080 | | | 59,298 | | |
| 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 | 2,886 | | | 3,712 | | | 8,863 | | | 11,499 | | |
| Cost of equipment sales, exclusive of depreciation and amortization shown separately below | | Cost of equipment sales, exclusive of depreciation and amortization shown separately below | 4,249 | | | 4,982 | | | 12,925 | | | 16,036 | | |
| Selling, general and administrative | | Selling, general and administrative | 5,334 | | | 5,118 | | | 16,031 | | | 16,030 | | |
| Impairment expense | | Impairment expense | — | | | — | | | — | | | 477 | | |
| Loss (gain) on disposal group held for sale | | Loss (gain) on disposal group held for sale | — | | | 1,071 | | | (25) | | | 1,071 | | |
| Depreciation and amortization | | Depreciation and amortization | 3,187 | | | 3,313 | | | 9,500 | | | 10,389 | | |
| | Total operating expenses | | Total operating expenses | 15,656 | | | 18,196 | | | 47,294 | | | 55,502 | | |
| Operating income | | Operating income | 3,596 | | | 1,281 | | | 10,786 | | | 3,796 | | |
| Other expense, net | | Other expense, net | | | | | | | | |
| | Interest expense, net | | Interest expense, net | (790) | | | (827) | | | (2,486) | | | (2,542) | | |
| | Other income (expense), net | | Other income (expense), net | 41 | | | (3) | | | 56 | | | (35) | | |
| | Total other expense, net | | Total other expense, net | (749) | | | (830) | | | (2,430) | | | (2,577) | | |
| | Income before income taxes | | Income before income taxes | 2,847 | | | 451 | | | 8,356 | | | 1,219 | | |
| Income tax (expense) benefit | | Income tax (expense) benefit | (705) | | | 57 | | | (2,053) | | | (106) | | |
| | Net income | | Net income | $ | 2,142 | | | $ | 508 | | | $ | 6,303 | | | $ | 1,113 | | |
| | | | 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 | $ | 2,142 | | | $ | 508 | | | $ | 6,303 | | | $ | 1,113 | | |
| Dividends on preferred stock | (13 | ) | | (13 | ) | | (41 | ) | | (41 | ) | |
| Net income attributable to common stockholders | $ | 537 |
| | $ | 353 |
| | $ | 1,788 |
| | $ | 1,029 |
| |
| Other comprehensive income, net of tax | | Other comprehensive income, 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 |
| |
| Reclassification of loss from cash flow hedges, net of tax effect of $15, $13, $42 and $39 | | Reclassification of loss from cash flow hedges, net of tax effect of $15, $13, $42 and $39 | 41 | | | 39 | | | 121 | | | 113 | | |
| | Unrealized (loss) gain on foreign currency translation adjustment, net of tax effect of $0, $0, $0 and $(1) | | Unrealized (loss) gain on foreign currency translation adjustment, net of tax effect of $0, $0, $0 and $(1) | — | | | (7) | | | 9 | | | (11) | | |
| Amortization of actuarial gain, net of tax effect of $(11), $0, $(11) and $0 | | Amortization of actuarial gain, net of tax effect of $(11), $0, $(11) and $0 | (33) | | | — | | | (33) | | | — | | |
| | Other comprehensive income | 1 |
| | 2 |
| | 3 |
| | 2 |
| Other comprehensive income | 8 | | | 32 | | | 97 | | | 102 | | |
| Total comprehensive income | $ | 551 |
| | $ | 368 |
| | $ | 1,832 |
| | $ | 1,072 |
| Total comprehensive income | $ | 2,150 | | | $ | 540 | | | $ | 6,400 | | | $ | 1,215 | | |
| Earnings per share | | | | | | | | Earnings per share | | | | | | | | |
| | Basic | | Basic | $ | 1.83 | | | $ | 0.40 | | | $ | 5.28 | | | $ | 0.89 | | |
| | Diluted | | Diluted | $ | 1.82 | | | $ | 0.40 | | | $ | 5.26 | | | $ | 0.88 | | |
| Weighted-average shares outstanding | | Weighted-average shares outstanding | | |
| Basic | $ | 0.65 |
| | $ | 0.43 |
| | $ | 2.15 |
| | $ | 1.25 |
| Basic | 1,171,336,373 | | | 1,253,873,429 | | | 1,194,497,722 | | | 1,252,783,140 | | |
| Diluted | $ | 0.63 |
| | $ | 0.42 |
| | $ | 2.10 |
| | $ | 1.24 |
| Diluted | 1,174,390,472 | | | 1,259,210,271 | | | 1,198,290,141 | | | 1,258,061,478 | | |
| 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 September 30, | | Nine Months Ended September 30, |
| (in millions) | 2017 | | 2016 | | 2017 | | 2016 | (in millions) | 2023 | | 2022 | | 2023 | | 2022 | |
| Operating activities | | | | | | | | Operating activities | | |
| | Net income | $ | 550 |
| | $ | 366 |
| | $ | 1,829 |
| | $ | 1,070 |
| Net income | $ | 2,142 | | | $ | 508 | | | $ | 6,303 | | | $ | 1,113 | | |
| 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 | 3,187 | | | 3,313 | | | 9,500 | | | 10,389 | | |
| Stock-based compensation expense | 82 |
| | 59 |
| | 221 |
| | 171 |
| Stock-based compensation expense | 156 | | | 150 | | | 500 | | | 445 | | |
| Deferred income tax expense | 347 |
| | 219 |
| | 595 |
| | 623 |
| |
| Deferred income tax expense (benefit) | | Deferred income tax expense (benefit) | 671 | | | (36) | | | 1,985 | | | 73 | | |
| Bad debt expense | 123 |
| | 118 |
| | 298 |
| | 358 |
| Bad debt expense | 228 | | | 239 | | | 663 | | | 760 | | |
| Losses from sales of receivables | 67 |
| | 59 |
| | 242 |
| | 157 |
| Losses from sales of receivables | 46 | | | 60 | | | 135 | | | 168 | | |
| Deferred rent expense | 21 |
| | 32 |
| | 61 |
| | 97 |
| |
| Gains on disposal of spectrum licenses | (29 | ) | | (199 | ) | | (67 | ) | | (835 | ) | |
| | Impairment expense | | Impairment expense | — | | | — | | | — | | | 477 | | |
| Loss on remeasurement of disposal group held for sale | | Loss on remeasurement of disposal group held for sale | — | | | 371 | | | 9 | | | 371 | | |
| Changes in operating assets and liabilities | | | | | | | | Changes in operating assets and liabilities | | |
| Accounts receivable | (119 | ) | | (155 | ) | | (166 | ) | | (462 | ) | Accounts receivable | (1,046) | | | (1,224) | | | (3,828) | | | (3,781) | | |
| Equipment installment plan receivables | (154 | ) | | 104 |
| | (520 | ) | | 556 |
| Equipment installment plan receivables | 165 | | | (77) | | | 563 | | | (801) | | |
| Inventories | 113 |
| | 301 |
| | (28 | ) | | (497 | ) | |
| Deferred purchase price from sales of receivables | 6 |
| | (16 | ) | | (12 | ) | | (199 | ) | |
| Inventory | | Inventory | (309) | | | (7) | | | 182 | | | 384 | | |
| Operating lease right-of-use assets | | Operating lease right-of-use assets | 886 | | | 1,113 | | | 2,823 | | | 4,275 | | |
| Other current and long-term assets | (184 | ) | | (98 | ) | | (330 | ) | | 31 |
| Other current and long-term assets | (135) | | | (334) | | | 77 | | | (450) | | |
| Accounts payable and accrued liabilities | (12 | ) | | (731 | ) | | (607 | ) | | (1,568 | ) | Accounts payable and accrued liabilities | 208 | | | 342 | | | (1,538) | | | 319 | | |
| Other current and long term liabilities | 60 |
| | 112 |
| | (84 | ) | | 326 |
| |
| Short- and long-term operating lease liabilities | | Short- and long-term operating lease liabilities | (692) | | | (700) | | | (2,884) | | | (2,218) | | |
| Other current and long-term liabilities | | Other current and long-term liabilities | (260) | | | 550 | | | (909) | | | 587 | | |
| Other, net | 75 |
| | 1 |
| | (27 | ) | | 10 |
| Other, net | 47 | | | 123 | | | 119 | | | 334 | | |
| | Net cash provided by operating activities | 2,362 |
| | 1,740 |
| | 5,904 |
| | 4,533 |
| Net cash provided by operating activities | 5,294 | | | 4,391 | | | 13,700 | | | 12,445 | | |
| 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 $(66), $(16), $(94) and $(44) | | Purchases of property and equipment, including capitalized interest of $(66), $(16), $(94) and $(44) | (2,424) | | | (3,634) | | | (8,214) | | | (10,587) | | |
| 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 | (119) | | | (360) | | | (225) | | | (3,319) | | |
| Sales of short-term investments | — |
| | — |
| | — |
| | 2,998 |
| |
| Proceeds from sales of tower sites | | Proceeds from sales of tower sites | 2 | | | — | | | 10 | | | — | | |
| Proceeds related to beneficial interests in securitization transactions | | Proceeds related to beneficial interests in securitization transactions | 1,131 | | | 1,308 | | | 3,785 | | | 3,614 | | |
| | Acquisition of companies, net of cash and restricted cash acquired | | Acquisition of companies, net of cash and restricted cash acquired | — | | | — | | | — | | | (52) | | |
| | Other, net | 1 |
| | 5 |
| | (2 | ) | | 3 |
| Other, net | 17 | | | 131 | | | 36 | | | 138 | | |
| | Net cash used in investing activities | (1,455 | ) | | (1,859 | ) | | (10,138 | ) | | (4,386 | ) | Net cash used in investing activities | (1,393) | | | (2,555) | | | (4,608) | | | (10,206) | | |
| Financing activities | | | | | | | | Financing activities | | | | | | | | |
| | Proceeds from issuance of long-term debt | 500 |
| | — |
| | 10,480 |
| | 997 |
| Proceeds from issuance of long-term debt | 1,983 | | | 2,972 | | | 8,446 | | | 2,972 | | |
| 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 | (304) | | | (311) | | | (914) | | | (901) | | |
| | Repayments of long-term debt | — |
| | (5 | ) | | (10,230 | ) | | (15 | ) | Repayments of long-term debt | (4,474) | | | (132) | | | (4,828) | | | (3,145) | | |
| | Repurchases of common stock | | Repurchases of common stock | (2,681) | | | (557) | | | (10,891) | | | (557) | | |
| | Tax withholdings on share-based awards | (6 | ) | | (3 | ) | | (101 | ) | | (52 | ) | Tax withholdings on share-based awards | (10) | | | (10) | | | (267) | | | (225) | | |
| Dividends on preferred stock | (13 | ) | | (13 | ) | | (41 | ) | | (41 | ) | |
| | Other, net | (5 | ) | | 8 |
| | 11 |
| | 17 |
| Other, net | (24) | | | (35) | | | (113) | | | (97) | | |
| | Net cash (used in) provided by financing activities | (349 | ) | | (67 | ) | | (527 | ) | | 623 |
| Net cash (used in) provided by financing activities | (5,510) | | | 1,927 | | | (8,567) | | | (1,953) | | |
| Change in cash and cash equivalents | 558 |
| | (186 | ) | | (4,761 | ) | | 770 |
| |
| Cash and cash equivalents | | | | | | | | |
| Change in cash and cash equivalents, including restricted cash and cash held for sale | | Change in cash and cash equivalents, including restricted cash and cash held for sale | (1,609) | | | 3,763 | | | 525 | | | 286 | | |
| Cash and cash equivalents, including restricted cash and cash held for sale | | Cash and cash equivalents, including restricted cash and cash held for sale | | |
| Beginning of period | 181 |
| | 5,538 |
| | 5,500 |
| | 4,582 |
| Beginning of period | 6,808 | | | 3,226 | | | 4,674 | | | 6,703 | | |
| End of period | $ | 739 |
| | $ | 5,352 |
| | $ | 739 |
| | $ | 5,352 |
| End of period | $ | 5,199 | | | $ | 6,989 | | | $ | 5,199 | | | $ | 6,989 | | |
| 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 Stock Outstanding | | Treasury Shares at Cost | | Par Value and Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings
(Accumulated Deficit) | | Total Stockholders' Equity | | |
| Balance as of June 30, 2023 | | | 1,180,398,748 | | | 81,090,539 | | | $ | (11,392) | | | $ | 74,161 | | | $ | (957) | | | $ | 3,938 | | | $ | 65,750 | | | |
| Net income | | | — | | | — | | | — | | | — | | | — | | | 2,142 | | | 2,142 | | | |
| Dividends declared ($0.65 per share) | | | — | | | — | | | — | | | — | | | — | | | (745) | | | (745) | | | |
| Other comprehensive income | | | — | | | — | | | — | | | — | | | 8 | | | — | | | 8 | | | |
| Stock-based compensation | | | — | | | — | | | — | | | 169 | | | — | | | — | | | 169 | | | |
| | | | | | | | | | | | | | | | | |
| Stock issued for employee stock purchase plan | | | 708,049 | | | — | | | — | | | 84 | | | — | | | — | | | 84 | | | |
| Issuance of vested restricted stock units | | | 231,246 | | | — | | | — | | | — | | | — | | | — | | | — | | | |
| | | | | | | | | | | | | | | | | |
| Shares withheld related to net share settlement of stock awards and stock options | | | (76,318) | | | — | | | — | | | (10) | | | — | | | — | | | (10) | | | |
| Repurchases of common stock | | | (19,313,159) | | | 19,313,159 | | | (2,702) | | | — | | | — | | | — | | | (2,702) | | | |
| | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | |
| Other, net | | | 31,142 | | | (7,641) | | | 2 | | | — | | | — | | | — | | | 2 | | | |
| Balance as of September 30, 2023 | | | 1,161,979,708 | | | 100,396,057 | | | $ | (14,092) | | | $ | 74,404 | | | $ | (949) | | | $ | 5,335 | | | $ | 64,698 | | | |
| | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2022 | | | 1,233,960,078 | | | 22,916,449 | | | $ | (3,016) | | | $ | 73,941 | | | $ | (1,046) | | | $ | (223) | | | $ | 69,656 | | | |
| Net income | | | — | | | — | | | — | | | — | | | — | | | 6,303 | | | 6,303 | | | |
| Dividends declared ($0.65 per share) | | | — | | | — | | | — | | | — | | | — | | | (745) | | | (745) | | | |
| Other comprehensive income | | | — | | | — | | | — | | | — | | | 97 | | | — | | | 97 | | | |
| | | | | | | | | | | | | | | | | |
| Stock-based compensation | | | — | | | — | | | — | | | 509 | | | — | | | — | | | 509 | | | |
| | | | | | | | | | | | | | | | | |
| Stock issued for employee stock purchase plan | | | 1,771,475 | | | — | | | — | | | 210 | | | — | | | — | | | 210 | | | |
| Issuance of vested restricted stock units | | | 5,397,316 | | | — | | | — | | | — | | | — | | | — | | | — | | | |
| | | | | | | | | | | | | | | | | |
| Shares withheld related to net share settlement of stock awards and stock options | | | (1,823,566) | | | — | | | — | | | (267) | | | — | | | — | | | (267) | | | |
| Repurchases of common stock | | | (77,460,937) | | | 77,460,937 | | | (11,073) | | | — | | | — | | | — | | | (11,073) | | | |
| | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | |
| Other, net | | | 135,342 | | | 18,671 | | | (3) | | | 11 | | | — | | | — | | | 8 | | | |
| Balance as of September 30, 2023 | | | 1,161,979,708 | | | 100,396,057 | | | $ | (14,092) | | | $ | 74,404 | | | $ | (949) | | | $ | 5,335 | | | $ | 64,698 | | | |
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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 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 June 30, 2022 | | | 1,254,010,072 | | | 1,564,549 | | | $ | (16) | | | $ | 73,552 | | | $ | (1,295) | | | $ | (2,207) | | | $ | 70,034 | | | | | |
| Net income | | | — | | | — | | | — | | | — | | | — | | | 508 | | | 508 | | | | | |
| Other comprehensive income | | | — | | | — | | | — | | | — | | | 32 | | | — | | | 32 | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Stock-based compensation | | | — | | | — | | | — | | | 165 | | | — | | | — | | | 165 | | | | | |
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| Stock issued for employee stock purchase plan | | | 802,361 | | | — | | | — | | | 89 | | | — | | | — | | | 89 | | | | | |
| Issuance of vested restricted stock units | | | 219,301 | | | — | | | — | | | — | | | — | | | — | | | — | | | | | |
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| Shares withheld related to net share settlement of stock awards and stock options | | | (67,575) | | | — | | | — | | | (10) | | | — | | | — | | | (10) | | | | | |
| Repurchases of common stock | | | (4,892,315) | | | 4,892,315 | | | (669) | | | — | | | — | | | — | | | (669) | | | | | |
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| Other, net | | | 32,582 | | | (5,968) | | | — | | | 1 | | | — | | | — | | | 1 | | | | | |
| Balance as of September 30, 2022 | | | 1,250,104,426 | | | 6,450,896 | | | $ | (685) | | | $ | 73,797 | | | $ | (1,263) | | | $ | (1,699) | | | $ | 70,150 | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2021 | | | 1,249,213,681 | | | 1,537,468 | | | $ | (13) | | | $ | 73,292 | | | $ | (1,365) | | | $ | (2,812) | | | $ | 69,102 | | | | | |
| Net income | | | — | | | — | | | — | | | — | | | — | | | 1,113 | | | 1,113 | | | | | |
| Other comprehensive income | | | — | | | — | | | — | | | — | | | 102 | | | — | | | 102 | | | | | |
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| Stock-based compensation | | | — | | | — | | | — | | | 490 | | | — | | | — | | | 490 | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Stock issued for employee stock purchase plan | | | 2,079,086 | | | — | | | — | | | 227 | | | — | | | — | | | 227 | | | | | |
| Issuance of vested restricted stock units | | | 5,380,712 | | | — | | | — | | | — | | | — | | | — | | | — | | | | | |
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| Shares withheld related to net share settlement of stock awards and stock options | | | (1,772,442) | | | — | | | — | | | (225) | | | — | | | — | | | (225) | | | | | |
| Repurchases of common stock | | | (4,892,315) | | | 4,892,315 | | | (669) | | | — | | | — | | | — | | | (669) | | | | | |
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| Other, net | | | 95,704 | | | 21,113 | | | (3) | | | 13 | | | — | | | — | | | 10 | | | | | |
| Balance as of September 30, 2022 | | | 1,250,104,426 | | | 6,450,896 | | | $ | (685) | | | $ | 73,797 | | | $ | (1,263) | | | $ | (1,699) | | | $ | 70,150 | | | | | |
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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, 2016.2022.
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 PrincipleOn September 6, 2022, Sprint Communications LLC, a Kansas limited liability company and wholly owned subsidiary of the Company (“Sprint Communications”), Sprint LLC, a Delaware limited liability company and wholly owned subsidiary of the Company, and Cogent Infrastructure, Inc., a Delaware corporation (the “Buyer”) and wholly owned subsidiary of Cogent Communications Holdings, Inc., entered into a Membership Interest Purchase Agreement (the “Wireline Sale Agreement”), pursuant to which the Buyer agreed to acquire the U.S. long-haul fiber network and operations (including the non-U.S. extensions thereof) of Sprint Communications and its subsidiaries (the “Wireline Business”). Such transactions contemplated by the Wireline Sale Agreement are collectively referred to as the “Wireline Transaction.” On May 1, 2023, the Buyer and the Company completed the Wireline Transaction (the “Closing”).
Effective January 1, 2017,The assets and liabilities of the imputed discount on Equipment Installment Plan (“EIP”) receivables, which is amortized over the financed installment term using the effective interest method,Wireline Business disposal group were classified as held for sale and was previously presented within Interest income inOther current assets and Other current liabilities on our Condensed Consolidated StatementsBalance Sheets as of Comprehensive Income, is now presentedDecember 31, 2022. The fair value of the Wireline Business disposal group, less costs to sell, was reassessed during each reporting period it remained classified as held for sale, and any remeasurement to the lower of carrying amount or fair value less costs to sell was reported as an adjustment included within Other revenues inLoss (gain) on disposal group held for sale on our Condensed Consolidated Statements of Comprehensive Income. We believe this presentation is preferable because it provides a better representationUnless otherwise specified, the amounts and information presented as 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,December 31, 2022, in the tables below:Notes to the Condensed Consolidated Financial Statements include assets and liabilities that were classified as held for sale.
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| | 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 |
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| Total revenues | 9,945 |
| | 74 |
| | 10,019 |
| | 9,246 |
| | 59 |
| | 9,305 |
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| Operating income | 1,249 |
| | 74 |
| | 1,323 |
| | 989 |
| | 59 |
| | 1,048 |
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| Interest income | 76 |
| | (74 | ) | | 2 |
| | 62 |
| | (59 | ) | | 3 |
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| Total other expense, net | (343 | ) | | (74 | ) | | (417 | ) | | (391 | ) | | (59 | ) | | (450 | ) |
| Net income | 550 |
| | — |
| | 550 |
| | 366 |
| | — |
| | 366 |
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| | 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 |
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| Total revenues | 29,641 |
| | 204 |
| | 29,845 |
| | 27,067 |
| | 189 |
| | 27,256 |
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| Operating income | 3,572 |
| | 204 |
| | 3,776 |
| | 2,860 |
| | 189 |
| | 3,049 |
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| Interest income | 219 |
| | (204 | ) | | 15 |
| | 198 |
| | (189 | ) | | 9 |
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| Total other expense, net | (1,125 | ) | | (204 | ) | | (1,329 | ) | | (1,139 | ) | | (189 | ) | | (1,328 | ) |
| Net income | 1,829 |
| | — |
| | 1,829 |
| | 1,070 |
| | — |
| | 1,070 |
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The change in accounting principle did not have an impact on basic or diluted earnings per share for the three and nine months endedOn September 30, 2017 and 2016, or Accumulated deficit as6, 2023, our Board of September 30, 2017 orDirectors authorized a stockholder return program of up to $19.0 billion that will run through December 31, 2016.2024 (the “2023-2024 Stockholder Return Program”). The 2023-2024 Stockholder Return Program is expected to consist of additional repurchases of shares of our common stock and the payment of cash dividends. The amount available under the 2023-2024 Stockholder Return Program for share repurchases will be reduced by the amount of any cash dividends declared by us.
Dividends declared are included as a reduction to Retained earnings on our Condensed Consolidated Balance Sheets. We recognize a liability for dividends declared but for which cash has not been paid in Other current liabilities on our Condensed Consolidated Balance Sheets. Dividend cash payments to stockholders will be included in Net cash (used in) provided by financing activities on our Condensed Consolidated Statements of Cash Flows. See Note 10 - Stockholder Return Programs for more information about our 2023-2024 Stockholder Return Program.
Accounting Pronouncements Not Yet Adopted During the Current Year
Troubled Debt Restructurings and Vintage Disclosures
In May 2014,March 2022, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”Accounting Standards Update (“ASU 2014-09”ASU”), and has since modified the standard with several ASUs. The standard is effective for us, and we will adopt the standard, on January 1, 2018.
The standard requires entities to recognize revenue through the application of a five-step model, which includes: identification of the contract; identification of the performance obligations; determination of the transaction price; allocation of the transaction price to the performance obligations; and recognition of revenue as the entity satisfies the performance obligations.
The guidance permits two methods of adoption, the full retrospective method applying the standard to each prior reporting period presented, or the modified retrospective method with a cumulative effect of initially applying the guidance recognized at the date of initial application. The standard also allows entities to apply certain practical expedients at their discretion. We are adopting the standard using the modified retrospective method with a cumulative catch up adjustment and will provide additional disclosures comparing results 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 or 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.
We are in the process of implementing significant new lease accounting systems, processes and internal controls over lease recognition which will ultimately assist in the application of the new standard.
In June 2016, the FASB issued ASU 2016-13, 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. The standard will become effective for us beginning January 1, 2020, and will require a cumulative-effect adjustment to Accumulated deficit as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). Early adoption is permitted for us asASC 326-20. As of January 1, 2019. We are currently evaluating the impact2023, we have adopted this guidance will have on our condensed consolidated financial statementsstandard, 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.” Theit was applied prospectively after this date. This 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 willdid not have a material impact on our condensed consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, “Statementstatements as 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 Transactions
Hurricane Impacts
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 negative impact to operating income and net income for both the three and nine months ended September 30, 2017,2023.
Note 2 – Business Combination
On March 9, 2023, we entered into a Merger and Unit Purchase Agreement for the acquisition of 100% of the outstanding equity of Ka’ena Corporation and its subsidiaries including, among others, Mint Mobile LLC, for a maximum purchase price of $1.35 billion to be paid out 39% in cash and 61% in shares of T-Mobile common stock. The purchase price is variable dependent upon specified performance indicators of Ka’ena Corporation during certain periods before and after closing and consists of an upfront payment at closing of the transaction, subject to certain agreed-upon adjustments, and a variable earnout payable 24 months after closing of the transaction. Our estimate of the upfront payment is subject to Ka’ena Corporation’s underlying business performance and the timing of transaction close, and has been updated to $1.2 billion, before working capital adjustments. The acquisition is subject to certain customary closing conditions, including certain regulatory approvals, and is expected to close by the end of the first quarter of 2024.
Note 3 – Receivables and Related Allowance for Credit Losses
We maintain an allowance for credit losses by applying an expected credit loss model. Each period, management assesses the appropriateness of the level of allowance for credit losses by considering credit risk inherent within each portfolio segment as of the end of the period.
We consider a receivable past due when a customer has not paid us by the contractually specified payment due date. Account balances are written off against the allowance for credit losses if collection efforts are unsuccessful and the receivable balance is deemed uncollectible (customer default), based on factors such as customer credit ratings as well as the length of time the amounts are past due.
Our portfolio of receivables is comprised of two portfolio segments: accounts receivable and equipment installment plan (“EIP”) receivables.
Accounts Receivable Portfolio Segment
Accounts receivable balances are predominately comprised of amounts currently due from lost revenue,customers (e.g., for wireless communications services and monthly device lease payments), device insurance administrators, wholesale partners, non-consolidated affiliates, other carriers and third-party retail channels.
We estimate credit losses associated with our accounts receivable portfolio segment using an expected credit loss model, which utilizes an aging schedule methodology based on historical information and adjusted for asset-specific considerations, current economic conditions and reasonable and supportable forecasts.
Our approach considers a number of factors, including our overall historical credit losses and payment experience, as well as current collection trends such as write-off frequency and severity. We also consider other qualitative factors such as current and forecasted macroeconomic conditions.
We consider the need to adjust our estimate of credit losses for reasonable and supportable forecasts of future macroeconomic conditions. To do so, we monitor external forecasts of changes in real U.S. gross domestic product and forecasts of consumer credit behavior for comparable credit exposures. We also periodically evaluate other macroeconomic indicators, such as unemployment rates, to assess their level of correlation with our historical credit loss statistics.
EIP Receivables Portfolio Segment
Based upon customer credit profiles at the time of customer origination, we classify the EIP receivables segment into two customer classes of “Prime” and “Subprime.” Prime customer receivables are those with lower credit risk and Subprime customer receivables are those with higher credit risk. Customers may be required to make a down payment on their equipment purchases if their assessed credit risk exceeds established underwriting thresholds. In addition, certain customers within the Subprime category may be required to pay a deposit.
To determine a customer’s credit profile and assist in determining their credit class, we use a proprietary credit scoring model that measures the credit quality of a customer leveraging several factors, such as credit bureau information and consumer credit risk scores, as well as service and device plan characteristics.
EIP receivables had a combined weighted-average effective interest rate of 9.9% and 8.0% as of September 30, 2023, and December 31, 2022, respectively.
The following table summarizes the EIP receivables, including imputed discounts and related allowance for credit losses: | | | | | | | | | | | |
| (in millions) | September 30,
2023 | | December 31,
2022 |
| | | |
| | | |
| EIP receivables, gross | $ | 7,089 | | | $ | 8,480 | |
| Unamortized imputed discount | (453) | | | (483) | |
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| EIP receivables, net of unamortized imputed discount | 6,636 | | | 7,997 | |
| Allowance for credit losses | (287) | | | (328) | |
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| EIP receivables, net of allowance for credit losses and imputed discount | $ | 6,349 | | | $ | 7,669 | |
| Classified on our condensed consolidated balance sheets as: | | | |
| Equipment installment plan receivables, net of allowance for credit losses and imputed discount | $ | 4,470 | | | $ | 5,123 | |
| Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount | 1,879 | | | 2,546 | |
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| EIP receivables, net of allowance for credit losses and imputed discount | $ | 6,349 | | | $ | 7,669 | |
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Many of our loss estimation techniques rely on delinquency-based models; therefore, delinquency is an important indicator of credit quality in the establishment of our allowance for credit losses for EIP receivables. We manage our EIP receivables portfolio segment using delinquency and customer credit class as key credit quality indicators.
The following table presents the amortized cost of our EIP receivables by delinquency status, customer credit class and year of origination as of September 30, 2023:
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| Originated in 2023 | | Originated in 2022 | | Originated prior to 2022 | | Total EIP Receivables, Net of
Unamortized Imputed Discounts |
| (in millions) | Prime | | Subprime | | Prime | | Subprime | | Prime | | Subprime | | Prime | | Subprime | | Total |
| Current - 30 days past due | $ | 2,419 | | | $ | 1,355 | | | $ | 1,305 | | | $ | 896 | | | $ | 368 | | | $ | 175 | | | $ | 4,092 | | | $ | 2,426 | | | $ | 6,518 | |
| 31 - 60 days past due | 8 | | | 18 | | | 7 | | | 12 | | | 2 | | | 2 | | | 17 | | | 32 | | | 49 | |
| 61 - 90 days past due | 5 | | | 12 | | | 5 | | | 10 | | | 1 | | | 1 | | | 11 | | | 23 | | | 34 | |
| More than 90 days past due | 5 | | | 9 | | | 5 | | | 11 | | | 2 | | | 3 | | | 12 | | | 23 | | | 35 | |
| EIP receivables, net of unamortized imputed discount | $ | 2,437 | | | $ | 1,394 | | | $ | 1,322 | | | $ | 929 | | | $ | 373 | | | $ | 181 | | | $ | 4,132 | | | $ | 2,504 | | | $ | 6,636 | |
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We estimate credit losses on our EIP receivables segment by applying an expected credit loss model, which relies on historical loss data adjusted for current conditions to calculate default probabilities or an estimate for the frequency of customer default. Our assessment of default probabilities or frequency includes receivables delinquency status, historical loss experience, how long the receivables have been outstanding and customer credit ratings, as well as customer tenure. We multiply these estimated default probabilities by our estimated loss given default, which is the estimated amount of default or the severity of loss.
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.
The following table presents write-offs of our EIP receivables by year of origination for the nine months ended September 30, 2023:
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| (in millions) | Originated in 2023 | | | | Originated in 2022 | | | | Originated prior to 2022 | | | | | | | | Total Write-offs |
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| Write-offs | $ | 84 | | | | | $ | 243 | | | | | $ | 54 | | | | | | | | | $ | 381 | |
Activity for the nine months ended September 30, 2023 and 2022, in the allowance for credit losses and unamortized imputed discount balances for the accounts receivable and EIP receivables segments were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 | | September 30, 2022 | | |
| (in millions) | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total | | | | | | |
| | | | | | | | | | | | | | | | | |
| Allowance for credit losses and imputed discount, beginning of period | $ | 167 | | | $ | 811 | | | $ | 978 | | | $ | 146 | | | $ | 630 | | | $ | 776 | | | | | | | |
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| Bad debt expense | 322 | | | 341 | | | 663 | | | 305 | | | 455 | | | 760 | | | | | | | |
| Write-offs | (323) | | | (381) | | | (704) | | | (290) | | | (375) | | | (665) | | | | | | | |
| Change in imputed discount on short-term and long-term EIP receivables | N/A | | 120 | | | 120 | | | N/A | | 146 | | | 146 | | | | | | | |
| Impact on the imputed discount from sales of EIP receivables | N/A | | (151) | | | (151) | | | N/A | | (107) | | | (107) | | | | | | | |
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| Allowance for credit losses and imputed discount, end of period | $ | 166 | | | $ | 740 | | | $ | 906 | | | $ | 161 | | | $ | 749 | | | $ | 910 | | | | | | | |
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Off-Balance-Sheet Credit Exposures
We do not have material off-balance-sheet credit exposures as of September 30, 2023. In connection with the sales of certain service accounts receivable and EIP receivables pursuant to the sale arrangements, we have deferred purchase price assets damaged or destroyedincluded 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 other hurricane related costs incurred was $148 millioncredit worthiness, dilutions and $90 million, respectively.recoveries. See Note 4 – Sales of Certain Receivables for further information.
Note 4 – Sales of Certain Receivables
We regularly enter into transactions to sell certain service accounts receivable and EIP receivables. The transactions, including our continuing involvement with the sold receivables and the respective impacts to our condensed consolidated financial statements, are described below.
Sales of EIP Receivables
Overview of the Transaction
In 2015, we entered into an arrangement to sell certain EIP receivables on a revolving basis (the “EIP sale arrangement”), which has been revised and extended from time to time. As of both September 30, 2023, and December 31, 2022, 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, included on our Condensed Consolidated Balance Sheets with respect to the EIP BRE: | | | | | | | | | | | |
| (in millions) | September 30,
2023 | | December 31,
2022 |
| Other current assets | $ | 368 | | | $ | 344 | |
| Other assets | 114 | | | 136 | |
| | | |
Sales of Service Accounts Receivable
Overview of the Transaction
In 2014, we entered into an arrangement to sell certain service accounts receivable on a revolving basis (the “service receivable sale arrangement”). On February 28, 2023, we extended the scheduled expiration date of the service receivable sale arrangement to February 27, 2024. As of both September 30, 2023, and December 31, 2022, the service receivable sale arrangement provided funding of $775 million.
In connection with the service receivable sale arrangement, we formed a wholly owned subsidiary, which qualifies as a bankruptcy remote entity, to sell service accounts receivable (the “Service BRE”). We consolidate the Service 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 Service BRE: | | | | | | | | | | | |
| (in millions) | September 30,
2023 | | December 31,
2022 |
| Other current assets | $ | 210 | | | $ | 214 | |
| | | |
| Other current liabilities | 355 | | | 389 | |
Sales of Receivables
The following table summarizes the impact of the sale of certain service accounts receivable and EIP receivables on our Condensed Consolidated Balance Sheets: | | | | | | | | | | | |
| (in millions) | September 30,
2023 | | December 31,
2022 |
| Derecognized net service accounts receivable and EIP receivables | $ | 2,426 | | | $ | 2,410 | |
| Other current assets | 578 | | | 558 | |
| of which, deferred purchase price | 576 | | | 556 | |
| Other long-term assets | 114 | | | 136 | |
| of which, deferred purchase price | 114 | | | 136 | |
| | | |
| Other current liabilities | 355 | | | 389 | |
| | | |
| Net cash proceeds since inception | 1,604 | | | 1,697 | |
| Of which: | | | |
| Change in net cash proceeds during the year-to-date period | (93) | | | (57) | |
| Net cash proceeds funded by reinvested collections | 1,697 | | | 1,754 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
At inception, we elected to measure the deferred purchase price at fair value with changes in fair value included in Selling, general and administrative expenses on 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 Level 3 inputs, including estimated customer default rates. As of September 30, 2017,2023, and December 31, 2022, 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, primarilydeferred purchase price related to the sales of service accounts receivable and EIP receivables was $690 million and $692 million, respectively.
We recognized losses from sales of receivables, including changes in fair value of the deferred purchase price, of $46 million and $60 million for the three months ended September 30, 2023 and 2022, respectively, and $135 million and $168 million for the nine months ended September 30, 2023 and 2022, respectively, in Selling, general and administrative expenses on our operationsCondensed Consolidated Statements of Comprehensive Income.
Continuing Involvement
Pursuant to the sale arrangements described above, we have continuing involvement with the service accounts receivable and EIP receivables we sell as we service the receivables, are required to repurchase certain receivables, including ineligible receivables, aged receivables and receivables where a write-off is imminent, and may be responsible for absorbing credit losses through reduced collections on our deferred purchase price assets. We continue to service the customers and their related receivables, including facilitating customer payment collection, in Puerto Rico. We have not recognized any potential insurance recoveries relatedexchange for a monthly servicing fee. As the receivables are sold on a revolving basis, the customer payment collections on sold receivables may be reinvested in new receivable sales. At
the direction of the purchasers of the sold receivables, we apply the same policies and procedures while servicing the sold receivables as we apply to our owned receivables, and we continue to assess the damage and workmaintain normal relationships with our insurance carriers.customers.
Purchase
Note 5 – Spectrum License Transactions
The following table summarizes our spectrum license activity for the nine months ended September 30, 2023: | | | | | | | | | |
| (in millions) | 2023 | | | | |
| Spectrum licenses, beginning of year | $ | 95,798 | | | | | |
| | | | | |
| Spectrum license acquisitions | 85 | | | | | |
| | | | | |
| Spectrum licenses transferred to held for sale | (2) | | | | | |
Costs to clear spectrum (1) | 808 | | | | | |
| | | | | |
| Spectrum licenses, end of period | $ | 96,689 | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
(1)As of Iowa WirelessSeptember 30, 2023, $767 million is included in Other current liabilities on our Condensed Consolidated Balance Sheets related to accrued spectrum clearing costs.
On September 18, 2017, we entered into a Unit Purchase Agreement (“UPA”)Cash payments to acquire spectrum licenses and payments for costs to clear spectrum are included in Purchases of spectrum licenses and other intangible assets, including deposits, on our Condensed Consolidated Statements of Cash Flows for 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 expected within the next sixthree and nine months subject to regulatory approvals and customary closing conditions, INS will become a wholly-owned consolidated subsidiary.ended September 30, 2023.
Spectrum TransactionsSales of Receivables
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 option to pay for their devices and accessories in installments over a period of up to 24 months using an EIP.
The following table summarizes the EIP receivables:
|
| | | | | | | |
| (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 |
|
We use a proprietary credit scoring model that measuresimpact of the credit qualitysale of a customer at the time of application for mobile communicationscertain service using several factors, such as credit bureau information, consumer credit risk scoresaccounts receivable and service plan characteristics. Based upon customer credit profiles, we classify EIP receivables into the credit categories of “Prime” and “Subprime.” Prime customer receivables are those with lower delinquency risk and Subprime customer receivables are those with higher delinquency risk. Subprime customers may be required to make a down payment on their equipment purchases. In addition, certain customers within the Subprime category are required to pay an advance deposit.
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 of the EIP receivables on
our Condensed Consolidated Balance Sheets: | | | | | | | | | | | |
| (in millions) | September 30,
2023 | | December 31,
2022 |
| Derecognized net service accounts receivable and EIP receivables | $ | 2,426 | | | $ | 2,410 | |
| Other current assets | 578 | | | 558 | |
| of which, deferred purchase price | 576 | | | 556 | |
| Other long-term assets | 114 | | | 136 | |
| of which, deferred purchase price | 114 | | | 136 | |
| | | |
| Other current liabilities | 355 | | | 389 | |
| | | |
| Net cash proceeds since inception | 1,604 | | | 1,697 | |
| Of which: | | | |
| Change in net cash proceeds during the year-to-date period | (93) | | | (57) | |
| Net cash proceeds funded by reinvested collections | 1,697 | | | 1,754 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
At inception, we elected to measure the deferred purchase price at fair value with changes in fair value included in Selling, general and administrative expenses on our Condensed Consolidated Statements of Comprehensive Income. The fair value of the deferred purchase price is determined based on a gross basis by credit category were as follows:discounted cash flow model which uses primarily Level 3 inputs, including estimated customer default rates. As of September 30, 2023, and December 31, 2022, our deferred purchase price related to the sales of service accounts receivable and EIP receivables was $690 million and $692 million, respectively.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
ActivityWe recognized losses from sales of receivables, including changes in fair value of the deferred purchase price, of $46 million and $60 million for the three months ended September 30, 2023 and 2022, respectively, and $135 million and $168 million for the nine months ended September 30, 20172023 and 2016,2022, respectively, in Selling, general and administrative expenses on our Condensed Consolidated Statements of Comprehensive Income.
Continuing Involvement
Pursuant to the unamortized imputed discount and allowance for credit losses balances for the EIP receivables was as follows:
|
| | | | | | | |
| (in millions) | September 30,
2017 | | September 30,
2016 |
| Imputed discount and allowance for credit losses, beginning of period | $ | 316 |
| | $ | 333 |
|
| Bad debt expense | 215 |
| | 185 |
|
| Write-offs, net of recoveries | (205 | ) | | (201 | ) |
| Change in imputed discount on short-term and long-term EIP receivables | 163 |
| | 103 |
|
| Impacts from sales of EIP receivables | (126 | ) | | (133 | ) |
| Imputed discount and allowance for credit losses, end of period | $ | 363 |
| | $ | 287 |
|
The EIP receivables had weighted average effective imputed interest rates of 9.7% and 9.0% as of September 30, 2017 and December 31, 2016, respectively.
Note 4 – Sales of Certain Receivables
Wesale arrangements described above, we have entered into transactions to sell certain service and EIP accounts receivables. The transactions, including our continuing involvement with the soldservice accounts receivable and EIP receivables we sell as we service the receivables, are required to repurchase certain receivables, including ineligible receivables, aged receivables and receivables where a write-off is imminent, and may be responsible for absorbing credit losses through reduced collections on our deferred purchase price assets. We continue to service the respective impacts to our financial statements,customers and their related receivables, including facilitating customer payment collection, in exchange for a monthly servicing fee. As the receivables are described below.
Sales of Service Receivables
Overview of the Transaction
In 2014, we entered into an arrangement to sell certain service accounts receivablessold on a revolving basis, the customer payment collections on sold receivables may be reinvested in new receivable sales. At
the direction of the purchasers of the sold receivables, we apply the same policies and in November 2016,procedures while servicing the arrangement was amendedsold receivables as we apply to increaseour owned receivables, and we continue to maintain normal relationships with our customers.
Note 5 – Spectrum License Transactions
The following table summarizes our spectrum license activity for the maximum funding commitment to $950 million (the “service receivable sale arrangement”) and extend the scheduled expiration date to March 2018. nine months ended September 30, 2023: | | | | | | | | | |
| (in millions) | 2023 | | | | |
| Spectrum licenses, beginning of year | $ | 95,798 | | | | | |
| | | | | |
| Spectrum license acquisitions | 85 | | | | | |
| | | | | |
| Spectrum licenses transferred to held for sale | (2) | | | | | |
Costs to clear spectrum (1) | 808 | | | | | |
| | | | | |
| Spectrum licenses, end of period | $ | 96,689 | | | | | |
| | | | | |
| | | | | |
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| | | | | |
| | | | | |
| | | | | |
(1)As of September 30, 2017 and December 31, 2016, the service receivable sale arrangement provided funding of $8992023, $767 million and $907 million, respectively. Sales of receivables occur daily and are settled on a monthly basis. The receivables consist of service charges currently due from customers and are short-term in nature.
In connection with the service receivable sale arrangement, we formed a wholly-owned subsidiary, which qualifies as a bankruptcy remote entity to sell service accounts receivables (the “Service BRE”). The Service BRE does not qualify as a VIE, and due to the significant level of control we exercise over the entity, it is consolidated. Pursuant to the arrangement, certain of our wholly-owned subsidiaries transfer selected receivables to the Service BRE. The Service BRE then sells the receivables to an unaffiliated entity (the “Service VIE”), which was established to facilitate the sale of beneficial ownership interests in the receivables to certain third parties.
Variable Interest Entity
We determined that the Service VIE qualifies as a VIE as it lacks sufficient equity to finance its activities. We have a variable interest in the Service VIE, but are not the primary beneficiary as we lack the power to direct the activities that most significantly impact the Service VIE’s economic performance. Those activities include committing the Service VIE to legal agreements to purchase or sell assets, selecting which receivables are purchased in the service receivable sale arrangement, determining whether the Service VIE will sell interests in the purchased service receivables to other parties, funding of the entity and servicing of receivables. We do not hold the power to direct the key decisions underlying these activities. For example, while we act as the servicer of the sold receivables, which is considered a significant activity of the Service VIE, we are acting as an agent in our capacity as the servicer and the counterparty to the service receivable sale arrangement has the ability to remove us as the servicing agent of the receivables at will with no recourse available to us. As we have determined we are not the primary beneficiary, the 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 consists primarily of the deferred purchase price and liabilities included in Other current liabilities on our Condensed Consolidated Balance Sheets that relate related to accrued spectrum clearing costs.
Cash payments to acquire spectrum licenses and payments for costs to clear spectrum are included in Purchases of spectrum licenses and other intangible assets, including deposits, on our variable interest inCondensed Consolidated Statements of Cash Flows for the Service VIE:
|
| | | | | | | |
| (in millions) | September 30,
2017 | | December 31,
2016 |
| Other current assets | $ | 225 |
| | $ | 207 |
|
| Accounts payable and accrued liabilities | 13 |
| | 17 |
|
| Other current liabilities | 155 |
| | 129 |
|
Sales of EIP Receivables
Overview of the Transaction
In 2015, we entered into an arrangement to sell certain EIP accounts receivables on a revolving basisthree 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 bothnine months ended 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 payments for up to 24 months.2023.
In connection with this EIP sale arrangement, we formed a wholly-owned subsidiary, which qualifies as a bankruptcy remote entity (the “EIP BRE”). Pursuant to the EIP sale arrangement, 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:
|
| | | | | | | |
| (in millions) | September 30,
2017 | | December 31,
2016 |
| Other current assets | $ | 357 |
| | $ | 371 |
|
| Other assets | 90 |
| | 83 |
|
| Other long-term liabilities | 2 |
| | 4 |
|
In addition, the EIP BRE is a separate legal entity with its own separate creditors who will be entitled, prior to any liquidation of the EIP BRE, to be satisfied prior to any value in the EIP BRE becoming available to us. Accordingly, the assets of the EIP BRE may not be used to settle our general obligations and creditors of the EIP BRE have limited recourse to our general credit.
Sales of Receivables
The transfersfollowing table summarizes the impact of the sale of certain service receivablesaccounts receivable 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) | September 30,
2023 | | December 31,
2022 |
| Derecognized net service accounts receivable and EIP receivables | $ | 2,426 | | | $ | 2,410 | |
| Other current assets | 578 | | | 558 | |
| of which, deferred purchase price | 576 | | | 556 | |
| Other long-term assets | 114 | | | 136 | |
| of which, deferred purchase price | 114 | | | 136 | |
| | | |
| Other current liabilities | 355 | | | 389 | |
| | | |
| Net cash proceeds since inception | 1,604 | | | 1,697 | |
| Of which: | | | |
| Change in net cash proceeds during the year-to-date period | (93) | | | (57) | |
| Net cash proceeds funded by reinvested collections | 1,697 | | | 1,754 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
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 inexpenses on 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 estimated customer default rates. As of September 30, 20172023, and December 31, 2016,2022, our deferred purchase price related to the sales of service receivablesaccounts receivable and EIP receivables was $671$690 million and $659$692 million, respectively.
The following table summarizes the impacts of the sale of certain service receivables and EIP receivables in our Condensed Consolidated Balance Sheets:
|
| | | | | | | |
| (in millions) | September 30,
2017 | | December 31,
2016 |
| Derecognized net service receivables and EIP receivables | $ | 2,362 |
| | $ | 2,502 |
|
| Other current assets | 582 |
| | 578 |
|
| of which, deferred purchase price | 581 |
| | 576 |
|
| Other long-term assets | 90 |
| | 83 |
|
| of which, deferred purchase price | 90 |
| | 83 |
|
| Accounts payable and accrued liabilities | 13 |
| | 17 |
|
| Other current liabilities | 155 |
| | 129 |
|
| Other long-term liabilities | 2 |
| | 4 |
|
| Net cash proceeds since inception | 1,963 |
| | 2,030 |
|
| 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 |
|
We recognized losses from sales of receivables, including changes in fair value of $67the deferred purchase price, of $46 million and $59$60 million for the three months ended September 30, 20172023 and 2016,2022, respectively, and $242$135 million and $157$168 million for the nine months ended September 30, 20172023 and 2016, respectively. These losses from sales of receivables were recognized2022, respectively, in Selling, general and administrative expense inexpenses on our Condensed Consolidated Statements of Comprehensive Income. Losses from sales of receivables include adjustments to the receivables’ fair values and changes in fair value of the deferred purchase price.
Continuing Involvement
Pursuant to the sale arrangements described above, we have continuing involvement with the service receivablesaccounts receivable 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 a 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 5 – Spectrum License Transactions
The following table summarizes our spectrum license activity duringfor the nine months ended September 30, 2017:2023: | | | | | | | | | |
| (in millions) | 2023 | | | | |
| Spectrum licenses, beginning of year | $ | 95,798 | | | | | |
| | | | | |
| Spectrum license acquisitions | 85 | | | | | |
| | | | | |
| Spectrum licenses transferred to held for sale | (2) | | | | | |
Costs to clear spectrum (1) | 808 | | | | | |
| | | | | |
| Spectrum licenses, end of period | $ | 96,689 | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
(1)As of September 30, 2023, $767 million is included in Other current liabilities on our Condensed Consolidated Balance Sheets related to accrued spectrum clearing costs. |
| | | |
| (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 for the exchange of certain spectrum licenses. Upon closing of the transaction, we recorded theCash payments to acquire spectrum licenses received at their estimated fair value of approximately $123 million and recognized a gain of $37 millionpayments for costs to clear spectrum are included in Gains on disposalPurchases of spectrum licenses inand other intangible assets, including deposits, on our Condensed Consolidated Statements of Comprehensive Income.Cash Flows for the three and nine months ended September 30, 2023.
Spectrum Transactions
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 2017,2022, the Federal Communications Commission (the “FCC”(“FCC”) announced that we were the winning bidder of 1,5257,156 licenses in the 600 MHz spectrum auctionAuction 108 (2.5 GHz spectrum) for an aggregate price of $8.0 billion.$304 million. At inception of the auctionAuction 108 in June 2016,2022, 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$65 million. We paid the FCC the remaining $5.8 billion$239 million for the licenses won in the auction in September 2022. The aggregate cash payments made to the FCC are included in Other assets on our Condensed Consolidated Balance Sheets as of September 30, 2023, and will remain there until the corresponding licenses are received. The timing of when the licenses will be issued will be determined by the FCC after all post-auction procedures have been completed, and the FCC Chairwoman has stated that it is subject to the restoration of auction authority to the FCC by Congress.
As of September 30, 2023, the activities that are necessary to get the 3.45 GHz and 2.5 GHz spectrum, acquired pursuant to FCC Auctions 110 and 108, ready for its intended use have not begun; as such, capitalization of the interest associated with the costs of deploying these spectrum licenses has not begun. During the three months ended September 30, 2023, we began capitalizing interest on the costs of our C-band spectrum licenses, acquired pursuant to FCC Auction 107, as we have begun development activities necessary to prepare the spectrum for its intended use.
License Purchase Agreements
DISH Network Corporation
On July 1, 2020, we and DISH Network Corporation (“DISH”) entered into a license purchase agreement (the “DISH License Purchase Agreement”) pursuant to which DISH agreed to purchase certain 800 MHz spectrum licenses for a total of approximately $3.6 billion. The closing of the sale of spectrum under the DISH License Purchase Agreement remains subject to FCC approval. Subsequent to September 30, 2023, on October 15, 2023, we and DISH entered into an amendment (the “LPA Amendment”) to the DISH License Purchase Agreement pursuant to which, among other things, the parties agreed that (1) DISH will pay us a $100 million non-refundable extension fee (in lieu of the approximately $72 million termination fee that had previously been agreed to), (2) the closing for the purchase of the spectrum licenses by DISH will occur no later than April 1, 2024, (3) if DISH has not purchased the spectrum licenses by such date for any reason (including failure to receive the required FCC approval prior to such date), then the DISH License Purchase Agreement will automatically terminate, and we will retain the $100 million extension fee, (4) if DISH does purchase the spectrum by April 1, 2024, the $100 million extension fee will be credited against the $3.6 billion purchase price, using cash reserves and (5) permits us to commence auction of the spectrum prior to April 1, 2024 at our discretion (and subject to DISH’s purchase right). The LPA Amendment was approved by issuing debtthe Court and became effective on October 23, 2023.
If DISH does not, by April 1, 2024, purchase the 800 MHz spectrum licenses, we are required, unless otherwise approved under the final judgment agreed to by us, Deutsche Telekom AG (“DT”), our majority stockholder,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, to offer the licenses for sale through an auction. If the specified minimum price of $3.6 billion is not met in the auction, we would be relieved of the obligation to sell the licenses.
Channel 51 License Co LLC and LB License Co, LLC
On August 8, 2022, we, Channel 51 License Co LLC and LB License Co, LLC (together with Channel 51 License Co LLC, the “Sellers”) entered into License Purchase Agreements pursuant to existingwhich we will acquire spectrum in the 600 MHz band from the Sellers in exchange for total cash consideration of $3.5 billion. The licenses will be acquired without any associated networks and are currently being utilized by us through exclusive leasing arrangements with the Sellers.
On March 30, 2023, we and the Sellers entered into Amended and Restated License Purchase Agreements pursuant to which we and the Sellers agreed to separate the transaction into two tranches of licenses, with the closings on the acquisitions of certain licenses in Chicago, Dallas and New Orleans being deferred in order to potentially expedite the regulatory approval process for the remainder of the licenses. Subsequently, on August 25, 2023, we and the Sellers entered into Amendments No. 1 to the Amended and Restated License Purchase Agreements, which deferred the closings of certain additional licenses in Chicago and Dallas into the second closing tranche. Together, the licenses with closings deferred into the second closing tranche represent $1.1 billion of the aggregate $3.5 billion cash consideration. The licenses being acquired by us, and the total consideration being paid for the licenses, remains the same under the original License Purchase Agreements and subsequent amendments.
We anticipate that the first closing will occur no earlier than the first half of 2024 and that the second closing (on the deferred licenses) will occur in late 2024 or early 2025.
The parties have agreed that each of the closings will occur within 180 days after the receipt of the applicable required regulatory approvals, and payment of each portion of the aggregate $3.5 billion purchase
commitments. See Note 7 - Debtprice will occur no later than 40 days after the date of each respective closing.
Comcast Corporation
On September 12, 2023, we entered into a License Purchase Agreement with Comcast Corporation and its affiliate, Comcast OTR1, LLC (together with Comcast Corporation, “Comcast”), pursuant to which we will acquire spectrum in the 600 MHz band from Comcast in exchange for further information. total cash consideration of between $1.2 billion and $3.3 billion, subject to an application for FCC approval. The licenses will be acquired without any associated networks. We anticipate the closing will occur in the first half of 2028.
The final purchase price will be determined, in the aggregate and on a per license basis, based on the set of licenses subject to the License Purchase Agreement at the time the parties make required transfer filings with the FCC. Prior to the time of such filings, Comcast has the right to remove any or all of a certain specified subset of the licenses, totaling $2.1 billion (the “Optional Sale Licenses”), from the License Purchase Agreement. The removal of any Optional Sale Licenses would reduce the final purchase price by the assigned value of each such license, from the maximum purchase price of $3.3 billion.
The licenses are included in Spectrum licenses assubject to an exclusive leasing arrangement between us and Comcast entered into contemporaneously with the License Purchase Agreement. If Comcast elects to remove an Optional Sale License from the License Purchase Agreement, the associated lease for such Optional Sale License will terminate, but no sooner than two years from the date of September 30, 2017,the License Purchase Agreement (with us having a minimum period of time after any such termination to cease transmitting on our Condensed Consolidated Balance Sheetssuch license’s associated spectrum). We began deployment of these licenses on our network in the third quarter of 2017.
Note 6 – 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.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The carrying amounts andvalues of EIP receivables approximate fair value as the receivables are recorded at their present value using an imputed interest rate.
Derivative Financial Instruments
Periodically, we use derivatives to manage exposure to market risk, such as interest rate risk. We designate certain derivatives as hedging instruments in a qualifying hedge accounting relationship to help minimize significant, unplanned fluctuations in cash flows or fair values caused by designated market risks, such as interest rate volatility. We do not use derivatives for trading or speculative purposes.
Cash flows associated with qualifying hedge derivative instruments are presented in the same category on our Condensed Consolidated Statements of our assets and liabilities measured atCash Flows as the item being hedged. For fair value hedges, the change in the fair value of the derivative instruments is recognized in earnings through the same income statement line item as the change in the fair value of the hedged item. For cash flow hedges, the change in the fair value of the derivative instruments is reported in Other comprehensive income and recognized in earnings when the hedged item is recognized in earnings, again, through the same income statement line item.
We did not have any significant derivative instruments outstanding as of September 30, 2023, or December 31, 2022.
Interest Rate Lock Derivatives
In April 2020, we terminated our interest 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 $1.2 billion and $1.3 billion are presented in Accumulated other comprehensive loss on a recurring basis included in our Condensed Consolidated Balance Sheets were as follows:
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| | 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 |
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| Liabilities: | | | | | | | | | |
| Guarantee liabilities | 3 | | 121 |
| | 121 |
| | 135 |
| | 135 |
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The principal amounts and fair values of our long-term debt included in our Condensed Consolidated Balance Sheets were as follows:
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| | 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 |
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| Senior Notes to affiliates | 2 | | 7,500 |
| | 7,897 |
| | — |
| | — |
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| Incremental Term Loan Facility to affiliates | 2 | | 4,000 |
| | 4,020 |
| | — |
| | — |
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| Senior Reset Notes to affiliates | 2 | | 3,100 |
| | 3,290 |
| | 5,600 |
| | 5,955 |
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| Senior Secured Term Loans | 2 | | — |
| | — |
| | 1,980 |
| | 2,005 |
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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, 20172023, and December 31, 2016. As such,2022, respectively.
For the three months ended September 30, 2023 and 2022, $55 million and $51 million, respectively, and for the nine months ended September 30, 2023 and 2022, $163 million and $151 million, respectively, were amortized from Accumulated other comprehensive loss into Interest expense, net, on our estimates are not necessarily indicativeCondensed Consolidated Statements of Comprehensive Income. We expect to amortize $232 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 ending September 30, 2024.
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 4 – 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 $690 million and $692 million as of September 30, 2023, and December 31, 2022, respectively.
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 upgradespectrum-backed Senior 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. The fair value of the returned device is recorded against the guarantee liabilities. Guarantee liabilities are includedour asset-backed notes (“ABS Notes”) was primarily based on quoted prices in Other current liabilitiesinactive markets for identical instruments and observable changes in our Condensed Consolidated Balance Sheets.
The total estimated remaining gross EIP receivable balancesmarket interest rates, both of all enrolled handset upgrade program customers, which are Level 2 inputs. Accordingly, our ABS Notes were classified as Level 2 within the remaining EIP amounts underlyingfair value hierarchy.
Although we have determined the JUMP! guarantee, including EIP receivables that have been sold,estimated fair values using available market information and commonly accepted valuation methodologies, considerable judgment was $2.2 billionrequired in interpreting market data to develop fair value estimates for the Senior Notes to affiliates and ABS Notes. The fair value estimates were based on information available as of September 30, 2017. This is2023, and December 31, 2022. As such, our estimates are not an indicationnecessarily indicative of the amount we could realize in a current market exchange.
The carrying amounts and fair values of our expected loss exposureshort-term and long-term debt included on our Condensed Consolidated Balance Sheets were as it does not considerfollows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Level within the Fair Value Hierarchy | | September 30, 2023 | | December 31, 2022 |
| Carrying Amount | | Fair Value | Carrying Amount (1) | | Fair Value (1) |
| Liabilities: | | | | | | | | | |
| Senior Notes to third parties | 1 | | $ | 70,542 | | | $ | 61,198 | | | $ | 66,582 | | | $ | 59,011 | |
| Senior Notes to affiliates | 2 | | 1,496 | | | 1,439 | | | 1,495 | | | 1,460 | |
| Senior Secured Notes to third parties | 1 | | 2,513 | | | 2,407 | | | 3,117 | | | 2,984 | |
| ABS Notes to third parties | 2 | | 747 | | | 739 | | | 746 | | | 744 | |
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(1) Excludes $20 million as of December 31, 2022, in other financial liabilities as 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 7 – Debt
The following table sets forth the debt balances and activity as of, and for the nine months ended, September 30, 20172023: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | December 31,
2022 | | Proceeds from Issuances and Borrowings (1) | | | | Note Redemptions (1) | | Repayments | | Reclassifications (1) | | Other (2) | | September 30,
2023 |
| Short-term debt | $ | 5,164 | | | $ | — | | | | | $ | (4,250) | | | $ | (578) | | | $ | 3,236 | | | $ | (135) | | | $ | 3,437 | |
| Long-term debt | 65,301 | | | 8,446 | | | | | — | | | — | | | (3,236) | | | (146) | | | 70,365 | |
| Total debt to third parties | 70,465 | | | 8,446 | | | | | (4,250) | | | (578) | | | — | | | (281) | | | 73,802 | |
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| Long-term debt to affiliates | 1,495 | | | — | | | | | — | | | — | | | — | | | 1 | | | 1,496 | |
| Total debt | $ | 71,960 | | | $ | 8,446 | | | | | $ | (4,250) | | | $ | (578) | | | $ | — | | | $ | (280) | | | $ | 75,298 | |
(1)Issuances and borrowings, note redemptions and reclassifications are recorded net of accrued or paid issuance costs, discounts and premiums. |
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| (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 |
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| Long-term debt | 21,832 |
| | 1,495 |
| | (8,365 | ) | | (1,947 | ) | | — |
| | 148 |
| | 13,163 |
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| Total debt to third parties | 22,186 |
| | 1,495 |
| | (8,365 | ) | | (1,967 | ) | | — |
| | 372 |
| | 13,721 |
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| Short-term debt to affiliates | — |
| | 2,910 |
| | — |
| | — |
| | (2,910 | ) | | — |
| | — |
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| Long-term debt to affiliates | 5,600 |
| | 8,985 |
| | — |
| | — |
| | — |
| | 1 |
| | 14,586 |
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| Total debt to affiliates | 5,600 |
| | 11,895 |
| | — |
| | — |
| | (2,910 | ) | | 1 |
| | 14,586 |
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| 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 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 4.0% and 3.8% on weighted-average debt outstanding of $77.2 billion and $71.6 billion for the three months ended September 30, 2023 and 2022, respectively, and 4.0% and 3.9% on weighted-average debt outstanding of $75.5 billion and $72.4 billion for the nine months ended September 30, 2023 and 2022, respectively. The weighted-average debt outstanding was calculated by applying an average of the monthly ending balances of total short-term and long-term debt to Third Partiesthird parties and short-term and long-term debt to affiliates, net of unamortized premiums, discounts, debt issuance costs and consent fees.
Issuances and Borrowings
During the nine months ended September 30, 2023, we issued the following Senior Notes: | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Principal Issuances | | Premiums/Discounts and Issuance Costs, Net | | Net Proceeds from Issuance of Long-Term Debt | | Issue Date |
| 4.950% Senior Notes due 2028 | $ | 1,000 | | | $ | (6) | | | $ | 994 | | | February 9, 2023 |
| 5.050% Senior Notes due 2033 | 1,250 | | | (9) | | | 1,241 | | | February 9, 2023 |
| 5.650% Senior Notes due 2053 | 750 | | | 26 | | | 776 | | | February 9, 2023 |
| 4.800% Senior Notes due 2028 | 900 | | | (5) | | | 895 | | | May 11, 2023 |
| 5.050% Senior Notes due 2033 | 1,350 | | | (28) | | | 1,322 | | | May 11, 2023 |
| 5.750% Senior Notes due 2054 | 1,250 | | | (16) | | | 1,234 | | | May 11, 2023 |
| 5.750% Senior Notes due 2034 | 1,000 | | | (6) | | | 994 | | | September 14, 2023 |
| 6.000% Senior Notes due 2054 | 1,000 | | | (10) | | | 990 | | | September 14, 2023 |
| Total of Senior Notes issued | $ | 8,500 | | | $ | (54) | | | $ | 8,446 | | | |
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Note Redemptions and Repayments
During the nine months ended September 30, 2017, we issued the following Senior Notes:
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| (in millions) | Principal Issuances | | Issuance Costs | | Net Proceeds from Issuance of Long-Term Debt |
| 4.000% Senior Notes due 2022 | $ | 500 |
| | $ | 2 |
| | $ | 498 |
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| 5.125% Senior Notes due 2025 | 500 |
| | 2 |
| | 498 |
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| 5.375% Senior Notes due 2027 | 500 |
| | 1 |
| | 499 |
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| Total of Senior Notes Issued | $ | 1,500 |
| | $ | 5 |
| | $ | 1,495 |
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On March 16, 2017, 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, 2017,2023, we made the following note redemptions:redemption and repayments:
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| (in millions) | Principal Amount | | Write-off of Premiums, Discounts and Issuance Costs (1) | | Call Penalties (1) (2) | | Redemption
Date | | Redemption Price |
| 6.625% Senior Notes due 2020 | $ | 1,000 |
| | $ | (45 | ) | | $ | 22 |
| | February 10, 2017 | | 102.208 | % |
| 5.250% Senior Notes due 2018 | 500 |
| | 1 |
| | 7 |
| | March 4, 2017 | | 101.313 | % |
| 6.250% Senior Notes due 2021 | 1,750 |
| | (71 | ) | | 55 |
| | April 1, 2017 | | 103.125 | % |
| 6.464% Senior Notes due 2019 | 1,250 |
| | — |
| | — |
| | April 28, 2017 | | 100.000 | % |
| 6.542% Senior Notes due 2020 | 1,250 |
| | — |
| | 21 |
| | April 28, 2017 | | 101.636 | % |
| 6.633% Senior Notes due 2021 | 1,250 |
| | — |
| | 41 |
| | April 28, 2017 | | 103.317 | % |
| 6.731% Senior Notes due 2022 | 1,250 |
| | — |
| | 42 |
| | April 28, 2017 | | 103.366 | % |
| Total note redemptions | $ | 8,250 |
| | $ | (115 | ) | | $ | 188 |
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(1)(in millions) | 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.Principal Amount |
| | | | | Repayment Date | | |
(2)7.875% Senior Notes due 2023 | 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:
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| (in millions) | Net Proceeds from Issuance of Long-Term Debt | | Extinguishments | | Write-off of Discounts and Issuance Costs (1) |
| LIBOR plus 2.00% Senior Secured Term Loan due 2022 | $ | 2,000 |
| | $ | — |
| | $ | — |
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| LIBOR plus 2.00% Senior Secured Term Loan due 2024 | 2,000 |
| | — |
| | — |
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LIBOR plus 2.750% Senior Secured Term Loan (2) | — |
| | (1,980 | ) | | 13 |
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| Total | $ | 4,000 |
| | $ | (1,980 | ) | | $ | 13 |
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| 4,250 | | | | | | | September 15, 2023 | | |
(1)Total Redemptions | 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.$ |
| 4,250 | | | | | | | | | |
(2) | Our Senior
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4.738% Secured Term Loan extinguished during the nine months endedSeptember 30, 2017 was Third Party debt.Series 2018-1 A-1 Notes due 2025 | $ | 394 | | | | | | | Various | | |
| 5.152% Series 2018-1 A-2 Notes due 2028 | 184 | | | | | | | Various | | |
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| Total Repayments | $ | 578 | | | | | | | | | |
Asset-backed Notes
Our ABS Notes are secured by $983 million of gross EIP receivables and future collections on such receivables. The ABS Notes issued and the assets securing this debt are included on our Condensed Consolidated Balance Sheets.
The expected maturities of our ABS Notes are as follows:
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| | | Expected Maturities | | |
| (in millions) | | 2024 | | 2025 | | | |
| 4.910% Class A Senior ABS Notes due 2028 | | | $ | 198 | | | $ | 552 | | | | | |
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Variable Interest Entities
In connection with issuing the ABS Notes in October 2022, we formed a wholly owned subsidiary, which qualifies as a bankruptcy remote entity (the “ABS BRE”), and a trust (the “ABS Trust” and together with the ABS BRE, the “ABS Entities”), in which the ABS BRE holds a residual interest. The ABS Entities meet the definition of a VIE for which we have determined that we are the primary beneficiary as we have the power to direct the activities of the ABS Entities that most significantly impact their performance. Accordingly, we include the balances and results of operations of the ABS Entities in our condensed consolidated financial statements.
The following table summarizes the carrying amounts and classification of assets and liabilities included in our Condensed Consolidated Balance Sheets with respect to the ABS Entities:
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| (in millions) | September 30,
2023 | | December 31,
2022 |
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| Assets | | | |
| Equipment installment plan receivables, net | $ | 767 | | | $ | 652 | |
| Equipment installment plan receivables due after one year, net | 151 | | | 281 | |
| Other current assets | 94 | | | 73 | |
| Liabilities | | | |
| Accounts payable and accrued liabilities | $ | 1 | | | $ | 1 | |
| | | |
| Long-term debt | 747 | | | 746 | |
Restricted Cash
Certain provisions of our debt agreements require us to maintain specified cash collateral balances. Amounts associated with these balances are considered to be restricted cash. See Note 15 - Additional Financial Information for our reconciliation of Cash and cash equivalents, including restricted cash and cash held for sale.
Commercial Paper
On July 25, 2023, we established an unsecured short-term commercial paper program with the ability to borrow up to $2.0 billion from time to time. This program supplements our other available external financing arrangements, and proceeds are expected to be used for general corporate purposes. As of September 30, 2023, there was no outstanding balance under this program.
Note 8 – 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.
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.
We determined the SPEs containing the CCI Lease Sites (“Lease Site SPEs”) are VIEs as they lack sufficient equity to finance their activities. We have a variable interest in the 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 on our condensed consolidated financial statements.
However, we also considered if this arrangement resulted in the sale of the CCI Lease Sites for which we would derecognize the tower assets. By assessing whether control had transferred, we concluded that transfer of control criteria, as discussed in the revenue standard, were not met. Accordingly, we recorded this arrangement as a financing whereby we recorded debt, a financial obligation, and the 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 the operation of the tower sites.
Acquired CCI Tower Lease Arrangements
Prior to our merger (the “Merger”) with 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 derecognize the tower assets. By assessing whether control had transferred, we concluded that transfer of control criteria, as discussed in the revenue standard, were not met. Accordingly, we recorded this arrangement as a financing whereby we recorded debt, a financial obligation, and the Master Lease Sites tower assets remained on our 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 expected useful life of the towers, which is 20 years.
Leaseback Arrangement
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 12 years and modifies the leaseback payments for both the Existing CCI Tower Lease Arrangement and the Acquired CCI Tower Lease Arrangement. As a result of the Crown Agreement, there was an increase in our 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 Crown 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 following table summarizes 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, we issued the following Senior Notes to DT:
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| (in millions) | Principal Issuances (Redemptions) | | Discounts (1) | | Net Proceeds from Issuance of Long-Term Debt |
| 4.000% Senior Notes due 2022 | $ | 1,000 |
| | $ | (23 | ) | | $ | 977 |
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| 5.125% Senior Notes due 2025 | 1,250 |
| | (28 | ) | | 1,222 |
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5.375% Senior Notes due 2027 (2) | 1,250 |
| | (28 | ) | | 1,222 |
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| 6.288% Senior Reset Notes due 2019 | (1,250 | ) | | — |
| | (1,250 | ) |
| 6.366% Senior Reset Notes due 2020 | (1,250 | ) | | — |
| | (1,250 | ) |
| Total | $ | 1,000 |
| | $ | (79 | ) | | $ | 921 |
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(1) | Discounts reduce Proceeds from issuance of long-term debt and are included within Net cash (used in) provided by financing activities in our 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 Notesbalances 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) | September 30,
2023 | | December 31,
2022 |
| Property and equipment, net | $ | 2,259 | | | $ | 2,379 | |
| Tower obligations | 3,819 | | | 3,934 | |
| Other long-term liabilities | 554 | | | 554 | |
On May 9, 2017, we exercised our option under existing purchase agreements and issuedFuture minimum payments related to the following Senior Notes to DT:
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| (in millions) | Principal Issuances | | Premium | | Net Proceeds from Issuance of Long-Term Debt |
| 5.300% Senior Notes due 2021 | $ | 2,000 |
| | $ | — |
| | $ | 2,000 |
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| 6.000% Senior Notes due 2024 | 1,350 |
| | 40 |
| | 1,390 |
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| 6.000% Senior Notes due 2024 | 650 |
| | 24 |
| | 674 |
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| Total | $ | 4,000 |
| | $ | 64 |
| | $ | 4,064 |
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The proceeds were used to fund a portiontower obligations are approximately $432 million for the 12-month period ending September 30, 2024, $780 million in total for both of the purchase price of spectrum licenses won in the 600 MHz spectrum auction. Net proceeds from these issuances include $6412-month periods ending September 30, 2025 and 2026, $804 million in debt premiums. See Note 5 - Spectrum License Transactionstotal for further information.both of the 12-month periods ending September 30, 2027 and 2028, and $4.2 billion in total thereafter.
Revolving Credit Facility
We had no outstanding borrowings underare contingently liable for future ground lease payments through the remaining term of the CCI Lease Sites and the Master Lease Sites. These contingent obligations are not included in Operating lease liabilities as any amount due is contractually owed by CCI based on the subleasing arrangement. Under the arrangement, we remain primarily liable for ground lease payments on approximately 900 sites and have included lease liabilities of $244 million in our $1.5 billion senior secured revolving credit facility with DTOperating lease liabilities as of September 30, 20172023.
Note 9 – Revenue from Contracts with Customers
Disaggregation of Revenue
We provide wireless communications services to three primary categories of customers:
•Postpaid customers generally include customers who are qualified to pay after receiving wireless communications services utilizing phones, High Speed Internet, mobile internet devices, including tablets and December 31, 2016. Proceedshotspots, wearables, DIGITS or other connected devices, including SyncUP and borrowings from the revolving credit facilityIoT;
•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 September 30, | | Nine Months Ended September 30, |
| (in millions) | 2023 | | 2022 | | 2023 | | 2022 | | |
| Postpaid service revenues | | | | | | | | | |
| | | | | | | | | |
| Postpaid phone revenues | $ | 10,942 | | | $ | 10,481 | | | $ | 32,393 | | | $ | 31,119 | | | |
| Postpaid other revenues | 1,346 | | | 1,067 | | | 3,827 | | | 3,075 | | | |
| | | | | | | | | |
| Total postpaid service revenues | $ | 12,288 | | | $ | 11,548 | | | $ | 36,220 | | | $ | 34,194 | | | |
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We operate as a single operating segment. The balances presented in Proceeds from borrowingeach revenue line item 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 Taxes
Within our Condensed Consolidated Statements of Comprehensive Income we recordedrepresent categories of revenue from contracts with customers disaggregated by type of product and service. Postpaid and prepaid service revenues also include revenues earned for providing premium services to customers, such as device insurance services. Revenue generated from the lease of mobile communication devices is included in Equipment revenues on our Condensed Consolidated Statements of Comprehensive Income.
Contract Balances
The contract asset and contract liability balances from contracts with customers as of September 30, 2023, and December 31, 2022, were as follows: | | | | | | | | | | | | | |
| (in millions) | Contract
Assets | | Contract
Liabilities | | |
| | | | | |
| Balance as of December 31, 2022 | $ | 534 | | | $ | 748 | | | |
| Balance as of September 30, 2023 | 617 | | | 814 | | | |
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| Change | $ | 83 | | | $ | 66 | | | |
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Contract assets primarily represent revenue recognized for equipment sales with promotional bill credits offered to customers that are paid over time and are contingent on the customer maintaining a service contract.
Contract asset balances increased primarily due to an Income tax expenseincrease in promotions with an extended service contract, partially offset by billings on existing contracts and impairment, which is recognized as bad debt expense. The current portion of our contract assets of approximately $490 million and $356 million as of September 30, 2023, and $232December 31, 2022, 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 activity of prepaid customers. Contract liabilities are primarily included in Deferred revenueon our Condensed Consolidated Balance Sheets.
Revenues for the three and nine months ended September 30, 2023 and 2022 include the following: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2023 | | 2022 | | 2023 | | 2022 | | |
| Amounts included in the beginning of year contract liability balance | $ | 24 | | | $ | 17 | | | $ | 730 | | | $ | 702 | | | |
Remaining Performance Obligations
As of September 30, 2023, the aggregate amount of transaction price allocated to remaining service performance obligations for postpaid contracts with subsidized devices and promotional bill credits that result in an extended service contract is $1.5 billion. We expect to recognize revenue as the service is provided on these postpaid contracts over an extended contract term of 24 months from the time of origination.
Information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less has been excluded from the above, which primarily consists of monthly service contracts.
Certain of our wholesale, roaming and service contracts include variable consideration based on usage and performance. This variable consideration has been excluded from the disclosure of remaining performance obligations. As of September 30, 2023, the aggregate amount of the contractual minimum consideration for wholesale, roaming and service contracts is $395 million, $2.0 billion and $4.2 billion for 2023, 2024, and 2025 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 $2.1 billion and $1.9 billion as of September 30, 2023, and December 31, 2022, 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 in assumptions. Amortization of deferred contract costs included in Selling, general and administrative expenses on our Condensed Consolidated Statements of Comprehensive Income were $468 million and $375 million for the three months ended September 30, 20172023 and 2016,2022, respectively, and $618 million$1.3 billion and $651 million$1.1 billion for the nine months ended September 30, 20172023 and 2016,2022, respectively.
The changedeferred contract cost asset is assessed for impairment on a periodic basis. There were no impairment losses recognized on deferred contract cost assets for the three and nine months ended September 30, 2023 and 2022.
Note 10 – Stockholder Return Programs
2022 Stock Repurchase Program
On September 8, 2022, our Board of Directors authorized our 2022 Stock Repurchase Program for up to $14.0 billion of our common stock through September 30, 2023 (the “2022 Stock Repurchase Program”). During the three months ended September 30, 2023, we repurchased 19,313,159 shares of our common stock at an average price per share of $138.48 for a total purchase price of $2.7 billion, and during the nine months ended September 30, 2023, we repurchased 77,460,937 shares of our common stock at an average price per share of $141.57 for a total purchase price of $11.0 billion, all of which were purchased under the 2022 Stock Repurchase Program. All shares purchased during the nine months ended September 30, 2023, were purchased at market price.
2023-2024 Stockholder Return Program
On September 6, 2023, our Board of Directors authorized our 2023-2024 Stockholder Return Program of up to $19.0 billion that will run through December 31, 2024. The 2023-2024 Stockholder Return Program is expected to consist of additional repurchases of shares of our common stock and the payment of cash dividends. The amount available under the 2023-2024 Stockholder Return Program for share repurchases will be reduced by the amount of any cash dividends declared by us.
Under the 2023-2024 Stockholder Return Program, share repurchases can be made from time to time using a variety of methods, which may include open market purchases, Rule 10b5-1 plans, accelerated share repurchases, privately negotiated transactions or otherwise, all in accordance with the rules of the Securities and Exchange Commission and other applicable legal requirements. The specific timing and amount of any share repurchases, and the specific timing and amount of any dividend payments, under the 2023-2024 Stockholder Return Program will depend on prevailing share prices, general economic and market conditions, Company performance, and other considerations. In addition, the specific timing and amount of any dividend payments are subject to being declared on future dates by our Board of Directors in its sole discretion. The 2023-2024 Stockholder Return Program does not obligate us to acquire any particular amount of common stock or to declare and pay any particular amount of dividends, and the 2023-2024 Stockholder Return Program may be suspended or discontinued at any time at our discretion.
On September 25, 2023, our Board of Directors declared a cash dividend of $0.65 per share on our issued and outstanding common stock, which is payable on December 15, 2023, to stockholders of record as of the close of business on December 1, 2023. As of September 30, 2023, $745 million for dividends payable is presented within Other current liabilities on our Condensed Consolidated Balance Sheets, of which $393 million is payable to DT.
During the three and nine months ended September 30, 2023, we did not repurchase any shares of our common stock under the 2023-2024 Stockholder Return Program. As of September 30, 2023, we had up to $18.3 billion remaining under the 2023-2024 Stockholder Return Program.
Subsequent to September 30, 2023, from October 1, 2023, through October 20, 2023, we repurchased 5,515,568 shares of our common stock at an average price per share of $139.76 for a total purchase price of $771 million. As of October 20, 2023, we had up to $17.5 billion remaining under the 2023-2024 Stockholder Return Program.
Note 11 – Wireline
Sale of the Wireline Business
On September 6, 2022, two of our wholly owned subsidiaries, Sprint Communications and Sprint LLC, and Cogent Infrastructure, Inc. entered into the Wireline Sale Agreement, pursuant to which the Buyer agreed to acquire the Wireline Business. The Wireline Sale Agreement provided that, upon the terms and conditions set forth therein, the Buyer agreed to purchase all of the issued and outstanding membership interests (the “Purchased Interests”) of a Delaware limited liability company that holds certain assets and liabilities relating to the Wireline Business.
On May 1, 2023, pursuant to the Wireline Sale Agreement, upon the terms and subject to the conditions thereof, we completed the Wireline Transaction. Under the terms of the Wireline Sale Agreement, the parties agreed to a $1 purchase price in consideration for the Purchased Interests, subject to customary adjustments, as well as payments to the Buyer pursuant to an IP transit services agreement totaling $700 million, consisting of (i) $350 million in equal monthly installments during the first year after the Closing and (ii) $350 million in equal monthly installments over the subsequent 42 months. The Buyer paid the
Company $61 million at Closing. The Closing of the Wireline Transaction did not have a significant impact on the Loss (gain) on disposal group held for sale on our Condensed Consolidated Statements of Comprehensive Income.
The present value of the $700 million liability for fees payable for IP transit services was recognized and treated as part of the consideration exchanged with the Buyer to complete the disposal transaction, as there is a remote likelihood we will use any more than a de minimis amount of the services under the IP transit services agreement. Therefore, we concluded the cash payment obligations under the IP transit services agreement were part of the consideration paid to the Buyer to facilitate the sale of the Wireline Business, and therefore, included in measuring the fair value less costs to sell of the Wireline Business disposal group. As of September 30, 2023, $246 million and $275 million of this liability, including accrued interest, is presented within Other current liabilities and Other long-term liabilities, respectively, on our Condensed Consolidated Balance Sheets in accordance with the expected timing of the related payments. As of September 30, 2023, $30 million and $31 million for contractual and other payments associated with the Wireline Transaction are presented within Other current liabilities and Other long-term liabilities, respectively, on our Condensed Consolidated Balance Sheets in accordance with the expected timing of the related payments.
We recognized a pre-tax gain of $25 million during the nine months ended September 30, 2023, and a pre-tax loss of $1.1 billion during the three and nine months ended September 30, 2022, which are included within Loss (gain) on disposal group held for sale on our Condensed Consolidated Statements of Comprehensive Income. There was no gain or loss on disposal group held for sale for the three months ended September 30, 2017 was primarily from higher income before income taxes.2023.
We do not consider the sale of the Wireline Business to be a strategic shift that will have a major effect on the Company’s operations and financial results, and therefore the Wireline Business did not qualify for reporting as a discontinued operation.
2022 Wireline Impairment
During the second quarter of 2022, we determined that the retirement of the legacy Sprint CDMA and LTE wireless networks triggered the need to assess the Wireline long-lived assets for impairment, as these assets no longer support our wireless network and the associated customers and cash flows in a significant manner. The change for the nine months ended September
30, 2017 was primarily fromresults of this assessment indicated that certain Wireline long-lived assets were impaired, and as a lower effective tax rate partially offset by higher income before income taxes. The effective tax rate was 39.3% and 38.8% for the three months ended September 30, 2017 and 2016, respectively, and 25.3% and 37.8% forresult, we recorded noncash impairment expense of $477 million during the nine months ended September 30, 20172022, all of which relates to the impairment recognized during the three months ended June 30, 2022, of which $258 million was related to Wireline Property and 2016, respectively.equipment, $212 million was related to Operating lease right-of-use assets and $7 million was related to Other intangible assets. The change inexpense is included within Impairment expense on our Condensed Consolidated Statements of Comprehensive Income. There was no impairment expense recognized for the effective income tax rate for thethree and nine months ended September 30, 2017, was 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 2016.2023.
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.
Note 912 – Earnings Per Share
The computation of basic and diluted earnings per share was as follows: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions, except shares and per share amounts) | 2023 | | 2022 | | 2023 | | 2022 | | |
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| Net income | $ | 2,142 | | | $ | 508 | | | $ | 6,303 | | | $ | 1,113 | | | |
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| Weighted-average shares outstanding – basic | 1,171,336,373 | | | 1,253,873,429 | | | 1,194,497,722 | | | 1,252,783,140 | | | |
| Effect of dilutive securities: | | | | | | | | | |
| Outstanding stock options and unvested stock awards | 3,054,099 | | | 5,336,842 | | | 3,792,419 | | | 5,278,338 | | | |
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| Weighted-average shares outstanding – diluted | 1,174,390,472 | | | 1,259,210,271 | | | 1,198,290,141 | | | 1,258,061,478 | | | |
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| Earnings per share – basic | $ | 1.83 | | | $ | 0.40 | | | $ | 5.28 | | | $ | 0.89 | | | |
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| Earnings per share – diluted | $ | 1.82 | | | $ | 0.40 | | | $ | 5.26 | | | $ | 0.88 | | | |
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| Potentially dilutive securities: | | | | | | | | | |
| Outstanding stock options and unvested stock awards | 122,700 | | | 50,004 | | | 133,137 | | | 79,122 | | | |
SoftBank contingent consideration (1) | 48,751,557 | | | 48,751,557 | | | 48,751,557 | | | 48,751,557 | | | |
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(1) Represents the weighted-average SoftBank Specified Shares Amount that is contingently issuable from the Merger date of April 1, 2020, pursuant to a letter agreement dated February 20, 2020, between T-Mobile, SoftBank and DT (the “Letter Agreement”).
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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 |
| | — |
| | 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 |
|
| Effect of dilutive securities: | | | | | | | |
| Outstanding stock options and unvested stock awards | 7,992,286 |
| | 9,259,122 |
| | 9,523,365 |
| | 9,614,352 |
|
| Mandatory convertible preferred stock | 32,238,000 |
| | — |
| | 32,238,000 |
| | — |
|
| Weighted average shares outstanding - diluted | 871,420,065 |
| | 832,257,819 |
| | 871,735,511 |
| | 831,241,027 |
|
| | | | | | | | |
| Earnings per share - basic | $ | 0.65 |
| | $ | 0.43 |
| | $ | 2.15 |
| | $ | 1.25 |
|
| Earnings per share - diluted | $ | 0.63 |
| | $ | 0.42 |
| | $ | 2.10 |
| | $ | 1.24 |
|
| | | | | | | | |
| Potentially dilutive securities: | | | | | | | |
| Outstanding stock options and unvested stock awards | — |
| | 278,675 |
| | 4,760 |
| | 287,375 |
|
| Mandatory convertible preferred stock | — |
| | 32,238,000 |
| | — |
| | 32,238,000 |
|
Unless converted earlier, each shareAs of September 30, 2023, 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.
September 30, 2023 and 2022. 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.
The issuance of the SoftBank Specified Shares Amount is contingent on the trailing 45-trading-day volume-weighted average price per share of T-Mobile common stock on the NASDAQ Global Select Market being equal to or greater than $150.00 (the “Threshold Price”), at any time during the period commencing on April 1, 2022, and ending on December 31, 2025 (the “Measurement Period”). In accordance with the terms of the Letter Agreement, the Threshold Price is subject to downward adjustment by the per share amount of any cash dividends or other cash distributions declared or paid on our common stock during the Measurement Period. As of September 30, 2023, the Threshold Price is $149.35 and will automatically further adjust upon the declaration of any future cash dividends as provided in the Letter Agreement.
Note 1013 – 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 endedordinary course of business, with various terms through 2043.
Our purchase commitments are approximately $4.7 billion for the 12-month period ending September 30, 2017,2024, $4.3 billion in total for both of the 12-month periods ending September 30, 2025 and 2026, $2.7 billion in total for both of the 12-month periods ending September 30, 2027 and 2028, and $2.3 billion in total thereafter. These amounts are not reflective of our entire anticipated purchases under the related agreements but are determined based on the non-cancelable quantities or termination amounts to which we are contractually obligated.
On March 9, 2023, we entered into a Merger and Unit Purchase Agreement for the acquisition of 100% of the outstanding equity of Ka’ena Corporation and its subsidiaries including, among others, Mint Mobile LLC, for a maximum purchase commitment with a handset Original Equipment Manufacturer, resultingprice of $1.35 billion to be paid out 39% in a material increasecash and 61% in shares of T-Mobile common stock. Our estimate of the upfront payment is subject to Ka’ena Corporation’s underlying business performance and the timing of transaction close, and has been updated to $1.2 billion, before working capital adjustments. The agreement remains subject to regulatory approval, and the estimated purchase price is excluded from our reported purchase commitments above. See Note 2 – Business Combination for additional details.
Spectrum Leases
We lease spectrum from various parties. These leases include service obligations to the futurelessors. 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 purchase offer from a third party. The purchase of the leased spectrum is at our option and therefore the option price is not included in the commitments below.
Our spectrum lease and service credit commitments, including renewal periods, are approximately $303 million for the 12-month period ending September 30, 2024, $602 million in total for both of the 12-month periods ending September 30, 2025 and 2026, $666 million in total for both of the 12-month periods ending September 30, 2027 and 2028, and $4.4 billion in total thereafter.
On August 8, 2022, we entered into License Purchase Agreements to acquire spectrum in the 600 MHz band from Channel 51 License Co LLC and LB License Co, LLC in exchange for total cash consideration of $3.5 billion. The licenses are currently being utilized by us through exclusive leasing arrangements with the Sellers. On March 30, 2023, we and the Sellers entered into Amended and Restated License Purchase Agreements pursuant to which we and the Sellers agreed to separate the transaction into two tranches of licenses, with the closings on the acquisitions of certain licenses in Chicago, Dallas and New Orleans being deferred in order to potentially expedite the regulatory approval process for the remainder of the licenses. Subsequently, on August 25, 2023, we and the Sellers entered into Amendments No. 1 to the Amended and Restated License Purchase Agreements, which deferred the closings of certain additional licenses in Chicago and Dallas into the second closing
tranche. Together, the licenses with closings deferred into the second closing tranche represent approximately $1.1 billion of the aggregate $3.5 billion cash consideration. The agreements remain subject to regulatory approval and are excluded from our reported purchase commitments summarized below.above. See Note 5 – Spectrum License Transactions for additional details.
Future minimum payments for non-cancelable operating leases and purchase commitments are as follows:
|
| | | | | | | |
| (in millions) | Operating Leases | | Purchase Commitments |
| Year ending September 30, | | | |
| 2018 | $ | 2,397 |
| | $ | 2,477 |
|
| 2019 | 2,153 |
| | 1,210 |
|
| 2020 | 1,867 |
| | 1,015 |
|
| 2021 | 1,472 |
| | 759 |
|
| 2022 | 1,163 |
| | 661 |
|
| Thereafter | 2,240 |
| | 904 |
|
| Total | $ | 11,292 |
| | $ | 7,026 |
|
Renewable Energy Purchase Agreements
In January 2017, T-Mobile USAOn September 12, 2023, we entered into a REPALicense Purchase Agreement with Red Dirt Wind Project, LLC.Comcast pursuant to which we will acquire spectrum in the 600 MHz band from Comcast in exchange for total cash consideration of between $1.2 billion and $3.3 billion, subject to an application for FCC approval. The licenses are subject to an exclusive leasing arrangement between us and Comcast entered into contemporaneously with the License Purchase Agreement. The agreement remains subject to regulatory approval and is based onexcluded from our reported purchase commitments above. See Note 5 – Spectrum License Transactions for additional details.
Merger Commitments
In connection with the expected operation of a wind energy-generating facility located in Oklahomaregulatory proceedings and will remain in effect until the twelfth anniversaryapprovals of the facility’s entry into commercial operation. Commercial operationMerger pursuant to a 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”) we have commitments and other obligations to various state and federal agencies and certain nongovernmental organizations, including pursuant to the Consent Decree agreed to by us, DT, Sprint, SoftBank and DISH and entered by the U.S. District Court for the District of Columbia, and the FCC’s memorandum opinion and order approving our applications for approval of the facility is expectedMerger. These commitments and obligations include, among other things, extensive 5G network build-out commitments, obligations to occur bydeliver high-speed wireless services to the endvast majority of 2017. The REPA consists of two components: (1) an energy forward agreement that is net settled based on energy pricesAmericans, including Americans residing in rural areas, and the energy output generated by the facilitymarketing of an in-home broadband product where spectrum capacity is available. Other commitments relate to national security, pricing, service, employment 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 capacitysupport 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 outputdiversity initiatives. Many of the facility may not be reliably estimated (the arrangement lackscommitments specify time frames for compliance and reporting. Failure to fulfill our obligations and commitments in a notional amount). The REPA does not contain any unconditional purchase obligations because amounts under the agreement are not fixedtimely manner could result in substantial fines, penalties, or other legal 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.administrative actions.
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 theon our 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 on our 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 or other matters that we are or may become involved in could have a material adverse impact on results of operations or cash flows for a particular period. This assessment is based on our current understanding of relevant facts and circumstances. As such, our view of these matters is subject to inherent uncertainties and may change in the future.
On February 28, 2020, we received a Notice of Apparent Liability for Forfeiture and Admonishment from the FCC, which proposed a penalty against us for allegedly violating section 222 of the Communications Act and the FCC’s regulations governing the privacy of customer information. In the first quarter of 2020, we recorded an accrual for an estimated payment amount. We maintained the accrual as of September 30, 2023, 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 supplemental indentures,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 long-term debtFCC 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 affiliatesan 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 thirdcertain states for excess subsidy payments.
We note that pursuant to Amendment No. 2, dated as of February 20, 2020, to the Business Combination Agreement, dated as of April 29, 2018, by and among the Company, Sprint and the other parties excluding Senior Secured Term Loansnamed therein, SoftBank agreed to indemnify us against certain specified matters and capital leases, issuedlosses, including those relating to the Lifeline matters described above. Resolution of these matters could require us to make additional reimbursements and pay 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”).
In January 2017, T-Mobile USA,repricing amendment to the Business Combination Agreement, and certainto SoftBank’s monetization of its affiliates,T-Mobile shares. We are also named as guarantors, borrowed $4.0 billion undera nominal defendant in the Incremental Term Loan Facilitycase. We are unable to refinance $1.98 billionpredict the potential outcome of outstanding secured term loans under its Term Loan Credit Agreement dated November 9, 2015,these claims.
On August 12, 2021, we became aware of a cybersecurity issue involving unauthorized access to T-Mobile’s systems (the “August 2021 cyberattack”). We immediately began an investigation and engaged cybersecurity experts to assist with the remaining net proceeds from the transaction intended to be used to redeem callable high yield debt.
In March 2017, T-Mobile USA and certain of its affiliates, as guarantors, (i) issued $500 million in aggregate principal amount of public 4.000% Senior Notes due 2022, (ii) issued $500 million in aggregate principal amount of public 5.125% Senior Notes due 2025 and (iii) issued $500 million in aggregate principal amount of public 5.375% Senior Notes due 2027.
In April 2017, T-Mobile USA and certain of its affiliates, as guarantors, (i) issued $1.0 billion in aggregate principal amount of 4.000% Senior Notes due 2022, (ii) issued $1.25 billion in aggregate principal amount of 5.125% Senior Notes due 2025 and (iii) issued $750 million in aggregate principal amount of 5.375% Senior Notes due 2027. Additionally, T-Mobile USA and certain of its affiliates, as guarantors, redeemed through net settlement, the $1.25 billion outstanding aggregate principal amountassessment of the 6.288% Senior Reset Notesincident and to affiliates due 2019help 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 $1.25 billion in aggregate principal amounttook 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 6.366% Senior Reset Notes to affiliates due 2020.data compromised.
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 guaranteesAs a result of the Guarantor Subsidiaries areAugust 2021 cyberattack, we have become subject to releasenumerous lawsuits, including mass arbitration claims and multiple class action lawsuits that have been filed in limited circumstances only upon the occurrence of certain customary conditions. The indentures and credit facilities governing the long-term debt contain covenants that,numerous jurisdictions seeking, among other things, limit the abilityunspecified monetary damages, costs and attorneys’ fees arising out of the Issuer andAugust 2021 cyberattack. In December 2021, the Guarantor Subsidiaries to: incur more debt; pay dividends and make distributions; make certain investments; repurchase stock; create liens or other encumbrances; enterJudicial Panel on Multidistrict Litigation consolidated the federal class action lawsuits in the U.S. District Court for the Western District of Missouri under the caption In re: T-Mobile Customer Data Security Breach Litigation, Case No. 21-md-3019-BCW. On July 22, 2022, we entered into 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 eachan agreement to settle the lawsuit. On June 29, 2023, the Court issued an order granting final approval of the credit facilities, indentures and supplemental indentures relatingsettlement, which is subject 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 underpotential appeals. Under the terms of the indenturessettlement, we would pay an aggregate of $350 million to fund claims submitted by class members, the legal fees of plaintiffs’ counsel and the supplemental indentures.costs of administering the settlement. We would also commit to an aggregate incremental spend of $150 million for data security and related technology in 2022 and 2023. We previously paid $35 million for claims administration purposes. On July 31, 2023, a class member filed an appeal to the final approval order challenging the Court’s award of attorneys’ fees to class counsel. We expect the remaining portion of the $350 million settlement payment to fund claims to be made once that appeal is resolved. We anticipate that, upon exhaustion of any appeals, the settlement will provide a full release of all claims arising out of the August 2021 cyberattack by class members who do not opt out, against all defendants, including us, our subsidiaries and affiliates, and our directors and officers. The settlement contains no admission of liability, wrongdoing or responsibility by any of the defendants. We have the right to terminate the settlement agreement under certain conditions.
Presented below isWe anticipate that this settlement of the condensed consolidating financial information asclass action, along with other settlements of September 30, 2017separate consumer claims that have been previously completed or are currently pending, will resolve substantially all of the claims brought to date by our current, former and December 31, 2016,prospective customers who were impacted by the 2021 cyberattack. In connection with the proposed class action settlement and for the three andseparate settlements, we recorded a total pre-tax charge of approximately $400 million in the second quarter of 2022. During each of the nine months ended September 30, 20172023 and 2016.2022, we recognized $50 million in reimbursements from insurance carriers for costs incurred related to the August 2021 cyberattack, which is included as a reduction to Selling, general and administrative expenses on our Condensed Consolidated Statements of Comprehensive Income. The ultimate resolution of the class action depends on the number of plaintiffs who opt-out of the proposed settlement and whether the proposed settlement will be appealed.
In addition, in September 2022, a purported Company shareholder filed a derivative action in the Delaware Chancery Court under the caption Harper v. Sievert et al., Case No. 2022-0819-SG, against our current directors and certain of our former directors, alleging claims for breach of fiduciary duty relating to the Company’s cybersecurity practices. We are also named as a nominal defendant in the lawsuit. We are unable at this time to predict the potential outcome of this lawsuit or whether we may be subject to further private litigation.
We have also received inquiries from various government agencies, law enforcement and other governmental authorities related to the August 2021 cyberattack which could result in substantial fines or penalties. We are cooperating fully with these agencies and regulators and working with them to resolve these matters. While we hope to resolve them in the near term, we cannot predict the timing or outcome of any of these matters, or whether we may be subject to further regulatory inquiries, investigations, or enforcement actions.
In light of the inherent uncertainties involved in such matters and based on the information currently available to us, in addition to the previously recorded pre-tax charge of approximately $400 million noted above, we believe it is reasonably possible that we could incur additional losses associated with these proceedings and inquiries, and we will continue to evaluate information as it becomes known and will record an estimate for losses at the time or times when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable. Ongoing legal and other costs related to these proceedings and inquiries, as well as any potential future actions, may be substantial, and losses associated with any adverse judgments, settlements, penalties or other resolutions of such proceedings and inquiries could be material to our business, reputation, financial condition, cash flows and operating results.
On June 17, 2022, plaintiffs filed a putative antitrust class action complaint in the Northern District of Illinois, Dale et al. v. Deutsche Telekom AG, et al., Case No. 1:22-cv-03189, against DT, T-Mobile, and SoftBank, alleging that the Merger violated the antitrust laws and harmed competition in the U.S. retail cell service market. Plaintiffs seek injunctive relief and trebled monetary damages on behalf of a purported class of AT&T and Verizon customers who plaintiffs allege paid artificially inflated prices due to the Merger. We intend to vigorously defend this lawsuit, but we are unable to predict the potential outcome.
On January 5, 2023, we identified that a bad actor was obtaining data through a single Application Programming Interface (“API”) without authorization. Based on our investigation, the impacted API is only able to provide a limited set of customer account data, including name, billing address, email, phone number, date of birth, T-Mobile account number and information such as the number of lines on the account and plan features. The result from our investigation indicates that the bad actor(s) obtained data from this API for approximately 37 million current postpaid and prepaid customer accounts, though many of these accounts did not include the full data set. We believe that the bad actor first retrieved data through the impacted API starting on or around November 25, 2022. We have notified individuals whose information was impacted consistent with state and federal requirements.
In connection with the January 2023 cyberattack, we became subject to consumer class actions and regulatory inquires, to which we will continue to respond in due course and may incur significant expenses. However, we cannot predict the timing or outcome of any of these potential matters, or whether we may be subject to additional legal proceedings, claims, regulatory inquiries, investigations, or enforcement actions. In addition, we are unable to predict the full impact of this incident on customer behavior in the future, including whether a change in our customers’ behavior could negatively impact our results of operations on an ongoing basis, although we presently do not expect that it will have a material effect on our operations.
Note 14 – Restructuring Costs
Merger Restructuring Initiatives
Upon close of the Merger in April 2020, we began implementing restructuring initiatives to realize cost efficiencies and reduce redundancies. The major activities associated with the Merger restructuring initiatives to date include contract termination costs associated with the rationalization of retail stores, distribution channels, duplicative network and backhaul services and other agreements, severance costs associated with the integration of redundant processes and functions and the decommissioning of certain small cell sites and distributed antenna systems to achieve Merger synergies in network costs.
The following table summarizes the expenses incurred in connection with our Merger restructuring initiatives: | | | | | | | | | | | | | | | | | |
| | | | | |
| (in millions) | Three Months Ended
September 30, 2023 | | Nine Months Ended
September 30, 2023 | | Incurred to Date |
| Contract termination costs | $ | 7 | | | $ | 31 | | | $ | 454 | |
| Severance costs | — | | | 3 | | | 574 | |
| Network decommissioning | 52 | | | 223 | | | 1,700 | |
| Total restructuring plan expenses | $ | 59 | | | $ | 257 | | | $ | 2,728 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
The expenses associated with our Merger restructuring initiatives are included in Costs of services and Selling, general and administrative expenses on our Condensed Consolidated Statements of Comprehensive Income.
Our Merger restructuring initiatives also include the acceleration or termination of certain of our operating and financing leases for cell sites, switch sites, retail stores, network equipment and office facilities. Incremental expenses associated with accelerating amortization of the right-of-use assets on lease contracts were $67 million and $384 million for the three months ended September 30, 20172023 and 2022, respectively, and $303 million and $1.6 billion for the nine months ended September 30, 2023 and 2022, respectively, and are included in Costs of services and Selling, general and administrative expenses on our Condensed Consolidated Statements of Comprehensive Income.
The changes in the liabilities associated with our Merger restructuring initiatives, including expenses incurred and cash payments, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | December 31,
2022 | | Expenses Incurred | | Cash Payments | | Adjustments for Non-Cash Items (1) | | September 30,
2023 |
| Contract termination costs | $ | 190 | | | $ | 31 | | | $ | (199) | | | $ | — | | | $ | 22 | |
| Severance costs | — | | | 3 | | | (6) | | | 3 | | | — | |
| Network decommissioning | 280 | | | 223 | | | (344) | | | (15) | | | 144 | |
| Total | $ | 470 | | | $ | 257 | | | $ | (549) | | | $ | (12) | | | $ | 166 | |
(1) Non-cash items primarily consist of the write-off of assets within Network decommissioning.
The liabilities accrued in connection with our Merger restructuring initiatives are presented in Accounts payable and accrued liabilities on our Condensed Consolidated Balance Sheets.
We expect to incur substantially all remaining costs associated with our Merger restructuring activities by the end of this year, with the related cash outflows extending beyond 2023.
2023 Workforce Reduction
In August 2023, we began implementing an initiative to reduce the size of our workforce by approximately 5,000 positions, just under 7% of our total employee base, primarily in corporate and back-office functions, and some technology roles. We recorded a pre-tax charge of $471 million during the three months ended September 30, 2023, related to the workforce reduction, which is included in Costs of services and Selling, general and administrative expenses on our Condensed Consolidated Statements of Comprehensive Income.
The changes in the liabilities associated with our workforce reduction initiative, including expenses incurred and cash payments, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | December 31,
2022 | | Expenses Incurred | | Cash Payments | | Other (1) | | September 30,
2023 |
| Severance costs | $ | — | | | $ | 471 | | | $ | (18) | | | $ | 14 | | | $ | 467 | |
(1) Other primarily consists of previously expensed vacation accruals expected to be paid out as a component of severance.
The liabilities accrued in connection with our workforce reduction activities are presented in Accounts payable and accrued liabilities on our Condensed Consolidated Balance Sheets.
Substantially all costs associated with our workforce reduction activities were recorded during the three months ended September 30, 2023, with substantially all related cash outflows extending through mid-2024.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (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
Note 15 – Additional Financial Information
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities, excluding amounts classified as held for sale, are summarized as follows: | | | | | | | | | | | | | (in millions) | September 30,
2023 | | December 31,
2022 | | Accounts payable | $ | 4,603 | | | $ | 7,213 | | | Payroll and related benefits | 1,354 | | | 1,236 | | | Property and other taxes, including payroll | 1,797 | | | 1,657 | | | Accrued interest | 829 | | | 731 | | | Commissions and contract termination costs | 287 | | | 523 | | | | | | | Toll and interconnect | 195 | | | 227 | | | | | | | Other | 600 | | | 688 | | | Accounts payable and accrued liabilities | $ | 9,665 | | | $ | 12,275 | | | | | |
Book overdrafts included in accounts payable were $713 million and $720 million as of September 30, 2023, 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, 20162022, respectively.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (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. |
Supplemental 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 StatementConsolidated Statements 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 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2023 | | 2022 | | 2023 | | 2022 | | |
| Interest payments, net of amounts capitalized | $ | 915 | | | $ | 781 | | | $ | 2,651 | | | $ | 2,548 | | | |
| Operating lease payments | 1,037 | | | 1,073 | | | 3,834 | | | 3,163 | | | |
| Income tax payments | 4 | | | 12 | | | 126 | | | 75 | | | |
| Non-cash investing and financing activities | | | | | | | | | |
| | | | | | | | | |
| Non-cash beneficial interest obtained in exchange for securitized receivables | $ | 920 | | | $ | 1,181 | | | $ | 3,148 | | | $ | 3,189 | | | |
| | | | | | | | | |
| Change in accounts payable and accrued liabilities for purchases of property and equipment | (459) | | | 390 | | | (1,196) | | | 139 | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Increase in Tower obligations from contract modification | — | | | — | | | — | | | 1,158 | | | |
| Operating lease right-of-use assets obtained in exchange for lease obligations | 563 | | | 479 | | | 1,676 | | | 7,045 | | | |
| Financing lease right-of-use assets obtained in exchange for lease obligations | 398 | | | 348 | | | 961 | | | 1,197 | | | |
Cash and cash equivalents, including restricted cash and cash held for sale
Cash and cash equivalents, including restricted cash and cash held for sale, presented on our Condensed Consolidating StatementConsolidated Statements of Cash Flows Informationwere included on our Condensed Consolidated Balance Sheets as follows: | | | | | | | | | | | |
| (in millions) | September 30,
2023 | | December 31,
2022 |
| Cash and cash equivalents | $ | 5,030 | | | $ | 4,507 | |
| Cash and cash equivalents held for sale (included in Other current assets) | — | | | 27 | |
| Restricted cash (included in Other current assets) | 94 | | | 73 | |
| Restricted cash (included in Other assets) | 75 | | | 67 | |
| Cash and cash equivalents, including restricted cash and cash held for sale | $ | 5,199 | | | $ | 4,674 | |
Three Months Ended
Note 16 – Subsequent Events
Subsequent to September 30, 20162023, on October 15, 2023, we and DISH entered into the LPA Amendment to the DISH License Purchase Agreement. See Note 5 - Spectrum License Transactions for additional information. |
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
| Operating activities | | | | | | | | | | | |
| Net cash provided by (used in) operating activities | $ | 1 |
| | $ | (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 EndedSubsequent to September 30, 20172023, from October 1, 2023, through October 20, 2023, we repurchased 5,515,568 shares of our common stock at an average price per share of $139.76 for a total purchase price of $771 million. See Note 10 - Stockholder Return Programs for additional information regarding the 2023-2024 Stockholder Return Program. |
| | | | | | | | | | | | | | | | | | | | | | | |
| (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, 2016,2022, 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:
•competition, industry consolidation and changes in the market for wireless communications services and other forms of connectivity;
•criminal cyberattacks, disruption, data loss or other security breaches;
•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 difficulties in maintaining multiple billing systems following our merger (the “Merger”) with Sprint Corporation (“Sprint”) pursuant to a Business Combination Agreement with Sprint and the other parties named therein (as amended, the “Business Combination Agreement”) and any unanticipated difficulties, disruption, or significant delays in our long-term strategy to convert Sprint’s legacy customers onto T-Mobile’s billing platforms;
•the impacts of the actions we have taken and conditions we have agreed to in connection with the regulatory proceedings and approvals of the Merger and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”), 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 (“Shentel”) 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 (the “Final Judgment”) agreed to by us, Deutsche Telekom AG (“DT”), 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 over multiple years;
•adverse economic, political or politicalmarket conditions in the U.S. and international markets;markets, including changes resulting from increases in inflation or interest rates, supply chain disruptions and impacts of geopolitical instability, such as the Ukraine-Russia war and Israel-Hamas war;
competition•our inability to manage the ongoing arrangements entered into in connection with the wireless services market, including new competitors entering Prepaid Transaction, and known or unknown liabilities arising in connection therewith;
•the industry as technologies converge;
thetiming and effects of any future acquisition, divestiture, investment, or merger or acquisition involving us, as well as the effects of mergers or acquisitions in the technology, media and telecommunications industry;us;
challenges in implementing our business strategies or funding our wireless operations, including payment for additional spectrum or network upgrades;
the possibility that we may be unable to renew our spectrum licenses on attractive terms or acquire new spectrum licenses at reasonable costs and terms;
difficulties in managing growth in wireless data services, including network quality;
material changes in available technology;
the timing, scope and financial impact of our deployment of advanced network and business technologies;
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 disruption or failure of our third parties’ orparties (including key suppliers’ provisioning ofsuppliers) to provide products or services;services for the operation of our business;
material adverse changes•our inability to fully realize the synergy benefits from the Transactions in labor matters, including labor campaigns, negotiations or additional organizing activity,the expected time frame;
•our substantial level of indebtedness and any resulting financial, operational and/or reputational impact;
the abilityour inability to make payments onservice our debt obligations in accordance with their terms or to repay our existing indebtedness when due;comply with the restrictive covenants contained therein;
adverse change in the ratings of our debt securities or adverse conditions•changes in the credit market conditions, credit rating downgrades or an inability to access debt markets;
•restrictive covenants, including the agreements governing our indebtedness and other financings;
•the risk of future material weaknesses we may identify or any other failure by us to maintain effective internal controls, and the resulting significant costs and reputational damage;
•any changes in accounting assumptions thatregulations or in the regulatory agencies,framework under which we operate;
•laws and regulations relating to the handling of privacy and data protection;
•unfavorable outcomes of and increased costs from existing or future regulatory or legal proceedings;
•our offering of regulated financial services products and exposure to a wide variety of state and federal regulations;
•new or amended tax laws or regulations or administrative interpretations and judicial decisions affecting the scope or application of tax laws or regulations;
•our wireless licenses, including those controlled through leasing agreements, are subject to renewal and may be revoked;
•our exclusive forum provision as provided in our Fifth Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”);
•interests of DT, our controlling stockholder, which may differ from the Securitiesinterests of other stockholders;
•future sales of our common stock by DT and Exchange Commission (“SEC”),SoftBank and our inability to attract additional equity financing outside the United States due to foreign ownership limitations by the FCC; and
•the dollar amount authorized for our 2023-2024 Stockholder Return Program (as defined in Note 10 – Stockholder Return Programs of the Notes to the Condensed Consolidated Financial Statements) may require, which could result in annot be fully utilized, and our share repurchases and dividend payments pursuant thereto may fail to have the desired impact on earnings; andstockholder value. 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 and nine months ended September 30, 2023, 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, 2016.2022. 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.
Effective January 1, 2017,Sprint Merger, Network Integration and Decommissioning Activities
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 $2.4 billionCash Flows.
Merger-related costs are presented below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Three Months Ended
September 30, | | Change | | Nine Months Ended
September 30, | | | | Change | | |
| 2023 | | 2022 | | $ | | % | | 2023 | | 2022 | | | | $ | | % | | | | |
| Merger-related costs | | | | | | | | | | | | | | | | | | | | | |
| Cost of services, exclusive of depreciation and amortization | $ | 120 | | | $ | 812 | | | $ | (692) | | | (85) | % | | $ | 506 | | | $ | 2,380 | | | | | $ | (1,874) | | | (79) | % | | | | |
| Cost of equipment sales, exclusive of depreciation and amortization | (3) | | | 258 | | | (261) | | | (101) | % | | (12) | | | 1,468 | | | | | (1,480) | | | (101) | % | | | | |
| Selling, general and administrative | 35 | | | 226 | | | (191) | | | (85) | % | | 292 | | | 529 | | | | | (237) | | | (45) | % | | | | |
| Total Merger-related costs | $ | 152 | | | $ | 1,296 | | | $ | (1,144) | | | (88) | % | | $ | 786 | | | $ | 4,377 | | | | | $ | (3,591) | | | (82) | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash payments for Merger-related costs | $ | 345 | | | $ | 942 | | | $ | (597) | | | (63) | % | | $ | 1,557 | | | $ | 2,742 | | | | | $ | (1,185) | | | (43) | % | | | | |
We expect to incur substantially all of the remaining projected Merger-related costs of approximately $200 million, excluding capital expenditures, by the end of 2023, with the cash expenditure for the three months endedMerger-related costs extending beyond 2023.
Anticipated Merger Synergies
As a result of our ongoing restructuring and integration activities, we have realized Merger synergies by eliminating redundancies within our combined network as well as other business processes and operations. For full-year 2023, we expect Merger synergies from Selling, general and administrative expense reductions of approximately $2.7 billion, Cost of service expense reductions of approximately $3.2 billion and avoided network expenses of approximately $1.6 billion.
2023 Workforce Reduction
In August 2023, we began implementing an initiative to reduce the size of our workforce by approximately 5,000 positions, just under 7% of our total employee base, primarily in corporate and back-office functions, and some technology roles. We expect a decrease in operating expenses in 2024 driven by reduced personnel costs.
For more information regarding our restructuring activities, seeNote 14 – Restructuring Costs of the Notes to the Condensed Consolidated Financial Statements.
Wireline
On September 30, 2017, increased $6226, 2022, we entered into the Wireline Sale Agreement to sell the Wireline Business for a total purchase price of $1 and the payments totaling $700 million or 36% (see “Liquidityunder the IP transit services agreement. On May 1, 2023, pursuant to the Wireline Sale Agreement, upon the terms and Capital Resources”).subject to the conditions thereof, we completed the Wireline Transaction.
For more information regarding the Wireline Sale Agreement, see Note 11 – Wireline of the Notes to the Condensed Consolidated Financial Statements.
Acquisition of Ka’ena Corporation
On March 9, 2023, we entered into a non-GAAP financial measure, of $921 millionMerger and Unit Purchase Agreement for the threeacquisition of 100% of the outstanding equity of Ka’ena Corporation and its subsidiaries including, among others, Mint Mobile LLC, for a maximum purchase price of $1.35 billion to be paid out 39% in cash and 61% in shares of T-Mobile common stock. The purchase price is variable dependent upon specified performance indicators of Ka’ena Corporation during certain periods before and after closing and consists of an upfront payment at closing of the transaction, subject to certain agreed-upon adjustments, and a variable earnout payable 24 months ended September 30, 2017, increased $340 million, or 59% (see “Liquidityafter closing of the transaction. Our estimate of the upfront payment is subject to Ka’ena Corporation’s underlying business performance and Capital Resources”).the timing of transaction close, and has been updated to $1.2 billion, before working capital adjustments. The acquisition is subject to certain customary closing conditions, including certain regulatory approvals, and is expected to close by the end of the first quarter of 2024.
Ka’ena Corporation is currently one of our wholesale partners, offering wireless telecommunications services to customers leveraging our network. Upon closing of the transactions, we expect to recognize customers of Ka’ena Corporation as prepaid customers and expect to see an increase in Prepaid revenues, partially offset by a decrease in Wholesale revenues.
Highlights forRecent Cyberattacks
In August 2021, we were subject to a criminalcyberattack involving unauthorized access to T-Mobile’s systems. As a result of the attack, we are subject to numerous arbitration demands and lawsuits, including class action lawsuits, and regulatory inquiries as described in Note 13 – Commitments and Contingencies of the Notes to the Condensed Consolidated Financial Statements.
During the nine months ended September 30, 2017, compared2023, we recognized $50 million in reimbursements from insurance carriers for costs incurred related to the same period in 2016August 2021 cyberattack. We are pursuing additional reimbursements from insurance carriers for costs incurred related to the August 2021 cyberattack.
Total revenuesIn January 2023, we disclosed that a bad actor was obtaining data through a single Application Programming Interface (“API”) without authorization. Based on our investigation, the impacted API is only able to provide a limited set of $29.8 billioncustomer account data, including name, billing address, email, phone number, date of birth, T-Mobile account number and information such as the number of lines on the account and plan features. The result from our investigation indicates that the bad actor(s) obtained data from this API for the nine months ended September 30, 2017, increased $2.6 billion, or 9%. The increase was primarily driven by growth in serviceapproximately 37 million current postpaid 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, butprepaid customer accounts, though many of these accounts did not materiallyinclude the full data set. We believe that the bad actor first retrieved data through the impacted API starting on or around November 25, 2022. We have notified individuals whose information was impacted consistent with state and federal requirements.
We will continue to respond to litigation and regulatory inquiries in connection with this incident and may incur significant expenses. However, we cannot predict the timing or outcome of any of these potential matters, or whether we may be subject to regulatory inquiries, investigations, or enforcement actions. In addition, we are unable to predict the full impact total revenues.
Service revenues of $22.4 billion forthis incident on customer behavior in the nine months ended September 30, 2017, increased $1.8 billion, or 9%. The increase was primarily due to growthfuture, including whether a change in our average branded customer base ascustomers’ behavior could negatively impact our results of operations on an ongoing basis, although we presently do not expect that it will have a result of strong customermaterial effect on our operations.
In response to the recent cyberattacks and increasing cybersecurity threats, we have significantly increased our Un-carrier initiatives, promotionsfocus on enhancing our cybersecurity practices with a substantial multi-year investment. In the second quarter of 2023, we have hired new security leadership, and the success ofimplemented significant technology improvements to our MetroPCS brand.
cybersecurity controls. Those improvements include additional authentication measures and internal systems limitations and restrictions. In addition, we have enhanced our cybersecurity awareness program, including rolling out new training for all employees. While we have made progress to date, we plan to continue to make substantial investments to strengthen our cybersecurity program in future periods.
Results of leased devices at the end of the lease term, partially offset by lower lease revenues.
Operations
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 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 interest 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, of $1.6 billion for the nine months ended September 30, 2017, increased $898 million, or 130% (see “Liquidity and Capital Resources”).
Set forth below is a summary of our consolidated financial results:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Change | | Nine Months Ended
September 30, | | Change | | |
| (in millions) | 2023 | | 2022 | | $ | | % | | 2023 | | 2022 | | | | $ | | % | | | | |
| Revenues | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Postpaid revenues | $ | 12,288 | | | $ | 11,548 | | | $ | 740 | | | 6 | % | | $ | 36,220 | | | $ | 34,194 | | | | | $ | 2,026 | | | 6 | % | | | | |
| Prepaid revenues | 2,473 | | | 2,484 | | | (11) | | | — | % | | 7,334 | | | 7,408 | | | | | (74) | | | (1) | % | | | | |
| Wholesale and other service revenues | 1,153 | | | 1,329 | | | (176) | | | (13) | % | | 3,644 | | | 4,203 | | | | | (559) | | | (13) | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Total service revenues | 15,914 | | | 15,361 | | | 553 | | | 4 | % | | 47,198 | | | 45,805 | | | | | 1,393 | | | 3 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Equipment revenues | 3,076 | | | 3,855 | | | (779) | | | (20) | % | | 9,964 | | | 12,679 | | | | | (2,715) | | | (21) | % | | | | |
| Other revenues | 262 | | | 261 | | | 1 | | | — | % | | 918 | | | 814 | | | | | 104 | | | 13 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Total revenues | 19,252 | | | 19,477 | | | (225) | | | (1) | % | | 58,080 | | | 59,298 | | | | | (1,218) | | | (2) | % | | | | |
| Operating expenses | | | | | | | | | | | | | | | | | | | | | |
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| Cost of services, exclusive of depreciation and amortization shown separately below | 2,886 | | | 3,712 | | | (826) | | | (22) | % | | 8,863 | | | 11,499 | | | | | (2,636) | | | (23) | % | | | | |
| Cost of equipment sales, exclusive of depreciation and amortization shown separately below | 4,249 | | | 4,982 | | | (733) | | | (15) | % | | 12,925 | | | 16,036 | | | | | (3,111) | | | (19) | % | | | | |
| Selling, general and administrative | 5,334 | | | 5,118 | | | 216 | | | 4 | % | | 16,031 | | | 16,030 | | | | | 1 | | | — | % | | | | |
| Impairment expense | — | | | — | | | — | | | NM | | — | | | 477 | | | | | (477) | | | (100) | % | | | | |
| Loss (gain) on disposal group held for sale | — | | | 1,071 | | | (1,071) | | | (100) | % | | (25) | | | 1,071 | | | | | (1,096) | | | (102) | % | | | | |
| Depreciation and amortization | 3,187 | | | 3,313 | | | (126) | | | (4) | % | | 9,500 | | | 10,389 | | | | | (889) | | | (9) | % | | | | |
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| Total operating expenses | 15,656 | | | 18,196 | | | (2,540) | | | (14) | % | | 47,294 | | | 55,502 | | | | | (8,208) | | | (15) | % | | | | |
| Operating income | 3,596 | | | 1,281 | | | 2,315 | | | 181 | % | | 10,786 | | | 3,796 | | | | | 6,990 | | | 184 | % | | | | |
| Other expense, net | | | | | | | | | | | | | | | | | | | | | |
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| Interest expense, net | (790) | | | (827) | | | 37 | | | (4) | % | | (2,486) | | | (2,542) | | | | | 56 | | | (2) | % | | | | |
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| Other income (expense), net | 41 | | | (3) | | | 44 | | | NM | | 56 | | | (35) | | | | | 91 | | | (260) | % | | | | |
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| Total other expense, net | (749) | | | (830) | | | 81 | | | (10) | % | | (2,430) | | | (2,577) | | | | | 147 | | | (6) | % | | | | |
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| Income before income taxes | 2,847 | | | 451 | | | 2,396 | | | 531 | % | | 8,356 | | | 1,219 | | | | | 7,137 | | | 585 | % | | | | |
| Income tax (expense) benefit | (705) | | | 57 | | | (762) | | | NM | | (2,053) | | | (106) | | | | | (1,947) | | | NM | | | | |
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| Net income | $ | 2,142 | | | $ | 508 | | | $ | 1,634 | | | 322 | % | | $ | 6,303 | | | $ | 1,113 | | | | | $ | 5,190 | | | 466 | % | | | | |
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| Statement of Cash Flows Data | | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by operating activities | $ | 5,294 | | | $ | 4,391 | | | $ | 903 | | | 21 | % | | $ | 13,700 | | | $ | 12,445 | | | | | $ | 1,255 | | | 10 | % | | | | |
| Net cash used in investing activities | (1,393) | | | (2,555) | | | 1,162 | | | (45) | % | | (4,608) | | | (10,206) | | | | | 5,598 | | | (55) | % | | | | |
| Net cash (used in) provided by financing activities | (5,510) | | | 1,927 | | | (7,437) | | | (386) | % | | (8,567) | | | (1,953) | | | | | (6,614) | | | 339 | % | | | | |
| Non-GAAP Financial Measures | | | | | | | | | | | | | | | | | | | | | |
| Adjusted EBITDA | $ | 7,600 | | | $ | 7,039 | | | $ | 561 | | | 8 | % | | $ | 22,204 | | | $ | 20,993 | | | | | $ | 1,211 | | | 6 | % | | | | |
| Core Adjusted EBITDA | 7,547 | | | 6,728 | | | 819 | | | 12 | % | | 21,935 | | | 19,809 | | | | | 2,126 | | | 11 | % | | | | |
| Adjusted Free Cash Flow | 4,003 | | | 2,065 | | 1,938 | | 94 | % | | 9,281 | | | 5,472 | | | | | 3,809 | | | 70 | % | | | | |
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NM - Not Meaningful
The following discussion and analysis is for the three and nine months ended September 30, 2017,2023, compared to the same periodsperiod in 20162022 unless otherwise stated.
Total revenues increased $714decreased$225 million, or 8%1%, for the three months ended and $2.6decreased $1.2 billion, or 9%2%, for the nine months ended September 30, 2017, primarily due to higher2023. 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$740 million, or6%, for the three months ended and $1.0increased $2.0 billion, or 7%6%, for the nine months ended September 30, 2017.2023, primarily from:
The change•Higher average postpaid accounts; and
Prepaid revenues were relatively flat 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 changedecreasedslightly for the nine months ended September 30, 2017 was2023, primarily from:
Growth•Lower prepaid ARPU. See “Prepaid ARPU” in the customer base driven by strong customer response to our Un-carrier initiatives and promotions for services and devices, including the growing success“Performance Measures” section of our business channel, T-Mobile for Business; andThe positive impact from a decrease in the non-cash net revenue deferral for Data Stash; partiallythis MD&A; mostly offset by
The MVNO Transaction;•Higher average prepaid customers.
Wholesale and
The negative impact from hurricanes of $20 million.
Branded prepaid other service revenues increased $194 decreased $176 million, or 9%13%, for the three months ended and $683decreased $559 million, or 11%13%, for the nine months ended September 30, 2017,2023.
The decrease for the three months ended September 30, 2023, was primarily from:
Higher average branded•Lower Wireline revenues due to the sale of the Wireline Business on May 1, 2023. See Note 11 – Wirelineof the Notes to the Condensed Consolidated Financial Statements for additional information; and•Lower MVNO revenues.
The decrease for the nine months ended September 30, 2023, was primarily from:
•Lower MVNO revenues; and
•Lower Wireline revenues due to the sale of the Wireline Business on May 1, 2023. See Note 11 – Wirelineof the Notes to the Condensed Consolidated Financial Statements for additional information.
Equipment revenues decreased $779 million, or 20%, for the three months ended and decreased $2.7 billion, or 21%, for the nine months ended September 30, 2023.
The decrease for the three months ended September 30, 2023, was primarily from:
•A decrease of $486 million in device sales revenue, excluding purchased leased devices, primarily from:
•A decrease in the number of devices sold, primarily due to lower postpaid upgrades and prepaid sales driven by longer device lifecycles, as well as higher postpaid upgrades in the prior year period related to facilitating the migration of Sprint customers to the T-Mobile network;
•A decrease of $258 million in lease revenues, primarily due to a lower number of customer devices under lease as a result of the continued strategic shift in device financing from leasing to EIP; and
•A decrease of $74 million in accessory revenue, primarily due to a decrease in the number of associated devices sold.
The decrease for the nine months ended September 30, 2023, was primarily from:
•A decrease of $1.3 billion in device sales revenue, excluding purchased leased devices, primarily from:
•A decrease in the number of devices sold, primarily driven by growthhigher postpaid upgrades in the prior year period related to facilitating the migration of Sprint customers to the T-Mobile network, as well as longer device lifecycles, and lower prepaid sales; partially offset by
•Slightly higher average revenue per device sold, primarily driven by higher promotions in the prior year period, which included promotions for Sprint customers to facilitate the migration to the T-Mobile network, partially offset by a decrease in the high-end phone mix;
•A decrease of $915 million in lease revenues and a decrease of $180 million in customer base;purchases of leased devices, primarily due to a lower number of customer devices under lease as a result of the continued strategic shift in device financing from leasing to EIP; and
•A decrease of $228 million in accessory revenue, primarily due to a decrease in the number of associated devices sold.
Other revenues were relatively flat for the three months endedandincreased $104 million, or 13%, for the nine months ended September 30, 2023.
The increase for the nine months ended September 30, 2023, was primarily from:
•Higher branded prepaid ARPUinterest income driven by higher imputed interest rates on EIP, which is recognized over the device financing term; and
•Higher revenue from our device recovery program.
Total operating expenses decreased $2.5 billion, or 14%, for the successthree months ended and decreased $8.2 billion, or 15%, for the nine months ended September 30, 2023. The components of this change are discussed below.
Cost of services, exclusive of depreciation and amortization, decreased $826 million, or 22%, for the three months ended and decreased $2.6 billion, or 23%, for the nine months ended September 30, 2023.
The decrease for the three months ended September 30, 2023, was primarily from:
•A decrease of $692 million in Merger-related costs related to network decommissioning and integration as the majority of our MetroPCS brand;decommissioning efforts were completed in 2022;
•Lower costs due to the sale of the Wireline Business on May 1, 2023. See Note 11 - Wirelineof the Notes to the Condensed Consolidated Financial Statements for additional information; and •Higher realized Merger synergies; partially offset by
•$140 million of severance and related costs associated with the August 2023 workforce reduction; and
•Higher site costs related to the continued build-out of our nationwide 5G network.
The impact fromdecrease for the optimizationnine months ended September 30, 2023, was primarily from:
•A decrease of $1.9 billion in Merger-related costs related to network decommissioning and integration as the majority of our third-party distribution channels;decommissioning efforts were completed in 2022;
•Higher realized Merger synergies; and
The negative impact from hurricanes•Lower costs due to the sale of $11 million.the Wireline Business on May 1, 2023. See Note 11 - Wirelineof the Notes to the Condensed Consolidated Financial Statements for additional information; partially offset by
•$140 million of severance and related costs associated with the August 2023 workforce reduction; and
Wholesale revenues increased $36•Higher site costs related to the continued build-out of our nationwide 5G network.
Cost of equipment sales, exclusive of depreciation and amortization, decreased $733 million, or 15%, for the three months ended and $133 million,decreased $3.1 billion, or 21%19%, for the nine months ended September 30, 2017, primarily from the impact of increased Wholesale revenues resulting from the MVNO Transaction.2023.
Roaming and other service revenues decreased $7 million, or 11%, 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 changedecrease for the three months ended September 30, 20172023, was primarily from:
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 million in device sales revenues excluding purchased leased devices, primarily due to:
Higher average revenue per device sold primarily due to an Original Equipment Manufacturer (“OEM”) recall of its smartphone devices in 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, partially offset by an increase in promotional spending; partially offset by
A 1% decrease in the number of devices sold. Device sales revenue is recognized at the time of sale;
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 of spectrum licenses, partially offset by lower Depreciation and amortization as discussed below.
Cost of services increased $158 million, or 11%, 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$638 million in 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 in the number of devices sold;sold, primarily due to lower postpaid upgrades and
prepaid sales driven by longer device lifecycles, as well as higher postpaid upgrades in the prior year period related to facilitating the migration of Sprint customers to the T-Mobile network; andAn increase•A decrease of $58$41 million in lease device costaccessory costs, primarily due to a decrease in the number of associated devices sold.
•Cost of equipment sales primarily due to:
for the three months ended September 30, 2023, included $3 million of Merger-related recoveries, compared to $258 million of Merger-related costs for the three months ended September 30, 2022.An increase in lease buyouts as leases began reaching their term dates in 2017; partially offset by36
A decrease in device upgrades from fewer customers in the handset lease program.
Table of ContentsThese increases are partially offset by a decrease of $31 million in cost of equipment related to an increase in proceeds from the liquidation of returned customer handsets under our insurance programs; and
The negative impact from hurricanes of $4 million.
The changedecrease for the nine months ended September 30, 20172023, was primarily from:
An increase•A decrease of $483 million$2.8 billion in device cost of equipment sales, excluding purchased leased devices, primarily due to:
from:•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 the number of devices sold;sold, primarily driven by higher postpaid upgrades in the prior year period related to facilitating the migration of Sprint customers to the T-Mobile network, as well as longer device lifecycles, and
lower prepaid sales; and•Slightly lower average cost per device sold driven by a decrease in the high-end phone mix.
An increase•A decrease of $245$101 million in lease device costaccessory costs, primarily due to a decrease in the number of associated devices sold.
•Cost of equipment sales primarily due to:
for the nine months ended September 30, 2023, included $12 million of Merger-related recoveries, compared to $1.5 billion of Merger-related costs for the nine months ended September 30, 2022.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 end of the lease term, 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 at the lower of cost or market with any write-down to market recognized as Cost of equipment sales.
Selling, general and administrative expenses increased $200$216 million, or 7%4%, for the three months ended and $549 million, or 7%,was relatively flat 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.2023.
Depreciation and amortization decreased $152 million, or 10%, for the three months ended and $196 million, or 4%, for the nine months ended September 30, 2017, primarily from:
Lower depreciation expense related to our JUMP! On Demand program resulting from a lower number of 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; partially offset by
The continued build-out of our 4G LTE 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 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 for the three months ended September 30, 2017 was primarily from higher income before income taxes. The effective tax rate was 39.3% and 38.8% for the three months ended September 30, 2017 and 2016, respectively.
The change for the nine months ended September 30, 2017 was primarily from:
A lower effective 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 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, 2017,2023, was also partiallyprimarily from:
•$331 million of severance and related costs associated with the August 2023 workforce reduction;
•Gains from the sale of certain IP addresses held by the Wireline Business of $121 million recognized during the three months ended September 30, 2022; partially offset by
•Lower Merger-related costs and higher realized Merger synergies; and
•Lower costs related to outsourced functions.
•Selling, general and administrative expenses for the three months ended September 30, 2023, included $35 million of Merger-related costs, which were net issuance of $500legal settlement gains of $69 million, compared to $226 million of Merger-related costs for the three months ended September 30, 2022.
The slight increase for the nine months ended September 30, 2023, was primarily from:
•$331 million of severance and related costs associated with the August 2023 workforce reduction;
•Higher commission amortization expense;
•Higher advertising expense; and
•Gains from the sale of certain IP addresses held by the Wireline Business of $121 million recognized during the three months ended September 30, 2022; offset by
•Lower Merger-related costs and higher realized Merger synergies;
•Lower legal-related expenses, including $400 million recognized in Senior Notes in April 2017.June 2022 associated with the settlement of certain litigation resulting from the August 2021 cyberattack; and
•Lower bad debt expense.
•Selling, general and administrative expenses for the nine months ended September 30, 2023, included $292 million of Merger-related costs, which were net of legal settlement gains of $134 million, compared to $529 million of Merger-related costs for the nine months ended September 30, 2022, which were net of legal settlement gains of $220 million.
Impairment expense was $477 million for the nine months ended September 30, 2022, due to the non-cash impairment of certain Wireline Property and equipment, Operating lease right-of-use assets and Other intangible assets. There was no impairment expense for the three and nine months ended September 30, 2023 and the three months ended September 30, 2022.
Loss (gain) on disposal group held for sale was a gain of $25 million for the nine months ended September 30, 2023 and a loss of $1.1 billion for the three and nine months ended September 30, 2022. See Note 7 – Debt11 - Wireline of the Notes to the Condensed Consolidated Financial Statements for additional details.
Other income (expense), net remained flatinformation. There was no gain or loss on disposal group held for sale for the three months ended September 30, 2023.
Depreciation and amortization decreased $126 million, or 4%, for the three months ended and increased $83 decreased $889 million, or 9%, for the nine months ended September 30, 2017. 2023.
The changedecrease for the three and nine months ended September 30, 20172023, was primarily from:
•Lower depreciation expense on leased devices, resulting from a lower number of total customer devices under lease; and
A $73 million net loss recognized•Certain 4G-related network assets becoming fully depreciated, including assets impacted by the decommissioning of the legacy Sprint CDMA and LTE networks in 2022; partially offset by
•Higher depreciation expense, excluding leased devices, from the early redemption of certain Senior Notes; and
A $13 million net loss recognized from the refinancingcontinued build-out of our nationwide 5G network; and
•Higher amortization of capitalized software driven by increased in-service internally developed and purchased software.
Operating income, the components of which are discussed above, increased $2.3 billion, or 181%, for the three months ended and increased $7.0 billion, or 184%, for the nine months ended September 30, 2023.
Interest expense, net decreased $37 million, or 4%, for the three months ended and decreased $56 million, or 2%, for the nine months ended September 30, 2023, primarily from:
•Higher interest income, primarily due to higher average interest rates on short-term cash equivalents; and
•Higher capitalized interest, primarily driven by deployment activities associated with our C-band spectrum licenses; partially offset by
•Higher interest expense, primarily due to higher average debt outstanding Senior Secured Term Loans.
and a higher average effective interest rate.
See Note 7 – DebtOther income (expense), net was insignificant for all periods.
Income before income taxes, the components of the Notes to the Condensed Consolidated Financial Statements.
Net income included net, after-tax gains on disposal of spectrum licenses of $18 millionwhich are discussed above, was $2.8 billion and $122$451 million for the three months ended September 30, 20172023 and 2016,2022, respectively, and $41was $8.4 billion and $1.2 billion for the nine months ended September 30, 2023 and 2022, respectively.
Income tax expense increased $762 million for the three months ended and increased $1.9 billion for the nine months ended September 30, 2023, primarily from:
•Higher income before income taxes; and
•Tax benefits recognized during the three months ended September 30, 2022, associated with certain entity restructuring, that did not impact 2023.
Our effective tax rate was 24.8% and (12.4)% for the three months ended September 30, 2023 and 2022, respectively, and 24.6% and 8.7% for the nine months ended September 30, 2023 and 2022, respectively.
Net income, the components of which are discussed above, was $2.1 billion and $508 million for the three months ended September 30, 2023 and 2022, respectively, and was $6.3 billion and $1.1 billion for the nine months ended September 30, 2023 and 2022, respectively. Net income included:
•Merger-related costs, net of tax, of $114 million and $511$589 million for the three and nine months ended September 30, 2023, respectively, compared to $972 million and $3.3 billion for the three and nine months ended September 30, 2022, respectively.
•Gain on disposal group held for sale of $19 million, net of tax, for the nine months ended September 30, 2023, compared to a loss on disposal group held for sale of $803 million, net of tax, for the three and nine months ended September 30, 2022. There was no gain or loss on disposal group held for sale for the three months ended September 30, 2023.
•Impairment expense of $358 million, net of tax, for the nine months ended September 30, 2022, compared to no impairment expense for the three and nine months ended September 30, 2023 and the three months ended September 30, 2022.
•Severance and related costs associated with the August 2023 workforce reduction of $353 million, net of tax, for the three and nine months ended September 30, 2023.
•Legal-related recoveries, net, associated with the settlement of certain litigation resulting from the August 2021 cyberattack, of $32 million for the nine months ended September 30, 20172023, compared to $14 million in Legal-related recoveries, net, and 2016,$286 million in Legal-related expenses, net, for the three and nine months ended September 30, 2022, respectively.
Guarantor Subsidiaries
The financial condition and results of operations of the Parent, Issuer and Guarantor Subsidiaries is substantially similar to our consolidated financial condition. The most significant components of the financial condition of our Non-Guarantor Subsidiaries were as follows:
|
| | | | | | | | | | | | | | |
| | 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:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 There was no Legal-related expenses or recoveries for the three months ended September 30, 2017 was primarily from:2023, associated with the August 2021 cyberattack.
Higher Service revenues primarily due
Guarantor Financial Information
Pursuant to the resultapplicable indentures and supplemental indentures, the Senior Notes to affiliates and third parties issued by T-Mobile USA, Inc., Sprint and Sprint Capital Corporation (collectively, the “Issuers”) are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by T-Mobile (“Parent”) and certain of an increase in activityParent’s 100% owned subsidiaries (“Guarantor Subsidiaries”).
The guarantees of the Guarantor Subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. Generally, the guarantees of the Guarantor Subsidiaries with respect to the Senior Notes issued by T-Mobile USA, Inc. (other than $3.5 billion in principal amount of Senior Notes issued in 2017 and 2018) and the credit agreement entered into by T-Mobile USA, Inc. will be automatically and unconditionally released if, immediately following such release and any concurrent releases of other guarantees, the aggregate principal amount of indebtedness of non-guarantor subsidiarysubsidiaries (other than certain specified subsidiaries) would not exceed $2.0 billion. The indentures, supplemental indentures and credit agreements governing the long-term debt contain covenants that, provides device insurance, primarily driven by growth in our customer base;among other things, limit the ability of the Issuers or borrowers and the Guarantor Subsidiaries to incur more debt, create liens or other encumbrances, and merge, consolidate or sell, or otherwise dispose of, substantially all of their assets.
Lower Cost
Basis of equipment sales expenses primarily due to decrease in claims activity and lower device costs used; andPresentation
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 changefollowing tables include summarized financial information of the obligor groups of debt issued by T-Mobile USA, Inc., Sprint 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) | September 30, 2023 | | December 31, 2022 | | | | |
| Current assets | $ | 17,290 | | | $ | 17,661 | | | | | |
| Noncurrent assets | 179,445 | | | 181,673 | | | | | |
| Current liabilities | 20,005 | | | 23,146 | | | | | |
| Noncurrent liabilities | 127,546 | | | 120,385 | | | | | |
| Due to non-guarantors | 10,556 | | | 9,325 | | | | | |
| | | | | | | |
| Due to related parties | 1,535 | | | 1,571 | | | | | |
| | | | | | | |
The summarized results of operations of our Non-Guarantor Subsidiariesinformation for the nine months ended September 30, 2017 was primarily from:consolidated obligor group of debt issued by T-Mobile USA, Inc. is presented in the table below: | | | | | | | | | | | | | | | | | |
| (in millions) | Nine Months Ended
September 30, 2023 | | | | | | | | Year Ended
December 31, 2022 |
| | |
| Total revenues | $ | 56,109 | | | | | | | | | $ | 77,054 | |
| Operating income | 8,107 | | | | | | | | | 2,985 | |
| Net income (loss) | 3,645 | | | | | | | | | (572) | |
| Revenue from non-guarantors | 1,792 | | | | | | | | | 2,427 | |
| Operating expenses to non-guarantors | 1,942 | | | | | | | | | 2,659 | |
| Other expense to non-guarantors | (513) | | | | | | | | | (327) | |
| | | | | | | | | |
Higher Service revenues primarily due to
The summarized balance sheet information for the resultconsolidated obligor group of an increasedebt issued by Sprint is presented in activity of the non-guarantor subsidiary that provides device insurance, primarily driven by growth in our customer base;table below: | | | | | | | | | | | | | |
| (in millions) | September 30, 2023 | | December 31, 2022 | | |
| Current assets | $ | 10,861 | | | $ | 9,319 | | | |
| Noncurrent assets | 11,406 | | | 11,271 | | | |
| Current liabilities | 12,594 | | | 15,854 | | | |
| Noncurrent liabilities | 106,703 | | | 65,118 | | | |
| Due to non-guarantors | 38,296 | | | 3,930 | | | |
| | | | | |
| Due to related parties | 1,535 | | | 1,571 | | | |
| | | | | |
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 otherThe summarized results of operations information for the consolidated obligor group of debt issued by Sprint is presented in the Parent, Issuer and Guarantor Subsidiaries are substantially similar totable below: | | | | | | | | | | | | | | | | | |
| (in millions) | Nine Months Ended
September 30, 2023 | | Year Ended
December 31, 2022 | | | | | | |
| | |
| Total revenues | $ | 14 | | | $ | 7 | | | | | | | |
| Operating loss | (2,324) | | | (3,479) | | | | | | | |
Net (loss) income (1) | (5,448) | | | 2,471 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Other (expense) income, net, (to) from non-guarantors | (1,460) | | | 525 | | | | | | | |
| | | | | | | | | |
(1) Net income for the Company’syear ended December 31, 2022, includes tax benefits recognized associated with certain entity restructuring.
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) | September 30, 2023 | | December 31, 2022 |
| Current assets | $ | 10,861 | | | $ | 9,320 | |
| Noncurrent assets | 11,406 | | | 16,337 | |
| Current liabilities | 12,665 | | | 15,926 | |
| Noncurrent liabilities | 102,952 | | | 66,516 | |
| Due to non-guarantors | 29,225 | | | — | |
| Due from non-guarantors | — | | | 5,066 | |
| Due to related parties | 1,535 | | | 1,571 | |
| | | |
The summarized results of operations. See Note 11 – Guarantor Financial Informationoperations information for the consolidated obligor group of debt issued by Sprint Capital Corporation is presented in the Notes totable below: | | | | | | | | | | | |
| (in millions) | Nine Months Ended
September 30, 2023 | | Year Ended
December 31, 2022 |
|
| Total revenues | $ | 14 | | | $ | 7 | |
| Operating loss | (2,324) | | | (3,479) | |
Net (loss) income (1) | (5,365) | | | 2,604 | |
| | | |
| | | |
| Other (expense) income, net, (to) from non-guarantors | (1,075) | | | 941 | |
| | | |
(1) Net income for the Condensed Consolidated Financial Statements.year ended December 31, 2022, includes tax benefits recognized associated with certain entity restructuring.
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.
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, mobile internet devices, including tablets and hotspots, wearables, DIGITS or other connected devices, including SyncUP and IoT, where they generally pay after receiving service.
The following table sets forth the number of ending postpaid accounts:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | As of September 30, | | Change | | |
| (in thousands) | | | | | | | | | 2023 | | 2022 | | | | # | | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Postpaid accounts (1) | | | | | | | | | 29,498 | | | 28,212 | | | | | 1,286 | | | 5 | % | | | | |
(1) Customers impacted by the decommissioning of the legacy Sprint CDMA and LTE and T-Mobile UMTS networks have been excluded from our postpaid account base resulting in the removal of 57,000 postpaid accounts in the first quarter of 2022 and 69,000 postpaid accounts in the second quarter of 2022.
Postpaid Net Account Additions
The following table sets forth the number of postpaid net account additions:
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| Three Months Ended
September 30, | | Change | | Nine Months Ended
September 30, | | Change | | |
| (in thousands) | 2023 | | 2022 | | # | | % | | 2023 | | 2022 | | | | # | | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Postpaid net account additions | 386 | | | 394 | | | (8) | | | (2) | % | | 972 | | | 1,122 | | | | | (150) | | | (13) | % | | | | |
Postpaid net account additions decreased 8,000, or 2%, for the three months ended and decreased 150,000, or 13%, for the nine months ended September 30, 2023.
The decrease for the three months ended September 30, 2023, was primarily from fewer High Speed Internet only net account additions.
The decrease for the nine months ended September 30, 2023, was primarily from:
•Continued moderation of industry growth; and
•Fewer High Speed Internet only net account additions.
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, High Speed Internet, mobile broadbandinternet devices, (including tablets),including tablets and hotspots, wearables, DIGITS or DIGITS,other connected devices, including SyncUP and IoT, 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 September 30, | | Change | | |
| (in thousands) | | | | | | | | | 2023 | | 2022 | | | | # | | % | | | | |
| Customers, end of period | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Postpaid phone customers (1) | | | | | | | | | 74,982 | | | 71,907 | | | | | 3,075 | | | 4 | % | | | | |
Postpaid other customers (1) | | | | | | | | | 21,330 | | | 18,507 | | | | | 2,823 | | | 15 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Total postpaid customers | | | | | | | | | 96,312 | | | 90,414 | | | | | 5,898 | | | 7 | % | | | | |
Prepaid customers (1) | | | | | | | | | 21,595 | | | 21,341 | | | | | 254 | | | 1 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Total customers | | | | | | | | | 117,907 | | | 111,755 | | | | | 6,152 | | | 6 | % | | | | |
Adjustments to customers (1) | | | | | | | | | — | | | (1,878) | | | | | 1,878 | | | (100) | % | | | | |
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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 |
| |
|
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 and LTE and T-Mobile UMTS networks have been excluded from our 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 and less reliance on add a line promotions;
Higher branded284,000 postpaid phone customers, 946,000 postpaid other customers and 28,000 prepaid customers driven by the continued success of our MetroPCS brand and continued growth from our distribution expansion, partially offset by the optimization of our third-party distribution channels; 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 as of the beginning ofin the second quarter of 2017. This decrease was partially offset2022. 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 reduce postpaid other customers by 14,000. Certain customers now serviced through reseller contracts were removed from our reported postpaid customer base resulting in the continued successremoval of our M2M partnerships.42,000 postpaid phone customers and 20,000 postpaid other customers in the second quarter of 2022.
High Speed Internet customers included in Postpaid other customers were 3,807,000 and 1,960,000 as of September 30, 2023 and 2022, respectively. High Speed Internet customers included in Prepaid customers were 428,000 and 162,000 as of September 30, 2023 and 2022, respectively.
Net Customer Additions
The following table sets forth the number of net customer additions (losses):additions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Change | | Nine Months Ended
September 30, | | Change | | |
| (in thousands) | 2023 | | 2022 | # | | % | 2023 | | 2022 | | | | # | | % | | | | |
| Net customer additions | | | | | | | | | | | | | | | | | | | | | |
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| Postpaid phone customers | 850 | | | 854 | | | (4) | | | — | % | | 2,148 | | | 2,166 | | | | | (18) | | | (1) | % | | | | |
| Postpaid other customers | 376 | | | 773 | | | (397) | | | (51) | % | | 1,932 | | | 2,435 | | | | | (503) | | | (21) | % | | | | |
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| Total postpaid customers | 1,226 | | | 1,627 | | | (401) | | | (25) | % | | 4,080 | | | 4,601 | | | | | (521) | | | (11) | % | | | | |
| Prepaid customers | 79 | | | 105 | | | (26) | | | (25) | % | | 229 | | | 313 | | | | | (84) | | | (27) | % | | | | |
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| Total net customer additions | 1,305 | | | 1,732 | | | (427) | | | (25) | % | | 4,309 | | | 4,914 | | | | | (605) | | | (12) | % | | | | |
| Adjustments to customers | — | | | — | | | — | | | NM | | — | | | (1,878) | | | | | 1,878 | | | (100) | % | | | | |
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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 |
| | — |
| | 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 610,000,427,000, or 37%25%, for the three months ended and 1,613,000,decreased 605,000, or 33%12%, for the nine months ended September 30, 2017.2023.
The decrease for the three months ended September 30, 20172023, was primarily from:
•Lower brandedpostpaid other net customer additions, primarily due to deactivations from mobile internet devices in the educational sector that were originally activated during the COVID-19 pandemic (“Pandemic”) and no longer needed; and
•Lower prepaid net customer additions, primarily due to higher MetroPCScontinued moderation of industry growth and fewer High Speed Internet net additions, partially offset by lower churn.
•Postpaid phone net customer additions were relatively flat, primarily due to increased deactivations from a growing customer base and increased competitive activity in the marketplace, anddespite slightly lower churn, offset by higher gross additions.
Lower branded postpaid phone•High Speed Internet net customer additions primarily due to lower grossincluded in postpaid other net customer additions from increased competitive activitywere 505,000 and 488,000 for the three months ended September 30, 2023 and 2022, respectively. High Speed Internet net customer additions included in prepaid net customer additions were 52,000 and 90,000 for the marketplace, the splitthree months ended September 30, 2023 and shift in iPhone launch timing, and the negative impact from hurricanes; partially offset by2022, respectively.
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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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The decrease for the nine months ended September 30, 20172023, was primarily from:
•Lower brandedpostpaid other net customer additions, primarily due to
•Deactivations from mobile internet devices in the educational sector that were originally activated during the Pandemic and no longer needed; and
•Lower net additions from other connected devices; partially offset by
•Higher High Speed Internet net customer additions, primarily due to continued growth in gross additions driven by increasing customer demand, partially offset by increased deactivations from a growing customer base; and
•Lower prepaid net customer additions, primarily due to higher MetroPCS deactivations from a growing customer basecontinued moderation of industry growth and increased competitive activitycontinued industry migration of prepaid to postpaid, partially offset by growth in the marketplace. Additional decreases resulted from the optimization of our third party distribution channels,High Speed Internet; and
Lower branded•Slightly lower postpaid phone net customer additions, primarily due to increased deactivations from a growing customer base despite slightly lower gross customer additions from increased competitive activity in the marketplace and lower customer migrations, partiallychurn, mostly 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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higher gross additions.
Wholesale
Wholesale•High Speed Internet net customer additions decreased 31,000, or 10%, for the three months endedincluded in postpaid other net customer additions were 1,397,000 and 655,000, or 54%,1,314,000 for the nine months ended September 30, 2017 from lower gross2023 and 2022, respectively. High Speed Internet net customer additions partially offset by lowerincluded in prepaid net customer deactivations. We believe currentadditions were 192,000 and future regulatory changes have made162,000 for the Lifeline program offered by our wholesale partners uneconomical.nine months ended September 30, 2023 and 2022, respectively.
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 havehad their service restored within a certain period of time and excludes customers who received service for less than a certain minimum period of time. We believe that churn provides management, investors and analysts with useful information to evaluate customer retention and loyalty. |
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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 |
The following table sets forth the churn: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Change | | Nine Months Ended
September 30, | | Change | | |
| 2023 | | 2022 | 2023 | | 2022 | | | |
| Postpaid phone churn | 0.87 | % | | 0.88 | % | | -1 bps | | 0.84 | % | | 0.87 | % | | | | -3 bps | | |
| Prepaid churn | 2.81 | % | | 2.88 | % | | -7 bps | | 2.73 | % | | 2.71 | % | | | | 2 bps | | |
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Branded postpaid
Postpaid phone churn decreased 91 basis pointspoint for the three months ended and 12decreased 3 basis points for the nine months ended September 30, 2017,2023, primarily due to the MVNO Transaction as the customers transferred hadfrom improved customer retention driven by a higher rate of churn.differentiated value proposition and network experience.
Branded prepaidPrepaid churn increased 43decreased 7 basis points for the three months ended and 20increased 2 basis points for the nine months ended September 30, 2017,2023.
The decrease for the three months ended September 30, 2023, was primarily duefrom improved customer retention.
The increase for the nine months ended September 30, 2023, was primarily from continued industry migration of prepaid to higher MetroPCS churn from increased competitive activitypostpaid.
Postpaid Average Revenue Per Account
Postpaid Average Revenue per Account (“ARPA”) represents the average monthly postpaid service revenue earned per account. Postpaid ARPA is calculated as Postpaid revenues for the specified period divided by the average number of postpaid accounts during the period, further divided by the number of months in the marketplace.period. 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 per account basis. We consider postpaid ARPA to be indicative of our revenue growth potential given the increase in the average number of postpaid phone customers per account and increases in postpaid other customers, including High Speed Internet, mobile internet devices, including tablets and hotspots, wearables, DIGITS or other connected devices, including SyncUP and IoT.
The following table sets forth our operating measure ARPA: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in dollars) | Three Months Ended
September 30, | | Change | | Nine Months Ended
September 30, | | Change | | |
| 2023 | | 2022 | | $ | | % | | 2023 | | 2022 | | | $ | | % | | | |
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| Postpaid ARPA | $ | 139.83 | | | $ | 137.49 | | | $ | 2.34 | | | 2 | % | | $ | 138.94 | | | $ | 137.32 | | | | | $ | 1.62 | | | 1 | % | | | | |
Postpaid ARPA increased $2.34, or 2%, for the three months ended and increased $1.62, or 1%, for the nine months ended September 30, 2023.
The increase for the three months ended September 30, 2023, was primarily from:
•An increase in customers per account, including growth in business and continued adoption of High Speed Internet; and
•Higher premium services, primarily high-end rate plans, net of contra-revenue for content included in such plans and discounts for specific affinity groups, such as 55+, Military and First Responder; partially offset by
•Increased promotional activity; and
•An increase in High Speed Internet only accounts.
The slight increase for the nine months ended September 30, 2023, was primarily from:
•Higher premium services, primarily high-end rate plans, net of contra-revenue for content included in such plans and discounts for specific affinity groups, such as 55+, Military and First Responder; and
•An increase in customers per account, including growth in business and continued adoption of High Speed Internet; partially offset by
•Increased promotional activity; and
•An increase in High Speed Internet only accounts.
Average Revenue Per User
Average Billings PerRevenue per User
ARPU (“ARPU”) represents the average monthly service revenue earned from customers.per customer. ARPU is calculated as service revenues for the specified period divided by the average number of customers during the period, further divided by the number of months in the period. 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, mobile internet devices, including tablets and hotspots, wearables, DIGITS and other connected devices, including SyncUP and IoT.
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
September 30, | | Change | | Nine Months Ended
September 30, | | Change | | |
| 2023 | | 2022 | | $ | | % | | 2023 | | 2022 | | | $ | | % | | | |
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| Postpaid phone ARPU | $ | 48.93 | | | $ | 48.89 | | | $ | 0.04 | | | — | % | | $ | 48.80 | | | $ | 48.75 | | | | | $ | 0.05 | | | — | % | | | | |
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| Prepaid ARPU | 38.18 | | | 38.86 | | | (0.68) | | | (2) | % | | 38.05 | | | 38.92 | | | | | (0.87) | | | (2) | % | | | | |
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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, or 3%,was relatively flat 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 was2023, primarily from:
The continued adoption•Higher premium services, primarily high-end rate plans, net of T-Mobile ONE including taxescontra-revenue for content included in such plans and feesdiscounts for specific affinity groups, such as 55+, Military and dilution from promotional activities; and
The negative impact from hurricanes of $0.19; partiallyFirst Responders; offset by
The transfer of customers as part of the MVNO transaction as those customers had lower ARPU;•Increased promotional activity; and
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 basebusiness with lower ARPU; andARPU given larger account sizes.
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,decreased $0.68, or 2%, for the three months ended and $0.89,decreased $0.87, or 2%, for the nine months ended September 30, 2017, compared to the same periods in 2016,2023, primarily from continued growth of MetroPCS customers who generate higher ARPU. These increases were partially offset by the negative impactdilution from hurricanes of $0.18 and $0.06 for the three and nine months ended September 30, 2017, respectively.promotional rate plan mix.
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 historically used Adjusted EBITDA and we currently use Core 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 to 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, Merger-related costs, including network decommissioning
costs, impairment expense, gain on disposal groups held for sale and certain legal-related recoveries and expenses, as theywell as other special income and expenses, including the August 2023 workforce reduction, which are not indicativereflective of our ongoing operating performancecore business activities. Management believes analysts and certain other nonrecurring expenses.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
September 30, | | Change | | Nine Months Ended
September 30, | | Change | | |
| (in millions, except percentages) | 2023 | | 2022 | $ | | % | 2023 | | 2022 | | | $ | | % | | | |
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| Net income | $ | 2,142 | | | $ | 508 | | | $ | 1,634 | | | 322 | % | | $ | 6,303 | | | $ | 1,113 | | | | | $ | 5,190 | | | 466 | % | | | | |
| Adjustments: | | | | | | | | | | | | | | | | | | | | | |
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| Interest expense, net | 790 | | | 827 | | | (37) | | | (4) | % | | 2,486 | | | 2,542 | | | | | (56) | | | (2) | % | | | | |
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| Other (income) expense, net | (41) | | | 3 | | | (44) | | | NM | | (56) | | | 35 | | | | | (91) | | | (260) | % | | | | |
| Income tax expense (benefit) | 705 | | | (57) | | | 762 | | | NM | | 2,053 | | | 106 | | | | | 1,947 | | | NM | | | | |
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| Operating income | 3,596 | | | 1,281 | | | 2,315 | | | 181 | % | | 10,786 | | | 3,796 | | | | | 6,990 | | | 184 | % | | | | |
| Depreciation and amortization | 3,187 | | | 3,313 | | | (126) | | | (4) | % | | 9,500 | | | 10,389 | | | | | (889) | | | (9) | % | | | | |
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Stock-based compensation (1) | 152 | | | 145 | | | 7 | | | 5 | % | | 480 | | | 430 | | | | | 50 | | | 12 | % | | | | |
| Merger-related costs | 152 | | | 1,296 | | | (1,144) | | | (88) | % | | 786 | | | 4,377 | | | | | (3,591) | | | (82) | % | | | | |
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| Impairment expense | — | | | — | | | — | | | NM | | — | | | 477 | | | | | (477) | | | (100) | % | | | | |
Legal-related (recoveries) expenses, net (2) | — | | | (19) | | | 19 | | | (100) | % | | (43) | | | 381 | | | | | (424) | | | (111) | % | | | | |
| Loss (gain) on disposal group held for sale | — | | | 1,071 | | | (1,071) | | | (100) | % | | (25) | | | 1,071 | | | | | (1,096) | | | (102) | % | | | | |
Other, net (3) | 513 | | | (48) | | | 561 | | | NM | | 720 | | | 72 | | | | | 648 | | | NM | | | | |
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| Adjusted EBITDA | 7,600 | | | 7,039 | | | 561 | | | 8 | % | | 22,204 | | | 20,993 | | | | | 1,211 | | | 6 | % | | | | |
| Lease revenues | (53) | | | (311) | | | 258 | | | (83) | % | | (269) | | | (1,184) | | | | | 915 | | | (77) | % | | | | |
| Core Adjusted EBITDA | $ | 7,547 | | | $ | 6,728 | | | $ | 819 | | | 12 | % | | $ | 21,935 | | | $ | 19,809 | | | | | $ | 2,126 | | | 11 | % | | | | |
| Net income margin (Net income divided by Service revenues) | 13 | % | | 3 | % | | | | 1,000 bps | | 13 | % | | 2 | % | | | | | | 1,100 bps | | | | |
| Adjusted EBITDA margin (Adjusted EBITDA divided by Service revenues) | 48 | % | | 46 | % | | | | 200 bps | | 47 | % | | 46 | % | | | | | | 100 bps | | | | |
| Core Adjusted EBITDA margin (Core Adjusted EBITDA divided by Service revenues) | 47 | % | | 44 | % | | | | 300 bps | | 46 | % | | 43 | % | | | | | | 300 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 on the condensed consolidated financial statements. Additionally, certain stock-based compensation expenses associated with the Transactions have been included in Merger-related costs.
(2)Legal-related (recoveries) expenses, net, consists of the settlement of certain litigation associated with the August 2021 cyberattack and is presented net of insurance recoveries.
(3)Other, net, primarily consists of certain severance, restructuring and other expenses and income not directly attributable to the Merger which are not reflective of T-Mobile’s core business activities (“special items”) and are, therefore, excluded from Adjusted EBITDA and Core Adjusted EBITDA. Other, net, for the three and nine months ended September 30, 2023, includes $471 million of severance and related costs associated with the August 2023 workforce reduction.
NM - Not meaningful
Core Adjusted EBITDA increased $133$819 million, or 5%12%, for the three months ended and $470increased $2.1 billion, or 11%, for the nine months ended September 30, 2023. The components comprising Core Adjusted EBITDA are discussed further above.
The increase for the three months ended September 30, 2023, was primarily from:
•Higher Total service revenues;
•Lower Cost of equipment sales, excluding Merger-related costs; and
•Lower Cost of services, excluding Merger-related costs and other special items, such as severance and related costs associated with the August 2023 workforce reduction; partially offset by
•Lower Equipment revenues, excluding lease revenues.
The increase for the nine months ended September 30, 2023, was primarily from:
•Lower Cost of equipment sales, excluding Merger-related costs;
•Higher Total service revenues; and
•Lower Cost of services, excluding Merger-related costs and other special items, such as severance and related costs associated with the August 2023 workforce reduction; partially offset by
•Lower Equipment revenues, excluding lease revenues.
Adjusted EBITDA increased $561 million, or 8%, for the three months ended and increased $1.2 billion, or 6%, for the nine months ended September 30, 2017.
The change2023, primarily due to the fluctuations in Core Adjusted EBITDA, discussed above, partially offset by lower lease revenues, which decreased $258 million for the three 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
Lower losses on equipment; partially offset by
Higher selling, general and administrative expenses;
Higher cost of services expense;
Lower gains on disposal of spectrum licenses of $170decreased $915 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
The negative impact from hurricanes of $148 million.
The change for the nine months ended September 30, 2017 was primarily from:2023.
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, capitalfinancing leases, common and preferred stock, the sale of certain receivables, financing arrangementsthe Revolving Credit Facility (as defined below) and, beginning in July 2023, an unsecured short-term commercial paper program. Further, the incurrence of vendor payables which effectively extend paymentadditional indebtedness may inhibit our ability to incur new debt in the future to finance our business strategy under the terms governing our existing and secured and unsecured revolving credit facilities with DT.future indebtedness.
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
September 30, | | Change | | Nine Months Ended
September 30, | | Change | | |
| (in millions) | 2023 | | 2022 | | $ | | % | | 2023 | | 2022 | | | | $ | | % | | | | |
| Net cash provided by operating activities | $ | 5,294 | | | $ | 4,391 | | | $ | 903 | | | 21 | % | | $ | 13,700 | | | $ | 12,445 | | | | | $ | 1,255 | | | 10 | % | | | | |
| Net cash used in investing activities | (1,393) | | | (2,555) | | | 1,162 | | | (45) | % | | (4,608) | | | (10,206) | | | | | 5,598 | | | (55) | % | | | | |
| Net cash (used in) provided by financing activities | (5,510) | | | 1,927 | | | (7,437) | | | (386) | % | | (8,567) | | | (1,953) | | | | | (6,614) | | | 339 | % | | | | |
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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$903 million, or 36%21%, for the three months ended and $1.4increased $1.3 billion, or 30%10%, for the nine months ended September 30, 2017, compared to the same periods in 2016.2023.
The changeincrease for the three months ended September 30, 20172023, was primarily from:
Higher net•A $1.7 billion increase in Net income, adjusted for non-cash income and higher non-cash adjustments toexpense; partially offset by
•An $846 million increase in net incomeanda lower net usecash outflows from changes in working capital, changes.primarily due to higher use of cash from Other current and long-term liabilities, Inventory, Operating lease right-of-use assets and Accounts payable and accrued liabilities, partially offset by lower use of cash from Equipment installment plan receivables, Other current and long-term assets and Accounts receivable.
•Net cash provided by operating activities includes the impact of $345 million and $942 million in net payments for Merger-related costs for the three months ended September 30, 2023 and 2022, respectively.
The changeincrease for the nine months ended September 30, 20172023, was primarily from:
Higher•A $5.1 billion increase in Net income, adjusted for non-cash income and higher non-cash adjustments toexpense; partially offset by
•A $3.8 billion increase in net income includingcash outflows from lower Gains on disposal of spectrum licenses and Depreciation and amortization. In total, changes in working capital, were relatively flat as improvements in primarily due to higher use of cash from Accounts payable and accrued liabilities, Other current and Inventories werelong-term liabilities, Operating lease right-of-use assets and Short- and long-term operating lease liabilities, partially offset by changes inlower use of cash from Equipment installment plan receivables. The change in EIP receivables was primarily due to a decreaseand Other current and long-term assets.
•Net cash provided by operating activities includes the impact of $1.6 billion and $2.7 billion in net cash proceeds frompayments for Merger-related costs for 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.
2023 and 2022, respectively.
Investing Activities
Net cash used in investing activities decreased $404 million$1.2 billion, or 45%, for the three months ended and increased $5.8decreased $5.6 billion, or 55%, for the nine months ended September 30, 2017.2023.
The changeuse of cash for the three months ended September 30, 20172023, was primarily from:
A $690 million decrease in Purchases of spectrum licenses and other intangible assets, including deposits; partially offset by
A $282 million increase •$2.4 billion in Purchases of property and equipment, including capitalized interest.
interest, from the accelerated build-out of our nationwide 5G network; partially offset by
•$1.1 billion in Proceeds related to beneficial interests in securitization transactions.
The changeuse of cash for the nine months ended September 30, 20172023, was primarily from:
A $3.0•$8.2 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.
interest, from the accelerated build-out of our nationwide 5G network; partially offset by
•$3.8 billion in Proceeds related to beneficial interests in securitization transactions.
Financing Activities
Net cash provided by and used in financing activities increased $282 million to a use of $349 million in$7.4 billion, or 386%, for the three months ended and increased $1.2$6.6 billion, to a use of $527 million inor 339%, for the nine months ended September 30, 2017.2023.
The use of cash infor the three months ended September 30, 20172023, was primarily from:
•$1.74.5 billion for in Repayments of our revolving credit facility;long-term debt;
•$2.7 billion in Repurchases of common stock; and
•$304 million in Repayments of financing lease obligations; partially offset by
•$1.12.0 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 infor the nine months ended September 30, 20172023, was primarily from:
•$10.9 billion in Repurchases of common stock;
•$10.24.8 billion for in Repayments of long-term debt;
•$2.9 billion for914 million in Repayments of our revolving credit facility;
financing lease obligations; and•$350267 million for Repayments of capital lease obligations; and
$296 million for Repayments of short-term debt for purchases of inventory, property and equipment, net; in Tax withholdings on share-based awards; partially offset by
•$10.58.4 billion in Proceeds from issuance of long-term debt; and
debt.$2.9 billion in Proceeds from borrowing on our revolving credit facility.
Cash and Cash Equivalents
As of September 30, 2017,2023, our Cash and cash equivalents were $739 million.$5.0 billion compared to $4.5 billion at December 31, 2022.
Adjusted Free Cash Flow
Adjusted Free Cash Flow represents netNet cash provided by operating activities less cash payments for purchasesPurchases of property and equipment.equipment, plus Proceeds from sales of tower sites and Proceeds related to beneficial interests in securitization transactions and less Cash payments for debt prepayment or debt extinguishment costs. Adjusted 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, repurchase shares, pay dividends and provide further investment in the business. Starting in the first quarter of 2023, we renamed Free Cash Flow to Adjusted Free Cash Flow. This change in name did not result in any change to the definition or calculation of this non-GAAP financial measure. Adjusted Free Cash Flow margin is calculated as Adjusted Free Cash Flow divided by Service Revenues. Adjusted Free Cash Flow margin is utilized by management, investors, and analysts to evaluate the company’s ability to convert service revenue efficiently into cash available to pay debt, repurchase shares, pay dividends and provide further investment in the business.
The following table illustrates the calculationbelow provides a reconciliation of Free Cash Flow and reconcilesAdjusted Free Cash Flow to Net cash provided by operating activities, which we consider to be the most directly comparable GAAP financial measure:
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| Three Months Ended
September 30, | | Change | | Nine Months Ended
September 30, | | | | Change | | |
| (in millions, except percentages) | 2023 | | 2022 | $ | | % | 2023 | | 2022 | | | $ | | % | | | |
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| Net cash provided by operating activities | $ | 5,294 | | | $ | 4,391 | | | $ | 903 | | | 21 | % | | $ | 13,700 | | | $ | 12,445 | | | | | $ | 1,255 | | | 10 | % | | | | |
| Cash purchases of property and equipment, including capitalized interest | (2,424) | | | (3,634) | | | 1,210 | | | (33) | % | | (8,214) | | | (10,587) | | | | | 2,373 | | | (22) | % | | | | |
| Proceeds from sales of tower sites | 2 | | | — | | | 2 | | | NM | | 10 | | | — | | | | | 10 | | | NM | | | | |
| Proceeds related to beneficial interests in securitization transactions | 1,131 | | | 1,308 | | | (177) | | | (14) | % | | 3,785 | | | 3,614 | | | | | 171 | | | 5 | % | | | | |
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| Adjusted Free Cash Flow | $ | 4,003 | | | $ | 2,065 | | | $ | 1,938 | | | 94 | % | | $ | 9,281 | | | $ | 5,472 | | | | | $ | 3,809 | | | 70 | % | | | | |
| Net cash provided by operating activities margin (Net cash provided by operating activities divided by Service revenues) | 33 | % | | 29 | % | | | | 400 bps | | 29 | % | | 27 | % | | | | | | 200 bps | | | | |
| Adjusted Free Cash Flow margin (Adjusted Free Cash Flow divided by Service revenues) | 25 | % | | 13 | % | | | | 1,200 bps | | 20 | % | | 12 | % | | | | | | 800 bps | | | | |
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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 | % |
Adjusted Free Cash Flow increased $340 million$1.9 billion, or 94%, for the three months ended and $898 millionincreased $3.8 billion, or 70%, for the nine months ended September 30, 20172023.
The increase for the three months ended September 30, 2023, was primarily impacted by the following:
•Lower Cash purchases of property and equipment, including capitalized interest, driven by increased capital efficiencies from higher netaccelerated investments in our nationwide 5G network in 2022; and
•Higher Net cash provided by operating activities, due to working capital changes, as described above,above; partially offset by higher purchases
•Lower Proceeds related to beneficial interests in securitization transactions, which were offset in Net cash provided by operating activities.
•Adjusted Free Cash Flow includes the impact of property$345 million and equipment primarily due to new site development and capacity expansion.
Debt
As of$942 million in net payments for Merger-related costs for the three months ended September 30, 2017, our total debt was $28.3 billion, excluding our tower obligations, of which $27.7 billion was classified as long-term debt.2023 and 2022, respectively.
The following table sets forth the debt balances and activity as of, andincrease for the nine months ended September 30, 2017:2023, was primarily impacted by the following:
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| (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. |
•Lower Cash purchases of property and equipment, including capitalized interest, driven by increased capital efficiencies from accelerated investments in our nationwide 5G network in 2022;
Debt•Higher Net cash provided by operating activities, as described above; and
•Higher Proceeds related to Third Partiesbeneficial interests in securitization transactions, which were offset in Net cash provided by operating activities.
•Adjusted Free Cash Flow includes the impact of $1.6 billion and $2.7 billion in net payments for Merger-related costs for the nine months ended September 30, 2023 and 2022, respectively.
Issuances and Borrowings
During the nine months ended September 30, 2017, we issued2023 and 2022, there were no significant net cash proceeds from securitization.
Borrowing Capacity
We maintain a revolving credit facility (the “Revolving Credit Facility”) with an aggregate commitment amount of $7.5 billion. As of September 30, 2023, there was no outstanding balance under the following Senior Notes:Revolving Credit Facility.
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| (in millions) | Principal Issuances | | Issuance Costs | | Net Proceeds from Issuance of Long-Term Debt |
| 4.000% Senior Notes due 2022 | $ | 500 |
| | $ | 2 |
| | $ | 498 |
|
| 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 USAJuly 25, 2023, we established an unsecured short-term commercial paper program with the ability to borrow up to $2.0 billion from time to time. This program will supplement our other available external financing arrangements and certainproceeds are expected to be used for general corporate purposes. As 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 proceeds2023, there was no outstanding balance under this program.
Debt Financing
As of $1.495September 30, 2023, our total debt and financing lease liabilities were $77.9 billion, from the transaction to redeem callable high yield debt.excluding our tower obligations, of which $71.9 billion was classified as long-term debt and $1.3 billion was classified as long-term financing lease liabilities.
Notes Redemptions
During the nine months ended September 30, 2017,2023, we made the following note redemptions:
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| (in millions) | Principal Amount | | Write-off of Premiums, Discounts and Issuance Costs (1) | | Call Penalties (1) (2) | | Redemption
Date | | Redemption Price |
| 6.625% Senior Notes due 2020 | $ | 1,000 |
| | $ | (45 | ) | | $ | 22 |
| | February 10, 2017 | | 102.208 | % |
| 5.250% Senior Notes due 2018 | 500 |
| | 1 |
| | 7 |
| | March 4, 2017 | | 101.313 | % |
| 6.250% Senior Notes due 2021 | 1,750 |
| | (71 | ) | | 55 |
| | April 1, 2017 | | 103.125 | % |
| 6.464% Senior Notes due 2019 | 1,250 |
| | — |
| | — |
| | April 28, 2017 | | 100.000 | % |
| 6.542% Senior Notes due 2020 | 1,250 |
| | — |
| | 21 |
| | April 28, 2017 | | 101.636 | % |
| 6.633% Senior Notes due 2021 | 1,250 |
| | — |
| | 41 |
| | April 28, 2017 | | 103.317 | % |
| 6.731% Senior Notes due 2022 | 1,250 |
| | — |
| | 42 |
| | April 28, 2017 | | 103.366 | % |
| Total note redemptions | $ | 8,250 |
| | $ | (115 | ) | | $ | 188 |
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(1) | Write-off of premiums, discounts, issuance costs and call penalties are included in Other 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:
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| (in millions) | Net Proceeds From Issuance of Long-Term Debt | | Extinguishments | | Write-off of Discounts and Issuance Costs (1) |
| LIBOR plus 2.00% Senior Secured Term Loan due 2022 | $ | 2,000 |
| | $ | — |
| | $ | — |
|
| LIBOR plus 2.00% Senior Secured Term Loan due 2024 | 2,000 |
| | — |
| | — |
|
LIBOR plus 2.750% Senior Secured Term Loan (2) | — |
| | (1,980 | ) | | 13 |
|
| Total | $ | 4,000 |
| | $ | (1,980 | ) | | $ | 13 |
|
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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 remainingissued long-term debt for 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$8.4 billion and provided T-Mobile USAredeemed and repaid short-term debt 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, we issued the following Senior Notes to DT:
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| | | | | | | | | | | |
| (in millions) | Principal Issuances (Redemptions) | | Discounts (1) | | Net proceeds from issuance of long-term debt |
| 4.000% Senior Notes due 2022 | $ | 1,000 |
| | $ | (23 | ) | | $ | 977 |
|
| 5.125% Senior Notes due 2025 | 1,250 |
| | (28 | ) | | 1,222 |
|
5.375% Senior Notes due 2027 (2) | 1,250 |
| | (28 | ) | | 1,222 |
|
| 6.288% Senior Reset Notes due 2019 | (1,250 | ) | | — |
| | (1,250 | ) |
| 6.366% Senior Reset Notes due 2020 | (1,250 | ) | | — |
| | (1,250 | ) |
| Total | $ | 1,000 |
| | $ | (79 | ) | | $ | 921 |
|
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(1) | Discounts reduce Proceeds from issuance of long-term debt and are included within Net cash (used in) provided by financing activities in our 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 in aggregate principal amount 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”).$4.8 billion.
The redemption pricesFor more information regarding our debt financing transactions, see Note 7 - Debt 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 onto 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.Financial Statements.
License Purchase Agreements
On May 9, 2017,August 8, 2022, we exercised our option under existing purchase agreements and issued the following Senior Notesentered into License Purchase Agreements to DT:
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| | | | | | | | | | | |
| (in millions) | Principal Issuances | | Premium | | Net proceeds from issuance of long-term debt |
| 5.300% Senior Notes due 2021 | $ | 2,000 |
| | $ | — |
| | $ | 2,000 |
|
| 6.000% Senior Notes due 2024 | 1,350 |
| | 40 |
| | 1,390 |
|
| 6.000% Senior Notes due 2024 | 650 |
| | 24 |
| | 674 |
|
| Total | $ | 4,000 |
| | $ | 64 |
| | $ | 4,064 |
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The proceeds were used to fund a portion of the purchase price ofacquire spectrum licenses won in the 600 MHz band from Channel 51 License Co LLC and LB License Co, LLC in exchange for total cash consideration of $3.5 billion. On March 30, 2023, we and the Sellers entered into Amended and Restated License Purchase Agreements pursuant to which we and the Sellers agreed to bifurcate the transaction into two tranches of licenses, with the closings on the acquisitions of certain licenses in Chicago, Dallas and New Orleans being deferred in order to potentially expedite the regulatory approval process for the remainder of the licenses. Subsequently, on August 25, 2023, we and the Sellers entered into Amendments No. 1 to the Amended and Restated License Purchase Agreements whereby we deferred the closings of certain additional licenses in Chicago and Dallas into the second closing tranche. Together, the licenses with closings deferred into the second closing tranche represent approximately $1.1 billion of the aggregate $3.5 billion cash consideration. We anticipate that the first closing will occur no earlier than the first half of 2024 and that the second closing (on the deferred licenses) will occur in late 2024 or early 2025.
The parties have agreed that each of the closings will occur within 180 days after the receipt of the applicable required regulatory approvals, and payment of each portion of the aggregate $3.5 billion purchase price will occur no later than 40 days after the date of each respective closing.
On September 12, 2023, we entered into a License Purchase Agreement with Comcast pursuant to which we will acquire spectrum auction. Net proceedsin the 600 MHz band from these issuances include $64 millionComcast in debt premiums. See exchange for total cash consideration of between $1.2 billion and $3.3 billion, subject to an application for FCC approval. We anticipate the closing will occur in the first half of 2028.
Acquisition of Ka’ena Corporation
On March 9, 2023, we entered into a Merger and Unit Purchase Agreement for further information.the acquisition of 100% of the outstanding equity of Ka’ena Corporation and its subsidiaries including, among others, Mint Mobile LLC for a maximum purchase price of $1.35 billion to be paid out 39% in cash and 61% in shares of T-Mobile common stock. The purchase price is variable dependent upon specified performance indicators of Ka’ena Corporation during certain periods before and after closing and consists of an upfront payment at closing of the transaction, subject to certain agreed-upon adjustments, and a variable earnout payable 24 months after closing of the transaction. Our estimate of the upfront payment is subject to Ka’ena Corporation’s underlying business performance and the timing of transaction close, and has been updated to $1.2 billion, before working capital adjustments. The acquisition is subject to certain customary closing conditions, including certain regulatory approvals, and is expected to close by the end of the first quarter of 2024.
Revolving Credit Facility
Off-Balance Sheet Arrangements
We had no outstanding borrowings under our $1.5 billion senior securedhave arrangements, as amended from time to time, to sell certain EIP accounts receivable and service accounts receivable on a revolving credit facility with DTbasis as a source of liquidity. As of September 30, 2017 and December 31, 2016. Proceeds and borrowings from2023, we derecognized net receivables of $2.4 billion upon sale through these arrangements.
For more information regarding these off-balance sheet arrangements, see Note 4 – Sales of Certain Receivables of 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 ourNotes to the Condensed Consolidated StatementsFinancial Statements.
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 long-lived assets in private party transactions, repurchase shares, pay dividends or for the refinancing of existing long-term debt on an opportunistic basis. Excluding liquidity that could be needed for acquisitions of businesses, spectrum acquisitionsand other long-lived assets or other assets,for any potential stockholder returns, 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, workforce restructuring, share repurchases, dividend payments and the execution of our integration plan.
We determine future liquidity requirements for both operations, and capital expenditures, share repurchases and dividend payments based in large part upon projected financial and operating performance, and opportunities to acquire additional spectrum.spectrum or repurchase shares. 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 substantially all of the remaining projected Merger-related costs of approximately $200 million, excluding capital expenditures, by the end of 2023, with the cash expenditure for the Merger-related costs extending beyond 2023. 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. There are a number of additional risks and uncertainties 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; pay dividends and make distributions on our common stock; make certain investments; repurchase stock;debt, create liens or other encumbrances; enter into transactions with affiliates; enter into transactions that restrict dividends or distributions from subsidiaries;encumbrances, 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 to affiliates and third parties restrict the ability of the Issuer to loan funds or make payments to the Parent. However, the Issuer is allowed to make certain permitted payments to the Parent under the terms of each of the credit facilities, 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, 2017.2023.
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, 2017,2023, we have committed to $2.0entered into $8.5 billion of capitalfinancing leases under these capitalfinancing lease facilities, of which $138$388 million and $735$940 million was executed during the three and nine months ended September 30, 2017,2023, respectively. We expect to enter into up to an additional $165 milliona total of $1.2 billion in capitalfinancing lease commitments during 2017.the year ending December 31, 2023.
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 and customer base of T-Mobile and Sprint. Property and equipment capital expenditures primarily relate to the integration of our network transformation,and spectrum licenses, including theacquired Sprint PCS and 2.5 GHz spectrum licenses, as we build out of 700 MHz A-Block spectrum licenses.our nationwide 5G network. We expect cash purchasesa reduction in capital expenditures related to these efforts in 2023 compared to 2022. Future capital expenditure requirements will include the deployment of propertyour recently acquired C-band 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 of3.45 GHz spectrum licenses.
In April 2017, the Federal Communications Commission (the “FCC”) announced that we were the winning bidder of 1,525For more information regarding our spectrum licenses, in the 600 MHz spectrum auction for an aggregate price of $8.0 billion. At the inception see Note 5 – 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 StatementsStatements.
Stockholder Returns
On September 8, 2022, our Board of Directors authorized our 2022 Stock Repurchase Program for further information.up to $14.0 billion of our common stock through September 30, 2023. During the three and nine months ended September 30, 2023, we repurchased shares of our common stock for a total purchase price of $2.7 billion and $11.0 billion, respectively, all of which were purchased under the 2022 Stock Repurchase Program.
On September 6, 2023, our Board of Directors authorized our 2023-2024 Stockholder Return Program for up to $19.0 billion that will run through December 31, 2024. The $5.8 billion2023-2024 Stockholder Return Program is expected to consist of additional repurchases of shares of our common stock and the payment of cash dividends.
On September 25, 2023, our Board of Directors declared a cash dividend of $0.65 per share on our issued and outstanding shares of common stock, which will be paid in the purchase price is included in Purchasesfourth quarter of spectrum licenses and other intangible assets, including deposits within Net cash used in investing activities in our Condensed Consolidated Statements of Cash Flows. The licenses are included in Spectrum licenses as2023. As of September 30, 2017,2023, $745 million for dividends payable is presented within Other current liabilities on our Condensed Consolidated Balance Sheets. We began deployment of these licenses on our networkintend to declare and pay approximately $3.0 billion in total additional dividends in 2024, with payments occurring each quarter during the year. The dividend amount paid per share is expected to grow by around 10% annually with the first increase expected in the thirdfourth quarter of 2017. See 2024; however, the declaration and payment of future dividends is subject to the discretion of our Board of Directors and will depend on financial and legal requirements and other considerations. The amount available under the 2023-2024 Stockholder Return Program for share repurchases will be reduced by the amount of any cash dividends declared by us.
Subsequent to September 30, 2023, from October 1, 2023, through October 20, 2023, we repurchased 5,515,568 shares of our common stock for a total purchase price of $771 million. As of October 20, 2023, we had up to $17.5 billion remaining under the 2023-2024 Stockholder Return Program.
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-PartyRelated 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 also have related party transactions associated with DT or its affiliates in the ordinary course of business, including intercompany servicing and licensing.
As of October 20, 2023, DT held, directly or indirectly, approximately 52.3% of the outstanding T-Mobile common stock, with the remaining approximately 47.7% of the outstanding T-Mobile common stock held by SoftBank and 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 October 20, 2023, over approximately 56.2% 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 the Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act of 1934, as amended (“Exchange Act”).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, 2017,2023, 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 September 30, 2023, DT, through certain of its non-U.S. subsidiaries, provided basic telecommunications services to five 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, Golgohar Trade and Technology GmbH and International Trade and Industrial Technology ITRITEC GmbH. With respect to the first four of these customers, the services have been terminated or are in the process of being terminated. DT is currently evaluating the relationship its non-U.S. subsidiary has with International Trade and Technology ITRITEC GmbH. For the three months ended September 30, 2017,2023, 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, 20172023, 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 September 30, 2023, 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 September 30, 2023, 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 September 30, 2023, 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, 2016.2022, 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 rate risk as previously disclosed in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2016.2022.
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 -13 – 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 factors 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, 2016.2022.
Risks Related to Our Business
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 whose products and services we rely on in operating our business.
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”). Additionally, to offer services to our customers and operate our business, we utilize a number of products and services, such as IT networks and systems, including those we own and operate as well as others provided by third-party providers, such as cloud services (collectively, “Systems”).
We are subject to persistent cyberattacks and threats to our business from a variety of bad actors, many of whom attempt to gain unauthorized access to and compromise Confidential Information and Systems. In some cases, the bad actors exploit bugs, errors, misconfigurations or other vulnerabilities in our Systems to obtain Confidential Information. In other cases, these bad actors may obtain unauthorized access to Confidential Information utilizing credentials taken from our customers, employees, or third-party providers through credential harvesting, social engineering or other means. Other bad actors aim to cause serious operational disruptions to our business and Systems 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 rely upon third-party providers whose products and services are used in our business. 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 “Recent Cyberattacks” in the Overview section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations. 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 13 – Commitments and Contingencies of the Notes to the Consolidated Financial Statements.
In January 2023, we disclosed that a bad actor was obtaining data through a single Application Programming Interface (“API”) without authorization. Based on our investigation, the impacted API is only able to provide a limited set of customer account data, including name, billing address, email, phone number, date of birth, T-Mobile account number and information such as the number of lines on the account and plan features. The result from our investigation indicates that the bad actor(s) obtained data from this API for approximately 37 million current postpaid and prepaid customer accounts, though many of these accounts did not include the full data set. We believe that the bad actor first retrieved data through the impacted API starting on or around November 25, 2022. We have notified individuals whose information was impacted consistent with state and federal requirements.
As a result of the August 2021 cyberattack and the January 2023 cyberattack, we have incurred and may continue to incur significant costs or experience other material financial impacts, which may not be covered by, or may exceed the coverage limits of, our cyber liability 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 recent cyberattacks, 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. Some of these incidents have occurred at third-party providers, including third parties who provide us with various Systems and others who sell our products and services through retail locations or take care of our customers.
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. We also expect that threat actors will continue to gain sophistication including in the use of tools and techniques (such as artificial intelligence) that are specifically designed to circumvent security controls, evade detection, and obfuscate forensic evidence, making it more challenging for us to identify, investigate and recover from future cyberattacks in a timely and effective manner. If we fail to protect Confidential Information or to prevent operational disruptions from future cyberattacks, there may be a material adverse effect on our business, reputation, financial condition, cash flows, and operating results.
Our business may be adversely impacted if we are not able to successfully manage the ongoing arrangements entered into in connection with the Prepaid Transaction and known or unknown liabilities arising in connection therewith.
In connection with the closing of the Prepaid Transaction, we and DISH entered into certain arrangements, including a Master Network Services Agreement (the “MNSA”) and a License Purchase Agreement (as amended, the “DISH License Purchase Agreement”). Pursuant to the MNSA, DISH will receive network services from the Company for a period of seven years. As set forth in the MNSA, the Company provides DISH, among other things, (a) legacy network services for certain Boost Mobile prepaid end users on the Sprint network, (b) T-Mobile network services for certain end users that have been migrated to the T-
Mobile network or provisioned on the T-Mobile network by or on behalf of DISH and (c) infrastructure mobile network operator services to assist in the access and integration of the DISH network. Pursuant to the DISH License Purchase Agreement, DISH has agreed to purchase all of Sprint’s 800 MHz spectrum (approximately 13.5 MHz of nationwide spectrum) for a total of approximately $3.6 billion. Pursuant to an amendment to the DISH License Purchase Agreement (the “LPS Amendment”) executed by us and DISH and approved by the Court along with a proposed amendment to the Final Judgment on October 23, 2023, if DISH fails to purchase such spectrum on or prior to April 1, 2024, then DISH’s sole liability will be that we can retain a non-refundable extension fee of approximately $100 million. In such instance, T-Mobile may be required to conduct an auction sale of all of Sprint’s 800 MHz spectrum under the terms set forth in the Final Judgment, but would not be required to divest such spectrum for an amount less than $3.6 billion.
Failure to successfully manage these ongoing arrangements entered into in connection with the Prepaid Transaction and liabilities arising in connection therewith may result in material unanticipated problems, including diversion of management time and energy, significant expenses and liabilities. There may also be other potential adverse consequences and unforeseen increased expenses or liabilities associated with the Prepaid Transaction, the occurrence of which could materially impact our business, financial condition, liquidity and operating results. In addition, there may be an increase in competition from DISH and other third parties that DISH may enter into commercial agreements with, who are significantly larger and with greater resources and scale advantages as compared to us. Such increased competition may result in our loss of customers and other business relationships.
Risks Related to Legal and Regulatory Matters
Unfavorable outcomes of legal proceedings may adversely affect our business, reputation, financial condition, cash flows and operating results.
We and our affiliates are involved in various disputes, governmental and/or regulatory inspections, investigations and proceedings, mass arbitrations and litigation matters. Such legal proceedings can be complex, costly, and highly disruptive to our business operations by diverting the attention and energy of management and other key personnel.
In connection with the Transactions, we became subject to a number of legal proceedings, including a putative shareholder class action and derivative lawsuit and a putative antitrust class action. For more information, see “– Contingencies and Litigation – Litigation and Regulatory Matters” in Note 13 – Commitments and Contingencies of the Notes to the Consolidated Financial Statements. It is possible that stockholders of T-Mobile and/or Sprint may file additional putative class action lawsuits or shareholder derivative actions against the Company and the legacy T-Mobile board of directors and/or the legacy Sprint board of directors. Among other remedies, these stockholders could seek damages. The outcome of any litigation is uncertain, and any such potential lawsuits could result in substantial costs and may be costly and distracting to management.
Additionally, 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. Unfavorable resolution of these matters could require us to make additional reimbursements and pay additional fines and penalties.
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. We recorded an accrual for an estimated payment amount as of March 31, 2020, which is included in Accounts payable and accrued liabilities on our Consolidated Balance Sheets.
As a result of the August 2021 cyberattack, we are subject to numerous lawsuits, including consolidated class action lawsuits seeking unspecified monetary damages, mass consumer arbitrations, a shareholder derivative lawsuit and inquiries by various government agencies, law enforcement and other governmental authorities, and we may be subject to further regulatory inquiries and private litigation. We are cooperating fully with regulators and vigorously defending against the class actions and other lawsuits. On July 22, 2022, we entered into an agreement to settle the consolidated class action lawsuit. On June 29, 2023, the Court issued an order granting final approval of the settlement, which is subject to potential appeals. Under the terms of the settlement, we would pay an aggregate of $350 million to fund claims submitted by class members, the legal fees of plaintiffs’ counsel and the costs of administering the settlement. We would also commit to an aggregate incremental spend of $150 million for data security and related technology in 2022 and 2023. We previously paid $35 million for claims administration purposes. On July 31, 2023, a class member filed an appeal to the final approval order challenging the Court’s award of attorneys’ fees to class counsel. We expect the remaining portion of the $350 million settlement payment to fund claims to be made once that appeal is resolved. In connection with the class action settlement and other settlements of separate consumer claims that have been previously completed or are currently pending, we recorded a total pre-tax charge of approximately $400 million during
the three months ended June 30, 2022. In light of the inherent uncertainties involved in such matters and based on the information currently available to us, we believe it is reasonably possible that we could incur additional losses associated with these proceedings and inquiries, and we will continue to evaluate information as it becomes known and will record an estimate for losses at the time or times when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable. In addition, in connection with the January 2023 cyberattack, we have received notices of consumer class actions and regulatory inquires, to which we will continue to respond in due course. Ongoing legal and other costs related to these proceedings and inquiries, as well as any potential future proceedings and inquiries related to the August 2021 cyberattack and the January 2023 cyberattack, may be substantial, and losses associated with any adverse judgments, settlements, penalties or other resolutions of such proceedings and inquiries could be significant and have a material adverse impact on our business, reputation, financial condition, cash flows and operating results.
We, along with equipment manufacturers and other carriers, are subject to current and potential future lawsuits alleging adverse health effects arising from the use of wireless handsets or from wireless transmission equipment such as cell towers. In addition, the FCC has from time to time gathered data regarding wireless device emissions, and its assessment of the risks associated with using wireless devices may evolve based on its findings. Any of these allegations or changes in risk assessments could result in customers purchasing fewer devices and wireless services, could result in significant legal and regulatory liability, and could have a material adverse effect on our business, reputation, financial condition, cash flows and operating results.
The assessment of the outcome of legal proceedings, including our potential liability, if any, is a highly subjective process that requires judgments about future events that are not within our control. The amounts ultimately received or paid upon settlement or pursuant to final judgment, order or decree may differ materially from amounts accrued in our financial statements. In addition, litigation or similar proceedings could impose restraints on our current or future manner of doing business. Such potential outcomes including judgments, awards, settlements or orders could have a material adverse effect on our business, reputation, financial condition, cash flows and operating results.
Risks Related to Ownership of Our Common Stock
We cannot guarantee that our 2023-2024 Stockholder Return Program will be fully utilized, and our share repurchases and dividend payments pursuant thereto may fail to have the desired impact on stockholder value.
Our Board of Directors has authorized the 2023-2024 Stockholder Return Program for up to $19.0 billion that will run through December 31, 2024. The 2023-2024 Stockholder Return Program is expected to consist of additional repurchases of shares of our common stock and payment of cash dividends. The existence of the 2023-2024 Stockholder Return Program could cause our stock price, in certain cases, to be higher or lower than it otherwise would be and could potentially reduce the market liquidity or have other unintended consequences for our stock. In addition to the approximately $750 million dividend we declared on September 25, 2023, which is payable on December 15, 2023 to stockholders of record as of the close of business on December 1, 2023, we intend to declare and pay approximately $3.0 billion in total additional dividends in 2024, with payments occurring each quarter during the year. The dividend amount paid per share is expected to grow by around 10% annually, however, the declaration and payment of future dividends is subject to the discretion of our Board of Directors and will depend on financial and legal requirements and other considerations. The amount available under the 2023-2024 Stockholder Return Program for share repurchases will be reduced by the amount of any cash dividends declared by the Company.
Under the 2023-2024 Stockholder Return Program, share repurchases can be made from time to time using a variety of methods, which may include open market purchases, Rule 10b5-1 plans, accelerated share repurchases, privately negotiated transactions or otherwise, all in accordance with the rules of the Securities and Exchange Commission and other applicable legal requirements. The specific timing and amount of any share repurchases, and the specific timing and amount of any dividend payments, under the 2023-2024 Stockholder Return Program will depend on prevailing share prices, general economic and market conditions, Company performance and other considerations. In addition, the specific timing and amount of any dividend payments are subject to declaration on future dates by the Board in its sole discretion. The 2023-2024 Stockholder Return Program does not obligate the Company to acquire any particular amount of common stock or to declare and pay any particular amount of dividends, and the 2023-2024 Stockholder Return Program may be suspended or discontinued at any time at the Company’s discretion.
In addition, the threshold price that would trigger the issuance of additional shares of T-Mobile common stock to SoftBank under the Letter Agreement is subject to downward adjustment by the per share amount of any cash dividends or other cash distributions declared or paid on the Company’s common stock during the measurement period set forth in the Letter Agreement. As a result, any declaration of cash dividends could potentially result in the issuance of shares of T-Mobile
common stock to SoftBank under the Letter Agreement based on the lower threshold price that would not otherwise occur without the cash dividends, which would cause the interests of our stockholders to be diluted.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.Issuer Purchases of Equity Securities
The table below provides information regarding our share repurchases during the three months ended September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions, except share and per share amounts) | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | | Approximate Dollar Value of Shares that may yet be Purchased Under the Plans or Programs (1) | | |
| July 1, 2023 - July 31, 2023 | 5,711,470 | | | $ | 139.81 | | | 5,711,470 | | | | | $ | 1,910 | | | | | |
| August 1, 2023 - August 31, 2023 | 7,881,202 | | | 136.50 | | | 7,881,202 | | | | | 834 | | | | | |
| September 1, 2023 - September 30, 2023 | 5,720,487 | | | 139.89 | | | 5,720,487 | | | | | 18,255 | | | | | |
| Total | 19,313,159 | | | | | 19,313,159 | | | | | | | | | |
(1) On September 8, 2022, our Board of Directors authorized our 2022 Stock Repurchase Program for up to $14.0 billion of our common stock through September 30, 2023. On September 6, 2023, our Board of Directors authorized our 2023-2024 Stockholder Return Program of up to an additional $19.0 billion that will run through December 31, 2024. The amounts presented represent the remaining shares authorized for purchase under the 2022 Stock Repurchase Program and the 2023-2024 Stockholder Return Program as of the end of the period. The amount available under the 2023-2024 Stockholder Return Program for share repurchases has been reduced by the $745 million of cash dividends declared by us on September 25, 2023.
On May 3, 2023, the SEC adopted amendments to modernize share repurchase disclosure requirements, including requiring issuers to disclose daily share repurchase activity in an exhibit to their Form 10-Q and Form 10-K. We will be required to comply with the amendments beginning with our first filing that covers the first full fiscal quarter that begins on October 1, 2023. We plan to apply the applicable amendments, including the discontinuation of the monthly share repurchase activity in this Item and replacing with daily share repurchase activity as an exhibit to our Form 10-Qs and Form 10-Ks, beginning in our Form 10-K for the year ending December 31, 2023.
See Note 10 - Stockholder Return Programs of the Notes to the Condensed Consolidated Financial Statements for more information about our 2022 Stock Repurchase Program and 2023-2024 Stockholder Return Program.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.Not applicable.
Item 5. Other Information
None.On September 13, 2023, Deeanne King, Executive Vice President and Chief People Officer, adopted a trading plan intended to satisfy Rule 10b5-1(c) to sell up to 24,328 shares of T-Mobile US, Inc. common stock between December 13, 2023, and September 12, 2024, for a total duration of 274 days, subject to certain conditions.
On September 14, 2023, Dara Bazzano, Senior Vice President and Chief Accounting Officer, adopted a trading plan intended to satisfy Rule 10b5-1(c) to sell up to 3,953 shares of T-Mobile US, Inc. common stock between December 13, 2023, and March 15, 2024, for a total duration of 93 days, subject to certain conditions.
Item 6. Exhibits
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| | | | Incorporated by Reference | | |
| Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
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| 4.1 | | | | 8-K | | 9/14/2023 | | 4.2 | | |
| 4.2 | | | | 8-K | | 9/14/2023 | | 4.3 | | |
| 10.1 | | Amendment No.1, dated as of August 25, 2023, to the Amended and Restated License Purchase Agreement, dated as of March 30, 2023, by and among T-Mobile USA, Inc., T-Mobile License LLC, Nextel West Corp., and Channel 51 License Co LLC and to the License Purchase Agreement, dated as of March 30, 2023, by and among T-Mobile USA, Inc., T-Mobile License LLC, Nextel West Corp., and Channel 51 License Co LLC. | | | | | | | | X |
| 10.2 | | Amendment No.1, dated as of August 25, 2023, to the Amended and Restated License Purchase Agreement, dated as of March 30, 2023, by and among T-Mobile USA, Inc., T-Mobile License LLC, Nextel West Corp., and LB License Co, LLC and to the License Purchase Agreement, dated as of March 30, 2023, by and among T-Mobile USA, Inc., T-Mobile License LLC, Nextel West Corp., and LB License Co, LLC. | | | | | | | | X |
| 10.3* | | | | | | | | | | X |
| | | | | | | | | | |
| 10.4 | | License Purchase Agreement, dated as of September 12, 2023, by and among T-Mobile USA, Inc., T-Mobile License LLC, T-Mobile US, Inc., Comcast OTR1, LLC, and Comcast Corporation. | | | | | | | | X |
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| 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) | | | | | | | | |
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 |
| 101.INS | | XBRL Instance Document. | |
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| |
| | X |
| 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. | |
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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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| * | | Indicates a management contract or compensatory plan or arrangement. |
| ** | | Furnished herewith.herein. |
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| | |
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.
| | | | | | | | | | | |
| | T-MOBILE US, INC. | |
| | | |
| October 25, 2023 | | 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) | |
