The following table summarizes our contractual obligations and borrowings as of December 31, 20162019 and the timing and effect that such commitments are expected to have on our liquidity and capital requirements in future periods:
The purchase obligations reflected in the table above are primarily commitments to purchase handsets and accessories,lease spectrum licenses, wireless devices, network services, equipment, software, programmingmarketing sponsorship agreements and network services, and marketing activities, which will be used or soldother items in the ordinary course of business. These amounts do not represent T-Mobile’sour entire anticipated purchases in the future, but represent only those items for which T-Mobile iswe are contractually committed. Where T-Mobile iswe are committed to make a minimum payment to the supplier regardless of whether it takeswe take delivery, T-Mobile haswe have included only that minimum payment as a purchase obligation. Additionally, included within purchase obligations are amounts for theThe acquisition of spectrum licenses which areis subject to regulatory approval and other customary closing conditions.
To the extent that actual loss experience differs significantly from historical trends or assumptions, the requiredappropriate allowance amountslevels for realized credit losses could differ from the estimate. We write off account balances if collection efforts are unsuccessful and the receivable balance is deemed uncollectible, based on factors such as customer credit ratings and the length of time from the original billing date.
Subsequent to the initial determination of the imputed discount, we assess the need for and, if necessary, recognize an allowance for credit losses to the extent the amount of estimated probable losses on the gross EIP receivablesreceivable balances exceed the remaining unamortized imputed discount balances.
Depreciation
Depreciation commences once assets have been placed in service. We generally depreciate property and equipment over the period the property and equipment provide economic benefit. Leased wireless devices are depreciated to their estimated residual value over the period expected to provide utility to T-Mobile,us, which is generally shorter than the lease term.term and considers expected losses. Depreciable life studies are performed periodically to confirm the appropriateness of depreciable lives for certain categories of property, plant and equipment. These studies take into accountconsider actual usage, physical wear and tear, replacement history and assumptions about technology evolution and expected loss of leased wireless devices.evolution. When these factors indicate that an asset’sthe useful life of an asset is different from the previous assessment, the remaining book values are depreciated prospectively over the adjusted remaining
Evaluation of Goodwill and Indefinite-Lived Intangible Assets for Impairment
We assess the carrying value of our goodwill and other indefinite-lived intangible assets, such as our spectrum licenses, for potential impairment annually as of December 31, or more frequently if events or changes in circumstances indicate thatsuch assets might be impaired.
We have identified two reporting units for which discrete financial information is available and results are regularly reviewed by management: wireless and Layer3. The Layer3 reporting unit consists of the assets and liabilities of Layer3 TV, Inc., which was acquired in January 2018. The wireless reporting unit consists of the remaining assets and liabilities of T-Mobile US, Inc., excluding Layer3 TV, Inc. We separately evaluate these reporting units for impairment.
When assessing goodwill for impairment we may elect to first perform a qualitative assessment for a reporting unit to determine whether itif the quantitative impairment test is more likely than not the fair value of the single reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.necessary. If we do not perform a qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of the singlea reporting unit is less than its carrying amount, we perform a quantitative test. We recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill is tested for impairment based onallocated to that reporting unit.
We employed a two-step test. Inqualitative approach to assess the first step, we compare thewireless reporting unit. The fair value of the reporting unit to its carrying value. The fair value of thewireless reporting unit is determined using a market approach, which is based on market capitalization. We recognize market capitalization is subject to volatility and will monitor changes in market capitalization to determine whether declines, if any, necessitate an interim impairment review. In the event market capitalization does decline below its book value, we will consider the length, severity and reasons for the decline when assessing whether potential impairment exists, including considering whether a control premium should be added to the market capitalization. We believe short-term fluctuations in share price may not necessarily reflect the underlying aggregate fair value.
InWe employed a quantitative approach to assess the second step, we determine the fair values of all of the assets and liabilities of theLayer3 reporting unit, including those that currently may not be recorded.unit. The excess of the fair value of the Layer3 reporting unit overis determined using an income approach, which is based on estimated discounted future cash flows.
We made estimates and assumptions regarding future cash flows, discount rates and long-term growth rates to determine the sumreporting unit’s estimated fair value. The key assumptions used were as follows:
•Expected cash flows underlying the Layer3 business plan for the periods 2020 through 2024, which took into account estimates of subscribers for TVision services, average revenue and content cost per subscriber, operating costs and capital expenditures.
•Cash flows beyond 2024 were projected to grow at a long-term growth rate estimated at 3%. Estimating a long-term growth rate requires significant judgment about future business strategies as well as micro- and macro-economic environments that are inherently uncertain.
•We used a discount rate of 32% to risk adjust the cash flow projections in determining the estimated fair value.
The estimated fair value of allthe Layer3 reporting unit exceeded its carrying value by approximately 3% as of those assets and liabilities representsDecember 31, 2019. Delays in the impliednational launch of TVision services or cash flows that do not meet our projections could result in a goodwill amount. Ifimpairment of Layer3 in the implied fairfuture. The carrying value of the goodwill is lower thanassociated with the carrying amountLayer3 reporting unit was $218 million as of goodwill, then an impairment loss is recognized for the difference.December 31, 2019.
We test our spectrum licenses for impairment on an aggregate basis, consistent with theour management of the overall business at a national level. We may elect to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of an intangible asset group is less than its carrying value. If we do not perform the qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of the intangible asset group is less than its carrying amount, we calculate the estimated fair value of the intangible asset group.asset. If the carrying amount of spectrum licenses exceeds the fair value, an impairment loss is recognized. We estimate theestimated fair value of the spectrum licenses is lower than their carrying amount, an impairment loss is recognized for the difference. We estimate fair value using the Greenfield approach,methodology, which is an income approach, that estimatesto estimate the price at which an orderly transaction to sell the asset would take place between market participants at the measurement date under current market conditions. The Greenfield approachmethodology values the spectrum licenses by calculating the cash flow generating potential of a hypothetical start-up company that goes into business with no assets except the asset to be valued (in this case, spectrum licenses). The value of the spectrum licenses can be considered as equal to the present value of the cash flows of this hypothetical start-up company. We base the assumptions underlying the Greenfield approachmethodology on a combination of market participant data and our historical results, trends and business plans. Future cash flows in the Greenfield approachmethodology are based on estimates and assumptions of market participant revenues, EBITDA margin, network build-out period and a long-term growth rate for a market participant. The cash flows are discounted using a weighted average cost of capital.
The valuation approaches utilized to estimate fair value for the purposes of the impairment tests of goodwill and spectrum licenses require the use of assumptions and estimates, which involve a degree of uncertainty. If actual results or future expectations are not consistent with the assumptions, this may result in the recording of significant impairment charges on goodwill or spectrum licenses. The most significant assumptions within the valuation models are the discount rate, revenues, EBITDA margins, capital expenditures and the long-term growth rate. See Note 1 – Summary of Significant AccountingPolicies and Note 56 – Goodwill, Spectrum LicensesLicense Transactions and Other Intangible Assets of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for information regarding our annual impairment test and impairment charges.
Income Taxes
Deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to be in effect when these differences are realized. A valuation allowance is recorded when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of a deferred tax asset depends on the ability to generate sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions within the carryforward periods available.
We account for uncertainty in income taxes recognized in the financial statements in accordance with the accounting guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We assess whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position and adjust the unrecognized tax benefits in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law.
Accounting Pronouncements Not Yet Adopted
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to economic risks in the normal course of business, primarily from changes in interest rates, including changes in investment yields and changes in spreads due to credit risk and other factors. These risks, along with other business risks, impact our cost of capital. Our policy is to manage exposure related to fluctuations in interest rates in order to manage capital costs, control financial risks and maintain financial flexibility over the long term. We have established interest rate risk limits that are closely monitored by measuring interest rate sensitivities of our debt portfolio. We do not foresee significant changes in the strategies used to manage market risk in the near future.
We are exposed to changes in interest rates on our Incremental Term Loan Facility with DT, our majority stockholder. See Note 8 – Debt of the Notes to the Consolidated Financial Statements for further information.
To perform the sensitivity analysis, we selected hypothetical changes in market rates that are expected to reflect reasonably possible near-term changes in those rates. We assessed the risk of a change in the fair value from the effect of a hypothetical interest rate change for 30-day LIBOR rates of positive 150 and negative 50 basis points. In cases where the debt is redeemable and the fair value calculation results in a liability greater than the cost to replace the debt, the maximum liability is assumed to
be no greater than the current cost to redeem the debt. As of December 31, 2019, the change in the fair value of our Incremental Term Loan Facility, based on this hypothetical change, is shown in the table below:
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| Carrying Amount | | Fair Value | | Fair Value Assuming | | |
(in millions) | | | | | +150 Basis Point Shift | | -50 Basis Point Shift |
LIBOR plus 1.50% Senior Secured Term Loan due 2022 | $ | 2,000 | | | $ | 2,000 | | | $ | 1,966 | | | $ | 2,000 | |
LIBOR plus 1.75% Senior Secured Term Loan due 2024 | 2,000 | | | 2,000 | | | 1,956 | | | 2,000 | |
We are exposed to changes in the benchmark interest rate associated with our interest rate lock derivatives. See Note 7 – Fair Value Measurements of the Notes to the Consolidated Financial Statements for further information.
To perform the sensitivity analysis, we selected hypothetical changes in market rates that are expected to reflect reasonably possible near-term changes in those rates. We assessed the risk of a change in fair value from the effect of a hypothetical interest rate change for eight and 10-year LIBOR swap rates of positive 200 and negative 100 basis points. As of December 31, 2019, the change in the fair value of our interest rate lock derivatives, based on this hypothetical change, is shown in the table below:
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| Fair Value | | Fair Value Assuming | | |
(in millions) | | | +200 Basis Point Shift | | -100 Basis Point Shift |
Interest rate lock derivatives | $ | (1,170) | | | $ | 410 | | | $ | (2,077) | |
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of T-Mobile US, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of T-Mobile US, Inc. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Changes in Accounting Principles
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenues in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Adoption of Leases Standard
As described in Notes 1 and 15 to the consolidated financial statements, the Company has adopted the new accounting standard on Leases, on January 1, 2019, by recognizing and measuring leases at the adoption date with a cumulative effect of initially applying the guidance recognized at the date of initial application. As a result, among other adjustments, the Company recognized operating lease right-of-use assets of $9,251 million and operating lease liabilities of $11,364 million on the balance sheet on the date of adoption. As of December 31, 2019, the carrying amounts of operating and finance lease right-of-use assets were $10,933 million and $2,715 million respectively and operating and finance lease liabilities were $12,826 million and $2,303 million respectively. The Company recorded $3,406 million of lease expense during the year. Management also reassessed the previously failed sale-leasebacks of certain T-Mobile-owned wireless communication tower sites to determine whether the transfer of the assets to the tower operator under the arrangement met the transfer of control criteria in the revenue standard and whether a sale should be recognized. This reassessment resulted in (i) assets relating to 6,200 tower sites transferred pursuant to a master prepaid lease arrangement continuing to be accounted for as failed sale-leasebacks; (ii) a sale being recognized for 1,400 tower sites sold that were not associated with the master prepaid lease. Upon adoption, the Company derecognized its existing long-term financial obligation and the tower-related property and equipment associated with these 1,400 previously failed sale-leaseback tower sites and recognized a lease liability and right-of-use asset for the leaseback of the tower sites.
The principal considerations for our determination that performing procedures relating to the adoption of the lease standard is a critical audit matter are (i) there was significant judgment by management in applying the lease standard to a large volume of leases in the company’s lease portfolio; (ii) implementation of new lease accounting systems resulted in material changes to the Company’s internal control over financial reporting; and (iii) significant judgment in the application of the standard relating to sale-leaseback accounting. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to the implementation of new lease accounting systems and management’s significant judgments, including the assessment of the previously failed sale-leaseback tower sites. The audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained from the procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the adoption of the new standard on the Company’s various lease portfolios, including those associated with previously failed sale-leaseback transactions and testing of controls over the implementation and functionality of the new lease accounting systems. The procedures also included, among others, testing the completeness and accuracy of management’s identification of the leases in the Company’s lease portfolios and evaluating the reasonableness of significant judgments made by management to identify contractual terms in lease arrangements that impact the determination of the right-of-use asset and lease liability amount recognized. Professionals with specialized skill and knowledge were used to assist with the evaluation of previous failed sales-leaseback tower sites.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
February 6, 2020
We have served as the Company’s auditor since 2001.
T-Mobile US, Inc.
Consolidated Balance Sheets
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(in millions, except share and per share amounts) | December 31, 2019 | | December 31, 2018 |
Assets | | | |
Current assets | | | |
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Cash and cash equivalents | $ | 1,528 | | | $ | 1,203 | |
Accounts receivable, net of allowances of $61 and $67 | 1,888 | | | 1,769 | |
Equipment installment plan receivables, net | 2,600 | | | 2,538 | |
Accounts receivable from affiliates | 20 | | | 11 | |
Inventory | 964 | | | 1,084 | |
Other current assets | 2,305 | | | 1,676 | |
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Total current assets | 9,305 | | | 8,281 | |
Property and equipment, net | 21,984 | | | 23,359 | |
Operating lease right-of-use assets | 10,933 | | | — | |
Financing lease right-of-use assets | 2,715 | | | — | |
Goodwill | 1,930 | | | 1,901 | |
Spectrum licenses | 36,465 | | | 35,559 | |
Other intangible assets, net | 115 | | | 198 | |
Equipment installment plan receivables due after one year, net | 1,583 | | | 1,547 | |
Other assets | 1,891 | | | 1,623 | |
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Total assets | $ | 86,921 | | | $ | 72,468 | |
Liabilities and Stockholders' Equity | | | |
Current liabilities | | | |
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Accounts payable and accrued liabilities | $ | 6,746 | | | $ | 7,741 | |
Payables to affiliates | 187 | | | 200 | |
Short-term debt | 25 | | | 841 | |
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Deferred revenue | 631 | | | 698 | |
Short-term operating lease liabilities | 2,287 | | | — | |
Short-term financing lease liabilities | 957 | | | — | |
Other current liabilities | 1,673 | | | 787 | |
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Total current liabilities | 12,506 | | | 10,267 | |
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Long-term debt | 10,958 | | | 12,124 | |
Long-term debt to affiliates | 13,986 | | | 14,582 | |
Tower obligations | 2,236 | | | 2,557 | |
Deferred tax liabilities | 5,607 | | | 4,472 | |
Operating lease liabilities | 10,539 | | | — | |
Financing lease liabilities | 1,346 | | | — | |
Deferred rent expense | — | | | 2,781 | |
Other long-term liabilities | 954 | | | 967 | |
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Total long-term liabilities | 45,626 | | | 37,483 | |
Commitments and contingencies (Note 16) | | | |
Stockholders' equity | | | |
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Common Stock, par value $0.00001 per share, 1,000,000,000 shares authorized; 858,418,615 and 851,675,119 shares issued, 856,905,400 and 850,180,317 shares outstanding | — | | | — | |
Additional paid-in capital | 38,498 | | | 38,010 | |
Treasury stock, at cost,1,513,215 and 1,494,802 shares issued | (8) | | | (6) | |
Accumulated other comprehensive loss | (868) | | | (332) | |
Accumulated deficit | (8,833) | | | (12,954) | |
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Total stockholders' equity | 28,789 | | | 24,718 | |
Total liabilities and stockholders' equity | $ | 86,921 | | | $ | 72,468 | |
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The accompanying notes are an integral part of these Consolidated Financial Statements.
T-Mobile US, Inc.
Consolidated Statements of Comprehensive Income
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(in millions, except share and per share amounts) | | | | | 2019 | | 2018 | | 2017 |
Revenues | | | | | | | | | |
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Branded postpaid revenues | | | | | $ | 22,673 | | | $ | 20,862 | | | $ | 19,448 | |
Branded prepaid revenues | | | | | 9,543 | | | 9,598 | | | 9,380 | |
Wholesale revenues | | | | | 1,279 | | | 1,183 | | | 1,102 | |
Roaming and other service revenues | | | | | 499 | | | 349 | | | 230 | |
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Total service revenues | | | | | 33,994 | | | 31,992 | | | 30,160 | |
Equipment revenues | | | | | 9,840 | | | 10,009 | | | 9,375 | |
Other revenues | | | | | 1,164 | | | 1,309 | | | 1,069 | |
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Total revenues | | | | | 44,998 | | | 43,310 | | | 40,604 | |
Operating expenses | | | | | | | | | |
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Cost of services, exclusive of depreciation and amortization shown separately below | | | | | 6,622 | | | 6,307 | | | 6,100 | |
Cost of equipment sales, exclusive of depreciation and amortization shown separately below | | | | | 11,899 | | | 12,047 | | | 11,608 | |
Selling, general and administrative | | | | | 14,139 | | | 13,161 | | | 12,259 | |
Depreciation and amortization | | | | | 6,616 | | | 6,486 | | | 5,984 | |
Gains on disposal of spectrum licenses | | | | | — | | | — | | | (235) | |
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Total operating expenses | | | | | 39,276 | | | 38,001 | | | 35,716 | |
Operating income | | | | | 5,722 | | | 5,309 | | | 4,888 | |
Other income (expense) | | | | | | | | | |
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Interest expense | | | | | (727) | | | (835) | | | (1,111) | |
Interest expense to affiliates | | | | | (408) | | | (522) | | | (560) | |
Interest income | | | | | 24 | | | 19 | | | 17 | |
Other expense, net | | | | | (8) | | | (54) | | | (73) | |
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Total other expense, net | | | | | (1,119) | | | (1,392) | | | (1,727) | |
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Income before income taxes | | | | | 4,603 | | | 3,917 | | | 3,161 | |
Income tax (expense) benefit | | | | | (1,135) | | | (1,029) | | | 1,375 | |
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Net income | | | | | $ | 3,468 | | | $ | 2,888 | | | $ | 4,536 | |
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Dividends on preferred stock | | | | | — | | | — | | | (55) | |
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Net income attributable to common stockholders | | | | | $ | 3,468 | | | $ | 2,888 | | | $ | 4,481 | |
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Net income | | | | | $ | 3,468 | | | $ | 2,888 | | | $ | 4,536 | |
Other comprehensive (loss) income, net of tax | | | | | | | | | |
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Unrealized gain on available-for-sale securities, net of tax effect of $0, $0, and $2 | | | | | — | | | — | | | 7 | |
Unrealized loss on cash flow hedges, net of tax effect of $(187), $(115), and $0 | | | | | (536) | | | (332) | | | — | |
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Other comprehensive (loss) income | | | | | (536) | | | (332) | | | 7 | |
Total comprehensive income | | | | | $ | 2,932 | | | $ | 2,556 | | | $ | 4,543 | |
Earnings per share | | | | | | | | | |
Basic | | | | | $ | 4.06 | | | $ | 3.40 | | | $ | 5.39 | |
Diluted | | | | | $ | 4.02 | | | $ | 3.36 | | | $ | 5.20 | |
Weighted average shares outstanding | | | | | | | | | |
Basic | | | | | 854,143,751 | | | 849,744,152 | | | 831,850,073 | |
Diluted | | | | | 863,433,511 | | | 858,290,174 | | | 871,787,450 | |
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The accompanying notes are an integral part of these Consolidated Financial Statements.
T-Mobile US, Inc.
Consolidated Statements of Cash Flows
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| | | | | Year Ended December 31, | | | | |
(in millions) | | | | | 2019 | | 2018 | | 2017 |
Operating activities | | | | | | | | | |
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Net income | | | | | $ | 3,468 | | | $ | 2,888 | | | $ | 4,536 | |
Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | | | |
Depreciation and amortization | | | | | 6,616 | | | 6,486 | | | 5,984 | |
Stock-based compensation expense | | | | | 495 | | | 424 | | | 306 | |
Deferred income tax expense (benefit) | | | | | 1,091 | | | 980 | | | (1,404) | |
Bad debt expense | | | | | 307 | | | 297 | | | 388 | |
Losses from sales of receivables | | | | | 130 | | | 157 | | | 299 | |
Deferred rent expense | | | | | — | | | 26 | | | 76 | |
Losses on redemption of debt | | | | | 19 | | | 122 | | | 86 | |
Gains on disposal of spectrum licenses | | | | | — | | | — | | | (235) | |
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Accounts receivable | | | | | (3,709) | | | (4,617) | | | (3,931) | |
Equipment installment plan receivables | | | | | (1,015) | | | (1,598) | | | (1,812) | |
Inventories | | | | | (617) | | | (201) | | | (844) | |
Operating lease right-of-use assets | | | | | 1,896 | | | — | | | — | |
Other current and long-term assets | | | | | (144) | | | (181) | | | (575) | |
Accounts payable and accrued liabilities | | | | | 17 | | | (867) | | | 1,079 | |
Short and long-term operating lease liabilities | | | | | (2,131) | | | — | | | — | |
Other current and long-term liabilities | | | | | 144 | | | (69) | | | (233) | |
Other, net | | | | | 257 | | | 52 | | | 111 | |
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Net cash provided by operating activities | | | | | 6,824 | | | 3,899 | | | 3,831 | |
Investing activities | | | | | | | | | |
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Purchases of property and equipment, including capitalized interest of $473, $362 and $136 | | | | | (6,391) | | | (5,541) | | | (5,237) | |
Purchases of spectrum licenses and other intangible assets, including deposits | | | | | (967) | | | (127) | | | (5,828) | |
Proceeds from sales of tower sites | | | | | 38 | | | — | | | — | |
Proceeds related to beneficial interests in securitization transactions | | | | | 3,876 | | | 5,406 | | | 4,319 | |
Net cash related to derivative contracts under collateral exchange arrangements | | | | | (632) | | | — | | | — | |
Acquisition of companies, net of cash acquired | | | | | (31) | | | (338) | | | — | |
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Other, net | | | | | (18) | | | 21 | | | 1 | |
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Net cash used in investing activities | | | | | (4,125) | | | (579) | | | (6,745) | |
Financing activities | | | | | | | | | |
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Proceeds from issuance of long-term debt | | | | | — | | | 2,494 | | | 10,480 | |
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Proceeds from borrowing on revolving credit facility | | | | | 2,340 | | | 6,265 | | | 2,910 | |
Repayments of revolving credit facility | | | | | (2,340) | | | (6,265) | | | (2,910) | |
Repayments of financing lease obligations | | | | | (798) | | | (700) | | | (486) | |
Repayments of short-term debt for purchases of inventory, property and equipment, net | | | | | (775) | | | (300) | | | (300) | |
Repayments of long-term debt | | | | | (600) | | | (3,349) | | | (10,230) | |
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Repurchases of common stock | | | | | — | | | (1,071) | | | (427) | |
Tax withholdings on share-based awards | | | | | (156) | | | (146) | | | (166) | |
Dividends on preferred stock | | | | | — | | | — | | | (55) | |
Cash payments for debt prepayment or debt extinguishment costs | | | | | (28) | | | (212) | | | (188) | |
Other, net | | | | | (17) | | | (52) | | | 5 | |
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Net cash used in financing activities | | | | | (2,374) | | | (3,336) | | | (1,367) | |
Change in cash and cash equivalents | | | | | 325 | | | (16) | | | (4,281) | |
Cash and cash equivalents | | | | | | | | | |
Beginning of period | | | | | 1,203 | | | 1,219 | | | 5,500 | |
End of period | | | | | $ | 1,528 | | | $ | 1,203 | | | $ | 1,219 | |
Supplemental disclosure of cash flow information | | | | | | | | | |
Interest payments, net of amounts capitalized | | | | | $ | 1,128 | | | $ | 1,525 | | | $ | 2,028 | |
Operating lease payments (1) | | | | | 2,783 | | | — | | | — | |
Income tax payments | | | | | 88 | | | 51 | | | 31 | |
Non-cash investing and financing activities | | | | | | | | | |
Non-cash beneficial interest obtained in exchange for securitized receivables | | | | | $ | 6,509 | | | $ | 4,972 | | | $ | 4,063 | |
(Decrease) increase in accounts payable for purchases of property and equipment | | | | | (935) | | | 65 | | | 313 | |
Leased devices transferred from inventory to property and equipment | | | | | 1,006 | | | 1,011 | | | 1,131 | |
Returned leased devices transferred from property and equipment to inventory | | | | | (267) | | | (326) | | | (742) | |
Short-term debt assumed for financing of property and equipment | | | | | 800 | | | 291 | | | 292 | |
Operating lease right-of-use assets obtained in exchange for lease obligations | | | | | 3,621 | | | — | | | — | |
Financing lease right-of-use assets obtained in exchange for lease obligations | | | | | 1,041 | | | 885 | | | 887 | |
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(1)On January 1, 2019, we adopted Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842),” which requires certain supplemental cash flow disclosures. Where these disclosures or a comparable figure were not required under the former lease standard, we have not retrospectively presented historical amounts. See Note 1 – Summary of Significant Accounting Policies for additional details.
The accompanying notes are an integral part of these Consolidated Financial Statements.
T-Mobile US, Inc.
Consolidated Statement of Stockholders’ Equity
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(in millions, except shares) | Preferred Stock Outstanding | | Common Stock Outstanding | | Treasury Shares at Cost | | Par Value and Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total Stockholders' Equity |
Balance as of December 31, 2016 | 20,000,000 | | | 826,357,331 | | | $ | (1) | | | $ | 38,846 | | | $ | 1 | | | $ | (20,610) | | | $ | 18,236 | |
Net income | — | | | — | | | — | | | — | | | — | | | 4,536 | | | 4,536 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 7 | | | — | | | 7 | |
Stock-based compensation | — | | | — | | | — | | | 344 | | | — | | | — | | | 344 | |
Exercise of stock options | — | | | 450,493 | | | — | | | 19 | | | — | | | — | | | 19 | |
Stock issued for employee stock purchase plan | — | | | 1,832,043 | | | — | | | 82 | | | — | | | — | | | 82 | |
Issuance of vested restricted stock units | — | | | 8,338,271 | | | — | | | — | | | — | | | — | | | — | |
Shares withheld related to net share settlement of stock awards and stock options | — | | | (2,754,721) | | | — | | | (166) | | | — | | | — | | | (166) | |
Mandatory conversion of preferred shares to common shares | (20,000,000) | | | 32,237,983 | | | — | | | — | | | — | | | — | | | — | |
Repurchases of common stock | — | | | (7,010,889) | | | — | | | (444) | | | — | | | — | | | (444) | |
Transfer RSU to NQDC plan | — | | | (43,860) | | | (3) | | | 3 | | | — | | | — | | | — | |
Dividends on preferred stock | — | | | — | | | — | | | (55) | | | — | | | — | | | (55) | |
Balance as of December 31, 2017 | — | | | 859,406,651 | | | (4) | | | 38,629 | | | 8 | | | (16,074) | | | 22,559 | |
Net income | — | | | — | | | — | | | — | | | — | | | 2,888 | | | 2,888 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (332) | | | — | | | (332) | |
Stock-based compensation | — | | | — | | | — | | | 473 | | | — | | | — | | | 473 | |
Exercise of stock options | — | | | 187,965 | | | — | | | 3 | | | — | | | — | | | 3 | |
Stock issued for employee stock purchase plan | — | | | 2,011,794 | | | — | | | 103 | | | — | | | — | | | 103 | |
Issuance of vested restricted stock units | — | | | 7,448,148 | | | — | | | — | | | — | | | — | | | — | |
Issuance of restricted stock awards | — | | | 225,799 | | | — | | | — | | | — | | | — | | | — | |
Shares withheld related to net share settlement of stock awards and stock options | — | | | (2,321,827) | | | — | | | (146) | | | — | | | — | | | (146) | |
Repurchases of common stock | — | | | (16,738,758) | | | — | | | (1,054) | | | — | | | — | | | (1,054) | |
Transfer RSU from NQDC plan | — | | | (39,455) | | | (2) | | | 2 | | | — | | | — | | | — | |
Prior year Retained Earnings(1) | — | | | — | | | — | | | — | | | (8) | | | 232 | | | 224 | |
Balance as of December 31, 2018 | — | | | 850,180,317 | | | (6) | | | 38,010 | | | (332) | | | (12,954) | | | 24,718 | |
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Net income | — | | | — | | | — | | | — | | | — | | | 3,468 | | | 3,468 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (536) | | | — | | | (536) | |
Stock-based compensation | — | | | — | | | — | | | 517 | | | — | | | — | | | 517 | |
Exercise of stock options | — | | | 85,083 | | | — | | | 1 | | | — | | | — | | | 1 | |
Stock issued for employee stock purchase plan | — | | | 2,091,650 | | | — | | | 124 | | | — | | | — | | | 124 | |
Issuance of vested restricted stock units | — | | | 6,685,950 | | | — | | | — | | | — | | | — | | | — | |
Forfeiture of restricted stock awards | — | | | (24,682) | | | — | | | — | | | — | | | — | | | — | |
Shares withheld related to net share settlement of stock awards and stock options | — | | | (2,094,555) | | | — | | | (156) | | | — | | | — | | | (156) | |
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Transfer RSU from NQDC plan | — | | | (18,363) | | | (2) | | | 2 | | | — | | | — | | | — | |
Prior year Retained Earnings(1) | — | | | — | | | — | | | — | | | — | | | 653 | | | 653 | |
Balance as of December 31, 2019 | — | | | 856,905,400 | | | $ | (8) | | | $ | 38,498 | | | $ | (868) | | | $ | (8,833) | | | $ | 28,789 | |
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The accompanying notes are an integral part of these Consolidated Financial Statements
T-Mobile US, Inc.
Index for Notes to the Consolidated Financial Statements
T-Mobile US, Inc.
Notes to the Consolidated Financial Statements
Note 1 – Summary of Significant Accounting Policies
Description of Business
T-Mobile US, Inc. (“T-Mobile,” “we,” “our,” “us” or the “Company”), together with its consolidated subsidiaries, is a leading provider of mobile communications services, including voice, messaging and data, under its flagship brands, T-Mobile and Metro™ by T-Mobile ("Metro by T-Mobile"), in the United States (“U.S.”), Puerto Rico and the U.S. Virgin Islands. All of our revenues were earned in, and all of our long-lived assets are located in, the U.S., Puerto Rico and the U.S. Virgin Islands. We provide mobile communications services primarily using our 4G Long-Term Evolution (“LTE”) network and our newly deployed 5G technology network. We also offer a wide selection of wireless devices, including handsets, tablets and other mobile communication devices, and accessories for sale, as well as financing through Equipment Installment Plans (“EIP”) and leasing through JUMP! On Demand™. Additionally, we provide reinsurance for handset insurance policies and extended warranty contracts offered to our mobile communications customers.
Basis of Presentation
The 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”) where we are deemed to be the primary beneficiary and VIEs, which cannot be deconsolidated, such as those related to Tower obligations. Intercompany transactions and balances have been eliminated in consolidation. We operate as a single operating segment.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires our management to make estimates and assumptions which affect the financial statements and accompanying notes. Estimates are based on historical experience, where applicable, and other assumptions which our management believes are reasonable under the circumstances. These estimates are inherently subject to judgment and actual results could differ from these estimates.
Certain prior year amounts have been reclassified to conform to the current year's presentation. See “Accounting Pronouncements Adopted During the Current Year” below.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid money market funds and U.S. Treasury securities with remaining maturities of three months or less at the date of purchase.
Receivables and Allowance for Credit Losses
Accounts receivable consist primarily of amounts currently due from customers, other carriers and third-party retail channels. Accounts receivable not held for sale are reported in the balance sheet at outstanding principal adjusted for any charge-offs and the allowance for credit losses. Accounts receivable held for sale are reported at the lower of amortized cost or fair value. We have an arrangement to sell the majority of service accounts receivable on a revolving basis, which are treated as sales of financial assets.
We offer certain retail customers the option to pay for their devices and certain other purchases in installments typically over a period of 24, but up to 36, months using an EIP. EIP receivables not held for sale are reported in our Consolidated Balance Sheets at outstanding principal adjusted for any charge-offs, allowance for credit losses and unamortized discounts. At the time of an installment sale, we impute a discount for interest if the EIP term exceeds 12 months as there is no stated rate of interest on the EIP receivables. The EIP receivables are recorded at their present value, which is determined by discounting future cash payments at the imputed interest rate. The difference between the recorded amount of the EIP receivables and their unpaid principal balance (i.e., the contractual amount due from the customer) results in a discount which is allocated to the performance obligations in the arrangement and recorded as a reduction in transaction price in Total service revenues and Equipment revenues in our Consolidated Statements of Comprehensive Income. We determine the imputed discount rate based primarily on current market interest rates and the estimated credit risk on the EIP receivables. As a result, we do not recognize a separate credit loss allowance at the time of issuance as the effects of uncertainty about future cash flows resulting from credit risk are included in the initial present value measurement of the receivable. The imputed discount on EIP receivables is
amortized over the financed installment term using the effective interest method and recognized as Other revenues in our Consolidated Statements of Comprehensive Income.
Subsequent to the initial determination of the imputed discount, we assess the need for and, if necessary, recognize an allowance for credit losses to the extent the amount of estimated probable losses on the gross EIP receivable balances exceed the remaining unamortized imputed discount balances.
Total imputed discount and allowances were approximately 7.0% and 8.1% of the total amount of gross accounts receivable, including EIP receivables, at December 31, 2019 and 2018, respectively.
The current portion of the EIP receivables is included in Equipment installment plan receivables, net and the long-term portion of the EIP receivables is included in Equipment installment plan receivables due after one year, net in our Consolidated Balance Sheets. We have an arrangement to sell certain EIP receivables on a revolving basis, which are treated as sales of financial assets.
We maintain an allowance for credit losses and determine its appropriateness through an established process that assesses the losses inherent in our receivables portfolio. We develop and document our allowance methodology at the portfolio segment level - accounts receivable portfolio and EIP receivable portfolio segments. While we attribute portions of the allowance to our respective accounts receivable and EIP portfolio segments, the entire allowance is available to absorb credit losses inherent in the total receivables portfolio.
Our process involves procedures to appropriately consider the unique risk characteristics of our accounts receivable and EIP receivable portfolio segments. For each portfolio segment, losses are estimated collectively for groups of receivables with similar characteristics. Our allowance levels are influenced by receivable volumes, receivable delinquency status, historical loss experience and other conditions influencing loss expectations, such as macro-economic conditions.
Inventories
Inventories consist primarily of wireless devices and accessories, which are valued at the lower of cost or net realizable value. Cost is determined using standard cost which approximates average cost. Shipping and handling costs paid to wireless device and accessories vendors, and costs to refurbish used devices recovered through our device upgrade programs are included in the standard cost of inventory. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We record inventory write-downs to net realizable value for obsolete and slow-moving items based on inventory turnover trends and historical experience.
Long-Lived Assets
Long-lived assets include assets that do not have indefinite lives, such as property and equipment and other intangible assets. All of our long-lived assets are located in the U.S., including Puerto Rico and the U.S. Virgin Islands. We assess potential impairments to our long-lived assets when events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If any indicators of impairment are present, we test recoverability. The carrying value of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to be generated from the use and eventual disposition of the asset or asset group. If the undiscounted cash flows do not exceed the asset or asset group’s carrying amount, then an impairment loss is recorded, measured as the amount by which the carrying amount of a long-lived asset or asset group exceeds its fair value.
Property and Equipment
Property and equipment consists of buildings and equipment, wireless communications systems, leasehold improvements, capitalized software, leased wireless devices and construction in progress. Buildings and equipment include certain network server equipment. Wireless communications systems include assets to operate our wireless network and IT data centers, including tower assets and leasehold improvements and assets related to the liability for the retirement of long-lived assets. Leasehold improvements include asset improvements other than those related to the wireless network.
Property and equipment are recorded at cost less accumulated depreciation and impairments, if any, in Property and equipment, net on our Consolidated Balance Sheets. We generally depreciate property and equipment over the period the property and equipment provide economic benefit. Depreciable life studies are performed periodically to confirm the appropriateness of depreciable lives for certain categories of property and equipment. These studies take into account actual usage, physical wear
and tear, replacement history and assumptions about technology evolution. When these factors indicate the useful life of an asset is different from the previous assessment, the remaining book value is depreciated prospectively over the adjusted remaining estimated useful life. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the related lease term.
JUMP! On Demand allows customers to lease a device over a period of up to 18 months and upgrade it for a new device up to 1 time per month. To date, all of our leased devices were classified as operating leases. At operating lease inception, leased wireless devices are transferred from inventory to property and equipment. Leased wireless devices are depreciated to their estimated residual value over the period expected to provide utility to us, which is generally shorter than the lease term and considers expected losses. Revenues associated with the leased wireless devices, net of incentives, are generally recognized over the lease term. Upon device upgrade or at lease end, customers must return or purchase their device. Returned devices transferred from Property and equipment, net are recorded as inventory and are valued at the lower of cost or net realizable value with any write-down recognized asCost of equipment sales in our Consolidated Statements of Comprehensive Income.
Costs of major replacements and improvements are capitalized. Repair and maintenance expenditures which do not enhance or extend the asset’s useful life are charged to operating expenses as incurred. Construction costs, labor and overhead incurred in the expansion or enhancement of our wireless network are capitalized. Capitalization commences with pre-construction period administrative and technical activities, which includes obtaining leases, zoning approvals and building permits, and ceases at the point at which the asset is ready for its intended use. We capitalize interest associated with the acquisition or construction of certain property and equipment. Capitalized interest is reported as a reduction in interest expense and depreciated over the useful life of the related assets.
We record an asset retirement obligation for the fair value of legal obligations associated with the retirement of tangible long-lived assets and a corresponding increase in the carrying amount of the related asset in the period in which the obligation is incurred. In periods subsequent to initial measurement, we recognize changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate. Over time, the liability is accreted to its present value and the capitalized cost is depreciated over the estimated useful life of the asset. Our obligations relate primarily to certain legal obligations to remediate leased property on which our network infrastructure and administrative assets are located.
We capitalize certain costs incurred in connection with developing or acquiring internal use software. Capitalization of software costs commences once the final selection of the specific software solution has been made and management authorizes and commits to funding the software project. Capitalized software costs are included in Property and equipment, net in our Consolidated Balance Sheets and are amortized on a straight-line basis over the estimated useful life of the asset. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred.
Other Intangible Assets
Intangible assets that do not have indefinite useful lives are amortized over their estimated useful lives. Customer lists are amortized using the sum-of-the-years'-digits method over the expected period in which the relationship is expected to contribute to future cash flows. The remaining finite-lived intangible assets are amortized using the straight-line method.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill
Goodwill consists of the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill is allocated to our 2 reporting units, wireless and Layer3.
Spectrum Licenses
Spectrum licenses are carried at costs incurred to acquire the spectrum licenses and the costs to prepare the spectrum licenses for their intended use, such as costs to clear acquired spectrum licenses. The Federal Communications Commission (“FCC”) issues spectrum licenses which provide us with the exclusive right to utilize designated radio frequency spectrum within specific geographic service areas to provide wireless communications services. While spectrum licenses are issued for a fixed period of time, typically for up to fifteen years, the FCC has granted license renewals routinely and at a nominal cost. The spectrum licenses held by us expire at various dates. We believe we will be able to meet all requirements necessary to secure renewal of our spectrum licenses at nominal costs. Moreover, we determined there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our spectrum licenses. Therefore, we determined the spectrum licenses should be treated as indefinite-lived intangible assets.
At times, we enter into agreements to sell or exchange spectrum licenses. Upon entering into the arrangement, if the transaction has been deemed to have commercial substance, spectrum licenses are reviewed for impairment and transferred at their carrying value, net of any impairment, to assets held for sale included in Other current assets in our Consolidated Balance Sheets until approval and completion of the exchange or sale. Upon closing of the transaction, spectrum licenses acquired as part of an exchange of nonmonetary assets are valued at fair value and the difference between the fair value of the spectrum licenses obtained, book value of the spectrum licenses transferred and cash paid, if any, is recognized as a gain and included in Gains on disposal of spectrum licenses in our Consolidated Statements of Comprehensive Income. Our fair value estimates of spectrum licenses are based on information for which there is little or no observable market data. If the transaction lacks commercial substance or the fair value is not measurable, the acquired spectrum licenses are recorded at the book value of the assets transferred or exchanged.
Impairment
We assess the carrying value of our goodwill and other indefinite-lived intangible assets, such as our spectrum licenses, for potential impairment annually as of December 31, or more frequently if events or changes in circumstances indicate such assets might be impaired.
When assessing goodwill for impairment we may elect to first perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. If we do not perform a qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of the 2 reporting units, wireless and Layer3, is less than its carrying amount, we perform a quantitative test. We recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit.
We test our spectrum licenses for impairment on an aggregate basis, consistent with our management of the overall business at a national level. We may elect to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of an intangible asset is less than its carrying value. If we do not perform the qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of the intangible asset is less than its carrying amount, we calculate the estimated fair value of the intangible asset. If the estimated fair value of the spectrum licenses is lower than their carrying amount, an impairment loss is recognized for the difference. We estimate fair value using the Greenfield methodology, which is an income approach based on discounted cash flows associated with the intangible asset, to estimate the price at which an orderly transaction to sell the asset would take place between market participants at the measurement date under current market conditions.
Guarantee LiabilitiesConsolidated Balance Sheets
In 2013, | | | | | | | | | | | |
(in millions, except share and per share amounts) | December 31, 2019 | | December 31, 2018 |
Assets | | | |
Current assets | | | |
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Cash and cash equivalents | $ | 1,528 | | | $ | 1,203 | |
Accounts receivable, net of allowances of $61 and $67 | 1,888 | | | 1,769 | |
Equipment installment plan receivables, net | 2,600 | | | 2,538 | |
Accounts receivable from affiliates | 20 | | | 11 | |
Inventory | 964 | | | 1,084 | |
Other current assets | 2,305 | | | 1,676 | |
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Total current assets | 9,305 | | | 8,281 | |
Property and equipment, net | 21,984 | | | 23,359 | |
Operating lease right-of-use assets | 10,933 | | | — | |
Financing lease right-of-use assets | 2,715 | | | — | |
Goodwill | 1,930 | | | 1,901 | |
Spectrum licenses | 36,465 | | | 35,559 | |
Other intangible assets, net | 115 | | | 198 | |
Equipment installment plan receivables due after one year, net | 1,583 | | | 1,547 | |
Other assets | 1,891 | | | 1,623 | |
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Total assets | $ | 86,921 | | | $ | 72,468 | |
Liabilities and Stockholders' Equity | | | |
Current liabilities | | | |
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Accounts payable and accrued liabilities | $ | 6,746 | | | $ | 7,741 | |
Payables to affiliates | 187 | | | 200 | |
Short-term debt | 25 | | | 841 | |
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Deferred revenue | 631 | | | 698 | |
Short-term operating lease liabilities | 2,287 | | | — | |
Short-term financing lease liabilities | 957 | | | — | |
Other current liabilities | 1,673 | | | 787 | |
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Total current liabilities | 12,506 | | | 10,267 | |
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Long-term debt | 10,958 | | | 12,124 | |
Long-term debt to affiliates | 13,986 | | | 14,582 | |
Tower obligations | 2,236 | | | 2,557 | |
Deferred tax liabilities | 5,607 | | | 4,472 | |
Operating lease liabilities | 10,539 | | | — | |
Financing lease liabilities | 1,346 | | | — | |
Deferred rent expense | — | | | 2,781 | |
Other long-term liabilities | 954 | | | 967 | |
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Total long-term liabilities | 45,626 | | | 37,483 | |
Commitments and contingencies (Note 16) | | | |
Stockholders' equity | | | |
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Common Stock, par value $0.00001 per share, 1,000,000,000 shares authorized; 858,418,615 and 851,675,119 shares issued, 856,905,400 and 850,180,317 shares outstanding | — | | | — | |
Additional paid-in capital | 38,498 | | | 38,010 | |
Treasury stock, at cost,1,513,215 and 1,494,802 shares issued | (8) | | | (6) | |
Accumulated other comprehensive loss | (868) | | | (332) | |
Accumulated deficit | (8,833) | | | (12,954) | |
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Total stockholders' equity | 28,789 | | | 24,718 | |
Total liabilities and stockholders' equity | $ | 86,921 | | | $ | 72,468 | |
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The accompanying notes are an integral part of these Consolidated Financial Statements.
T-Mobile US, Inc.
Consolidated Statements of Comprehensive Income
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| | | | | Year Ended December 31, | | | | |
(in millions, except share and per share amounts) | | | | | 2019 | | 2018 | | 2017 |
Revenues | | | | | | | | | |
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Branded postpaid revenues | | | | | $ | 22,673 | | | $ | 20,862 | | | $ | 19,448 | |
Branded prepaid revenues | | | | | 9,543 | | | 9,598 | | | 9,380 | |
Wholesale revenues | | | | | 1,279 | | | 1,183 | | | 1,102 | |
Roaming and other service revenues | | | | | 499 | | | 349 | | | 230 | |
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Total service revenues | | | | | 33,994 | | | 31,992 | | | 30,160 | |
Equipment revenues | | | | | 9,840 | | | 10,009 | | | 9,375 | |
Other revenues | | | | | 1,164 | | | 1,309 | | | 1,069 | |
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Total revenues | | | | | 44,998 | | | 43,310 | | | 40,604 | |
Operating expenses | | | | | | | | | |
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Cost of services, exclusive of depreciation and amortization shown separately below | | | | | 6,622 | | | 6,307 | | | 6,100 | |
Cost of equipment sales, exclusive of depreciation and amortization shown separately below | | | | | 11,899 | | | 12,047 | | | 11,608 | |
Selling, general and administrative | | | | | 14,139 | | | 13,161 | | | 12,259 | |
Depreciation and amortization | | | | | 6,616 | | | 6,486 | | | 5,984 | |
Gains on disposal of spectrum licenses | | | | | — | | | — | | | (235) | |
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Total operating expenses | | | | | 39,276 | | | 38,001 | | | 35,716 | |
Operating income | | | | | 5,722 | | | 5,309 | | | 4,888 | |
Other income (expense) | | | | | | | | | |
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Interest expense | | | | | (727) | | | (835) | | | (1,111) | |
Interest expense to affiliates | | | | | (408) | | | (522) | | | (560) | |
Interest income | | | | | 24 | | | 19 | | | 17 | |
Other expense, net | | | | | (8) | | | (54) | | | (73) | |
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Total other expense, net | | | | | (1,119) | | | (1,392) | | | (1,727) | |
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Income before income taxes | | | | | 4,603 | | | 3,917 | | | 3,161 | |
Income tax (expense) benefit | | | | | (1,135) | | | (1,029) | | | 1,375 | |
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Net income | | | | | $ | 3,468 | | | $ | 2,888 | | | $ | 4,536 | |
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Dividends on preferred stock | | | | | — | | | — | | | (55) | |
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Net income attributable to common stockholders | | | | | $ | 3,468 | | | $ | 2,888 | | | $ | 4,481 | |
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Net income | | | | | $ | 3,468 | | | $ | 2,888 | | | $ | 4,536 | |
Other comprehensive (loss) income, net of tax | | | | | | | | | |
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Unrealized gain on available-for-sale securities, net of tax effect of $0, $0, and $2 | | | | | — | | | — | | | 7 | |
Unrealized loss on cash flow hedges, net of tax effect of $(187), $(115), and $0 | | | | | (536) | | | (332) | | | — | |
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Other comprehensive (loss) income | | | | | (536) | | | (332) | | | 7 | |
Total comprehensive income | | | | | $ | 2,932 | | | $ | 2,556 | | | $ | 4,543 | |
Earnings per share | | | | | | | | | |
Basic | | | | | $ | 4.06 | | | $ | 3.40 | | | $ | 5.39 | |
Diluted | | | | | $ | 4.02 | | | $ | 3.36 | | | $ | 5.20 | |
Weighted average shares outstanding | | | | | | | | | |
Basic | | | | | 854,143,751 | | | 849,744,152 | | | 831,850,073 | |
Diluted | | | | | 863,433,511 | | | 858,290,174 | | | 871,787,450 | |
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The accompanying notes are an integral part of these Consolidated Financial Statements.
T-Mobile US, Inc.
Consolidated Statements of Cash Flows
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| | | | | Year Ended December 31, | | | | |
(in millions) | | | | | 2019 | | 2018 | | 2017 |
Operating activities | | | | | | | | | |
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Net income | | | | | $ | 3,468 | | | $ | 2,888 | | | $ | 4,536 | |
Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | | | |
Depreciation and amortization | | | | | 6,616 | | | 6,486 | | | 5,984 | |
Stock-based compensation expense | | | | | 495 | | | 424 | | | 306 | |
Deferred income tax expense (benefit) | | | | | 1,091 | | | 980 | | | (1,404) | |
Bad debt expense | | | | | 307 | | | 297 | | | 388 | |
Losses from sales of receivables | | | | | 130 | | | 157 | | | 299 | |
Deferred rent expense | | | | | — | | | 26 | | | 76 | |
Losses on redemption of debt | | | | | 19 | | | 122 | | | 86 | |
Gains on disposal of spectrum licenses | | | | | — | | | — | | | (235) | |
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Changes in operating assets and liabilities | | | | | | | | | |
Accounts receivable | | | | | (3,709) | | | (4,617) | | | (3,931) | |
Equipment installment plan receivables | | | | | (1,015) | | | (1,598) | | | (1,812) | |
Inventories | | | | | (617) | | | (201) | | | (844) | |
Operating lease right-of-use assets | | | | | 1,896 | | | — | | | — | |
Other current and long-term assets | | | | | (144) | | | (181) | | | (575) | |
Accounts payable and accrued liabilities | | | | | 17 | | | (867) | | | 1,079 | |
Short and long-term operating lease liabilities | | | | | (2,131) | | | — | | | — | |
Other current and long-term liabilities | | | | | 144 | | | (69) | | | (233) | |
Other, net | | | | | 257 | | | 52 | | | 111 | |
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Net cash provided by operating activities | | | | | 6,824 | | | 3,899 | | | 3,831 | |
Investing activities | | | | | | | | | |
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Purchases of property and equipment, including capitalized interest of $473, $362 and $136 | | | | | (6,391) | | | (5,541) | | | (5,237) | |
Purchases of spectrum licenses and other intangible assets, including deposits | | | | | (967) | | | (127) | | | (5,828) | |
Proceeds from sales of tower sites | | | | | 38 | | | — | | | — | |
Proceeds related to beneficial interests in securitization transactions | | | | | 3,876 | | | 5,406 | | | 4,319 | |
Net cash related to derivative contracts under collateral exchange arrangements | | | | | (632) | | | — | | | — | |
Acquisition of companies, net of cash acquired | | | | | (31) | | | (338) | | | — | |
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Other, net | | | | | (18) | | | 21 | | | 1 | |
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Net cash used in investing activities | | | | | (4,125) | | | (579) | | | (6,745) | |
Financing activities | | | | | | | | | |
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Proceeds from issuance of long-term debt | | | | | — | | | 2,494 | | | 10,480 | |
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Proceeds from borrowing on revolving credit facility | | | | | 2,340 | | | 6,265 | | | 2,910 | |
Repayments of revolving credit facility | | | | | (2,340) | | | (6,265) | | | (2,910) | |
Repayments of financing lease obligations | | | | | (798) | | | (700) | | | (486) | |
Repayments of short-term debt for purchases of inventory, property and equipment, net | | | | | (775) | | | (300) | | | (300) | |
Repayments of long-term debt | | | | | (600) | | | (3,349) | | | (10,230) | |
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Repurchases of common stock | | | | | — | | | (1,071) | | | (427) | |
Tax withholdings on share-based awards | | | | | (156) | | | (146) | | | (166) | |
Dividends on preferred stock | | | | | — | | | — | | | (55) | |
Cash payments for debt prepayment or debt extinguishment costs | | | | | (28) | | | (212) | | | (188) | |
Other, net | | | | | (17) | | | (52) | | | 5 | |
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Net cash used in financing activities | | | | | (2,374) | | | (3,336) | | | (1,367) | |
Change in cash and cash equivalents | | | | | 325 | | | (16) | | | (4,281) | |
Cash and cash equivalents | | | | | | | | | |
Beginning of period | | | | | 1,203 | | | 1,219 | | | 5,500 | |
End of period | | | | | $ | 1,528 | | | $ | 1,203 | | | $ | 1,219 | |
Supplemental disclosure of cash flow information | | | | | | | | | |
Interest payments, net of amounts capitalized | | | | | $ | 1,128 | | | $ | 1,525 | | | $ | 2,028 | |
Operating lease payments (1) | | | | | 2,783 | | | — | | | — | |
Income tax payments | | | | | 88 | | | 51 | | | 31 | |
Non-cash investing and financing activities | | | | | | | | | |
Non-cash beneficial interest obtained in exchange for securitized receivables | | | | | $ | 6,509 | | | $ | 4,972 | | | $ | 4,063 | |
(Decrease) increase in accounts payable for purchases of property and equipment | | | | | (935) | | | 65 | | | 313 | |
Leased devices transferred from inventory to property and equipment | | | | | 1,006 | | | 1,011 | | | 1,131 | |
Returned leased devices transferred from property and equipment to inventory | | | | | (267) | | | (326) | | | (742) | |
Short-term debt assumed for financing of property and equipment | | | | | 800 | | | 291 | | | 292 | |
Operating lease right-of-use assets obtained in exchange for lease obligations | | | | | 3,621 | | | — | | | — | |
Financing lease right-of-use assets obtained in exchange for lease obligations | | | | | 1,041 | | | 885 | | | 887 | |
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(1)On January 1, 2019, we introducedadopted Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842),” which requires certain supplemental cash flow disclosures. Where these disclosures or a device trade-in program, Just Upgrade My Phonecomparable figure were not required under the former lease standard, we have not retrospectively presented historical amounts. See Note 1 – Summary of Significant Accounting Policies for additional details.
The accompanying notes are an integral part of these Consolidated Financial Statements.
T-Mobile US, Inc.
Consolidated Statement of Stockholders’ Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions, except shares) | Preferred Stock Outstanding | | Common Stock Outstanding | | Treasury Shares at Cost | | Par Value and Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total Stockholders' Equity |
Balance as of December 31, 2016 | 20,000,000 | | | 826,357,331 | | | $ | (1) | | | $ | 38,846 | | | $ | 1 | | | $ | (20,610) | | | $ | 18,236 | |
Net income | — | | | — | | | — | | | — | | | — | | | 4,536 | | | 4,536 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 7 | | | — | | | 7 | |
Stock-based compensation | — | | | — | | | — | | | 344 | | | — | | | — | | | 344 | |
Exercise of stock options | — | | | 450,493 | | | — | | | 19 | | | — | | | — | | | 19 | |
Stock issued for employee stock purchase plan | — | | | 1,832,043 | | | — | | | 82 | | | — | | | — | | | 82 | |
Issuance of vested restricted stock units | — | | | 8,338,271 | | | — | | | — | | | — | | | — | | | — | |
Shares withheld related to net share settlement of stock awards and stock options | — | | | (2,754,721) | | | — | | | (166) | | | — | | | — | | | (166) | |
Mandatory conversion of preferred shares to common shares | (20,000,000) | | | 32,237,983 | | | — | | | — | | | — | | | — | | | — | |
Repurchases of common stock | — | | | (7,010,889) | | | — | | | (444) | | | — | | | — | | | (444) | |
Transfer RSU to NQDC plan | — | | | (43,860) | | | (3) | | | 3 | | | — | | | — | | | — | |
Dividends on preferred stock | — | | | — | | | — | | | (55) | | | — | | | — | | | (55) | |
Balance as of December 31, 2017 | — | | | 859,406,651 | | | (4) | | | 38,629 | | | 8 | | | (16,074) | | | 22,559 | |
Net income | — | | | — | | | — | | | — | | | — | | | 2,888 | | | 2,888 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (332) | | | — | | | (332) | |
Stock-based compensation | — | | | — | | | — | | | 473 | | | — | | | — | | | 473 | |
Exercise of stock options | — | | | 187,965 | | | — | | | 3 | | | — | | | — | | | 3 | |
Stock issued for employee stock purchase plan | — | | | 2,011,794 | | | — | | | 103 | | | — | | | — | | | 103 | |
Issuance of vested restricted stock units | — | | | 7,448,148 | | | — | | | — | | | — | | | — | | | — | |
Issuance of restricted stock awards | — | | | 225,799 | | | — | | | — | | | — | | | — | | | — | |
Shares withheld related to net share settlement of stock awards and stock options | — | | | (2,321,827) | | | — | | | (146) | | | — | | | — | | | (146) | |
Repurchases of common stock | — | | | (16,738,758) | | | — | | | (1,054) | | | — | | | — | | | (1,054) | |
Transfer RSU from NQDC plan | — | | | (39,455) | | | (2) | | | 2 | | | — | | | — | | | — | |
Prior year Retained Earnings(1) | — | | | — | | | — | | | — | | | (8) | | | 232 | | | 224 | |
Balance as of December 31, 2018 | — | | | 850,180,317 | | | (6) | | | 38,010 | | | (332) | | | (12,954) | | | 24,718 | |
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Net income | — | | | — | | | — | | | — | | | — | | | 3,468 | | | 3,468 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (536) | | | — | | | (536) | |
Stock-based compensation | — | | | — | | | — | | | 517 | | | — | | | — | | | 517 | |
Exercise of stock options | — | | | 85,083 | | | — | | | 1 | | | — | | | — | | | 1 | |
Stock issued for employee stock purchase plan | — | | | 2,091,650 | | | — | | | 124 | | | — | | | — | | | 124 | |
Issuance of vested restricted stock units | — | | | 6,685,950 | | | — | | | — | | | — | | | — | | | — | |
Forfeiture of restricted stock awards | — | | | (24,682) | | | — | | | — | | | — | | | — | | | — | |
Shares withheld related to net share settlement of stock awards and stock options | — | | | (2,094,555) | | | — | | | (156) | | | — | | | — | | | (156) | |
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Transfer RSU from NQDC plan | — | | | (18,363) | | | (2) | | | 2 | | | — | | | — | | | — | |
Prior year Retained Earnings(1) | — | | | — | | | — | | | — | | | — | | | 653 | | | 653 | |
Balance as of December 31, 2019 | — | | | 856,905,400 | | | $ | (8) | | | $ | 38,498 | | | $ | (868) | | | $ | (8,833) | | | $ | 28,789 | |
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The accompanying notes are an integral part of these Consolidated Financial Statements
T-Mobile US, Inc.
Index for Notes to the Consolidated Financial Statements
T-Mobile US, Inc.
Notes to the Consolidated Financial Statements
Note 1 – Summary of Significant Accounting Policies
Description of Business
T-Mobile US, Inc. (“JUMP!T-Mobile,” “we,” “our,” “us” or the “Company”), together with its consolidated subsidiaries, is a leading provider of mobile communications services, including voice, messaging and data, under its flagship brands, T-Mobile and Metro™ by T-Mobile ("Metro by T-Mobile"), in the United States (“U.S.”), Puerto Rico and the U.S. Virgin Islands. All of our revenues were earned in, and all of our long-lived assets are located in, the U.S., Puerto Rico and the U.S. Virgin Islands. We provide mobile communications services primarily using our 4G Long-Term Evolution (“LTE”) network and our newly deployed 5G technology network. We also offer a wide selection of wireless devices, including handsets, tablets and other mobile communication devices, and accessories for sale, as well as financing through Equipment Installment Plans (“EIP”) and leasing through JUMP! On Demand™. Additionally, we provide reinsurance for handset insurance policies and extended warranty contracts offered to our mobile communications customers.
Basis of Presentation
The consolidated financial statements include the balances and results of operations of T-Mobile and our consolidated subsidiaries. We consolidate majority-owned subsidiaries over which provides eligible customers a specified-price trade-in rightwe exercise control, as well as variable interest entities (“VIE”) where we are deemed to upgrade their device. Participating customers must financebe the purchase of a device on an EIPprimary beneficiary and VIEs, which cannot be deconsolidated, such as those related to Tower obligations. Intercompany transactions and balances have a qualifying T-Mobile monthly wireless service plan, which is treatedbeen eliminated in consolidation. We operate as a single multiple-elementoperating segment.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires our management to make estimates and assumptions which affect the financial statements and accompanying notes. Estimates are based on historical experience, where applicable, and other assumptions which our management believes are reasonable under the circumstances. These estimates are inherently subject to judgment and actual results could differ from these estimates.
Certain prior year amounts have been reclassified to conform to the current year's presentation. See “Accounting Pronouncements Adopted During the Current Year” below.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid money market funds and U.S. Treasury securities with remaining maturities of three months or less at the date of purchase.
Receivables and Allowance for Credit Losses
Accounts receivable consist primarily of amounts currently due from customers, other carriers and third-party retail channels. Accounts receivable not held for sale are reported in the balance sheet at outstanding principal adjusted for any charge-offs and the allowance for credit losses. Accounts receivable held for sale are reported at the lower of amortized cost or fair value. We have an arrangement to sell the majority of service accounts receivable on a revolving basis, which are treated as sales of financial assets.
We offer certain retail customers the option to pay for their devices and certain other purchases in installments typically over a period of 24, but up to 36, months using an EIP. EIP receivables not held for sale are reported in our Consolidated Balance Sheets at outstanding principal adjusted for any charge-offs, allowance for credit losses and unamortized discounts. At the time of an installment sale, we impute a discount for interest if the EIP term exceeds 12 months as there is no stated rate of interest on the EIP receivables. The EIP receivables are recorded at their present value, which is determined by discounting future cash payments at the imputed interest rate. The difference between the recorded amount of the EIP receivables and their unpaid principal balance (i.e., the contractual amount due from the customer) results in a discount which is allocated to the performance obligations in the arrangement and recorded as a reduction in transaction price in Total service revenues and Equipment revenues in our Consolidated Statements of Comprehensive Income. We determine the imputed discount rate based primarily on current market interest rates and the estimated credit risk on the EIP receivables. As a result, we do not recognize a separate credit loss allowance at the time of issuance as the effects of uncertainty about future cash flows resulting from credit risk are included in the initial present value measurement of the receivable. The imputed discount on EIP receivables is
amortized over the financed installment term using the effective interest method and recognized as Other revenues in our Consolidated Statements of Comprehensive Income.
Subsequent to the initial determination of the imputed discount, we assess the need for and, if necessary, recognize an allowance for credit losses to the extent the amount of estimated probable losses on the gross EIP receivable balances exceed the remaining unamortized imputed discount balances.
Total imputed discount and allowances were approximately 7.0% and 8.1% of the total amount of gross accounts receivable, including EIP receivables, at December 31, 2019 and 2018, respectively.
The current portion of the EIP receivables is included in Equipment installment plan receivables, net and the long-term portion of the EIP receivables is included in Equipment installment plan receivables due after one year, net in our Consolidated Balance Sheets. We have an arrangement to sell certain EIP receivables on a revolving basis, which are treated as sales of financial assets.
We maintain an allowance for credit losses and determine its appropriateness through an established process that assesses the losses inherent in our receivables portfolio. We develop and document our allowance methodology at the portfolio segment level - accounts receivable portfolio and EIP receivable portfolio segments. While we attribute portions of the allowance to our respective accounts receivable and EIP portfolio segments, the entire allowance is available to absorb credit losses inherent in the total receivables portfolio.
Our process involves procedures to appropriately consider the unique risk characteristics of our accounts receivable and EIP receivable portfolio segments. For each portfolio segment, losses are estimated collectively for groups of receivables with similar characteristics. Our allowance levels are influenced by receivable volumes, receivable delinquency status, historical loss experience and other conditions influencing loss expectations, such as macro-economic conditions.
Inventories
Inventories consist primarily of wireless devices and accessories, which are valued at the lower of cost or net realizable value. Cost is determined using standard cost which approximates average cost. Shipping and handling costs paid to wireless device and accessories vendors, and costs to refurbish used devices recovered through our device upgrade programs are included in the standard cost of inventory. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We record inventory write-downs to net realizable value for obsolete and slow-moving items based on inventory turnover trends and historical experience.
Long-Lived Assets
Long-lived assets include assets that do not have indefinite lives, such as property and equipment and other intangible assets. All of our long-lived assets are located in the U.S., including Puerto Rico and the U.S. Virgin Islands. We assess potential impairments to our long-lived assets when enteredevents or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If any indicators of impairment are present, we test recoverability. The carrying value of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to be generated from the use and eventual disposition of the asset or asset group. If the undiscounted cash flows do not exceed the asset or asset group’s carrying amount, then an impairment loss is recorded, measured as the amount by which the carrying amount of a long-lived asset or asset group exceeds its fair value.
Property and Equipment
Property and equipment consists of buildings and equipment, wireless communications systems, leasehold improvements, capitalized software, leased wireless devices and construction in progress. Buildings and equipment include certain network server equipment. Wireless communications systems include assets to operate our wireless network and IT data centers, including tower assets and leasehold improvements and assets related to the liability for the retirement of long-lived assets. Leasehold improvements include asset improvements other than those related to the wireless network.
Property and equipment are recorded at cost less accumulated depreciation and impairments, if any, in Property and equipment, net on our Consolidated Balance Sheets. We generally depreciate property and equipment over the period the property and equipment provide economic benefit. Depreciable life studies are performed periodically to confirm the appropriateness of depreciable lives for certain categories of property and equipment. These studies take into ataccount actual usage, physical wear
and tear, replacement history and assumptions about technology evolution. When these factors indicate the useful life of an asset is different from the previous assessment, the remaining book value is depreciated prospectively over the adjusted remaining estimated useful life. Leasehold improvements are depreciated over the shorter of their estimated useful lives or near the same time. Upon qualifying related lease term.
JUMP! program upgrades, the customers’ remaining EIP balance is settled provided they trade-in their eligible usedOn Demand allows customers to lease a device in good working conditionover a period of up to 18 months and purchaseupgrade it for a new device up to 1 time per month. To date, all of our leased devices were classified as operating leases. At operating lease inception, leased wireless devices are transferred from inventory to property and equipment. Leased wireless devices are depreciated to their estimated residual value over the period expected to provide utility to us, onwhich is generally shorter than the lease term and considers expected losses. Revenues associated with the leased wireless devices, net of incentives, are generally recognized over the lease term. Upon device upgrade or at lease end, customers must return or purchase their device. Returned devices transferred from Property and equipment, net are recorded as inventory and are valued at the lower of cost or net realizable value with any write-down recognized asCost of equipment sales in our Consolidated Statements of Comprehensive Income.
Costs of major replacements and improvements are capitalized. Repair and maintenance expenditures which do not enhance or extend the asset’s useful life are charged to operating expenses as incurred. Construction costs, labor and overhead incurred in the expansion or enhancement of our wireless network are capitalized. Capitalization commences with pre-construction period administrative and technical activities, which includes obtaining leases, zoning approvals and building permits, and ceases at the point at which the asset is ready for its intended use. We capitalize interest associated with the acquisition or construction of certain property and equipment. Capitalized interest is reported as a new EIP.reduction in interest expense and depreciated over the useful life of the related assets.
For customers who enroll in JUMP!, we defer and recognize a liability,We record an asset retirement obligation for the portion of revenue which represents the estimated fair value of legal obligations associated with the specified-price trade-in right guarantee. The guaranteeretirement of tangible long-lived assets and a corresponding increase in the carrying amount of the related asset in the period in which the obligation is incurred. In periods subsequent to initial measurement, we recognize changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate. Over time, the liability is valued basedaccreted to its present value and the capitalized cost is depreciated over the estimated useful life of the asset. Our obligations relate primarily to certain legal obligations to remediate leased property on various economicwhich our network infrastructure and customer behavioral assumptions,administrative assets are located.
We capitalize certain costs incurred in connection with developing or acquiring internal use software. Capitalization of software costs commences once the final selection of the specific software solution has been made and management authorizes and commits to funding the software project. Capitalized software costs are included in Property and equipment, net in our Consolidated Balance Sheets and are amortized on a straight-line basis over the estimated useful life of the asset. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred.
Other Intangible Assets
Intangible assets that do not have indefinite useful lives are amortized over their estimated useful lives. Customer lists are amortized using the sum-of-the-years'-digits method over the expected period in which requires judgment, including estimating the customer'srelationship is expected to contribute to future cash flows. The remaining EIP balance at trade-in,finite-lived intangible assets are amortized using the expectedstraight-line method.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill
Goodwill consists of the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill is allocated to our 2 reporting units, wireless and Layer3.
Spectrum Licenses
Spectrum licenses are carried at costs incurred to acquire the used device at trade-in,spectrum licenses and the probabilitycosts to prepare the spectrum licenses for their intended use, such as costs to clear acquired spectrum licenses. The Federal Communications Commission (“FCC”) issues spectrum licenses which provide us with the exclusive right to utilize designated radio frequency spectrum within specific geographic service areas to provide wireless communications services. While spectrum licenses are issued for a fixed period of time, typically for up to fifteen years, the FCC has granted license renewals routinely and timingat a nominal cost. The spectrum licenses held by us expire at various dates. We believe we will be able to meet all requirements necessary to secure renewal of trade-in. When customers upgradeour spectrum licenses at nominal costs. Moreover, we determined there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our spectrum licenses. Therefore, we determined the spectrum licenses should be treated as indefinite-lived intangible assets.
At times, we enter into agreements to sell or exchange spectrum licenses. Upon entering into the arrangement, if the transaction has been deemed to have commercial substance, spectrum licenses are reviewed for impairment and transferred at their device,carrying value, net of any impairment, to assets held for sale included in Other current assets in our Consolidated Balance Sheets until approval and completion of the exchange or sale. Upon closing of the transaction, spectrum licenses acquired as part of an exchange of nonmonetary assets are valued at fair value and the difference between the EIP balance credit to the customer and the fair value of the returned device is recorded against the guarantee liabilities. All assumptions are reviewed periodically.
Rent Expense
Mostspectrum licenses obtained, book value of the leasesspectrum licenses transferred and cash paid, if any, is recognized as a gain and included in Gains on disposal of spectrum licenses in our tower sites have fixed rent escalations which provide for periodic increases in the amountConsolidated Statements of rent payable over time. We calculate straight-line rent expense for eachComprehensive Income. Our fair value estimates of these leasesspectrum licenses are based on information for which there is little or no observable market data. If the fixed non-cancellable termtransaction lacks commercial substance or the fair value is not measurable, the acquired spectrum licenses are recorded at the book value of the lease plus all periods, if any, for which failure to renewassets transferred or exchanged.
Impairment
We assess the lease imposes a penalty on us in such amount that a renewal appears, at lease inception or significant modification, to be reasonably assured. We consider several factors in assessing whether renewal periods are reasonably assured of being exercised, including the continued maturationcarrying value of our network nationwide, technological advances withingoodwill and other indefinite-lived intangible assets, such as our spectrum licenses, for potential impairment annually as of December 31, or more frequently if events or changes in circumstances indicate such assets might be impaired.
When assessing goodwill for impairment we may elect to first perform a qualitative assessment for a reporting unit to determine if the telecommunications industry andquantitative impairment test is necessary. If we do not perform a qualitative assessment, or if the availability of alternative sites. We make significant assumptions at lease inception in determining and assessing the factors that constitute a “penalty.” In doing so, we primarily consider costs incurred in acquiring and developing new sites, the useful life of site improvements and equipment costs, future economic conditions and the extent to which improvements in wireless technologies can be incorporated into a currentqualitative assessment of whether an economic compulsion will exist in the future to renew a lease.
Income Taxes
We recognize deferred tax assets and liabilities based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates expected to be in effect when these differences are realized. A valuation allowance is maintained against deferred tax assets whenindicates it is more likely than not that some portion or allthe fair value of the deferred tax assets will2 reporting units, wireless and Layer3, is less than its carrying amount, we perform a quantitative test. We recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not be realized. The ultimate realizationexceed the total amount of a deferred tax asset dependsgoodwill allocated to that reporting unit.
We test our spectrum licenses for impairment on the ability to generate sufficient taxable incomean aggregate basis, consistent with our management of the appropriate character and in the appropriate taxing jurisdictions within the carryforward periods available.overall business at a national level. We consider many factors when determining whethermay elect to first perform a valuation allowance is needed, including recent cumulative earnings experience by taxing jurisdiction, expectations of future income, the carryforward periods available for tax reporting purposes and other relevant factors.
We account for uncertainty in income taxes recognized in the financial statements in accordance with the accounting guidance on the financial statement recognition and measurement of a tax position taken or expectedqualitative assessment to be taken in a tax return. We assessdetermine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position and adjust the unrecognized tax benefits in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law.
Accounting Pronouncements Not Yet Adopted
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to economic risks in the normal course of business, primarily from changes in interest rates. These risks, along with other business risks, impact our cost of capital. Our policy is to manage exposure related to fluctuations in interest rates in order to manage capital costs, control financial risks and maintain financial flexibility over the long term. We have established interest rate risk limits that are closely monitored by measuring interest rate sensitivities of our debt portfolio. We do not foresee significant changes in the strategies used to manage market risk in the near future.
To perform the sensitivity analysis, we assessed the risk of a change in the fair value from the effect of a hypothetical interest rate change of positive 150 and negative 50 basis points. As of December 31, 2016, the change in the fair value of our Senior Secured Term Loans,an intangible asset is less than its carrying value. If we do not perform the qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of the intangible asset is less than its carrying amount, we calculate the estimated fair value of the intangible asset. If the estimated fair value of the spectrum licenses is lower than their carrying amount, an impairment loss is recognized for the difference. We estimate fair value using the Greenfield methodology, which is an income approach based on this hypothetical change, is shown in the table below:
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| Carrying Amount | | Fair Value | | Fair Value Assuming |
(in millions) | | | +150 Basis Point Shift | | -50 Basis Point Shift |
Senior Secured Term Loans | $ | 1,980 |
| | $ | 2,005 |
| | $ | 1,864 |
| | $ | 2,055 |
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Item 8. Financial Statements and Supplementary Data
Financial Statements
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of T-Mobile US, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive income, of stockholders’ equity and ofdiscounted cash flows present fairly, in all material respects, the financial position of T-Mobile US, Inc. and its subsidiariesat December 31, 2016and December 31, 2015, and the results of their operations and their cash flows for each of the three years in the period endedDecember 31, 2016in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordanceassociated with the standards ofintangible asset, to estimate the Public Company Accounting Oversight Board (United States). Those standards require that we plan and performprice at which an orderly transaction to sell the audits to obtain reasonable assurance about whetherasset would take place between market participants at the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.measurement date under current market conditions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
February 14, 2017
T-Mobile US, Inc.
Consolidated Balance SheetsCash and Cash Equivalents
As of December 31, 2019, our Cash and cash equivalents were $1.5 billion compared to $1.2 billion at December 31, 2018.
Free Cash Flow
Free Cash Flow represents Net cash provided by operating activities less payments for Purchases of property and equipment, including Proceeds from sales of tower sites and Proceeds related to beneficial interests in securitization transactions, less Cash
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(in millions, except share and per share amounts) | December 31, 2016 | | December 31, 2015 |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 5,500 |
| | $ | 4,582 |
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Short-term investments | — |
| | 2,998 |
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Accounts receivable, net of allowances of $102 and $116 | 1,896 |
| | 1,788 |
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Equipment installment plan receivables, net | 1,930 |
| | 2,378 |
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Accounts receivable from affiliates | 40 |
| | 36 |
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Inventories | 1,111 |
| | 1,295 |
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Asset purchase deposit | 2,203 |
| | — |
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Other current assets | 1,537 |
| | 1,813 |
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Total current assets | 14,217 |
| | 14,890 |
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Property and equipment, net | 20,943 |
| | 20,000 |
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Goodwill | 1,683 |
| | 1,683 |
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Spectrum licenses | 27,014 |
| | 23,955 |
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Other intangible assets, net | 376 |
| | 594 |
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Equipment installment plan receivables due after one year, net | 984 |
| | 847 |
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Other assets | 674 |
| | 444 |
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Total assets | $ | 65,891 |
| | $ | 62,413 |
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Liabilities and Stockholders' Equity | | | |
Current liabilities | | | |
Accounts payable and accrued liabilities | $ | 7,152 |
| | $ | 8,084 |
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Payables to affiliates | 125 |
| | 135 |
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Short-term debt | 354 |
| | 182 |
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Deferred revenue | 986 |
| | 717 |
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Other current liabilities | 405 |
| | 410 |
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Total current liabilities | 9,022 |
| | 9,528 |
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Long-term debt | 21,832 |
| | 20,461 |
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Long-term debt to affiliates | 5,600 |
| | 5,600 |
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Tower obligations | 2,621 |
| | 2,658 |
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Deferred tax liabilities | 4,938 |
| | 4,061 |
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Deferred rent expense | 2,616 |
| | 2,481 |
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Other long-term liabilities | 1,026 |
| | 1,067 |
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Total long-term liabilities | 38,633 |
| | 36,328 |
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Commitments and contingencies (Note 12) |
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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 | — |
| | — |
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Common Stock, par value $0.00001 per share, 1,000,000,000 shares authorized; 827,768,818 and 819,773,724 shares issued, 826,357,331 and 818,391,219 shares outstanding | — |
| | — |
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Additional paid-in capital | 38,846 |
| | 38,666 |
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Treasury stock, at cost, 1,411,487 and 1,382,505 shares issued | (1 | ) | | — |
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Accumulated other comprehensive income (loss) | 1 |
| | (1 | ) |
Accumulated deficit | (20,610 | ) | | (22,108 | ) |
Total stockholders' equity | 18,236 |
| | 16,557 |
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Total liabilities and stockholders' equity | $ | 65,891 |
| | $ | 62,413 |
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payments for debt prepayment or debt extinguishment costs. Free Cash Flow is a non-GAAP financial measure utilized by our management, investors and analysts of our financial information to evaluate cash available to pay debt and provide further investment in the business.
In 2019, we sold tower sites for proceeds of $38 million which are included in Proceeds from sales of tower sites within Net cash used in investing activities in our Consolidated Statements of Cash Flows. As these proceeds were from the sale of fixed assets and are used by management to assess cash available for capital expenditures during the year, we determined the proceeds are relevant for the calculation of Free Cash Flow and included them in the table below. Other proceeds from the sale of fixed assets for the periods presented are not significant. We have presented the impact of the sales in the table below, which illustrates the calculation of Free Cash Flow and reconciles Free Cash Flow to Net cash provided by operating activities, which we consider to be the most directly comparable GAAP financial measure.
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| | | | | | | | | Year Ended December 31, | | | | | | 2019 Versus 2018 | | | | 2018 Versus 2017 | | |
(in millions) | | | | | | | | | 2019 | | 2018 | | 2017 | | $ Change | | % Change | | $ Change | | % Change |
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Net cash provided by operating activities | | | | | | | | | $ | 6,824 | | | $ | 3,899 | | | $ | 3,831 | | | $ | 2,925 | | | 75 | % | | $ | 68 | | | 2 | % |
Cash purchases of property and equipment | | | | | | | | | (6,391) | | | (5,541) | | | (5,237) | | | (850) | | | 15 | % | | (304) | | | 6 | % |
Proceeds from sales of tower sites | | | | | | | | | 38 | | | — | | | — | | | 38 | | | NM | | | — | | | NM | |
Proceeds related to beneficial interests in securitization transactions | | | | | | | | | 3,876 | | | 5,406 | | | 4,319 | | | (1,530) | | | (28) | % | | 1,087 | | | 25 | % |
Cash payments for debt prepayment or debt extinguishment costs | | | | | | | | | (28) | | | (212) | | | (188) | | | 184 | | | (87) | % | | (24) | | | 13 | % |
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Free Cash Flow | | | | | | | | | $ | 4,319 | | | $ | 3,552 | | | $ | 2,725 | | | $ | 767 | | | 22 | % | | $ | 827 | | | 30 | % |
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Free Cash Flow increased $767 million, or 22%, primarily from:
•Higher Net cash provided by operating activities, as described above; and
•Lower Cash payments for debt prepayment or debt extinguishment costs; partially offset by
•Lower Proceeds related to our deferred purchase price from securitization transactions; and
•Higher Cash purchases of property and equipment, including capitalized interest of $473 million and $362 million for the years ended December 31, 2019 and 2018, respectively.
•Free Cash Flow includes $442 million and $86 million in payments for Merger-related costs for the years ended December 31, 2019 and 2018, respectively.
Borrowing Capacity and Debt Financing
As of December 31, 2019, our total debt and financing lease liabilities were $27.3 billion, excluding our tower obligations, of which $24.9 billion was classified as long-term debt.
Effective April 28, 2019, we redeemed $600 million aggregate principal amount of our DT Senior Reset Notes. The accompanying notes are an integral partwere redeemed at a redemption price equal to 104.666% of these consolidated financial statements.
T-Mobile US, Inc.
the principal amount of the notes (plus accrued and unpaid interest thereon) and were paid on April 29, 2019. The redemption premium was $28 million and was included in Other expense, net in our Consolidated Statements of Comprehensive Income
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| Year Ended December 31, |
(in millions, except share and per share amounts) | 2016 | | 2015 | | 2014 |
Revenues | | | | | |
Branded postpaid revenues | $ | 18,138 |
| | $ | 16,383 |
| | $ | 14,392 |
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Branded prepaid revenues | 8,553 |
| | 7,553 |
| | 6,986 |
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Wholesale revenues | 903 |
| | 692 |
| | 731 |
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Roaming and other service revenues | 250 |
| | 193 |
| | 266 |
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Total service revenues | 27,844 |
| | 24,821 |
| | 22,375 |
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Equipment revenues | 8,727 |
| | 6,718 |
| | 6,789 |
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Other revenues | 671 |
| | 514 |
| | 400 |
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Total revenues | 37,242 |
| | 32,053 |
| | 29,564 |
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Operating expenses | | | | | |
Cost of services, exclusive of depreciation and amortization shown separately below | 5,731 |
| | 5,554 |
| | 5,788 |
|
Cost of equipment sales | 10,819 |
| | 9,344 |
| | 9,621 |
|
Selling, general and administrative | 11,378 |
| | 10,189 |
| | 8,863 |
|
Depreciation and amortization | 6,243 |
| | 4,688 |
| | 4,412 |
|
Cost of MetroPCS business combination | 104 |
| | 376 |
| | 299 |
|
Gains on disposal of spectrum licenses | (835 | ) | | (163 | ) | | (840 | ) |
Other, net | — |
| | — |
| | 5 |
|
Total operating expenses | 33,440 |
| | 29,988 |
| | 28,148 |
|
Operating income | 3,802 |
| | 2,065 |
| | 1,416 |
|
Other income (expense) | | | | | |
Interest expense | (1,418 | ) | | (1,085 | ) | | (1,073 | ) |
Interest expense to affiliates | (312 | ) | | (411 | ) | | (278 | ) |
Interest income | 261 |
| | 420 |
| | 359 |
|
Other expense, net | (6 | ) | | (11 | ) | | (11 | ) |
Total other expense, net | (1,475 | ) | | (1,087 | ) | | (1,003 | ) |
Income before income taxes | 2,327 |
| | 978 |
| | 413 |
|
Income tax expense | (867 | ) | | (245 | ) | | (166 | ) |
Net income | 1,460 |
| | 733 |
| | 247 |
|
Dividends on preferred stock | (55 | ) | | (55 | ) | | — |
|
Net income attributable to common stockholders | $ | 1,405 |
| | $ | 678 |
| | $ | 247 |
|
| | | | | |
Net income | $ | 1,460 |
| | $ | 733 |
| | $ | 247 |
|
Other comprehensive income (loss), net of tax | | | | | |
Unrealized gain (loss) on available-for-sale securities, net of tax effect of $1, $(1) and $(1) | 2 |
| | (2 | ) | | (2 | ) |
Other comprehensive income (loss) | 2 |
| | (2 | ) | | (2 | ) |
Total comprehensive income | $ | 1,462 |
| | $ | 731 |
| | $ | 245 |
|
Earnings per share | | | | | |
Basic | $ | 1.71 |
| | $ | 0.83 |
| | $ | 0.31 |
|
Diluted | $ | 1.69 |
| | $ | 0.82 |
| | $ | 0.30 |
|
Weighted average shares outstanding | | | | | |
Basic | 822,470,275 |
| | 812,994,028 |
| | 805,284,712 |
|
Diluted | 833,054,545 |
| | 822,617,938 |
| | 815,922,258 |
|
The accompanying notes are an integral part of these consolidated financial statements.
T-Mobile US, Inc.
and in Cash payments for debt prepayment or debt extinguishment costs in our Consolidated Statements of Cash Flows.
|
| | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2016 | | 2015 | | 2014 |
Operating activities | | | | | |
Net income | $ | 1,460 |
| | $ | 733 |
| | $ | 247 |
|
Adjustments to reconcile net income to net cash provided by operating activities | | | | | |
Depreciation and amortization | 6,243 |
| | 4,688 |
| | 4,412 |
|
Stock-based compensation expense | 235 |
| | 201 |
| | 196 |
|
Deferred income tax expense | 914 |
| | 256 |
| | 122 |
|
Bad debt expense | 477 |
| | 547 |
| | 444 |
|
Losses from sales of receivables | 228 |
| | 204 |
| | 179 |
|
Deferred rent expense | 121 |
| | 167 |
| | 225 |
|
Gains on disposal of spectrum licenses | (835 | ) | | (163 | ) | | (840 | ) |
Change in embedded derivatives | (25 | ) | | 148 |
| | (18 | ) |
Changes in operating assets and liabilities | | | | | |
Accounts receivable | (603 | ) | | (259 | ) | | (90 | ) |
Equipment installment plan receivables | 97 |
| | 1,089 |
| | (2,429 | ) |
Inventories | (802 | ) | | (2,495 | ) | | (499 | ) |
Deferred purchase price from sales of receivables | (270 | ) | | (185 | ) | | (204 | ) |
Other current and long-term assets | (133 | ) | | (217 | ) | | (328 | ) |
Accounts payable and accrued liabilities | (1,201 | ) | | 693 |
| | 2,395 |
|
Other current and long-term liabilities | 158 |
| | 22 |
| | 312 |
|
Other, net | 71 |
| | (15 | ) | | 22 |
|
Net cash provided by operating activities | 6,135 |
| | 5,414 |
| | 4,146 |
|
Investing activities | | | | | |
Purchases of property and equipment, including capitalized interest of $142, $246 and $64 | (4,702 | ) | | (4,724 | ) | | (4,317 | ) |
Purchases of spectrum licenses and other intangible assets, including deposits | (3,968 | ) | | (1,935 | ) | | (2,900 | ) |
Purchases of short-term investments | — |
| | (2,997 | ) | | — |
|
Sales of short-term investments | 2,998 |
| | — |
| | — |
|
Other, net | (8 | ) | | 96 |
| | (29 | ) |
Net cash used in investing activities | (5,680 | ) | | (9,560 | ) | | (7,246 | ) |
Financing activities | | | | | |
Proceeds from issuance of long-term debt | 997 |
| | 3,979 |
| | 2,993 |
|
Proceeds from tower obligations | — |
| | 140 |
| | — |
|
Repayments of capital lease obligations | (205 | ) | | (57 | ) | | (19 | ) |
Repayments of short-term debt for purchases of inventory, property and equipment, net | (150 | ) | | (564 | ) | | (418 | ) |
Repayments of long-term debt | (20 | ) | | — |
| | (1,000 | ) |
Proceeds from exercise of stock options | 29 |
| | 47 |
| | 27 |
|
Proceeds from issuance of preferred stock | — |
| | — |
| | 982 |
|
Tax withholdings on share-based awards | (121 | ) | | (156 | ) | | (73 | ) |
Dividends on preferred stock | (55 | ) | | (55 | ) | | — |
|
Other, net | (12 | ) | | 79 |
| | 32 |
|
Net cash provided by financing activities | 463 |
| | 3,413 |
| | 2,524 |
|
Change in cash and cash equivalents | 918 |
| | (733 | ) | | (576 | ) |
Cash and cash equivalents | | | | | |
Beginning of period | 4,582 |
| | 5,315 |
| | 5,891 |
|
End of period | $ | 5,500 |
| | $ | 4,582 |
| | $ | 5,315 |
|
Supplemental disclosure of cash flow information | | | | | |
Interest payments, net of amounts capitalized | $ | 1,681 |
| | $ | 1,298 |
| | $ | 1,367 |
|
Income tax payments | 25 |
| | 54 |
| | 36 |
|
Changes in accounts payable for purchases of property and equipment | 285 |
| | 46 |
| | 402 |
|
Leased devices transferred from inventory to property and equipment | 1,588 |
| | 2,451 |
| | — |
|
Returned leased devices transferred from property and equipment to inventory | (602 | ) | | (166 | ) | | — |
|
Issuance of short-term debt for financing of property and equipment | 150 |
| | 500 |
| | 256 |
|
Assets acquired under capital lease obligations | 799 |
| | 470 |
| | 77 |
|
Certain components of the reset features were required to be bifurcated from the DT Senior Reset Notes and were separately accounted for as embedded derivatives. The accompanying notes are an integral partwrite-off of these consolidated financial statements.
T-Mobile US, Inc.
embedded derivatives upon redemption resulted in a gain of $11 million, which was included in Other expense, net in our Consolidated StatementStatements of Stockholders’ Equity
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions, except shares) | Preferred Stock Outstanding | | Common Stock Outstanding | | Treasury Shares at Cost | | Par Value and Additional Paid-in Capital | | Accumulated Other Comprehensive Income (loss) | | Accumulated Deficit | | Total Stockholders' Equity |
Balance as of December 31, 2013 | — |
| | 801,879,804 |
| | $ | — |
| | $ | 37,330 |
| | $ | 3 |
| | $ | (23,088 | ) | | $ | 14,245 |
|
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 247 |
| | 247 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
Issuance of preferred stock | 20,000,000 |
| | — |
| | — |
| | 982 |
| | — |
| | — |
| | 982 |
|
Stock-based compensation | — |
| | — |
| | — |
| | 196 |
| | — |
| | — |
| | 196 |
|
Exercise of stock options | — |
| | 1,496,365 |
| | — |
| | 27 |
| | — |
| | — |
| | 27 |
|
Issuance of vested restricted stock units | — |
| | 6,296,107 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Shares withheld related to net share settlement of stock awards | — |
| | (2,203,673 | ) | | — |
| | (73 | ) | | — |
| | — |
| | (73 | ) |
Excess tax benefit from stock-based compensation | — |
| | — |
| | — |
| | 34 |
| | — |
| | — |
| | 34 |
|
Other | — |
| | — |
| | — |
| | 7 |
| | — |
| | — |
| | 7 |
|
Balance as of December 31, 2014 | 20,000,000 |
| | 807,468,603 |
| | — |
| | 38,503 |
| | 1 |
| | (22,841 | ) | | 15,663 |
|
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 733 |
| | 733 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
Stock-based compensation | — |
| | — |
| | — |
| | 227 |
| | — |
| | — |
| | 227 |
|
Exercise of stock options | — |
| | 2,381,650 |
| | — |
| | 47 |
| | — |
| | — |
| | 47 |
|
Stock issued for employee stock purchase plan | — |
| | 761,085 |
| | — |
| | 21 |
| | — |
| | — |
| | 21 |
|
Issuance of vested restricted stock units | — |
| | 11,956,345 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Shares withheld related to net share settlement of stock awards and stock options | — |
| | (4,176,464 | ) | | — |
| | (156 | ) | | — |
| | — |
| | (156 | ) |
Excess tax benefit from stock-based compensation | — |
| | — |
| | — |
| | 79 |
| | — |
| | — |
| | 79 |
|
Dividends on preferred stock | — |
| | — |
| | — |
| | (55 | ) | | — |
| | — |
| | (55 | ) |
Balance as of December 31, 2015 | 20,000,000 |
| | 818,391,219 |
| | — |
| | 38,666 |
| | (1 | ) | | (22,108 | ) | | 16,557 |
|
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 1,460 |
| | 1,460 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Stock-based compensation | — |
| | — |
| | — |
| | 264 |
| | — |
| | — |
| | 264 |
|
Exercise of stock options | — |
| | 982,904 |
| | — |
| | 29 |
| | — |
| | — |
| | 29 |
|
Stock issued for employee stock purchase plan | — |
| | 1,905,534 |
| | — |
| | 63 |
| | — |
| | — |
| | 63 |
|
Issuance of vested restricted stock units | — |
| | 7,712,463 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Shares withheld related to net share settlement of stock awards and stock options | — |
| | (2,605,807 | ) | | — |
| | (122 | ) | | — |
| | — |
| | (122 | ) |
Transfer RSU to NQDC plan | — |
| | (28,982 | ) | | (1 | ) | | 1 |
| | — |
| | — |
| | — |
|
Dividends on preferred stock | — |
| | — |
| | — |
| | (55 | ) | | — |
| | — |
| | (55 | ) |
Prior year Retained Earnings (Note 1) | — |
| | — |
| | — |
| | — |
| | — |
| | 38 |
| | 38 |
|
Balance as of December 31, 2016 | 20,000,000 |
| | 826,357,331 |
| | $ | (1 | ) | | $ | 38,846 |
| | $ | 1 |
| | $ | (20,610 | ) | | $ | 18,236 |
|
T-Mobile US, Inc.
Index forthe Notes to the Consolidated Financial Statements for further information.
We maintain a $2.5 billion revolving credit facility with DT which is comprised of a $1.0 billion unsecured revolving credit agreement and a $1.5 billion secured revolving credit agreement. In December 2019, we amended the terms of the revolving credit facility with DT to extend the maturity date to December 29, 2022. As of December 31, 2019 and 2018, there were no outstanding borrowings under the revolving credit facility.
We maintain a financing arrangement with Deutsche Bank AG, which allows for up to $108 million in borrowings. Under the financing arrangement, we can effectively extend payment terms for invoices payable to certain vendors. As of December 31, 2019 and 2018, there were no outstanding balances.
We maintain vendor financing arrangements with our primary network equipment suppliers. Under the respective agreements, we can obtain extended financing terms. During the year ended December 31, 2019, we utilized $800 million and repaid $775 million under the vendor financing arrangements. Invoices subject to extended payment terms have various due dates through the first quarter of 2020. Payments on vendor financing agreements are included in Repayments of short-term debt for purchases of inventory, property and equipment, net, in our Consolidated Statements of Cash Flows. As of December 31, 2019, there were $25 million in outstanding borrowings under the vendor financing agreements which were included in Short-term debt in our Consolidated Balance Sheets. As of December 31, 2018, there was no outstanding balance.
Consents on Debt
On May 18, 2018, under the terms and conditions described in the Consent Solicitation Statement dated as of May 14, 2018, we obtained consents necessary to effect certain amendments to certain of our existing debt and certain existing debt of our subsidiaries. If the Merger is consummated, we will make payments for requisite consents to third-party note holders. There was no payment accrued as of December 31, 2019.
In connection with the entry into the Business Combination Agreement, DT and T-Mobile US, Inc.USA entered into a financing matters agreement, dated as of April 29, 2018, pursuant to which DT agreed, among other things, to consent to the incurrence by
T-Mobile USA of secured debt in connection with and after the consummation of the Merger. If the Merger is consummated, we will make payments for requisite consents to DT. There was no payment accrued as of December 31, 2019. See Note 8 - Debt of the Notes to the Consolidated Financial Statements for further information.
In connection with the entry into the Business Combination Agreement, T-Mobile USA entered into a commitment letter, dated as of April 29, 2018 (as amended and restated on May 15, 2018 and on September 6, 2019, the “Commitment Letter”). In connection with the financing provided for in the Commitment Letter, we expect to incur certain fees payable to the financial institutions, including certain financing fees on the secured term loan commitment. If the Merger closes, we will incur additional fees for the financial institutions structuring and providing the commitments and certain take-out fees associated with the issuance of permanent secured bond debt in lieu of the secured bridge loan. In total, we may incur up to approximately $340 million in fees associated with the Commitment Letter. We began incurring certain Commitment Letter fees on November 1, 2019, which were recognized in Selling, general and administrative expenses in our Consolidated Statements of Comprehensive Income. There were $12 million of fees accrued as of December 31, 2019. See Note 8 - Debt of the Notes to the Consolidated Financial Statements for further information.
Future Sources and Uses of Liquidity
We may seek additional sources of liquidity, including through the issuance of additional long-term debt in 2020, to continue to opportunistically acquire spectrum licenses or other assets in private party transactions or for the refinancing of existing long-term debt on an opportunistic basis. Excluding liquidity that could be needed for spectrum acquisitions, or for other assets, we expect our principal sources of funding to be sufficient to meet our anticipated liquidity needs for business operations for the next 12 months 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, redemption of high yield callable debt and stock purchases.
In October 2018, we entered into interest rate lock derivatives with notional amounts of $9.6 billion. The fair value of interest rate lock derivatives was a liability of $1.2 billion and $447 million as of December 31, 2019 and 2018, respectively, and was included in Other current liabilities in our Consolidated Balance Sheets.
In November 2019, we extended the mandatory termination date on our interest rate lock derivatives to June 3, 2020. In December 2019, we made net collateral transfers to certain of our derivative counterparties totaling $632 million, which included variation margin transfers to (or from) such derivative counterparties based on daily market movements. These collateral transfers are included in Other current assets in our Consolidated Balance Sheetsand inNet cash related to derivative contracts under collateral exchange arrangements within Net cash used in investing activities in our Consolidated Statements of Cash Flows. The interest rate lock derivatives will be settled upon the earlier of the issuance of fixed-rate debt or the current mandatory termination date. Upon settlement of the interest rate lock derivatives, we will receive, or make, a cash payment in the amount of the fair value of the cash flow hedge as of the settlement date. We expect our existing sources of liquidity to be sufficient to meet the requirements of the interest rate lock derivatives.
We determine future liquidity requirements, for both operations and capital expenditures, based in large part upon projected financial and operating performance, and opportunities to acquire additional spectrum. We regularly review and update these projections for changes in current and projected financial and operating results, general economic conditions, the competitive landscape and other factors. There are a number of 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 and credit facilities governing our long-term debt to affiliates and third parties, excluding capital leases, contain covenants that, among other things, limit the ability of the Issuer and the Guarantor Subsidiaries to incur more debt, pay dividends and make distributions on our common stock, make certain investments, repurchase stock, create liens or other encumbrances, enter into transactions with affiliates, enter into transactions that restrict dividends or distributions from subsidiaries, and merge, consolidate or sell, or otherwise dispose of, substantially all of their assets. Certain provisions of each of the credit facilities, indentures and supplemental indentures relating to the long-term debt 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 December 31, 2019.
Financing Lease Facilities
We have entered into uncommitted financing lease facilities with certain partners, which provide us with the ability to enter into financing leases for network equipment and services. As of December 31, 2019, we have committed to $3.9 billion of financing leases under these financing lease facilities, of which $898 million was executed during the year ended December 31, 2019.
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. Property and equipment capital expenditures primarily relate to our network transformation, including the build-out of our network to utilize our 600 MHz spectrum licenses and the deployment of 5G. We expect cash purchases of property and equipment, including capitalized interest of approximately $400 million, to be $5.9 to $6.2 billion and cash purchases of property and equipment, excluding capitalized interest, to be $5.5 to $5.8 billion in 2020. This includes expenditures for 600 MHz and 5G deployment. This does not include property and equipment obtained through financing lease agreements, vendor financing agreements, leased wireless devices transferred from inventory or any additional purchases of spectrum licenses.
Share Repurchases
On December 6, 2017, our Board of Directors authorized a stock repurchase program for up to $1.5 billion of our common stock through December 31, 2018 (the “2017 Stock Repurchase Program”). Repurchased shares are retired. The 2017 Stock Repurchase Program was completed on April 29, 2018.
On April 27, 2018, our Board of Directors authorized an increase in the total stock repurchase program to $9.0 billion, consisting of the $1.5 billion in repurchases previously completed and up to an additional $7.5 billion of repurchases of our common stock through the year ending December 31, 2020 (the "2018 Stock Repurchase Program"). The additional $7.5 billion repurchase authorization is contingent upon the termination of the Business Combination Agreement and the abandonment of the Transactions contemplated under the Business Combination Agreement. There were no repurchases of our common stock under the 2018 Stock Repurchase Program in 2019 or 2018. See Note 12 - Repurchases of Common Stock of the Notes to the Consolidated Financial Statements for further information.
Dividends
We have never paid or declared any cash dividends on our common stock, and we do not intend to declare or pay any cash dividends on our common stock in the foreseeable future. Our credit facilities and the indentures and supplemental indentures governing our long-term debt to affiliates and third parties, excluding financing leases, contain covenants that, among other things, restrict our ability to declare or pay dividends on our common stock.
Contractual Obligations
The following table summarizes our contractual obligations and borrowings as of December 31, 2019 and the timing and effect that such commitments are expected to have on our liquidity and capital requirements in future periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Less Than 1 Year | | 1 - 3 Years | | 4 - 5 Years | | More Than 5 Years | | Total |
Long-term debt (1) | $ | — | | | $ | 5,500 | | | $ | 7,300 | | | $ | 12,200 | | | $ | 25,000 | |
Interest on long-term debt | 1,282 | | | 2,365 | | | 1,796 | | | 1,163 | | | 6,606 | |
Financing lease liabilities, including imputed interest | 1,013 | | | 1,147 | | | 172 | | | 115 | | | 2,447 | |
Tower obligations (2) | 160 | | | 321 | | | 320 | | | 467 | | | 1,268 | |
Operating lease liabilities, including imputed interest | 2,754 | | | 4,894 | | | 3,523 | | | 3,797 | | | 14,968 | |
Purchase obligations (3) | 3,603 | | | 3,263 | | | 1,597 | | | 1,387 | | | 9,850 | |
Total contractual obligations | $ | 8,812 | | | $ | 17,490 | | | $ | 14,708 | | | $ | 19,129 | | | $ | 60,139 | |
(1)Represents principal amounts of long-term debt to affiliates and third parties at maturity, excluding unamortized premium from purchase price allocation fair value adjustment, financing lease obligations and vendor financing arrangements. See Note 8 – Debtof the Notes to the Consolidated Financial Statements for further information. (2)Future minimum payments, including principal and interest payments and imputed lease rental income, related to the tower obligations. See Note 9 – Tower Obligations of the Notes to the Consolidated Financial Statements for further information. (3)The minimum commitment for certain obligations is based on termination penalties that could be paid to exit the contracts. Termination penalties are included in the above table as payments due as of the earliest we could exit the contract, typically in less than one year. For certain contracts that include fixed volume purchase commitments and fixed prices for various products, the purchase obligations are calculated using fixed volumes and contractually fixed prices for the products that are expected to be purchased. This table does not include open purchase orders as of December 31, 2019 under normal business purposes. See Note 16 – Commitments and Contingencies of the Notes to the Consolidated Financial Statements for further information.
Certain commitments and obligations are included in the table based on the year of required payment or an estimate of the year of payment. Other long-term liabilities have been omitted from the table above due to the uncertainty of the timing of payments, combined with the absence of historical trending to be used as a predictor of such payments. See Note 17 – Additional Financial Information of the Notes to the Consolidated Financial Statements for further information.
The purchase obligations reflected in the table above are primarily commitments to purchase and lease spectrum licenses, wireless devices, network services, equipment, software, marketing sponsorship agreements and other items in the ordinary course of business. These amounts do not represent our entire anticipated purchases in the future, but represent only those items for which we are contractually committed. Where we are committed to make a minimum payment to the supplier regardless of whether we take delivery, we have included only that minimum payment as a purchase obligation. The acquisition of spectrum licenses is subject to regulatory approval and other customary closing conditions.
In October 2018, we entered into interest rate lock derivatives with notional amounts of $9.6 billion. The fair value of interest rate lock derivatives was a liability of $1.2 billion and $447 million as of December 31, 2019 and 2018, respectively, and was included in Other current liabilities in our Consolidated Balance Sheets. Balances related to the cash flow hedges have been omitted from the table above due to the uncertainty of the amount and timing of settlements. See Note 7 – Fair Value Measurements of the Notes to the Consolidated Financial Statements for further information.
Related Party Transactions
We have related party transactions associated with DT or its affiliates in the ordinary course of business, including intercompany servicing and licensing. See Note 17 - Additional Financial Information of the Notes to the Consolidated Financial Statements for further information. Disclosure of Iranian Activities under Section 13(r) of the Securities Exchange Act of 1934
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act of 1934, as amended (“Exchange Act”). Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction. Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law.
As of the date of this report, we are not aware of any activity, transaction or dealing by us or any of our affiliates for the year ended December 31, 2019, 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. We have relied upon DT for information regarding their 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: MTN Irancell, Telecommunication Kish Company, Mobile Telecommunication Company of Iran, and Telecommunication Infrastructure Company of Iran. In addition, during the year ended December 31, 2019, DT, through certain of its non-U.S. subsidiaries, provided basic telecommunications services to three 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, Bank Sepah, and Europäisch-Iranische Handelsbank. These services have been terminated or are in the process of being terminated.For the year ended December 31, 2019, gross revenues of all DT affiliates generated by roaming and interconnection traffic and telecommunications services with the Iranian parties identified herein were less than $0.1 million, and the estimated net profits were less than $0.1 million.
In addition, DT, through certain of its non-U.S. subsidiaries that operate a fixed-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 year ended December 31, 2019 were less than $0.1 million. We understand that DT intends to continue these activities.
Off-Balance Sheet Arrangements
We have arrangements, as amended from time to time, to sell certain EIP accounts receivable and service accounts receivable on a revolving basis as a source of liquidity. As of December 31, 2019, we derecognized net receivables of $2.6 billion upon sale through these arrangements. See Note 4 – Sales of Certain Receivables of the Notes to the Consolidated Financial Statements for further information.
Critical Accounting Policies and Estimates
Our significant accounting policies are fundamental to understanding our results of operations and financial condition as they require that we use estimates and assumptions that may affect the value of our assets or liabilities and financial results. See Note 1 - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements for further information.
Eight of these policies, discussed below, are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. Actual results could differ from those estimates.
Management and the Audit Committee of the Board of Directors have reviewed and approved these critical accounting policies.
Leases
We adopted the new lease standard on January 1, 2019 and recognized right-of-use assets and lease liabilities for operating leases that have not previously been recorded.
Significant Judgments:
The most significant judgments and impacts upon adoption of the standard include the following:
•In evaluating contracts to determine if they qualify as a lease, we consider factors such as if we have obtained or transferred substantially all of the rights to the underlying asset through exclusivity, if we can or if we have transferred the ability to direct the use of the asset by making decisions about how and for what purpose the asset will be used and if the lessor has substantive substitution rights. Identification of a lease may require significant judgment.
•We recognized right-of-use assets and operating lease liabilities for operating leases that have not previously been recorded. The lease liability for operating leases is based on the net present value of future minimum lease payments. The right-of-use asset for operating leases is based on the lease liability adjusted for the reclassification of certain balance sheet amounts such as prepaid rent and deferred rent which we remeasured at adoption due to the application of hindsight to our lease term estimates. Deferred and prepaid rent will no longer be presented separately.
•Capital lease assets previously included within Property and equipment, net were reclassified to financing lease right-of-use assets, and capital lease liabilities previously included in Short-term debt and Long-term debt were reclassified to financing lease liabilities in our Consolidated Balance Sheet.
•Certain line items in the Consolidated Statements of Cash Flows and the “Supplemental disclosure of cash flow information” have been renamed to align with the new terminology presented in the new lease standard; “Repayment of capital lease obligations” is now presented as “Repayments of financing lease obligations” and “Assets acquired under capital lease obligations” is now presented as “Financing lease right-of-use assets obtained in exchange for lease obligations.” In the “Operating Activities” section of the Consolidated Statements of Cash Flows we have added “Operating lease right-of-use assets” and “Short and long-term operating lease liabilities” which represent the change in the operating lease asset and liability, respectively. Additionally, in the “Supplemental disclosure of cash flow information” section of the Consolidated Statements of Cash Flows we have added “Operating lease payments,” and in the “Noncash investing and financing activities” section we have added “Operating lease right-of-use assets obtained in exchange for lease obligations.”
•In determining the discount rate used to measure the right-of-use asset and lease liability, we use rates implicit in the lease, or if not readily available, we use our incremental borrowing rate. Our incremental borrowing rate is based on an estimated secured rate comprised of a risk-free LIBOR rate plus a credit spread as secured by our assets. Determining a credit spread as secured by our assets may require significant judgment.
•Certain of our lease agreements include rental payments based on changes in the consumer price index (“CPI”). Lease liabilities are not remeasured as a result of changes in the CPI; instead, changes in the CPI are treated as variable lease payments and are excluded from the measurement of the right-of-use asset and lease liability. These payments are recognized in the period in which the related obligation was incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
•We elected the use of hindsight whereby we applied current lease term assumptions that are applied to new leases in determining the expected lease term period for all cell sites. Upon adoption of the new lease standard and application of hindsight our expected lease term has shortened to reflect payments due for the initial non-cancelable lease term only. This assessment corresponds to our lease term assessment for new leases and aligns with the payments that have been disclosed as lease commitments in prior years. As a result, the average remaining lease term for cell sites has decreased from approximately nine to five years based on lease contracts in effect at transition on January 1, 2019. The aggregate impact of using hindsight is an estimated decrease in Total operating expenses of $240 million in fiscal year 2019.
•We were also required to reassess the previously failed sale-leasebacks of certain T-Mobile-owned wireless communications tower sites and determine whether the transfer of the assets to the tower operator under the arrangement met the transfer of control criteria in the revenue standard and whether a sale should be recognized. Determining whether the transfer of control criteria has been met requires significant judgement.
•We concluded that a sale has not occurred for the 6,200 tower sites transferred to Crown Castle International Corp. (“CCI”) pursuant to a master prepaid lease arrangement; therefore, these sites will continue to be accounted for as failed sale-leasebacks.
•We concluded that a sale should be recognized for the 900 tower sites transferred to CCI pursuant to the sale of a subsidiary and for the 500 tower sites transferred to Phoenix Tower International (“PTI”). Upon adoption on January 1, 2019, we derecognized our existing long-term financial obligation and the tower-related property and equipment associated with these 1,400 previously failed sale-leaseback tower sites and recognized a lease liability and right-of-use asset for the leaseback of the tower sites. The impacts from the change in accounting conclusion are primarily a decrease in Other revenues of $44 million and a decrease in Interest expense of $34 million in fiscal year 2019.
•Rental revenues and expenses associated with co-location tower sites are presented on a net basis under the new lease standard. These revenues and expenses were presented on a gross basis under the former lease standard.
Lease Expense
We have operating leases for cell sites, retail locations, corporate offices and dedicated transportation lines, some of which have escalating rentals during the initial lease term and during subsequent optional renewal periods. We recognize a right-of-use asset and lease liability for operating leases based on the net present value of future minimum lease payments. Lease expense is recognized on a straight-line basis over the non-cancelable lease term and renewal periods that are considered reasonably certain.
We consider several factors in assessing whether renewal periods are reasonably certain of being exercised, including the continued maturation of our network nationwide, technological advances within the telecommunications industry and the availability of alternative sites.
Revenue Recognition
We primarily generate our revenue from providing wireless services to customers and selling or leasing devices and accessories. Our contracts with customers may involve multiple performance obligations, which include wireless services, wireless devices or a combination thereof, and we allocate the transaction price between each performance obligation based on its relative standalone selling price.
Significant Judgments
The most significant judgments affecting the amount and timing of revenue from contracts with our customers include the following items:
•Revenue for service contracts that we assess are not probable of collection is not recognized until the contract is completed or terminated and cash is received. Collectibility is re-assessed when there is a significant change in facts or circumstances. Our assessment of collectibility considers whether we may limit our exposure to credit risk through our right to stop transferring additional service in the event the customer is delinquent as well as certain contract terms such as down payments that reduce our exposure to credit risk. Customer credit behavior is inherently uncertain. See “Allowances,” below, for more discussion on how we assess credit risk.
•Promotional EIP bill credits offered to a customer on an equipment sale that are paid over time and are contingent on the customer maintaining a service contract may result in an extended service contract based on whether a substantive penalty is deemed to exist. Determining whether contingent EIP bill credits result in a substantive termination penalty may require significant judgment.
•The identification of distinct performance obligations within our service plans may require significant judgment.
•Revenue is recorded net of costs paid to another party for performance obligations where we arrange for the other party to transfer goods or services to the customer (i.e., when we are acting as an agent). For example, performance obligations relating to services provided by third-party content providers where we neither control a right to the content provider’s service nor control the underlying service itself are presented net because we are acting as an agent. The determination of whether we control the underlying service or right to the service prior to our transfer to the customer requires, at times, significant judgment.
•For transactions where we recognize a significant financing component, judgment is required to determine the discount rate. For EIP sales, the discount rate used to adjust the transaction price primarily reflects current market interest rates and the estimated credit risk of the customer. Customer credit behavior is inherently uncertain. See “Allowances”, below, for more discussion on how we assess credit risk.
•Our products are generally sold with a right of return, which is accounted for as variable consideration when estimating the amount of revenue to recognize. Device return levels are estimated based on the expected value method as there are a large number of contracts with similar characteristics and the outcome of each contract is independent of the others. Historical return rate experience is a significant input to our expected value methodology.
•Sales of equipment to indirect dealers who have been identified as our customer (referred to as the sell-in model) often include credits subsequently paid to the dealer as a reimbursement for any discount promotions offered to the end consumer. These credits (payments to a customer) are accounted for as variable consideration when estimating the amount of revenue to recognize from the sales of equipment to indirect dealers and are estimated based on historical experience and other factors, such as expected promotional activity.
•The determination of the standalone selling price for contracts that involve more than one performance obligation may require significant judgment, such as when the selling price of a good or service is not readily observable.
•For capitalized contract costs, determining the amortization period over which such costs are recognized as well as assessing the indicators of impairment may require significant judgment.
Allowances
We maintain an allowance for credit losses, which is management’s estimate of such losses inherent in our receivables portfolio, comprised of accounts receivable and EIP receivable segments. Changes in the allowance for credit losses and, therefore, in related provision for credit losses (“bad debt expense”) can materially affect earnings. Credit risk characteristics are assessed for each receivable segment. In applying the judgment and review required to determine the allowance for credit losses, management considers a number of factors, including receivable volumes, receivable delinquency status, historical loss experience and other conditions influencing loss expectations, such as macro-economic conditions. While our methodology attributes portions of the allowance to specific portfolio segments, the entire allowance for credit losses is available to absorb credit losses inherent in the total receivables portfolio.
Management also considers an amount that represents management’s judgment of risks inherent in the process and assumptions used in establishing the allowance for credit losses, including process risk and other subjective factors, including industry trends and emerging risk assessments.
To the extent that actual loss experience differs significantly from historical trends or assumptions, the appropriate allowance levels for realized credit losses could differ from the estimate. We write off account balances if collection efforts are unsuccessful and the receivable balance is deemed uncollectible, based on factors such as customer credit ratings and the length of time from the original billing date.
We offer certain retail customers the option to pay for their devices and other purchases in installments over a period of up to 36 months using an EIP. EIP receivables not held for sale are reported in our Consolidated Balance Sheets at outstanding principal adjusted for any charge-offs, allowance for credit losses and unamortized discounts. Receivables held for sale are reported at the lower of amortized cost or fair value. At the time of an installment sale, we impute a discount for interest if the EIP term exceeds 12 months as there is no stated rate of interest on the EIP receivables. The EIP receivables are recorded at their present value, which is determined by discounting future cash payments at the imputed interest rate. The difference between the recorded amount of the EIP receivables and their unpaid principal balance (i.e., the contractual amount due from the customer) results in a discount which is allocated to the performance obligations of the arrangement and recorded as a reduction in transaction price. We determine the imputed discount rate based primarily on current market interest rates and the estimated credit risk on the EIP receivables. As a result, we do not recognize a separate credit loss allowance at the time of issuance as the effects of uncertainty about future cash flows resulting from credit risk are included in the initial present value measurement of the receivable. The imputed discount on EIP receivables is amortized over the financed installment term using the effective interest method and recognized as Other revenues in our Consolidated Statements of Comprehensive Income.
Subsequent to the initial determination of the imputed discount, we assess the need for and, if necessary, recognize an allowance for credit losses to the extent the amount of estimated probable losses on the gross EIP receivable balances exceed the remaining unamortized imputed discount balances.
Deferred Purchase Price Assets
In connection with the sales of certain service and EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price assets measured at fair value that are based on a discounted cash flow model using unobservable Level 3 inputs, including customer default rates and credit worthiness, dilutions and recoveries. See Note 4 – Sales of Certain Receivables of the Notes to the Consolidated Financial Statements for further information.
Depreciation
Depreciation commences once assets have been placed in service. We generally depreciate property and equipment over the period the property and equipment provide economic benefit. Leased wireless devices are depreciated to their estimated residual value over the period expected to provide utility to us, which is generally shorter than the lease term and considers expected losses. Depreciable life studies are performed periodically to confirm the appropriateness of depreciable lives for certain categories of property, plant and equipment. These studies consider actual usage, physical wear and tear, replacement history and assumptions about technology evolution. When these factors indicate that the useful life of an asset is different from the previous assessment, the remaining book values are depreciated prospectively over the adjusted remaining estimated useful life. See Note 1 – Summary of Significant Accounting Policies and Note 5 – Property and Equipment of the Notes to the Consolidated Financial Statements for information regarding depreciation of assets, including management’s underlying estimates of useful lives.
DescriptionEvaluation of BusinessGoodwill and Indefinite-Lived Intangible Assets for Impairment
We assess the carrying value of our goodwill and other indefinite-lived intangible assets, such as our spectrum licenses, for potential impairment annually as of December 31, or more frequently if events or changes in circumstances indicate such assets might be impaired.
We have identified two reporting units for which discrete financial information is available and results are regularly reviewed by management: wireless and Layer3. The Layer3 reporting unit consists of the assets and liabilities of Layer3 TV, Inc., which was acquired in January 2018. The wireless reporting unit consists of the remaining assets and liabilities of T-Mobile US, Inc., excluding Layer3 TV, Inc. We separately evaluate these reporting units for impairment.
When assessing goodwill for impairment we may elect to first perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. If we do not perform a qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we perform a quantitative test. We recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit.
We employed a qualitative approach to assess the wireless reporting unit. The fair value of the wireless reporting unit is determined using a market approach, which is based on market capitalization. We recognize market capitalization is subject to volatility and will monitor changes in market capitalization to determine whether declines, if any, necessitate an interim impairment review. In the event market capitalization does decline below its book value, we will consider the length, severity and reasons for the decline when assessing whether potential impairment exists, including considering whether a control premium should be added to the market capitalization. We believe short-term fluctuations in share price may not necessarily reflect the underlying aggregate fair value.
We employed a quantitative approach to assess the Layer3 reporting unit. The fair value of the Layer3 reporting unit is determined using an income approach, which is based on estimated discounted future cash flows.
We made estimates and assumptions regarding future cash flows, discount rates and long-term growth rates to determine the reporting unit’s estimated fair value. The key assumptions used were as follows:
•Expected cash flows underlying the Layer3 business plan for the periods 2020 through 2024, which took into account estimates of subscribers for TVision services, average revenue and content cost per subscriber, operating costs and capital expenditures.
•Cash flows beyond 2024 were projected to grow at a long-term growth rate estimated at 3%. Estimating a long-term growth rate requires significant judgment about future business strategies as well as micro- and macro-economic environments that are inherently uncertain.
•We used a discount rate of 32% to risk adjust the cash flow projections in determining the estimated fair value.
The estimated fair value of the Layer3 reporting unit exceeded its carrying value by approximately 3% as of December 31, 2019. Delays in the national launch of TVision services or cash flows that do not meet our projections could result in a goodwill impairment of Layer3 in the future. The carrying value of the goodwill associated with the Layer3 reporting unit was $218 million as of December 31, 2019.
We test our spectrum licenses for impairment on an aggregate basis, consistent with our management of the overall business at a national level. We may elect to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of an intangible asset is less than its carrying value. If we do not perform the qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of the intangible asset is less than its carrying amount, we calculate the estimated fair value of the intangible asset. If the estimated fair value of the spectrum licenses is lower than their carrying amount, an impairment loss is recognized for the difference. We estimate fair value using the Greenfield methodology, which is an income approach, to estimate the price at which an orderly transaction to sell the asset would take place between market participants at the measurement date under current market conditions. The Greenfield methodology values the spectrum licenses by calculating the cash flow generating potential of a hypothetical start-up company that goes into business with no assets except the asset to be valued (in this case, spectrum licenses). The value of the spectrum licenses can be considered as equal to the present value of the cash flows of this hypothetical start-up company. We base the assumptions underlying the Greenfield methodology on a combination of market participant data and our historical results, trends and business plans. Future cash flows in the Greenfield methodology are based on estimates and assumptions of market participant revenues, EBITDA margin, network build-out period and a long-term growth rate for a market participant. The cash flows are discounted using a weighted average cost of capital.
The valuation approaches utilized to estimate fair value for the purposes of the impairment tests of goodwill and spectrum licenses require the use of assumptions and estimates, which involve a degree of uncertainty. If actual results or future expectations are not consistent with the assumptions, this may result in the recording of significant impairment charges on goodwill or spectrum licenses. The most significant assumptions within the valuation models are the discount rate, revenues, EBITDA margins, capital expenditures and the long-term growth rate. See Note 1 – Summary of Significant AccountingPolicies and Note 6 – Goodwill, Spectrum License Transactions and Other Intangible Assets of the Notes to the Consolidated Financial Statements for information regarding our annual impairment test and impairment charges.
Income Taxes
Deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to be in effect when these differences are realized. A valuation allowance is recorded when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of a deferred tax asset depends on the ability to generate sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions within the carryforward periods available.
We account for uncertainty in income taxes recognized in the financial statements in accordance with the accounting guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We assess whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position and adjust the unrecognized tax benefits in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law.
Accounting Pronouncements Not Yet Adopted
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to economic risks in the normal course of business, primarily from changes in interest rates, including changes in investment yields and changes in spreads due to credit risk and other factors. These risks, along with other business risks, impact our cost of capital. Our policy is to manage exposure related to fluctuations in interest rates in order to manage capital costs, control financial risks and maintain financial flexibility over the long term. We have established interest rate risk limits that are closely monitored by measuring interest rate sensitivities of our debt portfolio. We do not foresee significant changes in the strategies used to manage market risk in the near future.
We are exposed to changes in interest rates on our Incremental Term Loan Facility with DT, our majority stockholder. See Note 8 – Debt of the Notes to the Consolidated Financial Statements for further information.
To perform the sensitivity analysis, we selected hypothetical changes in market rates that are expected to reflect reasonably possible near-term changes in those rates. We assessed the risk of a change in the fair value from the effect of a hypothetical interest rate change for 30-day LIBOR rates of positive 150 and negative 50 basis points. In cases where the debt is redeemable and the fair value calculation results in a liability greater than the cost to replace the debt, the maximum liability is assumed to
be no greater than the current cost to redeem the debt. As of December 31, 2019, the change in the fair value of our Incremental Term Loan Facility, based on this hypothetical change, is shown in the table below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Carrying Amount | | Fair Value | | Fair Value Assuming | | |
(in millions) | | | | | +150 Basis Point Shift | | -50 Basis Point Shift |
LIBOR plus 1.50% Senior Secured Term Loan due 2022 | $ | 2,000 | | | $ | 2,000 | | | $ | 1,966 | | | $ | 2,000 | |
LIBOR plus 1.75% Senior Secured Term Loan due 2024 | 2,000 | | | 2,000 | | | 1,956 | | | 2,000 | |
We are exposed to changes in the benchmark interest rate associated with our interest rate lock derivatives. See Note 7 – Fair Value Measurements of the Notes to the Consolidated Financial Statements for further information.
To perform the sensitivity analysis, we selected hypothetical changes in market rates that are expected to reflect reasonably possible near-term changes in those rates. We assessed the risk of a change in fair value from the effect of a hypothetical interest rate change for eight and 10-year LIBOR swap rates of positive 200 and negative 100 basis points. As of December 31, 2019, the change in the fair value of our interest rate lock derivatives, based on this hypothetical change, is shown in the table below:
| | | | | | | | | | | | | | | | | |
| Fair Value | | Fair Value Assuming | | |
(in millions) | | | +200 Basis Point Shift | | -100 Basis Point Shift |
Interest rate lock derivatives | $ | (1,170) | | | $ | 410 | | | $ | (2,077) | |
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of T-Mobile US, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of T-Mobile US, Inc. (“T-Mobile,” “we,” “our,” “us” orand its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the “Company”related consolidated statements of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”), together. We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with its consolidated subsidiaries, is a leading provider of mobile communications services, including voice, messaging and data, under its flagship brands, T-Mobile and MetroPCS,accounting principles generally accepted in the United States (“U.S.”), Puerto Ricoof America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Changes in Accounting Principles
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenues in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. Virgin Islands. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We provide mobile communications services primarily using 4G Long-Term Evolution (“LTE”) technology. Weconducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also offer a wide selection of wireless devices, including handsets, tabletsincluded evaluating the accounting principles used and other mobile communication devices, and accessories for sale,significant estimates made by management, as well as financing through Equipment Installment Plans (“EIP”)evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and leasing through JUMP On Demand™. Additionally,testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide reinsurancea reasonable basis for handset insuranceour opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and extended warranty contracts offeredprocedures that (i) pertain to our mobile communications customers.the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
Basiscompany; and (iii) provide reasonable assurance regarding prevention or timely detection of Presentationunauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements includethat was communicated or required to be communicated to the balancesaudit committee and resultsthat (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of operations of T-Mobile andcritical audit matters does not alter in any way our opinion on the consolidated subsidiaries. We operatefinancial statements, taken as a single operating segment. We consolidate majority-owned subsidiaries over which we exercise control, as well as variable interest entities (“VIE”) wherewhole, and we are deemednot, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Adoption of Leases Standard
As described in Notes 1 and 15 to the consolidated financial statements, the Company has adopted the new accounting standard on Leases, on January 1, 2019, by recognizing and measuring leases at the adoption date with a cumulative effect of initially applying the guidance recognized at the date of initial application. As a result, among other adjustments, the Company recognized operating lease right-of-use assets of $9,251 million and operating lease liabilities of $11,364 million on the balance sheet on the date of adoption. As of December 31, 2019, the carrying amounts of operating and finance lease right-of-use assets were $10,933 million and $2,715 million respectively and operating and finance lease liabilities were $12,826 million and $2,303 million respectively. The Company recorded $3,406 million of lease expense during the year. Management also reassessed the previously failed sale-leasebacks of certain T-Mobile-owned wireless communication tower sites to determine whether the transfer of the assets to the tower operator under the arrangement met the transfer of control criteria in the revenue standard and whether a sale should be recognized. This reassessment resulted in (i) assets relating to 6,200 tower sites transferred pursuant to a master prepaid lease arrangement continuing to be accounted for as failed sale-leasebacks; (ii) a sale being recognized for 1,400 tower sites sold that were not associated with the primary beneficiarymaster prepaid lease. Upon adoption, the Company derecognized its existing long-term financial obligation and VIEs, which cannot be deconsolidated, such as those related to Tower obligations. Intercompany transactionsthe tower-related property and balances have been eliminated in consolidation.equipment associated with these 1,400 previously failed sale-leaseback tower sites and recognized a lease liability and right-of-use asset for the leaseback of the tower sites.
Certain prior year amountsThe principal considerations for our determination that performing procedures relating to the adoption of Accounting Standards Update (“ASU”) 2015-03, “Simplifying the Presentationlease standard is a critical audit matter are (i) there was significant judgment by management in applying the lease standard to a large volume of Debt Issuance Costs,” have been reclassified to conformleases in the company’s lease portfolio; (ii) implementation of new lease accounting systems resulted in material changes to the current presentation. See “Accounting Pronouncements Adopted DuringCompany’s internal control over financial reporting; and (iii) significant judgment in the Current Year” below.application of the standard relating to sale-leaseback accounting. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to the implementation of new lease accounting systems and management’s significant judgments, including the assessment of the previously failed sale-leaseback tower sites. The audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained from the procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the adoption of the new standard on the Company’s various lease portfolios, including those associated with previously failed sale-leaseback transactions and testing of controls over the implementation and functionality of the new lease accounting systems. The preparationprocedures also included, among others, testing the completeness and accuracy of financial statementsmanagement’s identification of the leases in conformity with U.S. generally accepted accounting principles (“GAAP”) requires ourthe Company’s lease portfolios and evaluating the reasonableness of significant judgments made by management to make estimatesidentify contractual terms in lease arrangements that impact the determination of the right-of-use asset and assumptions which affectlease liability amount recognized. Professionals with specialized skill and knowledge were used to assist with the financial statements and accompanying notes. Examples include service revenues earned but not yet billed, service revenues billed but not yet earned, relative selling prices, allowances for uncollectible accounts and sales returns, discounts for imputed interest on EIP receivables, guarantee liabilities, losses incurred but not yet reported, tax liabilities, deferred income taxes including valuation allowances, useful livesevaluation of long-lived assets, cost estimates of asset retirement obligations, residual values on leased handsets, reasonably assured renewal terms for operating leases, stock-based compensation forfeiture rates, and fair value measurements related to goodwill, spectrum licenses, intangible assets, and derivative financial instruments. Estimates are based on historical experience, where applicable, and other assumptions which our management believes are reasonable underprevious failed sales-leaseback tower sites.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
February 6, 2020
We have served as the circumstances. These estimates are inherently subject to judgment and actual results could differ from those estimates.Company’s auditor since 2001.
T-Mobile US, Inc.
Cash and Cash Equivalents
As of December 31, 2019, our Cash and cash equivalents were $1.5 billion compared to $1.2 billion at December 31, 2018.
Free Cash Flow
Free Cash Flow represents Net cash provided by operating activities less payments for Purchases of property and equipment, including Proceeds from sales of tower sites and Proceeds related to beneficial interests in securitization transactions, less Cash
payments for debt prepayment or debt extinguishment costs. Free Cash Flow is a non-GAAP financial measure utilized by our management, investors and analysts of our financial information to evaluate cash available to pay debt and provide further investment in the business.
In 2019, we sold tower sites for proceeds of $38 million which are included in Proceeds from sales of tower sites within Net cash used in investing activities in our Consolidated Statements of Cash Flows. As these proceeds were from the sale of fixed assets and are used by management to assess cash available for capital expenditures during the year, we determined the proceeds are relevant for the calculation of Free Cash Flow and included them in the table below. Other proceeds from the sale of fixed assets for the periods presented are not significant. We have presented the impact of the sales in the table below, which illustrates the calculation of Free Cash Flow and reconciles Free Cash Flow to Net cash provided by operating activities, which we consider to be the most directly comparable GAAP financial measure.
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| | | | | | | | | Year Ended December 31, | | | | | | 2019 Versus 2018 | | | | 2018 Versus 2017 | | |
(in millions) | | | | | | | | | 2019 | | 2018 | | 2017 | | $ Change | | % Change | | $ Change | | % Change |
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Net cash provided by operating activities | | | | | | | | | $ | 6,824 | | | $ | 3,899 | | | $ | 3,831 | | | $ | 2,925 | | | 75 | % | | $ | 68 | | | 2 | % |
Cash purchases of property and equipment | | | | | | | | | (6,391) | | | (5,541) | | | (5,237) | | | (850) | | | 15 | % | | (304) | | | 6 | % |
Proceeds from sales of tower sites | | | | | | | | | 38 | | | — | | | — | | | 38 | | | NM | | | — | | | NM | |
Proceeds related to beneficial interests in securitization transactions | | | | | | | | | 3,876 | | | 5,406 | | | 4,319 | | | (1,530) | | | (28) | % | | 1,087 | | | 25 | % |
Cash payments for debt prepayment or debt extinguishment costs | | | | | | | | | (28) | | | (212) | | | (188) | | | 184 | | | (87) | % | | (24) | | | 13 | % |
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Free Cash Flow | | | | | | | | | $ | 4,319 | | | $ | 3,552 | | | $ | 2,725 | | | $ | 767 | | | 22 | % | | $ | 827 | | | 30 | % |
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Free Cash Flow increased $767 million, or 22%, primarily from:
•Higher Net cash provided by operating activities, as described above; and
•Lower Cash payments for debt prepayment or debt extinguishment costs; partially offset by
•Lower Proceeds related to our deferred purchase price from securitization transactions; and
•Higher Cash purchases of property and equipment, including capitalized interest of $473 million and $362 million for the years ended December 31, 2019 and 2018, respectively.
•Free Cash Flow includes $442 million and $86 million in payments for Merger-related costs for the years ended December 31, 2019 and 2018, respectively.
Borrowing Capacity and Debt Financing
As of December 31, 2019, our total debt and financing lease liabilities were $27.3 billion, excluding our tower obligations, of which $24.9 billion was classified as long-term debt.
Effective April 28, 2019, we redeemed $600 million aggregate principal amount of our DT Senior Reset Notes. The notes were redeemed at a redemption price equal to 104.666% of the principal amount of the notes (plus accrued and unpaid interest thereon) and were paid on April 29, 2019. The redemption premium was $28 million and was included in Other expense, net in our Consolidated Statements of Comprehensive Income and in Cash payments for debt prepayment or debt extinguishment costs in our Consolidated Statements of Cash Flows.
Certain components of the reset features were required to be bifurcated from the DT Senior Reset Notes and were separately accounted for as embedded derivatives. The write-off of embedded derivatives upon redemption resulted in a gain of $11 million, which was included in Other expense, net in our Consolidated Statements of Comprehensive Income. See Note 7 - Fair Value Measurements of the Notes to the Consolidated Financial Statements for further information.
We maintain a $2.5 billion revolving credit facility with DT which is comprised of a $1.0 billion unsecured revolving credit agreement and a $1.5 billion secured revolving credit agreement. In December 2019, we amended the terms of the revolving credit facility with DT to extend the maturity date to December 29, 2022. As of December 31, 2019 and 2018, there were no outstanding borrowings under the revolving credit facility.
We maintain a financing arrangement with Deutsche Bank AG, which allows for up to $108 million in borrowings. Under the financing arrangement, we can effectively extend payment terms for invoices payable to certain vendors. As of December 31, 2019 and 2018, there were no outstanding balances.
We maintain vendor financing arrangements with our primary network equipment suppliers. Under the respective agreements, we can obtain extended financing terms. During the year ended December 31, 2019, we utilized $800 million and repaid $775 million under the vendor financing arrangements. Invoices subject to extended payment terms have various due dates through the first quarter of 2020. Payments on vendor financing agreements are included in Repayments of short-term debt for purchases of inventory, property and equipment, net, in our Consolidated Statements of Cash Flows. As of December 31, 2019, there were $25 million in outstanding borrowings under the vendor financing agreements which were included in Short-term debt in our Consolidated Balance Sheets. As of December 31, 2018, there was no outstanding balance.
Consents on Debt
On May 18, 2018, under the terms and conditions described in the Consent Solicitation Statement dated as of May 14, 2018, we obtained consents necessary to effect certain amendments to certain of our existing debt and certain existing debt of our subsidiaries. If the Merger is consummated, we will make payments for requisite consents to third-party note holders. There was no payment accrued as of December 31, 2019.
In connection with the entry into the Business Combination Agreement, DT and T-Mobile USA entered into a financing matters agreement, dated as of April 29, 2018, pursuant to which DT agreed, among other things, to consent to the incurrence by
T-Mobile USA of secured debt in connection with and after the consummation of the Merger. If the Merger is consummated, we will make payments for requisite consents to DT. There was no payment accrued as of December 31, 2019. See Note 8 - Debt of the Notes to the Consolidated Financial Statements for further information.
Commitment Letter
In connection with the entry into the Business Combination Agreement, T-Mobile USA entered into a commitment letter, dated as of April 29, 2018 (as amended and restated on May 15, 2018 and on September 6, 2019, the “Commitment Letter”). In connection with the financing provided for in the Commitment Letter, we expect to incur certain fees payable to the financial institutions, including certain financing fees on the secured term loan commitment. If the Merger closes, we will incur additional fees for the financial institutions structuring and providing the commitments and certain take-out fees associated with the issuance of permanent secured bond debt in lieu of the secured bridge loan. In total, we may incur up to approximately $340 million in fees associated with the Commitment Letter. We began incurring certain Commitment Letter fees on November 1, 2019, which were recognized in Selling, general and administrative expenses in our Consolidated Statements of Comprehensive Income. There were $12 million of fees accrued as of December 31, 2019. See Note 8 - Debt of the Notes to the Consolidated Financial Statements for further information.
Future Sources and Uses of Liquidity
We may seek additional sources of liquidity, including through the issuance of additional long-term debt in 2020, to continue to opportunistically acquire spectrum licenses or other assets in private party transactions or for the refinancing of existing long-term debt on an opportunistic basis. Excluding liquidity that could be needed for spectrum acquisitions, or for other assets, we expect our principal sources of funding to be sufficient to meet our anticipated liquidity needs for business operations for the next 12 months 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, redemption of high yield callable debt and stock purchases.
In October 2018, we entered into interest rate lock derivatives with notional amounts of $9.6 billion. The fair value of interest rate lock derivatives was a liability of $1.2 billion and $447 million as of December 31, 2019 and 2018, respectively, and was included in Other current liabilities in our Consolidated Balance Sheets.
In November 2019, we extended the mandatory termination date on our interest rate lock derivatives to June 3, 2020. In December 2019, we made net collateral transfers to certain of our derivative counterparties totaling $632 million, which included variation margin transfers to (or from) such derivative counterparties based on daily market movements. These collateral transfers are included in Other current assets in our Consolidated Balance Sheetsand inNet cash related to derivative contracts under collateral exchange arrangements within Net cash used in investing activities in our Consolidated Statements of Cash Flows. The interest rate lock derivatives will be settled upon the earlier of the issuance of fixed-rate debt or the current mandatory termination date. Upon settlement of the interest rate lock derivatives, we will receive, or make, a cash payment in the amount of the fair value of the cash flow hedge as of the settlement date. We expect our existing sources of liquidity to be sufficient to meet the requirements of the interest rate lock derivatives.
We determine future liquidity requirements, for both operations and capital expenditures, based in large part upon projected financial and operating performance, and opportunities to acquire additional spectrum. We regularly review and update these projections for changes in current and projected financial and operating results, general economic conditions, the competitive landscape and other factors. There are a number of 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 and credit facilities governing our long-term debt to affiliates and third parties, excluding capital leases, contain covenants that, among other things, limit the ability of the Issuer and the Guarantor Subsidiaries to incur more debt, pay dividends and make distributions on our common stock, make certain investments, repurchase stock, create liens or other encumbrances, enter into transactions with affiliates, enter into transactions that restrict dividends or distributions from subsidiaries, and merge, consolidate or sell, or otherwise dispose of, substantially all of their assets. Certain provisions of each of the credit facilities, indentures and supplemental indentures relating to the long-term debt 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 December 31, 2019.
Financing Lease Facilities
We have entered into uncommitted financing lease facilities with certain partners, which provide us with the ability to enter into financing leases for network equipment and services. As of December 31, 2019, we have committed to $3.9 billion of financing leases under these financing lease facilities, of which $898 million was executed during the year ended December 31, 2019.
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. Property and equipment capital expenditures primarily relate to our network transformation, including the build-out of our network to utilize our 600 MHz spectrum licenses and the deployment of 5G. We expect cash purchases of property and equipment, including capitalized interest of approximately $400 million, to be $5.9 to $6.2 billion and cash purchases of property and equipment, excluding capitalized interest, to be $5.5 to $5.8 billion in 2020. This includes expenditures for 600 MHz and 5G deployment. This does not include property and equipment obtained through financing lease agreements, vendor financing agreements, leased wireless devices transferred from inventory or any additional purchases of spectrum licenses.
Share Repurchases
On December 6, 2017, our Board of Directors authorized a stock repurchase program for up to $1.5 billion of our common stock through December 31, 2018 (the “2017 Stock Repurchase Program”). Repurchased shares are retired. The 2017 Stock Repurchase Program was completed on April 29, 2018.
On April 27, 2018, our Board of Directors authorized an increase in the total stock repurchase program to $9.0 billion, consisting of the $1.5 billion in repurchases previously completed and up to an additional $7.5 billion of repurchases of our common stock through the year ending December 31, 2020 (the "2018 Stock Repurchase Program"). The additional $7.5 billion repurchase authorization is contingent upon the termination of the Business Combination Agreement and the abandonment of the Transactions contemplated under the Business Combination Agreement. There were no repurchases of our common stock under the 2018 Stock Repurchase Program in 2019 or 2018. See Note 12 - Repurchases of Common Stock of the Notes to the Consolidated Financial Statements for further information.
Dividends
We have never paid or declared any cash dividends on our common stock, and we do not intend to declare or pay any cash dividends on our common stock in the foreseeable future. Our credit facilities and the indentures and supplemental indentures governing our long-term debt to affiliates and third parties, excluding financing leases, contain covenants that, among other things, restrict our ability to declare or pay dividends on our common stock.
Contractual Obligations
The following table summarizes our contractual obligations and borrowings as of December 31, 2019 and the timing and effect that such commitments are expected to have on our liquidity and capital requirements in future periods:
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(in millions) | Less Than 1 Year | | 1 - 3 Years | | 4 - 5 Years | | More Than 5 Years | | Total |
Long-term debt (1) | $ | — | | | $ | 5,500 | | | $ | 7,300 | | | $ | 12,200 | | | $ | 25,000 | |
Interest on long-term debt | 1,282 | | | 2,365 | | | 1,796 | | | 1,163 | | | 6,606 | |
Financing lease liabilities, including imputed interest | 1,013 | | | 1,147 | | | 172 | | | 115 | | | 2,447 | |
Tower obligations (2) | 160 | | | 321 | | | 320 | | | 467 | | | 1,268 | |
Operating lease liabilities, including imputed interest | 2,754 | | | 4,894 | | | 3,523 | | | 3,797 | | | 14,968 | |
Purchase obligations (3) | 3,603 | | | 3,263 | | | 1,597 | | | 1,387 | | | 9,850 | |
Total contractual obligations | $ | 8,812 | | | $ | 17,490 | | | $ | 14,708 | | | $ | 19,129 | | | $ | 60,139 | |
(1)Represents principal amounts of long-term debt to affiliates and third parties at maturity, excluding unamortized premium from purchase price allocation fair value adjustment, financing lease obligations and vendor financing arrangements. See Note 8 – Debtof the Notes to the Consolidated Financial Statements for further information. (2)Future minimum payments, including principal and interest payments and imputed lease rental income, related to the tower obligations. See Note 9 – Tower Obligations of the Notes to the Consolidated Financial Statements for further information. (3)The minimum commitment for certain obligations is based on termination penalties that could be paid to exit the contracts. Termination penalties are included in the above table as payments due as of the earliest we could exit the contract, typically in less than one year. For certain contracts that include fixed volume purchase commitments and fixed prices for various products, the purchase obligations are calculated using fixed volumes and contractually fixed prices for the products that are expected to be purchased. This table does not include open purchase orders as of December 31, 2019 under normal business purposes. See Note 16 – Commitments and Contingencies of the Notes to the Consolidated Financial Statements for further information.
Certain commitments and obligations are included in the table based on the year of required payment or an estimate of the year of payment. Other long-term liabilities have been omitted from the table above due to the uncertainty of the timing of payments, combined with the absence of historical trending to be used as a predictor of such payments. See Note 17 – Additional Financial Information of the Notes to the Consolidated Financial Statements for further information.
The purchase obligations reflected in the table above are primarily commitments to purchase and lease spectrum licenses, wireless devices, network services, equipment, software, marketing sponsorship agreements and other items in the ordinary course of business. These amounts do not represent our entire anticipated purchases in the future, but represent only those items for which we are contractually committed. Where we are committed to make a minimum payment to the supplier regardless of whether we take delivery, we have included only that minimum payment as a purchase obligation. The acquisition of spectrum licenses is subject to regulatory approval and other customary closing conditions.
In October 2018, we entered into interest rate lock derivatives with notional amounts of $9.6 billion. The fair value of interest rate lock derivatives was a liability of $1.2 billion and $447 million as of December 31, 2019 and 2018, respectively, and was included in Other current liabilities in our Consolidated Balance Sheets. Balances related to the cash flow hedges have been omitted from the table above due to the uncertainty of the amount and timing of settlements. See Note 7 – Fair Value Measurements of the Notes to the Consolidated Financial Statements for further information.
Related Party Transactions
We have related party transactions associated with DT or its affiliates in the ordinary course of business, including intercompany servicing and licensing. See Note 17 - Additional Financial Information of the Notes to the Consolidated Financial Statements for further information. Disclosure of Iranian Activities under Section 13(r) of the Securities Exchange Act of 1934
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act of 1934, as amended (“Exchange Act”). Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction. Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law.
As of the date of this report, we are not aware of any activity, transaction or dealing by us or any of our affiliates for the year ended December 31, 2019, 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. We have relied upon DT for information regarding their 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: MTN Irancell, Telecommunication Kish Company, Mobile Telecommunication Company of Iran, and Telecommunication Infrastructure Company of Iran. In addition, during the year ended December 31, 2019, DT, through certain of its non-U.S. subsidiaries, provided basic telecommunications services to three 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, Bank Sepah, and Europäisch-Iranische Handelsbank. These services have been terminated or are in the process of being terminated.For the year ended December 31, 2019, gross revenues of all DT affiliates generated by roaming and interconnection traffic and telecommunications services with the Iranian parties identified herein were less than $0.1 million, and the estimated net profits were less than $0.1 million.
In addition, DT, through certain of its non-U.S. subsidiaries that operate a fixed-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 year ended December 31, 2019 were less than $0.1 million. We understand that DT intends to continue these activities.
Off-Balance Sheet Arrangements
We have arrangements, as amended from time to time, to sell certain EIP accounts receivable and service accounts receivable on a revolving basis as a source of liquidity. As of December 31, 2019, we derecognized net receivables of $2.6 billion upon sale through these arrangements. See Note 4 – Sales of Certain Receivables of the Notes to the Consolidated Financial Statements for further information.
Critical Accounting Policies and Estimates
Our significant accounting policies are fundamental to understanding our results of operations and financial condition as they require that we use estimates and assumptions that may affect the value of our assets or liabilities and financial results. See Note 1 - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements for further information.
Eight of these policies, discussed below, are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. Actual results could differ from those estimates.
Management and the Audit Committee of the Board of Directors have reviewed and approved these critical accounting policies.
Leases
We adopted the new lease standard on January 1, 2019 and recognized right-of-use assets and lease liabilities for operating leases that have not previously been recorded.
Significant Judgments:
The most significant judgments and impacts upon adoption of the standard include the following:
•In evaluating contracts to determine if they qualify as a lease, we consider factors such as if we have obtained or transferred substantially all of the rights to the underlying asset through exclusivity, if we can or if we have transferred the ability to direct the use of the asset by making decisions about how and for what purpose the asset will be used and if the lessor has substantive substitution rights. Identification of a lease may require significant judgment.
•We recognized right-of-use assets and operating lease liabilities for operating leases that have not previously been recorded. The lease liability for operating leases is based on the net present value of future minimum lease payments. The right-of-use asset for operating leases is based on the lease liability adjusted for the reclassification of certain balance sheet amounts such as prepaid rent and deferred rent which we remeasured at adoption due to the application of hindsight to our lease term estimates. Deferred and prepaid rent will no longer be presented separately.
•Capital lease assets previously included within Property and equipment, net were reclassified to financing lease right-of-use assets, and capital lease liabilities previously included in Short-term debt and Long-term debt were reclassified to financing lease liabilities in our Consolidated Balance Sheet.
•Certain line items in the Consolidated Statements of Cash Flows and the “Supplemental disclosure of cash flow information” have been renamed to align with the new terminology presented in the new lease standard; “Repayment of capital lease obligations” is now presented as “Repayments of financing lease obligations” and “Assets acquired under capital lease obligations” is now presented as “Financing lease right-of-use assets obtained in exchange for lease obligations.” In the “Operating Activities” section of the Consolidated Statements of Cash Flows we have added “Operating lease right-of-use assets” and “Short and long-term operating lease liabilities” which represent the change in the operating lease asset and liability, respectively. Additionally, in the “Supplemental disclosure of cash flow information” section of the Consolidated Statements of Cash Flows we have added “Operating lease payments,” and in the “Noncash investing and financing activities” section we have added “Operating lease right-of-use assets obtained in exchange for lease obligations.”
•In determining the discount rate used to measure the right-of-use asset and lease liability, we use rates implicit in the lease, or if not readily available, we use our incremental borrowing rate. Our incremental borrowing rate is based on an estimated secured rate comprised of a risk-free LIBOR rate plus a credit spread as secured by our assets. Determining a credit spread as secured by our assets may require significant judgment.
•Certain of our lease agreements include rental payments based on changes in the consumer price index (“CPI”). Lease liabilities are not remeasured as a result of changes in the CPI; instead, changes in the CPI are treated as variable lease payments and are excluded from the measurement of the right-of-use asset and lease liability. These payments are recognized in the period in which the related obligation was incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
•We elected the use of hindsight whereby we applied current lease term assumptions that are applied to new leases in determining the expected lease term period for all cell sites. Upon adoption of the new lease standard and application of hindsight our expected lease term has shortened to reflect payments due for the initial non-cancelable lease term only. This assessment corresponds to our lease term assessment for new leases and aligns with the payments that have been disclosed as lease commitments in prior years. As a result, the average remaining lease term for cell sites has decreased from approximately nine to five years based on lease contracts in effect at transition on January 1, 2019. The aggregate impact of using hindsight is an estimated decrease in Total operating expenses of $240 million in fiscal year 2019.
•We were also required to reassess the previously failed sale-leasebacks of certain T-Mobile-owned wireless communications tower sites and determine whether the transfer of the assets to the tower operator under the arrangement met the transfer of control criteria in the revenue standard and whether a sale should be recognized. Determining whether the transfer of control criteria has been met requires significant judgement.
•We concluded that a sale has not occurred for the 6,200 tower sites transferred to Crown Castle International Corp. (“CCI”) pursuant to a master prepaid lease arrangement; therefore, these sites will continue to be accounted for as failed sale-leasebacks.
•We concluded that a sale should be recognized for the 900 tower sites transferred to CCI pursuant to the sale of a subsidiary and for the 500 tower sites transferred to Phoenix Tower International (“PTI”). Upon adoption on January 1, 2019, we derecognized our existing long-term financial obligation and the tower-related property and equipment associated with these 1,400 previously failed sale-leaseback tower sites and recognized a lease liability and right-of-use asset for the leaseback of the tower sites. The impacts from the change in accounting conclusion are primarily a decrease in Other revenues of $44 million and a decrease in Interest expense of $34 million in fiscal year 2019.
•Rental revenues and expenses associated with co-location tower sites are presented on a net basis under the new lease standard. These revenues and expenses were presented on a gross basis under the former lease standard.
Lease Expense
We have operating leases for cell sites, retail locations, corporate offices and dedicated transportation lines, some of which have escalating rentals during the initial lease term and during subsequent optional renewal periods. We recognize a right-of-use asset and lease liability for operating leases based on the net present value of future minimum lease payments. Lease expense is recognized on a straight-line basis over the non-cancelable lease term and renewal periods that are considered reasonably certain.
We consider several factors in assessing whether renewal periods are reasonably certain of being exercised, including the continued maturation of our network nationwide, technological advances within the telecommunications industry and the availability of alternative sites.
Revenue Recognition
We primarily generate our revenue from providing wireless services to customers and selling or leasing devices and accessories. Our contracts with customers may involve multiple performance obligations, which include wireless services, wireless devices or a combination thereof, and we allocate the transaction price between each performance obligation based on its relative standalone selling price.
Significant Judgments
The most significant judgments affecting the amount and timing of revenue from contracts with our customers include the following items:
•Revenue for service contracts that we assess are not probable of collection is not recognized until the contract is completed or terminated and cash is received. Collectibility is re-assessed when there is a significant change in facts or circumstances. Our assessment of collectibility considers whether we may limit our exposure to credit risk through our right to stop transferring additional service in the event the customer is delinquent as well as certain contract terms such as down payments that reduce our exposure to credit risk. Customer credit behavior is inherently uncertain. See “Allowances,” below, for more discussion on how we assess credit risk.
•Promotional EIP bill credits offered to a customer on an equipment sale that are paid over time and are contingent on the customer maintaining a service contract may result in an extended service contract based on whether a substantive penalty is deemed to exist. Determining whether contingent EIP bill credits result in a substantive termination penalty may require significant judgment.
•The identification of distinct performance obligations within our service plans may require significant judgment.
•Revenue is recorded net of costs paid to another party for performance obligations where we arrange for the other party to transfer goods or services to the customer (i.e., when we are acting as an agent). For example, performance obligations relating to services provided by third-party content providers where we neither control a right to the content provider’s service nor control the underlying service itself are presented net because we are acting as an agent. The determination of whether we control the underlying service or right to the service prior to our transfer to the customer requires, at times, significant judgment.
•For transactions where we recognize a significant financing component, judgment is required to determine the discount rate. For EIP sales, the discount rate used to adjust the transaction price primarily reflects current market interest rates and the estimated credit risk of the customer. Customer credit behavior is inherently uncertain. See “Allowances”, below, for more discussion on how we assess credit risk.
•Our products are generally sold with a right of return, which is accounted for as variable consideration when estimating the amount of revenue to recognize. Device return levels are estimated based on the expected value method as there are a large number of contracts with similar characteristics and the outcome of each contract is independent of the others. Historical return rate experience is a significant input to our expected value methodology.
•Sales of equipment to indirect dealers who have been identified as our customer (referred to as the sell-in model) often include credits subsequently paid to the dealer as a reimbursement for any discount promotions offered to the end consumer. These credits (payments to a customer) are accounted for as variable consideration when estimating the amount of revenue to recognize from the sales of equipment to indirect dealers and are estimated based on historical experience and other factors, such as expected promotional activity.
•The determination of the standalone selling price for contracts that involve more than one performance obligation may require significant judgment, such as when the selling price of a good or service is not readily observable.
•For capitalized contract costs, determining the amortization period over which such costs are recognized as well as assessing the indicators of impairment may require significant judgment.
Allowances
We maintain an allowance for credit losses, which is management’s estimate of such losses inherent in our receivables portfolio, comprised of accounts receivable and EIP receivable segments. Changes in the allowance for credit losses and, therefore, in related provision for credit losses (“bad debt expense”) can materially affect earnings. Credit risk characteristics are assessed for each receivable segment. In applying the judgment and review required to determine the allowance for credit losses, management considers a number of factors, including receivable volumes, receivable delinquency status, historical loss experience and other conditions influencing loss expectations, such as macro-economic conditions. While our methodology attributes portions of the allowance to specific portfolio segments, the entire allowance for credit losses is available to absorb credit losses inherent in the total receivables portfolio.
Management also considers an amount that represents management’s judgment of risks inherent in the process and assumptions used in establishing the allowance for credit losses, including process risk and other subjective factors, including industry trends and emerging risk assessments.
To the extent that actual loss experience differs significantly from historical trends or assumptions, the appropriate allowance levels for realized credit losses could differ from the estimate. We write off account balances if collection efforts are unsuccessful and the receivable balance is deemed uncollectible, based on factors such as customer credit ratings and the length of time from the original billing date.
We offer certain retail customers the option to pay for their devices and other purchases in installments over a period of up to 36 months using an EIP. EIP receivables not held for sale are reported in our Consolidated Balance Sheets at outstanding principal adjusted for any charge-offs, allowance for credit losses and unamortized discounts. Receivables held for sale are reported at the lower of amortized cost or fair value. At the time of an installment sale, we impute a discount for interest if the EIP term exceeds 12 months as there is no stated rate of interest on the EIP receivables. The EIP receivables are recorded at their present value, which is determined by discounting future cash payments at the imputed interest rate. The difference between the recorded amount of the EIP receivables and their unpaid principal balance (i.e., the contractual amount due from the customer) results in a discount which is allocated to the performance obligations of the arrangement and recorded as a reduction in transaction price. We determine the imputed discount rate based primarily on current market interest rates and the estimated credit risk on the EIP receivables. As a result, we do not recognize a separate credit loss allowance at the time of issuance as the effects of uncertainty about future cash flows resulting from credit risk are included in the initial present value measurement of the receivable. The imputed discount on EIP receivables is amortized over the financed installment term using the effective interest method and recognized as Other revenues in our Consolidated Statements of Comprehensive Income.
Subsequent to the initial determination of the imputed discount, we assess the need for and, if necessary, recognize an allowance for credit losses to the extent the amount of estimated probable losses on the gross EIP receivable balances exceed the remaining unamortized imputed discount balances.
Deferred Purchase Price Assets
In connection with the sales of certain service and EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price assets measured at fair value that are based on a discounted cash flow model using unobservable Level 3 inputs, including customer default rates and credit worthiness, dilutions and recoveries. See Note 4 – Sales of Certain Receivables of the Notes to the Consolidated Financial Statements for further information.
Depreciation
Depreciation commences once assets have been placed in service. We generally depreciate property and equipment over the period the property and equipment provide economic benefit. Leased wireless devices are depreciated to their estimated residual value over the period expected to provide utility to us, which is generally shorter than the lease term and considers expected losses. Depreciable life studies are performed periodically to confirm the appropriateness of depreciable lives for certain categories of property, plant and equipment. These studies consider actual usage, physical wear and tear, replacement history and assumptions about technology evolution. When these factors indicate that the useful life of an asset is different from the previous assessment, the remaining book values are depreciated prospectively over the adjusted remaining estimated useful life. See Note 1 – Summary of Significant Accounting Policies and Note 5 – Property and Equipment of the Notes to the Consolidated Financial Statements for information regarding depreciation of assets, including management’s underlying estimates of useful lives.
Evaluation of Goodwill and Indefinite-Lived Intangible Assets for Impairment
We assess the carrying value of our goodwill and other indefinite-lived intangible assets, such as our spectrum licenses, for potential impairment annually as of December 31, or more frequently if events or changes in circumstances indicate such assets might be impaired.
We have identified two reporting units for which discrete financial information is available and results are regularly reviewed by management: wireless and Layer3. The Layer3 reporting unit consists of the assets and liabilities of Layer3 TV, Inc., which was acquired in January 2018. The wireless reporting unit consists of the remaining assets and liabilities of T-Mobile US, Inc., excluding Layer3 TV, Inc. We separately evaluate these reporting units for impairment.
When assessing goodwill for impairment we may elect to first perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. If we do not perform a qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we perform a quantitative test. We recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit.
We employed a qualitative approach to assess the wireless reporting unit. The fair value of the wireless reporting unit is determined using a market approach, which is based on market capitalization. We recognize market capitalization is subject to volatility and will monitor changes in market capitalization to determine whether declines, if any, necessitate an interim impairment review. In the event market capitalization does decline below its book value, we will consider the length, severity and reasons for the decline when assessing whether potential impairment exists, including considering whether a control premium should be added to the market capitalization. We believe short-term fluctuations in share price may not necessarily reflect the underlying aggregate fair value.
We employed a quantitative approach to assess the Layer3 reporting unit. The fair value of the Layer3 reporting unit is determined using an income approach, which is based on estimated discounted future cash flows.
We made estimates and assumptions regarding future cash flows, discount rates and long-term growth rates to determine the reporting unit’s estimated fair value. The key assumptions used were as follows:
•Expected cash flows underlying the Layer3 business plan for the periods 2020 through 2024, which took into account estimates of subscribers for TVision services, average revenue and content cost per subscriber, operating costs and capital expenditures.
•Cash flows beyond 2024 were projected to grow at a long-term growth rate estimated at 3%. Estimating a long-term growth rate requires significant judgment about future business strategies as well as micro- and macro-economic environments that are inherently uncertain.
•We used a discount rate of 32% to risk adjust the cash flow projections in determining the estimated fair value.
The estimated fair value of the Layer3 reporting unit exceeded its carrying value by approximately 3% as of December 31, 2019. Delays in the national launch of TVision services or cash flows that do not meet our projections could result in a goodwill impairment of Layer3 in the future. The carrying value of the goodwill associated with the Layer3 reporting unit was $218 million as of December 31, 2019.
We test our spectrum licenses for impairment on an aggregate basis, consistent with our management of the overall business at a national level. We may elect to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of an intangible asset is less than its carrying value. If we do not perform the qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of the intangible asset is less than its carrying amount, we calculate the estimated fair value of the intangible asset. If the estimated fair value of the spectrum licenses is lower than their carrying amount, an impairment loss is recognized for the difference. We estimate fair value using the Greenfield methodology, which is an income approach, to estimate the price at which an orderly transaction to sell the asset would take place between market participants at the measurement date under current market conditions. The Greenfield methodology values the spectrum licenses by calculating the cash flow generating potential of a hypothetical start-up company that goes into business with no assets except the asset to be valued (in this case, spectrum licenses). The value of the spectrum licenses can be considered as equal to the present value of the cash flows of this hypothetical start-up company. We base the assumptions underlying the Greenfield methodology on a combination of market participant data and our historical results, trends and business plans. Future cash flows in the Greenfield methodology are based on estimates and assumptions of market participant revenues, EBITDA margin, network build-out period and a long-term growth rate for a market participant. The cash flows are discounted using a weighted average cost of capital.
The valuation approaches utilized to estimate fair value for the purposes of the impairment tests of goodwill and spectrum licenses require the use of assumptions and estimates, which involve a degree of uncertainty. If actual results or future expectations are not consistent with the assumptions, this may result in the recording of significant impairment charges on goodwill or spectrum licenses. The most significant assumptions within the valuation models are the discount rate, revenues, EBITDA margins, capital expenditures and the long-term growth rate. See Note 1 – Summary of Significant AccountingPolicies and Note 6 – Goodwill, Spectrum License Transactions and Other Intangible Assets of the Notes to the Consolidated Financial Statements for information regarding our annual impairment test and impairment charges.
Income Taxes
Deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to be in effect when these differences are realized. A valuation allowance is recorded when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of a deferred tax asset depends on the ability to generate sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions within the carryforward periods available.
We account for uncertainty in income taxes recognized in the financial statements in accordance with the accounting guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We assess whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position and adjust the unrecognized tax benefits in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law.
Accounting Pronouncements Not Yet Adopted
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to economic risks in the normal course of business, primarily from changes in interest rates, including changes in investment yields and changes in spreads due to credit risk and other factors. These risks, along with other business risks, impact our cost of capital. Our policy is to manage exposure related to fluctuations in interest rates in order to manage capital costs, control financial risks and maintain financial flexibility over the long term. We have established interest rate risk limits that are closely monitored by measuring interest rate sensitivities of our debt portfolio. We do not foresee significant changes in the strategies used to manage market risk in the near future.
We are exposed to changes in interest rates on our Incremental Term Loan Facility with DT, our majority stockholder. See Note 8 – Debt of the Notes to the Consolidated Financial Statements for further information.
To perform the sensitivity analysis, we selected hypothetical changes in market rates that are expected to reflect reasonably possible near-term changes in those rates. We assessed the risk of a change in the fair value from the effect of a hypothetical interest rate change for 30-day LIBOR rates of positive 150 and negative 50 basis points. In cases where the debt is redeemable and the fair value calculation results in a liability greater than the cost to replace the debt, the maximum liability is assumed to
be no greater than the current cost to redeem the debt. As of December 31, 2019, the change in the fair value of our Incremental Term Loan Facility, based on this hypothetical change, is shown in the table below:
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| Carrying Amount | | Fair Value | | Fair Value Assuming | | |
(in millions) | | | | | +150 Basis Point Shift | | -50 Basis Point Shift |
LIBOR plus 1.50% Senior Secured Term Loan due 2022 | $ | 2,000 | | | $ | 2,000 | | | $ | 1,966 | | | $ | 2,000 | |
LIBOR plus 1.75% Senior Secured Term Loan due 2024 | 2,000 | | | 2,000 | | | 1,956 | | | 2,000 | |
We are exposed to changes in the benchmark interest rate associated with our interest rate lock derivatives. See Note 7 – Fair Value Measurements of the Notes to the Consolidated Financial Statements for further information.
To perform the sensitivity analysis, we selected hypothetical changes in market rates that are expected to reflect reasonably possible near-term changes in those rates. We assessed the risk of a change in fair value from the effect of a hypothetical interest rate change for eight and 10-year LIBOR swap rates of positive 200 and negative 100 basis points. As of December 31, 2019, the change in the fair value of our interest rate lock derivatives, based on this hypothetical change, is shown in the table below:
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| Fair Value | | Fair Value Assuming | | |
(in millions) | | | +200 Basis Point Shift | | -100 Basis Point Shift |
Interest rate lock derivatives | $ | (1,170) | | | $ | 410 | | | $ | (2,077) | |
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of T-Mobile US, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of T-Mobile US, Inc. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Changes in Accounting Principles
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenues in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Adoption of Leases Standard
As described in Notes 1 and 15 to the consolidated financial statements, the Company has adopted the new accounting standard on Leases, on January 1, 2019, by recognizing and measuring leases at the adoption date with a cumulative effect of initially applying the guidance recognized at the date of initial application. As a result, among other adjustments, the Company recognized operating lease right-of-use assets of $9,251 million and operating lease liabilities of $11,364 million on the balance sheet on the date of adoption. As of December 31, 2019, the carrying amounts of operating and finance lease right-of-use assets were $10,933 million and $2,715 million respectively and operating and finance lease liabilities were $12,826 million and $2,303 million respectively. The Company recorded $3,406 million of lease expense during the year. Management also reassessed the previously failed sale-leasebacks of certain T-Mobile-owned wireless communication tower sites to determine whether the transfer of the assets to the tower operator under the arrangement met the transfer of control criteria in the revenue standard and whether a sale should be recognized. This reassessment resulted in (i) assets relating to 6,200 tower sites transferred pursuant to a master prepaid lease arrangement continuing to be accounted for as failed sale-leasebacks; (ii) a sale being recognized for 1,400 tower sites sold that were not associated with the master prepaid lease. Upon adoption, the Company derecognized its existing long-term financial obligation and the tower-related property and equipment associated with these 1,400 previously failed sale-leaseback tower sites and recognized a lease liability and right-of-use asset for the leaseback of the tower sites.
The principal considerations for our determination that performing procedures relating to the adoption of the lease standard is a critical audit matter are (i) there was significant judgment by management in applying the lease standard to a large volume of leases in the company’s lease portfolio; (ii) implementation of new lease accounting systems resulted in material changes to the Company’s internal control over financial reporting; and (iii) significant judgment in the application of the standard relating to sale-leaseback accounting. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to the implementation of new lease accounting systems and management’s significant judgments, including the assessment of the previously failed sale-leaseback tower sites. The audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained from the procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the adoption of the new standard on the Company’s various lease portfolios, including those associated with previously failed sale-leaseback transactions and testing of controls over the implementation and functionality of the new lease accounting systems. The procedures also included, among others, testing the completeness and accuracy of management’s identification of the leases in the Company’s lease portfolios and evaluating the reasonableness of significant judgments made by management to identify contractual terms in lease arrangements that impact the determination of the right-of-use asset and lease liability amount recognized. Professionals with specialized skill and knowledge were used to assist with the evaluation of previous failed sales-leaseback tower sites.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
February 6, 2020
We have served as the Company’s auditor since 2001.
T-Mobile US, Inc.
Consolidated Balance Sheets
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(in millions, except share and per share amounts) | December 31, 2019 | | December 31, 2018 |
Assets | | | |
Current assets | | | |
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Cash and cash equivalents | $ | 1,528 | | | $ | 1,203 | |
Accounts receivable, net of allowances of $61 and $67 | 1,888 | | | 1,769 | |
Equipment installment plan receivables, net | 2,600 | | | 2,538 | |
Accounts receivable from affiliates | 20 | | | 11 | |
Inventory | 964 | | | 1,084 | |
Other current assets | 2,305 | | | 1,676 | |
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Total current assets | 9,305 | | | 8,281 | |
Property and equipment, net | 21,984 | | | 23,359 | |
Operating lease right-of-use assets | 10,933 | | | — | |
Financing lease right-of-use assets | 2,715 | | | — | |
Goodwill | 1,930 | | | 1,901 | |
Spectrum licenses | 36,465 | | | 35,559 | |
Other intangible assets, net | 115 | | | 198 | |
Equipment installment plan receivables due after one year, net | 1,583 | | | 1,547 | |
Other assets | 1,891 | | | 1,623 | |
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Total assets | $ | 86,921 | | | $ | 72,468 | |
Liabilities and Stockholders' Equity | | | |
Current liabilities | | | |
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Accounts payable and accrued liabilities | $ | 6,746 | | | $ | 7,741 | |
Payables to affiliates | 187 | | | 200 | |
Short-term debt | 25 | | | 841 | |
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Deferred revenue | 631 | | | 698 | |
Short-term operating lease liabilities | 2,287 | | | — | |
Short-term financing lease liabilities | 957 | | | — | |
Other current liabilities | 1,673 | | | 787 | |
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Total current liabilities | 12,506 | | | 10,267 | |
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Long-term debt | 10,958 | | | 12,124 | |
Long-term debt to affiliates | 13,986 | | | 14,582 | |
Tower obligations | 2,236 | | | 2,557 | |
Deferred tax liabilities | 5,607 | | | 4,472 | |
Operating lease liabilities | 10,539 | | | — | |
Financing lease liabilities | 1,346 | | | — | |
Deferred rent expense | — | | | 2,781 | |
Other long-term liabilities | 954 | | | 967 | |
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Total long-term liabilities | 45,626 | | | 37,483 | |
Commitments and contingencies (Note 16) | | | |
Stockholders' equity | | | |
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Common Stock, par value $0.00001 per share, 1,000,000,000 shares authorized; 858,418,615 and 851,675,119 shares issued, 856,905,400 and 850,180,317 shares outstanding | — | | | — | |
Additional paid-in capital | 38,498 | | | 38,010 | |
Treasury stock, at cost,1,513,215 and 1,494,802 shares issued | (8) | | | (6) | |
Accumulated other comprehensive loss | (868) | | | (332) | |
Accumulated deficit | (8,833) | | | (12,954) | |
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Total stockholders' equity | 28,789 | | | 24,718 | |
Total liabilities and stockholders' equity | $ | 86,921 | | | $ | 72,468 | |
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The accompanying notes are an integral part of these Consolidated Financial Statements.
T-Mobile US, Inc.
Consolidated Statements of Comprehensive Income
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(in millions, except share and per share amounts) | | | | | 2019 | | 2018 | | 2017 |
Revenues | | | | | | | | | |
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Branded postpaid revenues | | | | | $ | 22,673 | | | $ | 20,862 | | | $ | 19,448 | |
Branded prepaid revenues | | | | | 9,543 | | | 9,598 | | | 9,380 | |
Wholesale revenues | | | | | 1,279 | | | 1,183 | | | 1,102 | |
Roaming and other service revenues | | | | | 499 | | | 349 | | | 230 | |
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Total service revenues | | | | | 33,994 | | | 31,992 | | | 30,160 | |
Equipment revenues | | | | | 9,840 | | | 10,009 | | | 9,375 | |
Other revenues | | | | | 1,164 | | | 1,309 | | | 1,069 | |
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Total revenues | | | | | 44,998 | | | 43,310 | | | 40,604 | |
Operating expenses | | | | | | | | | |
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Cost of services, exclusive of depreciation and amortization shown separately below | | | | | 6,622 | | | 6,307 | | | 6,100 | |
Cost of equipment sales, exclusive of depreciation and amortization shown separately below | | | | | 11,899 | | | 12,047 | | | 11,608 | |
Selling, general and administrative | | | | | 14,139 | | | 13,161 | | | 12,259 | |
Depreciation and amortization | | | | | 6,616 | | | 6,486 | | | 5,984 | |
Gains on disposal of spectrum licenses | | | | | — | | | — | | | (235) | |
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Total operating expenses | | | | | 39,276 | | | 38,001 | | | 35,716 | |
Operating income | | | | | 5,722 | | | 5,309 | | | 4,888 | |
Other income (expense) | | | | | | | | | |
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Interest expense | | | | | (727) | | | (835) | | | (1,111) | |
Interest expense to affiliates | | | | | (408) | | | (522) | | | (560) | |
Interest income | | | | | 24 | | | 19 | | | 17 | |
Other expense, net | | | | | (8) | | | (54) | | | (73) | |
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Total other expense, net | | | | | (1,119) | | | (1,392) | | | (1,727) | |
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Income before income taxes | | | | | 4,603 | | | 3,917 | | | 3,161 | |
Income tax (expense) benefit | | | | | (1,135) | | | (1,029) | | | 1,375 | |
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Net income | | | | | $ | 3,468 | | | $ | 2,888 | | | $ | 4,536 | |
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Dividends on preferred stock | | | | | — | | | — | | | (55) | |
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Net income attributable to common stockholders | | | | | $ | 3,468 | | | $ | 2,888 | | | $ | 4,481 | |
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Net income | | | | | $ | 3,468 | | | $ | 2,888 | | | $ | 4,536 | |
Other comprehensive (loss) income, net of tax | | | | | | | | | |
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Unrealized gain on available-for-sale securities, net of tax effect of $0, $0, and $2 | | | | | — | | | — | | | 7 | |
Unrealized loss on cash flow hedges, net of tax effect of $(187), $(115), and $0 | | | | | (536) | | | (332) | | | — | |
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Other comprehensive (loss) income | | | | | (536) | | | (332) | | | 7 | |
Total comprehensive income | | | | | $ | 2,932 | | | $ | 2,556 | | | $ | 4,543 | |
Earnings per share | | | | | | | | | |
Basic | | | | | $ | 4.06 | | | $ | 3.40 | | | $ | 5.39 | |
Diluted | | | | | $ | 4.02 | | | $ | 3.36 | | | $ | 5.20 | |
Weighted average shares outstanding | | | | | | | | | |
Basic | | | | | 854,143,751 | | | 849,744,152 | | | 831,850,073 | |
Diluted | | | | | 863,433,511 | | | 858,290,174 | | | 871,787,450 | |
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The accompanying notes are an integral part of these Consolidated Financial Statements.
T-Mobile US, Inc.
Consolidated Statements of Cash Flows
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| | | | | Year Ended December 31, | | | | |
(in millions) | | | | | 2019 | | 2018 | | 2017 |
Operating activities | | | | | | | | | |
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Net income | | | | | $ | 3,468 | | | $ | 2,888 | | | $ | 4,536 | |
Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | | | |
Depreciation and amortization | | | | | 6,616 | | | 6,486 | | | 5,984 | |
Stock-based compensation expense | | | | | 495 | | | 424 | | | 306 | |
Deferred income tax expense (benefit) | | | | | 1,091 | | | 980 | | | (1,404) | |
Bad debt expense | | | | | 307 | | | 297 | | | 388 | |
Losses from sales of receivables | | | | | 130 | | | 157 | | | 299 | |
Deferred rent expense | | | | | — | | | 26 | | | 76 | |
Losses on redemption of debt | | | | | 19 | | | 122 | | | 86 | |
Gains on disposal of spectrum licenses | | | | | — | | | — | | | (235) | |
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Accounts receivable | | | | | (3,709) | | | (4,617) | | | (3,931) | |
Equipment installment plan receivables | | | | | (1,015) | | | (1,598) | | | (1,812) | |
Inventories | | | | | (617) | | | (201) | | | (844) | |
Operating lease right-of-use assets | | | | | 1,896 | | | — | | | — | |
Other current and long-term assets | | | | | (144) | | | (181) | | | (575) | |
Accounts payable and accrued liabilities | | | | | 17 | | | (867) | | | 1,079 | |
Short and long-term operating lease liabilities | | | | | (2,131) | | | — | | | — | |
Other current and long-term liabilities | | | | | 144 | | | (69) | | | (233) | |
Other, net | | | | | 257 | | | 52 | | | 111 | |
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Net cash provided by operating activities | | | | | 6,824 | | | 3,899 | | | 3,831 | |
Investing activities | | | | | | | | | |
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Purchases of property and equipment, including capitalized interest of $473, $362 and $136 | | | | | (6,391) | | | (5,541) | | | (5,237) | |
Purchases of spectrum licenses and other intangible assets, including deposits | | | | | (967) | | | (127) | | | (5,828) | |
Proceeds from sales of tower sites | | | | | 38 | | | — | | | — | |
Proceeds related to beneficial interests in securitization transactions | | | | | 3,876 | | | 5,406 | | | 4,319 | |
Net cash related to derivative contracts under collateral exchange arrangements | | | | | (632) | | | — | | | — | |
Acquisition of companies, net of cash acquired | | | | | (31) | | | (338) | | | — | |
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Other, net | | | | | (18) | | | 21 | | | 1 | |
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Net cash used in investing activities | | | | | (4,125) | | | (579) | | | (6,745) | |
Financing activities | | | | | | | | | |
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Proceeds from issuance of long-term debt | | | | | — | | | 2,494 | | | 10,480 | |
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Proceeds from borrowing on revolving credit facility | | | | | 2,340 | | | 6,265 | | | 2,910 | |
Repayments of revolving credit facility | | | | | (2,340) | | | (6,265) | | | (2,910) | |
Repayments of financing lease obligations | | | | | (798) | | | (700) | | | (486) | |
Repayments of short-term debt for purchases of inventory, property and equipment, net | | | | | (775) | | | (300) | | | (300) | |
Repayments of long-term debt | | | | | (600) | | | (3,349) | | | (10,230) | |
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Repurchases of common stock | | | | | — | | | (1,071) | | | (427) | |
Tax withholdings on share-based awards | | | | | (156) | | | (146) | | | (166) | |
Dividends on preferred stock | | | | | — | | | — | | | (55) | |
Cash payments for debt prepayment or debt extinguishment costs | | | | | (28) | | | (212) | | | (188) | |
Other, net | | | | | (17) | | | (52) | | | 5 | |
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Net cash used in financing activities | | | | | (2,374) | | | (3,336) | | | (1,367) | |
Change in cash and cash equivalents | | | | | 325 | | | (16) | | | (4,281) | |
Cash and cash equivalents | | | | | | | | | |
Beginning of period | | | | | 1,203 | | | 1,219 | | | 5,500 | |
End of period | | | | | $ | 1,528 | | | $ | 1,203 | | | $ | 1,219 | |
Supplemental disclosure of cash flow information | | | | | | | | | |
Interest payments, net of amounts capitalized | | | | | $ | 1,128 | | | $ | 1,525 | | | $ | 2,028 | |
Operating lease payments (1) | | | | | 2,783 | | | — | | | — | |
Income tax payments | | | | | 88 | | | 51 | | | 31 | |
Non-cash investing and financing activities | | | | | | | | | |
Non-cash beneficial interest obtained in exchange for securitized receivables | | | | | $ | 6,509 | | | $ | 4,972 | | | $ | 4,063 | |
(Decrease) increase in accounts payable for purchases of property and equipment | | | | | (935) | | | 65 | | | 313 | |
Leased devices transferred from inventory to property and equipment | | | | | 1,006 | | | 1,011 | | | 1,131 | |
Returned leased devices transferred from property and equipment to inventory | | | | | (267) | | | (326) | | | (742) | |
Short-term debt assumed for financing of property and equipment | | | | | 800 | | | 291 | | | 292 | |
Operating lease right-of-use assets obtained in exchange for lease obligations | | | | | 3,621 | | | — | | | — | |
Financing lease right-of-use assets obtained in exchange for lease obligations | | | | | 1,041 | | | 885 | | | 887 | |
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(1)On January 1, 2019, we adopted Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842),” which requires certain supplemental cash flow disclosures. Where these disclosures or a comparable figure were not required under the former lease standard, we have not retrospectively presented historical amounts. See Note 1 – Summary of Significant Accounting Policies for additional details.
The accompanying notes are an integral part of these Consolidated Financial Statements.
T-Mobile US, Inc.
Consolidated Statement of Stockholders’ Equity
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(in millions, except shares) | Preferred Stock Outstanding | | Common Stock Outstanding | | Treasury Shares at Cost | | Par Value and Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total Stockholders' Equity |
Balance as of December 31, 2016 | 20,000,000 | | | 826,357,331 | | | $ | (1) | | | $ | 38,846 | | | $ | 1 | | | $ | (20,610) | | | $ | 18,236 | |
Net income | — | | | — | | | — | | | — | | | — | | | 4,536 | | | 4,536 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 7 | | | — | | | 7 | |
Stock-based compensation | — | | | — | | | — | | | 344 | | | — | | | — | | | 344 | |
Exercise of stock options | — | | | 450,493 | | | — | | | 19 | | | — | | | — | | | 19 | |
Stock issued for employee stock purchase plan | — | | | 1,832,043 | | | — | | | 82 | | | — | | | — | | | 82 | |
Issuance of vested restricted stock units | — | | | 8,338,271 | | | — | | | — | | | — | | | — | | | — | |
Shares withheld related to net share settlement of stock awards and stock options | — | | | (2,754,721) | | | — | | | (166) | | | — | | | — | | | (166) | |
Mandatory conversion of preferred shares to common shares | (20,000,000) | | | 32,237,983 | | | — | | | — | | | — | | | — | | | — | |
Repurchases of common stock | — | | | (7,010,889) | | | — | | | (444) | | | — | | | — | | | (444) | |
Transfer RSU to NQDC plan | — | | | (43,860) | | | (3) | | | 3 | | | — | | | — | | | — | |
Dividends on preferred stock | — | | | — | | | — | | | (55) | | | — | | | — | | | (55) | |
Balance as of December 31, 2017 | — | | | 859,406,651 | | | (4) | | | 38,629 | | | 8 | | | (16,074) | | | 22,559 | |
Net income | — | | | — | | | — | | | — | | | — | | | 2,888 | | | 2,888 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (332) | | | — | | | (332) | |
Stock-based compensation | — | | | — | | | — | | | 473 | | | — | | | — | | | 473 | |
Exercise of stock options | — | | | 187,965 | | | — | | | 3 | | | — | | | — | | | 3 | |
Stock issued for employee stock purchase plan | — | | | 2,011,794 | | | — | | | 103 | | | — | | | — | | | 103 | |
Issuance of vested restricted stock units | — | | | 7,448,148 | | | — | | | — | | | — | | | — | | | — | |
Issuance of restricted stock awards | — | | | 225,799 | | | — | | | — | | | — | | | — | | | — | |
Shares withheld related to net share settlement of stock awards and stock options | — | | | (2,321,827) | | | — | | | (146) | | | — | | | — | | | (146) | |
Repurchases of common stock | — | | | (16,738,758) | | | — | | | (1,054) | | | — | | | — | | | (1,054) | |
Transfer RSU from NQDC plan | — | | | (39,455) | | | (2) | | | 2 | | | — | | | — | | | — | |
Prior year Retained Earnings(1) | — | | | — | | | — | | | — | | | (8) | | | 232 | | | 224 | |
Balance as of December 31, 2018 | — | | | 850,180,317 | | | (6) | | | 38,010 | | | (332) | | | (12,954) | | | 24,718 | |
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Net income | — | | | — | | | — | | | — | | | — | | | 3,468 | | | 3,468 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (536) | | | — | | | (536) | |
Stock-based compensation | — | | | — | | | — | | | 517 | | | — | | | — | | | 517 | |
Exercise of stock options | — | | | 85,083 | | | — | | | 1 | | | — | | | — | | | 1 | |
Stock issued for employee stock purchase plan | — | | | 2,091,650 | | | — | | | 124 | | | — | | | — | | | 124 | |
Issuance of vested restricted stock units | — | | | 6,685,950 | | | — | | | — | | | — | | | — | | | — | |
Forfeiture of restricted stock awards | — | | | (24,682) | | | — | | | — | | | — | | | — | | | — | |
Shares withheld related to net share settlement of stock awards and stock options | — | | | (2,094,555) | | | — | | | (156) | | | — | | | — | | | (156) | |
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Transfer RSU from NQDC plan | — | | | (18,363) | | | (2) | | | 2 | | | — | | | — | | | — | |
Prior year Retained Earnings(1) | — | | | — | | | — | | | — | | | — | | | 653 | | | 653 | |
Balance as of December 31, 2019 | — | | | 856,905,400 | | | $ | (8) | | | $ | 38,498 | | | $ | (868) | | | $ | (8,833) | | | $ | 28,789 | |
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The accompanying notes are an integral part of these Consolidated Financial Statements
T-Mobile US, Inc.
Index for Notes to the Consolidated Financial Statements
T-Mobile US, Inc.
Notes to the Consolidated Financial Statements
Note 1 – Summary of Significant Accounting Policies
Description of Business
T-Mobile US, Inc. (“T-Mobile,” “we,” “our,” “us” or the “Company”), together with its consolidated subsidiaries, is a leading provider of mobile communications services, including voice, messaging and data, under its flagship brands, T-Mobile and Metro™ by T-Mobile ("Metro by T-Mobile"), in the United States (“U.S.”), Puerto Rico and the U.S. Virgin Islands. All of our revenues were earned in, and all of our long-lived assets are located in, the U.S., Puerto Rico and the U.S. Virgin Islands. We provide mobile communications services primarily using our 4G Long-Term Evolution (“LTE”) network and our newly deployed 5G technology network. We also offer a wide selection of wireless devices, including handsets, tablets and other mobile communication devices, and accessories for sale, as well as financing through Equipment Installment Plans (“EIP”) and leasing through JUMP! On Demand™. Additionally, we provide reinsurance for handset insurance policies and extended warranty contracts offered to our mobile communications customers.
Basis of Presentation
The 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”) where we are deemed to be the primary beneficiary and VIEs, which cannot be deconsolidated, such as those related to Tower obligations. Intercompany transactions and balances have been eliminated in consolidation. We operate as a single operating segment.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires our management to make estimates and assumptions which affect the financial statements and accompanying notes. Estimates are based on historical experience, where applicable, and other assumptions which our management believes are reasonable under the circumstances. These estimates are inherently subject to judgment and actual results could differ from these estimates.
Certain prior year amounts have been reclassified to conform to the current year's presentation. See “Accounting Pronouncements Adopted During the Current Year” below.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid money market funds and U.S. Treasury securities with remaining maturities of three months or less at the date of purchase.
Short-Term InvestmentsReceivables and Allowance for Credit Losses
Our short-term investments consist of U.S. Treasury securities classified as available for sale, which are stated at fair value and have remaining maturities of more than three months at the date of purchase. Unrealized gains and losses, net of related income taxes, on available for sale securities are reported as net increases and decreases to Accumulated other comprehensive income (loss) (“AOCI”), a component of stockholders' equity, until realized. The estimated fair values of our short-term investments are based on quoted market prices as of the end of the reporting period. The U.S. Treasury securities reported as of December 31, 2015 matured during 2016.
We review our available-for-sale securities for impairment on a quarterly basis or more often if a potential loss-triggering event occurs. If there has been a decline in the fair value below the amortized cost basis, we assess whether the impairment is other-than-temporary by considering, among other factors, the reason for the decline in fair value, our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis and whether we do not expect to recover the entire amortized cost basis of the security. If we determine the impairment is other-than-temporary, we record a charge to Other expense, net in our Consolidated Statements of Comprehensive Income.
Accounts Receivable and Allowances
Accounts receivable consist primarily of amounts billed and currently due from customers, other carriers and third-party retail channels (“dealers”), as well as revenues earned but not yet billed at the end of each period.channels. Accounts receivable not held for sale are reported in the balance sheet at outstanding principal adjusted for any charge-offs and the allowance for credit losses. Accounts receivable held for sale are reported at the lower of amortized cost or fair value. We have an arrangement to sell the majority of service accounts receivable on a revolving basis, which are treated as sales of financial assets. We maintain an allowance for estimated losses inherent in the accounts receivable portfolio based on a number of factors, including historical experience and current collection trends, aging of the receivable portfolio, credit quality of the customer base and other qualitative factors such as macro-economic conditions. We write off account balances if collection efforts are unsuccessful and the receivable balance is deemed uncollectible, based on customer credit ratings and the length of time from the original billing date.
Equipment Installment Plan Receivables
We offer certain retail customers the option to pay for their devices and certain other purchases in installments typically over a period of 24, but up to 2436, months using an EIP. EIP receivables not held for sale are reported in the balance sheetour Consolidated Balance Sheets at outstanding principal adjusted for any charge-offs, allowance for credit losses and unamortized discounts. Accounts receivable held for sale are reported at the lower of amortized cost or fair value. At the time of an installment sale, we impute a discount for interest if the EIP term exceeds 12 months as there is no stated rate of interest on the EIP receivables and record thereceivables. The EIP receivables are recorded at their present value, which is determined by discounting future cash payments at the imputed interest rate. The difference between the present valuerecorded amount of the EIP receivables and their faceunpaid principal balance (i.e., the contractual amount due from the customer) results in a discount which is allocated to the performance obligations in the arrangement and recorded as a direct reduction to the carrying value with a corresponding reduction to equipmentin transaction price in Total service revenues and Equipment revenues in our Consolidated Statements of Comprehensive Income.Income. We determine the imputed discount rate based primarily on current market interest rates and the amount of expectedestimated credit lossesrisk on the EIP receivables. As a result, we do not recognize a separate valuationcredit loss allowance at the time of issuance as the effects of uncertainty about future cash flows resulting from credit risk are included in the initial present value measurement of the receivable. The imputed discount on EIP receivables is
amortized over the financed installment term using the effective interest method and recognized as Interest incomeOther revenues in our Consolidated Statements of Comprehensive Income.Income.
Subsequent to the initial determination of the imputed discount, we assess the need for and, if necessary, recognize an allowance for credit losses to the extent the amount of estimated probable losses on the gross EIP receivable balances exceed the remaining unamortized imputed discount balances. The allowance is based on a number of factors, including collection experience, aging
Total imputed discount and allowances were approximately 7.0% and 8.1% of the total amount of gross accounts receivable, including EIP receivable portfolio, credit quality of the customer basereceivables, at December 31, 2019 and other qualitative factors such as macro-economic conditions. We write off account balances if collection efforts are unsuccessful and the receivable balance is deemed uncollectible, based on customer credit ratings and the length of time from the original billing date. Equipment sales not reasonably assured to be collectible are recorded on a cash basis as payments are received.2018, respectively.
The current portion of the EIP receivables is included in Equipment installment plan receivables, net and the long-term portion of the EIP receivables is included in Equipment installment plan receivables due after one year, net in our Consolidated Balance Sheets.Sheets. We have an arrangement to sell certain EIP receivables on a revolving basis, which are treated as sales of financial assets.
We maintain an allowance for credit losses and determine its appropriateness through an established process that assesses the losses inherent in our receivables portfolio. We develop and document our allowance methodology at the portfolio segment level - accounts receivable portfolio and EIP receivable portfolio segments. While we attribute portions of the allowance to our respective accounts receivable and EIP portfolio segments, the entire allowance is available to absorb credit losses inherent in the total receivables portfolio.
Our process involves procedures to appropriately consider the unique risk characteristics of our accounts receivable and EIP receivable portfolio segments. For each portfolio segment, losses are estimated collectively for groups of receivables with similar characteristics. Our allowance levels are influenced by receivable volumes, receivable delinquency status, historical loss experience and other conditions influencing loss expectations, such as macro-economic conditions.
Inventories
Inventories consist primarily of wireless devices and accessories, which are valued at the lower of cost or market.net realizable value. Cost is determined using standard cost which approximates average cost. Shipping and handling costs paid to wireless device and accessories vendors, and costs to refurbish used devices recovered through our device upgrade programs are included in the standard cost of inventory. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We record inventory write-downs to net realizable value for obsolete and slow-moving items based on inventory turnover trends and historical experience.
Long-Lived Assets
Long-lived assets include assets that do not have indefinite lives, such as property and equipment and other intangible assets. All of our long-lived assets are located in the U.S., including Puerto Rico and the U.S. Virgin Islands. We assess potential impairments to our long-lived assets when events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If any indicators of impairment are present, we test recoverability. The carrying value of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to be generated from the use and eventual disposition of the asset or asset group. If the undiscounted cash flows do not exceed the asset or asset group’s carrying amount, then an impairment loss is recorded, measured as the amount by which the carrying amount of a long-lived asset or asset group exceeds its fair value.
Property and Equipment
Property and equipment consists of buildings and equipment, wireless communicationcommunications systems, leasehold improvements, capitalized software, leased wireless devices and construction in progress. Buildings and equipment include certain network server equipment. Wireless communicationcommunications systems include assets to operate our wireless network and IT data centers, including tower assets and leasehold improvements and assets related to the liability for the retirement of long-lived assets and capital leases.assets. Leasehold improvements include asset improvements other than those related to the wireless network.
Property and equipment are recorded at cost less accumulated depreciation and impairments, if any, in Property and equipment, net on our Consolidated Balance Sheets.Sheets. We generally depreciate property and equipment over the period the property and equipment provide economic benefit. Depreciable life studies are performed periodically to confirm the appropriateness of usefuldepreciable lives for certain categories of property and equipment. These studies take into account actual usage, physical wear
and tear, replacement history and assumptions about technology evolution. When these factors indicate the useful life of an asset is different from the previous assessment, the remaining book value is depreciated prospectively over the adjusted remaining estimated useful life. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the related lease term.
In 2015, we introduced JUMP! On Demand which allows customers to lease a device over a period of up to 18 months and upgrade it for a new onedevice up to three times in a 12 month period.1 time per month. To date, all of our leased devices were classified as operating leases by considering critical elements of the lease arrangement such as the lease term and the economic life, fair value and residual value of the device.leases. At operating lease inception, leased wireless devices are transferred from inventory to property and equipment. Leased wireless devices are depreciated to their estimated residual value over the period expected to provide utility to us, which is generally shorter than the lease term.term and considers expected losses. Revenues associated with the leased wireless devices, net of incentives, are generally recognized over the lease term. Upon device upgrade or at lease end, customers must return or purchase their device. Returned devices transferred from Property and equipment, net are recorded as inventory and are valued at the lower of cost or marketnet realizable value with any write-down to market recognized asCost of equipment sales in our Consolidated Statements of Comprehensive Income.Income.
Costs of major replacements and improvements are capitalized. Repair and maintenance expenditures which do not enhance or extend the asset’s useful life are charged to operating expenses as incurred. Construction costs, labor and overhead incurred in the expansion or enhancement of our wireless network are capitalized. Capitalization commences with pre-construction period administrative and technical activities, which includes obtaining leases, zoning approvals and building permits, and ceases at the point at which the asset is ready for its intended use. We capitalize interest associated with the acquisition or construction of certain property and equipment. Capitalized interest is reported as a reduction in interest expense and depreciated over the useful life of the related assets.
Future obligations related to capital leases are included in Short-term debt and Long-term debt in our Consolidated Balance Sheets. Depreciation of assets held under capital leases is included in Depreciation and amortization expense in our Consolidated Statements of Comprehensive Income.
We record an asset retirement obligation for the fair value of legal obligations associated with the retirement of tangible long-lived assets and a corresponding increase in the carrying amount of the related asset in the period in which the obligation is incurred. In periods subsequent to initial measurement, we recognize changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate. Over time, the liability is accreted to its present value and the capitalized cost is depreciated over the estimated useful life of the asset. Our obligations relate primarily to certain legal obligations to remediate leased property on which our network infrastructure and administrative assets are located.
We capitalize certain costs incurred in connection with developing or acquiring internal use software. Capitalization of software costs commences once the final selection of the specific software solution has been made and management authorizes and commits to funding the software project. Capitalized software costs are included in Property and equipment, net in our Consolidated Balance Sheets and are amortized on a straight-line basis over the estimated useful life of the asset. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred.
Other Intangible Assets
Intangible assets that do not have indefinite useful lives are amortized over their estimated useful lives. Customer lists are amortized using the sum-of-the-years-digitssum-of-the-years'-digits method over the expected period in which the relationship is expected to contribute to future cash flows. The remaining finite-lived intangible assets are amortized using the straight-line method.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill
Goodwill consists of the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill is allocated to our 2 reporting units, wireless and Layer3.
Spectrum Licenses
Spectrum licenses are carried at costs incurred to acquire the spectrum licenses and the costs to prepare the spectrum licenses for their intended use, such as costs to clear acquired spectrum licenses. The Federal Communications Commission (“FCC”) issues spectrum licenses which provide us with the exclusive right to utilize designated radio frequency spectrum within specific geographic service areas to provide wireless communicationcommunications services. While spectrum licenses are issued for a fixed period of time, typically for up to fifteen years, the FCC has granted license renewals routinely and at a nominal cost. The spectrum licenses held by us expire at various dates. We believe we will be able to meet all requirements necessary to secure renewal of our spectrum licenses at nominal costs. Moreover, we determined there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our spectrum licenses. Therefore, we determined the spectrum licenses should be treated as indefinite-lived intangible assets.
At times, we enter into agreements to sell or exchange spectrum licenses. Upon entering into the arrangement, if the transaction has been deemed to have commercial substance, spectrum licenses are reviewed for impairment and transferred at their carrying value, net of any impairment, to assets held for sale included in Other current assets in our Consolidated Balance Sheets until approval and completion of the exchange or sale. Upon closing of the transaction, spectrum licenses acquired as part of an exchange of nonmonetary assets are valued at fair value and the difference between the fair value of the spectrum licenses obtained, book value of the spectrum licenses transferred and cash paid, if any, is recognized as a gain and included in Gains on disposal of spectrum licenses in our Consolidated Statements of Comprehensive Income.Income. Our fair value estimates of spectrum licenses are based on information for which there is little or no observable market data. If the transaction lacks commercial substance or the fair value is not measurable, the acquired spectrum licenses are recorded at the book value of the assets transferred or exchanged.
Impairment
We assess the carrying value of our goodwill and other indefinite-lived intangible assets, such as our spectrum licenses, for potential impairment annually as of December 31, or more frequently if events or changes in circumstances indicate such assets might be impaired.
WeWhen assessing goodwill for impairment we may elect to first perform a qualitative assessment for a reporting unit to determine whether itif the quantitative impairment test is more likely than not the fair value of the single reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.necessary. If we do not perform a qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of the single2 reporting unitunits, wireless and Layer3, is less than its carrying amount, goodwill is testedwe perform a quantitative test. We recognize an impairment charge for impairment based on a two-step test. In the first step, we compareamount by which the fair value ofcarrying amount exceeds the reporting unit tounit’s fair value; however, the carrying value. The fair value ofloss recognized would not exceed the reporting unit is determined using a market approach, which is based on market capitalization. If the fair value is less than the carrying value, the second step is performed. In the second step, we determine the fair values of all of the assets and liabilities of the reporting unit, including those that may not be currently recorded. The excess of the fair value of the reporting unit over the sum of the fair value of all of those assets and liabilities represents the implied goodwill amount. If the implied fair valuetotal amount of goodwill is lower than its carrying amount, an impairment loss is recognized for the difference.allocated to that reporting unit.
We test our spectrum licenses for impairment on an aggregate basis, consistent with our management of the overall business at a national level. We may elect to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of an intangible asset group is less than its carrying value. If we do not perform the qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of the intangible asset group is less than its carrying amount, we calculate the estimated fair value of the intangible asset group.asset. If the estimated fair value of the spectrum licenses is lower than their carrying amount, an impairment loss is recognized for the difference. We estimate fair value using the Greenfield approach,methodology, which is an income approach based on discounted cash flows associated with the intangible asset, to estimate the price at which an orderly transaction to sell the asset would take place between market participants at the measurement date under current market conditions.
Guarantee Liabilities
We offer a device trade-in program, Just Upgrade My Phone (“JUMP!”), which provides eligible customers a specified-price trade-in right to upgrade their device. ParticipatingUpon enrollment, participating customers must finance the purchase of a device on an EIP and have a qualifying T-Mobile monthly wireless service plan, which is treated as a single multiple-elementan arrangement with multiple performance obligations when entered into at or near the same time. Upon a qualifying JUMP! program upgrade, the customer’s remaining EIP balance is settled provided they trade-in their eligible used device in good working condition and purchase a new device from us on a new EIP.
For customers who enroll in JUMP!, we defer and recognize a liability and reduce revenue for the portion of revenue which represents the estimated fair value of the specified-price trade-in right guarantee. The guarantee liability is valued based on various economic and customer behavioral assumptions, which requires judgment, including estimating the customer's remaining EIP balance at trade-in, the expected fair value of the used device at trade-in, and the probability and timing of trade-in. We assess our guarantee liability at each reporting date to determine if facts and circumstances would indicate the incurrence of an incremental contingent liability is probable and if so, reasonably estimable. The recognition and subsequent adjustments of the contingent guarantee liability as a result of these assessments are recorded as adjustments to revenue. When customers upgrade their device, the difference between the EIP balance credit to the customer and the fair value of the returned device is recorded against the guarantee liabilities. All assumptions are reviewed periodically.
Fair Value Measurements
We carry certain assets and liabilities at fair value. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three tierthree-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs based on the observability as of the measurement date, is as follows:
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Level 1 | Quoted prices in active markets for identical assets or liabilities; |
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Level 2 | Observable inputs other than the quoted prices in active markets for identical assets and liabilities; and |
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Level 3 | Unobservable inputs for which there is little or no market data, which require us to develop assumptions of what market participants would use in pricing the asset or liability. |
Level 1 Quoted prices in active markets for identical assets or liabilities;
Level 2 Observable inputs other than the quoted prices in active markets for identical assets and liabilities; and
Level 3 Unobservable inputs for which there is little or no market data, which require us to develop assumptions of what market participants would use in pricing the asset or liability.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the placement of assets and liabilities being measured within the fair value hierarchy.
The carrying values of cash and cash equivalents, short-term investments, accounts receivable, accounts receivable from affiliates and accounts payable approximate fair value due to the short-term maturities of these instruments. The carrying values of EIP receivables approximate fair value as the receivables are recorded at their present value, net of unamortized discount and allowance for credit losses. There were no financial instruments with a carrying value materially different from their fair value, based on quoted market prices or rates for the same or similar instruments, or internal valuation models.
Derivative Financial Instruments
Derivative financial instruments primarily relate to embedded derivatives for certain components of the reset feature of the Senior Reset Notes to affiliates, which are required to be bifurcatedrecognized as either assets or liabilities and are recorded on the Consolidated Balance Sheetsmeasured at fair value. Changes in fair value are recognized in Interest expense to affiliates in our Consolidated Statements of Comprehensive Income. We do not enter intouse derivatives for trading or speculative purposes.
For derivative instruments designated as cash flow hedges associated with forecasted debt issuances, changes in fair value are reported as a component of Accumulated other comprehensive loss until reclassified into Interest expense in the same period the hedged transaction affects earnings, generally over the life of the related debt. Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses on derivatives designated as cash flow hedges are recorded at fair value as liabilities.
Revenue Recognition (effective January 1, 2018)
We primarily generate our revenue from providing wireless services to customers and selling or leasing devices and accessories. We offer our wireless services and devices toOur contracts with customers through bundled arrangements, which may be comprised of multiple contracts entered into with a customer at or near the same time. In recognizing revenue, we assess such agreements as a single bundled arrangement that may involve multiple deliverables,performance obligations, which include wireless services, wireless devices or a combination thereof, and allocated revenuewe allocate the transaction price between each deliverableperformance obligation based on its relative standalone selling price.
Significant Judgments
The most significant judgments affecting the amount and timing of revenue from contracts with our customers include the following items:
•Revenue for service contracts that we assess are not probable of collection is not recognized until the contract is completed or terminated and cash is received. Collectibility is re-assessed when there is a significant change in facts or circumstances. Our assessment of collectibility considers whether we may limit our exposure to credit risk through our right to stop transferring additional service in the event the customer is delinquent as well as certain contract terms such as down payments that reduce our exposure to credit risk. Customer credit behavior is inherently uncertain. See “Receivables and Allowance for Credit Losses”, above, for more discussion on how we assess credit risk.
•Promotional EIP bill credits offered to a customer on an equipment sale that are paid over time and are contingent on the customer maintaining a service contract may result in an extended service contract based on whether a substantive penalty is deemed to exist. Determining whether contingent EIP bill credits result in a substantive termination penalty may require significant judgment.
•The identification of distinct performance obligations within our service plans may require significant judgment.
•Revenue is recorded net of costs paid to another party for performance obligations where we arrange for the other party to transfer goods or services to the customer (i.e., when we are acting as an agent). For example, performance obligations relating to services provided by third-party content providers where we neither control a right to the content provider’s service nor control the underlying service itself are presented net because we are acting as an agent. The determination of whether we control the underlying service or right to the service prior to our transfer to the customer requires, at times, significant judgment.
•For transactions where we recognize a significant financing component, judgment is required to determine the discount rate. For EIP sales, the discount rate used to adjust the transaction price primarily reflects current market interest rates and the estimated credit risk of the customer. Customer credit behavior is inherently uncertain. See “Receivables and Allowance for Credit Losses”, above, for more discussion on how we assess credit risk.
•Our products are generally sold with a right of return, which is accounted for as variable consideration when estimating the amount of revenue to recognize. Device return levels are estimated based on the relative selling pricesexpected value method as there are a large number of contracts with similar characteristics and the outcome of each deliverable oncontract is independent of the others. Historical return rate experience is a standalone basis.significant input to our expected value methodology.
In June 2016, we introduced #GetThanked, which offers eligible customers•Sales of equipment to indirect dealers who have been identified as our customer (referred to as the following free promotional items as part of their T-Mobile service:
T-Mobile stock - A share of T-Mobile stocksell-in model) often include credits subsequently paid to eligible new (through December 31, 2016) or existing (as of June 6, 2016) customers. Shares issued to customers under this promotion are purchased by an independent third-party broker in the open market on behalf of eligible customers. The associated cost, which is paid by T-Mobile, is recordeddealer as a reductionreimbursement for any discount promotions offered to the end consumer. These credits (payments to a customer) are accounted for as variable consideration when estimating the amount of service revenue for existing customers and as a reductionto recognize from the sales of equipment revenueto indirect dealers and are estimated based on historical experience and other factors, such as expected promotional activity.
•The determination of the standalone selling price for new customers in our Consolidated Statementscontracts that involve more than one performance obligation may require significant judgment, such as when the selling price of Comprehensive Income. Through December 31, 2016, existing eligible customers can also receive a sharegood or service is not readily observable.
•For capitalized contract costs, determining the amortization period over which such costs are recognized as well as assessing the indicators of T-Mobile stock (subject to a maximum of 100 shares in a calendar year) for every new active account they refer, purchased by the third-party broker and paid for by T-Mobile. The cost of shares issued under this refer-a-friend program are included in Selling, general and administrative expense in our Consolidated Statements of Comprehensive Income;
impairment may require significant judgment.
Weekly surprise items - Each Tuesday, eligible customers who download the T-Mobile Tuesday app are informed about and can redeem products and services offered by participating business partners. The associated cost is included in Selling, general and administrative expense in our Consolidated Statements of Comprehensive Income; and
In-flight Wi-Fi - A full hour of in-flight Wi-Fi free to eligible customers on their smartphone on all Gogo-equipped domestic flights. The associated cost, which is paid by T-Mobile, is included in Cost of services in our Consolidated Statements of Comprehensive Income.
Wireless Services Revenue
We generate our wireless serviceservices revenues from providing access to, and usage of, our wireless communications network. Service revenues also include revenues earned for providing value added services to customers, such as handset insurance services. Service revenuescontracts are billed monthly either in advance or arrears, or are prepaid and are recognized when theprepaid. Generally, service is rendered and all other revenue recognition criteria have been met. Revenues that are not reasonably assured to be collectible are recorded on a cash basis as payments are received. The recognition of prepaid revenue is deferred untilrecognized as we satisfy our performance obligation to transfer service to our customers. We typically satisfy our stand-ready performance obligations, including unlimited wireless services, evenly over the contract term. For usage-based and prepaid wireless services, we satisfy our performance obligations when services are rendered or the prepaid balance expires. Incentives givenrendered.
Consideration payable to customers are recordeda customer is treated as a reduction of the total transaction price, unless the payment is in exchange for a distinct good or service, such as certain commissions paid to revenue. We recognize service revenues for Data Stash plans when such services are delivered and the data is consumed, or at time of forfeiture or expiration. Revenues relating to unused data that is carried over to the following month are deferred and valued based on their relative standalone selling price. Revenue is recorded gross for arrangements involving the resale of third-party services where we are considered the primary obligor and is recorded net of associated costs incurred for services whereby we are not considered the primary obligor.dealers.
Federal Universal Service Fund (“USF”) and other fees are assessed by various governmental authorities in connection with the services we provide to our customers.customers and are included in Cost of services. When we separately bill and collect these regulatory fees from customers, they are recorded gross in Total service revenues and cost of services in our Consolidated Statements of Comprehensive Income.Income. For the years ended December 31, 2016, 20152019, 2018 and 2014,2017, we recorded approximately $409$93 million, $334$161 million and $349$258 million, respectively, of USF and other fees on a gross basis.
We have made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer (e.g., sales, use, value added, and some excise taxes).
Equipment Revenues
We generate equipment revenues from the sale or lease of mobile communication devices and accessories. Device and accessory sales revenues are generally recognizedFor performance obligations related to equipment contracts, we typically transfer control at a point in time when the products aredevice or accessory is delivered to, and accepted by, the customer or dealer. We defer a portionhave elected to account for shipping and handling activities that occur after control of equipment revenues and costthe related good transfers as fulfillment activities instead of equipment sales for expectedassessing such activities as performance obligations. We estimate variable consideration (e.g., device returns or certain payments to indirect dealers) primarily based on historical experience. Equipment sales not probable of collection are generally recorded as payments are received. Our assessment of collectibility considers contract terms such as down payments that reduce our exposure to credit risk.
We offer certain customers the option to pay for devices and accessories in installments using an EIP. Generally, we recognize as a reduction of the total transaction price the effects of a financing component in contracts where customers purchase their devices and accessories on an EIP with a term of more than one year, including those financing components that are not considered to be significant to the contract. However, we have elected the practical expedient to not recognize the effects of a
significant financing component for contracts where we expect, at contract inception, that the period between the transfer of a performance obligation to a customer and the customer’s payment for that performance obligation will be one year or less.
In addition, for customers who enroll in our JUMP! program, we recognize a liability based on the estimated fair value of the specified-price trade-in right guarantee. The fair value of the guarantee is deducted from the transaction price and the remaining transaction price is allocated to other elements of the contract, including service and equipment performance obligations. See EIP Receivables section“Guarantee Liabilities” above for further information.
In addition, for customers enrolled in JUMP!, we separate the JUMP! trade-in right from the multiple element arrangement at its fair value and defer the portion of revenue which represents the fair value of the trade-in right. See Guarantee Liabilities section above for further information. In 2015, we introduced JUMP! On Demand which allows customers to lease a device over a period of up to 18 months and upgrade their leased wireless deviceit for a new onedevice up to three times in a 12 month period. Leasedone time per month. To date, all of our leased wireless devices are accounted for as operating leases and estimated contract consideration is allocated between lease elements and non-lease elements (such as service and equipment performance obligations) based on the relative standalone selling price of each performance obligation in the contract. Lease revenues are recorded as equipment revenues and recognized as earned on a straight-line basis over the lease term. The residual valueLease revenues on contracts not probable of purchased leased devices is recorded as equipment revenuescollection are limited to the amount of payments received. See “Property and cost of equipment sales. See Property and Equipment sectionEquipment” above for further information.
Contract Balances
Rent Expense
Generally, our devices and service plans are available at standard prices, which are maintained on price lists and published on our website and/or within our retail stores.
For contracts that involve more than one product or service that are identified as separate performance obligations, the transaction price is allocated to the performance obligations based on their relative standalone selling prices. The standalone selling price is the price at which we would sell the good or service separately to a customer and is most commonly evidenced by the price at which we sell that good or service separately in similar circumstances and to similar customers.
A contract asset is recorded when revenue is recognized in advance of our right to receive consideration (i.e., we must perform additional services in order to receive consideration). Amounts are recorded as receivables when our right to consideration is unconditional. When consideration is received, or we have an unconditional right to consideration in advance of delivery of goods or services, a contract liability is recorded. The transaction price can include non-refundable upfront fees, which are allocated to the identifiable performance obligations.
Contract assets are included in Other current assets and Other assets and contract liabilities are included in Deferred revenue in our Consolidated Balance Sheets.
Contract Modifications
Our service contracts allow customers to frequently modify their contracts without incurring penalties in many cases. Each time a contract is modified, we evaluate the change in scope or price of the contract to determine if the modification should be treated as a separate contract, as if there is a termination of the existing contract and creation of a new contract, or if the modification should be considered a change associated with the existing contract. We typically do not have significant impacts from contract modifications.
Contract Costs
We have operating leases for cell sites, retail locations, corporate officesincur certain incremental costs to obtain a contract that we expect to recover, such as sales commissions. We record an asset when these incremental costs to obtain a contract are incurred and dedicated transportation lines, someamortize them on a systematic basis that is consistent with the transfer to the customer of the goods or services to which have escalating rentals during the initial lease term and during subsequent optional renewal periods. asset relates.
We recognize rent expenseamortize deferred costs incurred to obtain service contracts on a straight-line basis over the non-cancelable lease term and renewal periods that are considered reasonably assured at the inception of the lease. We consider several factorsinitial contract and anticipated renewal contracts to which the costs relate, currently 24 months for postpaid service contracts. However, we have elected the practical expedient permitting expensing of costs to obtain a contract when the expected amortization period is one year or less for prepaid service contracts.
Incremental costs to obtain equipment contracts (e.g., commissions paid on device and accessory sales) are recognized when the equipment is transferred to the customer.
Advertising Expense
We expense the cost of advertising and other promotional expenditures to market our services and products as incurred. For the years ended December 31, 2016, 20152019, 2018 and 2014,2017, advertising expenses included in Selling, general and administrative expenses in our Consolidated Statements of Comprehensive Income were $1.6 billion, $1.7 billion $1.6and $1.8 billion, and $1.4 billion, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to be in effect when these differences are realized. A valuation allowance is recorded when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of a deferred tax asset depends on the ability to generate sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions within the carryforward periods available.
We account for uncertainty in income taxes recognized in the financial statements in accordance with the accounting guidance onfor the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We assess whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position and adjust the unrecognized tax benefits in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) consists of adjustments, net of tax, related to unrealized gains (losses) on cash flow hedges and available-for-sale securities. This is reported in AOCIAccumulated other comprehensive loss as a separate component of stockholders’ equity until realized in earnings.
Stock-Based Compensation
Stock-based compensation cost for stock awards, which include restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”), is measured at fair value on the grant date and recognized as expense, net of expected forfeitures, over the related service period. The fair value of stock awards is based on the closing price of our common stock on the date of grant. RSUs are recognized as expense using the straight-line method. PSUsPRSUs are recognized as expense following a graded vesting schedule.schedule with their performance re-assessed and updated on a quarterly basis, or more frequently as changes in facts and circumstances warrant.
Earnings Per Share
Basic earnings per share is computed by dividing Net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by giving effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of outstanding stock options, RSUs and PRSUs, calculated using the treasury stock method, and prior to the conversion of our preferred stock in December 2017, potentially dilutive common shares included mandatory convertible preferred stock (“preferred stock”), calculated using the if-converted method. See Note 14 - Earnings Per Share for further information.
Variable Interest Entities
VIEs are entities whichthat lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, have equity investors whichthat do not have the ability to make significant decisions relating to the entity's operations through voting rights, do not have the obligation to absorb the expected losses or do not have the right to receive the residual returns of the entity. The most common type of VIE is a special purpose entity (“SPE”). SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. SPEs are generally structured to insulate investors from claims on the SPE's assets by creditors of other entities, including the creditors of the seller of the assets.
The primary beneficiary is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party which has both the power to direct the activities of an entity that most significantly impact the VIE's economic performance, and through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE which could potentially be significant to the VIE. We consolidate VIEs when we are deemed to be the primary beneficiary or when the VIE cannot be deconsolidated.
In assessing which party is the primary beneficiary, all the facts and circumstances are considered, including each party’s role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE (such as asset managers and servicers) or have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE.
Accounting Pronouncements Adopted During the Current Year
Leases
In MarchFebruary 2016, the Financial Accounting Standards Board (the “FASB”(“FASB”) issued Accounting Standards Update (ASU) 2016-09, “Compensation - Stock CompensationASU 2016-02, “Leases (Topic 718): Improvements to Employee Share-Based Payment Accounting,842),” which simplifies several aspects of the accounting for shared-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. We elected to adopt this standard effective as of January 1, 2016. The impacts on our consolidated financial statements from the adoption of this standard are as follows:
Consolidated Balance Sheets - A $38 million decrease to the January 1, 2016 Accumulated deficit balance from the recognition, on a modified retrospective basis, of all previously unrecognized income tax attributes related to share-based payments;
Consolidated Statements of Comprehensive Income - On a prospective basis, all excess tax benefits and deficiencies related to share-based payments will be recognized through Income tax expense. Prior period amounts were not adjusted; and
Consolidated Statements of Cash Flows - On a prospective basis, as permitted, excess tax benefits related to share-based payments will be presented as operating activities. Prior period amounts were not adjusted.
In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” The standard requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. We adopted this new guidance in the first quarter of 2016 and applied the changes retrospectively. The implementation of this standard did not have a significant impact on our consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The standard requires us to assess our ability to continue as a going concern each interim and annual reporting period and provide certain disclosures if there is substantial doubt about our ability to continue as a going concern, including management’s plan to alleviate the substantial doubt. We adopted this new guidance in the fourth quarter of 2016. The implementation of this standard did not have an impact on our consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), and has since modified the standard with several ASU’s.
ASUs (collectively, the “new lease standard”). The new lease standard requires entities to recognize revenue through the application of a five-step model, which includes the: 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 standard becomeswas effective for us, beginningand we adopted the standard, on January 1, 2018; however, early adoption with the original effective date for periods beginning January 1, 2017 is permitted. 2019.
We plan to adoptadopted the standard when it becomes effective for us beginning January 1, 2018.
The guidance permits two methods ofby recognizing and measuring leases at the adoption the full retrospective method applying the standard to each prior reporting period presented, or the modified retrospective methoddate with a cumulative effect of initially applying the guidance recognized at the date of initial application. application and as a result did not restate the prior periods presented in the Consolidated Financial Statements.
The new lease standard also allows entities to apply certainprovides for a number of optional practical expedients in transition. We did not elect the “package of practical expedients” and as a result reassessed under the new lease standard our prior accounting conclusions about lease identification, lease classification and initial direct costs. We elected to use hindsight for determining the reasonably certain lease term. We did not elect the practical expedient pertaining to land easements as it is not applicable to us.
The new lease standard provides practical expedients and policy elections for an entity’s ongoing accounting. Generally, we elected the practical expedient to not separate lease and non-lease components in arrangements whereby we are the lessee. For arrangements in which we are the lessor of wireless devices, we did not elect this practical expedient. We did not elect the short-term lease recognition exemption, which includes the recognition of right-of-use assets and lease liabilities for existing short-term leases at their discretion.transition. We currently anticipate adoptinghave also applied this election to all active leases at transition.
The most significant judgments and impacts upon adoption of the standard usinginclude the modified retrospective methodfollowing:
•In evaluating contracts to determine if they qualify as a lease, we consider factors such as if we have obtained or transferred substantially all of the rights to the underlying asset through exclusivity, if we can or if we have transferred the ability to direct the use of the asset by making decisions about how and for what purpose the asset will be used and if the lessor has substantive substitution rights.
•We recognized right-of-use assets and operating lease liabilities for operating leases that have not previously been recorded. The lease liability for operating leases is based on the net present value of future minimum lease payments. The right-of-use asset for operating leases is based on the lease liability adjusted for the reclassification of certain balance sheet amounts such as prepaid rent and deferred rent, which we remeasured at adoption due to the application of hindsight to our lease term estimates. Deferred and prepaid rent are no longer presented separately.
•Capital lease assets previously included within Property and equipment, net were reclassified to financing lease right-of-use assets, and capital lease liabilities previously included in Short-term debt and Long-term debt were reclassified to financing lease liabilities in our Consolidated Balance Sheet.
•Certain line items in the Consolidated Statements of Cash Flows and the “Supplemental disclosure of cash flow information” have been renamed to align with the new terminology presented in the new lease standard; “Repayment of capital lease obligations” is now presented as “Repayments of financing lease obligations” and “Assets acquired under capital lease obligations” is now presented as “Financing lease right-of-use assets obtained in exchange for lease obligations.” In the “Operating Activities” section of the Consolidated Statements of Cash Flows we have added “Operating lease right-of-use assets” and “Short and long-term operating lease liabilities” which represent the change
in the operating lease asset and liability, respectively. Additionally, in the “Supplemental disclosure of cash flow information” section of the Consolidated Statements of Cash Flows we have added “Operating lease payments,” and in the “Noncash investing and financing activities” section we have added “Operating lease right-of-use assets obtained in exchange for lease obligations.”
•In determining the discount rate used to measure the right-of-use asset and lease liability, we use rates implicit in the lease, or if not readily available, we use our incremental borrowing rate. Our incremental borrowing rate is based on an estimated secured rate comprised of a cumulative catch up adjustmentrisk-free LIBOR rate plus a credit spread as secured by our assets. Determining a credit spread as secured by our assets may require significant judgment.
•Certain of our lease agreements include rental payments based on changes in the consumer price index (“CPI”). Lease liabilities are not remeasured as a result of changes in the CPI; instead, changes in the CPI are treated as variable lease payments and providing additional disclosures comparing resultsare excluded from the measurement of the right-of-use asset and lease liability. These payments are recognized in the period in which the related obligation was incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
•We elected the use of hindsight whereby we applied current lease term assumptions that are applied to previous rules.
We continue to evaluatenew leases in determining the impactexpected lease term period for all cell sites. Upon adoption of the new lease standard and application of hindsight, our expected lease term has shortened to reflect payments due for the initial non-cancelable lease term only. This assessment corresponds to our lease term assessment for new leases and aligns with the payments that have been disclosed as lease commitments in prior years. As a result, the average remaining lease term for cell sites has decreased from approximately nine to five years based on lease contracts in effect at transition on January 1, 2019. The aggregate impact of using hindsight is an estimated decrease in Total operating expenses of $240 million in fiscal year 2019.
•We were also required to reassess the previously failed sale-leasebacks of certain T-Mobile-owned wireless communications tower sites and determine whether the transfer of the assets to the tower operator under the arrangement met the transfer of control criteria in the revenue standard and whether a sale should be recognized. Determining whether the transfer of control criteria has been met requires significant judgement.
•We concluded that a sale has not occurred for the 6,200 tower sites transferred to Crown Castle International Corp. (“CCI”) pursuant to a master prepaid lease arrangement; therefore, these sites will continue to be accounted for as failed sale-leasebacks.
•We concluded that a sale should be recognized for the 900 tower sites transferred to CCI pursuant to the sale of a subsidiary and for the 500 tower sites transferred to Phoenix Tower International (“PTI”). Upon adoption on January 1, 2019, we derecognized our existing long-term financial obligation and the tower-related property and equipment associated with these 1,400 previously failed sale-leaseback tower sites and recognized a lease liability and right-of-use asset for the leaseback of the tower sites. The impacts from the change in accounting conclusion are primarily a decrease in Other revenues of $44 million and a decrease in Interest expense of $34 million in fiscal year 2019.
•Rental revenues and expenses associated with co-location tower sites are presented on a net basis under the new lease standard. These revenues and expenses were presented on a gross basis under the former lease standard.
Including the impacts from a change in the accounting conclusion on the 1,400 previously failed sale-leaseback tower sites, the cumulative effect of initially applying the new lease standard on January 1, 2019 is as follows:
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| January 1, 2019 | | | | |
(in millions) | Beginning Balance | | Cumulative Effect Adjustment | | Beginning Balance, As Adjusted |
Assets | | | | | |
Other current assets | $ | 1,676 | | | $ | (78) | | | $ | 1,598 | |
Property and equipment, net | 23,359 | | | (2,339) | | | 21,020 | |
Operating lease right-of-use assets | — | | | 9,251 | | | 9,251 | |
Financing lease right-of-use assets | — | | | 2,271 | | | 2,271 | |
Other intangible assets, net | 198 | | | (12) | | | 186 | |
Other assets | 1,623 | | | (71) | | | 1,552 | |
Liabilities and Stockholders’ Equity | | | | | |
Accounts payable and accrued liabilities | 7,741 | | | (65) | | | 7,676 | |
Other current liabilities | 787 | | | 28 | | | 815 | |
Short-term and long-term debt | 12,965 | | | (2,015) | | | 10,950 | |
Tower obligations | 2,557 | | | (345) | | | 2,212 | |
Deferred tax liabilities | 4,472 | | | 231 | | | 4,703 | |
Deferred rent expense | 2,781 | | | (2,781) | | | — | |
Short-term and long-term operating lease liabilities | — | | | 11,364 | | | 11,364 | |
Short-term and long-term financing lease liabilities | — | | | 2,016 | | | 2,016 | |
Other long-term liabilities | 967 | | | (64) | | | 903 | |
Accumulated deficit | (12,954) | | | 653 | | | (12,301) | |
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Including the impacts from the change in the accounting conclusion on the 1,400 previously failed sale-leaseback tower sites and the change in presentation on the income statement of the 6,200 tower sites for which a sale did not occur, the cumulative effects of initially applying the new lease standard for the year ended December 31, 2019 are estimated as follows:
•The aggregate impact is a decrease in Other revenues of $185 million, a decrease in Total operating expenses of $380 million, a decrease in Interest expense of $34 million and an increase to Net income of $175 million.
•The impact on our consolidated financial statements but anticipate thisConsolidated Statements of Cash Flows is a decrease in Net cash provided by operating activities of $10 millionand a decrease in Net cash used in financing activities of $10 million.
For arrangements where we are the lessor, including arrangements to lease devices to our service customers, the adoption of the new lease standard willdid not have a material impact on our consolidated financial statements. While westatements as these leases are continuingclassified as operating leases.
Device lease payments are presented as Equipment revenues and recognized as earned on a straight-line basis over the lease term. Recognition of equipment revenue on lease contracts that are determined to assess all potential impactsnot be probable of the standard, we currently believe the most significant impacts may include the following items:
Whether our EIP contracts contain a significant financing component, whichcollection is similarlimited to our current practice of imputing interest, and would similarly impact the amount of revenue recognizedpayments received. We have made an accounting policy election to exclude from the consideration in the contract all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer (e.g., sales, use, value added, and some excise taxes).
At operating lease inception, leased wireless devices are transferred from Inventory to Property and equipment, net. Leased wireless devices are depreciated to their estimated residual value over the period expected to provide utility to us, which is generally shorter than the lease term and considers expected losses. Returned devices transferred from Property and equipment, net, are recorded as Inventory and are valued at the timelower of an EIP sale and whethercost or not a portion of the revenue ismarket with any write-down to market recognized as interest rather thanCost of equipment revenue.sales in our Consolidated Statements of Comprehensive Income.
As we currently expense contract acquisition costs and 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.
Whether bill credits earned over time result in extended service contracts, which would impact the allocation and timing of revenue between service revenue and equipment revenue.
Overall, with the exception of the aforementioned impacts, weWe 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 recognizedhave any leasing transactions with related parties. See Note 15 - Leases for most of our service contracts.further information.
We are still in the process of evaluating these impacts, and our initial assessment may change as we continue to refine our systems, process and assumptions.
We are in the process of implementinghave implemented significant new revenuelease accounting systems, processes and internal controls over revenue recognition which will ultimatelylease accounting to assist us in the application of the new lease standard.
In February 2016,
Lease Expense
We have operating leases for cell sites, retail locations, corporate offices and dedicated transportation lines, some of which have escalating rentals during the initial lease term and during subsequent optional renewal periods. We recognize a right-of-use asset and a lease liability for most leases. The income statement recognition is similar to existing lease accounting and isoperating leases based on the net present value of future minimum lease classification. The standard requires lesseespayments. Lease expense is recognized on a straight-line basis over the non-cancelable lease term and lessors to classify most leases using principles similar to existing lease accounting, but eliminatesrenewal periods that are considered reasonably certain.
We consider several factors in assessing whether renewal periods are reasonably certain of being exercised, including the “bright line” classification tests. For lessors,continued maturation of our network nationwide, technological advances within the standard modifies the classification criteriatelecommunications industry and the accountingavailability of alternative sites.
We have financing leases for sales-typecertain network equipment. The financing leases do not have renewal options and direct financing leases. The standard will become effective for us beginning January 1, 2019 and will require recognizing and measuring leasescontain a bargain purchase option at the beginningend of the earliest period presented usinglease. We recognize a modified retrospective approach. Early adoptionright-of-use asset and lease liability for financing leases based on the net present value of future minimum lease payments. Lease expense for our financing leases is permitted. We are currently evaluatingcomprised of the standardamortization of the right-of-use asset and interest expense recognized based on the timing of adoption but expect that it will have a material impact on our consolidated financial statements.effective interest method.
Accounting Pronouncements Not Yet Adopted
Financial Instruments
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.Instruments,” and has since modified the standard with several ASUs (collectively, the “new credit loss standard”). The new credit loss standard requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectibility of the reported amount. The new credit loss standard will become effective for us beginning on January 1, 2020, and will requirerequires 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).
We will adopt the new credit loss standard on January 1, 2020, and plan to recognize lifetime expected credit losses at the inception of our credit risk exposures whereas we currently recognize credit losses only when it is probable that they have been incurred. We will also recognize expected credit losses on our EIP receivables, excluding consideration of any unamortized discount on those receivables resulting from the imputation of interest. We currently offset our estimate of incurred losses on our EIP receivables by the amount of the related unamortized discounts on those receivables. We have developed an expected credit loss model and are refining the inputs including the forward-looking loss indicators. The estimated impact of the new credit loss standard on our receivables portfolio as of December 31, 2019, would be an increase to our allowance for credit losses of $85 million to $95 million, a decrease to our net deferred tax liabilities of $22 million to $25 million and an increase to our Accumulated deficit of $63 million to $70 million.
Cloud Computing Arrangements
In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We will adopt the standard on a prospective basis beginning on the effective date of January 1, 2020. Upon adoption of the standard, implementation costs are capitalized in the period incurred, which will result in an increase to Other assets in our Consolidated Balance Sheets. These capitalized amounts will be amortized over the term of the hosting arrangement to Cost of services or Selling, general and administrative expenses in our Consolidated Statements of Comprehensive Income based on the nature of the hosting arrangement. The impact of this standard on our Consolidated Financial Statements is dependent on the nature and composition of the hosting arrangements entered into subsequent to adoption.
Income Taxes
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The standard will become effective for us beginning January 1, 2021. Early adoption is permitted for us as of January 1, 2019.at any time. We are currently evaluating the impact this guidance will have on our consolidated financial statementsConsolidated Financial Statements and the timing of adoption.
In August 2016,
Other recent accounting pronouncements issued by the FASB issued ASU 2016-15, “Statement(including its Emerging Issues Task Force), the American Institute of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The standard provides guidance on how certain cash receipts and payments are presented and classified in the statement of cash flows, including beneficial interests in securitization, which would impact the presentation of the deferred purchase price from sales of receivables. The standard is intended to reduce current diversity in practice. The standard will become effective for us beginning January 1, 2018 and will require a retrospective approach. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the impact this guidance will have on our consolidated financial statementsCertified Public Accountants, and the timing of adoption.
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 salesSecurities 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 willExchange Commission (the “SEC”) did not have, or are not expected to have, a materialsignificant impact on our consolidated financial statements.present or future Consolidated Financial Statements.
Note 2 – Business Combinations
Proposed Sprint Transactions
On April 29, 2018, we entered into a Business Combination Agreement to merge with Sprint in an all-stock transaction at a fixed exchange ratio of 0.10256 shares of T-Mobile common stock for each share of Sprint common stock, or 9.75 shares of Sprint common stock for each share of T-Mobile common stock (the “Merger”). The combined company will be named “T-Mobile” and, as a result of the Merger, is expected to be able to rapidly launch a broad and deep nationwide 5G network, accelerate innovation and increase competition in the U.S. wireless, video and broadband industries. Neither T-Mobile nor Sprint on its own could generate comparable benefits to consumers.
The Merger and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”) have been approved by the boards of directors of T-Mobile and Sprint and the required approvals of the stockholders of each of T-Mobile and Sprint have been obtained. Immediately following the Merger, it is anticipated that Deutsche Telekom AG (“DT”) and SoftBank Group Corp. (“SoftBank”) will hold, directly or indirectly, on a fully diluted basis, approximately 41.5% and 27.2%, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 31.3% of the outstanding T-Mobile common stock held by other stockholders, based on closing share prices and certain other assumptions as of December 31, 2019.
In November 2016,connection with the FASB issued ASU 2016-18, “Statemententry into the Business Combination Agreement, T-Mobile USA, Inc. (“T-Mobile USA”) entered into commitment letter, dated as of April 29, 2018 (as amended and restated on May 15, 2018 and on September 6, 2019, the “Commitment Letter”). The funding of the debt facilities provided for in the Commitment Letter is subject to the satisfaction of the conditions set forth therein, including consummation of the Merger. The proceeds of the debt financing provided for in the Commitment Letter will be used to refinance certain existing debt of us, Sprint and our and Sprint’s respective subsidiaries and for post-closing working capital needs of the combined company. See Note 8 – Debtfor further information.
In connection with the entry into the Business Combination Agreement, DT and T-Mobile USA entered into a Financing Matters Agreement, dated as of April 29, 2018 (the “Financing Matters Agreement”), pursuant to which DT agreed, among other things, to consent to, subject to certain conditions, certain amendments to certain existing debt owed to DT, in connection with the Merger. If the Merger is consummated, we will make payments for requisite consents to DT of $13 million. There was no payment accrued as of December 31, 2019. See Note 8 – Debtfor further information.
On May 18, 2018, under the terms and conditions described in the Consent Solicitation Statement dated as of May 14, 2018 (the "Consent Solicitation Statement"), we obtained consents necessary to effect certain amendments to certain existing debt of us and our subsidiaries. If the Merger is consummated, we will make payments for requisite consents to third-party note holders of $95 million. There were 0 consent payments accrued as of December 31, 2019.
Under the terms of the Business Combination Agreement, if the Business Combination Agreement is terminated, Sprint may be required to reimburse us for 33% of the consent, bank, and other fees we paid or accrued, which totaled $18 million as of December 31, 2019. There were 0 reimbursements accrued as of December 31, 2019. Sprint also obtained consents necessary to effect certain amendments to certain existing debt of Sprint and its subsidiaries. In connection with receiving the requisite consents, Sprint made upfront payments to third-party note holders and related bank fees of $242 million. Under the terms of the Business Combination Agreement, if the Business Combination Agreement is terminated, we may also be required to reimburse Sprint for 67% of the upfront consent and related bank fees it paid, which totaled $162 million as of December 31, 2019. There were 0 fees accrued as of December 31, 2019.
We recognized Merger-related costs of $620 million and $196 million for the years ended December 31, 2019 and 2018, respectively. These costs generally included consulting and legal fees and were recognized as Selling, general and administrative expenses in our Consolidated Statements of Comprehensive Income. Payments for Merger-related costs were $442 million and $86 million for the years ended December 31, 2019 and 2018, respectively, and were recognized within Net cash provided by operating activities in our Consolidated Statements of Cash Flows (Topic 230): Restricted Cash.” Flows.
The standard requires entitiesBusiness Combination Agreement contains certain termination rights for both Sprint and us. If we terminate the Business Combination Agreement in connection with a failure to includesatisfy the closing condition related to specified minimum credit ratings for the combined company on the closing date of the Merger (after giving effect to the Merger) from at least two of the three credit rating agencies, then in their cash and cash-equivalent balances in the statement of cash flows those amounts that are deemedcertain circumstances, we may be required 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 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 inpay Sprint an amount equal to $600 million.
On June 18, 2018, we filed a Public Interest Statement and applications for approval of the Merger with the FCC. On July 18, 2018, the FCC issued a Public Notice formally accepting our applications and establishing a period for public comment. On May 20, 2019, to facilitate the FCC’s review and approval of the FCC license transfers associated with the proposed Merger, we and Sprint filed with the FCC a written ex parte presentation (the “Presentation”) relating to the proposed Merger. The Presentation included proposed commitments from us and Sprint. The FCC approved the Merger on November 5, 2019.
On June 11, 2019, a number of state attorneys general filed a lawsuit against us, DT, Sprint, and SoftBank in the U.S. District Court for the Southern District of New York, alleging that excess, limited by the amountMerger, if consummated, would violate Section 7 of goodwill inthe Clayton Act and so should be enjoined. After it was filed, several additional states joined the lawsuit. Of the states that reporting unit. The standard will become effective for us beginning January 1, 2020joined the lawsuit, two have subsequently withdrawn from the suit having resolved their concerns with the Merger. We believe the plaintiffs’ claims are without merit, and must be applied to any annual or interim goodwill impairment assessmentshave defended the case vigorously. Trial concluded after that date. Early adoption is permitted.two weeks of witness testimony and presentation of document evidence. We are now waiting for the trial court’s ruling. On November 25, 2019, individual consumers filed a similar lawsuit in the Northern District of California. That case has been stayed pending the outcome of the New York litigation.
On July 26, 2019, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Sprint and DISH Network Corporation (“DISH”). We and Sprint are collectively referred to as the “Sellers.” Pursuant to the Asset Purchase Agreement, upon the terms and subject to the conditions thereof, following the consummation of the Merger, DISH will acquire Sprint’s prepaid wireless business, currently evaluatingoperated under the standard, but expect that itBoost Mobile and Sprint prepaid brands (excluding the Assurance brand Lifeline customers and the prepaid wireless customers of Shenandoah Telecommunications Company and Swiftel Communications, Inc.), including customer accounts, inventory, contracts, intellectual property and certain other specified assets (the “Prepaid Business”), and will notassume certain related liabilities (the “Prepaid Transaction”). DISH will pay the Sellers $1.4 billion for the Prepaid Business, subject to a working capital adjustment. The consummation of the Prepaid Transaction is subject to the consummation of the Merger and other customary closing conditions.
At the closing of the Prepaid Transaction, the Sellers and DISH will enter into (i) a License Purchase Agreement pursuant to which (a) the Sellers will sell certain 800 MHz spectrum licenses held by Sprint to DISH for a total of approximately $3.6 billion in a transaction to be completed, subject to certain additional closing conditions, following an application for FCC approval to be filed three years following the closing of the Merger and (b) the Sellers will have a material impact on our consolidated financial statements.
Note 2 – Equipment Installment Plan Receivables
We offer certain retail customers the option to paylease back from DISH, as needed, a portion of the spectrum sold for their devices and accessoriesan additional two years following the closing of the spectrum sale transaction, (ii) a Transition Services Agreement providing for the Sellers’ provision of transition services to DISH in installments overconnection with the Prepaid Business for a period of up to 24 months usingthree years following the closing of the Prepaid Transaction, (iii) a Master Network Services Agreement providing for the Sellers’ provision of network services to customers of the Prepaid Business for a period of up to seven years following the closing of the Prepaid Transaction, and (iv) an EIP.Option to Acquire Tower and Retail Assets offering DISH the option to acquire certain decommissioned towers and retail locations from the Sellers, subject to obtaining all necessary third-party consents, for a period of up to five years following the closing of the Prepaid Transaction.
On July 26, 2019, in connection with the entry into the Asset Purchase Agreement, we and the other parties to the Business Combination Agreement entered into Amendment No. 1 (the “Amendment”) to the Business Combination Agreement. The following table summarizesAmendment extended the EIP receivables:Outside Date (as defined in the Business Combination Agreement) to November 1, 2019, or, if the Marketing Period (as defined in the Business Combination Agreement) had started and was in effect at such date, then January 2, 2020. Because the Transactions were not completed by the Outside Date, each of T-Mobile and Sprint currently has the right to terminate the Business Combination Agreement or the terms may be amended.
On July 26, 2019, the U.S. Department of Justice (the “DOJ”) filed a complaint and a proposed final judgment (the “Proposed Consent Decree”) agreed to by us, DT, Sprint, SoftBank and DISH with the U.S. District Court for the District of Columbia.
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(in millions) | December 31, 2016 | | December 31, 2015 |
EIP receivables, gross | $ | 3,230 |
| | $ | 3,558 |
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Unamortized imputed discount | (195 | ) | | (185 | ) |
EIP receivables, net of unamortized imputed discount | 3,035 |
| | 3,373 |
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Allowance for credit losses | (121 | ) | | (148 | ) |
EIP receivables, net | $ | 2,914 |
| | $ | 3,225 |
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Classified on the balance sheet as: | | | |
Equipment installment plan receivables, net | $ | 1,930 |
| | $ | 2,378 |
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Equipment installment plan receivables due after one year, net | 984 |
| | 847 |
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EIP receivables, net | $ | 2,914 |
| | $ | 3,225 |
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The Proposed Consent Decree would fully resolve DOJ’s investigation into the Merger and would require the parties to, among other things, carry out the divestitures to be made pursuant to the Asset Purchase Agreement described above upon closing of the Merger. The Proposed Consent Decree is subject to judicial approval.
The consummation of the Merger remains subject to certain closing conditions. We use a proprietary credit scoring model that measuresexpect the credit qualityMerger will be permitted to close in early 2020.
Note 3 – Receivables and Allowance for Credit Losses
Our portfolio of a customer at the timereceivables is comprised of application for mobile communications2 portfolio segments: accounts receivable and EIP receivables. Our accounts receivable segment primarily consists of amounts currently due from customers, including service using several factors, such as credit bureau information, consumer credit risk scores and service plan characteristics. leased device receivables, other carriers and third-party retail channels.
Based upon customer credit profiles, we classify the EIP receivables segment into the credit categories2 customer classes of “Prime” and “Subprime.” Prime customer receivables are those with lower delinquency risk and Subprime customer receivables are those with higher delinquency risk. Subprime customersCustomers 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 forTo determine a customer’s credit profile, we use a proprietary credit scoring model that measures the credit quality of a customer are classifiedusing several factors, such 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 generatedcredit bureau information, consumer credit risk scores and the payment is past the contractual due date are classified as Billed – Past Due.service and device plan characteristics.
The balance and aging offollowing table summarizes the EIP receivables, on a gross basis byincluding imputed discounts and related allowance for credit category were as follows:losses:
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(in millions) | December 31, 2019 | | December 31, 2018 |
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EIP receivables, gross | $ | 4,582 | | | $ | 4,534 | |
Unamortized imputed discount | (299) | | | (330) | |
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EIP receivables, net of unamortized imputed discount | 4,283 | | | 4,204 | |
Allowance for credit losses | (100) | | | (119) | |
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EIP receivables, net | $ | 4,183 | | | $ | 4,085 | |
Classified on the balance sheet as: | | | |
Equipment installment plan receivables, net | $ | 2,600 | | | $ | 2,538 | |
Equipment installment plan receivables due after one year, net | 1,583 | | | 1,547 | |
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EIP receivables, net | $ | 4,183 | | | $ | 4,085 | |
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| December 31, 2016 | | December 31, 2015 |
(in millions) | Prime | | Subprime | | Total | | Prime | | Subprime | | Total |
Unbilled | $ | 1,343 |
| | $ | 1,686 |
| | $ | 3,029 |
| | $ | 1,593 |
| | $ | 1,698 |
| | $ | 3,291 |
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Billed – Current | 51 |
| | 77 |
| | 128 |
| | 77 |
| | 91 |
| | 168 |
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Billed – Past Due | 25 |
| | 48 |
| | 73 |
| | 37 |
| | 62 |
| | 99 |
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EIP receivables, gross | $ | 1,419 |
| | $ | 1,811 |
| | $ | 3,230 |
| | $ | 1,707 |
| | $ | 1,851 |
| | $ | 3,558 |
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The increase in subprime EIP receivables as a percentageTo determine the appropriate level of total EIP receivables is primarily due to the EIP sale arrangement funding increase during the year ended December 31, 2016.
Activity for the years ended December 31, 2016 and 2015 in the unamortized imputed discount and allowance for credit losses, we consider a number of credit quality factors, including historical credit losses and timely payment experience as well as current collection trends such as write-off frequency and severity, aging of the receivable portfolio, credit quality of the customer base and other qualitative factors such as macro-economic conditions.
We write off account balances forif collection efforts are unsuccessful and the receivable balance is deemed uncollectible, based on factors such as customer credit ratings and the length of time from the original billing date.
For EIP receivables, was as follows:subsequent to the initial determination of the imputed discount, we assess the need for and, if necessary, recognize an allowance for credit losses to the extent the amount of estimated incurred losses on the gross EIP receivable balances exceed the remaining unamortized imputed discount balances.
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(in millions) | December 31, 2016 | | December 31, 2015 |
Imputed discount and allowance for credit losses, beginning of year | $ | 333 |
| | $ | 448 |
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Bad debt expense | 250 |
| | 365 |
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Write-offs, net of recoveries | (277 | ) | | (333 | ) |
Change in imputed discount on short-term and long-term EIP receivables | 186 |
| | (84 | ) |
Impacts from sales of EIP receivables | (176 | ) | | (63 | ) |
Imputed discount and allowance for credit losses, end of year | $ | 316 |
| | $ | 333 |
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The EIP receivables had weighted average effective imputed interest rates of 9.0%8.8% and 8.8%10.0% as of December 31, 20162019, and 2015,2018, respectively.
Activity for the years ended December 31, 2019, 2018 and 2017, in the allowance for credit losses and unamortized imputed discount balances for the accounts receivable and EIP receivables segments were as follows:
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| December 31, 2019 | | | | | | December 31, 2018 | | | | | | December 31, 2017 | | | | |
(in millions) | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total | | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total | | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total |
| | | | | | | | | | | | | | | | | |
Allowance for credit losses and imputed discount, beginning of period | $ | 67 | | | $ | 449 | | | $ | 516 | | | $ | 86 | | | $ | 396 | | | $ | 482 | | | $ | 102 | | | $ | 316 | | | $ | 418 | |
Bad debt expense | 77 | | | 230 | | | 307 | | | 69 | | | 228 | | | 297 | | | 104 | | | 284 | | | 388 | |
Write-offs, net of recoveries | (83) | | | (249) | | | (332) | | | (88) | | | (240) | | | (328) | | | (120) | | | (273) | | | (393) | |
Change in imputed discount on short-term and long-term EIP receivables | N/A | | | 136 | | | 136 | | | N/A | | | 250 | | | 250 | | | N/A | | | 252 | | | 252 | |
Impact on the imputed discount from sales of EIP receivables | N/A | | | (167) | | | (167) | | | N/A | | | (185) | | | (185) | | | N/A | | | (183) | | | (183) | |
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Allowance for credit losses and imputed discount, end of period | $ | 61 | | | $ | 399 | | | $ | 460 | | | $ | 67 | | | $ | 449 | | | $ | 516 | | | $ | 86 | | | $ | 396 | | | $ | 482 | |
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Management considers the aging of receivables to be an important credit indicator. The following table provides delinquency status for the unpaid principal balance for receivables within the EIP portfolio segment, which we actively monitor as part of our current credit risk management practices and policies:
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| December 31, 2019 | | | | | | December 31, 2018 | | | | |
(in millions) | Prime | | Subprime | | Total EIP Receivables, gross | | Prime | | Subprime | | Total EIP Receivables, gross |
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Current - 30 days past due | $ | 2,384 | | | $ | 2,108 | | | $ | 4,492 | | | $ | 1,987 | | | $ | 2,446 | | | $ | 4,433 | |
31 - 60 days past due | 13 | | | 28 | | | 41 | | | 15 | | | 32 | | | 47 | |
61 - 90 days past due | 7 | | | 17 | | | 24 | | | 6 | | | 19 | | | 25 | |
More than 90 days past due | 7 | | | 18 | | | 25 | | | 7 | | | 22 | | | 29 | |
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Total receivables, gross | $ | 2,411 | | | $ | 2,171 | | | $ | 4,582 | | | $ | 2,015 | | | $ | 2,519 | | | $ | 4,534 | |
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Note 34 – Sales of Certain Receivables
We have entered into transactions to sell certain service and EIP accounts receivables. The transactions, including our continuing involvement with the sold receivables and the respective impacts to our financial statements,Consolidated Financial Statements, are described below.
Sales of Service ReceivablesAccounts Receivable
Overview of the Transaction
In 2014, we entered into an arrangement to sell certain service accounts receivablesreceivable on a revolving basis with a maximum funding commitment of $750 million (the “service receivable sale arrangement”). The maximum funding commitment of the service receivable sale arrangement is $950 million. In November 2016,February 2019, the service receivable sale arrangement was amended to increaseextend the maximum funding commitment to $950 million with a scheduled expiration date, inas well as certain third-party credit support under the arrangement, to March 2018.2021. As of December 31, 20162019 and 2015,2018, the service receivable sale arrangement provided funding of $907$924 million and $750$774 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 receivablesreceivable (the “Service BRE”). The Service BRE does not qualify as a Variable Interest Entity (“VIE”),VIE, and due to the significant level of control we exercise over the entity, it is consolidated. Pursuant to the service receivable sale 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 entitiesentity and servicing of receivables. We do not hold the power to direct the key decisions underlying these activities. For example, while we act as the servicer of the sold receivables, which is considered a significant activity of the Service VIE, we
are acting as an agent in our capacity as the servicer and the counterparty to the service receivable sale arrangement has the ability to remove us as the servicing agent of the receivables at will with no recourse available to us. As we have determined we are not the primary beneficiary, the balances and results of the Service VIE are not consolidated intoincluded in our consolidated financial statements.Consolidated Financial Statements.
The following table summarizes the carrying amounts and classification of assets, which consists primarily of the deferred purchase price and liabilities included in our Consolidated Balance Sheets that relate to our variable interest in the Service VIE:
| | | | | | | | | | | |
(in millions) | December 31, 2019 | | December 31, 2018 |
Other current assets | $ | 350 | | | $ | 339 | |
Accounts payable and accrued liabilities | 25 | | | 59 | |
Other current liabilities | 342 | | | 149 | |
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(in millions) | December 31, 2016 | | December 31, 2015 |
Other current assets | $ | 207 |
| | $ | 206 |
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Accounts payable and accrued liabilities | 17 |
| | — |
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Other current liabilities | 129 |
| | 73 |
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Sales of EIP Receivables
Overview of the Transaction
In 2015, we entered into an arrangement to sell certain EIP accounts receivablesreceivable on a revolving basis with a maximum funding commitment of $800 million (the “EIP sale arrangement”). In June 2016,The maximum funding commitment of the EIP sale arrangement was amended to increase the maximum funding commitment tois $1.3 billion, with aand the scheduled expiration date inis November 2017. 2020.
As of both December 31, 20162019 and 2015,2018, the EIP sale arrangement provided funding of $1.2 billion and $800 million, respectively.$1.3 billion. Sales of EIP receivables occur daily and are settled on a monthly basis. The receivables consist of customer EIP balances, which require monthly customer payments for up to 24 months.
In connection with this EIP sale arrangement, we formed a wholly-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 third-party entity qualify as a VIE.
Variable Interest Entity
We determined that the EIP BRE is a VIE as its equity investment at risk lacks the obligation to absorb a certain portion of its expected losses. We have a variable interest in the EIP BRE and 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 consolidated financial statements.Consolidated Financial Statements.
The following table summarizes the carrying amounts and classification of assets, (primarilywhich consists primarily of the deferred purchase price)price, and liabilities included in our Consolidated Balance Sheets that relate to the EIP BRE:
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(in millions) | December 31, 2019 | | December 31, 2018 |
Other current assets | $ | 344 | | | $ | 321 | |
Other assets | 89 | | | 88 | |
Other long-term liabilities | 18 | | | 22 | |
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(in millions) | December 31, 2016 | | December 31, 2015 |
Other current assets | $ | 371 |
| | $ | 164 |
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Other assets | 83 |
| | 44 |
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Accounts payable and accrued liabilities | — |
| | 14 |
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Other long-term liabilities | 4 |
| | 3 |
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In addition, the EIP BRE is a separate legal entity with its own separate creditors who will be entitled, prior to any liquidation of the EIP BRE, to be satisfied prior to any value in the EIP BRE becoming available to us. Accordingly, the assets of the EIP BRE may not be used to settle our general obligations and creditors of the EIP BRE have limited recourse to our general credit.
Sales of ReceivablesOther Intangible Assets
Intangible assets that do not have indefinite useful lives are amortized over their estimated useful lives. Customer lists are amortized using the sum-of-the-years'-digits method over the expected period in which the relationship is expected to contribute to future cash flows. The transfers of service receivablesremaining finite-lived intangible assets are amortized using the straight-line method.
Goodwill 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 amountIndefinite-Lived Intangible Assets
Goodwill
Goodwill consists of the receivables. We recognize the net cash proceeds in Net cash provided by operating activities in our Consolidated Statements of Cash Flows.
The proceeds are netexcess of the deferred purchase price consisting of a receivable fromover 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 that we may not recover substantially all of our recorded investment, due to default by the customers on the underlying receivables. We elected, at inception, to measure the deferred purchase price at fair value with changes in fair value included in Selling, general and administrative expense in our Consolidated Statements of Comprehensive Income. The fair value of identifiable net assets acquired in a business combination. Goodwill is allocated to our 2 reporting units, wireless and Layer3.
Spectrum Licenses
Spectrum licenses are carried at costs incurred to acquire the deferred purchase price is determined based on a discounted cash flow modelspectrum licenses and the costs to prepare the spectrum licenses for their intended use, such as costs to clear acquired spectrum licenses. The Federal Communications Commission (“FCC”) issues spectrum licenses which uses primarily unobservable inputs (Level 3 inputs), including customer default rates. As of December 31, 2016 and 2015, our deferred purchase price related to the sales of service receivables and EIP receivables was $659 million and $389 million, respectively.
The following table summarizes the impacts of the sale of certain service receivables and EIP receivables in our Consolidated Balance Sheets:
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(in millions) | December 31, 2016 | | December 31, 2015 |
Derecognized net service receivables and EIP receivables | $ | 2,502 |
| | $ | 1,850 |
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Other current assets | 578 |
| | 370 |
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of which, deferred purchase price | 576 |
| | 345 |
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Other long-term assets | 83 |
| | 44 |
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of which, deferred purchase price | 83 |
| | 44 |
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Accounts payable and accrued liabilities | 17 |
| | 14 |
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Other current liabilities | 129 |
| | 73 |
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Other long-term liabilities | 4 |
| | 3 |
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Net cash proceeds since inception | 2,030 |
| | 1,494 |
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Of which: | | | |
Net cash proceeds during the year-to-date period | 536 |
| | 884 |
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Net cash proceeds funded by reinvested collections | 1,494 |
| | 610 |
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We recognized losses from sales of receivables of $228 million, $204 million and $179 million for the years ended December 31, 2016, 2015 and 2014, respectively. These losses from sales of receivables were recognized in Selling, general and administrative expense in our Consolidated Statements of Comprehensive Income. Losses from sales of receivables include adjustments to the receivables’ fair values and changes in fair value of the deferred purchase price.
Continuing Involvement
Pursuant to the sale arrangements described above, we have continuing involvementprovide us with the exclusive right to utilize designated radio frequency spectrum within specific geographic service receivables and EIP receivables we sell as we service the receivables andareas to provide wireless communications services. While spectrum licenses are required to repurchase certain receivables, including ineligible receivables, aged receivables and receivables where write-off is imminent. We continue to service the customers and their related receivables, including facilitating customer payment collection, in exchangeissued for a monthly servicing fee. Asfixed period of time, typically for up to fifteen years, the receivables are sold onFCC has granted license renewals routinely and at a revolving basis, the customer payment collections on sold receivables maynominal cost. The spectrum licenses held by us expire at various dates. We believe we will be reinvested in new receivable sales. While servicing the receivables, we apply the same policies and proceduresable to the sold receivables as we applymeet all requirements necessary 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 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 $1.1 billion as of December 31, 2016. 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 indicationsecure renewal of our expected loss.
Note 4 – Property and Equipment
The components of property and equipment were as follows:
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(in millions) | Useful Lives | | December 31, 2016 | | December 31, 2015 |
Buildings and equipment | Up to 40 years | | $ | 1,657 |
| | $ | 1,900 |
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Wireless communications systems | Up to 20 years | | 29,272 |
| | 27,063 |
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Leasehold improvements | Up to 12 years | | 1,068 |
| | 1,003 |
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Capitalized software | Up to 7 years | | 8,488 |
| | 8,524 |
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Leased wireless devices | Up to 18 months | | 2,624 |
| | 2,236 |
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Construction in progress | | | 2,613 |
| | 2,466 |
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Accumulated depreciation and amortization | | | (24,779 | ) | | (23,192 | ) |
Property and equipment, net | | | $ | 20,943 |
| | $ | 20,000 |
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Wireless communication systems include capital lease agreements for network equipment with varying expiration terms through 2030. Capital lease assets and accumulated amortization were $1.6 billion and $300 million, and $839 million and $117 million, as of December 31, 2016 and 2015, respectively.
We capitalize interest associated withspectrum licenses at nominal costs. Moreover, we determined there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the acquisition or construction of certain property and equipment. We recognized capitalized interest of $142 million, $230 million and $81 million for the years ended December 31, 2016, 2015 and 2014, respectively.
The components of leased wireless devices under our JUMP! On Demand program were as follows:
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(in millions) | December 31, 2016 | | December 31, 2015 |
Leased wireless devices, gross | $ | 2,624 |
| | $ | 2,236 |
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Accumulated depreciation | (1,193 | ) | | (263 | ) |
Leased wireless devices, net | $ | 1,431 |
| | $ | 1,973 |
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Future minimum payments expected to be received over the lease term related to the leased wireless devices, which exclude optional residual buy-out amounts at the end of the lease term, are summarized below:
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| | | |
(in millions) | Total |
Year Ending December 31, | |
2017 | $ | 710 |
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2018 | 92 |
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Total | $ | 802 |
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Depreciation expense relating to property and equipment was $6.0 billion, $4.4 billion and $4.1 billion for the years ended December 31, 2016, 2015 and 2014, respectively. Depreciation expense for the years ended December 31, 2016 and 2015 included $1.5 billion and $312 million, respectively, related to leased wireless devices.
For the years ended December 31, 2016, 2015 and 2014, we recorded additional depreciation expense of $101 million, $85 million and $242 million, respectively, as a result of adjustments to useful lives of network equipment expectedour spectrum licenses. Therefore, we determined the spectrum licenses should be treated as indefinite-lived intangible assets.
At times, we enter into agreements to sell or exchange spectrum licenses. Upon entering into the arrangement, if the transaction has been deemed to have commercial substance, spectrum licenses are reviewed for impairment and transferred at their carrying value, net of any impairment, to assets held for sale included in connection with our network transformation and decommissioning the MetroPCS CDMA network and redundant network cell sites.
Asset retirement obligations are primarily for certain legal obligations to remediate leased property on which our network infrastructure and administrativeOther current assets are located.
Activity in our asset retirement obligations was as follows:
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(in millions) | December 31, 2016 | | December 31, 2015 |
Asset retirement obligations, beginning of year | $ | 483 |
| | $ | 390 |
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Liabilities incurred | 50 |
| | 19 |
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Liabilities settled | (67 | ) | | (130 | ) |
Accretion expense | 24 |
| | 17 |
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Changes in estimated cash flows | 49 |
| | 187 |
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Asset retirement obligations, end of year | $ | 539 |
| | $ | 483 |
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Classified on the balance sheet as: | | | |
Other current liabilities | $ | 16 |
| | $ | 41 |
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Other long-term liabilities | 523 |
| | 442 |
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Asset retirement obligations | $ | 539 |
| | $ | 483 |
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The corresponding assets, netConsolidated Balance Sheets until approval and completion of accumulated depreciation, related to asset retirement obligations were $258 million and $241 million as of December 31, 2016 and 2015, respectively. For the year ended December 31, 2015, we settled asset retirement obligations in connection with the decommissioning of certain cell sites. Due to new information gained throughout 2015, primarily from decommissioning the MetroPCS CDMA network cell sites, we reassessed the expected cash flows related to its asset retirement obligations for all remaining T-Mobile network cell sites. As a result, we recorded asset retirement obligations and corresponding assets in the fourth quarter of 2015 to reflect the change in estimated cash flows.
Note 5 – Goodwill, Spectrum Licenses and Other Intangible Assets
Goodwill
There were no changes in carrying values of goodwill for the years ended December 31, 2016 and 2015.
Spectrum Licenses
The following table summarizes our spectrum license activity:
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(in millions) | December 31, 2016 | | December 31, 2015 |
Spectrum licenses, beginning of year | $ | 23,955 |
| | $ | 21,955 |
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Spectrum license acquisitions | 3,334 |
| | 2,615 |
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Spectrum licenses transferred to held for sale | (324 | ) | | (727 | ) |
Costs to clear spectrum | 49 |
| | 112 |
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Spectrum licenses, end of year | $ | 27,014 |
| | $ | 23,955 |
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We had the following spectrum license transactions during 2016:
We closed on the agreement with AT&T Inc. for the acquisition and exchange of certain spectrum licenses.or sale. Upon closing of the transaction, duringspectrum licenses acquired as part of an exchange of nonmonetary assets are valued at fair value and the first quarterdifference between the fair value of 2016, we recorded the spectrum licenses received at their estimated fairobtained, book value of approximately $1.2 billionthe spectrum licenses transferred and cash paid, if any, is recognized as a gain of $636 millionand included in Gains on disposal of spectrum licenses in our Consolidated Statements of Comprehensive Income.
Income. Our fair value estimates of spectrum licenses are based on information for which there is little or no observable market data. If the transaction lacks commercial substance or the fair value is not measurable, the acquired spectrum licenses are recorded at the book value of the assets transferred or exchanged.
Impairment
We closed on agreements with multiple third parties forassess the purchasecarrying value of our goodwill and exchange of certainother indefinite-lived intangible assets, such as our spectrum licenses, for $1.3 billionpotential impairment annually as of December 31, or more frequently if events or changes in cash. Upon closingcircumstances indicate such assets might be impaired.
When assessing goodwill for impairment we may elect to first perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. If we do not perform a qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of the transactions,2 reporting units, wireless and Layer3, is less than its carrying amount, we recordedperform a quantitative test. We recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit.
We test our spectrum licenses for impairment on an aggregate basis, consistent with our management of the overall business at a national level. We may elect to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of an intangible asset is less than its carrying value. If we do not perform the qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of the intangible asset is less than its carrying amount, we calculate the estimated fair value of the intangible asset. If the estimated fair value of the spectrum licenses is lower than their carrying amount, an impairment loss is recognized for the difference. We estimate fair value using the Greenfield methodology, which is an income approach based on discounted cash flows associated with the intangible asset, to estimate the price at which an orderly transaction to sell the asset would take place between market participants at the measurement date under current market conditions.
Guarantee Liabilities
We offer a device trade-in program, Just Upgrade My Phone (“JUMP!”), which provides eligible customers a specified-price trade-in right to upgrade their device. Upon enrollment, participating customers must finance the purchase of a device on an EIP and have a qualifying T-Mobile monthly wireless service plan, which is treated as an arrangement with multiple performance obligations when entered into at or near the same time. Upon a qualifying JUMP! program upgrade, the customer’s remaining EIP balance is settled provided they trade-in their eligible used device in good working condition and purchase a new device from us on a new EIP.
For customers who enroll in JUMP!, we recognize a liability and reduce revenue for the portion of revenue which represents the estimated fair value of the specified-price trade-in right guarantee. The guarantee liability is valued based on various economic and customer behavioral assumptions, which requires judgment, including estimating the customer's remaining EIP balance at trade-in, the expected fair value of the used device at trade-in, and the probability and timing of trade-in. When customers upgrade their device, the difference between the EIP balance credit to the customer and the fair value of the returned device is recorded against the guarantee liabilities. All assumptions are reviewed periodically.
Fair Value Measurements
We carry certain assets and liabilities at fair value. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs based on the observability as of the measurement date, is as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities;
Level 2 Observable inputs other than the quoted prices in active markets for identical assets and liabilities; and
Level 3 Unobservable inputs for which there is little or no market data, which require us to develop assumptions of what market participants would use in pricing the asset or liability.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the placement of assets and liabilities being measured within the fair value hierarchy.
The carrying values of cash and cash equivalents, short-term investments, accounts receivable, accounts receivable from affiliates and accounts payable approximate fair value due to the short-term maturities of these instruments. The carrying values of EIP receivables approximate fair value as the receivables are recorded at their present value, net of unamortized discount and allowance for credit losses. There were no financial instruments with a carrying value materially different from their fair value, based on quoted market prices or rates for the same or similar instruments, or internal valuation models.
Derivative Financial Instruments
Derivative financial instruments are recognized as either assets or liabilities and are measured at fair value. We do not use derivatives for trading or speculative purposes.
For derivative instruments designated as cash flow hedges associated with forecasted debt issuances, changes in fair value are reported as a component of Accumulated other comprehensive loss until reclassified into Interest expense in the same period the hedged transaction affects earnings, generally over the life of the related debt. Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses on derivatives designated as cash flow hedges are recorded at fair value as liabilities.
Revenue Recognition (effective January 1, 2018)
We primarily generate our revenue from providing wireless services to customers and selling or leasing devices and accessories. Our contracts with customers may involve multiple performance obligations, which include wireless services, wireless devices or a combination thereof, and we allocate the transaction price between each performance obligation based on its relative standalone selling price.
Significant Judgments
The most significant judgments affecting the amount and timing of revenue from contracts with our customers include the following items:
•Revenue for service contracts that we assess are not probable of collection is not recognized until the contract is completed or terminated and cash is received. Collectibility is re-assessed when there is a significant change in facts or circumstances. Our assessment of collectibility considers whether we may limit our exposure to credit risk through our right to stop transferring additional service in the event the customer is delinquent as well as certain contract terms such as down payments that reduce our exposure to credit risk. Customer credit behavior is inherently uncertain. See “Receivables and Allowance for Credit Losses”, above, for more discussion on how we assess credit risk.
•Promotional EIP bill credits offered to a customer on an equipment sale that are paid over time and are contingent on the customer maintaining a service contract may result in an extended service contract based on whether a substantive penalty is deemed to exist. Determining whether contingent EIP bill credits result in a substantive termination penalty may require significant judgment.
•The identification of distinct performance obligations within our service plans may require significant judgment.
•Revenue is recorded net of costs paid to another party for performance obligations where we arrange for the other party to transfer goods or services to the customer (i.e., when we are acting as an agent). For example, performance obligations relating to services provided by third-party content providers where we neither control a right to the content provider’s service nor control the underlying service itself are presented net because we are acting as an agent. The determination of whether we control the underlying service or right to the service prior to our transfer to the customer requires, at times, significant judgment.
•For transactions where we recognize a significant financing component, judgment is required to determine the discount rate. For EIP sales, the discount rate used to adjust the transaction price primarily reflects current market interest rates and the estimated fair values totaling approximately $1.7 billioncredit risk of the customer. Customer credit behavior is inherently uncertain. See “Receivables and Allowance for Credit Losses”, above, for more discussion on how we assess credit risk.
•Our products are generally sold with a right of return, which is accounted for as variable consideration when estimating the amount of revenue to recognize. Device return levels are estimated based on the expected value method as there are a large number of contracts with similar characteristics and the outcome of each contract is independent of the others. Historical return rate experience is a significant input to our expected value methodology.
•Sales of equipment to indirect dealers who have been identified as our customer (referred to as the sell-in model) often include credits subsequently paid to the dealer as a reimbursement for any discount promotions offered to the end consumer. These credits (payments to a customer) are accounted for as variable consideration when estimating the amount of revenue to recognize from the sales of equipment to indirect dealers and are estimated based on historical experience and other factors, such as expected promotional activity.
•The determination of the standalone selling price for contracts that involve more than one performance obligation may require significant judgment, such as when the selling price of a good or service is not readily observable.
•For capitalized contract costs, determining the amortization period over which such costs are recognized gainsas well as assessing the indicators of $199 millionimpairment may require significant judgment.
Wireless Services Revenue
We generate our wireless services revenues from providing access to, and usage of, our wireless communications network. Service revenues also include revenues earned for providing value added services to customers, such as handset insurance services. Service contracts are billed monthly either in advance or arrears, or are prepaid. Generally, service revenue is recognized as we satisfy our performance obligation to transfer service to our customers. We typically satisfy our stand-ready performance obligations, including unlimited wireless services, evenly over the contract term. For usage-based and prepaid wireless services, we satisfy our performance obligations when services are rendered.
Consideration payable to a customer is treated as a reduction of the total transaction price, unless the payment is in exchange for a distinct good or service, such as certain commissions paid to dealers.
Federal Universal Service Fund (“USF”) and other fees are assessed by various governmental authorities in connection with the services we provide to our customers and are included in Gains on disposalCost of spectrum licensesservices. When we separately bill and collect these regulatory fees from customers, they are recorded gross in Total service revenues in our Consolidated Statements of Comprehensive Income.
Income. For the years ended December 31, 2019, 2018 and 2017, we recorded approximately $93 million, $161 million and $258 million, respectively, of USF fees on a gross basis.
We closedhave made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer (e.g., sales, use, value added, and some excise taxes).
Equipment Revenues
We generate equipment revenues from the sale or lease of mobile communication devices and accessories. For performance obligations related to equipment contracts, we typically transfer control at a point in time when the device or accessory is delivered to, and accepted by, the customer or dealer. We have elected to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities instead of assessing such activities as performance obligations. We estimate variable consideration (e.g., device returns or certain payments to indirect dealers) primarily based on historical experience. Equipment sales not probable of collection are generally recorded as payments are received. Our assessment of collectibility considers contract terms such as down payments that reduce our exposure to credit risk.
We offer certain customers the option to pay for devices and accessories in installments using an EIP. Generally, we recognize as a reduction of the total transaction price the effects of a financing component in contracts where customers purchase their devices and accessories on an agreementEIP with a third partyterm of more than one year, including those financing components that are not considered to be significant to the contract. However, we have elected the practical expedient to not recognize the effects of a
significant financing component for contracts where we expect, at contract inception, that the period between the transfer of certain spectrum licenses covering approximately 11 million peoplea performance obligation to a customer and the customer’s payment for approximately $420 million duringthat performance obligation will be one year or less.
In addition, for customers who enroll in our JUMP! program, we recognize a liability based on the fourth quarterestimated fair value of 2016.the specified-price trade-in right guarantee. The fair value of the guarantee is deducted from the transaction price and the remaining transaction price is allocated to other elements of the contract, including service and equipment performance obligations. See “Guarantee Liabilities” above for further information.
We entered into an agreement withJUMP! On Demand allows customers to lease a third partydevice over a period of up to 18 months and upgrade it for a new device up to one time per month. To date, all of our leased wireless devices are accounted for as operating leases and estimated contract consideration is allocated between lease elements and non-lease elements (such as service and equipment performance obligations) based on the exchangerelative standalone selling price of certain spectrum licenses, which is expected to closeeach performance obligation in the first halfcontract. Lease revenues are recorded as equipment revenues and recognized as earned on a straight-line basis over the lease term. Lease revenues on contracts not probable of 2017. Our spectrum licensescollection are limited to be transferredthe amount of payments received. See “Property and Equipment” above for further information.
Contract Balances
Generally, our devices and service plans are available at standard prices, which are maintained on price lists and published on our website and/or within our retail stores.
For contracts that involve more than one product or service that are identified as partseparate performance obligations, the transaction price is allocated to the performance obligations based on their relative standalone selling prices. The standalone selling price is the price at which we would sell the good or service separately to a customer and is most commonly evidenced by the price at which we sell that good or service separately in similar circumstances and to similar customers.
A contract asset is recorded when revenue is recognized in advance of our right to receive consideration (i.e., we must perform additional services in order to receive consideration). Amounts are recorded as receivables when our right to consideration is unconditional. When consideration is received, or we have an unconditional right to consideration in advance of delivery of goods or services, a contract liability is recorded. The transaction price can include non-refundable upfront fees, which are allocated to the exchange transaction were reclassified asidentifiable performance obligations.
Contract assets held for sale and wereare included in Other current assets and Other assets and contract liabilities are included in Deferred revenue in our Consolidated Balance SheetsSheets.
Contract Modifications
Our service contracts allow customers to frequently modify their contracts without incurring penalties in many cases. Each time a contract is modified, we evaluate the change in scope or price of the contract to determine if the modification should be treated as a separate contract, as if there is a termination of the existing contract and creation of a new contract, or if the modification should be considered a change associated with the existing contract. We typically do not have significant impacts from contract modifications.
Contract Costs
We incur certain incremental costs to obtain a contract that we expect to recover, such as sales commissions. We record an asset when these incremental costs to obtain a contract are incurred and amortize them on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates.
We amortize deferred costs incurred to obtain service contracts on a straight-line basis over the term of the initial contract and anticipated renewal contracts to which the costs relate, currently 24 months for postpaid service contracts. However, we have elected the practical expedient permitting expensing of costs to obtain a contract when the expected amortization period is one year or less for prepaid service contracts.
Incremental costs to obtain equipment contracts (e.g., commissions paid on device and accessory sales) are recognized when the equipment is transferred to the customer.
See Note 1 - Summary of Significant Accounting Policies included in our Annual Report on Form 10-K for the year ended December 31, 2017 for more discussion regarding the accounting policies that governed revenue recognition prior to January 1, 2018.
Advertising Expense
We expense the cost of advertising and other promotional expenditures to market our services and products as incurred. For the years ended December 31, 2019, 2018 and 2017, advertising expenses included in Selling, general and administrative expenses in our Consolidated Statements of Comprehensive Income were $1.6 billion, $1.7 billion and $1.8 billion, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to be in effect when these differences are realized. A valuation allowance is recorded when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of a deferred tax asset depends on the ability to generate sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions within the carryforward periods available.
We account for uncertainty in income taxes recognized in the financial statements in accordance with the accounting guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We assess whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position and adjust the unrecognized tax benefits in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) consists of adjustments, net of tax, related to unrealized gains (losses) on cash flow hedges and available-for-sale securities. This is reported in Accumulated other comprehensive loss as a separate component of stockholders’ equity until realized in earnings.
Stock-Based Compensation
Stock-based compensation cost for stock awards, which include restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”), is measured at their carryingfair value on the grant date and recognized as expense, net of expected forfeitures, over the related service period. The fair value of $86stock awards is based on the closing price of our common stock on the date of grant. RSUs are recognized as expense using the straight-line method. PRSUs are recognized as expense following a graded vesting schedule with their performance re-assessed and updated on a quarterly basis, or more frequently as changes in facts and circumstances warrant.
Earnings Per Share
Basic earnings per share is computed by dividing Net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by giving effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of outstanding stock options, RSUs and PRSUs, calculated using the treasury stock method, and prior to the conversion of our preferred stock in December 2017, potentially dilutive common shares included mandatory convertible preferred stock calculated using the if-converted method. See Note 14 - Earnings Per Share for further information.
Variable Interest Entities
VIEs are entities that lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, have equity investors that do not have the ability to make significant decisions relating to the entity's operations through voting rights, do not have the obligation to absorb the expected losses or do not have the right to receive the residual returns of the entity. The most common type of VIE is a special purpose entity (“SPE”). SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. SPEs are generally structured to insulate investors from claims on the SPE's assets by creditors of other entities, including the creditors of the seller of the assets.
The primary beneficiary is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party which has both the power to direct the activities of an entity that most significantly impact the VIE's economic performance, and through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE which could potentially be significant to the VIE. We consolidate VIEs when we are deemed to be the primary beneficiary or when the VIE cannot be deconsolidated.
In assessing which party is the primary beneficiary, all the facts and circumstances are considered, including each party’s role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE (such as asset managers and servicers) or have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE.
Accounting Pronouncements Adopted During the Current Year
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, “Leases (Topic 842),” and has since modified the standard with several ASUs (collectively, the “new lease standard”). The new lease standard was effective for us, and we adopted the standard, on January 1, 2019.
We adopted the standard by recognizing and measuring leases at the adoption date with a cumulative effect of initially applying the guidance recognized at the date of initial application and as a result did not restate the prior periods presented in the Consolidated Financial Statements.
The new lease standard provides for a number of optional practical expedients in transition. We did not elect the “package of practical expedients” and as a result reassessed under the new lease standard our prior accounting conclusions about lease identification, lease classification and initial direct costs. We elected to use hindsight for determining the reasonably certain lease term. We did not elect the practical expedient pertaining to land easements as it is not applicable to us.
The new lease standard provides practical expedients and policy elections for an entity’s ongoing accounting. Generally, we elected the practical expedient to not separate lease and non-lease components in arrangements whereby we are the lessee. For arrangements in which we are the lessor of wireless devices, we did not elect this practical expedient. We did not elect the short-term lease recognition exemption, which includes the recognition of right-of-use assets and lease liabilities for existing short-term leases at transition. We have also applied this election to all active leases at transition.
The most significant judgments and impacts upon adoption of the standard include the following:
•In evaluating contracts to determine if they qualify as a lease, we consider factors such as if we have obtained or transferred substantially all of the rights to the underlying asset through exclusivity, if we can or if we have transferred the ability to direct the use of the asset by making decisions about how and for what purpose the asset will be used and if the lessor has substantive substitution rights.
•We recognized right-of-use assets and operating lease liabilities for operating leases that have not previously been recorded. The lease liability for operating leases is based on the net present value of future minimum lease payments. The right-of-use asset for operating leases is based on the lease liability adjusted for the reclassification of certain balance sheet amounts such as prepaid rent and deferred rent, which we remeasured at adoption due to the application of hindsight to our lease term estimates. Deferred and prepaid rent are no longer presented separately.
•Capital lease assets previously included within Property and equipment, net were reclassified to financing lease right-of-use assets, and capital lease liabilities previously included in Short-term debt and Long-term debt were reclassified to financing lease liabilities in our Consolidated Balance Sheet.
•Certain line items in the Consolidated Statements of Cash Flows and the “Supplemental disclosure of cash flow information” have been renamed to align with the new terminology presented in the new lease standard; “Repayment of capital lease obligations” is now presented as “Repayments of financing lease obligations” and “Assets acquired under capital lease obligations” is now presented as “Financing lease right-of-use assets obtained in exchange for lease obligations.” In the “Operating Activities” section of the Consolidated Statements of Cash Flows we have added “Operating lease right-of-use assets” and “Short and long-term operating lease liabilities” which represent the change
in the operating lease asset and liability, respectively. Additionally, in the “Supplemental disclosure of cash flow information” section of the Consolidated Statements of Cash Flows we have added “Operating lease payments,” and in the “Noncash investing and financing activities” section we have added “Operating lease right-of-use assets obtained in exchange for lease obligations.”
•In determining the discount rate used to measure the right-of-use asset and lease liability, we use rates implicit in the lease, or if not readily available, we use our incremental borrowing rate. Our incremental borrowing rate is based on an estimated secured rate comprised of a risk-free LIBOR rate plus a credit spread as secured by our assets. Determining a credit spread as secured by our assets may require significant judgment.
•Certain of our lease agreements include rental payments based on changes in the consumer price index (“CPI”). Lease liabilities are not remeasured as a result of changes in the CPI; instead, changes in the CPI are treated as variable lease payments and are excluded from the measurement of the right-of-use asset and lease liability. These payments are recognized in the period in which the related obligation was incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
•We elected the use of hindsight whereby we applied current lease term assumptions that are applied to new leases in determining the expected lease term period for all cell sites. Upon adoption of the new lease standard and application of hindsight, our expected lease term has shortened to reflect payments due for the initial non-cancelable lease term only. This assessment corresponds to our lease term assessment for new leases and aligns with the payments that have been disclosed as lease commitments in prior years. As a result, the average remaining lease term for cell sites has decreased from approximately nine to five years based on lease contracts in effect at transition on January 1, 2019. The aggregate impact of using hindsight is an estimated decrease in Total operating expenses of $240 million in fiscal year 2019.
•We were also required to reassess the previously failed sale-leasebacks of certain T-Mobile-owned wireless communications tower sites and determine whether the transfer of the assets to the tower operator under the arrangement met the transfer of control criteria in the revenue standard and whether a sale should be recognized. Determining whether the transfer of control criteria has been met requires significant judgement.
•We concluded that a sale has not occurred for the 6,200 tower sites transferred to Crown Castle International Corp. (“CCI”) pursuant to a master prepaid lease arrangement; therefore, these sites will continue to be accounted for as failed sale-leasebacks.
•We concluded that a sale should be recognized for the 900 tower sites transferred to CCI pursuant to the sale of a subsidiary and for the 500 tower sites transferred to Phoenix Tower International (“PTI”). Upon adoption on January 1, 2019, we derecognized our existing long-term financial obligation and the tower-related property and equipment associated with these 1,400 previously failed sale-leaseback tower sites and recognized a lease liability and right-of-use asset for the leaseback of the tower sites. The impacts from the change in accounting conclusion are primarily a decrease in Other revenues of $44 million and a decrease in Interest expense of $34 million in fiscal year 2019.
•Rental revenues and expenses associated with co-location tower sites are presented on a net basis under the new lease standard. These revenues and expenses were presented on a gross basis under the former lease standard.
Including the impacts from a change in the accounting conclusion on the 1,400 previously failed sale-leaseback tower sites, the cumulative effect of initially applying the new lease standard on January 1, 2019 is as follows:
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| January 1, 2019 | | | | |
(in millions) | Beginning Balance | | Cumulative Effect Adjustment | | Beginning Balance, As Adjusted |
Assets | | | | | |
Other current assets | $ | 1,676 | | | $ | (78) | | | $ | 1,598 | |
Property and equipment, net | 23,359 | | | (2,339) | | | 21,020 | |
Operating lease right-of-use assets | — | | | 9,251 | | | 9,251 | |
Financing lease right-of-use assets | — | | | 2,271 | | | 2,271 | |
Other intangible assets, net | 198 | | | (12) | | | 186 | |
Other assets | 1,623 | | | (71) | | | 1,552 | |
Liabilities and Stockholders’ Equity | | | | | |
Accounts payable and accrued liabilities | 7,741 | | | (65) | | | 7,676 | |
Other current liabilities | 787 | | | 28 | | | 815 | |
Short-term and long-term debt | 12,965 | | | (2,015) | | | 10,950 | |
Tower obligations | 2,557 | | | (345) | | | 2,212 | |
Deferred tax liabilities | 4,472 | | | 231 | | | 4,703 | |
Deferred rent expense | 2,781 | | | (2,781) | | | — | |
Short-term and long-term operating lease liabilities | — | | | 11,364 | | | 11,364 | |
Short-term and long-term financing lease liabilities | — | | | 2,016 | | | 2,016 | |
Other long-term liabilities | 967 | | | (64) | | | 903 | |
Accumulated deficit | (12,954) | | | 653 | | | (12,301) | |
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Including the impacts from the change in the accounting conclusion on the 1,400 previously failed sale-leaseback tower sites and the change in presentation on the income statement of the 6,200 tower sites for which a sale did not occur, the cumulative effects of initially applying the new lease standard for the year ended December 31, 2019 are estimated as follows:
•The aggregate impact is a decrease in Other revenues of $185 million, a decrease in Total operating expenses of $380 million, a decrease in Interest expense of $34 million and an increase to Net income of $175 million.
•The impact on our Consolidated Statements of Cash Flows is a decrease in Net cash provided by operating activities of $10 millionand a decrease in Net cash used in financing activities of $10 million.
For arrangements where we are the lessor, including arrangements to lease devices to our service customers, the adoption of the new lease standard did not have a material impact on our financial statements as these leases are classified as operating leases.
Device lease payments are presented as Equipment revenues and recognized as earned on a straight-line basis over the lease term. Recognition of equipment revenue on lease contracts that are determined to not be probable of collection is limited to the amount of payments received. We have made an accounting policy election to exclude from the consideration in the contract all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer (e.g., sales, use, value added, and some excise taxes).
At operating lease inception, leased wireless devices are transferred from Inventory to Property and equipment, net. Leased wireless devices are depreciated to their estimated residual value over the period expected to provide utility to us, which is generally shorter than the lease term and considers expected losses. Returned devices transferred from Property and equipment, net, are recorded as Inventory and are valued at the lower of cost or market with any write-down to market recognized as Cost of equipment sales in our Consolidated Statements of Comprehensive Income.
We do not have any leasing transactions with related parties. See Note 15 - Leases for further information.
We have implemented significant new lease accounting systems, processes and internal controls over lease accounting to assist us in the application of the new lease standard.
Lease Expense
We have operating leases for cell sites, retail locations, corporate offices and dedicated transportation lines, some of which have escalating rentals during the initial lease term and during subsequent optional renewal periods. We recognize a right-of-use asset and lease liability for operating leases based on the net present value of future minimum lease payments. Lease expense is recognized on a straight-line basis over the non-cancelable lease term and renewal periods that are considered reasonably certain.
We consider several factors in assessing whether renewal periods are reasonably certain of being exercised, including the continued maturation of our network nationwide, technological advances within the telecommunications industry and the availability of alternative sites.
We have financing leases for certain network equipment. The financing leases do not have renewal options and contain a bargain purchase option at the end of the lease. We recognize a right-of-use asset and lease liability for financing leases based on the net present value of future minimum lease payments. Lease expense for our financing leases is comprised of the amortization of the right-of-use asset and interest expense recognized based on the effective interest method.
Accounting Pronouncements Not Yet Adopted
Financial Instruments
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and has since modified the standard with several ASUs (collectively, the “new credit loss standard”). The new credit loss standard requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectibility of the reported amount. The new credit loss standard will become effective for us beginning on January 1, 2020, and requires 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).
We will adopt the new credit loss standard on January 1, 2020, and plan to recognize lifetime expected credit losses at the inception of our credit risk exposures whereas we currently recognize credit losses only when it is probable that they have been incurred. We will also recognize expected credit losses on our EIP receivables, excluding consideration of any unamortized discount on those receivables resulting from the imputation of interest. We currently offset our estimate of incurred losses on our EIP receivables by the amount of the related unamortized discounts on those receivables. We have developed an expected credit loss model and are refining the inputs including the forward-looking loss indicators. The estimated impact of the new credit loss standard on our receivables portfolio as of December 31, 2019, would be an increase to our allowance for credit losses of $85 million to $95 million, a decrease to our net deferred tax liabilities of $22 million to $25 million and an increase to our Accumulated deficit of $63 million to $70 million.
Cloud Computing Arrangements
In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We will adopt the standard on a prospective basis beginning on the effective date of January 1, 2020. Upon adoption of the standard, implementation costs are capitalized in the period incurred, which will result in an increase to Other assets in our Consolidated Balance Sheets. These capitalized amounts will be amortized over the term of the hosting arrangement to Cost of services or Selling, general and administrative expenses in our Consolidated Statements of Comprehensive Income based on the nature of the hosting arrangement. The impact of this standard on our Consolidated Financial Statements is dependent on the nature and composition of the hosting arrangements entered into subsequent to adoption.
Income Taxes
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The standard will become effective for us beginning January 1, 2021. Early adoption is permitted for us at any time. We are currently evaluating the impact this guidance will have on our Consolidated Financial Statements and the timing of adoption.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (the “SEC”) did not have, or are not expected to have, a significant impact on our present or future Consolidated Financial Statements.
Note 2 – Business Combinations
Proposed Sprint Transactions
On April 29, 2018, we entered into a Business Combination Agreement to merge with Sprint in an all-stock transaction at a fixed exchange ratio of 0.10256 shares of T-Mobile common stock for each share of Sprint common stock, or 9.75 shares of Sprint common stock for each share of T-Mobile common stock (the “Merger”). The combined company will be named “T-Mobile” and, as a result of the Merger, is expected to be able to rapidly launch a broad and deep nationwide 5G network, accelerate innovation and increase competition in the U.S. wireless, video and broadband industries. Neither T-Mobile nor Sprint on its own could generate comparable benefits to consumers.
The Merger and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”) have been approved by the boards of directors of T-Mobile and Sprint and the required approvals of the stockholders of each of T-Mobile and Sprint have been obtained. Immediately following the Merger, it is anticipated that Deutsche Telekom AG (“DT”) and SoftBank Group Corp. (“SoftBank”) will hold, directly or indirectly, on a fully diluted basis, approximately 41.5% and 27.2%, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 31.3% of the outstanding T-Mobile common stock held by other stockholders, based on closing share prices and certain other assumptions as of December 31, 2019.
In connection with the entry into the Business Combination Agreement, T-Mobile USA, Inc. (“T-Mobile USA”) entered into commitment letter, dated as of April 29, 2018 (as amended and restated on May 15, 2018 and on September 6, 2019, the “Commitment Letter”). The funding of the debt facilities provided for in the Commitment Letter is subject to the satisfaction of the conditions set forth therein, including consummation of the Merger. The proceeds of the debt financing provided for in the Commitment Letter will be used to refinance certain existing debt of us, Sprint and our and Sprint’s respective subsidiaries and for post-closing working capital needs of the combined company. See Note 8 – Debtfor further information.
In connection with the entry into the Business Combination Agreement, DT and T-Mobile USA entered into a Financing Matters Agreement, dated as of April 29, 2018 (the “Financing Matters Agreement”), pursuant to which DT agreed, among other things, to consent to, subject to certain conditions, certain amendments to certain existing debt owed to DT, in connection with the Merger. If the Merger is consummated, we will make payments for requisite consents to DT of $13 million. There was no payment accrued as of December 31, 2019. See Note 8 – Debtfor further information.
On May 18, 2018, under the terms and conditions described in the Consent Solicitation Statement dated as of May 14, 2018 (the "Consent Solicitation Statement"), we obtained consents necessary to effect certain amendments to certain existing debt of us and our subsidiaries. If the Merger is consummated, we will make payments for requisite consents to third-party note holders of $95 million. There were 0 consent payments accrued as of December 31, 2019.
Under the terms of the Business Combination Agreement, if the Business Combination Agreement is terminated, Sprint may be required to reimburse us for 33% of the consent, bank, and other fees we paid or accrued, which totaled $18 million as of December 31, 2016.
We had2019. There were 0 reimbursements accrued as of December 31, 2019. Sprint also obtained consents necessary to effect certain amendments to certain existing debt of Sprint and its subsidiaries. In connection with receiving the following spectrum license transactions during 2015:
Upon conclusionrequisite consents, Sprint made upfront payments to third-party note holders and related bank fees of $242 million. Under the terms of the 2014 Advanced Wireless Services (“AWS”) auction,Business Combination Agreement, if the Business Combination Agreement is terminated, we were awarded AWS spectrum licenses covering approximately 97 million peoplemay also be required to reimburse Sprint for an aggregate bid price of approximately $1.8 billion.
We closed on the agreement with Verizon Communications Inc. for the exchange of certain spectrum licenses. Upon closing67% of the transaction, we recorded the spectrum licenses received at their estimated fair value of $311 millionupfront consent and recognized a non-cash gain of $139 million included in Gains on disposal of spectrum licenses in our Consolidated Statements of Comprehensive Income.
We closed on agreements with multiple third parties for the purchase and exchange of certain spectrum licenses for $459 million in cash. Upon closing of the transactions, we recorded spectrum licenses received at their estimated fair values totaling approximately $530 million and recognized gains of $24 million included in Gains on disposal of spectrum licenses in our Consolidated Statements of Comprehensive Income.
We entered into multiple agreements with third parties for the exchange of certain spectrum licenses. 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 Consolidated Balance Sheets at their carrying value of $554related bank fees it paid, which totaled $162 million as of December 31, 2015.
Goodwill and Other Intangible Assets Impairment Assessments
Our impairment assessment of goodwill and indefinite-lived intangible assets (spectrum licenses) resulted in no impairment2019. There were 0 fees accrued as of December 31, 20162019.
We recognized Merger-related costs of $620 million and 2015.$196 million for the years ended December 31, 2019 and 2018, respectively. These costs generally included consulting and legal fees and were recognized as Selling, general and administrative expenses in our Consolidated Statements of Comprehensive Income. Payments for Merger-related costs were $442 million and $86 million for the years ended December 31, 2019 and 2018, respectively, and were recognized within Net cash provided by operating activities in our Consolidated Statements of Cash Flows.
The Business Combination Agreement contains certain termination rights for both Sprint and us. If we terminate the Business Combination Agreement in connection with a failure to satisfy the closing condition related to specified minimum credit ratings for the combined company on the closing date of the Merger (after giving effect to the Merger) from at least two of the three credit rating agencies, then in certain circumstances, we may be required to pay Sprint an amount equal to $600 million.
On June 18, 2018, we filed a Public Interest Statement and applications for approval of the Merger with the FCC. On July 18, 2018, the FCC issued a Public Notice formally accepting our applications and establishing a period for public comment. On May 20, 2019, to facilitate the FCC’s review and approval of the FCC license transfers associated with the proposed Merger, we and Sprint filed with the FCC a written ex parte presentation (the “Presentation”) relating to the proposed Merger. The Presentation included proposed commitments from us and Sprint. The FCC approved the Merger on November 5, 2019.
On June 11, 2019, a number of state attorneys general filed a lawsuit against us, DT, Sprint, and SoftBank in the U.S. District Court for the Southern District of New York, alleging that the Merger, if consummated, would violate Section 7 of the Clayton Act and so should be enjoined. After it was filed, several additional states joined the lawsuit. Of the states that joined the lawsuit, two have subsequently withdrawn from the suit having resolved their concerns with the Merger. We believe the plaintiffs’ claims are without merit, and have defended the case vigorously. Trial concluded after two weeks of witness testimony and presentation of document evidence. We are now waiting for the trial court’s ruling. On November 25, 2019, individual consumers filed a similar lawsuit in the Northern District of California. That case has been stayed pending the outcome of the New York litigation.
On July 26, 2019, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Sprint and DISH Network Corporation (“DISH”). We and Sprint are collectively referred to as the “Sellers.” Pursuant to the Asset Purchase Agreement, upon the terms and subject to the conditions thereof, following the consummation of the Merger, DISH will acquire Sprint’s prepaid wireless business, currently operated under the Boost Mobile and Sprint prepaid brands (excluding the Assurance brand Lifeline customers and the prepaid wireless customers of Shenandoah Telecommunications Company and Swiftel Communications, Inc.), including customer accounts, inventory, contracts, intellectual property and certain other specified assets (the “Prepaid Business”), and will assume certain related liabilities (the “Prepaid Transaction”). DISH will pay the Sellers $1.4 billion for the Prepaid Business, subject to a working capital adjustment. The consummation of the Prepaid Transaction is subject to the consummation of the Merger and other customary closing conditions.
At the closing of the Prepaid Transaction, the Sellers and DISH will enter into (i) a License Purchase Agreement pursuant to which (a) the Sellers will sell certain 800 MHz spectrum licenses held by Sprint to DISH for a total of approximately $3.6 billion in a transaction to be completed, subject to certain additional closing conditions, following an application for FCC approval to be filed three years following the closing of the Merger and (b) the Sellers will have the option to lease back from DISH, as needed, a portion of the spectrum sold for an additional two years following the closing of the spectrum sale transaction, (ii) a Transition Services Agreement providing for the Sellers’ provision of transition services to DISH in connection with the Prepaid Business for a period of up to three years following the closing of the Prepaid Transaction, (iii) a Master Network Services Agreement providing for the Sellers’ provision of network services to customers of the Prepaid Business for a period of up to seven years following the closing of the Prepaid Transaction, and (iv) an Option to Acquire Tower and Retail Assets offering DISH the option to acquire certain decommissioned towers and retail locations from the Sellers, subject to obtaining all necessary third-party consents, for a period of up to five years following the closing of the Prepaid Transaction.
On July 26, 2019, in connection with the entry into the Asset Purchase Agreement, we and the other parties to the Business Combination Agreement entered into Amendment No. 1 (the “Amendment”) to the Business Combination Agreement. The Amendment extended the Outside Date (as defined in the Business Combination Agreement) to November 1, 2019, or, if the Marketing Period (as defined in the Business Combination Agreement) had started and was in effect at such date, then January 2, 2020. Because the Transactions were not completed by the Outside Date, each of T-Mobile and Sprint currently has the right to terminate the Business Combination Agreement or the terms may be amended.
On July 26, 2019, the U.S. Department of Justice (the “DOJ”) filed a complaint and a proposed final judgment (the “Proposed Consent Decree”) agreed to by us, DT, Sprint, SoftBank and DISH with the U.S. District Court for the District of Columbia.
The Proposed Consent Decree would fully resolve DOJ’s investigation into the Merger and would require the parties to, among other things, carry out the divestitures to be made pursuant to the Asset Purchase Agreement described above upon closing of the Merger. The Proposed Consent Decree is subject to judicial approval.
The consummation of the Merger remains subject to certain closing conditions. We expect the Merger will be permitted to close in early 2020.
Note 3 – Receivables and Allowance for Credit Losses
Our portfolio of receivables is comprised of 2 portfolio segments: accounts receivable and EIP receivables. Our accounts receivable segment primarily consists of amounts currently due from customers, including service and leased device receivables, other carriers and third-party retail channels.
Based upon customer credit profiles, we classify the EIP receivables segment into 2 customer classes of “Prime” and “Subprime.” Prime customer receivables are those with lower delinquency risk and Subprime customer receivables are those with higher delinquency risk. 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.
To determine a customer’s credit profile, we use a proprietary credit scoring model that measures the credit quality of a customer using several factors, such as credit bureau information, consumer credit risk scores and service and device plan characteristics.
The following table summarizes the EIP receivables, including imputed discounts and related allowance for credit losses:
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(in millions) | December 31, 2019 | | December 31, 2018 |
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EIP receivables, gross | $ | 4,582 | | | $ | 4,534 | |
Unamortized imputed discount | (299) | | | (330) | |
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EIP receivables, net of unamortized imputed discount | 4,283 | | | 4,204 | |
Allowance for credit losses | (100) | | | (119) | |
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EIP receivables, net | $ | 4,183 | | | $ | 4,085 | |
Classified on the balance sheet as: | | | |
Equipment installment plan receivables, net | $ | 2,600 | | | $ | 2,538 | |
Equipment installment plan receivables due after one year, net | 1,583 | | | 1,547 | |
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EIP receivables, net | $ | 4,183 | | | $ | 4,085 | |
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To determine the appropriate level of the allowance for credit losses, we consider a number of credit quality factors, including historical credit losses and timely payment experience as well as current collection trends such as write-off frequency and severity, aging of the receivable portfolio, credit quality of the customer base and other qualitative factors such as macro-economic conditions.
We write off account balances if collection efforts are unsuccessful and the receivable balance is deemed uncollectible, based on factors such as customer credit ratings and the length of time from the original billing date.
For EIP receivables, subsequent to the initial determination of the imputed discount, we assess the need for and, if necessary, recognize an allowance for credit losses to the extent the amount of estimated incurred losses on the gross EIP receivable balances exceed the remaining unamortized imputed discount balances.
The EIP receivables had weighted average effective imputed interest rates of 8.8% and 10.0% as of December 31, 2019, and 2018, respectively.
Activity for the years ended December 31, 2019, 2018 and 2017, in the allowance for credit losses and unamortized imputed discount balances for the accounts receivable and EIP receivables segments were as follows:
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| December 31, 2019 | | | | | | December 31, 2018 | | | | | | December 31, 2017 | | | | |
(in millions) | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total | | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total | | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total |
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Allowance for credit losses and imputed discount, beginning of period | $ | 67 | | | $ | 449 | | | $ | 516 | | | $ | 86 | | | $ | 396 | | | $ | 482 | | | $ | 102 | | | $ | 316 | | | $ | 418 | |
Bad debt expense | 77 | | | 230 | | | 307 | | | 69 | | | 228 | | | 297 | | | 104 | | | 284 | | | 388 | |
Write-offs, net of recoveries | (83) | | | (249) | | | (332) | | | (88) | | | (240) | | | (328) | | | (120) | | | (273) | | | (393) | |
Change in imputed discount on short-term and long-term EIP receivables | N/A | | | 136 | | | 136 | | | N/A | | | 250 | | | 250 | | | N/A | | | 252 | | | 252 | |
Impact on the imputed discount from sales of EIP receivables | N/A | | | (167) | | | (167) | | | N/A | | | (185) | | | (185) | | | N/A | | | (183) | | | (183) | |
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Allowance for credit losses and imputed discount, end of period | $ | 61 | | | $ | 399 | | | $ | 460 | | | $ | 67 | | | $ | 449 | | | $ | 516 | | | $ | 86 | | | $ | 396 | | | $ | 482 | |
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Management considers the aging of receivables to be an important credit indicator. The following table provides delinquency status for the unpaid principal balance for receivables within the EIP portfolio segment, which we actively monitor as part of our current credit risk management practices and policies:
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| December 31, 2019 | | | | | | December 31, 2018 | | | | |
(in millions) | Prime | | Subprime | | Total EIP Receivables, gross | | Prime | | Subprime | | Total EIP Receivables, gross |
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Current - 30 days past due | $ | 2,384 | | | $ | 2,108 | | | $ | 4,492 | | | $ | 1,987 | | | $ | 2,446 | | | $ | 4,433 | |
31 - 60 days past due | 13 | | | 28 | | | 41 | | | 15 | | | 32 | | | 47 | |
61 - 90 days past due | 7 | | | 17 | | | 24 | | | 6 | | | 19 | | | 25 | |
More than 90 days past due | 7 | | | 18 | | | 25 | | | 7 | | | 22 | | | 29 | |
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Total receivables, gross | $ | 2,411 | | | $ | 2,171 | | | $ | 4,582 | | | $ | 2,015 | | | $ | 2,519 | | | $ | 4,534 | |
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Note 4 – Sales of Certain Receivables
We have entered into transactions to sell certain service and EIP receivables. The transactions, including our continuing involvement with the sold receivables and the respective impacts to our Consolidated Financial Statements, are described below.
Sales of Service Accounts Receivable
Overview of the Transaction
In 2014, we entered into an arrangement to sell certain service accounts receivable on a revolving basis (the “service receivable sale arrangement”). The maximum funding commitment of the service receivable sale arrangement is $950 million. In February 2019, the service receivable sale arrangement was amended to extend the scheduled expiration date, as well as certain third-party credit support under the arrangement, to March 2021. As of December 31, 2019 and 2018, the service receivable sale arrangement provided funding of $924 million and $774 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 receivable (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 service receivable sale arrangement, certain of our wholly-owned subsidiaries transfer selected receivables to the Service BRE. The Service BRE then sells the receivables to an unaffiliated entity (the “Service VIE”), which was established to facilitate the sale of beneficial ownership interests in the receivables to certain third parties.
Variable Interest Entity
We determined that the Service VIE qualifies as a VIE as it lacks sufficient equity to finance its activities. We have a variable interest in the Service VIE but are not the primary beneficiary as we lack the power to direct the activities that most significantly impact the Service VIE’s economic performance. Those activities include committing the Service VIE to legal agreements to purchase or sell assets, selecting which receivables are purchased in the service receivable sale arrangement, determining whether the Service VIE will sell interests in the purchased service receivables to other parties, funding of the entity and servicing of receivables. We do not hold the power to direct the key decisions underlying these activities. For example, while we act as the servicer of the sold receivables, which is considered a significant activity of the Service VIE, we are acting as an agent in our capacity as the servicer and the counterparty to the service receivable sale arrangement has the ability to remove us as the servicing agent of the receivables at will with no recourse available to us. As we have determined we are not the primary beneficiary, the balances and results of the Service VIE are not included in our Consolidated Financial Statements.
The following table summarizes the carrying amounts and classification of assets, which consists primarily of the deferred purchase price and liabilities included in our Consolidated Balance Sheets that relate to our variable interest in the Service VIE:
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(in millions) | December 31, 2019 | | December 31, 2018 |
Other current assets | $ | 350 | | | $ | 339 | |
Accounts payable and accrued liabilities | 25 | | | 59 | |
Other current liabilities | 342 | | | 149 | |
Sales of EIP Receivables
Overview of the Transaction
In 2015, we entered into an arrangement to sell certain EIP accounts receivable on a revolving basis (the “EIP sale arrangement”). The maximum funding commitment of the EIP sale arrangement is $1.3 billion, and the scheduled expiration date is November 2020.
As of both December 31, 2019 and 2018, the EIP sale arrangement provided funding of $1.3 billion. Sales of EIP receivables occur daily and are settled on a monthly basis.
In connection with this EIP sale arrangement, we formed a wholly-owned subsidiary, which qualifies as a bankruptcy remote entity (the “EIP BRE”). Pursuant to the EIP sale arrangement, 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 third-party entity qualify as a VIE.
Variable Interest Entity
We determined that the EIP BRE is a VIE as its equity investment at risk lacks the obligation to absorb a certain portion of its expected losses. We have a variable interest in the EIP BRE and determined that we are the primary beneficiary based on our ability to direct the activities which most significantly impact the EIP BRE’s economic performance. Those activities include selecting which receivables are transferred into the EIP BRE and sold in the EIP sale arrangement and funding of the EIP BRE. Additionally, our equity interest in the EIP BRE obligates us to absorb losses and gives us the right to receive benefits from the EIP BRE that could potentially be significant to the EIP BRE. Accordingly, we include the balances and results of operations of the EIP BRE in our Consolidated Financial Statements.
The following table summarizes the carrying amounts and classification of assets, which consists primarily of the deferred purchase price, and liabilities included in our Consolidated Balance Sheets that relate to the EIP BRE:
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(in millions) | December 31, 2019 | | December 31, 2018 |
Other current assets | $ | 344 | | | $ | 321 | |
Other assets | 89 | | | 88 | |
Other long-term liabilities | 18 | | | 22 | |
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.
Other Intangible Assets
Intangible assets that do not have indefinite useful lives are amortized over their estimated useful lives. Customer lists are amortized using the sum-of-the-years'-digits method over the expected period in which the relationship is expected to contribute to future cash flows. The components ofremaining finite-lived intangible assets were as follows:are amortized using the straight-line method.
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| Useful Lives | | December 31, 2016 | | December 31, 2015 |
(in millions) | | Gross Amount | | Accumulated Amortization | | Net Amount | | Gross Amount | | Accumulated Amortization | | Net Amount |
Customer lists | Up to 6 years | | $ | 1,104 |
| | $ | (894 | ) | | $ | 210 |
| | $ | 1,104 |
| | $ | (719 | ) | | $ | 385 |
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Trademarks and patents | Up to 12 years | | 303 |
| | (156 | ) | | 147 |
| | 300 |
| | (115 | ) | | 185 |
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Other | Up to 28 years | | 50 |
| | (31 | ) | | 19 |
| | 51 |
| | (27 | ) | | 24 |
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Other intangible assets | | | $ | 1,457 |
| | $ | (1,081 | ) | | $ | 376 |
| | $ | 1,455 |
| | $ | (861 | ) | | $ | 594 |
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Goodwill and Indefinite-Lived Intangible Assets
Amortization expense for intangible assets subject to amortization was $220 million, $276 million and $333 million for the years ended December 31, 2016, 2015 and 2014, respectively.Goodwill
The estimated aggregate future amortization expense for intangible assets subject to amortization are summarized below:
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(in millions) | Estimated Future Amortization |
Year Ending December 31, | |
2017 | $ | 163 |
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2018 | 104 |
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2019 | 52 |
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2020 | 34 |
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2021 | 14 |
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Thereafter | 9 |
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Total | $ | 376 |
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Note 6 – Fair Value Measurements and Derivative Instruments
Embedded Derivative Instruments
In connection with the business combination with MetroPCS, we issued senior reset notes to Deutsche Telekom. The interest rates were adjusted at the reset dates to rates defined in the applicable supplemental indentures to manage interest rate risk related to the senior reset notes. We determined certain componentsGoodwill consists of the reset feature are required to be bifurcated fromexcess of the senior reset notes and separately accounted for as embedded derivative instruments. As of December 31, 2015, one embedded derivative related topurchase price over the 5.950% Senior Reset Notes to affiliates due 2023 was subject to interest rate volatility. In April 2016, the interest rate related to the 5.950% Senior Reset Notes to affiliates due 2023 was adjusted from 5.950% to 9.332%. See Note 7 – Debt for further information. As of December 31, 2016, there were no embedded derivatives subject to interest rate volatility related to the Senior Reset Notes to affiliates.
The fair value of identifiable net assets acquired in a business combination. Goodwill is allocated to our embedded derivatives was2 reporting units, wireless and Layer3.
Spectrum Licenses
Spectrum licenses are carried at costs incurred to acquire the spectrum licenses and the costs to prepare the spectrum licenses for their intended use, such as costs to clear acquired spectrum licenses. The Federal Communications Commission (“FCC”) issues spectrum licenses which provide us with the exclusive right to utilize designated radio frequency spectrum within specific geographic service areas to provide wireless communications services. While spectrum licenses are issued for a fixed period of time, typically for up to fifteen years, the FCC has granted license renewals routinely and at a nominal cost. The spectrum licenses held by us expire at various dates. We believe we will be able to meet all requirements necessary to secure renewal of our spectrum licenses at nominal costs. Moreover, we determined using a lattice-based valuation model by determiningthere are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our spectrum licenses. Therefore, we determined the spectrum licenses should be treated as indefinite-lived intangible assets.
At times, we enter into agreements to sell or exchange spectrum licenses. Upon entering into the arrangement, if the transaction has been deemed to have commercial substance, spectrum licenses are reviewed for impairment and transferred at their carrying value, net of any impairment, to assets held for sale included in Other current assets in our Consolidated Balance Sheets until approval and completion of the exchange or sale. Upon closing of the transaction, spectrum licenses acquired as part of an exchange of nonmonetary assets are valued at fair value and the difference between the fair value of the senior reset notes withspectrum licenses obtained, book value of the spectrum licenses transferred and withoutcash paid, if any, is recognized as a gain and included in Gains on disposal of spectrum licenses in our Consolidated Statements of Comprehensive Income. Our fair value estimates of spectrum licenses are based on information for which there is little or no observable market data. If the embedded derivatives included. Thetransaction lacks commercial substance or the fair value is not measurable, the acquired spectrum licenses are recorded at the book value of the assets transferred or exchanged.
Impairment
We assess the carrying value of our goodwill and other indefinite-lived intangible assets, such as our spectrum licenses, for potential impairment annually as of December 31, or more frequently if events or changes in circumstances indicate such assets might be impaired.
When assessing goodwill for impairment we may elect to first perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. If we do not perform a qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of the senior reset notes2 reporting units, wireless and Layer3, is less than its carrying amount, we perform a quantitative test. We recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit.
We test our spectrum licenses for impairment on an aggregate basis, consistent with our management of the embedded derivatives utilizes the contractual term of each senior reset note, reset rates calculated based on the spread between specified yield curves and the yield curve on certain T-Mobile long-term debt adjusted pursuantoverall business at a national level. We may elect to the applicable supplemental indentures and interest rate volatility. Interest rate volatility isfirst perform a significant unobservable input (Level 3) asqualitative assessment to determine whether it is derived based on weighted risk-free rate volatility and credit spread volatility. Significant increasesmore likely than not that the fair value of an intangible asset is less than its carrying value. If we do not perform the qualitative assessment, or decreases inif the weighting of risk-free volatility and credit spread volatility, in isolation, would result in a higher or lowerqualitative assessment indicates it is more likely than not that the fair value of the embedded derivatives. The embedded derivatives were classified as Level 3 inintangible asset is less than its carrying amount, we calculate the fair value hierarchy.
The fair value of embedded derivative instruments by balance sheet location and level were as follows:
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| December 31, 2016 |
(in millions) | Level 1 | | Level 2 | | Level 3 | | Total |
Other long-term liabilities | $ | — |
| | $ | — |
| | $ | 118 |
| | $ | 118 |
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| December 31, 2015 |
(in millions) | Level 1 | | Level 2 | | Level 3 | | Total |
Other long-term liabilities | $ | — |
| | $ | — |
| | $ | 143 |
| | $ | 143 |
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The following table summarizes the gain (loss) activity related to embedded derivatives instruments recognized in Interest expense to affiliates:
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| Year Ended December 31, |
(in millions) | 2016 | | 2015 | | 2014 |
Embedded derivatives | $ | 25 |
| | $ | (148 | ) | | $ | 18 |
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Assets and Liabilities Measured at Fair Value on a Recurring Basis
The carrying amounts and fair values of our short-term investments and long-term debt included in our Consolidated Balance Sheets were as follows:
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| Level within the Fair Value Hierarchy | | December 31, 2016 | | December 31, 2015 |
(in millions) | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Assets: | | | | | | | | | |
Short-term investments | 1 | | $ | — |
| | $ | — |
| | $ | 2,998 |
| | $ | 2,998 |
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Deferred purchase price assets | 3 | | 659 |
| | 659 |
| | 389 |
| | 389 |
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Liabilities: | | | | | | | | | |
Senior Notes to third parties | 1 | | $ | 18,600 |
| | $ | 19,584 |
| | $ | 17,600 |
| | $ | 18,098 |
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Senior Reset Notes to affiliates | 2 | | 5,600 |
| | 5,955 |
| | 5,600 |
| | 6,072 |
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Senior Secured Term Loans | 2 | | 1,980 |
| | 2,005 |
| | 2,000 |
| | 1,990 |
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Guarantee Liabilities | 3 | | 135 |
| | 135 |
| | 163 |
| | 163 |
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Short-term Investments
The fair value of our short-term investments as of December 31, 2015, which consisted of U.S. Treasury securities, was determined based on quoted market prices in active markets, and therefore was classified as Level 1 in the fair value hierarchy. We did not have any short-term investments as of December 31, 2016.
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 in the fair value hierarchy. Theestimated fair value of the Senior Secured Term Loans and Senior Reset Notes to affiliates was 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 Secured Term Loans and Senior Reset Notes to affiliates were classified as Level 2 in the fair value hierarchy.
Although we have determinedintangible asset. If the estimated fair values using available market information and commonly accepted valuation methodologies, considerable judgment was required in interpreting market data to developvalue of the spectrum licenses is lower than their carrying amount, an impairment loss is recognized for the difference. We estimate fair value estimates forusing the Senior Secured Term Loans and Senior Reset Notes to affiliates. The fair value estimates wereGreenfield methodology, which is an income approach based on information available as of December 31, 2016 and 2015. As such, our estimates are not necessarily indicative ofdiscounted cash flows associated with the amount we could realize in aintangible asset, to estimate the price at which an orderly transaction to sell the asset would take place between market participants at the measurement date under current market exchange.conditions.
Deferred Purchase Price Assets
In connection with the sales of certain service and EIP receivables 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 3 – Sales of Certain Receivables.
Guarantee Liabilities
OurWe offer a device trade-in program, Just Upgrade My Phone (“JUMP!”), which provides eligible customers a specified-price trade-in right to upgrade their device. Upon enrollment, participating customers must finance the purchase of a device on an EIP and have a qualifying T-Mobile monthly wireless service plan, which is treated as an arrangement with multiple performance obligations when entered into at or near the same time. Upon a qualifying JUMP! program upgrade, the customer’s remaining EIP balance is settled provided they trade-in their eligible used device in good working condition and purchase a new device from us on a new EIP.
For customers who enroll in JUMP!, we recognize a liability and reduce revenue for the portion of revenue which represents the estimated fair value of the specified-price trade-in right guarantee. The guarantee liabilities wereliability is valued based on various economic and customer behavioral assumptions, which requires judgment, including estimating the customer's remaining EIP balance at trade-in, the expected fair value of the used device at trade-in, period, volumesand the probability and timing of trade-in,trade-in. When customers upgrade their device, the difference between the EIP balance credit to the customer and the fair value of handsets tradedthe returned device is recorded against the guarantee liabilities. All assumptions are reviewed periodically.
Fair Value Measurements
We carry certain assets and liabilities at fair value. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs based on the observability as of the measurement date, is as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities;
Level 2 Observable inputs other than the quoted prices in active markets for identical assets and liabilities; and
Level 3 Unobservable inputs for which there is little or no market data, which require us to develop assumptions of what market participants would use in pricing the asset or liability.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the placement of assets and liabilities being measured within the fair value hierarchy.
The carrying values of cash and cash equivalents, short-term investments, accounts receivable, accounts receivable from affiliates and accounts payable approximate fair value due to the short-term maturities of these instruments. The carrying values of EIP receivables approximate fair value as the receivables are recorded at their present value, net of unamortized discount and allowance for credit losses. There were no financial instruments with a carrying value materially different from their fair value, based on quoted market prices or rates for the same or similar instruments, or internal valuation models.
Derivative Financial Instruments
Derivative financial instruments are recognized as either assets or liabilities and are measured at fair value. We do not use derivatives for trading or speculative purposes.
For derivative instruments designated as cash flow hedges associated with forecasted debt issuances, changes in fair value are reported as a component of Accumulated other comprehensive loss until reclassified into Interest expense in the same period the hedged transaction affects earnings, generally over the life of the related debt. Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses on derivatives designated as cash flow hedges are recorded at fair value as liabilities.
Revenue Recognition (effective January 1, 2018)
We primarily generate our revenue from providing wireless services to customers and selling or leasing devices and accessories. Our contracts with customers may involve multiple performance obligations, which include wireless services, wireless devices or a combination thereof, and we allocate the transaction price between each performance obligation based on its relative standalone selling price.
Significant Judgments
The most significant judgments affecting the amount and timing of revenue from contracts with our customers include the following items:
•Revenue for service contracts that we assess are not probable of collection is not recognized until the contract is completed or terminated and cash is received. Collectibility is re-assessed when there is a significant change in facts or circumstances. Our assessment of collectibility considers whether we may limit our exposure to credit risk through our right to stop transferring additional service in the event the customer is delinquent as well as certain contract terms such as down payments that reduce our exposure to credit risk. Customer credit behavior is inherently uncertain. See “Receivables and Allowance for Credit Losses”, above, for more discussion on how we assess credit risk.
•Promotional EIP bill credits offered to a customer on an equipment sale that are paid over time and are contingent on the customer maintaining a service contract may result in an extended service contract based on whether a substantive penalty is deemed to exist. Determining whether contingent EIP bill credits result in a substantive termination penalty may require significant judgment.
•The identification of distinct performance obligations within our service plans may require significant judgment.
•Revenue is recorded net of costs paid to another party for performance obligations where we arrange for the other party to transfer goods or services to the customer (i.e., when we are acting as an agent). For example, performance obligations relating to services provided by third-party content providers where we neither control a right to the content provider’s service nor control the underlying service itself are presented net because we are acting as an agent. The determination of whether we control the underlying service or right to the service prior to our transfer to the customer requires, at times, significant judgment.
•For transactions where we recognize a significant financing component, judgment is required to determine the discount rate. For EIP sales, the discount rate used to adjust the transaction price primarily reflects current market interest rates and the estimated credit risk of the customer. Customer credit behavior is inherently uncertain. See “Receivables and Allowance for Credit Losses”, above, for more discussion on how we assess credit risk.
•Our products are generally sold with a right of return, which is accounted for as variable consideration when estimating the amount of revenue to recognize. Device return levels are estimated based on the expected value method as there are a large number of contracts with similar characteristics and the outcome of each contract is independent of the others. Historical return rate experience is a significant input to our expected value methodology.
•Sales of equipment to indirect dealers who have been identified as our customer (referred to as the sell-in model) often include credits subsequently paid to the dealer as a reimbursement for any discount promotions offered to the end consumer. These credits (payments to a customer) are accounted for as variable consideration when estimating the amount of revenue to recognize from the sales of equipment to indirect dealers and are estimated based on historical experience and other factors, such as expected promotional activity.
•The determination of the standalone selling price for contracts that involve more than one performance obligation may require significant judgment, such as when the selling price of a good or service is not readily observable.
•For capitalized contract costs, determining the amortization period over which such costs are recognized as well as assessing the indicators of impairment may require significant judgment.
Wireless Services Revenue
We generate our wireless services revenues from providing access to, and usage of, our wireless communications network. Service revenues also include revenues earned for providing value added services to customers, such as handset insurance services. Service contracts are billed monthly either in advance or arrears, or are prepaid. Generally, service revenue is recognized as we satisfy our performance obligation to transfer service to our customers. We typically satisfy our stand-ready performance obligations, including unlimited wireless services, evenly over the contract term. For usage-based and prepaid wireless services, we satisfy our performance obligations when services are rendered.
Consideration payable to a customer is treated as a reduction of the total transaction price, unless the payment is in exchange for a distinct good or service, such as certain commissions paid to dealers.
Federal Universal Service Fund (“USF”) and other fees are assessed by various governmental authorities in connection with the services we provide to our customers and are included in Cost of services. When we separately bill and collect these regulatory fees from customers, they are recorded gross in Total service revenues in our Consolidated Statements of Comprehensive Income. For the years ended December 31, 2019, 2018 and 2017, we recorded approximately $93 million, $161 million and $258 million, respectively, of USF fees on a gross basis.
We have made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer (e.g., sales, use, value added, and some excise taxes).
Equipment Revenues
We generate equipment revenues from the sale or lease of mobile communication devices and accessories. For performance obligations related to equipment contracts, we typically transfer control at a point in time when the device or accessory is delivered to, and accepted by, the customer or dealer. We have elected to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities instead of assessing such activities as performance obligations. We estimate variable consideration (e.g., device returns or certain payments to indirect dealers) primarily based on historical experience. Equipment sales not probable of collection are generally recorded as payments are received. Our assessment of collectibility considers contract terms such as down payments that reduce our exposure to credit risk.
We offer certain customers the option to pay for devices and accessories in installments using an EIP. Generally, we recognize as a reduction of the total transaction price the effects of a financing component in contracts where customers purchase their devices and accessories on an EIP with a term of more than one year, including those financing components that are not considered to be significant to the contract. However, we have elected the practical expedient to not recognize the effects of a
significant financing component for contracts where we expect, at contract inception, that the period between the transfer of a performance obligation to a customer and the customer’s payment for that performance obligation will be one year or less.
In addition, for customers who enroll in our JUMP! program, we recognize a liability based on the estimated fair value of the specified-price trade-in right guarantee. The fair value of the guarantee is deducted from the transaction price and the remaining transaction price is allocated to other elements of the contract, including service and equipment performance obligations. See “Guarantee Liabilities” above for further information.
JUMP! On Demand allows customers to lease a device over a period of up to 18 months and upgrade it for a new device up to one time per month. To date, all of our leased wireless devices are accounted for as operating leases and estimated contract consideration is allocated between lease elements and non-lease elements (such as service and equipment performance obligations) based on the relative standalone selling price of each performance obligation in the contract. Lease revenues are recorded as equipment revenues and recognized as earned on a straight-line basis over the lease term. Lease revenues on contracts not probable of collection are limited to the amount of payments received. See “Property and Equipment” above for further information.
Contract Balances
Generally, our devices and service plans are available at standard prices, which are maintained on price lists and published on our website and/or within our retail stores.
For contracts that involve more than one product or service that are identified as separate performance obligations, the transaction price is allocated to the performance obligations based on their relative standalone selling prices. The standalone selling price is the price at which we would sell the good or service separately to a customer and is most commonly evidenced by the price at which we sell that good or service separately in similar circumstances and to similar customers.
A contract asset is recorded when revenue is recognized in advance of our right to receive consideration (i.e., we must perform additional services in order to receive consideration). Amounts are recorded as receivables when our right to consideration is unconditional. When consideration is received, or we have an unconditional right to consideration in advance of delivery of goods or services, a contract liability is recorded. The transaction price can include non-refundable upfront fees, which are allocated to the identifiable performance obligations.
Contract assets are included in Other current assets and Other assets and contract liabilities are included in Deferred revenue in our Consolidated Balance Sheets.
Contract Modifications
Our service contracts allow customers to frequently modify their contracts without incurring penalties in many cases. Each time a contract is modified, we evaluate the change in scope or price of the contract to determine if the modification should be treated as a separate contract, as if there is a termination of the existing contract and creation of a new contract, or if the modification should be considered a change associated with the existing contract. We typically do not have significant impacts from contract modifications.
Contract Costs
We incur certain incremental costs to obtain a contract that we expect to recover, such as sales commissions. We record an asset when these incremental costs to obtain a contract are incurred and amortize them on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates.
We amortize deferred costs incurred to obtain service contracts on a straight-line basis over the term of the initial contract and anticipated renewal contracts to which the costs relate, currently 24 months for postpaid service contracts. However, we have elected the practical expedient permitting expensing of costs to obtain a contract when the expected amortization period is one year or less for prepaid service contracts.
Incremental costs to obtain equipment contracts (e.g., commissions paid on device and accessory sales) are recognized when the equipment is transferred to the customer.
See Note 1 - Summary of Significant Accounting Policies included in our Annual Report on Form 10-K for the year ended December 31, 2017 for more discussion regarding the accounting policies that governed revenue recognition prior to January 1, 2018.
Advertising Expense
We expense the cost of advertising and other promotional expenditures to market our services and products as incurred. For the years ended December 31, 2019, 2018 and 2017, advertising expenses included in Selling, general and administrative expenses in our Consolidated Statements of Comprehensive Income were $1.6 billion, $1.7 billion and $1.8 billion, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to be in effect when these differences are realized. A valuation allowance is recorded when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of a deferred tax asset depends on the ability to generate sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions within the carryforward periods available.
We account for uncertainty in income taxes recognized in the financial statements in accordance with the accounting guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We assess whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position and adjust the unrecognized tax benefits in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) consists of adjustments, net of tax, related to unrealized gains (losses) on cash flow hedges and available-for-sale securities. This is reported in Accumulated other comprehensive loss as a separate component of stockholders’ equity until realized in earnings.
Stock-Based Compensation
Stock-based compensation cost for stock awards, which include restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”), is measured at fair value on the grant date and recognized as expense, net of expected forfeitures, over the related service period. The fair value of stock awards is based on the closing price of our common stock on the date of grant. RSUs are recognized as expense using the straight-line method. PRSUs are recognized as expense following a graded vesting schedule with their performance re-assessed and updated on a quarterly basis, or more frequently as changes in facts and circumstances warrant.
Earnings Per Share
Basic earnings per share is computed by dividing Net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by giving effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of outstanding stock options, RSUs and PRSUs, calculated using the treasury stock method, and prior to the conversion of our preferred stock in December 2017, potentially dilutive common shares included mandatory convertible preferred stock calculated using the if-converted method. See Note 14 - Earnings Per Share for further information.
Variable Interest Entities
VIEs are entities that lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, have equity investors that do not have the ability to make significant decisions relating to the entity's operations through voting rights, do not have the obligation to absorb the expected losses or do not have the right to receive the residual returns of the entity. The most common type of VIE is a special purpose entity (“SPE”). SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. SPEs are generally structured to insulate investors from claims on the SPE's assets by creditors of other entities, including the creditors of the seller of the assets.
The primary beneficiary is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party which has both the power to direct the activities of an entity that most significantly impact the VIE's economic performance, and through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE which could potentially be significant to the VIE. We consolidate VIEs when we are deemed to be the primary beneficiary or when the VIE cannot be deconsolidated.
In assessing which party is the primary beneficiary, all the facts and circumstances are considered, including each party’s role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE (such as asset managers and servicers) or have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE.
Accounting Pronouncements Adopted During the Current Year
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, “Leases (Topic 842),” and has since modified the standard with several ASUs (collectively, the “new lease standard”). The new lease standard was effective for us, and we adopted the standard, on January 1, 2019.
We adopted the standard by recognizing and measuring leases at the adoption date with a cumulative effect of initially applying the guidance recognized at the date of initial application and as a result did not restate the prior periods presented in the Consolidated Financial Statements.
The new lease standard provides for a number of optional practical expedients in transition. We did not elect the “package of practical expedients” and as a result reassessed under the new lease standard our prior accounting conclusions about lease identification, lease classification and initial direct costs. We elected to use hindsight for determining the reasonably certain lease term. We did not elect the practical expedient pertaining to land easements as it is not applicable to us.
The new lease standard provides practical expedients and policy elections for an entity’s ongoing accounting. Generally, we elected the practical expedient to not separate lease and non-lease components in arrangements whereby we are the lessee. For arrangements in which we are the lessor of wireless devices, we did not elect this practical expedient. We did not elect the short-term lease recognition exemption, which includes the recognition of right-of-use assets and lease liabilities for existing short-term leases at transition. We have also applied this election to all active leases at transition.
The most significant judgments and impacts upon adoption of the standard include the following:
•In evaluating contracts to determine if they qualify as a lease, we consider factors such as if we have obtained or transferred substantially all of the rights to the underlying asset through exclusivity, if we can or if we have transferred the ability to direct the use of the asset by making decisions about how and for what purpose the asset will be used and if the lessor has substantive substitution rights.
•We recognized right-of-use assets and operating lease liabilities for operating leases that have not previously been recorded. The lease liability for operating leases is based on the net present value of future minimum lease payments. The right-of-use asset for operating leases is based on the lease liability adjusted for the reclassification of certain balance sheet amounts such as prepaid rent and deferred rent, which we remeasured at adoption due to the application of hindsight to our lease term estimates. Deferred and prepaid rent are no longer presented separately.
•Capital lease assets previously included within Property and equipment, net were reclassified to financing lease right-of-use assets, and capital lease liabilities previously included in Short-term debt and Long-term debt were reclassified to financing lease liabilities in our Consolidated Balance Sheet.
•Certain line items in the Consolidated Statements of Cash Flows and the “Supplemental disclosure of cash flow information” have been renamed to align with the new terminology presented in the new lease standard; “Repayment of capital lease obligations” is now presented as “Repayments of financing lease obligations” and “Assets acquired under capital lease obligations” is now presented as “Financing lease right-of-use assets obtained in exchange for lease obligations.” In the “Operating Activities” section of the Consolidated Statements of Cash Flows we have added “Operating lease right-of-use assets” and “Short and long-term operating lease liabilities” which represent the change
in the operating lease asset and liability, respectively. Additionally, in the “Supplemental disclosure of cash flow information” section of the Consolidated Statements of Cash Flows we have added “Operating lease payments,” and in the “Noncash investing and financing activities” section we have added “Operating lease right-of-use assets obtained in exchange for lease obligations.”
•In determining the discount rate used to measure the right-of-use asset and lease liability, we use rates implicit in the lease, or if not readily available, we use our incremental borrowing rate. Our incremental borrowing rate is based on an estimated secured rate comprised of a risk-free LIBOR rate plus a credit spread as secured by our assets. Determining a credit spread as secured by our assets may require significant judgment.
•Certain of our lease agreements include rental payments based on changes in the consumer price index (“CPI”). Lease liabilities are not remeasured as a result of changes in the CPI; instead, changes in the CPI are treated as variable lease payments and are excluded from the measurement of the right-of-use asset and lease liability. These payments are recognized in the period in which the related obligation was incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
•We elected the use of hindsight whereby we applied current lease term assumptions that are applied to new leases in determining the expected lease term period for all cell sites. Upon adoption of the new lease standard and application of hindsight, our expected lease term has shortened to reflect payments due for the initial non-cancelable lease term only. This assessment corresponds to our lease term assessment for new leases and aligns with the payments that have been disclosed as lease commitments in prior years. As a result, the average remaining lease term for cell sites has decreased from approximately nine to five years based on lease contracts in effect at transition on January 1, 2019. The aggregate impact of using hindsight is an estimated decrease in Total operating expenses of $240 million in fiscal year 2019.
•We were also required to reassess the previously failed sale-leasebacks of certain T-Mobile-owned wireless communications tower sites and determine whether the transfer of the assets to the tower operator under the arrangement met the transfer of control criteria in the revenue standard and whether a sale should be recognized. Determining whether the transfer of control criteria has been met requires significant judgement.
•We concluded that a sale has not occurred for the 6,200 tower sites transferred to Crown Castle International Corp. (“CCI”) pursuant to a master prepaid lease arrangement; therefore, these sites will continue to be accounted for as failed sale-leasebacks.
•We concluded that a sale should be recognized for the 900 tower sites transferred to CCI pursuant to the sale of a subsidiary and for the 500 tower sites transferred to Phoenix Tower International (“PTI”). Upon adoption on January 1, 2019, we derecognized our existing long-term financial obligation and the tower-related property and equipment associated with these 1,400 previously failed sale-leaseback tower sites and recognized a lease liability and right-of-use asset for the leaseback of the tower sites. The impacts from the change in accounting conclusion are primarily a decrease in Other revenues of $44 million and a decrease in Interest expense of $34 million in fiscal year 2019.
•Rental revenues and expenses associated with co-location tower sites are presented on a net basis under the new lease standard. These revenues and expenses were presented on a gross basis under the former lease standard.
Including the impacts from a change in the accounting conclusion on the 1,400 previously failed sale-leaseback tower sites, the cumulative effect of initially applying the new lease standard on January 1, 2019 is as follows:
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| January 1, 2019 | | | | |
(in millions) | Beginning Balance | | Cumulative Effect Adjustment | | Beginning Balance, As Adjusted |
Assets | | | | | |
Other current assets | $ | 1,676 | | | $ | (78) | | | $ | 1,598 | |
Property and equipment, net | 23,359 | | | (2,339) | | | 21,020 | |
Operating lease right-of-use assets | — | | | 9,251 | | | 9,251 | |
Financing lease right-of-use assets | — | | | 2,271 | | | 2,271 | |
Other intangible assets, net | 198 | | | (12) | | | 186 | |
Other assets | 1,623 | | | (71) | | | 1,552 | |
Liabilities and Stockholders’ Equity | | | | | |
Accounts payable and accrued liabilities | 7,741 | | | (65) | | | 7,676 | |
Other current liabilities | 787 | | | 28 | | | 815 | |
Short-term and long-term debt | 12,965 | | | (2,015) | | | 10,950 | |
Tower obligations | 2,557 | | | (345) | | | 2,212 | |
Deferred tax liabilities | 4,472 | | | 231 | | | 4,703 | |
Deferred rent expense | 2,781 | | | (2,781) | | | — | |
Short-term and long-term operating lease liabilities | — | | | 11,364 | | | 11,364 | |
Short-term and long-term financing lease liabilities | — | | | 2,016 | | | 2,016 | |
Other long-term liabilities | 967 | | | (64) | | | 903 | |
Accumulated deficit | (12,954) | | | 653 | | | (12,301) | |
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Including the impacts from the change in the accounting conclusion on the 1,400 previously failed sale-leaseback tower sites and the change in presentation on the income statement of the 6,200 tower sites for which a sale did not occur, the cumulative effects of initially applying the new lease standard for the year ended December 31, 2019 are estimated as follows:
•The aggregate impact is a decrease in Other revenues of $185 million, a decrease in Total operating expenses of $380 million, a decrease in Interest expense of $34 million and an increase to Net income of $175 million.
•The impact on our Consolidated Statements of Cash Flows is a decrease in Net cash provided by operating activities of $10 millionand a decrease in Net cash used in financing activities of $10 million.
For arrangements where we are the lessor, including arrangements to lease devices to our service customers, the adoption of the new lease standard did not have a material impact on our financial statements as these leases are classified as operating leases.
Device lease payments are presented as Equipment revenues and recognized as earned on a straight-line basis over the lease term. Recognition of equipment revenue on lease contracts that are determined to not be probable of collection is limited to the amount of payments received. We have made an accounting policy election to exclude from the consideration in the contract all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer (e.g., sales, use, value added, and some excise taxes).
At operating lease inception, leased wireless devices are transferred from Inventory to Property and equipment, net. Leased wireless devices are depreciated to their estimated residual value over the period expected to provide utility to us, which is generally shorter than the lease term and considers expected losses. Returned devices transferred from Property and equipment, net, are recorded as Inventory and are valued at the lower of cost or market with any write-down to market recognized as Cost of equipment sales in our Consolidated Statements of Comprehensive Income.
We do not have any leasing transactions with related parties. See Note 15 - Leases for further information.
We have implemented significant new lease accounting systems, processes and internal controls over lease accounting to assist us in the application of the new lease standard.
Lease Expense
We have operating leases for cell sites, retail locations, corporate offices and dedicated transportation lines, some of which have escalating rentals during the initial lease term and during subsequent optional renewal periods. We recognize a right-of-use asset and lease liability for operating leases based on the net present value of future minimum lease payments. Lease expense is recognized on a straight-line basis over the non-cancelable lease term and renewal periods that are considered reasonably certain.
We consider several factors in assessing whether renewal periods are reasonably certain of being exercised, including the continued maturation of our network nationwide, technological advances within the telecommunications industry and the availability of alternative sites.
We have financing leases for certain network equipment. The financing leases do not have renewal options and contain a bargain purchase option at the end of the lease. We recognize a right-of-use asset and lease liability for financing leases based on the net present value of future minimum lease payments. Lease expense for our financing leases is comprised of the amortization of the right-of-use asset and interest expense recognized based on the effective interest method.
Accounting Pronouncements Not Yet Adopted
Financial Instruments
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and has since modified the standard with several ASUs (collectively, the “new credit loss standard”). The new credit loss standard requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectibility of the reported amount. The new credit loss standard will become effective for us beginning on January 1, 2020, and requires 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).
We will adopt the new credit loss standard on January 1, 2020, and plan to recognize lifetime expected credit losses at the inception of our credit risk exposures whereas we currently recognize credit losses only when it is probable that they have been incurred. We will also recognize expected credit losses on our EIP receivables, excluding consideration of any unamortized discount on those receivables resulting from the imputation of interest. We currently offset our estimate of incurred losses on our EIP receivables by the amount of the related unamortized discounts on those receivables. We have developed an expected credit loss model and are refining the inputs including the forward-looking loss indicators. The estimated impact of the new credit loss standard on our receivables portfolio as of December 31, 2019, would be an increase to our allowance for credit losses of $85 million to $95 million, a decrease to our net deferred tax liabilities of $22 million to $25 million and an increase to our Accumulated deficit of $63 million to $70 million.
Cloud Computing Arrangements
In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We will adopt the standard on a prospective basis beginning on the effective date of January 1, 2020. Upon adoption of the standard, implementation costs are capitalized in the period incurred, which will result in an increase to Other assets in our Consolidated Balance Sheets. These capitalized amounts will be amortized over the term of the hosting arrangement to Cost of services or Selling, general and administrative expenses in our Consolidated Statements of Comprehensive Income based on the nature of the hosting arrangement. The impact of this standard on our Consolidated Financial Statements is dependent on the nature and composition of the hosting arrangements entered into subsequent to adoption.
Income Taxes
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The standard will become effective for us beginning January 1, 2021. Early adoption is permitted for us at any time. We are currently evaluating the impact this guidance will have on our Consolidated Financial Statements and the timing of adoption.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (the “SEC”) did not have, or are not expected to have, a significant impact on our present or future Consolidated Financial Statements.
Note 2 – Business Combinations
Proposed Sprint Transactions
On April 29, 2018, we entered into a Business Combination Agreement to merge with Sprint in an all-stock transaction at a fixed exchange ratio of 0.10256 shares of T-Mobile common stock for each share of Sprint common stock, or 9.75 shares of Sprint common stock for each share of T-Mobile common stock (the “Merger”). The combined company will be named “T-Mobile” and, as a result of the Merger, is expected to be able to rapidly launch a broad and deep nationwide 5G network, accelerate innovation and increase competition in the U.S. wireless, video and broadband industries. Neither T-Mobile nor Sprint on its own could generate comparable benefits to consumers.
The Merger and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”) have been approved by the boards of directors of T-Mobile and Sprint and the required approvals of the stockholders of each of T-Mobile and Sprint have been obtained. Immediately following the Merger, it is anticipated that Deutsche Telekom AG (“DT”) and SoftBank Group Corp. (“SoftBank”) will hold, directly or indirectly, on a fully diluted basis, approximately 41.5% and 27.2%, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 31.3% of the outstanding T-Mobile common stock held by other stockholders, based on closing share prices and certain other assumptions as of December 31, 2019.
In connection with the entry into the Business Combination Agreement, T-Mobile USA, Inc. (“T-Mobile USA”) entered into commitment letter, dated as of April 29, 2018 (as amended and restated on May 15, 2018 and on September 6, 2019, the “Commitment Letter”). The funding of the debt facilities provided for in the Commitment Letter is subject to the satisfaction of the conditions set forth therein, including consummation of the Merger. The proceeds of the debt financing provided for in the Commitment Letter will be used to refinance certain existing debt of us, Sprint and our and Sprint’s respective subsidiaries and for post-closing working capital needs of the combined company. See Note 8 – Debtfor further information.
In connection with the entry into the Business Combination Agreement, DT and T-Mobile USA entered into a Financing Matters Agreement, dated as of April 29, 2018 (the “Financing Matters Agreement”), pursuant to which DT agreed, among other things, to consent to, subject to certain conditions, certain amendments to certain existing debt owed to DT, in connection with the Merger. If the Merger is consummated, we will make payments for requisite consents to DT of $13 million. There was no payment accrued as of December 31, 2019. See Note 8 – Debtfor further information.
On May 18, 2018, under the terms and conditions described in the Consent Solicitation Statement dated as of May 14, 2018 (the "Consent Solicitation Statement"), we obtained consents necessary to effect certain amendments to certain existing debt of us and our subsidiaries. If the Merger is consummated, we will make payments for requisite consents to third-party note holders of $95 million. There were 0 consent payments accrued as of December 31, 2019.
Under the terms of the Business Combination Agreement, if the Business Combination Agreement is terminated, Sprint may be required to reimburse us for 33% of the consent, bank, and other fees we paid or accrued, which totaled $18 million as of December 31, 2019. There were 0 reimbursements accrued as of December 31, 2019. Sprint also obtained consents necessary to effect certain amendments to certain existing debt of Sprint and its subsidiaries. In connection with receiving the requisite consents, Sprint made upfront payments to third-party note holders and related bank fees of $242 million. Under the terms of the Business Combination Agreement, if the Business Combination Agreement is terminated, we may also be required to reimburse Sprint for 67% of the upfront consent and related bank fees it paid, which totaled $162 million as of December 31, 2019. There were 0 fees accrued as of December 31, 2019.
We recognized Merger-related costs of $620 million and $196 million for the years ended December 31, 2019 and 2018, respectively. These costs generally included consulting and legal fees and were recognized as Selling, general and administrative expenses in our Consolidated Statements of Comprehensive Income. Payments for Merger-related costs were $442 million and $86 million for the years ended December 31, 2019 and 2018, respectively, and were recognized within Net cash provided by operating activities in our Consolidated Statements of Cash Flows.
The Business Combination Agreement contains certain termination rights for both Sprint and us. If we terminate the Business Combination Agreement in connection with a failure to satisfy the closing condition related to specified minimum credit ratings for the combined company on the closing date of the Merger (after giving effect to the Merger) from at least two of the three credit rating agencies, then in certain circumstances, we may be required to pay Sprint an amount equal to $600 million.
On June 18, 2018, we filed a Public Interest Statement and applications for approval of the Merger with the FCC. On July 18, 2018, the FCC issued a Public Notice formally accepting our applications and establishing a period for public comment. On May 20, 2019, to facilitate the FCC’s review and approval of the FCC license transfers associated with the proposed Merger, we and Sprint filed with the FCC a written ex parte presentation (the “Presentation”) relating to the proposed Merger. The Presentation included proposed commitments from us and Sprint. The FCC approved the Merger on November 5, 2019.
On June 11, 2019, a number of state attorneys general filed a lawsuit against us, DT, Sprint, and SoftBank in the U.S. District Court for the Southern District of New York, alleging that the Merger, if consummated, would violate Section 7 of the Clayton Act and so should be enjoined. After it was filed, several additional states joined the lawsuit. Of the states that joined the lawsuit, two have subsequently withdrawn from the suit having resolved their concerns with the Merger. We believe the plaintiffs’ claims are without merit, and have defended the case vigorously. Trial concluded after two weeks of witness testimony and presentation of document evidence. We are now waiting for the trial court’s ruling. On November 25, 2019, individual consumers filed a similar lawsuit in the Northern District of California. That case has been stayed pending the outcome of the New York litigation.
On July 26, 2019, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Sprint and DISH Network Corporation (“DISH”). We and Sprint are collectively referred to as the “Sellers.” Pursuant to the Asset Purchase Agreement, upon the terms and subject to the conditions thereof, following the consummation of the Merger, DISH will acquire Sprint’s prepaid wireless business, currently operated under the Boost Mobile and Sprint prepaid brands (excluding the Assurance brand Lifeline customers and the prepaid wireless customers of Shenandoah Telecommunications Company and Swiftel Communications, Inc.), including customer accounts, inventory, contracts, intellectual property and certain other specified assets (the “Prepaid Business”), and will assume certain related liabilities (the “Prepaid Transaction”). DISH will pay the Sellers $1.4 billion for the Prepaid Business, subject to a working capital adjustment. The consummation of the Prepaid Transaction is subject to the consummation of the Merger and other customary closing conditions.
At the closing of the Prepaid Transaction, the Sellers and DISH will enter into (i) a License Purchase Agreement pursuant to which (a) the Sellers will sell certain 800 MHz spectrum licenses held by Sprint to DISH for a total of approximately $3.6 billion in a transaction to be completed, subject to certain additional closing conditions, following an application for FCC approval to be filed three years following the closing of the Merger and (b) the Sellers will have the option to lease back from DISH, as needed, a portion of the spectrum sold for an additional two years following the closing of the spectrum sale transaction, (ii) a Transition Services Agreement providing for the Sellers’ provision of transition services to DISH in connection with the Prepaid Business for a period of up to three years following the closing of the Prepaid Transaction, (iii) a Master Network Services Agreement providing for the Sellers’ provision of network services to customers of the Prepaid Business for a period of up to seven years following the closing of the Prepaid Transaction, and (iv) an Option to Acquire Tower and Retail Assets offering DISH the option to acquire certain decommissioned towers and retail locations from the Sellers, subject to obtaining all necessary third-party consents, for a period of up to five years following the closing of the Prepaid Transaction.
On July 26, 2019, in connection with the entry into the Asset Purchase Agreement, we and the other parties to the Business Combination Agreement entered into Amendment No. 1 (the “Amendment”) to the Business Combination Agreement. The Amendment extended the Outside Date (as defined in the Business Combination Agreement) to November 1, 2019, or, if the Marketing Period (as defined in the Business Combination Agreement) had started and was in effect at such date, then January 2, 2020. Because the Transactions were not completed by the Outside Date, each of T-Mobile and Sprint currently has the right to terminate the Business Combination Agreement or the terms may be amended.
On July 26, 2019, the U.S. Department of Justice (the “DOJ”) filed a complaint and a proposed final judgment (the “Proposed Consent Decree”) agreed to by us, DT, Sprint, SoftBank and DISH with the U.S. District Court for the District of Columbia.
The Proposed Consent Decree would fully resolve DOJ’s investigation into the Merger and would require the parties to, among other things, carry out the divestitures to be made pursuant to the Asset Purchase Agreement described above upon closing of the Merger. The Proposed Consent Decree is subject to judicial approval.
The consummation of the Merger remains subject to certain closing conditions. We expect the Merger will be permitted to close in early 2020.
Note 3 – Receivables and Allowance for Credit Losses
Our portfolio of receivables is comprised of 2 portfolio segments: accounts receivable and EIP receivables. Our accounts receivable segment primarily consists of amounts currently due from customers, including service and leased device receivables, other carriers and third-party retail channels.
Based upon customer credit profiles, we classify the EIP receivables segment into 2 customer classes of “Prime” and “Subprime.” Prime customer receivables are those with lower delinquency risk and Subprime customer receivables are those with higher delinquency risk. 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.
To determine a customer’s credit profile, we use a proprietary credit scoring model that measures the credit quality of a customer using several factors, such as credit bureau information, consumer credit risk scores and service and device plan characteristics.
The following table summarizes the EIP receivables, including imputed discounts and related allowance for credit losses:
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(in millions) | December 31, 2019 | | December 31, 2018 |
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EIP receivables, gross | $ | 4,582 | | | $ | 4,534 | |
Unamortized imputed discount | (299) | | | (330) | |
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EIP receivables, net of unamortized imputed discount | 4,283 | | | 4,204 | |
Allowance for credit losses | (100) | | | (119) | |
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EIP receivables, net | $ | 4,183 | | | $ | 4,085 | |
Classified on the balance sheet as: | | | |
Equipment installment plan receivables, net | $ | 2,600 | | | $ | 2,538 | |
Equipment installment plan receivables due after one year, net | 1,583 | | | 1,547 | |
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EIP receivables, net | $ | 4,183 | | | $ | 4,085 | |
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To determine the appropriate level of the allowance for credit losses, we consider a number of credit quality factors, including historical credit losses and timely payment experience as well as current collection trends such as write-off frequency and severity, aging of the receivable portfolio, credit quality of the customer base and other qualitative factors such as macro-economic conditions.
We write off account balances if collection efforts are unsuccessful and the receivable balance is deemed uncollectible, based on factors such as customer credit ratings and the length of time from the original billing date.
For EIP receivables, subsequent to the initial determination of the imputed discount, we assess the need for and, if necessary, recognize an allowance for credit losses to the extent the amount of estimated incurred losses on the gross EIP receivable balances exceed the remaining unamortized imputed discount balances.
The EIP receivables had weighted average effective imputed interest rates of 8.8% and 10.0% as of December 31, 2019, and 2018, respectively.
Activity for the years ended December 31, 2019, 2018 and 2017, in the allowance for credit losses and unamortized imputed discount balances for the accounts receivable and EIP receivables segments were as follows:
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| December 31, 2019 | | | | | | December 31, 2018 | | | | | | December 31, 2017 | | | | |
(in millions) | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total | | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total | | Accounts Receivable Allowance | | EIP Receivables Allowance | | Total |
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Allowance for credit losses and imputed discount, beginning of period | $ | 67 | | | $ | 449 | | | $ | 516 | | | $ | 86 | | | $ | 396 | | | $ | 482 | | | $ | 102 | | | $ | 316 | | | $ | 418 | |
Bad debt expense | 77 | | | 230 | | | 307 | | | 69 | | | 228 | | | 297 | | | 104 | | | 284 | | | 388 | |
Write-offs, net of recoveries | (83) | | | (249) | | | (332) | | | (88) | | | (240) | | | (328) | | | (120) | | | (273) | | | (393) | |
Change in imputed discount on short-term and long-term EIP receivables | N/A | | | 136 | | | 136 | | | N/A | | | 250 | | | 250 | | | N/A | | | 252 | | | 252 | |
Impact on the imputed discount from sales of EIP receivables | N/A | | | (167) | | | (167) | | | N/A | | | (185) | | | (185) | | | N/A | | | (183) | | | (183) | |
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Allowance for credit losses and imputed discount, end of period | $ | 61 | | | $ | 399 | | | $ | 460 | | | $ | 67 | | | $ | 449 | | | $ | 516 | | | $ | 86 | | | $ | 396 | | | $ | 482 | |
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Management considers the aging of receivables to be an important credit indicator. The following table provides delinquency status for the unpaid principal balance for receivables within the EIP portfolio segment, which we actively monitor as part of our current credit risk management practices and policies:
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| December 31, 2019 | | | | | | December 31, 2018 | | | | |
(in millions) | Prime | | Subprime | | Total EIP Receivables, gross | | Prime | | Subprime | | Total EIP Receivables, gross |
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Current - 30 days past due | $ | 2,384 | | | $ | 2,108 | | | $ | 4,492 | | | $ | 1,987 | | | $ | 2,446 | | | $ | 4,433 | |
31 - 60 days past due | 13 | | | 28 | | | 41 | | | 15 | | | 32 | | | 47 | |
61 - 90 days past due | 7 | | | 17 | | | 24 | | | 6 | | | 19 | | | 25 | |
More than 90 days past due | 7 | | | 18 | | | 25 | | | 7 | | | 22 | | | 29 | |
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Total receivables, gross | $ | 2,411 | | | $ | 2,171 | | | $ | 4,582 | | | $ | 2,015 | | | $ | 2,519 | | | $ | 4,534 | |
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Note 4 – Sales of Certain Receivables
We have entered into transactions to sell certain service and EIP receivables. The transactions, including our continuing involvement with the sold receivables and the respective impacts to our Consolidated Financial Statements, are described below.
Sales of Service Accounts Receivable
Overview of the Transaction
In 2014, we entered into an arrangement to sell certain service accounts receivable on a revolving basis (the “service receivable sale arrangement”). The maximum funding commitment of the service receivable sale arrangement is $950 million. In February 2019, the service receivable sale arrangement was amended to extend the scheduled expiration date, as well as certain third-party credit support under the arrangement, to March 2021. As of December 31, 2019 and 2018, the service receivable sale arrangement provided funding of $924 million and $774 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 receivable (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 service receivable sale arrangement, certain of our wholly-owned subsidiaries transfer selected receivables to the Service BRE. The Service BRE then sells the receivables to an unaffiliated entity (the “Service VIE”), which was established to facilitate the sale of beneficial ownership interests in the receivables to certain third parties.
Variable Interest Entity
We determined that the Service VIE qualifies as a VIE as it lacks sufficient equity to finance its activities. We have a variable interest in the Service VIE but are not the primary beneficiary as we lack the power to direct the activities that most significantly impact the Service VIE’s economic performance. Those activities include committing the Service VIE to legal agreements to purchase or sell assets, selecting which receivables are purchased in the service receivable sale arrangement, determining whether the Service VIE will sell interests in the purchased service receivables to other parties, funding of the entity and servicing of receivables. We do not hold the power to direct the key decisions underlying these activities. For example, while we act as the servicer of the sold receivables, which is considered a significant activity of the Service VIE, we are acting as an agent in our capacity as the servicer and the counterparty to the service receivable sale arrangement has the ability to remove us as the servicing agent of the receivables at will with no recourse available to us. As we have determined we are not the primary beneficiary, the balances and results of the Service VIE are not included in our Consolidated Financial Statements.
The following table summarizes the carrying amounts and classification of assets, which consists primarily of the deferred purchase price and liabilities included in our Consolidated Balance Sheets that relate to our variable interest in the Service VIE:
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(in millions) | December 31, 2019 | | December 31, 2018 |
Other current assets | $ | 350 | | | $ | 339 | |
Accounts payable and accrued liabilities | 25 | | | 59 | |
Other current liabilities | 342 | | | 149 | |
Sales of EIP Receivables
Overview of the Transaction
In 2015, we entered into an arrangement to sell certain EIP accounts receivable on a revolving basis (the “EIP sale arrangement”). The maximum funding commitment of the EIP sale arrangement is $1.3 billion, and the scheduled expiration date is November 2020.
As of both December 31, 2019 and 2018, the EIP sale arrangement provided funding of $1.3 billion. Sales of EIP receivables occur daily and are settled on a monthly basis.
In connection with this EIP sale arrangement, we formed a wholly-owned subsidiary, which qualifies as a bankruptcy remote entity (the “EIP BRE”). Pursuant to the EIP sale arrangement, 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 third-party entity qualify as a VIE.
Variable Interest Entity
We determined that the EIP BRE is a VIE as its equity investment at risk lacks the obligation to absorb a certain portion of its expected losses. We have a variable interest in the EIP BRE and determined that we are the primary beneficiary based on our ability to direct the activities which most significantly impact the EIP BRE’s economic performance. Those activities include selecting which receivables are transferred into the EIP BRE and sold in the EIP sale arrangement and funding of the EIP BRE. Additionally, our equity interest in the EIP BRE obligates us to absorb losses and gives us the right to receive benefits from the EIP BRE that could potentially be significant to the EIP BRE. Accordingly, we include the balances and results of operations of the EIP BRE in our Consolidated Financial Statements.
The following table summarizes the carrying amounts and classification of assets, which consists primarily of the deferred purchase price, and liabilities included in our Consolidated Balance Sheets that relate to the EIP BRE:
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(in millions) | December 31, 2019 | | December 31, 2018 |
Other current assets | $ | 344 | | | $ | 321 | |
Other assets | 89 | | | 88 | |
Other long-term liabilities | 18 | | | 22 | |
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 transfers of service receivables and EIP receivables to the non-consolidated entities are accounted for as sales of financial assets. Once identified for sale, the receivable is recorded at the lower of cost or fair value. Upon sale, we derecognize the net carrying amount of the receivables.
We recognize the cash proceeds received upon sale in Net cash provided by operating activities in our Consolidated Statements of Cash Flows. We recognize proceeds net of the deferred purchase price, consisting of a receivable from the purchasers that entitles us to certain collections on the receivables. We recognize the collection of the deferred purchase price in Net cash used in investing activities in our Consolidated Statements of Cash Flows as Proceeds related to beneficial interests in securitization transactions.
The deferred purchase price represents a financial asset that is primarily tied to the creditworthiness of the customers and which can be settled in such a way that we may not recover substantially all of our recorded investment, due to default by the customers on the underlying receivables. 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 in our Consolidated Statements of Comprehensive Income. The fair value of the deferred purchase price is determined based on a discounted cash flow model which uses primarily unobservable inputs (Level 3 inputs), including customer default rates. As of December 31, 2019, and 2018, our deferred purchase price related to the sales of service receivables and EIP receivables was $781 million and $746 million, respectively.
The following table summarizes the impact of the sale of certain service receivables and EIP receivables in our Consolidated Balance Sheets:
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(in millions) | December 31, 2019 | | December 31, 2018 |
Derecognized net service receivables and EIP receivables | $ | 2,584 | | | $ | 2,577 | |
Other current assets | 694 | | | 660 | |
of which, deferred purchase price | 692 | | | 658 | |
Other long-term assets | 89 | | | 88 | |
of which, deferred purchase price | 89 | | | 88 | |
Accounts payable and accrued liabilities | 25 | | | 59 | |
Other current liabilities | 342 | | | 149 | |
Other long-term liabilities | 18 | | | 22 | |
Net cash proceeds since inception | 1,944 | | | 1,879 | |
Of which: | | | |
Change in net cash proceeds during the year-to-date period | 65 | | | (179) | |
Net cash proceeds funded by reinvested collections | 1,879 | | | 2,058 | |
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We recognized losses from sales of receivables, including adjustments to the receivables’ fair values and changes in fair value of the deferred purchase price, of $130 million, $157 million and $299 million for the years ended December 31, 2019, 2018 and 2017, respectively, in Selling, general and administrative expense in our Consolidated Statements of Comprehensive Income.
Continuing Involvement
Pursuant to the sale arrangements described above, we have continuing involvement with the service receivables and EIP receivables we sell as we service the receivables and are required to repurchase certain receivables, including ineligible receivables, aged receivables and receivables where write-off is imminent. 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 servicing the receivables, we apply the same policies and procedures to 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 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 $1.1 billion as of December 31, 2019. The maximum exposure to loss, which is a required disclosure under U.S. 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. We believe the probability of these circumstances occurring is remote and the maximum exposure to loss is not an indication of our expected loss.
Note 5 – Property and Equipment
The components of property and equipment were as follows:
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(in millions) | Useful Lives | | December 31, 2019 | | December 31, 2018 |
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Buildings and equipment | Up to 40 years | | $ | 2,587 | | | $ | 2,428 | |
Wireless communications systems | Up to 20 years | | 34,353 | | | 35,282 | |
Leasehold improvements | Up to 12 years | | 1,345 | | | 1,299 | |
Capitalized software | Up to 10 years | | 12,705 | | | 11,712 | |
Leased wireless devices | Up to 18 months | | 1,139 | | | 1,159 | |
Construction in progress | | | 2,973 | | | 2,776 | |
Accumulated depreciation and amortization | | | (33,118) | | | (31,297) | |
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Property and equipment, net | | | $ | 21,984 | | | $ | 23,359 | |
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We capitalize interest associated with the acquisition or construction of certain property and equipment and spectrum intangible assets. We recognized capitalized interest of $473 million, $362 million and $136 million for the years ended December 31, 2019, 2018 and 2017, respectively.
In December 2019, we sold 168 T-Mobile-owned wireless communications tower sites to an unrelated third party in exchange for net proceeds of $38 million which are included in Proceeds from sales of tower sites within Net cash used in investing activities in our Consolidated Statements of Cash Flows. A gain of $13 million was recognized as a reduction in Cost of services, exclusive of depreciation and amortization, in our Consolidated Statements of Comprehensive Income. We lease back space at certain of the sold tower sites for an initial term of ten years, followed by optional renewals.
Total depreciation expense relating to property and equipment was $6.0 billion, $6.4 billion and $5.8 billion for the years ended December 31, 2019, 2018 and 2017, respectively. Included in the total depreciation expense for the years ended December 31, 2019, 2018 and 2017 was $543 million, $940 million and $1.0 billion, respectively, related to leased wireless devices.
Asset retirement obligations are primarily for certain legal obligations to remediate leased property on which our network infrastructure and administrative assets are located.
Activity in our asset retirement obligations was as follows:
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(in millions) | December 31, 2019 | | December 31, 2018 |
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Asset retirement obligations, beginning of year | $ | 609 | | | $ | 562 | |
Liabilities incurred | 35 | | | 26 | |
Liabilities settled | (2) | | | (9) | |
Accretion expense | 32 | | | 30 | |
Changes in estimated cash flows | (15) | | | — | |
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Asset retirement obligations, end of year | $ | 659 | | | $ | 609 | |
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Other long-term liabilities | $ | 659 | | | $ | 609 | |
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The corresponding assets, net of accumulated depreciation, related to asset retirement obligations were $159 million and $194 million as of December 31, 2019 and 2018, respectively.
Note 6 – Goodwill, Spectrum License Transactions and Other Intangible Assets
Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2019 and 2018, are as follows:
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(in millions) | Goodwill |
| |
Historical goodwill | $ | 12,449 | |
Goodwill from acquisition of Layer3 TV | 218 | |
Accumulated impairment losses at December 31, 2018 | (10,766) | |
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Balance as of December 31, 2018 | 1,901 | |
Goodwill from acquisition in 2019 | 29 | |
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Balance as of December 31, 2019 | $ | 1,930 | |
Accumulated impairment losses at December 31, 2019 | $ | (10,766) | |
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In July 2019, we completed our acquisition of a mobile marketing company, for cash consideration of $32 million. Upon closing of the transaction, the acquired company became a wholly-owned consolidated subsidiary to T-Mobile. We recorded Goodwill of approximately $29 million, calculated as the excess of the purchase price paid over the fair value of net assets acquired. The acquired goodwill was allocated to our wireless reporting unit and will be tested for impairment at this level.
The assets acquired and liabilities assumed were not material to our Consolidated Balance Sheets. The financial results from the acquisition closing date through December 31, 2019 were not material to our Consolidated Statements of Comprehensive Income. The acquisition was not material to our prior period consolidated results on a pro forma basis.
Spectrum Licenses
The following table summarizes our spectrum license activity for the years ended December 31, 2019 and 2018:
| | | | | | | | | | | |
(in millions) | 2019 | | 2018 |
Spectrum licenses, beginning of year | $ | 35,559 | | | $ | 35,366 | |
| | | |
Spectrum license acquisitions | 857 | | | 138 | |
Spectrum licenses transferred to held for sale | — | | | (1) | |
Costs to clear spectrum | 49 | | | 56 | |
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Spectrum licenses, end of year | $ | 36,465 | | | $ | 35,559 | |
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The following is a summary of significant spectrum transactions for the year ended December 31, 2019:
•In June 2019, the FCC announced that we were the winning bidder of 2,211 licenses in the 24 GHz and 28 GHz spectrum auctions for an aggregate price of $842 million.
•At the inception of the 28 GHz spectrum auction in October 2018, we deposited $20 million with the FCC. Upon conclusion of the 28 GHz spectrum auction in February 2019, we made an additional payment of $19 million for the purchase price of licenses won in the auction.
•At the inception of the 24 GHz spectrum auction in February 2019, we deposited $147 million with the FCC. Upon conclusion of the 24 GHz spectrum auction in June 2019, we made an additional payment of $656 million for the purchase price of licenses won in the auction.
The licenses are included in Spectrum licenses as of December 31, 2019, in our Consolidated Balance Sheets. Cash payments to acquire spectrum licenses and payments for costs to clear spectrum are included in Purchases of spectrum licenses and other intangible assets, including deposits in our Consolidated Statements of Cash Flows for the year ended December 31, 2019.
The following is a summary of significant spectrum transactions for the year ended December 31, 2018:
•We recorded spectrum licenses received as part of our acquisition of the remaining equity interest in Iowa Wireless Services, LLC, at their estimated fair value of approximately $87 million.
•We closed on multiple spectrum purchase agreements in which we acquired total spectrum licenses of approximately $50 million for cash consideration.
•In 2018, we signed a reciprocal long-term lease arrangement with Sprint in which both parties have the right to use a portion of spectrum owned by the other party. This executory agreement does not qualify as an acquisition of spectrum licenses, and we have not capitalized amounts related to the lease. The reciprocal long-term lease is a distinct transaction from the Merger.
Goodwill and Other Intangible Assets Impairment Assessments
Our impairment assessment of goodwill and other indefinite-lived intangible assets (spectrum licenses) resulted in 0 impairment as of December 31, 2019 and 2018.
Other Intangible Assets
The components of Other intangible assets were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Useful Lives | | December 31, 2019 | | | | | | December 31, 2018 | | | | |
(in millions) | | | Gross Amount | | Accumulated Amortization | | Net Amount | | Gross Amount | | Accumulated Amortization | | Net Amount |
| | | | | | | | | | | | | |
Customer lists | Up to 6 years | | $ | 1,104 | | | $ | (1,104) | | | $ | — | | | $ | 1,104 | | | $ | (1,086) | | | $ | 18 | |
Trademarks and patents | Up to 19 years | | 323 | | | (258) | | | 65 | | | 312 | | | (225) | | | 87 | |
Other | Up to 28 years | | 100 | | | (50) | | | 50 | | | 149 | | | (56) | | | 93 | |
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Other intangible assets | | | $ | 1,527 | | | $ | (1,412) | | | $ | 115 | | | $ | 1,565 | | | $ | (1,367) | | | $ | 198 | |
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Amortization expense for intangible assets subject to amortization was $82 million, $124 million and $163 million for the years ended December 31, 2019, 2018 and 2017, respectively.
The estimated aggregate future amortization expense for intangible assets subject to amortization are summarized below:
| | | | | |
(in millions) | Estimated Future Amortization |
Year Ending December 31, | |
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2020 | $ | 83 | |
2021 | 14 | |
2022 | 3 | |
2023 | 3 | |
2024 | 3 | |
Thereafter | 9 | |
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Total | $ | 115 | |
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Note 7 – Fair Value Measurements
The carrying values of Cash and cash equivalents, Accounts receivable, Accounts receivable from affiliates, Accounts payable and accrued liabilities, borrowings under vendor financing arrangements with our primary network equipment suppliers, and borrowings under our revolving credit facility with DT, our majority stockholder, approximate fair value due to the short-term maturities of these instruments.
Derivative Financial Instruments
Interest rate lock derivatives
Periodically, we use derivatives to manage exposure to market risk, such as interest rate risk. We designated certain derivatives as hedging instruments in a qualifying hedge accounting relationship (cash flow hedge) to help minimize significant, unplanned fluctuations in cash flows caused by interest rate volatility. We do not use derivatives for trading or speculative purposes.
We record interest rate lock derivatives on our Consolidated Balance Sheets at fair value that is derived primarily from observable market data, including yield curves. Interest rate lock derivatives were classified as Level 2 in the fair value
hierarchy. Cash flows associated with qualifying hedge derivative instruments are presented in the same category on the Consolidated Statements of Cash Flows as the item being hedged.
In October 2018, we entered into interest rate lock derivatives with notional amounts of $9.6 billion. The fair value of interest rate lock derivatives was a liability of $1.2 billion and $447 million as of December 31, 2019 and 2018, respectively, and was included in Other current liabilities in our Consolidated Balance Sheets. As of the years ended December 31, 2019 and 2018, no amounts were accrued or amortized into Interest expense in the Consolidated Statements of Comprehensive Income. Aggregate changes in fair value, net of tax, of $868 million and $332 million are presented in Accumulated other comprehensive loss as of December 31, 2019, and 2018, respectively.
In November 2019, we extended the mandatory termination date on our interest rate lock derivatives to June 3, 2020. In December 2019, we made net collateral transfers to certain of our derivative counterparties totaling $632 million, which included variation margin transfers to (or from) such derivative counterparties based on daily market movements. These collateral transfers are included in Other current assets in our Consolidated Balance Sheetsand inNet cash related to derivative contracts under collateral exchange arrangements within Net cash used in investing activities in our Consolidated Statements of Cash Flows.The interest rate lock derivatives will be settled upon the earlier of the issuance of fixed-rate debt or the mandatory termination date. Upon settlement of the interest rate lock derivatives, we will receive, or make, a cash payment in the amount of the fair value of the cash flow hedge as of the settlement date.
Embedded derivatives
In connection with our business combination with MetroPCS, we issued senior reset notes to DT. We determined certain components of the reset feature are required to be bifurcated from the senior reset notes and separately accounted for as embedded derivative instruments.
The interest rates on our senior reset notes to DT were adjusted at the reset dates to rates defined in the applicable supplemental indentures to manage interest rate risk related to the senior reset notes. Our embedded derivatives are recorded at fair value primarily based on unobservable inputs and were classified as Level 3 in the fair value hierarchy for 2019 and 2018.
Effective April 28, 2019, we redeemed $600 million aggregate principal amount of our 9.332% Senior Reset Notes due 2023 held by DT. The notes were redeemed at a redemption price equal to 104.666% of the principal amount of the notes (plus accrued and unpaid interest thereon) and were paid on April 29, 2019. The write-off of embedded derivatives upon redemption of the DT Senior Reset Notes resulted in a gain of $11 million and is included in Other expense, net in our Consolidated Statements of Comprehensive Income. The fair value of embedded derivative instruments was $19 million as of December 31, 2018, and is included in Other long-term liabilities in our Consolidated Balance Sheets. For the years ended December 31, 2019, 2018, and 2017, we recognized $8 million, $29 million and $52 million from the gain activity related to embedded derivatives instruments in Interest expense to affiliates in our Consolidated Statements of Comprehensive Income.
Deferred Purchase Price Assets
In connection with the sales of certain service and EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price assets measured at fair value that are based on a discounted cash flow model using unobservable Level 3 inputs, including customer default rates. See Note 4 – Sales of Certain Receivables for further information.
The carrying amounts and fair values of our assets measured at fair value on a recurring basis included in our Consolidated Balance Sheets were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level within the Fair Value Hierarchy | | December 31, 2019 | | | | December 31, 2018 | | |
(in millions) | | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Assets: | | | | | | | | | |
Deferred purchase price assets | 3 | | $ | 781 | | | $ | 781 | | | $ | 746 | | | $ | 746 | |
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 our Senior Notes to affiliates, Incremental Term Loan Facility to affiliates and Senior Reset Notes to affiliates were 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 affiliates, Incremental Term Loan Facility to affiliates and Senior Reset Notes to affiliates 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 and Senior Reset Notes to affiliates. The fair value estimates were based on information available as of December 31, 2019, and 2018. As such, our estimates are not necessarily indicative of the amount we could realize in a current market exchange.
The carrying amounts and fair values of our short-term and long-term debt included in our Consolidated Balance Sheets were as follows:
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| Level within the Fair Value Hierarchy | | December 31, 2019 | | | | December 31, 2018 | | |
(in millions) | | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Liabilities: | | | | | | | | | |
Senior Notes to third parties | 1 | | $ | 10,958 | | | $ | 11,479 | | | $ | 10,950 | | | $ | 10,945 | |
Senior Notes to affiliates | 2 | | 9,986 | | | 10,366 | | | 9,984 | | | 9,802 | |
Incremental Term Loan Facility to affiliates | 2 | | 4,000 | | | 4,000 | | | 4,000 | | | 3,976 | |
Senior Reset Notes to affiliates | 2 | | — | | | — | | | 598 | | | 640 | |
Guarantee Liabilities
We offer a device trade-in program, JUMP!, which provides eligible customers a specified-price trade-in right to upgrade their device. For customers who enroll in JUMP!, we recognize a liability and reduce revenue for the portion of revenue which represents the estimated fair value of the specified-price trade-in right guarantee, incorporating the expected probability and timing of handset upgrade and the estimated fair value of the handset which is returned. Accordingly, our guarantee liabilities were classified as Level 3 within the fair value hierarchy. When customers upgrade their device, the difference between the EIP balance credit to the customer and the fair value of the returned device is recorded against the guarantee liabilities. Guarantee liabilities are included in Other current liabilities in our Consolidated Balance Sheets.
The carrying amounts of our guarantee liabilities measured at fair value on a non-recurring basis included in our Consolidated Balance Sheets were $62 million and $73 million as of December 31, 2019, and 2018, respectively.
The total estimated remaining gross EIP receivable balances of all enrolled handset upgrade program customers, which are the remaining EIP amounts underlying the JUMP! guarantee, including EIP receivables that have been sold, was $2.1$3.0 billion as of December 31, 2016.2019. This is not an indication of our expected loss exposure as it does not consider the expected fair value of the used handset or the probability and timing of the trade-in.
Note 78 – Debt
Debt was as follows:
| | | | | | | | | | | |
(in millions) | December 31, 2019 | | December 31, 2018 |
| | | |
5.300% Senior Notes to affiliates due 2021 | $ | 2,000 | | | $ | 2,000 | |
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4.000% Senior Notes to affiliates due 2022 | 1,000 | | | 1,000 | |
4.000% Senior Notes due 2022 | 500 | | | 500 | |
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Incremental term loan facility to affiliates due 2022 | | 2,000 | | | 2,000 | |
6.000% Senior Notes due 2023 | 1,300 | | | 1,300 | |
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9.332% Senior Reset Notes to affiliates due 2023 | — | | | 600 | |
6.000% Senior Notes due 2024 | 1,000 | | | 1,000 | |
6.500% Senior Notes due 2024 | 1,000 | | | 1,000 | |
6.000% Senior Notes to affiliates due 2024 | 1,350 | | | 1,350 | |
6.000% Senior Notes to affiliates due 2024 | 650 | | | 650 | |
Incremental term loan facility to affiliates due 2024 | | 2,000 | | | 2,000 | |
5.125% Senior Notes to affiliates due 2025 | 1,250 | | | 1,250 | |
5.125% Senior Notes due 2025 | 500 | | | 500 | |
6.375% Senior Notes due 2025 | 1,700 | | | 1,700 | |
6.500% Senior Notes due 2026 | 2,000 | | | 2,000 | |
4.500% Senior Notes due 2026 | 1,000 | | | 1,000 | |
4.500% Senior Notes to affiliates due 2026 | 1,000 | | | 1,000 | |
5.375% Senior Notes due 2027 | 500 | | | 500 | |
5.375% Senior Notes to affiliates due 2027 | 1,250 | | | 1,250 | |
4.750% Senior Notes due 2028 | 1,500 | | | 1,500 | |
4.750% Senior Notes to affiliates due 2028 | 1,500 | | | 1,500 | |
Capital leases (1) | — | | | 2,015 | |
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Unamortized premium on debt to affiliates | | 43 | | | 52 | |
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Unamortized discount on Senior Notes to affiliates | | (53) | | | (64) | |
Financing arrangements for property and equipment | | 25 | | | — | |
Debt issuance costs and consent fees | | (46) | | | (56) | |
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Total debt | | 24,969 | | | 27,547 | |
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Less: Current portion of capital leases | | — | | | 841 | |
Less: Financing arrangements for property and equipment | | 25 | | | — | |
Total long-term debt | | $ | 24,944 | | | $ | 26,706 | |
Classified on the balance sheet as: | | | | |
Long-term debt | | $ | 10,958 | | | $ | 12,124 | |
Long-term debt to affiliates | | 13,986 | | | 14,582 | |
Total long-term debt | | $ | 24,944 | | | $ | 26,706 | |
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(in millions) | December 31, 2016 | | December 31, 2015 |
5.250% Senior Notes due 2018 | $ | 500 |
| | $ | 500 |
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6.288% Senior Reset Notes to affiliates due 2019 | 1,250 |
| | 1,250 |
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6.464% Senior Notes due 2019 | 1,250 |
| | 1,250 |
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6.366% Senior Reset Notes to affiliates due 2020 | 1,250 |
| | 1,250 |
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6.542% Senior Notes due 2020 | 1,250 |
| | 1,250 |
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6.625% Senior Notes due 2020 | 1,000 |
| | 1,000 |
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6.250% Senior Notes due 2021 | 1,750 |
| | 1,750 |
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6.633% Senior Notes due 2021 | 1,250 |
| | 1,250 |
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8.097% Senior Reset Notes to affiliates due 2021 | 1,250 |
| | 1,250 |
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6.125% Senior Notes due 2022 | 1,000 |
| | 1,000 |
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6.731% Senior Notes due 2022 | 1,250 |
| | 1,250 |
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8.195% Senior Reset Notes to affiliates due 2022 | 1,250 |
| | 1,250 |
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6.000% Senior Notes due 2023 | 1,300 |
| | 1,300 |
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6.625% Senior Notes due 2023 | 1,750 |
| | 1,750 |
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6.836% Senior Notes due 2023 | 600 |
| | 600 |
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9.332% Senior Reset Notes to affiliates due 2023 | 600 |
| | 600 |
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6.000% Senior Notes due 2024 | 1,000 |
| | — |
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6.500% Senior Notes due 2024 | 1,000 |
| | 1,000 |
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6.375% Senior Notes due 2025 | 1,700 |
| | 1,700 |
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6.500% Senior Notes due 2026 | 2,000 |
| | 2,000 |
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Senior Secured Term Loans | 1,980 |
| | 2,000 |
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Capital leases | 1,425 |
| | 826 |
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Unamortized premium from purchase price allocation fair value adjustment | 212 |
| | 250 |
|
Unamortized discount on Senior Secured Term Loans | (8 | ) | | (10 | ) |
Debt issuance cost | (23 | ) | | (23 | ) |
Total debt | 27,786 |
| | 26,243 |
|
Less: Current portion of Senior Secured Term Loans | 20 |
| | 20 |
|
Less: Current portion of capital leases | 334 |
| | 162 |
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Total long-term debt | $ | 27,432 |
| | $ | 26,061 |
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Classified on the balance sheet as: | | | |
Long-term debt | $ | 21,832 |
| | $ | 20,461 |
|
Long-term debt to affiliates | 5,600 |
| | 5,600 |
|
Total long-term debt | $ | 27,432 |
| | $ | 26,061 |
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Debt to Affiliates
Long-term DebtDuring the year ended December 31, 2019, we made the following note redemption:
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(in millions) | Principal Amount | | Write -off of Embedded Derivatives (1) | | Other (2) | | Redemption Date | | Redemption Price |
9.332% Senior Notes due 2023 | $ | 600 | | | $ | 11 | | | $ | 28 | | | April 28, 2019 | | 104.6660 | % |
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(1)Certain components of the reset features were required to be bifurcated from the DT Senior Reset Notes and separately accounted for as embedded derivative instruments. The write-off of embedded derivatives upon redemption resulted in a gain and is included in Other expense, net in our Consolidated Statements of Comprehensive Income and in Losses on redemption of debt within Net cash provided by operating activities in our Consolidated Statements of Cash Flows.
(2)Cash for the premium portion of the redemption price set forth in the indenture governing the DT Senior Reset Notes, plus accrued but unpaid interest on the DT Senior Reset Notes. The redemption premium was included in Other expense, net in our Consolidated Statements of Comprehensive Income and in Cash payments for debt prepayment or debt extinguishment costs in our Consolidated Statements of Cash Flows.
Incremental Term Loan Facility
In March 2016, T-Mobile USA, Inc. (“T-Mobile USA”), a subsidiary2018, we amended the terms of T-Mobile US, Inc., and certain of its affiliates, as guarantors, entered into a purchase agreement with Deutsche Telekom AG (“Deutsche Telekom”), our majority stockholder, under which T-Mobile USA may, at its option, issue and sell to Deutsche Telekom $2.0 billion of 5.300% Senior Notes due 2021 (the “5.300% Senior Notes”) for an aggregate purchase price of $2.0 billion. As amended in October 2016, if T-Mobile USA does not elect to issue the 5.300% Senior Notes on or prior to May 5, 2017, the commitment under the purchase agreement terminates and T-Mobile USA must reimburse Deutsche Telekom for the cost of its hedging arrangements (if any) related to the transaction. As of December 31, 2016, if the commitment under this purchase agreement was terminated, the reimbursement amount due to Deutsche Telekom would not be significant. In addition, T-Mobile USA is required to reimburse Deutsche Telekom for its cost of hedging arrangements related to the extension for the duration of the extended commitments, which is not expected to be significant.
In April 2016, T-Mobile USA and certain of its affiliates, as guarantors, (i) issued $1.0 billion of public 6.000% Senior Notes due 2024, (ii) entered into a purchase agreement with Deutsche Telekom, under which T-Mobile USA may, at its option, issue
and sell to Deutsche Telekom up to $1.35 billion of 6.000% Senior Notes due 2024 and (iii) entered into another purchase agreement with Deutsche Telekom, under which T-Mobile USA may, at its option, issue and sell up to an additional $650 million of 6.000% Senior Notes due 2024.
The purchase price for the 6.000% Senior Notes that may be issued under the $1.35 billion purchase agreement will be approximately 103.316% of the outstanding principal balance of the notes issued. As amended in October 2016, if T-Mobile USA does not elect to issue the 6.000% Senior Notes under the $1.35 billion purchase agreement on or prior to May 5, 2017 or elects to issue less than $1.35 billion of 6.000% Senior Notes, any unused portion of the commitment under the purchase agreement terminates and T-Mobile USA must reimburse Deutsche Telekom for the cost of its hedging arrangements (if any) related to the transaction. As of December 31, 2016, if the commitment under this purchase agreement was terminated, the reimbursement amount due to Deutsche Telekom would not be significant. In addition, T-Mobile USA is required to reimburse Deutsche Telekom for its cost of hedging arrangements related to the extension for the duration of the extended commitments, which is not expected to be significant.
The purchase price for the 6.000% Senior Notes that may be issued under the $650 million purchase agreement will be approximately 104.047% of the outstanding principal balance of the notes issued. As amended in October 2016, if T-Mobile USA does not elect to issue the 6.000% Senior Notes under the $650 million purchase agreement on or prior to May 5, 2017 or elects to issue less than $650 million of 6.000% Senior Notes, any unused portion of the commitment under the purchase agreement terminates and T-Mobile USA must reimburse Deutsche Telekom for the cost of its hedging arrangements (if any) related to the transaction. As of December 31, 2016, if the commitment under this purchase agreement was terminated, the reimbursement amount due to Deutsche Telekom would not be significant. In addition, T-Mobile USA is required to reimburse Deutsche Telekom for its cost of hedging arrangements related to the extension for the duration of the extended commitments, which is not expected to be significant.
In January 2017, T-Mobile USA borrowed $4.0 billion under a secured term loan facility (“Incremental Term Loan Facility”) with Deutsche Telekom to refinance $1.98DT, our majority stockholder. Following this amendment, the applicable margin payable on LIBOR indexed loans is 1.50% under the $2.0 billion of outstanding secured term loans under itsIncremental Term Loan Credit Agreement datedFacility maturing on November 9, 2015, with2022 and 1.75% under the remaining net proceeds from the transaction intended to be used to redeem callable high yield debt.$2.0 billion Incremental Term Loan Facility maturing on January 31, 2024. The loans underamendment also modified the Incremental Term Loan Facility to update certain covenants and other provisions to make them substantially consistent, subject to certain additional carve outs, with our most recently issued public notes. NaN issuance fees were drawnincurred related to this debt facility for the years ended December 31, 2019 and 2018.
Commitment Letter
In connection with the entry into the Business Combination Agreement, T-Mobile USA entered into a commitment letter, dated as of April 29, 2018 (as amended and restated on May 15, 2018 and on September 6, 2019, the “Commitment Letter”), with certain financial institutions named therein that have committed to provide up to $30.0 billion in two tranchessecured and unsecured debt financing, including a $4.0 billion secured revolving credit facility, a $7.0 billion secured term loan facility, and a $19.0 billion secured bridge loan facility. On September 6, 2019, T-Mobile USA amended and restated the Commitment Letter which (i) reduced the commitments under the secured term loan facility from $7.0 billion to $4.0 billionand (ii) extended the commitments thereunder through May 1, 2020. The funding of the debt facilities provided for in the Commitment Letter is subject to the satisfaction of the conditions set forth therein, including consummation of the Merger. The proceeds of the debt financing provided for in the Commitment Letter will be used to refinance certain existing debt of us, Sprint and our and Sprint’s respective subsidiaries and for post-closing working capital needs of the combined company.
In connection with the financing provided for in the Commitment Letter, we expect to incur certain fees payable to the financial institutions, including certain financing fees on January 31, 2017 (i) $2.0 billionthe secured term loan commitment. If the Merger closes, we will incur additional fees for the financial institutions structuring and providing the commitments and certain take-out fees associated with the issuance of which will bear interest at a rate equalpermanent secured bond debt in lieu of the secured bridge loan. In total, we may incur up to a per annum rate of LIBOR plus a margin of 2.00% and will matureapproximately $340 million in fees associated with the Commitment Letter. We began incurring certain Commitment Letter fees on November 9, 20221, 2019, which were recognized in Selling, general and (ii) $2.0 billionadministrative expenses in our Consolidated Statements of which will bear interest atComprehensive Income. There were $12 million of fees accrued as of December 31, 2019.
Financing Matters Agreement
Pursuant to the Financing Matters Agreement, DT agreed, among other things, to consent to the incurrence by T-Mobile USA of secured debt in connection with and after the consummation of the Merger, and to provide a rate equallock up on sales thereby as to a per annum ratecertain senior notes of LIBOR plus a marginT-Mobile USA held thereby. In addition, T-Mobile USA agreed, among other things, to repay and terminate, upon closing of 2.25% and will mature on January 31, 2024. Thethe Merger, the Incremental Term Loan Facility increases Deutsche Telekom’s incremental term loan commitment provided toand the revolving credit facility of T-Mobile USA which are provided by DT, as well as $2.0 billion of T-Mobile USA’s 5.300% Senior Notes due 2021 and $2.0 billion of T-Mobile USA’s 6.000% Senior Notes due 2024. In addition, T-Mobile USA and DT agreed, upon closing of the Merger, to amend the $1.25 billion of T-Mobile USA’s 5.125% Senior Notes due 2025 and $1.25 billion of T-Mobile USA’s 5.375% Senior Notes due 2027 to change the maturity dates thereof to April 15, 2021 and April 15, 2022, respectively (the “2025 and 2027 Amendments”). In connection with receiving the requisite consents, we made upfront payments to DT of $7 million during the second quarter of 2018. These payments were recognized as a reduction to Long-term debt to affiliates in our Consolidated Balance Sheets. In accordance with the consents received from DT, on December 20, 2018, T-Mobile USA, the guarantors and Deutsche Bank Trust Company Americas, as trustee, executed and delivered the 38th supplemental indenture to
the Indenture, pursuant to which, with respect to certain T-Mobile USA Senior Notes held by DT, the Proposed Amendments (as defined below under that certain First Incremental Facility Amendment dated“Consents on Debt to Third Parties”) and the 2025 and 2027 Amendments will become effective immediately prior to the consummation of the Merger. If the Merger is consummated, we will make additional payments for requisite consents to DT of $13 million. There were 0 additional payments accrued as of December 29, 201631, 2019 and 2018.
Consents on Debt to Third Parties
On May 18, 2018, under the terms and conditions described in the Consent Solicitation Statement, we obtained consents necessary to effect certain amendments to our Senior Notes to third parties in connection with the Business Combination Agreement. Pursuant to the Consent Solicitation Statement, third-party note holders agreed, among other things, to consent to increasing the amount of Secured Indebtedness under Credit Facilities that can be incurred from
$660 million to $2.0the greater of $9.0 billion and
provides150% of Consolidated Cash Flow to
T-Mobile USAthe greater of $9.0 billion and an
additional $2.0 billion incrementalamount that would not cause the Secured Debt to Cash Flow Ratio (calculated net of cash and cash equivalents) to exceed 2.00x (the “Ratio Secured Debt Proposed Amendments”) and in each case as such capitalized term
loan commitment. See Note 14 – Subsequent Eventsis defined in the Indenture. In connection with receiving the requisite consents for further information.the Ratio Secured Debt Proposed Amendments, we made upfront payments to third-party note holders of $17 million during the second quarter of 2018. These payments were recognized as a reduction to Long-term debt in our Consolidated Balance Sheets. These upfront payments increased the effective interest rate of the related debt.
In addition, note holders agreed, among other things, to allow certain entities related to Sprint’s existing spectrum securitization notes program (“Existing Sprint Spectrum Program”) to be non-guarantor Restricted Subsidiaries, provided that the principal amount of the spectrum notes issued and outstanding under the Existing Sprint Spectrum Program does not exceed $7.0 billion and that the principal amount of such spectrum notes reduces the amount available under the Credit Facilities ratio basket, and to revise the definition of GAAP to mean generally accepted accounting principles in effect from time to time, unless the Company elects to “freeze” GAAP as of any date, and to exclude the effect of the changes in the accounting treatment of lease obligations (the “Existing Sprint Spectrum and GAAP Proposed Amendments,” and together with the Ratio Secured Debt Proposed Amendments, the “Proposed Amendments”). In connection with receiving the requisite consents for the Existing Sprint Spectrum and GAAP Proposed Amendments, we made upfront payments to third-party note holders of $14 million during the second quarter of 2018. These payments were recognized as a reduction to Long-term debt in our Consolidated Balance Sheets. These upfront payments increased the effective interest rate of the related debt.
In connection with obtaining the requisite consents, on May 20, 2018, T-Mobile USA, the guarantors and Deutsche Bank Trust Company Americas, as trustee, executed and delivered the 37th supplemental indenture to the new debt issued,Indenture, pursuant to which, with respect to each of the Notes, the Proposed Amendments will become effective immediately prior to the consummation of the Merger.
We paid third-party bank fees associated with obtaining the requisite consents related to the Proposed Amendments of $6 million during the second quarter of 2018, which we recognized as Selling, general and purchase commitmentsadministrative expenses in our Consolidated Statements of Comprehensive Income. If the Merger is consummated, we will make additional payments to third-party note holders for requisite consents related to the Ratio Secured Debt Proposed Amendments of up to $54 million and additional payments to third-party note holders for requisite consents related to the Existing Sprint Spectrum and GAAP Proposed Amendments of up to $41 million. There were 0 payments accrued as of December 31, 2019.
Financing Arrangements
We maintain a financing arrangement with Deutsche Telekom,Bank AG, which allows for up to $108 million in borrowings. Under the supplemental indentures governingfinancing arrangement, we can effectively extend payment terms for invoices payable to certain vendors. The interest rate on the Senior Resetfinancing arrangement is determined based on LIBOR plus a specified margin per the arrangement. Obligations under the financing arrangement are included in Short-term debt in our Consolidated Balance Sheets. As of December 31, 2019 and 2018, there were 0 outstanding balances.
We maintain vendor financing arrangements with our primary network equipment suppliers. Under the respective agreements, we can obtain extended financing terms. During the year ended December 31, 2019, we utilized $800 million and repaid $775 million under the vendor financing arrangements. Invoices subject to extended payment terms have various due dates through the first quarter of 2020. Payments on vendor financing agreements are included in Repayments of short-term debt for purchases of inventory, property and equipment, net, in our Consolidated Statements of Cash Flows. As of December 31, 2019, there was $25 million in outstanding borrowings under the vendor financing agreements which were included in Short-term debt in our Consolidated Balance Sheets. As of December 31, 2018, there was 0 outstanding balance.
Revolving Credit Facility
We maintain a $2.5 billion revolving credit facility with DT which is comprised of a $1.0 billion unsecured revolving credit agreement and a $1.5 billion secured revolving credit agreement. In December 2019, we amended the terms of the revolving credit facility with DT to extend the maturity date to December 29, 2022.
The proceeds and borrowings from the revolving credit facility are presented in Proceeds from borrowing on revolving credit facility and Repayments of revolving credit facility within Net cash used in financing activities in our Consolidated Statements of Cash Flows. As of December 31, 2019 and 2018, there were 0 outstanding borrowings under the revolving credit facility.
Standby Letters of Credit
For the purposes of securing our obligations to provide handset insurance services, we maintain an agreement for standby letters of credit with JP Morgan Chase Bank, N.A. (“JP Morgan Chase”). For purposes of securing our general purpose obligations, we maintain a letter of credit reimbursement agreement with Deutsche Bank.
The following table summarizes the outstanding standby letters of credit under each agreement:
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(in millions) | December 31, 2019 | | December 31, 2018 |
JP Morgan Chase | $ | 20 | | | $ | 20 | |
Deutsche Bank | 93 | | | 66 | |
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Total outstanding balance | $ | 113 | | | $ | 86 | |
Note 9 – Tower Obligations
In 2012, we conveyed to CCI the exclusive right to manage and operate approximately 7,100 T-Mobile-owned wireless communications tower sites in exchange for net proceeds of $2.5 billion (the “2012 Tower Transaction”). Rights to approximately 6,200 of the tower sites were transferred to CCI via a master prepaid lease with site lease terms ranging from 23 to 37 years (“CCI Lease Sites”), while the remaining tower sites were sold to CCI (“CCI Sales Sites”). CCI has fixed-price purchase options for the adjustmentCCI Lease Sites totaling approximately $2.0 billion, exercisable at the end of the lease term. We lease back space at certain tower sites for an initial term of ten years, followed by optional renewals at customary terms.
In 2015, we conveyed to PTI the exclusive right to manage and operate certain T-Mobile-owned wireless communications tower sites (“PTI Sales Sites”) in exchange for net proceeds of approximately $140 million (the “2015 Tower Transaction”). Rights to approximately 150 of the tower sites remain operated by PTI under a management agreement. We lease back space at certain tower sites for an initial term of ten years, followed by optional renewals at customary terms.
Assets and liabilities associated with the operation of 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, who lease space at the tower sites. Liabilities included the obligation to pay ground lease rentals, property taxes and other executory costs. Upon closing of the 2012 Tower Transaction, CCI acquired all of the equity interests in the SPE containing CCI Sales Sites and an option to acquire the CCI Lease Sites at the end of their respective lease terms and entered into a master lease agreement under which we agreed to lease back space at certain of the tower sites. Upon closing of the 2015 Tower Transaction, PTI acquired all of the equity interests in the SPEs containing PTI Sales Sites and entered into a master lease agreement under which we agreed to lease back space at certain of the tower sites.
We determined the SPEs containing the CCI Lease Sites (“Lease Site SPEs”) are VIEs as our equity investment lacks the power to direct the activities that most significantly impact the economic performance of the VIEs. 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 ratesin the Lease Site SPEs, the balances and operating results of the Lease Site SPEs are not included in our Consolidated Financial Statements.
Due to our continuing involvement with the tower sites, we previously determined that we were precluded from applying sale-leaseback accounting. We recorded long-term financial obligations in the amount of the net proceeds received and recognized interest on the tower obligations at a rate of approximately 8% for the 2012 Tower Transaction and 5% for the 2015 Tower Transaction using the effective interest method. The tower obligations are increased by interest expense and amortized through
contractual leaseback payments made by us to CCI or PTI and through net cash flows generated and retained by CCI or PTI from operation of the tower sites. The principal payments on the tower obligations are included in Other, net within Net cash used in financing activities in our Consolidated Statements of Cash Flows. Our historical tower site asset costs are reported in Property and equipment, net in our Consolidated Balance Sheets and are depreciated.
Upon adoption of the new leasing standard we were required to reassess the previously failed sale-leasebacks and determine whether the transfer of the assets to the tower operator under the arrangement met the transfer of control criteria in the revenue standard and whether a sale should be recognized. We concluded that a sale has not occurred for the CCI Lease Sites and these sites continue to be accounted for as a failed sale-leaseback. We concluded that a sale had occurred for the CCI Sales Sites and the PTI Sales Sites and therefore we derecognized our existing long-term financial obligation and the tower-related property and equipment associated with these sites as part of the cumulative effect adjustment on January 1, 2019. See Note 1 - Summary of Significant Accounting Policies for further information.
The following table summarizes the balances of the failed sale-leasebacks in the Consolidated Balance Sheets:
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(in millions) | December 31, 2019 | | December 31, 2018 |
Property and equipment, net | $ | 198 | | | $ | 329 | |
Tower obligations | 2,236 | | | 2,557 | |
Future minimum payments related to the tower obligations are approximately $160 million for the year ending December 31, 2020, $321 million in total for the years ending December 31, 2021 and 2022, $320 million in total for years ending December 31, 2023 and 2024, and $467 million in total for years thereafter.
We are contingently liable for future ground lease payments through the remaining term of the CCI 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.
Note 10 – Revenue from Contracts with Customers
Disaggregation of Revenue
We provide wireless communications services to three primary categories of customers:
•Branded postpaid customers generally include customers who are qualified to pay after receiving wireless communications services utilizing phones, wearables, DIGITS, or other connected devices which includes tablets and SyncUP DRIVE™;
•Branded prepaid customers generally include customers who pay for wireless communications services in advance. Our branded prepaid customers include customers of T-Mobile and Metro by T-Mobile; and
•Wholesale customers include Machine-to-Machine (“M2M”) and Mobile Virtual Network Operator (“MVNO”) customers that operate on our network but are managed by wholesale partners.
Branded postpaid service revenues, including branded postpaid phone revenues and branded postpaid other revenues, were as follows:
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| | | | | Year Ended December 31, | | | | |
(in millions) | | | | | 2019 | | 2018 | | 2017 |
Branded postpaid service revenues | | | | | | | | | |
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Branded postpaid phone revenues | | | | | $ | 21,329 | | | $ | 19,745 | | | $ | 18,371 | |
Branded postpaid other revenues | | | | | 1,344 | | | 1,117 | | | 1,077 | |
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Total branded postpaid service revenues | | | | | $ | 22,673 | | | $ | 20,862 | | | $ | 19,448 | |
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We operate as a single operating segment. The balances presented within each revenue line item in our Consolidated Statements of Comprehensive Income represent categories of revenue from contracts with customers disaggregated by type of product and service. Service revenues also include revenues earned for providing value added services to customers, such as handset insurance services. Revenue generated from the lease of mobile communication devices is included within Equipment revenues in our Consolidated Statements of Comprehensive Income.
Equipment revenues from the lease of mobile communication devices were as follows:
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| | | | | Year Ended December 31, | | | | |
(in millions) | | | | | 2019 | | 2018 | | 2017 |
Equipment revenues from the lease of mobile communication devices | | | | | $ | 599 | | | $ | 692 | | | $ | 877 | |
Contract Balances
The opening and closing balances of our contract asset and contract liability balances from contracts with customers as of December 31, 2018 and December 31, 2019, were as follows:
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(in millions) | Contract Assets | | Contract Liabilities | | |
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Balance as of December 31, 2018 | $ | 51 | | | $ | 645 | | | |
Balance as of December 31, 2019 | 63 | | | 560 | | | |
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Change | $ | 12 | | | $ | (85) | | | |
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Contract assets primarily represent revenue recognized for equipment sales with promotional bill credits offered to customers that are paid over time and are contingent on the customer maintaining a service contract. The change in the contract asset balance includes customer activity related to new promotions, offset by billings on existing contracts and impairment which is recognized as bad debt expense. The current portion of our Contract Assets of approximately $50 million and $51 million as of December 31, 2019 and 2018, respectively, was included in Other current assets in our Consolidated Balance Sheets.
Contract liabilities are recorded when fees are collected, or we have an unconditional right to consideration (a receivable) in advance of delivery of goods or services. The change in contract liabilities is primarily related to the migration of customers to unlimited rate plans. Contract liabilities are included in Deferred revenue in our Consolidated Balance Sheets.
Revenues for the years ended December 31, 2019 and 2018, include the following:
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| | | | | Year Ended December 31, | | |
(in millions) | | | | | 2019 | | 2018 |
Amounts included in the beginning of year contract liability balance | | | | | $ | 643 | | | $ | 710 | |
Remaining Performance Obligations
As of December 31, 2019, the aggregate amount of transaction price allocated to remaining service performance obligations for branded postpaid contracts with promotional bill credits that result in an extended service contract is $237 million. We expect to recognize this revenue as service is provided over the extended contract term in the next 24 months.
Certain of our wholesale, roaming and other service contracts include variable consideration based on usage. This variable consideration has been excluded from the disclosure of remaining performance obligations. As of December 31, 2019, the aggregate amount of the contractual minimum consideration for wholesale, roaming and other service contracts is $1.3 billion, $894 million and $791 million for 2020, 2021 and 2022 and beyond, respectively. These contracts have a remaining duration ranging from less than one year to ten years.
Information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less have been excluded from the above, which primarily consists of monthly service contracts.
Contract Costs
The total balance of deferred incremental costs to obtain contracts was $906 million and $644 million as of December 31, 2019 and 2018, respectively. 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 is included in Selling, general and administrative expenses in our Consolidated Statements of Comprehensive Income and was $604 million and $267 million for the years ended December 31, 2019 and 2018, respectively.
The deferred contract cost asset is assessed for impairment on a periodic basis. There were 0 impairment losses recognized on deferred contract cost assets for the years ended December 31, 2019 and 2018.
Note 11 – Employee Compensation and Benefit Plans
Under our 2013 Omnibus Incentive Plan (the "Incentive Plan"), we are authorized to issue up to 82 million shares of our common stock. Under the Incentive Plan, we can grant stock options, stock appreciation rights, restricted stock, restricted stock units ("RSUs"), and performance awards to eligible employees, consultants, advisors and non-employee directors. As of December 31, 2019, there were approximately 19 million shares of common stock available for future grants under the Incentive Plan.
We grant RSUs to eligible employees, key executives and certain non-employee directors and performance-based restricted stock units (“PRSUs”) to eligible key executives. RSUs entitle the grantee to receive shares of our common stock upon vesting (with vesting generally occurring annually over a three year period), subject to continued service through the applicable vesting date. PRSUs entitle the holder to receive shares of our common stock at various reset datesthe end of a performance period of generally up to ratesthree years if the applicable performance goals are achieved and generally subject to continued service through the applicable performance period. The number of shares ultimately received by the holder of PRSUs is dependent on our business performance against the specified performance goal(s) over a pre-established performance period. We also maintain an employee stock purchase plan (“ESPP”), under which eligible employees can purchase our common stock at a discounted price.
Stock-based compensation expense and related income tax benefits were as follows:
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(in millions, except shares, per share and contractual life amounts) | December 31, 2019 | | December 31, 2018 | | December 31, 2017 |
Stock-based compensation expense | $ | 495 | | | $ | 424 | | | $ | 306 | |
Income tax benefit related to stock-based compensation | $ | 92 | | | $ | 81 | | | $ | 73 | |
Weighted average fair value per stock award granted | $ | 73.25 | | | $ | 61.52 | | | $ | 60.21 | |
Unrecognized compensation expense | $ | 515 | | | $ | 547 | | | $ | 445 | |
Weighted average period to be recognized (years) | 1.6 | | 1.8 | | 1.9 |
Fair value of stock awards vested | $ | 512 | | | $ | 471 | | | $ | 503 | |
Stock Awards
Time-Based Restricted Stock Units and Restricted Stock Awards
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(in millions, except shares, per share and contractual life amounts) | Number of Units or Awards | | Weighted Average Grant Date Fair Value | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value |
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Nonvested, December 31, 2018 | 11,010,635 | | | $ | 57.66 | | | 1.0 | | $ | 700 | |
Granted | 6,099,719 | | | 73.13 | | | | | |
Vested | (5,862,128) | | | 55.52 | | | | | |
Forfeited | (745,015) | | | 65.87 | | | | | |
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Nonvested, December 31, 2019 | 10,503,211 | | | 67.31 | | | 0.9 | | 824 | |
Performance-Based Restricted Stock Units and Restricted Stock Awards
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(in millions, except shares, per share and contractual life amounts) | Number of Units or Awards | | Weighted Average Grant Date Fair Value | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value |
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Nonvested, December 31, 2018 | 3,851,554 | | | $ | 64.03 | | | 1.6 | | $ | 245 | |
Granted | 1,046,792 | | | 73.98 | | | | | |
Vested | (1,006,404) | | | 52.47 | | | | | |
Forfeited | (88,403) | | | 62.02 | | | | | |
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Nonvested, December 31, 2019 | 3,803,539 | | | 69.78 | | | 1.0 | | 300 | |
PRSUs included in the table above are shown at target. Share payout can range from 0% to 200% based on different performance outcomes.
Payment of the underlying shares in connection with the vesting of stock awards generally triggers a tax obligation for the employee, which is required to be remitted to the relevant tax authorities. We have agreed to withhold shares of common stock otherwise issuable under the award to cover certain of these tax obligations, with the net shares issued to the employee accounted for as outstanding common stock. We withheld 2,094,555 and 2,321,827 shares of common stock to cover tax
obligations associated with the payment of shares upon vesting of stock awards and remitted cash of $156 million and $146 million to the appropriate tax authorities for the years ended December 31, 2019 and 2018, respectively.
Employee Stock Purchase Plan
Our ESPP allows eligible employees to contribute up to 15% of their eligible earnings toward the semi-annual purchase of our shares of common stock at a discounted price, subject to an annual maximum dollar amount. Employees can purchase stock at a 15% discount applied to the closing stock price on the first or last day of the six-month offering period, whichever price is lower. The number of shares issued under our ESPP was 2,091,650 and 2,011,794 for the years ended December 31, 2019 and 2018, respectively. As of December 31, 2019, the number of securities remaining available for future sale and issuance under the ESPP was 1,397,894.
Our ESPP provides for an annual increase in the aggregate number of shares of our common stock reserved for sale and authorized for issuance thereunder as of the first day of each fiscal year (beginning with fiscal year 2016) equal to the lesser of (i) 5,000,000 shares of our common stock, and (ii) the number of shares of Common Stock determined by the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”). For fiscal years 2016 through 2019, the Compensation Committee determined that no such increase in shares of our common stock was necessary. However, an additional 5,000,000 shares of our common stock were automatically added to the ESPP share reserve as of January 1, 2020.
Stock Options
Stock options outstanding relate to the Metro Communications, Inc. 2010 Equity Incentive Compensation Plan, the Amended and Restated Metro Communications, Inc. 2004 Equity Incentive Compensation Plan, and the Layer3 TV, Inc. 2013 Stock Plan (collectively, the “Stock Option Plans”). No new awards have been or may be granted under the Stock Option Plans.
The following activity occurred under the Stock Option Plans:
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| Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) |
Outstanding at December 31, 2018 | 284,811 | | | $ | 14.58 | | | 3.8 |
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Exercised | (85,083) | | | 15.94 | | | |
Expired/canceled | (4,786) | | | 22.75 | | | |
Outstanding at December 31, 2019 | 194,942 | | | 13.80 | | | 2.9 |
Exercisable at December 31, 2019 | 180,966 | | | 13.48 | | | 2.6 |
Stock options exercised under the Stock Option Plans generated proceeds of approximately $1 million and $3 million for the years ended December 31, 2019 and 2018, respectively.
Employee Retirement Savings Plan
We sponsor a retirement savings plan for the majority of our employees under Section 401(k) of the Internal Revenue Code and similar plans. The plans allow employees to contribute a portion of their pretax and post-tax income in accordance with specified guidelines. The plans provide that we match a percentage of employee contributions up to certain limits. Employer matching contributions were $119 million, $102 million and $87 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Note 12 – Repurchases of Common Stock
2017 Stock Repurchase Program
On December 6, 2017, our Board of Directors authorized a stock repurchase program for up to $1.5 billion of our common stock through December 31, 2018 (the “2017 Stock Repurchase Program”). Repurchased shares are retired. The 2017 Stock Repurchase Program completed on April 29, 2018.
The following table summarizes information regarding repurchases of our common stock under the 2017 Stock Repurchase Program:
(In millions, except shares and per share price)
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Year ended December 31, | Number of Shares Repurchased | | Average Price Paid Per Share | | Total Purchase Price |
2018 | 16,738,758 | | | $ | 62.96 | | | $ | 1,054 | |
2017 | 7,010,889 | | | 63.34 | | | 444 | |
| 23,749,647 | | | 63.07 | | | $ | 1,498 | |
2018 Stock Repurchase Program
On April 27, 2018, our Board of Directors authorized an increase in the total stock repurchase program to $9.0 billion, consisting of the $1.5 billion in repurchases previously completed and for up to an additional $7.5 billion of repurchases of our common stock through the year ending December 31, 2020 (the "2018 Stock Repurchase Program"). The additional $7.5 billion repurchase authorization is contingent upon the termination of the Business Combination Agreement and the abandonment of the transactions contemplated under the Business Combination Agreement. There were no repurchases of our common stock under the 2018 Stock Repurchase Program in 2019 or 2018.
Under the 2018 Stock Repurchase Program, repurchases can be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or otherwise, all in accordance with the rules of the SEC and other applicable supplemental indenture. legal requirements. The specific timing, price and size of purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations. The 2018 Stock Repurchase Program does not obligate us to acquire any particular amount of common stock, and the repurchase program may be suspended or discontinued at any time at our discretion. Repurchased shares are retired.
Stock Purchases by Affiliate
In April 2016, the first quarter of 2018, DT, our majority stockholder and an affiliated purchaser, purchased 3.3 million additional shares of our common stock at an aggregate market value of $200 million in the public market or from other parties, in accordance with the rules of the SEC and other applicable legal requirements. There were 0 purchases in the remainder of 2018 and in 2019. We did not receive proceeds from these purchases.
Note 13 – Income Taxes
Our sources of Income before income taxes were as follows:
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| Year Ended December 31, | | | | |
(in millions) | 2019 | | 2018 | | 2017 |
U.S. | $ | 4,557 | | | $ | 3,686 | | | $ | 3,274 | |
Puerto Rico | 46 | | | 231 | | | (113) | |
Income before income taxes | $ | 4,603 | | | $ | 3,917 | | | $ | 3,161 | |
Income tax (expense) benefit is summarized as follows:
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| Year Ended December 31, | | | | |
(in millions) | 2019 | | 2018 | | 2017 |
Current tax benefit (expense) | | | | | |
Federal | $ | 24 | | | $ | 39 | | | $ | — | |
State | (70) | | | (63) | | | (28) | |
Puerto Rico | 2 | | | (25) | | | (1) | |
Total current tax expense | (44) | | | (49) | | | (29) | |
Deferred tax benefit (expense) | | | | | |
Federal | (954) | | | (750) | | | 1,182 | |
State | (125) | | | (160) | | | 173 | |
Puerto Rico | (12) | | | (70) | | | 49 | |
Total deferred tax (expense) benefit | (1,091) | | | (980) | | | 1,404 | |
Total income tax (expense) benefit | $ | (1,135) | | | $ | (1,029) | | | $ | 1,375 | |
The reconciliation between the U.S. federal statutory income tax rate and our effective income tax rate is as follows:
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| Year Ended December 31, | | | | |
| 2019 | | 2018 | | 2017 |
Federal statutory income tax rate | 21.0 | % | | 21.0 | % | | 35.0 | % |
Effect of law and rate changes | 0.4 | | | 1.9 | | | (68.9) | |
Change in valuation allowance | (1.8) | | | (1.6) | | | (11.4) | |
State taxes, net of federal benefit | 5.1 | | | 4.8 | | | 4.8 | |
Equity-based compensation | (0.6) | | | (0.6) | | | (2.4) | |
Puerto Rico taxes, net of federal benefit | 0.3 | | | 2.4 | | | (1.5) | |
Permanent differences | 1.2 | | | 1.3 | | | 0.5 | |
Federal tax credits, net of reserves | (0.8) | | | (2.9) | | | 0.3 | |
Other, net | (0.1) | | | — | | | 0.1 | |
Effective income tax rate | 24.7 | % | | 26.3 | % | | (43.5) | % |
Significant components of deferred income tax assets and liabilities, tax effected, are as follows:
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(in millions) | December 31, 2019 | | December 31, 2018 |
Deferred tax assets | | | |
Loss carryforwards | $ | 823 | | | $ | 1,526 | |
Deferred rents | — | | | 784 | |
Lease liability | 3,403 | | | — | |
Reserves and accruals | 659 | | | 668 | |
Federal and state tax credits | 331 | | | 340 | |
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Other | 903 | | | 620 | |
Deferred tax assets, gross | 6,119 | | | 3,938 | |
Valuation allowance | (129) | | | (210) | |
Deferred tax assets, net | 5,990 | | | 3,728 | |
Deferred tax liabilities | | | |
Spectrum licenses | 5,902 | | | 5,494 | |
Property and equipment | 2,506 | | | 2,434 | |
Lease right-of-use assets | 2,881 | | | — | |
Other intangible assets | 19 | | | 40 | |
Other | 289 | | | 232 | |
Total deferred tax liabilities | 11,597 | | | 8,200 | |
Net deferred tax liabilities | $ | 5,607 | | | $ | 4,472 | |
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Classified on the balance sheet as: | | | |
Deferred tax liabilities | $ | 5,607 | | | $ | 4,472 | |
As of December 31, 2019, we have tax effected net operating loss (“NOL”) carryforwards of $470 million for federal income tax purposes and $710 million for state income tax purposes, expiring through 2039. Federal NOLs and certain state NOLs generated in and after 2018 do not expire. As of December 31, 2019, our tax effected federal and state NOL carryforwards for financial reporting purposes were approximately $138 million and $282 million, respectively, less than our NOL carryforwards for federal and state income tax purposes, due to unrecognized tax benefits of the same amount. The unrecognized tax benefit amounts exclude indirect tax effects of $63 million in other jurisdictions.
As of December 31, 2019, we have available Alternative Minimum Tax (“AMT”) credit carryforwards of $23 million. The AMT credits will be fully recovered by 2021. We also have research and development and foreign tax credit carryforwards with a combined value of $347 million for federal income tax purposes, which begin to expire in 2020.
As of December 31, 2019, 2018 and 2017, our valuation allowance was $129 million, $210 million and $273 million, respectively. The change from December 31, 2018 to December 31, 2019 primarily related to a reduction in the valuation allowance against deferred tax assets in certain state jurisdictions resulting from legal entity reorganizations. The change from December 31, 2017 to December 31, 2018 primarily related to a reduction in the valuation allowance against deferred tax assets in certain state jurisdictions from a change in tax status of certain subsidiaries. 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 our valuation allowance may change within the next twelve months.
We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions and in Puerto Rico. We are currently under examination by various states. Management does not believe the resolution of any of the audits will result in a material change to our financial condition, results of operations or cash flows. The IRS has concluded its audits of our federal tax returns through the 2013 tax year; however, NOL and other carryforwards for certain audited periods remain open for examination. We are generally closed to U.S. federal, state and Puerto Rico examination for years prior to 2000.
A reconciliation of the beginning and ending amount of unrecognized tax benefits were as follows:
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| Year Ended December 31, | | | | |
(in millions) | 2019 | | 2018 | | 2017 |
Unrecognized tax benefits, beginning of year | $ | 462 | | | $ | 412 | | | $ | 410 | |
Gross (decreases) increases to tax positions in prior periods | (7) | | | 6 | | | (10) | |
Gross increases due to current period business acquisitions | — | | | 10 | | | — | |
Gross increases to current period tax positions | 59 | | | 34 | | | 12 | |
Unrecognized tax benefits, end of year | $ | 514 | | | $ | 462 | | | $ | 412 | |
As of December 31, 2019 and 2018, we had $367 million and $315 million, respectively, in unrecognized tax benefits that, if recognized, would affect our annual effective tax rate. Penalties and interest on income tax assessments are included in Selling, general and administrative expenses and Interest expense, respectively, in our Consolidated Statements of Comprehensive Income. The accrued interest and penalties associated with unrecognized tax benefits are insignificant.
Note 14 – Earnings Per Share
The computation of basic and diluted earnings per share was as follows:
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| | | | | Year Ended December 31, | | | | |
(in millions, except shares and per share amounts) | | | | | 2019 | | 2018 | | 2017 |
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Net income | | | | | $ | 3,468 | | | $ | 2,888 | | | $ | 4,536 | |
Less: Dividends on mandatory convertible preferred stock | | | | | — | | | — | | | (55) | |
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Net income attributable to common stockholders - basic | | | | | 3,468 | | | 2,888 | | | 4,481 | |
Add: Dividends related to mandatory convertible preferred stock | | | | | — | | | — | | | 55 | |
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Net income attributable to common stockholders | | | | | $ | 3,468 | | | $ | 2,888 | | | $ | 4,536 | |
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Weighted average shares outstanding - basic | | | | | 854,143,751 | | | 849,744,152 | | | 831,850,073 | |
Effect of dilutive securities: | | | | | | | | | |
Outstanding stock options and unvested stock awards | | | | | 9,289,760 | | | 8,546,022 | | | 9,200,873 | |
Mandatory convertible preferred stock | | | | | — | | | — | | | 30,736,504 | |
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Weighted average shares outstanding - diluted | | | | | 863,433,511 | | | 858,290,174 | | | 871,787,450 | |
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Earnings per share - basic | | | | | $ | 4.06 | | | $ | 3.40 | | | $ | 5.39 | |
Earnings per share - diluted | | | | | $ | 4.02 | | | $ | 3.36 | | | $ | 5.20 | |
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Potentially dilutive securities: | | | | | | | | | |
Outstanding stock options and unvested stock awards | | | | | 16,359 | | | 148,422 | | | 33,980 | |
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As of December 31, 2019, we had authorized 100 million shares of preferred stock, with a par value of $0.00001 per share. There was 0 preferred stock outstanding as of December 31, 2019 and 2018.
Potentially dilutive securities were not included in the computation of diluted earnings per share if to do so would have been anti-dilutive.
Note 15 - Leases
Leases (Topic 842) Disclosures
Lessee
We are lessee for non-cancelable operating and financing leases for cell sites, switch sites, retail stores and office facilities with contractual terms that generally extend through 2029. The majority of cell site leases have an initial non-cancelable term of five to ten years with several renewal options that can extend the lease term from five to thirty-five years. In addition, we have financing leases for network equipment that generally have a non-cancelable lease term of two to five years; the financing leases do not have renewal options and contain a bargain purchase option at the end of the lease.
The components of lease expense were as follows:
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(in millions) | | | Year Ended December 31, 2019 |
Operating lease expense | | | $ | 2,558 | |
Financing lease expense: | | | |
Amortization of right-of-use assets | | | 523 | |
Interest on lease liabilities | | | 82 | |
Total financing lease expense | | | 605 | |
Variable lease expense | | | 243 | |
Total lease expense | | | $ | 3,406 | |
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Information relating to the lease term and discount rate is as follows:
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| December 31, 2019 |
Weighted Average Remaining Lease Term (Years) | |
Operating leases | 6 |
Financing leases | 3 |
Weighted Average Discount Rate | |
Operating leases | 4.8 | % |
Financing leases | 4.0 | % |
Maturities of lease liabilities as of December 31, 2019, were as follows:
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(in millions) | Operating Leases | | Finance Leases |
Twelve Months Ending December 31, | | | |
2020 | $ | 2,754 | | | $ | 1,013 | |
2021 | 2,583 | | | 733 | |
2022 | 2,311 | | | 414 | |
2023 | 1,908 | | | 101 | |
2024 | 1,615 | | | 71 | |
Thereafter | 3,797 | | | 115 | |
Total lease payments | 14,968 | | | 2,447 | |
Less imputed interest | 2,142 | | | 144 | |
Total | $ | 12,826 | | | $ | 2,303 | |
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Interest payments for financing leases for the year ended December 31, 2019, were $82 million.
As of December 31, 2019, we have additional operating leases for cell sites and commercial properties that have not yet commenced with future lease payments of approximately $341 million.
As of December 31, 2019, we were contingently liable for future ground lease payments related to the tower obligations. These contingent obligations are not included in the above table as the amounts owed are contractually owed by CCI based on the $600 million of Senior Resetsubleasing arrangement. See Note 9 - Tower Obligations for further information.
Lessor
JUMP! On Demand allows customers to lease a device (handset or tablet) over a period of 18 months and upgrade it for a new device up to one time per month. Upon device upgrade or at lease end, customers must return or purchase their device. The purchase price at the expiration of the lease is established at lease commencement and reflects the estimated residual value of the device, which reflects the estimated fair value of the underlying asset at the end of the lease term. The JUMP! On Demand leases do not contain any residual value guarantees or variable lease payments, and there are no restrictions or covenants imposed by these leases. Leased wireless devices are included in Property and equipment, net in our Consolidated Balance Sheets.
The components of leased wireless devices under our JUMP! On Demand program were as follows:
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(in millions) | December 31, 2019 | | December 31, 2018 |
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Leased wireless devices, gross | $ | 1,139 | | | $ | 1,159 | |
Accumulated depreciation | (407) | | | (622) | |
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Leased wireless devices, net | $ | 732 | | | $ | 537 | |
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Future minimum payments expected to be received over the lease term related to the leased wireless devices, which exclude optional residual buy-out amounts at the end of the lease term, are summarized below:
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(in millions) | Total |
Twelve Months Ending December 31, | |
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2020 | $ | 417 | |
2021 | 99 | |
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Total | $ | 516 | |
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Leases (Topic 840) Disclosures
On January 1, 2019, we adopted the new lease standard using a modified-retrospective approach by recognizing and measuring leases at the adoption date with a cumulative effect of initially applying the guidance recognized at the date of initial application and did not restate the prior periods presented in our Consolidated Financial Statements. As such, prior periods presented in our Consolidated Financial Statements continue to be in accordance with the former lease standard, Topic 840 Leases. See Note 1 - Summary of Significant Accounting Policies for further information.
Operating Leases
Under the previous lease standard, we had non-cancelable operating leases for cell sites, switch sites, retail stores and office facilities. As of December 31, 2018, these leases had contractual terms expiring through 2028, with the majority of cell site leases having an initial non-cancelable term of five to ten years with several renewal options. In addition, we had operating leases for dedicated transportation lines with varying expiration terms through 2027.
Our commitments under leases existing as of December 31, 2018 were approximately $2.7 billion for the year ending December 31, 2019, $4.7 billion in total for the years ending December 31, 2020 and 2021, $3.3 billion in total for the years ending December 31, 2022 and 2023 and $3.8 billion in total for years thereafter.
Total rent expense under operating leases, including dedicated transportation lines, was adjusted from 5.950%$3.0 billion for the year ended December 31, 2018, and was classified as Cost of services and Selling, general and administrative expense in our Consolidated Statements of Comprehensive Income.
Lessor
As of December 31, 2018, the future minimum payments expected to be received over the lease term related to the leased wireless devices, which exclude optional residual buy-out amounts at the end of the lease term, are summarized below:
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(in millions) | Total |
Year Ended December 31, | |
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2019 | $ | 419 | |
2020 | 59 | |
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Total | $ | 478 | |
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Capital LeasesEmployee Stock Purchase Plan
Capital lease agreements relateOur ESPP allows eligible employees to network and IT equipment with varying expiration terms through 2030. Future minimum payments required under capital leases, including interest, over their remaining terms are summarized below:
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(in millions) | Future Minimum Payments |
Year Ending December 31, | |
2017 | $ | 390 |
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2018 | 354 |
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2019 | 315 |
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2020 | 200 |
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2021 | 150 |
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Thereafter | 214 |
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Total | $ | 1,623 |
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Interest included | $ | 198 |
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Financing Arrangements
We maintain a handset financing arrangement with Deutsche Bank AG (“Deutsche Bank”), which allows forcontribute up to $108 million in borrowings. Under15% of their eligible earnings toward the handset financing arrangement, wesemi-annual purchase of our shares of common stock at a discounted price, subject to an annual maximum dollar amount. Employees can effectively extend payment terms for invoices payablepurchase stock at a 15% discount applied to certain handset vendors. The interest ratethe closing stock price on the handset financing arrangementfirst or last day of the six-month offering period, whichever price is determined based on LIBOR plus a specified margin perlower. The number of shares issued under our ESPP was 2,091,650 and 2,011,794 for the arrangement. Obligations under the handset financing arrangement are included in Short-term debt in our Consolidated Balance Sheets. In 2016years ended December 31, 2019 and 2015, we utilized and repaid $100 million under the financing arrangement.2018, respectively. As of December 31, 2019, the number of securities remaining available for future sale and issuance under the ESPP was 1,397,894.
Our ESPP provides for an annual increase in the aggregate number of shares of our common stock reserved for sale and authorized for issuance thereunder as of the first day of each fiscal year (beginning with fiscal year 2016) equal to the lesser of (i) 5,000,000 shares of our common stock, and (ii) the number of shares of Common Stock determined by the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”). For fiscal years 2016 through 2019, the Compensation Committee determined that no such increase in shares of our common stock was necessary. However, an additional 5,000,000 shares of our common stock were automatically added to the ESPP share reserve as of January 1, 2020.
Stock Options
Stock options outstanding relate to the Metro Communications, Inc. 2010 Equity Incentive Compensation Plan, the Amended and 2015, there wasRestated Metro Communications, Inc. 2004 Equity Incentive Compensation Plan, and the Layer3 TV, Inc. 2013 Stock Plan (collectively, the “Stock Option Plans”). No new awards have been or may be granted under the Stock Option Plans.
The following activity occurred under the Stock Option Plans:
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| Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) |
Outstanding at December 31, 2018 | 284,811 | | | $ | 14.58 | | | 3.8 |
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Exercised | (85,083) | | | 15.94 | | | |
Expired/canceled | (4,786) | | | 22.75 | | | |
Outstanding at December 31, 2019 | 194,942 | | | 13.80 | | | 2.9 |
Exercisable at December 31, 2019 | 180,966 | | | 13.48 | | | 2.6 |
Stock options exercised under the Stock Option Plans generated proceeds of approximately $1 million and $3 million for the years ended December 31, 2019 and 2018, respectively.
Employee Retirement Savings Plan
We sponsor a retirement savings plan for the majority of our employees under Section 401(k) of the Internal Revenue Code and similar plans. The plans allow employees to contribute a portion of their pretax and post-tax income in accordance with specified guidelines. The plans provide that we match a percentage of employee contributions up to certain limits. Employer matching contributions were $119 million, $102 million and $87 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Note 12 – Repurchases of Common Stock
2017 Stock Repurchase Program
On December 6, 2017, our Board of Directors authorized a stock repurchase program for up to $1.5 billion of our common stock through December 31, 2018 (the “2017 Stock Repurchase Program”). Repurchased shares are retired. The 2017 Stock Repurchase Program completed on April 29, 2018.
The following table summarizes information regarding repurchases of our common stock under the 2017 Stock Repurchase Program:
(In millions, except shares and per share price)
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Year ended December 31, | Number of Shares Repurchased | | Average Price Paid Per Share | | Total Purchase Price |
2018 | 16,738,758 | | | $ | 62.96 | | | $ | 1,054 | |
2017 | 7,010,889 | | | 63.34 | | | 444 | |
| 23,749,647 | | | 63.07 | | | $ | 1,498 | |
2018 Stock Repurchase Program
On April 27, 2018, our Board of Directors authorized an increase in the total stock repurchase program to $9.0 billion, consisting of the $1.5 billion in repurchases previously completed and for up to an additional $7.5 billion of repurchases of our common stock through the year ending December 31, 2020 (the "2018 Stock Repurchase Program"). The additional $7.5 billion repurchase authorization is contingent upon the termination of the Business Combination Agreement and the abandonment of the transactions contemplated under the Business Combination Agreement. There were no outstanding balance.repurchases of our common stock under the 2018 Stock Repurchase Program in 2019 or 2018.
We maintain vendor financing arrangements with our primary network equipment suppliers. Under the respective agreements, we2018 Stock Repurchase Program, repurchases can obtain extended financing terms.be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or otherwise, all in accordance with the rules of the SEC and other applicable legal requirements. The interestspecific timing, price and size of purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations. The 2018 Stock Repurchase Program does not obligate us to acquire any particular amount of common stock, and the repurchase program may be suspended or discontinued at any time at our discretion. Repurchased shares are retired.
Stock Purchases by Affiliate
In the first quarter of 2018, DT, our majority stockholder and an affiliated purchaser, purchased 3.3 million additional shares of our common stock at an aggregate market value of $200 million in the public market or from other parties, in accordance with the rules of the SEC and other applicable legal requirements. There were 0 purchases in the remainder of 2018 and in 2019. We did not receive proceeds from these purchases.
Note 13 – Income Taxes
Our sources of Income before income taxes were as follows:
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| Year Ended December 31, | | | | |
(in millions) | 2019 | | 2018 | | 2017 |
U.S. | $ | 4,557 | | | $ | 3,686 | | | $ | 3,274 | |
Puerto Rico | 46 | | | 231 | | | (113) | |
Income before income taxes | $ | 4,603 | | | $ | 3,917 | | | $ | 3,161 | |
Income tax (expense) benefit is summarized as follows:
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| Year Ended December 31, | | | | |
(in millions) | 2019 | | 2018 | | 2017 |
Current tax benefit (expense) | | | | | |
Federal | $ | 24 | | | $ | 39 | | | $ | — | |
State | (70) | | | (63) | | | (28) | |
Puerto Rico | 2 | | | (25) | | | (1) | |
Total current tax expense | (44) | | | (49) | | | (29) | |
Deferred tax benefit (expense) | | | | | |
Federal | (954) | | | (750) | | | 1,182 | |
State | (125) | | | (160) | | | 173 | |
Puerto Rico | (12) | | | (70) | | | 49 | |
Total deferred tax (expense) benefit | (1,091) | | | (980) | | | 1,404 | |
Total income tax (expense) benefit | $ | (1,135) | | | $ | (1,029) | | | $ | 1,375 | |
The reconciliation between the U.S. federal statutory income tax rate onand our effective income tax rate is as follows:
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| Year Ended December 31, | | | | |
| 2019 | | 2018 | | 2017 |
Federal statutory income tax rate | 21.0 | % | | 21.0 | % | | 35.0 | % |
Effect of law and rate changes | 0.4 | | | 1.9 | | | (68.9) | |
Change in valuation allowance | (1.8) | | | (1.6) | | | (11.4) | |
State taxes, net of federal benefit | 5.1 | | | 4.8 | | | 4.8 | |
Equity-based compensation | (0.6) | | | (0.6) | | | (2.4) | |
Puerto Rico taxes, net of federal benefit | 0.3 | | | 2.4 | | | (1.5) | |
Permanent differences | 1.2 | | | 1.3 | | | 0.5 | |
Federal tax credits, net of reserves | (0.8) | | | (2.9) | | | 0.3 | |
Other, net | (0.1) | | | — | | | 0.1 | |
Effective income tax rate | 24.7 | % | | 26.3 | % | | (43.5) | % |
Significant components of deferred income tax assets and liabilities, tax effected, are as follows:
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(in millions) | December 31, 2019 | | December 31, 2018 |
Deferred tax assets | | | |
Loss carryforwards | $ | 823 | | | $ | 1,526 | |
Deferred rents | — | | | 784 | |
Lease liability | 3,403 | | | — | |
Reserves and accruals | 659 | | | 668 | |
Federal and state tax credits | 331 | | | 340 | |
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Other | 903 | | | 620 | |
Deferred tax assets, gross | 6,119 | | | 3,938 | |
Valuation allowance | (129) | | | (210) | |
Deferred tax assets, net | 5,990 | | | 3,728 | |
Deferred tax liabilities | | | |
Spectrum licenses | 5,902 | | | 5,494 | |
Property and equipment | 2,506 | | | 2,434 | |
Lease right-of-use assets | 2,881 | | | — | |
Other intangible assets | 19 | | | 40 | |
Other | 289 | | | 232 | |
Total deferred tax liabilities | 11,597 | | | 8,200 | |
Net deferred tax liabilities | $ | 5,607 | | | $ | 4,472 | |
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Classified on the balance sheet as: | | | |
Deferred tax liabilities | $ | 5,607 | | | $ | 4,472 | |
As of December 31, 20162019, we have tax effected net operating loss (“NOL”) carryforwards of $470 million for federal income tax purposes and 2015, there was no outstanding balance.
Revolving Credit Facility$710 million for state income tax purposes, expiring through 2039. Federal NOLs and Standby Letters of Credit
We had an unsecured revolving credit facility with Deutsche Telekom which allowed for up to $500 millioncertain state NOLs generated in borrowings. In December 2016, we terminated our $500 million unsecured revolving credit facility with Deutsche Telekom.and after 2018 do not expire. As of December 31, 2016, there2019, our tax effected federal and state NOL carryforwards for financial reporting purposes were no outstanding borrowings outstanding under this facility.approximately $138 million and $282 million, respectively, less than our NOL carryforwards for federal and state income tax purposes, due to unrecognized tax benefits of the same amount. The unrecognized tax benefit amounts exclude indirect tax effects of $63 million in other jurisdictions.
In December 2016, T-Mobile USA entered into a $2.5 billion revolving credit facility with Deutsche Telekom which comprised of (i) a three-year $1.0 billion unsecured revolving credit agreement and (ii) a three-year $1.5 billion secured revolving credit agreement. The applicable margin for the Unsecured Revolving Credit Facility ranges from 2.00% to 3.25% per annum for Eurodollar Rate loans. The applicable margin for the Secured Revolving Credit Facility ranges from 1.00% to 1.75% per annum for Eurodollar Rate loans. As of December 31, 2016, there were no outstanding borrowings under2019, we have available Alternative Minimum Tax (“AMT”) credit carryforwards of $23 million. The AMT credits will be fully recovered by 2021. We also have research and development and foreign tax credit carryforwards with a combined value of $347 million for federal income tax purposes, which begin to expire in 2020.
As of December 31, 2019, 2018 and 2017, our valuation allowance was $129 million, $210 million and $273 million, respectively. The change from December 31, 2018 to December 31, 2019 primarily related to a reduction in the revolving credit facility.
Forvaluation allowance against deferred tax assets in certain state jurisdictions resulting from legal entity reorganizations. The change from December 31, 2017 to December 31, 2018 primarily related to a reduction in the purposesvaluation allowance against deferred tax assets in certain state jurisdictions from a change in tax status of securing our obligationscertain subsidiaries. We will continue to provide handset insurance services, we maintain an agreement for standby letters of credit with JP Morgan Chase Bank, N.A. (“JP Morgan Chase”). For purposes of securing our general purpose obligations, we maintain a letter of credit reimbursement agreement with Deutsche Bank.
The following table summarizesmonitor positive and negative evidence related to the outstanding standby letters of credit under each agreement: |
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(in millions) | December 31, 2016 | | December 31, 2015 |
JP Morgan Chase | $ | 20 |
| | $ | 36 |
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Deutsche Bank | 54 |
| | 54 |
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Total outstanding balance | $ | 74 |
| | $ | 90 |
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Note 8 – Tower Obligations
In 2012, we conveyed to Crown Castle International Corp. (“CCI”) the exclusive right to manage and operate approximately 7,100 T-Mobile-owned wireless communication tower sites (“CCI Tower Sites”) in exchange for net proceeds of $2.5 billion (“2012 Tower Transaction”). Rights to approximately 6,200utilization of the towerremaining deferred tax assets for which a valuation allowance continues to be provided. It is possible that our valuation allowance may change within the next twelve months.
We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions and in Puerto Rico. We are currently under examination by various states. Management does not believe the resolution of any of the audits will result in a material change to our financial condition, results of operations or cash flows. The IRS has concluded its audits of our federal tax returns through the 2013 tax year; however, NOL and other carryforwards for certain audited periods remain open for examination. We are generally closed to U.S. federal, state and Puerto Rico examination for years prior to 2000.
A reconciliation of the beginning and ending amount of unrecognized tax benefits were as follows:
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| Year Ended December 31, | | | | |
(in millions) | 2019 | | 2018 | | 2017 |
Unrecognized tax benefits, beginning of year | $ | 462 | | | $ | 412 | | | $ | 410 | |
Gross (decreases) increases to tax positions in prior periods | (7) | | | 6 | | | (10) | |
Gross increases due to current period business acquisitions | — | | | 10 | | | — | |
Gross increases to current period tax positions | 59 | | | 34 | | | 12 | |
Unrecognized tax benefits, end of year | $ | 514 | | | $ | 462 | | | $ | 412 | |
As of December 31, 2019 and 2018, we had $367 million and $315 million, respectively, in unrecognized tax benefits that, if recognized, would affect our annual effective tax rate. Penalties and interest on income tax assessments are included in Selling, general and administrative expenses and Interest expense, respectively, in our Consolidated Statements of Comprehensive Income. The accrued interest and penalties associated with unrecognized tax benefits are insignificant.
Note 14 – Earnings Per Share
The computation of basic and diluted earnings per share was as follows:
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| | | | | Year Ended December 31, | | | | |
(in millions, except shares and per share amounts) | | | | | 2019 | | 2018 | | 2017 |
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Net income | | | | | $ | 3,468 | | | $ | 2,888 | | | $ | 4,536 | |
Less: Dividends on mandatory convertible preferred stock | | | | | — | | | — | | | (55) | |
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Net income attributable to common stockholders - basic | | | | | 3,468 | | | 2,888 | | | 4,481 | |
Add: Dividends related to mandatory convertible preferred stock | | | | | — | | | — | | | 55 | |
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Net income attributable to common stockholders | | | | | $ | 3,468 | | | $ | 2,888 | | | $ | 4,536 | |
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Weighted average shares outstanding - basic | | | | | 854,143,751 | | | 849,744,152 | | | 831,850,073 | |
Effect of dilutive securities: | | | | | | | | | |
Outstanding stock options and unvested stock awards | | | | | 9,289,760 | | | 8,546,022 | | | 9,200,873 | |
Mandatory convertible preferred stock | | | | | — | | | — | | | 30,736,504 | |
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Weighted average shares outstanding - diluted | | | | | 863,433,511 | | | 858,290,174 | | | 871,787,450 | |
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Earnings per share - basic | | | | | $ | 4.06 | | | $ | 3.40 | | | $ | 5.39 | |
Earnings per share - diluted | | | | | $ | 4.02 | | | $ | 3.36 | | | $ | 5.20 | |
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Potentially dilutive securities: | | | | | | | | | |
Outstanding stock options and unvested stock awards | | | | | 16,359 | | | 148,422 | | | 33,980 | |
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As of December 31, 2019, we had authorized 100 million shares of preferred stock, with a par value of $0.00001 per share. There was 0 preferred stock outstanding as of December 31, 2019 and 2018.
Potentially dilutive securities were not included in the computation of diluted earnings per share if to do so would have been anti-dilutive.
Note 15 - Leases
Leases (Topic 842) Disclosures
Lessee
We are lessee for non-cancelable operating and financing leases for cell sites, were transferredswitch sites, retail stores and office facilities with contractual terms that generally extend through 2029. The majority of cell site leases have an initial non-cancelable term of five to CCI viaten years with several renewal options that can extend the lease term from five to thirty-five years. In addition, we have financing leases for network equipment that generally have a Master Prepaid Lease with sitenon-cancelable lease terms ranging from 23term of two to 37 years (“CCI Lease Sites”), whilefive years; the remaining tower sites were sold to CCI (“CCI Sales Sites”). CCI has fixed-pricefinancing leases do not have renewal options and contain a bargain purchase options for these towers totaling approximately $2.0 billion, based on the estimated fair market valueoption at the end of the lease.
The components of lease term. Weexpense were as follows:
| | | | | | | |
(in millions) | | | Year Ended December 31, 2019 |
Operating lease expense | | | $ | 2,558 | |
Financing lease expense: | | | |
Amortization of right-of-use assets | | | 523 | |
Interest on lease liabilities | | | 82 | |
Total financing lease expense | | | 605 | |
Variable lease expense | | | 243 | |
Total lease expense | | | $ | 3,406 | |
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Information relating to the lease back space at certain tower sitesterm and discount rate is as follows:
| | | | | |
| December 31, 2019 |
Weighted Average Remaining Lease Term (Years) | |
Operating leases | 6 |
Financing leases | 3 |
Weighted Average Discount Rate | |
Operating leases | 4.8 | % |
Financing leases | 4.0 | % |
Maturities of lease liabilities as of December 31, 2019, were as follows:
| | | | | | | | | | | |
(in millions) | Operating Leases | | Finance Leases |
Twelve Months Ending December 31, | | | |
2020 | $ | 2,754 | | | $ | 1,013 | |
2021 | 2,583 | | | 733 | |
2022 | 2,311 | | | 414 | |
2023 | 1,908 | | | 101 | |
2024 | 1,615 | | | 71 | |
Thereafter | 3,797 | | | 115 | |
Total lease payments | 14,968 | | | 2,447 | |
Less imputed interest | 2,142 | | | 144 | |
Total | $ | 12,826 | | | $ | 2,303 | |
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Interest payments for an initial term of ten years, followed by optional renewals at customary terms.financing leases for the year ended December 31, 2019, were $82 million.
In 2015, we conveyed to Phoenix Tower International (“PTI”) the exclusive right to manage and operate approximately 600 T-Mobile-owned wireless communication tower sites (“PTI Tower Sites”) in exchange for net proceeds of approximately $140 million (“2015 Tower Transaction”). As of December 31, 2016, rights to approximately 200 of the tower2019, we have additional operating leases for cell sites remain operated by PTI under a management agreement (“PTI Managed Sites”). Weand commercial properties that have not yet commenced with future lease back space at certain tower sites for an initial term of ten years, followed by optional renewals at customary terms.
Assets and liabilities associated with the operation of certain of the tower sites were transferred to SPEs. 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, who lease space at the tower sites. Liabilities included the obligation
to pay ground lease rentals, property taxes and other executory costs. Upon closing of the 2012 Tower Transaction, CCI acquired all of the equity interests in the SPEs containing CCI Sales Sites and an option to acquire the CCI Lease Sites at the end of their respective lease terms and entered into a master lease agreement under which we agreed to lease back space at certain of the tower sites. Upon closing of the 2015 Tower Transaction, PTI acquired all of the equity interests in the SPEs containing PTI Sales Sites and entered into a master lease agreement under which we agreed to lease back space at certain of the tower sites.
We determined the SPEs containing the CCI Lease Sites (“Lease Site SPEs”) are VIEs as the Company's equity investment lacks the power to direct the activities that most significantly impact the economic performance of the VIEs. 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 results of the Lease Site SPEs are not consolidated into our consolidated financial statements.
Due to our continuing involvement with the tower sites, we determined that we were precluded from applying sale-leaseback accounting. We recorded long-term financial obligations in the amount of the net proceeds received and recognized interest on the tower obligations at a ratepayments of approximately 8% for the 2012 Tower Transaction and 3% for the 2015 Tower Transaction using the effective interest method. The tower obligations are increased by interest expense and amortized through contractual leaseback payments made by us to CCI or PTI and through estimated future net cash flows generated and retained by CCI or PTI from operation$341 million.
As of the tower sites. Our historical tower site asset costs continue to be reported in Property and equipment, net in our Consolidated Balance Sheets and are depreciated.
The following table summarizes the impacts to the Consolidated Balance Sheets:
|
| | | | | | | |
(in millions) | December 31, 2016 | | December 31, 2015 |
Property and equipment, net | $ | 485 |
| | $ | 601 |
|
Tower obligations | 2,621 |
| | 2,658 |
|
Future minimum payments related to the tower obligations are summarized below:
|
| | | |
(in millions) | Future Minimum Payments |
Year Ending December 31, | |
2017 | $ | 184 |
|
2018 | 184 |
|
2019 | 184 |
|
2020 | 185 |
|
2021 | 185 |
|
Thereafter | 1,164 |
|
Total | $ | 2,086 |
|
We areDecember 31, 2019, we were contingently liable for future ground lease payments throughrelated to the remaining term of the CCI Lease Sites.tower obligations. These contingent obligations are not included in the above table as any amount due isthe amounts owed are contractually owed by CCI based on the subleasing arrangement. See Note 12 – Commitments and Contingencies9 - Tower Obligations for further information.
Note 9 – Employee CompensationLessor
JUMP! On Demand allows customers to lease a device (handset or tablet) over a period of 18 months and Benefit Plans
Under our 2013 Omnibus Incentive Plan (the “Incentive Plan”), we are authorized to issueupgrade it for a new device up to 63 million sharesone time per month. Upon device upgrade or at lease end, customers must return or purchase their device. The purchase price at the expiration of the lease is established at lease commencement and reflects the estimated residual value of the device, which reflects the estimated fair value of the underlying asset at the end of the lease term. The JUMP! On Demand leases do not contain any residual value guarantees or variable lease payments, and there are no restrictions or covenants imposed by these leases. Leased wireless devices are included in Property and equipment, net in our common stock. Consolidated Balance Sheets.
The components of leased wireless devices under our JUMP! On Demand program were as follows:
| | | | | | | | | | | |
(in millions) | December 31, 2019 | | December 31, 2018 |
| | | |
Leased wireless devices, gross | $ | 1,139 | | | $ | 1,159 | |
Accumulated depreciation | (407) | | | (622) | |
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Leased wireless devices, net | $ | 732 | | | $ | 537 | |
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Future minimum payments expected to be received over the lease term related to the leased wireless devices, which exclude optional residual buy-out amounts at the end of the lease term, are summarized below:
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(in millions) | Total |
Twelve Months Ending December 31, | |
| |
2020 | $ | 417 | |
2021 | 99 | |
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Total | $ | 516 | |
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Leases (Topic 840) Disclosures
On January 1, 2019, we adopted the new lease standard using a modified-retrospective approach by recognizing and measuring leases at the adoption date with a cumulative effect of initially applying the guidance recognized at the date of initial application and did not restate the prior periods presented in our Consolidated Financial Statements. As such, prior periods presented in our Consolidated Financial Statements continue to be in accordance with the former lease standard, Topic 840 Leases. See Note 1 - Summary of Significant Accounting Policies for further information.
Operating Leases
Under the Incentive Plan,previous lease standard, we can grant stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”),had non-cancelable operating leases for cell sites, switch sites, retail stores and performance awards to eligible employees, consultants, advisors and non-employee directors.office facilities. As of December 31, 2016, there2018, these leases had contractual terms expiring through 2028, with the majority of cell site leases having an initial non-cancelable term of five to ten years with several renewal options. In addition, we had operating leases for dedicated transportation lines with varying expiration terms through 2027.
Our commitments under leases existing as of December 31, 2018 were 22 million sharesapproximately $2.7 billion for the year ending December 31, 2019, $4.7 billion in total for the years ending December 31, 2020 and 2021, $3.3 billion in total for the years ending December 31, 2022 and 2023 and $3.8 billion in total for years thereafter.
Total rent expense under operating leases, including dedicated transportation lines, was $3.0 billion for the year ended December 31, 2018, and was classified as Cost of common stock availableservices and Selling, general and administrative expense in our Consolidated Statements of Comprehensive Income.
Lessor
As of December 31, 2018, the future grants underminimum payments expected to be received over the Incentive Plan.
We grant RSUslease term related to eligible employees and certain non-employee directors and performance-based restricted stock units (“PRSUs”) to eligible key executives. RSUs entitle the grantee to receive shares of our common stockleased wireless devices, which exclude optional residual buy-out amounts at the end of a vesting period of generally up to 3 years, subject to continued service through the applicable vesting date. PRSUs entitle the holder to receive shares of our common stock at the end of a vesting period of generally up to 3 years if the applicable performance goalslease term, are achieved and generally subject to continued employment through the vesting period. The number of shares ultimatelysummarized below:
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(in millions) | Total |
Year Ended December 31, | |
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2019 | $ | 419 | |
2020 | 59 | |
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Total | $ | 478 | |
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received by the holder of PRSUs is dependent on our business performance against the specified performance goal(s) over a pre-established performance period. We also maintain an employee stock purchase plan (“ESPP”), under which eligible employees can purchase our common stock at a discounted price.
Stock-based compensation expense and related income tax benefits were as follows: |
| | | | | | | | | | | |
(in millions, except shares, per share and contractual life amounts) | December 31, 2016 | | December 31, 2015 | | December 31, 2014 |
Stock-based compensation expense | $ | 235 |
| | $ | 201 |
| | $ | 196 |
|
Income tax benefit related to stock-based compensation | 80 |
| | 71 |
| | 73 |
|
Realized excess tax benefit | — |
| | 79 |
| | 34 |
|
Weighted average fair value per stock award granted | 45.07 |
| | 35.56 |
| | 28.52 |
|
Unrecognized compensation expense | 389 |
| | 327 |
| | 271 |
|
Weighted average period to be recognized (years) | 2.0 |
| | 2.0 |
| | 1.9 |
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Fair value of stock awards vested | 354 |
| | 445 |
| | 209 |
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Stock Awards
RSU and PRSU Awards
The following activity occurred under the RSU and PRSU awards:
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(in millions, except shares, per share and contractual life amounts) | Number of Units | | Weighted Average Grant Date Fair Value | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value |
Nonvested, December 31, 2015 | 16,334,271 |
| | $ | 29.95 |
| | 1.2 | | $ | 639 |
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Granted | 8,431,980 |
| | 45.07 |
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Vested | (7,712,463 | ) | | 28.33 |
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Forfeited | (1,338,397 | ) | | 34.42 |
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Nonvested, December 31, 2016 | 15,715,391 |
| | $ | 37.93 |
| | 1.1 | | $ | 904 |
|
Payment of the underlying shares in connection with the vesting of stock awards generally triggers a tax obligation for the employee, which is required to be remitted to the relevant tax authorities. We have agreed to withhold stock otherwise issuable under the award to cover certain of these tax obligations, with the net shares issued to the employee accounted for as outstanding common stock. We withheld 2,605,807 and 4,176,464 shares of stock to cover tax obligations associated with the payment of shares upon vesting of stock awards and remitted cash of $121 million and $156 million to the appropriate tax authorities for the years ended December 31, 2016 and 2015, respectively.
Employee Stock Purchase Plan
Our ESPP allows eligible employees to contribute up to 15% of their eligible earnings toward the semi-annual purchase of our shares of common stock at a discounted price, subject to an annual maximum dollar amount. Employees can purchase stock at a 15% discount applied to the closing stock price on the first or last day of the six month-month offering period, whichever price is lower. The number of shares issued under our ESPP was 1,905,5342,091,650 and 761,0852,011,794 for the years ended December 31, 2019 and 2018, respectively. As of December 31, 2019, the number of securities remaining available for future sale and issuance under the ESPP was 1,397,894.
Our ESPP provides for an annual increase in the aggregate number of shares of our common stock reserved for sale and authorized for issuance thereunder as of the first day of each fiscal year (beginning with fiscal year 2016) equal to the lesser of (i) 5,000,000 shares of our common stock, and (ii) the number of shares of Common Stock determined by the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”). For fiscal years 2016 and 2015, respectively.through 2019, the Compensation Committee determined that no such increase in shares of our common stock was necessary. However, an additional 5,000,000 shares of our common stock were automatically added to the ESPP share reserve as of January 1, 2020.
Stock Options
PriorStock options outstanding relate to the business combination, MetroPCS had established the MetroPCSMetro Communications, Inc. 2010 Equity Incentive Compensation Plan, the Amended and Restated MetroPCSMetro Communications, Inc. 2004 Equity Incentive Compensation Plan, and the Second Amended and Restated 1995Layer3 TV, Inc. 2013 Stock Option Plan (“Predecessor(collectively, the “Stock Option Plans”). Following stockholder approval of the Incentive Plan, noNo new awards have been or may be granted under the PredecessorStock Option Plans.
The following activity occurred under the PredecessorStock Option Plans:
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| Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) |
Outstanding at December 31, 2018 | 284,811 | | | $ | 14.58 | | | 3.8 |
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Exercised | (85,083) | | | 15.94 | | | |
Expired/canceled | (4,786) | | | 22.75 | | | |
Outstanding at December 31, 2019 | 194,942 | | | 13.80 | | | 2.9 |
Exercisable at December 31, 2019 | 180,966 | | | 13.48 | | | 2.6 |
|
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| Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) |
Outstanding and exercisable, December 31, 2015 | 1,824,354 |
| | $ | 30.50 |
| | 2.7 |
Exercised | (982,904 | ) | | 29.34 |
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Expired | (7,519 | ) | | 44.21 |
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Outstanding and exercisable, December 31, 2016 | 833,931 |
| | $ | 31.75 |
| | 2.3 |
Stock options exercised under the PredecessorStock Option Plans generated proceeds of approximately $29$1 million and $47$3 million for the years ended December 31, 20162019 and 2015,2018, respectively.
Employee Retirement Savings Plan
We sponsor a retirement savings plan for the majority of our employees under sectionSection 401(k) of the Internal Revenue Code and similar plans. The plans allow employees to contribute a portion of their pretax and post-tax income in accordance with specified guidelines. The plans provide that we match a percentage of employee contributions up to certain limits. Employer matching contributions were $83$119 million, $73$102 million and $66$87 million for the years ended December 31, 2016, 20152019, 2018 and 2014,2017, respectively.
Legacy Long Term Incentive Plan
Note 12 – Repurchases of Common Stock
Prior
2017 Stock Repurchase Program
On December 6, 2017, our Board of Directors authorized a stock repurchase program for up to $1.5 billion of our common stock through December 31, 2018 (the “2017 Stock Repurchase Program”). Repurchased shares are retired. The 2017 Stock Repurchase Program completed on April 29, 2018.
The following table summarizes information regarding repurchases of our common stock under the 2017 Stock Repurchase Program:
(In millions, except shares and per share price)
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Year ended December 31, | Number of Shares Repurchased | | Average Price Paid Per Share | | Total Purchase Price |
2018 | 16,738,758 | | | $ | 62.96 | | | $ | 1,054 | |
2017 | 7,010,889 | | | 63.34 | | | 444 | |
| 23,749,647 | | | 63.07 | | | $ | 1,498 | |
2018 Stock Repurchase Program
On April 27, 2018, our Board of Directors authorized an increase in the total stock repurchase program to $9.0 billion, consisting of the $1.5 billion in repurchases previously completed and for up to an additional $7.5 billion of repurchases of our long-term business strategy. As ofcommon stock through the year ending December 31, 2016, there2020 (the "2018 Stock Repurchase Program"). The additional $7.5 billion repurchase authorization is contingent upon the termination of the Business Combination Agreement and the abandonment of the transactions contemplated under the Business Combination Agreement. There were no LTIP awards outstanding and no new awards are expected to be grantedrepurchases of our common stock under the LTIP.2018 Stock Repurchase Program in 2019 or 2018.
Compensation expense reported within operating expenses relatedUnder the 2018 Stock Repurchase Program, repurchases can be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or otherwise, all in accordance with the rules of the SEC and other applicable legal requirements. The specific timing, price and size of purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations. The 2018 Stock Repurchase Program does not obligate us to acquire any particular amount of common stock, and the repurchase program may be suspended or discontinued at any time at our LTIPdiscretion. Repurchased shares are retired.
Stock Purchases by Affiliate
In the first quarter of 2018, DT, our majority stockholder and payments to participants related toan affiliated purchaser, purchased 3.3 million additional shares of our LTIPcommon stock at an aggregate market value of $200 million in the public market or from other parties, in accordance with the rules of the SEC and other applicable legal requirements. There were as follows:0 purchases in the remainder of 2018 and in 2019. We did not receive proceeds from these purchases.
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(in millions) | December 31, 2016 | | December 31, 2015 | | December 31, 2014 |
Compensation expense | $ | — |
| | $ | 27 |
| | $ | 44 |
|
Payments | 52 |
| | 57 |
| | 60 |
|
Note 1013 – Income Taxes
Our sources of Income before income taxes were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | |
(in millions) | 2019 | | 2018 | | 2017 |
U.S. | $ | 4,557 | | | $ | 3,686 | | | $ | 3,274 | |
Puerto Rico | 46 | | | 231 | | | (113) | |
Income before income taxes | $ | 4,603 | | | $ | 3,917 | | | $ | 3,161 | |
|
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| Year Ended December 31, |
(in millions) | 2016 | | 2015 | | 2014 |
U.S. | $ | 2,286 |
| | $ | 898 |
| | $ | 347 |
|
Puerto Rico | 41 |
| | 80 |
| | 66 |
|
Income before income taxes | $ | 2,327 |
| | $ | 978 |
| | $ | 413 |
|
Income tax expense(expense) benefit is summarized as follows:
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| Year Ended December 31, | | | | |
(in millions) | 2019 | | 2018 | | 2017 |
Current tax benefit (expense) | | | | | |
Federal | $ | 24 | | | $ | 39 | | | $ | — | |
State | (70) | | | (63) | | | (28) | |
Puerto Rico | 2 | | | (25) | | | (1) | |
Total current tax expense | (44) | | | (49) | | | (29) | |
Deferred tax benefit (expense) | | | | | |
Federal | (954) | | | (750) | | | 1,182 | |
State | (125) | | | (160) | | | 173 | |
Puerto Rico | (12) | | | (70) | | | 49 | |
Total deferred tax (expense) benefit | (1,091) | | | (980) | | | 1,404 | |
Total income tax (expense) benefit | $ | (1,135) | | | $ | (1,029) | | | $ | 1,375 | |
|
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| Year Ended December 31, |
(in millions) | 2016 | | 2015 | | 2014 |
Current tax expense (benefit) | | | | | |
Federal | $ | (66 | ) | | $ | (30 | ) | | $ | — |
|
State | 29 |
| | 2 |
| | 6 |
|
Puerto Rico | (10 | ) | | 17 |
| | 38 |
|
Total current tax expense (benefit) | (47 | ) | | (11 | ) | | 44 |
|
Deferred tax expense (benefit) | | | | | |
Federal | 804 |
| | 281 |
| | 79 |
|
State | 96 |
| | (37 | ) | | 40 |
|
Puerto Rico | 14 |
| | 12 |
| | 3 |
|
Total deferred tax expense | 914 |
| | 256 |
| | 122 |
|
Total income tax expense | $ | 867 |
| | $ | 245 |
| | $ | 166 |
|
The reconciliation between the U.S. federal statutory income tax rate and our effective income tax rate is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | |
| 2019 | | 2018 | | 2017 |
Federal statutory income tax rate | 21.0 | % | | 21.0 | % | | 35.0 | % |
Effect of law and rate changes | 0.4 | | | 1.9 | | | (68.9) | |
Change in valuation allowance | (1.8) | | | (1.6) | | | (11.4) | |
State taxes, net of federal benefit | 5.1 | | | 4.8 | | | 4.8 | |
Equity-based compensation | (0.6) | | | (0.6) | | | (2.4) | |
Puerto Rico taxes, net of federal benefit | 0.3 | | | 2.4 | | | (1.5) | |
Permanent differences | 1.2 | | | 1.3 | | | 0.5 | |
Federal tax credits, net of reserves | (0.8) | | | (2.9) | | | 0.3 | |
Other, net | (0.1) | | | — | | | 0.1 | |
Effective income tax rate | 24.7 | % | | 26.3 | % | | (43.5) | % |
|
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| Year Ended December 31, |
| 2016 | | 2015 | | 2014 |
Federal statutory income tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
State taxes, net of federal benefit | 4.0 |
| | (1.1 | ) | | (8.8 | ) |
Puerto Rico taxes, net of federal benefit | — |
| | 3.3 |
| | 5.0 |
|
Change in valuation allowance | 1.0 |
| | (3.2 | ) | | 18.8 |
|
Permanent differences | 0.6 |
| | 1.6 |
| | 1.4 |
|
Federal tax credits, net of reserves | (0.5 | ) | | (9.5 | ) | | (10.6 | ) |
Equity-based compensation | (2.2 | ) | | — |
| | — |
|
Other, net | (0.6 | ) | | (1.0 | ) | | (0.6 | ) |
Effective income tax rate | 37.3 | % | | 25.1 | % | | 40.2 | % |
Significant components of deferred income tax assets and liabilities, tax effected, are as follows:
| | | | | | | | | | | |
(in millions) | December 31, 2019 | | December 31, 2018 |
Deferred tax assets | | | |
Loss carryforwards | $ | 823 | | | $ | 1,526 | |
Deferred rents | — | | | 784 | |
Lease liability | 3,403 | | | — | |
Reserves and accruals | 659 | | | 668 | |
Federal and state tax credits | 331 | | | 340 | |
| | | |
Other | 903 | | | 620 | |
Deferred tax assets, gross | 6,119 | | | 3,938 | |
Valuation allowance | (129) | | | (210) | |
Deferred tax assets, net | 5,990 | | | 3,728 | |
Deferred tax liabilities | | | |
Spectrum licenses | 5,902 | | | 5,494 | |
Property and equipment | 2,506 | | | 2,434 | |
Lease right-of-use assets | 2,881 | | | — | |
Other intangible assets | 19 | | | 40 | |
Other | 289 | | | 232 | |
Total deferred tax liabilities | 11,597 | | | 8,200 | |
Net deferred tax liabilities | $ | 5,607 | | | $ | 4,472 | |
| | | |
Classified on the balance sheet as: | | | |
Deferred tax liabilities | $ | 5,607 | | | $ | 4,472 | |
|
| | | | | | | |
(in millions) | December 31, 2016 | | December 31, 2015 |
Deferred tax assets | | | |
Loss carryforwards | $ | 1,442 |
| | $ | 1,997 |
|
Deferred rents | 1,153 |
| | 1,136 |
|
Reserves and accruals | 1,058 |
| | 928 |
|
Federal and state tax credits | 284 |
| | 349 |
|
Debt fair market value adjustment | 83 |
| | 97 |
|
Other | 430 |
| | 317 |
|
Deferred tax assets, gross | 4,450 |
| | 4,824 |
|
Valuation allowance | (573 | ) | | (583 | ) |
Deferred tax assets, net | 3,877 |
| | 4,241 |
|
Deferred tax liabilities | | | |
Spectrum licenses | 6,952 |
| | 6,174 |
|
Property and equipment | 1,732 |
| | 1,950 |
|
Other intangible assets | 119 |
| | 178 |
|
Other | 12 |
| | — |
|
Total deferred tax liabilities | 8,815 |
| | 8,302 |
|
Net deferred tax liabilities | $ | 4,938 |
| | $ | 4,061 |
|
| | | |
Classified on the balance sheet as: | | | |
Deferred tax liabilities | $ | 4,938 |
| | $ | 4,061 |
|
As of December 31, 2016,2019, we have tax effected net operating loss (“NOL”) carryforwards tax effected, of $1.1 billion$470 million for federal income tax purposes and $689$710 million for state income tax purposes, expiring through 2036.2039. Federal NOLs and certain state NOLs generated in and after 2018 do not expire. As of December 31, 2016,2019, our tax effected federal and state NOL carryforwards for financial reporting purposes were approximately $204$138 million and $167$282 million, respectively, tax effected, less than our NOL carryforwards for federal and state income tax purposes, due to unrecognized tax benefits of the same amount. The unrecognized tax benefit amounts exclude indirect tax effects of $63 million in other jurisdictions.
As of December 31, 2016,2019, we have available Alternative Minimum Tax (“AMT”) credit carryforwards of $89 million, which may$23 million. The AMT credits will be used to reduce regular federal income taxes and have no expiration.fully recovered by 2021. We also have research and development and foreign tax credit carryforwards with a combined value of $174$347 million for federal income tax purposes, which begin to expire in 2018.2020.
As of December 31, 20162019, 2018 and 2015,2017, our valuation allowance was $573$129 million, $210 million and $583$273 million, respectively. The change from December 31, 2018 to December 31, 2019 primarily related to a reduction in the valuation allowance of $10 million isagainst deferred tax assets in certain state jurisdictions resulting from legal entity reorganizations. The change from December 31, 2017 to December 31, 2018 primarily related to the adoption of ASU 2016-09 and the related release of a $33 millionreduction in the valuation allowance on stock option deductions includedagainst deferred tax assets in NOL carryforwards, partially offset by 2016 activitycertain state jurisdictions from a change in tax status of certain subsidiaries. We will continue to monitor positive and negative evidence related to statethe utilization of the remaining deferred tax assets for which a valuation allowance exists. Based on recent earnings in certain jurisdictions, sufficient positive evidencecontinues to be provided. It is possible that our valuation allowance may existchange within the next twelve months such that we may release a portion of our valuation allowance.months.
We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions and in Puerto Rico. We are currently under examination by various states. Management does not believe the resolution of any of the audits will result in a material change to our financial condition, results of operations or cash flows. The IRS has concluded its audits of our federal tax returns through the 2013 tax year,year; however, NOL and other carryforwards for certain audited periods remain open for examination. We are generally closed to U.S. federal, state and Puerto Rico examination for years prior to 1998.2000.
A reconciliation of the beginning and ending amount of unrecognized tax benefits were as follows: | | | Year Ended December 31, | | Year Ended December 31, | |
(in millions) | 2016 | | 2015 | | 2014 | (in millions) | 2019 | | 2018 | | 2017 |
Unrecognized tax benefits, beginning of year | $ | 411 |
| | $ | 388 |
| | $ | 178 |
| Unrecognized tax benefits, beginning of year | $ | 462 | | | $ | 412 | | | $ | 410 | |
Gross decreases to tax positions in prior periods | (5 | ) | | (112 | ) | | (52 | ) | |
Gross (decreases) increases to tax positions in prior periods | | Gross (decreases) increases to tax positions in prior periods | (7) | | | 6 | | | (10) | |
Gross increases due to current period business acquisitions | | Gross increases due to current period business acquisitions | — | | | 10 | | | — | |
Gross increases to current period tax positions | 4 |
| | 135 |
| | 262 |
| Gross increases to current period tax positions | 59 | | | 34 | | | 12 | |
Unrecognized tax benefits, end of year | $ | 410 |
| | $ | 411 |
| | $ | 388 |
| Unrecognized tax benefits, end of year | $ | 514 | | | $ | 462 | | | $ | 412 | |
As of December 31, 20162019 and 2015,2018, we had $168$367 million and $163$315 million, respectively, in unrecognized tax benefits that, if recognized, would affect our annual effective tax rate. Penalties and interest on income tax assessments are included in Selling, general and administrative expenses and Interest expense, respectively, in our Consolidated Statements of Comprehensive Income.Income. The accrued interest and penalties associated with unrecognized tax benefits are insignificant.
Note 1114 – Earnings Per Share
The computation of basic and diluted earnings per share was as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, | | | | |
(in millions, except shares and per share amounts) | | | | | 2019 | | 2018 | | 2017 |
| | | | | | | | | |
Net income | | | | | $ | 3,468 | | | $ | 2,888 | | | $ | 4,536 | |
Less: Dividends on mandatory convertible preferred stock | | | | | — | | | — | | | (55) | |
| | | | | | | | | |
Net income attributable to common stockholders - basic | | | | | 3,468 | | | 2,888 | | | 4,481 | |
Add: Dividends related to mandatory convertible preferred stock | | | | | — | | | — | | | 55 | |
| | | | | | | | | |
Net income attributable to common stockholders | | | | | $ | 3,468 | | | $ | 2,888 | | | $ | 4,536 | |
| | | | | | | | | |
| | | | | | | | | |
Weighted average shares outstanding - basic | | | | | 854,143,751 | | | 849,744,152 | | | 831,850,073 | |
Effect of dilutive securities: | | | | | | | | | |
Outstanding stock options and unvested stock awards | | | | | 9,289,760 | | | 8,546,022 | | | 9,200,873 | |
Mandatory convertible preferred stock | | | | | — | | | — | | | 30,736,504 | |
| | | | | | | | | |
Weighted average shares outstanding - diluted | | | | | 863,433,511 | | | 858,290,174 | | | 871,787,450 | |
| | | | | | | | | |
Earnings per share - basic | | | | | $ | 4.06 | | | $ | 3.40 | | | $ | 5.39 | |
Earnings per share - diluted | | | | | $ | 4.02 | | | $ | 3.36 | | | $ | 5.20 | |
| | | | | | | | | |
Potentially dilutive securities: | | | | | | | | | |
Outstanding stock options and unvested stock awards | | | | | 16,359 | | | 148,422 | | | 33,980 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
(in millions, except shares and per share amounts) | 2016 | | 2015 | | 2014 |
Net income | $ | 1,460 |
| | $ | 733 |
| | $ | 247 |
|
Less: Dividends on mandatory convertible preferred stock | (55 | ) | | (55 | ) | | — |
|
Net income attributable to common stockholders - basic and diluted | $ | 1,405 |
| | $ | 678 |
| | $ | 247 |
|
| | | | | |
Weighted average shares outstanding - basic | 822,470,275 |
| | 812,994,028 |
| | 805,284,712 |
|
Effect of dilutive securities: | | | | | |
Outstanding stock options and unvested stock awards | 10,584,270 |
| | 9,623,910 |
| | 8,893,887 |
|
Mandatory convertible preferred stock | — |
| | — |
| | 1,743,659 |
|
Weighted average shares outstanding - diluted | 833,054,545 |
| | 822,617,938 |
| | 815,922,258 |
|
| | | | | |
Earnings per share - basic | $ | 1.71 |
| | $ | 0.83 |
| | $ | 0.31 |
|
Earnings per share - diluted | $ | 1.69 |
| | $ | 0.82 |
| | $ | 0.30 |
|
| | | | | |
Potentially dilutive securities: | | | | | |
Outstanding stock options and unvested stock awards | 3,528,683 |
| | 4,842,370 |
| | 1,426,331 |
|
Mandatory convertible preferred stock | 32,237,266 |
| | 32,237,266 |
| | — |
|
As of December 31, 2019, we had authorized 100 million shares of preferred stock, with a par value of $0.00001 per share. There was 0 preferred stock outstanding as of December 31, 2019 and 2018.
Potentially dilutive securities were not included in the computation of diluted earnings per share if to do so would have been anti-dilutive.
Note 12 – Commitments and Contingencies15 - Leases
CommitmentsLeases (Topic 842) Disclosures
Operating Leases and Purchase CommitmentsLessee
Future minimum paymentsWe are lessee for non-cancelable operating leases and purchase commitments are summarized below:
|
| | | | | | | |
(in millions) | Operating Leases | | Purchase Commitments |
Year Ending December 31, | | | |
2017 | $ | 2,417 |
| | $ | 2,011 |
|
2018 | 2,118 |
| | 977 |
|
2019 | 1,832 |
| | 841 |
|
2020 | 1,511 |
| | 704 |
|
2021 | 1,102 |
| | 626 |
|
Thereafter | 2,188 |
| | 960 |
|
Total | $ | 11,168 |
| | $ | 6,119 |
|
Operating Leases
We have operatingfinancing leases for cell sites, switch sites, retail stores and office facilities with contractual terms expiringthat generally extend through 2026.
2029. The majority of cell site leases have an initial non-cancelable term of five years to ten years with several renewal options. Historically, our assessmentoptions that can extend the lease term from five to thirty-five years. In addition, we have financing leases for network equipment that generally have a non-cancelable lease term of cell site lease terms includedtwo to five years; the financing leases do not have renewal options on certain cell siteand contain a bargain purchase option at the end of the lease.
The components of lease expense were as follows:
| | | | | | | |
(in millions) | | | Year Ended December 31, 2019 |
Operating lease expense | | | $ | 2,558 | |
Financing lease expense: | | | |
Amortization of right-of-use assets | | | 523 | |
Interest on lease liabilities | | | 82 | |
Total financing lease expense | | | 605 | |
Variable lease expense | | | 243 | |
Total lease expense | | | $ | 3,406 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Information relating to the lease term and discount rate is as follows:
| | | | | |
| December 31, 2019 |
Weighted Average Remaining Lease Term (Years) | |
Operating leases | 6 |
Financing leases | 3 |
Weighted Average Discount Rate | |
Operating leases | 4.8 | % |
Financing leases | 4.0 | % |
Maturities of lease liabilities as of December 31, 2019, were as follows:
| | | | | | | | | | | |
(in millions) | Operating Leases | | Finance Leases |
Twelve Months Ending December 31, | | | |
2020 | $ | 2,754 | | | $ | 1,013 | |
2021 | 2,583 | | | 733 | |
2022 | 2,311 | | | 414 | |
2023 | 1,908 | | | 101 | |
2024 | 1,615 | | | 71 | |
Thereafter | 3,797 | | | 115 | |
Total lease payments | 14,968 | | | 2,447 | |
Less imputed interest | 2,142 | | | 144 | |
Total | $ | 12,826 | | | $ | 2,303 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Interest payments for financing leases whichfor the year ended December 31, 2019, were reasonably assured of exercise and we had included such renewal options in the future minimum lease payments presented in the Operating Lease and Purchase Commitments table, above. $82 million.
As of December 31, 2016,2019, we have updated the future minimum lease payments for all cell site leases presented above to include only payments due for the initial non-cancelable lease term as they represent the payments which we cannot avoid at our option and also correspond to our lease term assessment for new leases. This update had the effect of reducing our contractual operating lease commitments included in the table above by $4.6
billion as of December 31, 2016.
In addition, we haveadditional operating leases for dedicated transportation linescell sites and commercial properties that have not yet commenced with varying expiration terms through 2026.future lease payments of approximately $341 million.
As of December 31, 2016,2019, we were contingently liable for future ground lease payments related to the tower obligations. These contingent obligations are not included in the above table as the amounts dueowed are contractually owed by CCI based on the subleasing arrangement. See Note 8 –9 - Tower Obligations for further information.
Lessor
JUMP! On Demand allows customers to lease a device (handset or tablet) over a period of 18 months and upgrade it for a new device up to one time per month. Upon device upgrade or at lease end, customers must return or purchase their device. The purchase price at the expiration of the lease is established at lease commencement and reflects the estimated residual value of the device, which reflects the estimated fair value of the underlying asset at the end of the lease term. The JUMP! On Demand leases do not contain any residual value guarantees or variable lease payments, and there are no restrictions or covenants imposed by these leases. Leased wireless devices are included in Property and equipment, net in our Consolidated Balance Sheets.
The components of leased wireless devices under our JUMP! On Demand program were as follows:
| | | | | | | | | | | |
(in millions) | December 31, 2019 | | December 31, 2018 |
| | | |
Leased wireless devices, gross | $ | 1,139 | | | $ | 1,159 | |
Accumulated depreciation | (407) | | | (622) | |
| | | |
Leased wireless devices, net | $ | 732 | | | $ | 537 | |
| | | |
| | | |
| | | |
| | | |
| | | |
Future minimum payments expected to be received over the lease term related to the leased wireless devices, which exclude optional residual buy-out amounts at the end of the lease term, are summarized below:
| | | | | |
(in millions) | Total |
Twelve Months Ending December 31, | |
| |
2020 | $ | 417 | |
2021 | 99 | |
| |
Total | $ | 516 | |
| |
| |
| |
| |
Leases (Topic 840) Disclosures
On January 1, 2019, we adopted the new lease standard using a modified-retrospective approach by recognizing and measuring leases at the adoption date with a cumulative effect of initially applying the guidance recognized at the date of initial application and did not restate the prior periods presented in our Consolidated Financial Statements. As such, prior periods presented in our Consolidated Financial Statements continue to be in accordance with the former lease standard, Topic 840 Leases. See Note 1 - Summary of Significant Accounting Policies for further information.
Operating Leases
Under the previous lease standard, we had non-cancelable operating leases for cell sites, switch sites, retail stores and office facilities. As of December 31, 2018, these leases had contractual terms expiring through 2028, with the majority of cell site leases having an initial non-cancelable term of five to ten years with several renewal options. In addition, we had operating leases for dedicated transportation lines with varying expiration terms through 2027.
Our commitments under leases existing as of December 31, 2018 were approximately $2.7 billion for the year ending December 31, 2019, $4.7 billion in total for the years ending December 31, 2020 and 2021, $3.3 billion in total for the years ending December 31, 2022 and 2023 and $3.8 billion in total for years thereafter.
Total rent expense under operating leases, including dedicated transportation lines, was $2.8 billion, $2.8 billion and $3.0 billion for the yearsyear ended December 31, 2016, 20152018, and 2014, respectively, and iswas classified as Cost of services and Selling, general and administrative expense in our Consolidated Statements of Comprehensive Income.Income.
Lessor
As of December 31, 2018, the future minimum payments expected to be received over the lease term related to the leased wireless devices, which exclude optional residual buy-out amounts at the end of the lease term, are summarized below:
| | | | | |
(in millions) | Total |
Year Ended December 31, | |
| |
2019 | $ | 419 | |
2020 | 59 | |
| |
Total | $ | 478 | |
| |
| |
| |
| |
| |
| |
Capital Leases
Within property and equipment, wireless communications systems include capital lease agreements for network equipment with varying expiration terms through 2033. Capital lease assets and accumulated amortization were $3.1 billion and $867 million as of December 31, 2018.
As of December 31, 2018, the future minimum payments required under capital leases, including interest and maintenance, over their remaining terms are summarized below:
| | | | | |
(in millions) | Future Minimum Payments |
Year Ended December 31, | |
2019 | $ | 909 | |
2020 | 631 | |
2021 | 389 | |
2022 | 102 | |
2023 | 66 | |
Thereafter | 106 | |
Total | $ | 2,203 | |
Included in Total | |
Interest | $ | 143 | |
Maintenance | 45 | |
| |
| |
| |
| |
| |
Note 16 – Commitments and Contingencies
Purchase Commitments
We have commitments for non-dedicated transportation lines with varying expiration terms that generally extend through 2028.2035. In addition, we have commitments to purchase and lease spectrum licenses, handsets,wireless devices, network services, equipment, software, marketing sponsorship agreements and other items in the ordinary course of business, with various terms through 2028.2043. 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.
Related-Party CommitmentsOur purchase commitments are approximately $3.6 billion for the year ending December 31, 2020, $3.3 billion in total for the years ending December 31, 2021 and 2022, $1.6 billion in total for the years ending December 31, 2023 and 2024 and $1.4 billion in total for the years thereafter.
In 2016,2018, we signed a reciprocal long-term spectrum lease with Sprint. The lease includes an offsetting amount to be received from Sprint for the lease of our spectrum. Lease payments began in the fourth quarter of 2018. The minimum commitment under this lease as of December 31, 2019, is $481 million and is included in the purchase obligations above. The reciprocal long-term lease is a distinct transaction from the Merger.
Under the previous lease standard certain of our network backhaul arrangements were accounted for as operating leases. Obligations under these agreements were included within our operating lease commitments as of December 31, 2018.
These agreements no longer qualify as leases under the new lease standard. Our commitments under these agreements as of December 31, 2019, were approximately $164 million for the year ending December 31, 2020, $267 million in total for the years ended December 31, 2021 and 2022, $171 million in total for the years ended December 31, 2023 and 2024, and $196 million in total for years thereafter. The commitments under these agreements are included in the purchase commitments above.
Interest rate lock derivatives
We have entered into interest rate lock derivatives with notional amounts of $9.6 billion. These interest rate lock derivatives were designated as cash flow hedges to reduce variability in cash flows due to changes in interest payments attributable to increases or decreases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. The fair value of interest rate lock derivatives as of December 31, 2019, was a liability of $1.2 billion and is included in Other current liabilities in our Consolidated Balance Sheets. See Note 7 – Fair Value Measurements for further information.
Renewable Energy Purchase Agreements
In April 2019, T-Mobile USA entered into
three purchase agreements with Deutsche Telekom under which T-Mobile USA may, at its option, issue and sell to Deutsche Telekom certain Senior Notes. The purchase agreements were amended in October 2016. See Note 7 – Debt for further information.
In January 2017, T-Mobile USA borrowed $4.0 billion under a secured term loan facilityRenewable Energy Purchase Agreement (“Incremental Term Loan Facility”REPA”) with Deutsche Telekoma third party that is based on the expected operation of a solar photovoltaic electrical generation facility located in Texas 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 refinance $1.98 billionoccur in July 2021. The REPA consists of outstanding secured term loansan energy forward agreement that is net settled based on energy prices and the energy output generated by the facility. 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 its Term Loan Credit Agreement dated November 9, 2015, with the remaining net proceedsagreement 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 direct the use of, or receive specific energy output from, the transaction intended to be used to redeem callable high yield debt. The loans under the Incremental Term Loan Facility were drawn in two tranches on January 31, 2017 (i) $2.0 billion of which will bear interest at a rate equal to a per annum rate of LIBOR plus a margin of 2.00% and will mature on November 9, 2022 and (ii) $2.0 billion of which will bear interest at a rate equal to a per annum rate of LIBOR plus a margin of 2.25% and will mature on January 31, 2024. The Incremental Term Loan Facility increases Deutsche Telekom’s incremental term loan commitment provided to T-Mobile USA under that certain First Incremental Facility Amendment dated as of December 29, 2016 from $660 million to $2.0 billion and provides to T-Mobile USA an additional $2.0 billion incremental term loan commitment. See Note 14 – Subsequent Events for further information.facility.
In December 2016, T-Mobile USA also entered into a $2.5 billion revolving credit facility with Deutsche Telekom which comprised of (i) a three-year $1.0 billion senior unsecured revolving credit agreement and (ii) a three-year $1.5 billion senior secured revolving credit agreement. As of December 31, 2016, there were no outstanding borrowings under the revolving credit facility. See Note 7 – Debt for further information.
Contingencies and Litigation
Litigation Matters
On June 11, 2019, a number of state attorneys general filed a lawsuit against us, DT, Sprint, and SoftBank in the U.S. District Court for the Southern District of New York, alleging that the Merger, if consummated, would violate Section 7 of the Clayton Act and so should be enjoined. The trial concluded after two weeks of witness testimony and presentation of document evidence. We are now waiting for the trial court’s ruling. See Note 2 – Business Combinationsfor further information.
In addition to the litigation associated with the Transactions discussed above, we are involved in various lawsuits and disputes, claims, government agency investigations and enforcement actions, and other proceedings (“Litigation 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.proceedings to enforce FCC rules and regulations. The Litigation Matters described above have progressed to 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 is reflected in the consolidated financial statementsConsolidated Financial Statements but that we dois 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. While we do not expect that the ultimate resolution of these proceedings, individually or in the aggregate, will have a material adverse effect on our financial position, an unfavorable outcome of some or all of these proceedings 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.
Note 1317 – Additional Financial Information
Supplemental Consolidated Balance Sheets Information
Allowances and Imputed Discount
The following table summarizes the changes in allowances and unamortized imputed discount related to our current accounts receivables and EIP receivables:
|
| | | | | | | | | | | |
(in millions) | 2016 | | 2015 | | 2014 |
Allowances, beginning of year | $ | 264 |
| | $ | 199 |
| | $ | 169 |
|
Bad debt expense | 477 |
| | 547 |
| | 444 |
|
Write-offs, net of recoveries | (518 | ) | | (482 | ) | | (414 | ) |
Allowances, end of year | $ | 223 |
| | $ | 264 |
| | $ | 199 |
|
| | | | | |
Imputed discount, beginning of year | $ | 159 |
| | $ | 271 |
| | $ | 212 |
|
Additions | 362 |
| | 310 |
| | 380 |
|
Interest income | (248 | ) | | (414 | ) | | (355 | ) |
Cancellations and other | (47 | ) | | (78 | ) | | (92 | ) |
Impacts from sales of EIP receivables | (152 | ) | | (55 | ) | | — |
|
Transfer from long-term | 100 |
| | 125 |
| | 126 |
|
Imputed discount, end of year | $ | 174 |
| | $ | 159 |
| | $ | 271 |
|
The following table summarizes the changes in unamortized imputed discount related to our long-term EIP receivables:
|
| | | | | | | | | | | |
(in millions) | 2016 | | 2015 | | 2014 |
Imputed discount, beginning of year | $ | 26 |
| | $ | 61 |
| | $ | 64 |
|
Additions | 134 |
| | 111 |
| | 141 |
|
Cancellations and other | (15 | ) | | (13 | ) | | (18 | ) |
Impacts from sales of EIP receivables | (24 | ) | | (8 | ) | | — |
|
Transfer to current | (100 | ) | | (125 | ) | | (126 | ) |
Imputed discount, end of year | $ | 21 |
| | $ | 26 |
| | $ | 61 |
|
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities are summarized as follows:
| | | | | | | | | | | |
(in millions) | December 31, 2019 | | December 31, 2018 |
Accounts payable | $ | 4,322 | | | $ | 5,487 | |
Payroll and related benefits | 802 | | | 709 | |
Property and other taxes, including payroll | 682 | | | 642 | |
Interest | 227 | | | 227 | |
Commissions | 251 | | | 243 | |
Network decommissioning | — | | | 65 | |
Toll and interconnect | 156 | | | 157 | |
Advertising | 127 | | | 76 | |
Other | 179 | | | 135 | |
Accounts payable and accrued liabilities | $ | 6,746 | | | $ | 7,741 | |
|
| | | | | | | |
(in millions) | December 31, 2016 | | December 31, 2015 |
Accounts payable | $ | 5,163 |
| | $ | 6,137 |
|
Payroll and related benefits | 559 |
| | 521 |
|
Property and other taxes, including payroll | 525 |
| | 494 |
|
Interest | 423 |
| | 371 |
|
Commissions | 159 |
| | 190 |
|
Network decommissioning | 101 |
| | 117 |
|
Toll and interconnect | 85 |
| | 68 |
|
Advertising | 44 |
| | 77 |
|
Other | 93 |
| | 109 |
|
Accounts payable and accrued liabilities | $ | 7,152 |
| | $ | 8,084 |
|
Book overdrafts included in accounts payable and accrued liabilities were $356$463 million and $501$630 million as of December 31, 20162019 and 2015,2018, respectively.
Other
In June 2016, we made a refundable deposit of $2.2 billion to a third party in connection with a potential asset purchase. The deposit is included in Asset purchase deposit in our Consolidated Balance Sheets.
During the quarter ended and subsequent to September 30, 2016, a handset Original Equipment Manufacturer (“OEM”) announced recalls on certain of its smartphone devices. As a result, we recorded no revenue associated with the device sales to customers and impaired the devices to their net realizable value. The OEM has agreed to reimburse T-Mobile, as such, we have recorded an amount due from the OEM as an offset to the loss recorded in Cost of equipment sales in our Consolidated Statements of Comprehensive Income and a reduction to Accounts payable and accrued liabilities in our Consolidated Balance Sheets.
Supplemental Consolidated Statements of Comprehensive Income Information
Related Party Transactions
We have related party transactions associated with Deutsche TelekomDT or its affiliates in the ordinary course of business, which are included in the consolidated financial statements.Consolidated Financial Statements.
The following table summarizes the impact of significant transactions with Deutsche TelekomDT or its affiliates included in operatingOperating expenses in the Consolidated Statements of Comprehensive Income:Income:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | |
(in millions) | 2019 | | 2018 | | 2017 |
Discount related to roaming expenses | $ | (9) | | | $ | — | | | $ | — | |
Fees incurred for use of the T-Mobile brand | 88 | | | 84 | | | 79 | |
Expenses for telecommunications and IT services | — | | | — | | | 12 | |
International long distance agreement | 39 | | | 36 | | | 55 | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2016 | | 2015 | | 2014 |
Discount related to roaming expenses | $ | (15 | ) | | $ | (21 | ) | | $ | (61 | ) |
Fees incurred for use of the T-Mobile brand | 74 |
| | 65 |
| | 60 |
|
Expenses for telecommunications and IT services | 25 |
| | 23 |
| | 24 |
|
International long distance agreement | 60 |
| | — |
| | — |
|
We have an agreement with Deutsche TelekomDT for the reimbursement of certain administrative expenses, which were $11 million and $2 million for each of the years ended December 31, 20162019, 2018 and 2015, respectively. There were no reimbursements for the year ended December 31, 2014.2017.
Supplemental Consolidated Statement of Stockholders’ Equity Information
Preferred Stock
In 2014, we completed a public offering of 20 million shares of mandatory convertible preferred stock for net proceeds of $982 million. Dividends on the preferred stock are payable on a cumulative basis when and if declared by our board of directors at an annual rate of 5.5%. The dividends may be paid in cash, shares of common stock, subject to certain limitations, or any combination of cash and shares of common stock.
Unless converted earlier, each share of preferred stock will convert automatically on December 15, 2017 into between 1.6119 and 1.9342 shares of common stock, subject to customary anti-dilution adjustments, depending on the applicable market value of the common stock. At any time, the preferred shares may be converted, in whole or in part, at the minimum conversion rate of 1.6119 shares of common stock, except during a fundamental change conversion period. In addition, holders may be entitled to shares based on the amount of accumulated and unpaid dividends. If certain fundamental changes involving the Company occur, the preferred stock may be converted into common shares at the applicable conversion rate, subject to certain anti-dilution adjustments, and holders will also be entitled to a make-whole amount. The preferred stock ranks senior with respect to liquidation preference and dividend rights to common stock. In the event of any voluntary or involuntary liquidation, winding-up or dissolution of the Company, each holder of preferred stock will be entitled to receive a liquidation preference in the amount of $50 per share, plus an amount equal to accumulated and unpaid dividends, after satisfaction of liabilities to our creditors and before any distribution or payment is made to any holders of common stock. The preferred stock is not redeemable.
Note 14 – Subsequent Events
In January 2017, we delivered a notice of redemption on $1.0 billion aggregate principal amount of our 6.625% Senior Notes due 2020. The notes were redeemed on February 10, 2017 at a redemption price equal to 102.208% of the principal amount of the notes (plus accrued and unpaid interest thereon).
In January 2017, T-Mobile USA borrowed $4.0 billion under a secured term loan facility (“Incremental Term Loan Facility”) with Deutsche Telekom to refinance $1.98 billion of outstanding secured term loans under its Term Loan Credit Agreement dated November 9, 2015, with the remaining net proceeds from the transaction intended to be used to redeem callable high yield debt. The loans under the Incremental Term Loan Facility were drawn in two tranches on January 31, 2017 (i) $2.0 billion of which will bear interest at a rate equal to a per annum rate of LIBOR plus a margin of 2.00% and will mature on November 9, 2022 and (ii) $2.0 billion of which will bear interest at a rate equal to a per annum rate of LIBOR plus a margin of 2.25% and will mature on January 31, 2024. The Incremental Term Loan Facility increases Deutsche Telekom’s incremental term loan commitment provided to T-Mobile USA under that certain First Incremental Facility Amendment dated as of December 29, 2016 from $660 million to $2.0 billion and provides to T-Mobile USA an additional $2.0 billion incremental term loan commitment.
In February 2017, we delivered a notice of redemption on $500 million aggregate principal amount of our 5.250% Senior Notes due 2018. The notes will be redeemed on March 6, 2017 at a redemption price equal to 101.313% of the principal amount of the notes (plus accrued and unpaid interest thereon).
Note 1518 – Guarantor Financial Information
Pursuant to the applicable indentures and supplemental indentures, the long-term debt to affiliates and third parties excluding Senior Secured Term Loans and capital leases, issued by T-Mobile USA (“Issuer”) is fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by T-Mobile (“Parent”) and certain of the Issuer’s 100% owned subsidiaries (“Guarantor Subsidiaries”).
In April 2016, T-Mobile USA and certain of its affiliates, as guarantors, issued $1.0 billion of public 6.000% Senior Notes due 2024.
The guarantees of the Guarantor Subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The indentures and credit facilities governing the long-term debt contain covenants that, among other things, limit the ability of the Issuer and the Guarantor Subsidiaries to:to incur more debt;debt, pay dividends and make distributions;distributions, make certain investments;investments, repurchase stock;stock, create liens or other encumbrances;encumbrances, enter into transactions with affiliates;affiliates, enter into transactions that restrict dividends or distributions from subsidiaries;subsidiaries, and merge, consolidate or sell, or otherwise dispose of, substantially all of their assets. Certain provisions of each of the credit facilities, indentures and the supplemental indentures relating to the long-term debt restrict the ability of the Issuer to loan funds or make payments to Parent. However, the Issuer and Guarantor Subsidiaries are allowed to make certain permitted payments to the Parent under the terms of the indentures and the supplemental indentures.
On October 23, 2018, SLMA LLC was formed as a limited liability company in Delaware to serve as an escrow subsidiary to facilitate the contemplated issuance of notes by Parent in connection with the Transactions. SLMA LLC is an indirect, 100% owned finance subsidiary of Parent, as such term is used in Rule 3-10(b) of Regulation S-X, and has been designated as an unrestricted subsidiary under the Issuer’s existing debt securities. Any debt securities that may be issued from time to time by SLMA LLC will be fully and unconditionally guaranteed by Parent.
In 2019, certain Non-Guarantor Subsidiaries became Guarantor Subsidiaries. Certain prior period amounts have been reclassified to conform to the current period’s presentation.
Presented below is the condensed consolidating financial information as of December 31, 20162019 and 20152018, and for the years ended December 31, 2016, 20152019, 2018 and 2014.2017.
Condensed Consolidating Balance Sheet Information
December 31, 2016
|
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Assets | | | | | | | | | | | |
Current assets | | | | | | | | | | | |
Cash and cash equivalents | $ | 358 |
| | $ | 2,733 |
| | $ | 2,342 |
| | $ | 67 |
| | $ | — |
| | $ | 5,500 |
|
Accounts receivable, net | — |
| | — |
| | 1,675 |
| | 221 |
| | — |
| | 1,896 |
|
Equipment installment plan receivables, net | — |
| | — |
| | 1,930 |
| | — |
| | — |
| | 1,930 |
|
Accounts receivable from affiliates | — |
| | — |
| | 40 |
| | — |
| | — |
| | 40 |
|
Inventories | — |
| | — |
| | 1,111 |
| | — |
| | — |
| | 1,111 |
|
Asset purchase deposit | — |
| | — |
| | 2,203 |
| | — |
| | — |
| | 2,203 |
|
Other current assets | — |
| | — |
| | 972 |
| | 565 |
| | — |
| | 1,537 |
|
Total current assets | 358 |
| | 2,733 |
| | 10,273 |
| | 853 |
| | — |
| | 14,217 |
|
Property and equipment, net (1) | — |
| | — |
| | 20,568 |
| | 375 |
| | — |
| | 20,943 |
|
Goodwill | — |
| | — |
| | 1,683 |
| | — |
| | — |
| | 1,683 |
|
Spectrum licenses | — |
| | — |
| | 27,014 |
| | — |
| | — |
| | 27,014 |
|
Other intangible assets, net | — |
| | — |
| | 376 |
| | — |
| | — |
| | 376 |
|
Investments in subsidiaries, net | 17,682 |
| | 35,095 |
| | — |
| | — |
| | (52,777 | ) | | — |
|
Intercompany receivables | 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 | — |
| | — |
| | 6,785 |
| | 237 |
| | (7,022 | ) | | — |
|
Other long-term liabilities | — |
| | 116 |
| | 906 |
| | 4 |
| | — |
| | 1,026 |
|
Total long-term liabilities | — |
| | 26,457 |
| | 17,499 |
| | 2,462 |
| | (7,785 | ) | | 38,633 |
|
Total stockholders' equity (deficit) | 18,236 |
| | 17,682 |
| | 35,901 |
| | (1,374 | ) | | (52,209 | ) | | 18,236 |
|
Total liabilities and stockholders' equity | $ | 18,236 |
| | $ | 44,661 |
| | $ | 61,498 |
| | $ | 1,490 |
| | $ | (59,994 | ) | | $ | 65,891 |
|
| |
(1) | Assets and liabilities for Non-Guarantor Subsidiaries are primarily included in VIEs related to the 2012 Tower Transaction. See Note 8 – Tower Obligations for further information. |
Condensed Consolidating Balance Sheet Information
December 31, 20152019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Assets | | | | | | | | | | | |
Current assets | | | | | | | | | | | |
| | | | | | | | | | | |
Cash and cash equivalents | $ | 5 | | | $ | 1 | | | $ | 1,350 | | | $ | 172 | | | $ | — | | | $ | 1,528 | |
Accounts receivable, net | — | | | — | | | 1,616 | | | 272 | | | — | | | 1,888 | |
Equipment installment plan receivables, net | — | | | — | | | 2,600 | | | — | | | — | | | 2,600 | |
Accounts receivable from affiliates | — | | | — | | | 20 | | | — | | | — | | | 20 | |
Inventory | — | | | — | | | 964 | | | — | | | — | | | 964 | |
Other current assets | — | | | 646 | | | 975 | | | 684 | | | — | | | 2,305 | |
| | | | | | | | | | | |
Total current assets | 5 | | | 647 | | | 7,525 | | | 1,128 | | | — | | | 9,305 | |
Property and equipment, net (1) | — | | | — | | | 21,790 | | | 194 | | | — | | | 21,984 | |
Operating lease right-of-use assets | — | | | — | | | 10,933 | | | — | | | — | | | 10,933 | |
Financing lease right-of-use assets | — | | | — | | | 2,715 | | | — | | | — | | | 2,715 | |
Goodwill | — | | | — | | | 1,930 | | | — | | | — | | | 1,930 | |
Spectrum licenses | — | | | — | | | 36,465 | | | — | | | — | | | 36,465 | |
Other intangible assets, net | — | | | — | | | 115 | | | — | | | — | | | 115 | |
Investments in subsidiaries, net | 28,898 | | | 51,306 | | | — | | | — | | | (80,204) | | | — | |
Intercompany receivables and note receivables | — | | | 3,464 | | | — | | | — | | | (3,464) | | | — | |
Equipment installment plan receivables due after one year, net | — | | | — | | | 1,583 | | | — | | | — | | | 1,583 | |
Other assets | — | | | 18 | | | 1,797 | | | 239 | | | (163) | | | 1,891 | |
| | | | | | | | | | | |
Total assets | $ | 28,903 | | | $ | 55,435 | | | $ | 84,853 | | | $ | 1,561 | | | $ | (83,831) | | | $ | 86,921 | |
Liabilities and Stockholders' Equity | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | |
| | | | | | | | | | | |
Accounts payable and accrued liabilities | $ | — | | | $ | 252 | | | $ | 6,236 | | | $ | 258 | | | $ | — | | | $ | 6,746 | |
Payables to affiliates | — | | | 145 | | | 42 | | | — | | | — | | | 187 | |
Short-term debt | — | | | 25 | | | — | | | — | | | — | | | 25 | |
| | | | | | | | | | | |
Deferred revenue | — | | | — | | | 631 | | | — | | | — | | | 631 | |
Short-term operating lease liabilities | — | | | — | | | 2,287 | | | — | | | — | | | 2,287 | |
Short-term financing lease liabilities | — | | | — | | | 957 | | | — | | | — | | | 957 | |
Other current liabilities | — | | | 1,171 | | | 139 | | | 363 | | | — | | | 1,673 | |
| | | | | | | | | | | |
Total current liabilities | — | | | 1,593 | | | 10,292 | | | 621 | | | — | | | 12,506 | |
| | | | | | | | | | | |
Long-term debt | — | | | 10,958 | | | — | | | — | | | — | | | 10,958 | |
Long-term debt to affiliates | — | | | 13,986 | | | — | | | — | | | — | | | 13,986 | |
Tower obligations (1) | — | | | — | | | 75 | | | 2,161 | | | — | | | 2,236 | |
Deferred tax liabilities | — | | | — | | | 5,770 | | | — | | | (163) | | | 5,607 | |
Operating lease liabilities | — | | | — | | | 10,539 | | | — | | | — | | | 10,539 | |
Financing lease liabilities | — | | | — | | | 1,346 | | | — | | | — | | | 1,346 | |
| | | | | | | | | | | |
Negative carrying value of subsidiaries, net | — | | | — | | | 864 | | | — | | | (864) | | | — | |
Intercompany payables and debt | 114 | | | — | | | 2,968 | | | 382 | | | (3,464) | | | — | |
Other long-term liabilities | — | | | — | | | 937 | | | 17 | | | — | | | 954 | |
| | | | | | | | | | | |
Total long-term liabilities | 114 | | | 24,944 | | | 22,499 | | | 2,560 | | | (4,491) | | | 45,626 | |
Total stockholders' equity (deficit) | 28,789 | | | 28,898 | | | 52,062 | | | (1,620) | | | (79,340) | | | 28,789 | |
Total liabilities and stockholders' equity | $ | 28,903 | | | $ | 55,435 | | | $ | 84,853 | | | $ | 1,561 | | | $ | (83,831) | | | $ | 86,921 | |
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(1)Assets and liabilities for Non-Guarantor Subsidiaries are primarily included in VIEs related to the 2012 Tower Transaction. See Note 9 – Tower Obligations for further information.
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(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Assets | | | | | | | | | | | |
Current assets | | | | | | | | | | | |
Cash and cash equivalents | $ | 378 |
| | $ | 1,767 |
| | $ | 2,364 |
| | $ | 73 |
| | $ | — |
| | $ | 4,582 |
|
Short-term investments | — |
| | 1,999 |
| | 999 |
| | — |
| | — |
| | 2,998 |
|
Accounts receivable, net | — |
| | — |
| | 1,574 |
| | 214 |
| | — |
| | 1,788 |
|
Equipment installment plan receivables, net | — |
| | — |
| | 2,378 |
| | — |
| | — |
| | 2,378 |
|
Accounts receivable from affiliates | — |
| | — |
| | 36 |
| | — |
| | — |
| | 36 |
|
Inventories | — |
| | — |
| | 1,295 |
| | — |
| | — |
| | 1,295 |
|
Other current assets | — |
| | — |
| | 1,413 |
| | 400 |
| | — |
| | 1,813 |
|
Total current assets | 378 |
| | 3,766 |
| | 10,059 |
| | 687 |
| | — |
| | 14,890 |
|
Property and equipment, net (1) | — |
| | — |
| | 19,546 |
| | 454 |
| | — |
| | 20,000 |
|
Goodwill | — |
| | — |
| | 1,683 |
| | — |
| | — |
| | 1,683 |
|
Spectrum licenses | — |
| | — |
| | 23,955 |
| | — |
| | — |
| | 23,955 |
|
Other intangible assets, net | — |
| | — |
| | 594 |
| | — |
| | — |
| | 594 |
|
Investments in subsidiaries, net | 16,184 |
| | 32,280 |
| | — |
| | — |
| | (48,464 | ) | | — |
|
Intercompany receivables | — |
| | 6,130 |
| | — |
| | — |
| | (6,130 | ) | | — |
|
Equipment installment plan receivables due after one year, net | — |
| | — |
| | 847 |
| | — |
| | — |
| | 847 |
|
Other assets | — |
| | 5 |
| | 387 |
| | 219 |
| | (167 | ) | | 444 |
|
Total assets | $ | 16,562 |
| | $ | 42,181 |
| | $ | 57,071 |
| | $ | 1,360 |
| | $ | (54,761 | ) | | $ | 62,413 |
|
Liabilities and Stockholders' Equity | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | |
Accounts payable and accrued liabilities | $ | — |
| | $ | 368 |
| | $ | 7,496 |
| | $ | 220 |
| | $ | — |
| | $ | 8,084 |
|
Payables to affiliates | — |
| | 70 |
| | 65 |
| | — |
| | — |
| | 135 |
|
Short-term debt | — |
| | 20 |
| | 162 |
| | — |
| | — |
| | 182 |
|
Deferred revenue | — |
| | — |
| | 717 |
| | — |
| | — |
| | 717 |
|
Other current liabilities | — |
| | — |
| | 327 |
| | 83 |
| | — |
| | 410 |
|
Total current liabilities | — |
| | 458 |
| | 8,767 |
| | 303 |
| | — |
| | 9,528 |
|
Long-term debt | — |
| | 19,797 |
| | 664 |
| | — |
| | — |
| | 20,461 |
|
Long-term debt to affiliates | — |
| | 5,600 |
| | — |
| | — |
| | — |
| | 5,600 |
|
Tower obligations (1) | — |
| | — |
| | 411 |
| | 2,247 |
| | — |
| | 2,658 |
|
Deferred tax liabilities | — |
| | — |
| | 4,228 |
| | — |
| | (167 | ) | | 4,061 |
|
Deferred rent expense | — |
| | — |
| | 2,481 |
| | — |
| | — |
| | 2,481 |
|
Negative carrying value of subsidiaries, net | — |
| | — |
| | 628 |
| | — |
| | (628 | ) | | — |
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Intercompany payables | 5 |
| | — |
| | 5,959 |
| | 166 |
| | (6,130 | ) | | — |
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Other long-term liabilities | — |
| | 142 |
| | 922 |
| | 3 |
| | — |
| | 1,067 |
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Total long-term liabilities | 5 |
| | 25,539 |
| | 15,293 |
| | 2,416 |
| | (6,925 | ) | | 36,328 |
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Total stockholders' equity (deficit) | 16,557 |
| | 16,184 |
| | 33,011 |
| | (1,359 | ) | | (47,836 | ) | | 16,557 |
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Total liabilities and stockholders' equity | $ | 16,562 |
| | $ | 42,181 |
| | $ | 57,071 |
| | $ | 1,360 |
| | $ | (54,761 | ) | | $ | 62,413 |
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Condensed Consolidating Balance Sheet Information
December 31, 2018
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(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Assets | | | | | | | | | | | |
Current assets | | | | | | | | | | | |
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Cash and cash equivalents | | $ | 2 | | | $ | 1 | | | $ | 1,082 | | | $ | 118 | | | $ | — | | | $ | 1,203 | |
Accounts receivable, net | | — | | | — | | | 1,510 | | | 259 | | | — | | | 1,769 | |
Equipment installment plan receivables, net | | — | | | — | | | 2,538 | | | — | | | — | | | 2,538 | |
Accounts receivable from affiliates | | — | | | — | | | 11 | | | — | | | — | | | 11 | |
Inventory | | — | | | — | | | 1,084 | | | — | | | — | | | 1,084 | |
Other current assets | | — | | | — | | | 1,032 | | | 644 | | | — | | | 1,676 | |
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Total current assets | 2 | | | 1 | | | 7,257 | | | 1,021 | | | — | | | 8,281 | |
Property and equipment, net (1) | — | | | — | | | 23,113 | | | 246 | | | — | | | 23,359 | |
Goodwill | — | | | — | | | 1,901 | | | — | | | — | | | 1,901 | |
Spectrum licenses | — | | | — | | | 35,559 | | | — | | | — | | | 35,559 | |
Other intangible assets, net | — | | | — | | | 198 | | | — | | | — | | | 198 | |
Investments in subsidiaries, net | 25,314 | | | 46,516 | | | — | | | — | | | (71,830) | | | — | |
Intercompany receivables and note receivables | — | | | 5,174 | | | — | | | — | | | (5,174) | | | — | |
Equipment installment plan receivables due after one year, net | — | | | — | | | 1,547 | | | — | | | — | | | 1,547 | |
Other assets | — | | | 7 | | | 1,540 | | | 217 | | | (141) | | | 1,623 | |
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Total assets | $ | 25,316 | | | $ | 51,698 | | | $ | 71,115 | | | $ | 1,484 | | | $ | (77,145) | | | $ | 72,468 | |
Liabilities and Stockholders' Equity | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | |
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Accounts payable and accrued liabilities | $ | — | | | $ | 228 | | | $ | 7,263 | | | $ | 250 | | | $ | — | | | $ | 7,741 | |
Payables to affiliates | — | | | 157 | | | 43 | | | — | | | — | | | 200 | |
Short-term debt | — | | | — | | | 841 | | | — | | | — | | | 841 | |
Deferred revenue | — | | | — | | | 698 | | | — | | | — | | | 698 | |
Other current liabilities | — | | | 447 | | | 164 | | | 176 | | | — | | | 787 | |
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Total current liabilities | — | | | 832 | | | 9,009 | | | 426 | | | — | | | 10,267 | |
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Long-term debt | — | | | 10,950 | | | 1,174 | | | — | | | — | | | 12,124 | |
Long-term debt to affiliates | — | | | 14,582 | | | — | | | — | | | — | | | 14,582 | |
Tower obligations (1) | — | | | — | | | 384 | | | 2,173 | | | — | | | 2,557 | |
Deferred tax liabilities | — | | | — | | | 4,613 | | | — | | | (141) | | | 4,472 | |
Deferred rent expense | — | | | — | | | 2,781 | | | — | | | — | | | 2,781 | |
Negative carrying value of subsidiaries, net | — | | | — | | | 676 | | | — | | | (676) | | | — | |
Intercompany payables and debt | 598 | | | — | | | 4,258 | | | 318 | | | (5,174) | | | — | |
Other long-term liabilities | — | | | 20 | | | 926 | | | 21 | | | — | | | 967 | |
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Total long-term liabilities | 598 | | | 25,552 | | | 14,812 | | | 2,512 | | | (5,991) | | | 37,483 | |
Total stockholders' equity (deficit) | 24,718 | | | 25,314 | | | 47,294 | | | (1,454) | | | (71,154) | | | 24,718 | |
Total liabilities and stockholders' equity | $ | 25,316 | | | $ | 51,698 | | | $ | 71,115 | | | $ | 1,484 | | | $ | (77,145) | | | $ | 72,468 | |
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(1)Assets and liabilities for Non-Guarantor Subsidiaries are primarily included in VIEs related to the 2012 Tower Transaction. See Note 9 – Tower Obligations for further information. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Assets and liabilities for Non-Guarantor Subsidiaries are primarily included in VIEs related to the 2012 Tower Transaction. See Note 8 – Tower Obligations for further information. | | | | | | | | | | |
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Condensed Consolidating Statement of Comprehensive Income Information
Year Ended December 31, 20162019
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(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Revenues | | | | | | | | | | | |
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Service revenues | $ | — | | | $ | — | | | $ | 32,268 | | | $ | 3,003 | | | $ | (1,277) | | | $ | 33,994 | |
Equipment revenues | — | | | — | | | 10,053 | | | 3 | | | (216) | | | 9,840 | |
Other revenues | — | | | 19 | | | 1,109 | | | 203 | | | (167) | | | 1,164 | |
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Total revenues | — | | | 19 | | | 43,430 | | | 3,209 | | | (1,660) | | | 44,998 | |
Operating expenses | | | | | | | | | | | |
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Cost of services, exclusive of depreciation and amortization shown separately below | — | | | — | | | 6,733 | | | — | | | (111) | | | 6,622 | |
Cost of equipment sales, exclusive of depreciation and amortization shown separately below | — | | | — | | | 10,908 | | | 1,207 | | | (216) | | | 11,899 | |
Selling, general and administrative | — | | | 16 | | | 14,467 | | | 989 | | | (1,333) | | | 14,139 | |
Depreciation and amortization | — | | | — | | | 6,564 | | | 52 | | | — | | | 6,616 | |
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Total operating expense | — | | | 16 | | | 38,672 | | | 2,248 | | | (1,660) | | | 39,276 | |
Operating income | — | | | 3 | | | 4,758 | | | 961 | | | — | | | 5,722 | |
Other income (expense) | | | | | | | | | | | |
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Interest expense | — | | | (454) | | | (88) | | | (185) | | | — | | | (727) | |
Interest expense to affiliates | — | | | (409) | | | (20) | | | — | | | 21 | | | (408) | |
Interest income | — | | | 22 | | | 20 | | | 3 | | | (21) | | | 24 | |
Other (expense) income, net | — | | | (13) | | | 6 | | | (1) | | | — | | | (8) | |
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Total other expense, net | — | | | (854) | | | (82) | | | (183) | | | — | | | (1,119) | |
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Income (loss) before income taxes | — | | | (851) | | | 4,676 | | | 778 | | | — | | | 4,603 | |
Income tax expense | — | | | — | | | (965) | | | (170) | | | — | | | (1,135) | |
Earnings of subsidiaries | 3,468 | | | 4,319 | | | 31 | | | — | | | (7,818) | | | — | |
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Net income | $ | 3,468 | | | $ | 3,468 | | | $ | 3,742 | | | $ | 608 | | | $ | (7,818) | | | $ | 3,468 | |
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Net income | $ | 3,468 | | | $ | 3,468 | | | $ | 3,742 | | | $ | 608 | | | $ | (7,818) | | | $ | 3,468 | |
Other comprehensive (loss) income, net of tax | | | | | | | | | | | |
Other comprehensive (loss) income, net of tax | (536) | | | (536) | | | 186 | | | — | | | 350 | | | (536) | |
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Total comprehensive income | $ | 2,932 | | | $ | 2,932 | | | $ | 3,928 | | | $ | 608 | | | $ | (7,468) | | | $ | 2,932 | |
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(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Revenues | | | | | | | | | | | |
Service revenues | $ | — |
| | $ | — |
| | $ | 26,613 |
| | $ | 2,023 |
| | $ | (792 | ) | | $ | 27,844 |
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Equipment revenues | — |
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| | 9,145 |
| | — |
| | (418 | ) | | 8,727 |
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Other revenues | — |
| | 3 |
| | 491 |
| | 195 |
| | (18 | ) | | 671 |
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Total revenues | — |
| | 3 |
| | 36,249 |
| | 2,218 |
| | (1,228 | ) | | 37,242 |
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Operating expenses | | | | | | | | | | | |
Cost of services, exclusive of depreciation and amortization shown separately below | — |
| | — |
| | 5,707 |
| | 24 |
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| | 5,731 |
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Cost of equipment sales | — |
| | — |
| | 10,209 |
| | 1,027 |
| | (417 | ) | | 10,819 |
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Selling, general and administrative | — |
| | — |
| | 11,321 |
| | 868 |
| | (811 | ) | | 11,378 |
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Depreciation and amortization | — |
| | — |
| | 6,165 |
| | 78 |
| | — |
| | 6,243 |
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Cost of MetroPCS business combination | — |
| | — |
| | 104 |
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| | — |
| | 104 |
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Gains on disposal of spectrum licenses | — |
| | — |
| | (835 | ) | | — |
| | — |
| | (835 | ) |
Total operating expenses | — |
| | — |
| | 32,671 |
| | 1,997 |
| | (1,228 | ) | | 33,440 |
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Operating income | — |
| | 3 |
| | 3,578 |
| | 221 |
| | — |
| | 3,802 |
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Other income (expense) | | | | | | | | | | | |
Interest expense | — |
| | (1,147 | ) | | (82 | ) | | (189 | ) | | — |
| | (1,418 | ) |
Interest expense to affiliates | — |
| | (312 | ) | | — |
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| | — |
| | (312 | ) |
Interest income | — |
| | 31 |
| | 230 |
| | — |
| | — |
| | 261 |
|
Other income (expense), net | — |
| | 2 |
| | (8 | ) | | — |
| | — |
| | (6 | ) |
Total other income (expense), net | — |
| | (1,426 | ) | | 140 |
| | (189 | ) | | — |
| | (1,475 | ) |
Income (loss) before income taxes | — |
| | (1,423 | ) | | 3,718 |
| | 32 |
| | — |
| | 2,327 |
|
Income tax expense | — |
| | — |
| | (857 | ) | | (10 | ) | | — |
| | (867 | ) |
Earnings (loss) of subsidiaries | 1,460 |
| | 2,883 |
| | (17 | ) | | — |
| | (4,326 | ) | | — |
|
Net income | 1,460 |
| | 1,460 |
| | 2,844 |
| | 22 |
| | (4,326 | ) | | 1,460 |
|
Dividends on preferred stock | (55 | ) | | — |
| | — |
| | — |
| | — |
| | (55 | ) |
Net income attributable to common stockholders | $ | 1,405 |
| | $ | 1,460 |
| | $ | 2,844 |
| | $ | 22 |
| | $ | (4,326 | ) | | $ | 1,405 |
|
| | | | | | | | | | | |
Net Income | $ | 1,460 |
| | $ | 1,460 |
| | $ | 2,844 |
| | $ | 22 |
| | $ | (4,326 | ) | | $ | 1,460 |
|
Other comprehensive income, net of tax | | | | | | | | | | | |
Other comprehensive income, net of tax | 2 |
| | 2 |
| | 2 |
| | 2 |
| | (6 | ) | | 2 |
|
Total comprehensive income | $ | 1,462 |
| | $ | 1,462 |
| | $ | 2,846 |
| | $ | 24 |
| | $ | (4,332 | ) | | $ | 1,462 |
|
Condensed Consolidating Statement of Comprehensive Income Information
Year Ended December 31, 20152018
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Revenues | | | | | | | | | | | |
| | | | | | | | | | | |
Service revenues | $ | — | | | $ | — | | | $ | 30,637 | | | $ | 2,333 | | | $ | (978) | | | $ | 31,992 | |
Equipment revenues | — | | | — | | | 10,209 | | | 1 | | | (201) | | | 10,009 | |
Other revenues | — | | | 29 | | | 1,113 | | | 228 | | | (61) | | | 1,309 | |
| | | | | | | | | | | |
Total revenues | — | | | 29 | | | 41,959 | | | 2,562 | | | (1,240) | | | 43,310 | |
Operating expenses | | | | | | | | | | | |
| | | | | | | | | | | |
Cost of services, exclusive of depreciation and amortization shown separately below | — | | | — | | | 6,283 | | | 24 | | | — | | | 6,307 | |
Cost of equipment sales, exclusive of depreciation and amortization shown separately below | — | | | — | | | 11,239 | | | 1,010 | | | (202) | | | 12,047 | |
Selling, general and administrative | — | | | 11 | | | 13,296 | | | 892 | | | (1,038) | | | 13,161 | |
Depreciation and amortization | — | | | — | | | 6,422 | | | 64 | | | — | | | 6,486 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total operating expenses | — | | | 11 | | | 37,240 | | | 1,990 | | | (1,240) | | | 38,001 | |
Operating income | — | | | 18 | | | 4,719 | | | 572 | | | — | | | 5,309 | |
Other income (expense) | | | | | | | | | | | |
| | | | | | | | | | | |
Interest expense | — | | | (528) | | | (114) | | | (193) | | | — | | | (835) | |
Interest expense to affiliates | — | | | (522) | | | (21) | | | — | | | 21 | | | (522) | |
Interest income | — | | | 23 | | | 16 | | | 1 | | | (21) | | | 19 | |
Other (expense) income, net | — | | | (87) | | | 33 | | | — | | | — | | | (54) | |
| | | | | | | | | | | |
Total other expense, net | — | | | (1,114) | | | (86) | | | (192) | | | — | | | (1,392) | |
| | | | | | | | | | | |
Income (loss) before income taxes | — | | | (1,096) | | | 4,633 | | | 380 | | | — | | | 3,917 | |
Income tax expense | — | | | — | | | (950) | | | (79) | | | — | | | (1,029) | |
Earnings of subsidiaries | 2,888 | | | 3,984 | | | 32 | | | — | | | (6,904) | | | — | |
| | | | | | | | | | | |
Net income | $ | 2,888 | | | $ | 2,888 | | | $ | 3,715 | | | $ | 301 | | | $ | (6,904) | | | $ | 2,888 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net income | $ | 2,888 | | | $ | 2,888 | | | $ | 3,715 | | | $ | 301 | | | $ | (6,904) | | | $ | 2,888 | |
Other comprehensive (loss) income, net of tax | | | | | | | | | | | |
Other comprehensive (loss) income, net of tax | (332) | | | (332) | | | 116 | | | — | | | 216 | | | (332) | |
| | | | | | | | | | | |
Total comprehensive income | $ | 2,556 | | | $ | 2,556 | | | $ | 3,831 | | | $ | 301 | | | $ | (6,688) | | | $ | 2,556 | |
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(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Revenues | | | | | | | | | | | |
Service revenues | $ | — |
| | $ | — |
| | $ | 23,748 |
| | $ | 1,669 |
| | $ | (596 | ) | | $ | 24,821 |
|
Equipment revenues | — |
| | — |
| | 7,148 |
| | — |
| | (430 | ) | | 6,718 |
|
Other revenues | — |
| | 1 |
| | 356 |
| | 171 |
| | (14 | ) | | 514 |
|
Total revenues | — |
| | 1 |
| | 31,252 |
| | 1,840 |
| | (1,040 | ) | | 32,053 |
|
Operating expenses | | | | | | | | | | | |
Cost of services, exclusive of depreciation and amortization shown separately below | — |
| | — |
| | 5,530 |
| | 24 |
| | — |
| | 5,554 |
|
Cost of equipment sales | — |
| | — |
| | 9,055 |
| | 720 |
| | (431 | ) | | 9,344 |
|
Selling, general and administrative | — |
| | — |
| | 10,065 |
| | 733 |
| | (609 | ) | | 10,189 |
|
Depreciation and amortization | — |
| | — |
| | 4,605 |
| | 83 |
| | — |
| | 4,688 |
|
Cost of MetroPCS business combination | — |
| | — |
| | 376 |
| | — |
| | — |
| | 376 |
|
Gains on disposal of spectrum licenses | — |
| | — |
| | (163 | ) | | — |
| | — |
| | (163 | ) |
Total operating expenses | — |
| | — |
| | 29,468 |
| | 1,560 |
| | (1,040 | ) | | 29,988 |
|
Operating income | — |
| | 1 |
| | 1,784 |
| | 280 |
| | — |
| | 2,065 |
|
Other income (expense) | | | | | | | | | | | |
Interest expense | — |
| | (847 | ) | | (50 | ) | | (188 | ) | | — |
| | (1,085 | ) |
Interest expense to affiliates | — |
| | (411 | ) | | — |
| | — |
| | — |
| | (411 | ) |
Interest income | — |
| | 2 |
| | 418 |
| | — |
| | — |
| | 420 |
|
Other expense, net | — |
| | (10 | ) | | — |
| | (1 | ) | | — |
| | (11 | ) |
Total other income (expense), net | — |
| | (1,266 | ) | | 368 |
| | (189 | ) | | — |
| | (1,087 | ) |
Income (loss) before income taxes | — |
| | (1,265 | ) | | 2,152 |
| | 91 |
| | — |
| | 978 |
|
Income tax expense | — |
| | — |
| | (214 | ) | | (31 | ) | | — |
| | (245 | ) |
Earnings (loss) of subsidiaries | 733 |
| | 1,998 |
| | (48 | ) | | — |
| | (2,683 | ) | | — |
|
Net income | 733 |
| | 733 |
| | 1,890 |
| | 60 |
| | (2,683 | ) | | 733 |
|
Dividends on preferred stock | (55 | ) | | — |
| | — |
| | — |
| | — |
| | (55 | ) |
Net income attributable to common stockholders | $ | 678 |
| | $ | 733 |
| | $ | 1,890 |
| | $ | 60 |
| | $ | (2,683 | ) | | $ | 678 |
|
| | | | | | | | | | | |
Net income | $ | 733 |
| | $ | 733 |
| | $ | 1,890 |
| | $ | 60 |
| | $ | (2,683 | ) | | $ | 733 |
|
Other comprehensive loss, net of tax | | | | | | | | | | | |
Other comprehensive loss, net of tax | (2 | ) | | (2 | ) | | (2 | ) | | — |
| | 4 |
| | (2 | ) |
Total comprehensive income | $ | 731 |
| | $ | 731 |
| | $ | 1,888 |
| | $ | 60 |
| | $ | (2,679 | ) | | $ | 731 |
|
Condensed Consolidating Statement of Comprehensive Income Information
Year Ended December 31, 20142017
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Revenues | | | | | | | | | | | |
| | | | | | | | | | | |
Service revenues | $ | — | | | $ | — | | | $ | 28,894 | | | $ | 2,113 | | | $ | (847) | | | $ | 30,160 | |
Equipment revenues | — | | | — | | | 9,620 | | | — | | | (245) | | | 9,375 | |
Other revenues | — | | | 3 | | | 879 | | | 212 | | | (25) | | | 1,069 | |
| | | | | | | | | | | |
Total revenues | — | | | 3 | | | 39,393 | | | 2,325 | | | (1,117) | | | 40,604 | |
Operating expenses | | | | | | | | | | | |
| | | | | | | | | | | |
Cost of services, exclusive of depreciation and amortization shown separately below | — | | | — | | | 6,076 | | | 24 | | | — | | | 6,100 | |
Cost of equipment sales, exclusive of depreciation and amortization shown separately below | — | | | — | | | 10,849 | | | 1,003 | | | (244) | | | 11,608 | |
Selling, general and administrative | — | | | — | | | 12,276 | | | 856 | | | (873) | | | 12,259 | |
Depreciation and amortization | — | | | — | | | 5,914 | | | 70 | | | — | | | 5,984 | |
Gains on disposal of spectrum licenses | — | | | — | | | (235) | | | — | | | — | | | (235) | |
| | | | | | | | | | | |
Total operating expenses | — | | | — | | | 34,880 | | | 1,953 | | | (1,117) | | | 35,716 | |
Operating income | — | | | 3 | | | 4,513 | | | 372 | | | — | | | 4,888 | |
Other income (expense) | | | | | | | | | | | |
| | | | | | | | | | | |
Interest expense | — | | | (811) | | | (109) | | | (191) | | | — | | | (1,111) | |
Interest expense to affiliates | — | | | (560) | | | (23) | | | — | | | 23 | | | (560) | |
Interest income | 1 | | | 29 | | | 10 | | | — | | | (23) | | | 17 | |
Other income (expense), net | — | | | (88) | | | 16 | | | (1) | | | — | | | (73) | |
| | | | | | | | | | | |
Total other income (expense), net | 1 | | | (1,430) | | | (106) | | | (192) | | | — | | | (1,727) | |
| | | | | | | | | | | |
Income (loss) before income taxes | 1 | | | (1,427) | | | 4,407 | | | 180 | | | — | | | 3,161 | |
Income tax expense (benefit) | — | | | — | | | 1,527 | | | (152) | | | — | | | 1,375 | |
Earnings (loss) of subsidiaries | 4,535 | | | 5,962 | | | (57) | | | — | | | (10,440) | | | — | |
| | | | | | | | | | | |
Net income | 4,536 | | | 4,535 | | | 5,877 | | | 28 | | | (10,440) | | | 4,536 | |
Dividends on preferred stock | (55) | | | — | | | — | | | — | | | — | | | (55) | |
| | | | | | | | | | | |
Net income attributable to common stockholders | $ | 4,481 | | | $ | 4,535 | | | $ | 5,877 | | | $ | 28 | | | $ | (10,440) | | | $ | 4,481 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net income | $ | 4,536 | | | $ | 4,535 | | | $ | 5,877 | | | $ | 28 | | | $ | (10,440) | | | $ | 4,536 | |
Other comprehensive loss, net of tax | | | | | | | | | | | |
Other comprehensive loss, net of tax | 7 | | | 7 | | | 7 | | | — | | | (14) | | | 7 | |
| | | | | | | | | | | |
Total comprehensive income | $ | 4,543 | | | $ | 4,542 | | | $ | 5,884 | | | $ | 28 | | | $ | (10,454) | | | $ | 4,543 | |
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| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Revenues | | | | | | | | | | | |
Service revenues | $ | — |
| | $ | — |
| | $ | 21,483 |
| | $ | 1,302 |
| | $ | (410 | ) | | $ | 22,375 |
|
Equipment revenues | — |
| | — |
| | 7,319 |
| | — |
| | (530 | ) | | 6,789 |
|
Other revenues | — |
| | — |
| | 270 |
| | 140 |
| | (10 | ) | | 400 |
|
Total revenues | — |
| | — |
| | 29,072 |
| | 1,442 |
| | (950 | ) | | 29,564 |
|
Operating expenses | | | | | | | | | | | |
Cost of services, exclusive of depreciation and amortization shown separately below | — |
| | — |
| | 5,767 |
| | 21 |
| | — |
| | 5,788 |
|
Cost of equipment sales | — |
| | — |
| | 9,491 |
| | 702 |
| | (572 | ) | | 9,621 |
|
Selling, general and administrative | — |
| | — |
| | 8,723 |
| | 518 |
| | (378 | ) | | 8,863 |
|
Depreciation and amortization | — |
| | — |
| | 4,330 |
| | 82 |
| | — |
| | 4,412 |
|
Cost of MetroPCS business combination | — |
| | — |
| | 299 |
| | — |
| | — |
| | 299 |
|
Gains on disposal of spectrum licenses | — |
| | — |
| | (840 | ) | | — |
| | — |
| | (840 | ) |
Other, net | — |
| | — |
| | 5 |
| | — |
| | — |
| | 5 |
|
Total operating expenses | — |
| | — |
| | 27,775 |
| | 1,323 |
| | (950 | ) | | 28,148 |
|
Operating income | — |
| | — |
| | 1,297 |
| | 119 |
| | — |
| | 1,416 |
|
Other income (expense) | | | | | | | | | | | |
Interest expense | — |
| | (838 | ) | | (55 | ) | | (180 | ) | | — |
| | (1,073 | ) |
Interest expense to affiliates | — |
| | (278 | ) | | — |
| | — |
| | — |
| | (278 | ) |
Interest income | — |
| | — |
| | 359 |
| | — |
| | — |
| | 359 |
|
Other income (expense), net | — |
| | (15 | ) | | 4 |
| | — |
| | — |
| | (11 | ) |
Total other income (expense), net | — |
| | (1,131 | ) | | 308 |
| | (180 | ) | | — |
| | (1,003 | ) |
Income (loss) before income taxes | — |
| | (1,131 | ) | | 1,605 |
| | (61 | ) | | — |
| | 413 |
|
Income tax (expense) benefit | — |
| | — |
| | (189 | ) | | 23 |
| | — |
| | (166 | ) |
Earnings (loss) of subsidiaries | 247 |
| | 1,278 |
| | (54 | ) | | — |
| | (1,471 | ) | | — |
|
Net income (loss) | $ | 247 |
| | $ | 147 |
| | $ | 1,362 |
| | $ | (38 | ) | | $ | (1,471 | ) | | $ | 247 |
|
Other comprehensive loss, net of tax | | | | | | | | | | | |
Other comprehensive loss, net of tax | (2 | ) | | (2 | ) | | (2 | ) | | — |
| | 4 |
| | (2 | ) |
Total comprehensive income (loss) | $ | 245 |
| | $ | 145 |
| | $ | 1,360 |
| | $ | (38 | ) | | $ | (1,467 | ) | | $ | 245 |
|
Condensed Consolidating Statement of Cash Flows Information
Year Ended December 31, 20162019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Operating activities | | | | | | | | | | | |
Net cash (used in) provided by operating activities | $ | — | | | $ | (752) | | | $ | 11,338 | | | $ | (3,207) | | | $ | (555) | | | $ | 6,824 | |
Investing activities | | | | | | | | | | | |
| | | | | | | | | | | |
Purchases of property and equipment | — | | | — | | | (6,391) | | | — | | | — | | | (6,391) | |
Purchases of spectrum licenses and other intangible assets, including deposits | — | | | — | | | (967) | | | — | | | — | | | (967) | |
Proceeds from sales of tower sites | — | | | — | | | 38 | | | — | | | — | | | 38 | |
Proceeds related to beneficial interests in securitization transactions | — | | | — | | | 37 | | | 3,839 | | | — | | | 3,876 | |
Net cash related to derivative contracts under collateral exchange arrangements | — | | | (632) | | | — | | | — | | | — | | | (632) | |
Acquisition of companies, net of cash acquired | — | | | (32) | | | 1 | | | — | | | — | | | (31) | |
| | | | | | | | | | | |
Other, net | — | | | (12) | | | (6) | | | — | | | — | | | (18) | |
| | | | | | | | | | | |
Net cash (used in) provided by investing activities | — | | | (676) | | | (7,288) | | | 3,839 | | | — | | | (4,125) | |
Financing activities | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Proceeds from borrowing on revolving credit facility, net | — | | | 2,340 | | | — | | | — | | | — | | | 2,340 | |
Repayments of revolving credit facility | — | | | — | | | (2,340) | | | — | | | — | | | (2,340) | |
Repayments of financing lease obligations | — | | | — | | | (798) | | | — | | | — | | | (798) | |
Repayments of short-term debt for purchases of inventory, property and equipment, net | — | | | — | | | (775) | | | — | | | — | | | (775) | |
Repayments of long-term debt | — | | | — | | | (600) | | | — | | | — | | | (600) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Intercompany advances, net | 1 | | | (912) | | | 934 | | | (23) | | | — | | | — | |
| | | | | | | | | | | |
Tax withholdings on share-based awards | — | | | — | | | (156) | | | — | | | — | | | (156) | |
Cash payments for debt prepayment or debt extinguishment costs | — | | | — | | | (28) | | | — | | | — | | | (28) | |
Intercompany dividend paid | — | | | — | | | — | | | (555) | | | 555 | | | — | |
Other, net | 2 | | | — | | | (19) | | | — | | | — | | | (17) | |
| | | | | | | | | | | |
Net cash provided (used in) by financing activities | 3 | | | 1,428 | | | (3,782) | | | (578) | | | 555 | | | (2,374) | |
Change in cash and cash equivalents | 3 | | | — | | | 268 | | | 54 | | | — | | | 325 | |
Cash and cash equivalents | | | | | | | | | | | |
Beginning of period | 2 | | | 1 | | | 1,082 | | | 118 | | | — | | | 1,203 | |
End of period | $ | 5 | | | $ | 1 | | | $ | 1,350 | | | $ | 172 | | | $ | — | | | $ | 1,528 | |
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(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Operating activities | | | | | | | | | | | |
Net cash provided by (used in) operating activities | $ | 6 |
| | $ | (2,031 | ) | | $ | 8,166 |
| | $ | 104 |
| | $ | (110 | ) | | $ | 6,135 |
|
| | | | | | | | | | | |
Investing activities | | | | | | | | | | | |
Purchases of property and equipment | — |
| | — |
| | (4,702 | ) | | — |
| | — |
| | (4,702 | ) |
Purchases of spectrum licenses and other intangible assets, including deposits | — |
| | — |
| | (3,968 | ) | | — |
| | — |
| | (3,968 | ) |
Sales of short-term investments | — |
| | 2,000 |
| | 998 |
| | — |
| | — |
| | 2,998 |
|
Other, net | — |
| | — |
| | (8 | ) | | — |
| | — |
| | (8 | ) |
Net cash provided by (used in) investing activities | — |
| | 2,000 |
| | (7,680 | ) | | — |
| | — |
| | (5,680 | ) |
| | | | | | | | | | | |
Financing activities | | | | | | | | | | | |
Proceeds from issuance of long-term debt | — |
| | 997 |
| | — |
| | — |
| | — |
| | 997 |
|
Repayments of capital lease obligations | — |
| | — |
| | (205 | ) | | — |
| | — |
| | (205 | ) |
Repayments of short-term debt for purchases of inventory, property and equipment, net | — |
| | — |
| | (150 | ) | | — |
| | — |
| | (150 | ) |
Repayments of long-term debt | — |
| | — |
| | (20 | ) | | — |
| | — |
| | (20 | ) |
Proceeds from exercise of stock options | 29 |
| | — |
| | — |
| | — |
| | — |
| | 29 |
|
Tax withholdings on share-based awards | — |
| | — |
| | (121 | ) | | — |
| | — |
| | (121 | ) |
Intercompany dividend paid | — |
| | — |
| | — |
| | (110 | ) | | 110 |
| | — |
|
Dividends on preferred stock | (55 | ) | | — |
| | — |
| | — |
| | — |
| | (55 | ) |
Other, net | — |
| | — |
| | (12 | ) | | — |
| | — |
| | (12 | ) |
Net cash (used in) provided by financing activities | (26 | ) | | 997 |
| | (508 | ) | | (110 | ) | | 110 |
| | 463 |
|
Change in cash and cash equivalents | (20 | ) | | 966 |
| | (22 | ) | | (6 | ) | | — |
| | 918 |
|
Cash and cash equivalents | | | | | | | | | | | |
Beginning of period | 378 |
| | 1,767 |
| | 2,364 |
| | 73 |
| | — |
| | 4,582 |
|
End of period | $ | 358 |
| | $ | 2,733 |
| | $ | 2,342 |
| | $ | 67 |
| | $ | — |
| | $ | 5,500 |
|
Condensed Consolidating Statement of Cash Flows Information
Year Ended December 31, 20152018
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Operating activities | | | | | | | | | | | |
Net cash (used in) provided by operating activities | $ | — | | | $ | (1,254) | | | $ | 10,414 | | | $ | (5,041) | | | $ | (220) | | | $ | 3,899 | |
Investing activities | | | | | | | | | | | |
| | | | | | | | | | | |
Purchases of property and equipment | — | | | — | | | (5,536) | | | (5) | | | — | | | (5,541) | |
Purchases of spectrum licenses and other intangible assets, including deposits | — | | | — | | | (127) | | | — | | | — | | | (127) | |
Proceeds related to beneficial interests in securitization transactions | — | | | — | | | 53 | | | 5,353 | | | — | | | 5,406 | |
Acquisition of companies, net of cash | — | | | — | | | (338) | | | — | | | — | | | (338) | |
Equity investment in subsidiary | — | | | — | | | (43) | | | — | | | 43 | | | — | |
Other, net | — | | | (7) | | | 28 | | | — | | | — | | | 21 | |
| | | | | | | | | | | |
Net cash (used in) provided by investing activities | — | | | (7) | | | (5,963) | | | 5,348 | | | 43 | | | (579) | |
Financing activities | | | | | | | | | | | |
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Proceeds from issuance of long-term debt | — | | | 2,494 | | | — | | | — | | | — | | | 2,494 | |
| | | | | | | | | | | |
Proceeds from borrowing on revolving credit facility, net | — | | | 6,265 | | | — | | | — | | | — | | | 6,265 | |
Repayments of revolving credit facility | — | | | — | | | (6,265) | | | — | | | — | | | (6,265) | |
Repayments of financing lease obligations | — | | | — | | | (700) | | | — | | | — | | | (700) | |
Repayments of short-term debt for purchases of inventory, property and equipment, net | — | | | — | | | (300) | | | — | | | — | | | (300) | |
Repayments of long-term debt | — | | | — | | | (3,349) | | | — | | | — | | | (3,349) | |
| | | | | | | | | | | |
Repurchases of common stock | (1,071) | | | — | | | — | | | — | | | — | | | (1,071) | |
Intercompany advances, net | 995 | | | (7,498) | | | 6,530 | | | (27) | | | — | | | — | |
Equity investment from parent | — | | | — | | | 43 | | | — | | | (43) | | | — | |
Tax withholdings on share-based awards | — | | | — | | | (146) | | | — | | | — | | | (146) | |
| | | | | | | | | | | |
Cash payments for debt prepayment or debt extinguishment costs | — | | | — | | | (212) | | | — | | | — | | | (212) | |
Intercompany dividend paid | — | | | — | | | — | | | (220) | | | 220 | | | — | |
Other, net | 4 | | | — | | | (56) | | | — | | | — | | | (52) | |
| | | | | | | | | | | |
Net cash (used in) provided by financing activities | (72) | | | 1,261 | | | (4,455) | | | (247) | | | 177 | | | (3,336) | |
Change in cash and cash equivalents | (72) | | | — | | | (4) | | | 60 | | | — | | | (16) | |
Cash and cash equivalents | | | | | | | | | | | |
Beginning of period | 74 | | | 1 | | | 1,086 | | | 58 | | | — | | | 1,219 | |
End of period | $ | 2 | | | $ | 1 | | | $ | 1,082 | | | $ | 118 | | | $ | — | | | $ | 1,203 | |
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(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 | ) | | $ | (4,504 | ) | | $ | 9,940 |
| | $ | 154 |
| | $ | (175 | ) | | $ | 5,414 |
|
| | | | | | | | | | | |
Investing activities | | | | | | | | | | | |
Purchases of property and equipment | — |
| | — |
| | (4,724 | ) | | — |
| | — |
| �� | (4,724 | ) |
Purchases of spectrum licenses and other intangible assets, including deposits | — |
| | — |
| | (1,935 | ) | | — |
| | — |
| | (1,935 | ) |
Purchases of short-term investments | — |
| | (1,999 | ) | | (998 | ) | | — |
| | — |
| | (2,997 | ) |
Investment in subsidiaries | (1,905 | ) | | — |
| | — |
| | — |
| | 1,905 |
| | — |
|
Other, net | — |
| | — |
| | 96 |
| | — |
| | — |
| | 96 |
|
Net cash used in investing activities | (1,905 | ) | | (1,999 | ) | | (7,561 | ) | | — |
| | 1,905 |
| | (9,560 | ) |
| | | | | | | | | | | |
Financing activities | | | | | | | | | | | |
Proceeds from capital contribution | — |
| | 1,905 |
| | — |
| | — |
| | (1,905 | ) | | — |
|
Proceeds from issuance of long-term debt | — |
| | 3,979 |
| | — |
| | — |
| | — |
| | 3,979 |
|
Proceeds from tower obligations | — |
| | 140 |
| | — |
| | — |
| | — |
| | 140 |
|
Repayments of capital lease obligations | — |
| | — |
| | (57 | ) | | — |
| | — |
| | (57 | ) |
Repayments of short-term debt for purchases of inventory, property and equipment, net | — |
| | — |
| | (564 | ) | | — |
| | — |
| | (564 | ) |
Proceeds from exercise of stock options | 47 |
| | — |
| | — |
| | — |
| | — |
| | 47 |
|
Intercompany dividend paid | — |
| | — |
| | — |
| | (175 | ) | | 175 |
| | — |
|
Tax withholdings on share-based awards | — |
| | — |
| | (156 | ) | | — |
| | — |
| | (156 | ) |
Dividends on preferred stock | (41 | ) | | — |
| | (14 | ) | | — |
| | — |
| | (55 | ) |
Other, net | — |
| | — |
| | 79 |
| | — |
| | — |
| | 79 |
|
Net cash provided by (used in) financing activities | 6 |
| | 6,024 |
| | (712 | ) | | (175 | ) | | (1,730 | ) | | 3,413 |
|
Change in cash and cash equivalents | (1,900 | ) | | (479 | ) | | 1,667 |
| | (21 | ) | | — |
| | (733 | ) |
Cash and cash equivalents | | | | | | | | | | | |
Beginning of period | 2,278 |
| | 2,246 |
| | 697 |
| | 94 |
| | — |
| | 5,315 |
|
End of period | $ | 378 |
| | $ | 1,767 |
| | $ | 2,364 |
| | $ | 73 |
| | $ | — |
| | $ | 4,582 |
|
Condensed Consolidating Statement of Cash Flows Information
Year Ended December 31, 20142017
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Operating activities | | | | | | | | | | | |
Net cash provided by (used in) operating activities | $ | 1 | | | $ | (1,613) | | | $ | 9,761 | | | $ | (4,218) | | | $ | (100) | | | $ | 3,831 | |
Investing activities | | | | | | | | | | | |
| | | | | | | | | | | |
Purchases of property and equipment | — | | | — | | | (5,237) | | | — | | | — | | | (5,237) | |
Purchases of spectrum licenses and other intangible assets, including deposits | — | | | — | | | (5,828) | | | — | | | — | | | (5,828) | |
Proceeds related to beneficial interests in securitization transactions | — | | | — | | | 43 | | | 4,276 | | | — | | | 4,319 | |
| | | | | | | | | | | |
Equity investment in subsidiary | (308) | | | — | | | — | | | — | | | 308 | | | — | |
Other, net | — | | | — | | | 1 | | | — | | | — | | | 1 | |
| | | | | | | | | | | |
Net cash (used in) provided by investing activities | (308) | | | — | | | (11,021) | | | 4,276 | | | 308 | | | (6,745) | |
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 financing lease obligations | — | | | — | | | (486) | | | — | | | — | | | (486) | |
Repayments of short-term debt for purchases of inventory, property and equipment, net | — | | | — | | | (300) | | | — | | | — | | | (300) | |
Repayments of long-term debt | — | | | — | | | (10,230) | | | — | | | — | | | (10,230) | |
| | | | | | | | | | | |
Repurchases of common stock | (427) | | | — | | | — | | | — | | | — | | | (427) | |
Intercompany advances, net | 484 | | | (14,817) | | | 14,300 | | | 33 | | | — | | | — | |
Equity investment from parent | — | | | 308 | | | — | | | — | | | (308) | | | — | |
Tax withholdings on share-based awards | — | | | — | | | (166) | | | — | | | — | | | (166) | |
Dividends on preferred stock | (55) | | | — | | | — | | | — | | | — | | | (55) | |
Cash payments for debt prepayment or debt extinguishment costs | — | | | — | | | (188) | | | — | | | — | | | (188) | |
Intercompany dividend paid | — | | | — | | | — | | | (100) | | | 100 | | | — | |
Other, net | 21 | | | — | | | (16) | | | — | | | — | | | 5 | |
| | | | | | | | | | | |
Net cash provided by (used in) financing activities | 23 | | | (1,119) | | | 4 | | | (67) | | | (208) | | | (1,367) | |
Change in cash and cash equivalents | (284) | | | (2,732) | | | (1,256) | | | (9) | | | — | | | (4,281) | |
Cash and cash equivalents | | | | | | | | | | | |
Beginning of period | 358 | | | 2,733 | | | 2,342 | | | 67 | | | — | | | 5,500 | |
End of period | $ | 74 | | | $ | 1 | | | $ | 1,086 | | | $ | 58 | | | $ | — | | | $ | 1,219 | |
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(in millions) | Parent | | Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating and Eliminating Adjustments | | Consolidated |
Operating activities | | | | | | | | | | | |
Net cash provided by (used in) operating activities | $ | 9 |
| | $ | (5,145 | ) | | $ | 9,364 |
| | $ | 18 |
| | $ | (100 | ) | | $ | 4,146 |
|
| | | | | | | | | | | |
Investing activities | | | | | | | | | | | |
Purchases of property and equipment | — |
| | — |
| | (4,317 | ) | | — |
| | — |
| | (4,317 | ) |
Purchases of spectrum licenses and other intangible assets, including deposits | — |
| | — |
| | (2,900 | ) | | — |
| | — |
| | (2,900 | ) |
Investment in subsidiaries | (1,700 | ) | | — |
| | — |
| | — |
| | 1,700 |
| | — |
|
Other, net | — |
| | — |
| | (29 | ) | | — |
| | — |
| | (29 | ) |
Net cash used in investing activities | (1,700 | ) | | — |
| | (7,246 | ) | | — |
| | 1,700 |
| | (7,246 | ) |
| | | | | | | | | | | |
Financing activities | | | | | | | | | | | |
Proceeds from capital contribution | — |
| | 1,700 |
| | — |
| | — |
| | (1,700 | ) | | — |
|
Proceeds from issuance of long-term debt | — |
| | 2,993 |
| | — |
| | — |
| | — |
| | 2,993 |
|
Repayments of capital lease obligations | — |
| | — |
| | (19 | ) | | — |
| | — |
| | (19 | ) |
Repayments of short-term debt for purchases of inventory, property and equipment, net | — |
| | — |
| | (418 | ) | | — |
| | — |
| | (418 | ) |
Repayments of long-term debt | — |
| | — |
| | (1,000 | ) | | — |
| | — |
| | (1,000 | ) |
Proceeds from exercise of stock options | 27 |
| | — |
| | — |
| | — |
| | — |
| | 27 |
|
Proceeds from issuance of preferred stock | 982 |
| | — |
| | — |
| | — |
| | — |
| | 982 |
|
Intercompany dividend paid | — |
| | — |
| | — |
| | (100 | ) | | 100 |
| | — |
|
Tax withholdings on share-based awards | — |
| | — |
| | (73 | ) | | — |
| | — |
| | (73 | ) |
Other, net | — |
| | — |
| | 32 |
| | — |
| | — |
| | 32 |
|
Net cash provided by (used in) financing activities | 1,009 |
| | 4,693 |
| | (1,478 | ) | | (100 | ) | | (1,600 | ) | | 2,524 |
|
Change in cash and cash equivalents | (682 | ) | | (452 | ) | | 640 |
| | (82 | ) | | — |
| | (576 | ) |
Cash and cash equivalents | | | | | | | | | | | |
Beginning of period | 2,960 |
| | 2,698 |
| | 57 |
| | 176 |
| | — |
| | 5,891 |
|
End of period | $ | 2,278 |
| | $ | 2,246 |
| | $ | 697 |
| | $ | 94 |
| | $ | — |
| | $ | 5,315 |
|
Supplementary Data
Quarterly Financial Information (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions, except share and per share amounts) | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Full Year |
2019 | | | | | | | | | |
Total revenues | $ | 11,080 | | | $ | 10,979 | | | $ | 11,061 | | | $ | 11,878 | | | $ | 44,998 | |
Operating income | 1,476 | | | 1,541 | | | 1,471 | | | 1,234 | | | 5,722 | |
Net income | 908 | | | 939 | | | 870 | | | 751 | | | 3,468 | |
| | | | | | | | | |
Net income attributable to common stockholders | 908 | | | 939 | | | 870 | | | 751 | | | 3,468 | |
Earnings per share | | | | | | | | | |
Basic | $ | 1.07 | | | $ | 1.10 | | | $ | 1.02 | | | $ | 0.88 | | | $ | 4.06 | |
Diluted | $ | 1.06 | | | $ | 1.09 | | | $ | 1.01 | | | $ | 0.87 | | | $ | 4.02 | |
Weighted average shares outstanding | | | | | | | | | |
Basic | 851,223,498 | | | 854,368,443 | | | 854,578,241 | | | 856,294,467 | | | 854,143,751 | |
Diluted | 858,643,481 | | | 860,135,593 | | | 862,690,751 | | | 864,158,739 | | | 863,433,511 | |
| | | | | | | | | |
| | | | | | | | | |
2018 | | | | | | | | | |
Total revenues | $ | 10,455 | | | $ | 10,571 | | | $ | 10,839 | | | $ | 11,445 | | | $ | 43,310 | |
Operating income | 1,282 | | | 1,450 | | | 1,440 | | | 1,137 | | | 5,309 | |
Net income | 671 | | | 782 | | | 795 | | | 640 | | | 2,888 | |
| | | | | | | | | |
Net income attributable to common stockholders | 671 | | | 782 | | | 795 | | | 640 | | | 2,888 | |
Earnings per share | | | | | | | | | |
Basic | $ | 0.78 | | | $ | 0.92 | | | $ | 0.94 | | | $ | 0.75 | | | $ | 3.40 | |
Diluted | $ | 0.78 | | | $ | 0.92 | | | $ | 0.93 | | | $ | 0.75 | | | $ | 3.36 | |
Weighted average shares outstanding | | | | | | | | | |
Basic | 855,222,664 | | | 847,660,488 | | | 847,087,120 | | | 849,102,785 | | | 849,744,152 | |
Diluted | 862,244,084 | | | 852,040,670 | | | 853,852,764 | | | 856,344,347 | | | 858,290,174 | |
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(in millions, except shares and per share amounts) | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Full Year |
2016 | | | | | | | | | |
Total revenues | $ | 8,599 |
| | $ | 9,222 |
| | $ | 9,246 |
| | $ | 10,175 |
| | $ | 37,242 |
|
Operating income | 1,103 |
| | 768 |
| | 989 |
| | 942 |
| | 3,802 |
|
Net income | 479 |
| | 225 |
| | 366 |
| | 390 |
| | 1,460 |
|
Dividends on preferred stock | (14 | ) | | (14 | ) | | (13 | ) | | (14 | ) | | (55 | ) |
Net income attributable to common stockholders | 465 |
| | 211 |
| | 353 |
| | 376 |
| | 1,405 |
|
Earnings per share | | | | | | | | | |
Basic | $ | 0.57 |
| | $ | 0.26 |
| | $ | 0.43 |
| | $ | 0.46 |
| | $ | 1.71 |
|
Diluted | $ | 0.56 |
| | $ | 0.25 |
| | $ | 0.42 |
| | $ | 0.45 |
| | $ | 1.69 |
|
Weighted average shares outstanding | | | | | | | | | |
Basic | 819,431,761 |
| | 822,434,490 |
| | 822,998,697 |
| | 824,982,734 |
| | 822,470,275 |
|
Diluted | 859,382,827 |
| | 829,752,956 |
| | 832,257,819 |
| | 867,262,400 |
| | 833,054,545 |
|
Net income includes: | | | | | | | | | |
Cost of MetroPCS business combination | $ | 36 |
| | $ | 59 |
| | $ | 15 |
| | $ | (6 | ) | | $ | 104 |
|
Gains on disposal of spectrum licenses | (636 | ) | | — |
| | (199 | ) | | — |
| | (835 | ) |
2015 | | | | | | | | | |
Total revenues | $ | 7,778 |
| | $ | 8,179 |
| | $ | 7,849 |
| | $ | 8,247 |
| | $ | 32,053 |
|
Operating income | 117 |
| | 597 |
| | 513 |
| | 838 |
| | 2,065 |
|
Net income (loss) | (63 | ) | | 361 |
| | 138 |
| | 297 |
| | 733 |
|
Dividends on preferred stock | (14 | ) | | (14 | ) | | (13 | ) | | (14 | ) | | (55 | ) |
Net income (loss) attributable to common stockholders | (77 | ) | | 347 |
| | 125 |
| | 283 |
| | 678 |
|
Earnings (loss) per share | | | | | | | | | |
Basic | $ | (0.09 | ) | | $ | 0.43 |
| | $ | 0.15 |
| | $ | 0.35 |
| | $ | 0.83 |
|
Diluted | $ | (0.09 | ) | | $ | 0.42 |
| | $ | 0.15 |
| | $ | 0.34 |
| | $ | 0.82 |
|
Weighted average shares outstanding | | | | | | | | | |
Basic | 808,605,526 |
| | 811,605,031 |
| | 815,069,272 |
| | 816,585,782 |
| | 812,994,028 |
|
Diluted | 808,605,526 |
| | 821,122,537 |
| | 822,017,220 |
| | 824,716,119 |
| | 822,617,938 |
|
Net income (loss) includes: | | | | | | | | | |
Cost of MetroPCS business combination | $ | 128 |
| | $ | 34 |
| | $ | 193 |
| | $ | 21 |
| | $ | 376 |
|
Gains on disposal of spectrum licenses | — |
| | (23 | ) | | (1 | ) | | (139 | ) | | (163 | ) |
Earnings (loss) per share is computed independently for each quarter and the sum of the quarters may not equal earnings (loss) per share for the full year.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure information required to be disclosed in our periodic reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls are also designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Principal Executive Officerprincipal executive officer and Principal Financial Officer,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 report.Form 10-K.
The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits 31.1 and 31.2, respectively, to this Form 10-K.
Changes in Internal Control over Financial Reporting
ThereBeginning January 1, 2019, we adopted the new lease standard and implemented significant new lease accounting systems, processes and internal controls over lease accounting to assist us in the application of the new lease standard. Other than as discussed above, there were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, during our most recently completed fiscal quarter that materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions;transactions, providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles;principles, providing reasonable assurance that receipts and expenditures are made in accordance with management authorization;authorization, and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2016.2019.
The effectiveness of our internal control over financial reporting as of December 31, 20162019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report herein.
Item 9B. Other Information
None.
PART III. OTHER INFORMATION
Item 10. Directors, Executive Officers and Corporate Governance
We maintain a code of ethics applicable to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Treasurer, and Controller, which is a “Code of Ethics for Senior Financial Officers” as defined by applicable rules of the SEC. This code is publicly available on our website at investor.t-mobile.com. If we make any amendments to this code other than technical, administrative or other non-substantive amendments, or grant any waivers, including implicit waivers, from a provision of this code we will disclose the nature of the amendment or waiver, its effective date and to whom it applies on our website at investor.t-mobile.com or in a periodic reportCurrent Report on Form 8-K filed with the SEC.
The remaining information required by this item, including information about our Directors, Executive Officers and Audit Committee, iswill be incorporated by reference to thefrom our definitive Proxy Statement for our 2017 Annual Meeting of Stockholders, which willto be filed with the SEC no later than 120 days after December 31, 2016.pursuant to Regulation 14A or be included in an amendment to this Report.
Item 11. Executive Compensation
The information required by this item iswill be incorporated by reference to thefrom our definitive Proxy Statement for our 2017 Annual Meeting of Stockholders, which willto be filed with the SEC no later than 120 days after December 31, 2016.pursuant to Regulation 14A or to be included in an amendment to this Report.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item iswill be incorporated by reference to thefrom our definitive Proxy Statement for our 2017 Annual Meeting of Stockholders, which willto be filed with the SEC no later than 120 days after December 31, 2016.pursuant to Regulation 14A or to be included in an amendment to this Report.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item iswill be incorporated by reference to thefrom our definitive Proxy Statement for our 2017 Annual Meeting of Stockholders, which willto be filed with the SEC no later than 120 days after December 31, 2016.pursuant to Regulation 14A or to be included in an amendment to this Report.
Item 14. Principal Accounting Fees and Services
The information required by this item iswill be incorporated by reference to thefrom our definitive Proxy Statement for our 2017 Annual Meeting of Stockholders, which willto be filed with the SEC no later than 120 days after December 31, 2016.pursuant to Regulation 14A or to be included in an amendment to this Report.
PART IV.
Item 15. Exhibits, Financial Statement Schedules
(a) Documents filed as a part of this Form 10-K:10-K
1. Financial Statements
The following financial statements are included in Part II, Item 8 of this Form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statement of Stockholders’ Equity
Notes to the Consolidated Financial Statements
2. Financial Statement Schedules
All other schedules have been omitted because they are not required, not applicable, or the required information is otherwise included.
3. Exhibits
See the Exhibit Index to Exhibits immediately following the signature page“Item 16. Form 10-K Summary” of this Form 10-K.
Item 16. Form 10–K Summary
None.
INDEX TO EXHIBITS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | | | | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
2.1 | | | | 8-K | | 10/3/2012 | | 2.1 | | | |
2.2 | | | | 8-K | | 12/7/2012 | | 2.1 | | | |
2.3 | | | | 8-K | | 4/15/2013 | | 2.1 | | | |
2.4 | | Business Combination Agreement, dated as of April 29, 2018, by and among T-Mobile US, Inc., Huron Merger Sub LLC, Superior Merger Sub Corporation, Sprint Corporation, Starburst I, Inc., Galaxy Investment Holdings, Inc., and for the limited purposes set forth therein, Deutsche Telekom AG, Deutsche Telekom Holding B.V. and SoftBank Group Corp. | | 8-K | | 04/30/2018 | | 2.1 | | |
2.5 | | Amendment No. 1, dated as of July 26, 2019, to the Business Combination Agreement, dated as of April 29, 2018, by and among T-Mobile US, Inc., Huron Merger Sub LLC, Superior Merger Sub Corporation, Sprint Corporation, Starburst I, Inc., Galaxy Investment Holdings, Inc., and for the limited purposes set forth therein, Deutsche Telekom AG, Deutsche Telekom Holding B.V., and SoftBank Group Corp. | | 8-K | | 7/26/2019 | | 2.2 | | |
2.6 | | | | 8-K | | 7/26/2019 | | 2.1 | | |
3.1 | | | | 8-K | | 5/2/2013 | | 3.1 | | | |
3.2 | | | | 8-K | | 5/2/2013 | | 3.2 | | | |
3.3 | | | | 8-K | | 10/11/2019 | | 3.1 | | | |
3.4 | | | | 8-K | | 12/15/2014 | | 3.1 | | | |
3.5 | |
| | 8-K | | 2/22/2018 | | 3.1 | | | |
4.1 | | | | 8-K | | 5/2/2013 | | 4.1 | | |
4.2 | | | | 8-K | | 5/2/2013 | | 4.12 | | | |
4.3 | | | | 8-K | | 11/22/2013 | | 4.1 | | | |
4.4 | | | | 8-K | | 11/22/2013 | | 4.2 | | | |
4.5 | | | | 10-Q | | 10/28/2014 | | 4.3 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | | | | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
4.6 | | | | 8-K | | 9/5/2014 | | 4.1 | | | |
4.7 | | | | 8-K | | 9/5/2014 | | 4.2 | | | |
4.8 | | | | 10-Q | | 10/27/2015 | | 4.3 | | | |
4.9 | | | | 8-K | | 11/5/2015 | | 4.1 | | | |
4.10 | | | | 8-K | | 4/1/2016 | | 4.1 | | | |
4.11 | | | | 8-K | | 3/16/2017 | | 4.1 | | | |
4.12 | | | | 8-K | | 3/16/2017 | | 4.2 | | | |
4.13 | | | | 8-K | | 3/16/2017 | | 4.3 | | | |
4.14 | | | | 8-K | | 4/28/2017 | | 4.1 | | | |
4.15 | | | | 8-K | | 4/28/2017 | | 4.2 | | | |
4.16 | | | | 8-K | | 4/28/2017 | | 4.3 | | | |
4.17 | | | | 8-K | | 5/9/2017 | | 4.1 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | | | | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
4.18 | | | | 8-K | | 5/9/2017 | | 4.2 | | | |
4.19 | | | | 8-K | | 1/25/2018 | | 4.1 | | | |
4.20 | | | | 8-K | | 1/25/2018 | | 4.2 | | | |
4.21 | | | | 8-K | | 5/2/2013 | | 4.13 | | | |
4.22 | | | | 10-Q | | 5/1/2018 | | 4.5 | | |
4.23 | | | | 8-K | | 5/4/2018 | | 4.1 | | |
4.24 | | | | 8-K | | 5/4/2018 | | 4.2 | | |
4.25 | | | | 8-K | | 5/21/2018 | | 4.1 | | |
4.26 | | | | 8-K | | 12/21/2018 | | 4.1 | | | |
4.27 | | | | 10-K | | 2/7/2019 | | 4.41 | | |
4.28 | | | | 10-Q | | 10/28/2019 | | 4.1 | | | |
4.29 | | | | | | | | | | X |
10.1 | | | | 10-Q | | 8/8/2013 | | 10.1 | | | |
10.2 | | | | 10-Q | | 8/8/2013 | | 10.2 | | | |
10.3 | | | | 10-K | | 2/7/2019 | | 10.3 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | | | | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
10.4 | | | | 10-Q | | 8/8/2013 | | 10.3 | | | |
10.5 | | MPL Site Master Lease Agreement, dated as of November 30, 2012, by and among Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc. and CCTMO LLC. | | 10-Q | | 8/8/2013 | | 10.4 | | | |
10.6 | | First Amendment, dated as of November 30, 2012, to MPL Site Master Lease Agreement, dated as of November 30, 2012, by and among Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc. and CCTMO LLC. | | 10-Q | | 8/8/2013 | | 10.5 | | | |
10.7 | | Second Amendment, dated as of October 31, 2014, to MPL Site Master Lease Agreement, dated as of November 30, 2012, by and among Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc.
| | 10-K | | 2/7/2019 | | 10.7 | | |
10.8 | | Sale Site Master Lease Agreement, dated as of November 30, 2012, by and among Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc., T3 Tower 1 LLC and T3 Tower 2 LLC. | | 10-Q | | 8/8/2013 | | 10.6 | | | |
10.9 | | First Amendment, dated as of November 30, 2012, to Sale Site Master Lease Agreement, dated as of November 30, 2012, by and Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc., T3 Tower 1 LLC and T3 Tower 2 LLC. | | 10-Q | | 8/8/2013 | | 10.7 | | | |
10.10 | | Second Amendment, dated as of October 31, 2014, to Sale Site Master Lease Agreement, dated as of November 30, 2012, by and Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc., T3 Tower 1 LLC and T3 Tower 2 LLC. | | 10-K | | 2/7/2019 | | 10.10 | | |
10.11 | | | | 10-K | | 2/7/2019 | | 10.11 | | |
10.12 | | Management Agreement, dated as of November 30, 2012, by and among Suncom Wireless Operating Company, L.L.C., Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Property Company, L.L.C., T-Mobile USA Tower LLC, T-Mobile West Tower LLC, CCTMO LLC, T3 Tower 1 LLC and T3 Tower 2 LLC. | | 10-Q | | 8/8/2013 | | 10.8 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | | | | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
10.13 | | | | 8-K | | 5/2/2013 | | 10.1 | | | |
10.14 | | | | 10-Q | | 8/8/2013 | | 10.10 | | | |
10.15 | | | | 8-K | | 5/2/2013 | | 10.2 | | | |
10.16 | | | | 10-Q | | 7/26/2019 | | 10.5 | | | |
10.17 | | | | 8-K | | 3/4/2014 | | 10.1 | | | |
10.18 | | Joinder and First Amendment to the Receivables Sale and Conveyancing Agreement, dated as of November 28, 2014, among Powertel/Memphis, Inc., Triton PCS Holdings Company L.L.C., T-Mobile West LLC, T-Mobile Central LLC, T-Mobile Northeast LLC and T-Mobile South LLC, as sellers, and T-Mobile PCS Holdings LLC, as purchaser. | | 10-K | | 2/19/2015 | | 10.55 | | | |
10.19 | | Joinder and Second Amendment to the Receivables Sale and Conveyancing Agreement, dated as of January 9, 2015, among SunCom Wireless Operating Company, LLC, Powertel/Memphis, Inc., Triton PCS Holdings Company L.L.C., T-Mobile West LLC, T-Mobile Central LLC, T-Mobile Northeast LLC and T-Mobile South LLC, as sellers, and T-Mobile PCS Holdings LLC, as purchaser. | | 10-Q | | 4/28/2015 | | 10.5 | | | |
10.20 | | | | 8-K | | 3/4/2014 | | 10.2 | | | |
10.21 | | | | 10-K | | 2/19/2015 | | 10.56 | | | |
10.22 | | | | 10-Q | | 4/28/2015 | | 10.6 | | | |
10.23 | | | | 10-K | | 2/14/2017 | | 10.33 | | | |
10.24 | | | | 10-Q | | 7/20/2017 | | 10.1 | | | |
10.25 | | Fourth Amended and Restated Master Receivables Purchase Agreement, dated as of February 26, 2019, among T-Mobile Funding LLC, as funding seller, Billing Gate One LLC, as purchaser, Landesbank Hessen-Thüringen Giroznetrale, as bank purchasing agent, MUFG Bank (Europe) N.V., Germany Branch, as bank collection agent, T-Mobile PCS Holdings LLC, as servicer, and T-Mobile US, Inc. and T-Mobile USA, Inc., as performance guarantors. | | 8-K | | 3/4/2019 | | 10.1 | | | |
10.26 | | | | 8-K | | 11/12/2015 | | 10.1 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | | | | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
10.27 | | | | 10-Q | | 4/24/2017 | | 10.3 | | | |
10.28 | | | | 10-Q | | 4/24/2017 | | 10.4 | | | |
10.29 | | | | 10-Q | | 4/24/2017 | | 10.5 | | | |
10.30 | | | | 8-K | | 7/27/2017 | | 10.1 | | | |
10.31 | | | | 8-K | | 3/30/2018 | | 10.1 | | | |
10.32 | | First Incremental Facility Amendment, dated as of December 29, 2016, to the Term Loan Credit Agreement, dated as of November 9, 2015, by and among T-Mobile USA, Inc., the guarantors party thereto, the several banks and other financial institutions or entities from time to time parties thereto as lenders, and Deutsche Bank AG New York Branch, as administrative agent. | | 8-K | | 12/30/2016 | | 10.3 | | | |
10.33 | | Second Incremental Facility Amendment, dated as of January 25, 2017, to the Term Loan Credit Agreement, dated as of November 9, 2015, as amended by that certain First Incremental Facility Amendment dated as of December 29, 2016, by and among T-Mobile USA, Inc., the guarantors party thereto, the several banks and other financial institutions or entities from time to time parties thereto as lenders, and Deutsche Bank AG New York Branch, as administrative agent. | | 8-K | | 1/25/2017 | | 10.1 | | | |
10.34 | |
| | 10-Q | | 10/30/2018 | | 10.2 | | | |
10.35 | | Third Amended and Restated Receivables Purchase and Administration Agreement, dated as of October 23, 2018, by and among T-Mobile Handset Funding LLC, as transferor, T-Mobile Financial LLC, as servicer, T-Mobile US, Inc., as performance guarantor, Royal Bank of Canada, as administrative agent, and certain financial institutions party thereto. | | 10-Q | | 10/30/2018 | | 10.1 | | | |
10.36 | | First Amendment, dated as of December 21, 2018, to Third Amended and Restated Receivables Purchase and Administration Agreement, dated as of October 23, 2018, by and among T-Mobile Handset Funding LLC, as transferor, T-Mobile Financial LLC, as servicer, T-Mobile US, Inc., as performance guarantor, Royal Bank of Canada, as administrative agent, and certain financial institutions party thereto | | 10-K | | 2/7/2019 | | 10.45 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | | | | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
10.37 | | | | 8-K | | 3/7/2016 | | 1.1 | | | |
10.38 | | | | 8-K | | 11/2/2016 | | 10.1 | | | |
10.39 | | | | 8-K | | 4/26/2016 | | 1.1 | | | |
10.40 | | | | 8-K | | 11/2/2016 | | 10.2 | | | |
10.41 | | | | 8-K | | 4/29/2016 | | 1.1 | | | |
10.42 | | | | 8-K | | 11/2/2016 | | 10.3 | | | |
10.43 | | | | 8-K | | 3/16/2017 | | 10.1 | | | |
10.44 | | | | 8-K | | 1/25/2018 | | 10.1 | | | |
10.45 | | | | 8-K | | 12/30/2016 | | 10.1 | | | |
10.46 | | Amendment No. 1, dated as of March 29, 2018, to the Unsecured Revolving Credit Agreement, dated as of December 29, 2016, among T-Mobile USA, Inc., T-Mobile US, Inc., the other guarantors party thereto and Deutsche Telekom AG, as administrative agent and lender. | | 8-K | | 3/30/2018 | | 10.3 | | | |
10.47 | | | | 8-K | | 12/30/2016 | | 10.2 | | | |
10.48 | | Amendment No. 1, dated as of March 29, 2018, to the Secured Revolving Credit Agreement, dated as of December 29, 2016, among T-Mobile USA, Inc., T-Mobile US, Inc., the other guarantors party thereto and Deutsche Telekom AG, as administrative agent and lender. | | 8-K | | 3/30/2018 | | 10.2 | | | |
10.49* | | | | S-1/A | | 2/27/2007 | | 10.1(a) | | |
10.50* | | | | Schedule 14A | | 4/19/2010 | | Annex A | | |
10.51* | | | | 10-Q | | 8/9/2010 | | 10.2 | | | |
10.52* | | | | 10-Q | | 10/30/2012 | | 10.1 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | | | | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
10.53* | | | | 10-K | | 3/1/2013 | | 10.9(a) | | | |
10.54* | | | | 10-K | | 2/29/2012 | | 10.12 | | | |
10.55* | | | | 10-K | | 2/8/2018 | | 10.69 | | |
10.56* | |
| | 10-Q | | 5/1/2018 | | 10.12 | | | |
10.57* | | | | 10-Q | | 10/28/2019 | | 10.1 | | | |
10.58* | | | | | | | | | | | X |
10.59* | | | | 10-Q | | 4/24/2017 | | 10.7 | | | |
10.60* | | | | 10-Q | | 5/1/2018 | | 10.10 | | | |
10.61* | | | | | | | | | | X |
10.62* | | | | 10-Q | | 7/26/2019 | | 10.1 | | |
10.63* | | | | 10-Q | | 7/26/2019 | | 10.2 | | |
10.64* | | | | 10-Q | | 7/26/2019 | | 10.3 | | |
10.65* | | | | | | | | | | X |
10.66* | | | | 10-Q | | 5/1/2018 | | 10.9 | | |
10.67* | | | | 10-K | | 2/8/2018 | | 10.76 | | |
10.68* | | | | 10-K | | 2/25/2014 | | 10.39 | | | |
10.69* | |
| | 10-K | | 2/7/2019 | | 10.75 | | |
10.70* | | | | 8-K | | 10/25/2013 | | 10.1 | | | |
10.71* | | | | 10-Q | | 8/8/2013 | | 10.20 | | | |
10.72* | | | | Schedule 14A | | 4/26/2018 | | Annex A | | | |
10.73* | | | | 10-Q | | 8/8/2013 | | 10.21 | | | |
10.74* | | | | | | | | | | | X |
10.75* | | | | 8-K | | 6/4/2013 | | 10.2 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | | | | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
10.76* | | | | | | | | | | | X |
10.77* | | | | | | | | | | | X |
10.78* | | | | S-8 | | 2/19/2015 | | 99.1 | | | |
10.79* | | | | 10-Q | | 7/26/2019 | | 10.4 | | | |
10.80* | | Support Agreement, dated as of April 29, 2018, by and among SoftBank Group Corp., SoftBank Group Capital Limited, Starburst I, Inc., Galaxy Investment Holdings, Inc., T-Mobile US, Inc., and Deutsche Telekom AG. | | 8-K | | 04/30/2018 | | 10.1 | | | |
10.81 | | | | 8-K | | 9/9/2019 | | 10.1 | | | |
10.82 | | | | 8-K | | 04/30/2018 | | 10.3 | | | |
21.1 | | | | | | | | | | X |
23.1 | | | | | | | | | | X |
24.1 | | | | | | | | | | |
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 Document. | | | | | | | | X |
104 | | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).
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* | | Indicates a management contract or compensatory plan or arrangement. |
** | | Furnished herein. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | | | | | | | |
| | T-MOBILE US, INC. | |
| | | |
February 14, 20176, 2020 | | /s/ John J. Legere | |
| | John J. Legere President and Chief Executive Officer
| |
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints John J. Legere, and J. Braxton Carter and David A. Miller, and each or eitherany of them, his or her true and lawful attorney-in-fact and agent, each acting alone, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments or supplements (including post-effective amendments) to this Report, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of February 14, 2017.6, 2020.
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| | |
Signature | | Title |
| | |
/s/ John J. Legere | | President and Chief Executive Officer and |
John J. Legere | | Director (Principal Executive Officer) |
|
| | |
| | |
/s/ J. Braxton Carter | | Executive Vice President and Chief Financial Officer |
J. Braxton Carter | | (Principal Financial Officer) |
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| | |
| | |
/s/ Peter Osvaldik | | Senior Vice President, Finance and Chief Accounting |
Peter Osvaldik | | Officer (Principal Accounting Officer) |
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| | |
| | |
/s/ Timotheus Höttges | | Chairman of the Board |
Timotheus Höttges | | |
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| | |
| | |
/s/ W. Michael Barnes | | Director |
W. Michael Barnes | | |
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| | |
| | |
/s/ Thomas Dannenfeldt | | Director |
Thomas Dannenfeldt | | |
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| | |
| | |
/s/ Srikant Datar | | Director |
Srikant Datar | | |
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| | |
| | |
/s/ Lawrence H. Guffey | | Director |
Lawrence H. Guffey | | |
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| | |
| | |
/s/ Bruno Jacobfeuerborn | | Director |
Bruno Jacobfeuerborn | | |
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| | |
| | |
/s/ Raphael Kübler | | Director |
Raphael Kübler | | |
|
| | |
| | |
/s/ Thorsten Langheim | | Director |
Thorsten Langheim | | |
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| | |
| | |
/s/ Teresa A. Taylor | | Director |
Teresa A. Taylor | | |
|
| | |
| | |
/s/ Kelvin R. Westbrook | | Director |
Kelvin R. Westbrook | | |
INDEX TO EXHIBITS
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| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
2.1 | | Business Combination Agreement, dated as of October 3, 2012, by and among MetroPCS Communications, Inc., Deutsche Telekom AG, T-Mobile Zwischenholding GMBH, T-Mobile Global Holding GMBH and T-Mobile USA, Inc. | | 8-K | | 10/3/2012 | | 2.1 | |
|
2.2 | | Consent Solicitation Letter Agreement, dated December 5, 2012, by and among MetroPCS Communications, Inc. and Deutsche Telekom AG, amending Exhibit G to the Business Combination Agreement. | | 8-K | | 12/7/2012 | | 2.1 | |
|
2.3 | | Amendment No. 1 to the Business Combination Agreement by and among Deutsche Telekom AG, T-Mobile USA, Inc., T-Mobile Global Zwischenholding GmbH, T-Mobile Global Holding GmbH and MetroPCS Communications, Inc., dated April 14, 2013. | | 8-K | | 4/15/2013 | | 2.1 | |
|
3.1 | | Fourth Amended and Restated Certificate of Incorporation. | | 8-K | | 5/2/2013 | | 3.1 | |
|
3.2 | | Fifth Amended and Restated Bylaws. | | 8-K | | 5/2/2013 | | 3.2 | |
|
3.3 | | Certificate of Designation of 5.50% Mandatory Convertible Preferred Stock, Series A, of T-Mobile US, Inc., dated December 12, 2014. | | 8-K | | 12/15/2014 | | 3.1 | |
|
4.1 | | Rights Agreement, dated as of March 29, 2007, between MetroPCS Communications, Inc. and American Stock Transfer & Trust Company, as Rights Agent, which includes the form of Certificate of Designation of Series A Junior Participating Preferred Stock of MetroPCS Communications, Inc. as Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights as Exhibit C. | | 8-K | | 3/30/2007 | | 4.1 | |
|
4.2 | | Amendment No. 1 to the Rights Agreement, dated as of October 3, 2012 between MetroPCS Communications, Inc. and American Stock Transfer & Trust Company, as Rights Agent. | | 8-K | | 10/3/2012 | | 4.1 | |
|
4.3 | | Indenture, dated September 21, 2010, among MetroPCS Wireless, Inc., the Guarantors (as defined therein) and Wells Fargo Bank, N.A., a trustee. | | 8-K | | 9/21/2010 | | 4.1 | |
|
4.4 | | First Supplemental Indenture, dated September 21, 2010, among MetroPCS Wireless, Inc., the Guarantors (as defined therein) and Wells Fargo Bank, N.A., as trustee. | | 8-K | | 9/21/2010 | | 4.2 | |
|
4.5 | | Second Supplemental Indenture, dated November 17, 2010, among MetroPCS Wireless, Inc., the Guarantors (as defined therein) and Wells Fargo Bank, N.A., as trustee. | | 8-K | | 11/17/2010 | | 4.1 | |
|
4.6 | | Third Supplemental Indenture, dated December 23, 2010, among MetroPCS Wireless, Inc., the Guarantors (as defined therein) and Wells Fargo Bank, N.A., as trustee. | | 10-K | | 3/1/2011 | | 10.19(d) | |
|
4.7 | | Fourth Supplemental Indenture, dated December 23, 2010, among MetroPCS Wireless, Inc., the Guarantors (as defined therein) and Wells Fargo Bank, N.A., as trustee. | | 10-K | | 3/1/2011 | | 10.19(e) | |
|
4.8 | | Fifth Supplemental Indenture, dated as of December 14, 2012, among MetroPCS Wireless, Inc., the Guarantors (as defined therein) and Wells Fargo Bank, N.A., as trustee. | | 8-K | | 12/17/2012 | | 4.1 | |
|
4.9 | | Sixth Supplemental Indenture, dated as of December 14, 2012, among MetroPCS Wireless, Inc., the Guarantors (as defined therein) and Wells Fargo Bank, N.A., as trustee. | | 8-K | | 12/17/2012 | | 4.2 | |
|
4.10 | | Seventh Supplemental Indenture, dated as of May 1, 2013, among T-Mobile USA, Inc., the guarantors party thereto, and Wells Fargo Bank, N.A., as trustee. | | 8-K | | 5/2/2013 | | 4.15 | |
|
4.11 | | Eighth Supplemental Indenture, dated as of July 15, 2013, among T-Mobile USA, Inc., the guarantors party thereto, and Wells Fargo Bank, N.A., as trustee. | | 10-Q | | 8/8/2013 | | 4.19 | |
|
|
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
4.12 | | Ninth Supplemental Indenture, dated as of August 11, 2014, by and among T-Mobile USA, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee. | | 10-Q | | 10/28/2014 | | 4.2 | |
|
4.13 | | Tenth Supplemental Indenture, dated as of September 28, 2015, by and among T-Mobile USA, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee. | | 10-Q | | 10/27/2015 | | 4.2 | |
|
4.14 | | Eleventh Supplemental Indenture, dated as of August 11, 2014, by and among T-Mobile USA, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee. | | 10-Q | | 10/24/2016 | | 4.1 | |
|
4.15 | | Indenture, dated as of March 19, 2013, by and among MetroPCS Wireless, Inc., the Guarantors (as defined therein) and Deutsche Bank Trust Company Americas, as trustee. | | 8-K | | 3/22/2013 | | 4.1 | |
|
4.16 | | First Supplemental Indenture, dated as of March 19, 2013, by and among MetroPCS Wireless, Inc., the Guarantors (as defined therein) and Deutsche Bank Trust Company Americas, as trustee. | | 8-K | | 3/22/2013 | | 4.2 | |
|
4.17 | | Form of 6.250% Senior Notes due 2021. | | 8-K | | 3/22/2013 | | 4.3 | |
|
4.18 | | Second Supplemental Indenture, dated as of March 19, 2013, by and among MetroPCS Wireless, Inc., the Guarantors (as defined therein) and Deutsche Bank Trust Company Americas, as trustee. | | 8-K | | 3/22/2013 | | 4.4 | |
|
4.19 | | Form of 6.625% Senior Notes due 2023. | | 8-K | | 3/22/2013 | | 4.5 | |
|
4.20 | | Third Supplemental Indenture, dated as of April 29, 2013, among T-Mobile USA, Inc., the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. | | 10-Q | | 8/8/2013 | | 4.17 | |
|
4.21 | | Fourth Supplemental Indenture, dated as of May 1, 2013, among T-Mobile USA, Inc., the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. | | 8-K | | 5/2/2013 | | 4.16 | |
|
4.22 | | Fifth Supplemental Indenture, dated as of July 15, 2013, among T-Mobile USA, Inc., the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. | | 10-Q | | 8/8/2013 | | 4.20 | |
|
4.23 | | Sixth Supplemental Indenture, dated as of August 11, 2014, by and among T-Mobile USA, Inc., the guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee. | | 10-Q | | 10/28/2014 | | 4.1 | |
|
4.24 | | Seventh Supplemental Indenture, dated as of September 28, 2015, by and among T-Mobile USA, Inc., the guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee. | | 10-Q | | 10/27/2015 | | 4.1 | |
|
4.25 | | Eighth Supplemental Indenture, dated as of August 30, 2016, by and among T-Mobile USA, Inc., the other guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. | | 10-Q | | 10/24/2016 | | 4.20 | |
|
4.26 | | Indenture, dated as of April 28, 2013 among T-Mobile USA, Inc., the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. | | 8-K | | 5/2/2013 | | 4.10 | |
|
4.27 | | First Supplemental Indenture, dated as of April 28, 2013 among T-Mobile USA, Inc., the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. | | 8-K | | 5/2/2013 | | 4.2 | |
|
4.28 | | Second Supplemental Indenture, dated as of April 28, 2013 among T-Mobile USA, Inc., the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. | | 8-K | | 5/2/2013 | | 4.3 | |
|
4.29 | | Third Supplemental Indenture, dated as of April 28, 2013 among T-Mobile USA, Inc., the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. | | 8-K | | 5/2/2013 | | 4.4 | |
|
4.30 | | Fourth Supplemental Indenture, dated as of April 28, 2013 among T-Mobile USA, Inc., the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. | | 8-K | | 5/2/2013 | | 4.5 | |
|
|
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
4.31 | | Fifth Supplemental Indenture, dated as of April 28, 2013 among T-Mobile USA, Inc., the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. | | 8-K | | 5/2/2013 | | 4.6 | |
|
4.32 | | Sixth Supplemental Indenture, dated as of April 28, 2013 among T-Mobile USA, Inc., the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. | | 8-K | | 5/2/2013 | | 4.7 | |
|
4.33 | | Seventh Supplemental Indenture, dated as of April 28, 2013 among T-Mobile USA, Inc., the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. | | 8-K | | 5/2/2013 | | 4.8 | |
|
4.34 | | Eighth Supplemental Indenture, dated as of April 28, 2013 among T-Mobile USA, Inc., the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. | | 8-K | | 5/2/2013 | | 4.9 | |
|
4.35 | | Ninth Supplemental Indenture, dated as of April 28, 2013 among T-Mobile USA, Inc., the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. | | 8-K | | 5/2/2013 | | 4.10 | |
|
4.36 | | Tenth Supplemental Indenture, dated as of April 28, 2013 among T-Mobile USA, Inc., the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. | | 8-K | | 5/2/2013 | | 4.11 | |
|
4.37 | | Eleventh Supplemental Indenture, dated as of May 1, 2013 among T-Mobile USA, Inc., the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. | | 8-K | | 5/2/2013 | | 4.12 | |
|
4.38 | | Twelfth Supplemental Indenture, dated as of July 15, 2013, among T-Mobile USA, Inc., the guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee. | | 10-Q | | 8/8/2013 | | 4.18 | |
|
4.39 | | Thirteenth Supplemental Indenture, dated as of August 21, 2013, by and among T-Mobile USA, Inc., the Guarantors (as defined therein) and Deutsche Bank Trust Company Americas, as trustee, including the Form of 5.250% Senior Note due 2018. | | 8-K | | 8/22/2013 | | 4.1 | |
|
4.40 | | Fourteenth Supplemental Indenture, dated as of November 21, 2013, by and among T-Mobile USA, Inc., the Guarantors and Deutsche Bank Trust Company Americas, as trustee, including the Form of 6.125% Senior Note due 2022. | | 8-K | | 11/22/2013 | | 4.1 | |
|
4.41 | | Fifteenth Supplemental Indenture, dated as of November 21, 2013, by and among T-Mobile USA, Inc., the Guarantors and Deutsche Bank Trust Company Americas, as trustee, including the Form of 6.500% Senior Note due 2024. | | 8-K | | 11/22/2013 | | 4.2 | |
|
4.42 | | Sixteenth Supplemental Indenture, dated as of August 11, 2014, by and among T-Mobile USA, Inc., the guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee. | | 10-Q | | 10/28/2014 | | 4.3 | |
|
4.43 | | Seventeenth Supplemental Indenture, dated as of September 5, 2014, by and among T-Mobile USA, Inc., the guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee, including the Form of 6.000% Senior Notes due 2023. | | 8-K | | 9/5/2014 | | 4.1 | |
|
4.44 | | Eighteenth Supplemental Indenture, dated as of September 5, 2014, by and among T-Mobile USA, Inc., the guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee, including the Form of 6.375% Senior Notes due 2025. | | 8-K | | 9/5/2014 | | 4.2 | |
|
4.45 | | Nineteenth Supplemental Indenture, dated as of September 28, 2015, by and among T-Mobile USA, Inc., the guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee. | | 10-Q | | 10/27/2015 | | 4.3 | |
|
4.46 | | Twentieth Supplemental Indenture, dated as of November 5, 2015, by and among T-Mobile USA, Inc., the guarantors party thereto and Deutsche Bank Trust Company Americas, as Trustee, including the Form of 6.500% Senior Notes due 2026. | | 8-K | | 11/5/2015 | | 4.1 | |
|
4.47 | | Twenty-First Supplemental Indenture, dated as of November 5, 2015, by and among T-Mobile USA, Inc., the guarantors party thereto and Deutsche Bank Trust Company Americas, as Trustee, including the Form of 6.000% Senior Notes due 2024. | | 8-K | | 4/1/2016 | | 4.1 | |
|
|
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
4.48 | | Twenty-Second Supplemental Indenture, dated as of August 30, 2016, by and among T-Mobile USA, Inc., T-Mobile US, Inc., the other guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee. | | 10-Q | | 10/24/2016 | | 4.3 | |
|
4.49 | | Noteholder Agreement dated as of April 28, 2013, by and between Deutsche Telekom AG and T-Mobile USA, Inc. | | 8-K | | 5/2/2013 | | 4.13 | |
|
10.1 | | Master Agreement, dated as of September 28, 2012, among T-Mobile USA, Inc., Crown Castle International Corp., and certain T-Mobile and Crown subsidiaries. | | 10-Q | | 8/8/2013 | | 10.1 | |
|
10.2 | | Amendment No. 1, to Master Agreement, dated as of November 30, 2012, among Crown Castle International Corp., and certain T-Mobile and Crown subsidiaries. | | 10-Q | | 8/8/2013 | | 10.2 | |
|
10.3 | | Master Prepaid Lease, dated as of November 30, 2012, by and among T-Mobile USA Tower LLC, T-Mobile West Tower LLC, T-Mobile USA, Inc. and CCTMO LLC. | | 10-Q | | 8/8/2013 | | 10.3 | |
|
10.4 | | MPL Site Master Lease Agreement, dated as of November 30, 2012, by and among Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc. and CCTMO LLC. | | 10-Q | | 8/8/2013 | | 10.4 | |
|
10.5 | | First Amendment to MPL Site Master Lease Agreement, dated as of November 30, 2012, by and among Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc. and CCTMO LLC. | | 10-Q | | 8/8/2013 | | 10.5 | |
|
10.6 | | Sale Site Master Lease Agreement, dated as of November 30, 2012, by and among Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc., T3 Tower 1 LLC and T3 Tower 2 LLC. | | 10-Q | | 8/8/2013 | | 10.6 | |
|
10.7 | | First Amendment to Sale Site Master Lease Agreement, dated as of November 30, 2012, by and Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Operating Company, L.L.C., T-Mobile USA, Inc., T3 Tower 1 LLC and T3 Tower 2 LLC. | | 10-Q | | 8/8/2013 | | 10.7 | |
|
10.8 | | Management Agreement, dated as of November 30, 2012, by and among Suncom Wireless Operating Company, L.L.C., Cook Inlet/VS GSM IV PCS Holdings, LLC, T-Mobile Central LLC, T-Mobile South LLC, Powertel/Memphis, Inc., Voicestream Pittsburgh, L.P., T-Mobile West LLC, T-Mobile Northeast LLC, Wireless Alliance, LLC, Suncom Wireless Property Company, L.L.C., T-Mobile USA Tower LLC, T-Mobile West Tower LLC, CCTMO LLC, T3 Tower 1 LLC and T3 Tower 2 LLC. | | 10-Q | | 8/8/2013 | | 10.8 | |
|
10.9 | | Stockholder’s Agreement dated as of April 30, 2013 by and between MetroPCS Communications, Inc. and Deutsche Telekom AG. | | 8-K | | 5/2/2013 | | 10.1 | |
|
10.10 | | Waiver of Required Approval Under Section 3.6(a) of the Stockholder's Agreement, dated August 7, 2013, between T-Mobile US, Inc. and Deutsche Telekom AG. | | 10-Q | | 8/8/2013 | | 10.10 | |
|
10.11 | | License Agreement dated as of April 30, 2013 by and between T-Mobile US, Inc. and Deutsche Telekom AG. | | 8-K | | 5/2/2013 | | 10.2 | |
|
|
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
10.12 | | Credit Agreement, dated as of May 1, 2013, among T-Mobile USA, Inc., as Borrower, Deutsche Telekom AG, as Lender, the other lenders party thereto from time to time, and JPMorgan Chase Bank, N.A., as Administrative Agent. | | 8-K | | 5/2/2013 | | 4.14 | |
|
10.13 | | Amendment No. 1, dated as of November 15, 2013, to the Credit Agreement, dated May 1, 2013, among T-Mobile US, Inc., T-Mobile USA, Inc., each of the Subsidiaries signatory thereto, Deutsche Telekom AG and the other lenders party thereto from time to time, and JPMorgan Chase Bank, N.A., as Administrative Agent. | | 8-K | | 11/20/2013 | | 10.1 | |
|
10.14 | | Amendment No. 2, dated as of September 3, 2014, to the Credit Agreement, dated as of May 1, 2013, among T-Mobile USA, Inc., Deutsche Telekom AG and the other lenders party thereto from time to time, and JPMorgan Chase Bank, N.A., as Administrative Agent. | | 8-K | | 9/5/2014 | | 10.1 | |
|
10.15 | | Amendment No. 3, dated as of November 2, 2015, to the Credit Agreement, dated as of May 1, 2013, among T-Mobile USA, Inc., Deutsche Telekom AG and the other lenders party thereto from time to time, and JPMorgan Chase Bank N.A., as Administrative Agent. | | 8-K | | 11/5/2015 | | 10.2 | |
|
10.16 | | Registration Rights Agreement, dated as of March 19, 2013, by and among MetroPCS Wireless, Inc., the Initial Guarantors (as defined therein), and Deutsche Bank Securities, as representative of the Initial Purchasers (as defined therein). | | 8-K | | 3/22/2013 | | 10.1 | |
|
10.17 | | Registration Rights Agreement, dated as of August 21, 2013, by and among T-Mobile USA, Inc., the Guarantors (as defined therein), and Deutsche Bank Securities Inc., as Initial Purchaser (as defined therein). | | 8-K | | 8/21/2013 | | 10.1 | |
|
10.18 | | License Exchange Agreement, dated January 5, 2014, among T-Mobile USA, Inc., T-Mobile License LLC, Cellco Partnership d/b/a Verizon Wireless, Verizon Wireless (VAW) LLC, Athens Cellular, Inc. and Verizon Wireless of the East LP. | | 8-K | | 1/6/2014 | | 10.1 | |
|
10.19 | | License Purchase Agreement, dated January 5, 2014, among T-Mobile USA, Inc., T-Mobile License LLC and Cellco Partnership d/b/a Verizon Wireless. | | 8-K | | 1/6/2014 | | 10.2 | |
|
10.20 | | Receivables Sale and Conveyancing Agreement, dated as of February 26, 2014, among T-Mobile West LLC, T-Mobile Central LLC, T-Mobile Northeast LLC and T-Mobile South LLC, as sellers, and T-Mobile PCS Holdings LLC, as purchaser. | | 8-K | | 3/4/2014 | | 10.1 | |
|
10.21 | | Receivables Sale and Contribution Agreement, dated as of February 26, 2014, between T-Mobile PCS Holdings LLC, as seller, and T-Mobile Airtime Funding LLC, as purchaser. | | 8-K | | 3/4/2014 | | 10.2 | |
|
10.22 | | Master Receivables Purchase Agreement, dated as of February 26, 2014, among T-Mobile Airtime Funding LLC, as funding seller, Billing Gate One LLC, as purchaser, Landesbank Hessen-Thüringen Girozentrale, as bank purchasing agent, T-Mobile PCS Holdings LLC, as servicer, and T-Mobile US, Inc., as performance guarantor. | | 8-K | | 3/4/2014 | | 10.3 | |
|
10.23 | | Omnibus Amendment to the Master Receivables Purchase Agreement and Fee Letter, dated as of April 11, 2014, by and among T-Mobile Airtime Funding LLC, as funding seller, Billing Gate One LLC, as purchaser, Landesbank Hessen-Thüringen Girozentrale, as bank purchasing agent and a bank purchaser, T-Mobile PCS Holdings LLC, as servicer, T-Mobile US, Inc. as performance guarantor, and the Bank of Tokyo-Mitsubishi UFJ, Ltd., as a bank purchaser. | | 10-Q | | 5/1/2014 | | 10.7 | |
|
|
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
10.24 | | Second Amendment to the Master Receivables Purchase Agreement dated as of June 12, 2014, by and among T-Mobile Airtime Funding LLC, as funding seller, Billing Gate One LLC, as purchaser, Landesbank Hessen-Thüringen Girozentrale, as bank purchasing agent and a bank purchaser, T-Mobile PCS Holdings LLC, as servicer and T-Mobile US, Inc. as performance guarantor. | | 10-Q | | 7/31/2014 | | 10.2 | |
|
10.25 | | Third Amendment to the Master Receivables Purchase Agreement, dated as of September 29, 2014, by and among T-Mobile Airtime Funding LLC, as funding seller, Billing Gate One LLC, as purchaser, Landesbank Hessen-Thüringen Girozentrale, as bank purchasing agent and a bank purchaser, T-Mobile PCS Holdings LLC, as servicer and T-Mobile US, Inc. as performance guarantor. | | 10-Q | | 10/28/2014 | | 10.2 | |
|
10.26 | | Fourth Amendment to the Master Receivables Purchase Agreement, dated as of November 28, 2014, by and among T-Mobile Airtime Funding LLC, as funding seller, Billing Gate One LLC, as purchaser, Landesbank Hessen-Thüringen Girozentrale, as bank purchasing agent and a bank purchaser, T-Mobile PCS Holdings LLC, as servicer and T-Mobile US, Inc. as performance guarantor. | | 10-K | | 2/19/2015 | | 10.54 | |
|
10.27 | | Joinder and First Amendment to the Receivables Sale and Conveyancing Agreement, dated as of November 28, 2014, among Powertel/Memphis, Inc., Triton PCS Holdings Company L.L.C., T-Mobile West LLC, T-Mobile Central LLC, T-Mobile Northeast LLC and T-Mobile South LLC, as sellers, and T-Mobile PCS Holdings LLC, as purchaser. | | 10-K | | 2/19/2015 | | 10.55 | |
|
10.28 | | First Amendment to the Receivables Sale and Contribution Agreement, dated as of November 28, 2014, between T-Mobile PCS Holdings LLC, as seller, and T-Mobile Airtime Funding LLC, as purchaser. | | 10-K | | 2/19/2015 | | 10.56 | |
|
10.29 | | November 2016 Amended and Restated Guarantee Facility Agreement, dated as of December 5, 2016, among T-Mobile US, Inc., as the company, T-Mobile Airtime Funding LLC, as the funding seller, and KfW IPEX-Bank GmbH, as the bank. | |
| |
| |
| | X |
10.30 | | Fifth Amendment to the Master Receivables Purchase Agreement, dated as of January 9, 2015, by and among T-Mobile Airtime Funding LLC, as funding seller, Billing Gate One LLC, as purchaser, Landesbank Hessen-Thüringen Girozentrale, as bank purchasing agent and a bank purchaser, T-Mobile PCS Holdings LLC, as servicer and T-Mobile US, Inc. as performance guarantor. | | 10-Q | | 4/28/2015 | | 10.4 | |
|
10.31 | | Joinder and Second Amendment to the Receivables Sale and Conveyancing Agreement, dated as of January 9, 2015, among SunCom Wireless Operating Company, LLC, Powertel/Memphis, Inc., Triton PCS Holdings Company L.L.C., T-Mobile West LLC, T-Mobile Central LLC, T-Mobile Northeast LLC and T-Mobile South LLC, as sellers, and T-Mobile PCS Holdings LLC, as purchaser. | | 10-Q | | 4/28/2015 | | 10.5 | |
|
10.32 | | Second Amendment to the Receivables Sale and Contribution Agreement, dated as of January 9, 2015, by and among T-Mobile PCS Holdings LLC, as seller, and T-Mobile Airtime Funding LLC, as purchaser. | | 10-Q | | 4/28/2015 | | 10.6 | |
|
10.33 | | Third Amendment to the Receivables Sale and Contribution Agreement, dated as of November 30, 2016, by and among T-Mobile PCS Holdings LLC, as seller, and T-Mobile Airtime Funding LLC, as purchaser. | |
| |
| |
| | X |
|
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
10.34 | | October 2015 Amendment to the Master Receivables Purchase Agreement, dated as of October 30, 2015, among T-Mobile Airtime Funding LLC, as funding seller, Billing Gate One LLC, as purchaser, Landesbank Hessen-Thüringen Girozentrale, as bank purchasing agent, T-Mobile PCS Holdings LLC, as servicer, and T-Mobile US, Inc., as performance guarantor. | | 8-K | | 11/5/2015 | | 10.1 | |
|
10.35 | | First Amended and Restated Master Receivables Purchase Agreement, dated as of June 6, 2016, among T-Mobile Airtime Funding LLC, as funding seller, Billing Gate One LLC, as purchaser, Landesbank Hessen-Thüringen Girozentrale, as bank purchasing agent, the Bank of Tokyo-Mitsubishi UFJ, Ltd., Düsseldorf Branch, as bank collections agent, T-Mobile PCS Holdings LLC, as servicer, and T- Mobile US, Inc., as performance guarantor. | | 10-Q | | 7/27/2016 | | 10.5 | |
|
10.36 | | Second Amended and Restated Master Receivables Purchase Agreement, dated as of November 30, 2016, among T-Mobile Airtime Funding LLC, as funding seller, Billing Gate One LLC, as purchaser, Landesbank Hessen-Thüringen Girozentrale, as bank purchasing agent, The Bank of Tokyo Mitsubishi UFJ, Ltd., as bank collection agent, T-Mobile PCS Holdings LLC, as servicer, and T-Mobile US, Inc., as performance guarantor. | | 8-K | | 12/6/2016 | | 10.1 | |
|
10.37 | | Term Loan Credit Agreement, dated as of November 9, 2015, among T-Mobile USA, Inc., the lenders party thereto and Deutsche Bank AG New York Branch, as administrative agent and collateral agent. | | 8-K | | 11/12/2015 | | 10.1 | |
|
10.38 | | Receivables Sale Agreement, dated as of November 18, 2015, by and between T-Mobile Financial LLC, as seller, and T-Mobile Handset Funding LLC, as purchaser. | | 8-K | | 11/20/2015 | | 10.1 | |
|
10.39 | | First Amendment to the Receivables Sale Agreement, dated as of March 18, 2016, by and between T-Mobile Financial LLC, as seller, and T-Mobile Handset Funding LLC, as purchaser. | | 10-Q | | 4/26/2016 | | 10.3 | |
|
10.40 | | Amended and Restated Receivables Sale Agreement, dated as of June 6, 2016, by and between T-Mobile Financial LLC, as seller, and T-Mobile Handset Funding LLC, as purchaser. | | 8-K | | 6/8/2016 | | 10.1 | |
|
10.41 | | First Amendment, dated as of December 23, 2016, to the Amended and Restated Receivables Sale Agreement, dated as of June 6, 2016, by and between T-Mobile Financial LLC, as seller, and T-Mobile Handset Funding LLC, as purchaser. | |
| |
| |
| | X |
10.42 | | Receivables Purchase and Administration Agreement, dated as of November 18, 2015, by and among T-Mobile Handset Funding LLC, as transferor, T-Mobile Financial LLC, as servicer, T-Mobile US, Inc. as performance guarantor, Royal Bank of Canada, as administrative agent, and certain financial institutions party thereto from time to time. | | 8-K | | 11/20/2015 | | 10.2 | |
|
10.43 | | Omnibus First Amendment to the Receivables Purchase and Administration Agreement and Administrative Agent Fee Letter, dated as of March 18, 2016, by and among T-Mobile Handset Funding LLC, as transferor, T-Mobile Financial LLC, individually and as servicer, T-Mobile US, Inc., as guarantor, Royal Bank of Canada, as administrative agent, and certain financial institutions form time to time party thereto. | | 10-Q | | 4/26/2016 | | 10.2 | |
|
10.44 | | Amended and Restated Receivables Purchase and Administration Agreement, dated as of June 6, 2016, by and among T-Mobile Handset Funding LLC, as transferor, T-Mobile Financial LLC, as servicer, T-Mobile US, Inc., as performance guarantor, Royal Bank of Canada, as administrative agent, and certain financial institutions party thereto from time to time. | | 8-K | | 6/8/2016 | | 10.2 | |
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|
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
10.45 | | First Amendment, dated as of July 27, 2016, to the Amended and Restated Receivables Purchase and Administration Agreement, dated as of June 6, 2016, by and among T-Mobile Handset Funding LLC, as transferor, T-Mobile Financial LLC, as servicer, T-Mobile US, Inc., as performance guarantor, Royal Bank of Canada, as administrative agent, and certain financial institutions party thereto. | | 10-Q | | 10/24/2016 | | 10.1 | |
|
10.46 | | Second Amendment, dated as of October 31, 2016, to the Amended and Restated Receivables Purchase and Administration Agreement, dated as of June 6, 2016, by and among T-Mobile Handset Funding LLC, as transferor, T-Mobile Financial LLC, as servicer, T-Mobile US, Inc., as performance guarantor, Royal Bank of Canada, as administrative agent, and certain financial institutions party thereto. | |
| |
| |
| | X |
10.47 | | Third Amendment, dated as of December 23, 2016, to the Amended and Restated Receivables Purchase and Administration Agreement, dated as of June 6, 2016, by and among T-Mobile Handset Funding LLC, as transferor, T-Mobile Financial LLC, as servicer, T-Mobile US, Inc., as performance guarantor, Royal Bank of Canada, as administrative agent, and certain financial institutions party thereto. | |
| |
| |
| | X |
10.48 | | Purchase Agreement, dated as of March 6, 2016, among T-Mobile USA, Inc., the guarantor party thereto and Deutsche Telekom AG. | | 8-K | | 3/7/2016 | | 1.1 | |
|
10.49 | | Amendment No. 1 to Purchase Agreement, dated as of October 28, 2016, to Purchase Agreement, dated as of March 6, 2016, by and among T-Mobile USA, Inc., the guarantors party thereto and Deutsche Telekom AG. | | 8-K | | 11/2/2016 | | 10.1 | |
|
10.50 | | Purchase Agreement, dated as of April 25, 2016, among T-Mobile USA, Inc., the guarantor party thereto and Deutsche Telekom AG. | | 8-K | | 4/26/2016 | | 1.1 | |
|
10.51 | | Amendment No. 1 to Purchase Agreement, dated as of October 28, 2016, to Purchase Agreement, dated as of April 25, 2016, by and among T-Mobile USA, Inc., the guarantors party thereto and Deutsche Telekom AG. | | 8-K | | 11/2/2016 | | 10.2 | |
|
10.52 | | Purchase Agreement, dated as of April 29, 2016, among T-Mobile USA, Inc., the guarantor party thereto and Deutsche Telekom AG. | | 8-K | | 4/29/2016 | | 1.1 | |
|
10.53 | | Amendment No. 1 to Purchase Agreement, dated as of October 28, 2016, to Purchase Agreement, dated as of April 29, 2016, by and among T-Mobile USA, Inc., the guarantors party thereto and Deutsche Telekom AG. | | 8-K | | 11/2/2016 | | 10.3 | |
|
10.54 | | Unsecured Revolving Credit Agreement, dated as of December 29, 2016, by and among T-Mobile US, Inc., T-Mobile USA, Inc., the several banks and other financial institutions or entities from time to time party thereto as lenders, and Deutsche Telekom AG, as administrative agent. | | 8-K | | 12/30/2016 | | 10.1 | |
|
10.55 | | Secured Revolving Credit Agreement, dated as of December 29, 2016, by and among T-Mobile US, Inc., T-Mobile USA, Inc., the several banks and other financial institutions or entities from time to time party thereto as lenders, and Deutsche Telekom AG, as administrative agent. | | 8-K | | 12/30/2016 | | 10.2 | |
|
10.56 | | First Incremental Facility Amendment, dated as of December 29, 2016, to the Term Loan Credit Agreement, dated as of November 9, 2015, by and among T-Mobile USA, Inc., the several banks and other financial institutions or entities from time to time parties thereto as lenders, and Deutsche Bank AG New York Branch, as administrative agent. | | 8-K | | 12/30/2016 | | 10.3 | |
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|
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
10.57 | | Second Incremental Facility Amendment, dated as of January 25, 2017, to the Term Loan Credit Agreement, dated as of November 9, 2015, as amended by that certain First Incremental Facility Amendment dated as of December 29, 2016, by and among T-Mobile USA, Inc., the several banks and other financial institutions or entities from time to time parties thereto as lenders, and Deutsche Bank AG New York Branch, as administrative agent. | | 8-K | | 1/25/2017 | | 10.1 | |
|
10.58* | | Amended and Restated MetroPCS Communications, Inc. 2004 Equity Incentive Compensation Plan. | | S-1/A | | 2/27/2007 | | 10.1(a) | |
|
10.59* | | MetroPCS Communications, Inc. 2010 Equity Incentive Compensation Plan. | | Schedule 14A | | 4/19/2010 | | Annex A | |
|
10.60* | | Form Change in Control Agreement for MetroPCS Communications, Inc. | | 10-Q | | 8/9/2010 | | 10.2 | |
|
10.61* | | Form Change in Control Agreement Amendment for MetroPCS Communications, Inc. | | 10-Q | | 10/30/2012 | | 10.1 | |
|
10.62* | | MetroPCS Communications, Inc. Employee Non-qualified Stock Option Award Agreement relating to the MetroPCS Communications, Inc. Amended and Restated 2004 Equity Incentive Compensation Plan. | | 10-K | | 3/1/2013 | | 10.9(a) | |
|
10.63* | | MetroPCS Communications, Inc. Non-Employee Director Non-qualified Stock Option Award Agreement relating to the MetroPCS Communications, Inc. Amended and Restated 2004 Equity Incentive Compensation Plan. | | 10-K | | 3/1/2013 | | 10.9(b) | |
|
10.64* | | Form Amendment to the MetroPCS Communications, Inc. Notice of Grant of Stock Option relating to the Second Amended and Restated 1995 Stock Option Plan of MetroPCS, Inc. | | 10-Q | | 8/9/2010 | | 10.5 | |
|
10.65* | | Form MetroPCS Communications, Inc. 2010 Equity Incentive Compensation Plan Employee Non-Qualified Stock Option Award Agreement. | | 10-K | | 2/29/2012 | | 10.12 | |
|
10.66* | | Form MetroPCS Communications, Inc. 2010 Equity Incentive Compensation Plan Non-Employee Director Non-Qualified Stock Option Award Agreement. | | 10-K | | 3/1/2013 | | 10.12(b) | |
|
10.67* | | Employment Agreement of J. Braxton Carter dated as of January 25, 2013. | | 8-K | | 5/2/2013 | | 10.3 | |
|
10.68* | | Employment Agreement of Thomas C. Keys dated as of January 25, 2013. | | 8-K | | 5/2/2013 | | 10.4 | |
|
10.69* | | Employment Agreement of John J. Legere dated as of September 22, 2012. | | 10-Q | | 8/8/2013 | | 10.17 | |
|
10.70* | | Amendment to Employment Agreement of John J. Legere dated as of October 23, 2013. | | 10-K | | 2/25/2014 | | 10.35 | |
|
10.71* | | Amendment No. 2 to Employment Agreement between T-Mobile US, Inc. and John J. Legere, dated as of February 25, 2015. | | 8-K | | 2/26/2015 | | 10.1 | |
|
10.72* | | T-Mobile US, Inc. Compensation Term Sheet for Michael Sievert Effective as of February 13, 2015. | | 10-Q | | 4/28/2015 | | 10.3 | |
|
10.73* | | Form of Indemnification Agreement. | | 8-K | | 5/2/2013 | | 10.6 | |
|
10.74* | | T-Mobile US, Inc. Non-Qualified Deferred Executive Compensation Plan (As Amended and Restated Effective as of January 1, 2014). | | 10-K | | 2/25/2014 | | 10.39 | |
|
10.75* | | T-Mobile US, Inc. Executive Continuity Plan as Amended and Restated Effective as of January 1, 2014. | | 8-K | | 10/25/2013 | | 10.1 | |
|
10.76* | | T-Mobile US, Inc. 2013 Omnibus Incentive Plan (as amended and restated on August 7, 2013). | | 10-Q | | 8/8/2013 | | 10.20 | |
|
10.77* | | T-Mobile USA, Inc. 2011 Long-Term Incentive Plan. | | 10-Q | | 8/8/2013 | | 10.21 | |
|
|
| | | | | | | | | | |
Signature | | | | Incorporated by Reference | | Title |
Exhibit No. | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herein |
10.78*/s/ John J. Legere | | Annual Incentive Award Notice under the 2013 Omnibus Incentive Plan. | | 10-K | | 2/25/2014 | | 10.45 | |
|
10.79* | | Form of Restricted Stock Unit Award Agreement for Non-Employee Directors under the T-Mobile US, Inc. 2013 Omnibus Incentive Plan. | | 8-K | | 6/4/2013 | | 10.2 | |
|
10.80* | | Form of Restricted Stock Unit Award Agreement (Time-Vesting) for Executive Officers under the T-Mobile US, Inc. 2013 Omnibus Incentive Plan. | | 10-Q | | 8/8/2013 | | 10.24 | |
|
10.81* | | Form of Restricted Stock Unit Award Agreement (Performance-Vesting) for Executive Officers under the T-Mobile US, Inc. 2013 Omnibus Incentive Plan. | | 10-Q | | 8/8/2013 | | 10.25 | |
|
10.82* | | Form of Restricted Stock Unit Award Agreement (Performance-Vesting) with Deferral Option for Executive Officers under the T-Mobile US, Inc. 2013 Omnibus Incentive Plan. | | 10-K | | 2/19/2015 | | 10.43 | |
|
10.83* | | Form of Restricted Stock Unit Award Agreement (Time-Vesting) with Deferral Option for Executive Officers under the T-Mobile US, Inc. 2013 Omnibus Incentive Plan. | | 10-K | | 2/19/2015 | | 10.44 | |
|
10.84* | | T-Mobile US, Inc. 2014 Employee Stock Purchase Plan. | | S-8 | | 2/19/2015 | | 99.1 | |
|
10.85* | | Amended Director Compensation Program effective as of May 1, 2013 (amended June 4, 2014 and further amended on June 1, 2015 and June 16, 2016). | | 10-Q | | 7/27/2016 | | 10.6 | |
|
12.1 | | Computation of Ratio of Earnings to Fixed Charges. | |
| |
| |
| | X |
21.1 | | Subsidiaries of Registrant. | |
| |
| |
| | X |
23.1 | | Consent of PricewaterhouseCoopers LLP. | |
| |
| |
| | X |
24.1 | | Power of Attorney, pursuant to which amendments to this Form 10-K may be filed (included on the signature page contained in Part IV of the Form 10-K). | |
| |
| |
| | X |
31.1 | | Certifications of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. | |
| |
| |
| | Xand |
31.2John J. Legere | | Certifications of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. | |
| |
| |
| | X |
32.1** | | Certification of ChiefDirector (Principal Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. | |
| |
| |
| |
|
32.2** | | Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. | |
| |
| |
| |
|
101.INS | | XBRL Instance Document. | |
| |
| |
| | 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. | |
| |
| |
| | X |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. | |
| |
| |
| | X |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. | |
| |
| |
| | XOfficer) |
| | | | | | | | |
| | |
*/s/ G. Michael Sievert | | Indicates a management contract or compensatory plan or arrangement.President and Chief Operating Officer |
**G. Michael Sievert | | Furnished herein.Director |
| | | | | | | | |
| | |
/s/ J. Braxton Carter | | Executive Vice President and Chief Financial Officer |
J. Braxton Carter | | (Principal Financial Officer) |
| | | | | | | | |
| | |
/s/ Peter Osvaldik | | Senior Vice President, Finance and Chief Accounting |
Peter Osvaldik | | Officer (Principal Accounting Officer) |
| | | | | | | | |
| | |
/s/ Timotheus Höttges | | Chairman of the Board |
Timotheus Höttges | | |
| | | | | | | | |
| | |
/s/ Srikant Datar | | Director |
Srikant Datar | | |
| | | | | | | | |
| | |
/s/ Lawrence H. Guffey | | Director |
Lawrence H. Guffey | | |
| | | | | | | | |
| | |
/s/ Christian P. Illek | | Director |
Christian P. Illek | | |
| | | | | | | | |
| | |
/s/ Srini Gopalan | | Director |
Srini Gopalan | | |
| | | | | | | | |
| | |
/s/ Bruno Jacobfeuerborn | | Director |
Bruno Jacobfeuerborn | | |
| | | | | | | | |
| | |
/s/ Raphael Kübler | | Director |
Raphael Kübler | | |
| | | | | | | | |
| | |
/s/ Thorsten Langheim | | Director |
Thorsten Langheim | | |
| | | | | | | | |
| | |
/s/ Teresa A. Taylor | | Director |
Teresa A. Taylor | | |
| | | | | | | | |
| | |
/s/ Kelvin R. Westbrook | | Director |
Kelvin R. Westbrook | | |