Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020March 31, 2021
or
         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from    to
Commission File Number: 1-33409
tmus-20210331_g1.jpg
T-MOBILE US, INC.
(Exact name of registrant as specified in its charter)
Delaware20-0836269
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

12920 SE 38th Street
Bellevue, Washington
(Address of principal executive offices)
98006-1350
(Zip Code)
(425)378-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.00001 per shareTMUSThe NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
ClassShares Outstanding as of August 3, 2020April 28, 2021
Common Stock, par value $0.00001 per share1,237,808,9261,246,857,781 



1


T-Mobile US, Inc.
Form 10-Q
For the Quarter Ended June 30, 2020March 31, 2021

Table of Contents


2

Index for Notes to the Condensed Consolidated FinancialFinancial Statements
PART I. FINANCIAL INFORMATIONFinancial Information
Item 1. Financial Statements

T-Mobile US, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)

(in millions, except share and per share amounts)(in millions, except share and per share amounts)June 30, 2020December 31, 2019(in millions, except share and per share amounts)March 31,
2021
December 31,
2020
AssetsAssetsAssets
Current assetsCurrent assetsCurrent assets
Cash and cash equivalentsCash and cash equivalents$11,076  $1,528  Cash and cash equivalents$6,677 $10,385 
Accounts receivable, net of allowance for credit losses of $183 and $613,355  1,888  
Equipment installment plan receivables, net of allowance for credit losses and imputed discount of $415 and $3333,194  2,600  
Accounts receivable, net of allowance for credit losses of $143 and $194Accounts receivable, net of allowance for credit losses of $143 and $1943,592 4,254 
Equipment installment plan receivables, net of allowance for credit losses and imputed discount of $512 and $478Equipment installment plan receivables, net of allowance for credit losses and imputed discount of $512 and $4783,841 3,577 
Accounts receivable from affiliatesAccounts receivable from affiliates24  20  Accounts receivable from affiliates20 22 
InventoryInventory1,549  964  Inventory2,209 2,527 
Prepaid expensesPrepaid expenses627  333  Prepaid expenses670 624 
Assets held for sale1,910  —  
Other current assetsOther current assets2,586  1,972  Other current assets1,770 2,496 
Total current assetsTotal current assets24,321  9,305  Total current assets18,779 23,885 
Property and equipment, netProperty and equipment, net38,801  21,984  Property and equipment, net40,549 41,175 
Operating lease right-of-use assetsOperating lease right-of-use assets17,246  10,933  Operating lease right-of-use assets27,793 28,021 
Financing lease right-of-use assetsFinancing lease right-of-use assets3,288  2,715  Financing lease right-of-use assets2,899 3,028 
GoodwillGoodwill10,910  1,930  Goodwill11,158 11,117 
Spectrum licensesSpectrum licenses82,870  36,465  Spectrum licenses82,901 82,828 
Other intangible assets, netOther intangible assets, net6,038  115  Other intangible assets, net4,892 5,298 
Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount of $76 and $661,399  1,583  
Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount of $124 and $127Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount of $124 and $1272,221 2,031 
Other assetsOther assets2,326  1,891  Other assets12,140 2,779 
Total assetsTotal assets$187,199  $86,921  Total assets$203,332 $200,162 
Liabilities and Stockholders' EquityLiabilities and Stockholders' EquityLiabilities and Stockholders' Equity
Current liabilitiesCurrent liabilitiesCurrent liabilities
Accounts payable and accrued liabilitiesAccounts payable and accrued liabilities$9,348  $6,746  Accounts payable and accrued liabilities$8,712 $10,196 
Payables to affiliatesPayables to affiliates126  187  Payables to affiliates108 157 
Short-term debtShort-term debt3,818  25  Short-term debt4,423 4,579 
Short-term debt to affiliates1,235  —  
Deferred revenueDeferred revenue1,185  631  Deferred revenue972 1,030 
Short-term operating lease liabilitiesShort-term operating lease liabilities4,164  2,287  Short-term operating lease liabilities3,498 3,868 
Short-term financing lease liabilitiesShort-term financing lease liabilities1,040  957  Short-term financing lease liabilities1,013 1,063 
Liabilities held for sale606  —  
Other current liabilitiesOther current liabilities1,669  1,673  Other current liabilities769 810 
Total current liabilitiesTotal current liabilities23,191  12,506  Total current liabilities19,495 21,703 
Long-term debtLong-term debt62,783  10,958  Long-term debt66,395 61,830 
Long-term debt to affiliatesLong-term debt to affiliates4,706  13,986  Long-term debt to affiliates4,721 4,716 
Tower obligationsTower obligations3,130  2,236  Tower obligations2,974 3,028 
Deferred tax liabilitiesDeferred tax liabilities9,996  5,607  Deferred tax liabilities10,154 9,966 
Operating lease liabilitiesOperating lease liabilities15,487  10,539  Operating lease liabilities26,602 26,719 
Financing lease liabilitiesFinancing lease liabilities1,416  1,346  Financing lease liabilities1,316 1,444 
Other long-term liabilitiesOther long-term liabilities3,494  954  Other long-term liabilities5,298 5,412 
Total long-term liabilitiesTotal long-term liabilities101,012  45,626  Total long-term liabilities117,460 113,115 
Commitments and contingencies (Note 17)
Commitments and contingencies (Note 11)Commitments and contingencies (Note 11)00
Stockholders' equityStockholders' equityStockholders' equity
Common Stock, par value $0.00001 per share, 2,000,000,000 shares authorized; 1,238,888,085 and 858,418,615 shares issued, 1,237,338,994 and 856,905,400 shares outstanding—  —  
Common Stock, par value $0.00001 per share, 2,000,000,000 shares authorized; 1,248,334,491 and 1,243,345,584 shares issued, 1,246,773,175 and 1,241,805,706 shares outstandingCommon Stock, par value $0.00001 per share, 2,000,000,000 shares authorized; 1,248,334,491 and 1,243,345,584 shares issued, 1,246,773,175 and 1,241,805,706 shares outstanding
Additional paid-in capitalAdditional paid-in capital72,505  38,498  Additional paid-in capital72,839 72,772 
Treasury stock, at cost, 1,549,091 and 1,513,215 shares issued(12) (8) 
Treasury stock, at cost, 1,561,316 and 1,539,878 shares issuedTreasury stock, at cost, 1,561,316 and 1,539,878 shares issued(14)(11)
Accumulated other comprehensive lossAccumulated other comprehensive loss(1,658) (868) Accumulated other comprehensive loss(1,545)(1,581)
Accumulated deficitAccumulated deficit(7,839) (8,833) Accumulated deficit(4,903)(5,836)
Total stockholders' equityTotal stockholders' equity62,996  28,789  Total stockholders' equity66,377 65,344 
Total liabilities and stockholders' equityTotal liabilities and stockholders' equity$187,199  $86,921  Total liabilities and stockholders' equity$203,332 $200,162 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3

Index for Notes to the Condensed Consolidated Financial Statements
T-Mobile US, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
(in millions, except share and per share amounts)(in millions, except share and per share amounts)2020201920202019(in millions, except share and per share amounts)20212020
RevenuesRevenuesRevenues
Postpaid revenuesPostpaid revenues$9,959  $5,613  $15,846  $11,106  Postpaid revenues$10,303 $5,887 
Prepaid revenuesPrepaid revenues2,311  2,379  4,684  4,765  Prepaid revenues2,351 2,373 
Wholesale revenuesWholesale revenues408  313  733  617  Wholesale revenues897 325 
Roaming and other service revenuesRoaming and other service revenues552  241  813  449  Roaming and other service revenues641 261 
Total service revenuesTotal service revenues13,230  8,546  22,076  16,937  Total service revenues14,192 8,846 
Equipment revenuesEquipment revenues4,269  2,263  6,386  4,779  Equipment revenues5,346 2,117 
Other revenuesOther revenues172  170  322  343  Other revenues221 150 
Total revenuesTotal revenues17,671  10,979  28,784  22,059  Total revenues19,759 11,113 
Operating expensesOperating expensesOperating expenses
Cost of services, exclusive of depreciation and amortization shown separately belowCost of services, exclusive of depreciation and amortization shown separately below3,098  1,649  4,737  3,195  Cost of services, exclusive of depreciation and amortization shown separately below3,384 1,639 
Cost of equipment sales, exclusive of depreciation and amortization shown separately belowCost of equipment sales, exclusive of depreciation and amortization shown separately below3,667  2,661  6,196  5,677  Cost of equipment sales, exclusive of depreciation and amortization shown separately below5,142 2,529 
Selling, general and administrativeSelling, general and administrative5,604  3,543  9,292  6,985  Selling, general and administrative4,805 3,688 
Impairment expense418  —  418  —  
Depreciation and amortizationDepreciation and amortization4,064  1,585  5,782  3,185  Depreciation and amortization4,289 1,718 
Total operating expensesTotal operating expenses16,851  9,438  26,425  19,042  Total operating expenses17,620 9,574 
Operating incomeOperating income820  1,541  2,359  3,017  Operating income2,139 1,539 
Other income (expense)Other income (expense)Other income (expense)
Interest expenseInterest expense(776) (182) (961) (361) Interest expense(792)(185)
Interest expense to affiliatesInterest expense to affiliates(63) (101) (162) (210) Interest expense to affiliates(46)(99)
Interest incomeInterest income  18  12  Interest income12 
Other expense, netOther expense, net(195) (22) (205) (15) Other expense, net(125)(10)
Total other expense, netTotal other expense, net(1,028) (301) (1,310) (574) Total other expense, net(960)(282)
(Loss) income from continuing operations before income taxes(208) 1,240  1,049  2,443  
Income before income taxesIncome before income taxes1,179 1,257 
Income tax expenseIncome tax expense(2) (301) (308) (596) Income tax expense(246)(306)
(Loss) income from continuing operations(210) 939  741  1,847  
Income from discontinued operations, net of tax320  —  320  —  
Net incomeNet income$110  $939  $1,061  $1,847  Net income$933 $951 
Net incomeNet income$110  $939  $1,061  $1,847  Net income$933 $951 
Other comprehensive loss, net of tax
Other comprehensive income (loss), net of taxOther comprehensive income (loss), net of tax
Unrealized gain (loss) on cash flow hedges, net of tax effect of $3, $(102) , $(273) and $(168) (292) (790) (481) 
Unrealized gain (loss) on cash flow hedges, net of tax effect of $12 and $(276)Unrealized gain (loss) on cash flow hedges, net of tax effect of $12 and $(276)34 (792)
Unrealized gain on foreign currency translation adjustment, net of tax effect of $0 and $0Unrealized gain on foreign currency translation adjustment, net of tax effect of $0 and $0
Other comprehensive income (loss)Other comprehensive income (loss)36 (792)
Total comprehensive incomeTotal comprehensive income$969 $159 
Earnings per shareEarnings per share
BasicBasic$0.75 $1.11 
Total comprehensive income$112  $647  $271  $1,366  
Earnings per share
Basic earnings (loss) per share:
Continuing operations$(0.17) $1.10  $0.71  $2.16  
Discontinued operations0.26  —  0.30  —  
Basic$0.09  $1.10  $1.01  $2.16  
Diluted earnings (loss) per share:
Continuing operations$(0.17) $1.09  $0.70  $2.14  
Discontinued operations0.26  —  0.30  —  
DilutedDiluted$0.09  $1.09  $1.00  $2.14  Diluted$0.74 $1.10 
Weighted average shares outstandingWeighted average shares outstandingWeighted average shares outstanding
BasicBasic1,236,528,444  854,368,443  1,047,338,364  852,796,369  Basic1,243,520,026 858,148,284 
DilutedDiluted1,236,528,444  860,135,593  1,057,120,389  860,890,870  Diluted1,252,783,564 865,998,532 

The accompanying notes are an integral part of these condensed consolidated financial statements.
4

Index for Notes to the Condensed Consolidated Financial Statements
T-Mobile US, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
(in millions)(in millions)2020201920202019(in millions)20212020
Operating activitiesOperating activitiesOperating activities
Net incomeNet income$110  $939  $1,061  $1,847  Net income$933 $951 
Adjustments to reconcile net income to net cash provided by operating activitiesAdjustments to reconcile net income to net cash provided by operating activitiesAdjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortizationDepreciation and amortization4,064  1,585  5,782  3,185  Depreciation and amortization4,289 1,718 
Stock-based compensation expenseStock-based compensation expense259  130  397  240  Stock-based compensation expense138 138 
Deferred income tax expenseDeferred income tax expense98  267  408  555  Deferred income tax expense211 310 
Bad debt expenseBad debt expense233  71  346  144  Bad debt expense82 113 
Losses from sales of receivables30  28  55  63  
(Gains) losses from sales of receivables(Gains) losses from sales of receivables(18)25 
Losses on redemption of debtLosses on redemption of debt163  19  163  19  Losses on redemption of debt101 
Impairment expense418  —  418  —  
Changes in operating assets and liabilitiesChanges in operating assets and liabilitiesChanges in operating assets and liabilities
Accounts receivableAccounts receivable(498) (805) (1,246) (1,948) Accounts receivable96 (748)
Equipment installment plan receivablesEquipment installment plan receivables127  (150) 196  (400) Equipment installment plan receivables(727)69 
InventoriesInventories(553) 162  (1,064) (103) Inventories279 (511)
Operating lease right-of-use assetsOperating lease right-of-use assets937  469  1,464  904  Operating lease right-of-use assets1,124 527 
Other current and long-term assetsOther current and long-term assets(104) (83) (98) (170) Other current and long-term assets54 
Accounts payable and accrued liabilitiesAccounts payable and accrued liabilities(1,261) 43  (1,666) 56  Accounts payable and accrued liabilities(1,384)(405)
Short and long-term operating lease liabilitiesShort and long-term operating lease liabilities(1,077) (521) (1,802) (1,043) Short and long-term operating lease liabilities(1,369)(725)
Other current and long-term liabilitiesOther current and long-term liabilities(2,190) (27) (2,111) 94  Other current and long-term liabilities(217)79 
Other, netOther, net21  20  91  96  Other, net69 70 
Net cash provided by operating activitiesNet cash provided by operating activities777  2,147  2,394  3,539  Net cash provided by operating activities3,661 1,617 
Investing activitiesInvesting activitiesInvesting activities
Purchases of property and equipment, including capitalized interest of $119, $125, $231 and $243(2,257) (1,789) (4,010) (3,720) 
Purchases of property and equipment, including capitalized interest of $84 and $112Purchases of property and equipment, including capitalized interest of $84 and $112(3,183)(1,753)
Purchases of spectrum licenses and other intangible assets, including depositsPurchases of spectrum licenses and other intangible assets, including deposits(745) (665) (844) (850) Purchases of spectrum licenses and other intangible assets, including deposits(8,922)(99)
Proceeds related to beneficial interests in securitization transactionsProceeds related to beneficial interests in securitization transactions602  839  1,470  1,996  Proceeds related to beneficial interests in securitization transactions891 868 
Net cash related to derivative contracts under collateral exchange arrangementsNet cash related to derivative contracts under collateral exchange arrangements1,212  —  632  —  Net cash related to derivative contracts under collateral exchange arrangements(580)
Acquisition of companies, net of cash and restricted cash acquiredAcquisition of companies, net of cash and restricted cash acquired(5,000) —  (5,000) —  Acquisition of companies, net of cash and restricted cash acquired(29)
Other, netOther, net(168) —  (184) (7) Other, net(16)
Net cash used in investing activitiesNet cash used in investing activities(6,356) (1,615) (7,936) (2,581) Net cash used in investing activities(11,239)(1,580)
Financing activitiesFinancing activitiesFinancing activities
Proceeds from issuance of long-term debtProceeds from issuance of long-term debt26,694  —  26,694  —  Proceeds from issuance of long-term debt6,763 
Payments of consent fees related to long-term debt(109) —  (109) —  
Proceeds from borrowing on revolving credit facility—  880  —  1,765  
Repayments of revolving credit facility—  (880) —  (1,765) 
Repayments of financing lease obligationsRepayments of financing lease obligations(236) (229) (518) (315) Repayments of financing lease obligations(287)(282)
Repayments of short-term debt for purchases of inventory, property and equipment, net(151) —  (176) —  
Repayments of short-term debt for purchases of inventory, property and equipment and other financial liabilitiesRepayments of short-term debt for purchases of inventory, property and equipment and other financial liabilities(55)(25)
Repayments of long-term debtRepayments of long-term debt(10,529) (600) (10,529) (600) Repayments of long-term debt(2,219)
Issuance of common stock17,290  —  17,290  —  
Repurchases of common stock(16,990) —  (16,990) —  
Proceeds from issuance of short-term debt18,743  —  18,743  —  
Repayments of short-term debt(18,929) —  (18,929) —  
Tax withholdings on share-based awardsTax withholdings on share-based awards(138) (4) (279) (104) Tax withholdings on share-based awards(218)(141)
Cash payments for debt prepayment or debt extinguishment costsCash payments for debt prepayment or debt extinguishment costs(24) (28) (24) (28) Cash payments for debt prepayment or debt extinguishment costs(65)
Other, netOther, net (5)  (9) Other, net(45)(5)
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities15,628  (866) 15,175  (1,056) Net cash provided by (used in) financing activities3,874 (453)
Change in cash and cash equivalents10,049  (334) 9,633  (98) 
Change in cash and cash equivalents, including restricted cashChange in cash and cash equivalents, including restricted cash(3,704)(416)
Cash and cash equivalents, including restricted cashCash and cash equivalents, including restricted cashCash and cash equivalents, including restricted cash
Beginning of periodBeginning of period1,112  1,439  1,528  1,203  Beginning of period10,463 1,528 
End of periodEnd of period$11,161  $1,105  $11,161  $1,105  End of period$6,759 $1,112 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

Index for Notes to the Condensed Consolidated Financial Statements
T-Mobile US, Inc.
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
(in millions, except shares)Common Stock OutstandingTreasury Shares at CostPar Value and Additional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity
Balance as of March 31, 2020861,128,106  $(11) $38,597  $(1,660) $(7,949) $28,977  
Net income—  —  —  —  110  110  
Other comprehensive loss—  —  —   —   
Stock-based compensation—  —  272  —  —  272  
Exercise of stock options262,394  —  14  —  —  14  
Stock issued for employee stock purchase plan(13) —  —  —  —  —  
Issuance of vested restricted stock units4,157,095  —  —  —  —  —  
Shares withheld related to net share settlement of stock awards and stock options(1,564,635) —  (138) —  —  (138) 
Distribution from NQDC plan(40,263) (1)  —  —  —  
Shares issued in secondary offering173,564,426  —  17,216  —  —  17,216  
Shares repurchased from SoftBank (1)
(173,564,426) —  (16,990) —  —  (16,990) 
Merger consideration373,396,310  —  33,533  —  —  33,533  
Balance as of June 30, 20201,237,338,994  $(12) $72,505  $(1,658) $(7,839) $62,996  
Balance as of December 31, 2019856,905,400  $(8) $38,498  $(868) $(8,833) $28,789  
Net income—  —  —  —  1,061  1,061  
Other comprehensive loss—  —  —  (790) —  (790) 
Executive put option(342,000) —   —  —   
Stock-based compensation—  —  424  —  —  424  
Exercise of stock options311,587  —  15  —  —  15  
Stock issued for employee stock purchase plan1,246,304  —  83  —  —  83  
Issuance of vested restricted stock units8,912,304  —  —  —  —  —  
Shares withheld related to net share settlement of stock awards and stock options(3,055,034) —  (279) —  —  (279) 
Distribution from NQDC plan(35,877) (4)  —  —  —  
Shares issued in secondary offering173,564,426  —  17,216  —  —  17,216  
Shares repurchased from SoftBank (1)
(173,564,426) (16,990) —  —  (16,990) 
Merger consideration373,396,310  —  33,533  —  —  33,533  
Prior year Retained Earnings—  —  —  —  (67) (67) 
Balance as of June 30, 20201,237,338,994  $(12) $72,505  $(1,658) $(7,839) $62,996  
(1) In connection with the SoftBank Monetization (as defined below) we received a payment of $300 million from SoftBank (as defined below). This amount, net of tax, was treated as a reduction of the purchase price of the shares acquired from SoftBank and was recorded as Additional paid-in capital.
(in millions, except shares)Common Stock OutstandingTreasury Shares at CostPar Value and Additional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity
Balance as of December 31, 20201,241,805,706 $(11)$72,772 $(1,581)$(5,836)$65,344 
Net income— — — — 933 933 
Other comprehensive income— — — 36 — 36 
Stock-based compensation— — 154 — — 154 
Exercise of stock options80,802 — — — 
Stock issued for employee stock purchase plan1,272,253 — 125 — — 125 
Issuance of vested restricted stock units5,421,839 — — — — — 
Shares withheld related to net share settlement of stock awards and stock options(1,785,987)— (218)— — (218)
Transfer RSU from NQDC plan(21,438)(3)— — — 
Balance as of March 31, 20211,246,773,175 $(14)$72,839 $(1,545)$(4,903)$66,377 
Balance as of December 31, 2019856,905,400 $(8)$38,498 $(868)$(8,833)$28,789 
Net income— — — — 951 951 
Other comprehensive loss— — — (792)— (792)
Executive put option(342,000)— — — 
Stock-based compensation— — 152 — — 152 
Exercise of stock options49,193 — — — 
Stock issued for employee stock purchase plan1,246,317 — 83 — — 83 
Issuance of vested restricted stock units4,755,209 — — — — — 
Shares withheld related to net share settlement of stock awards and stock options(1,490,399)— (141)— — (141)
Distribution from NQDC plan4,386 (3)— — — 
Prior year Retained Earnings— — — — (67)(67)
Balance as of March 31, 2020861,128,106 $(11)$38,597 $(1,660)$(7,949)$28,977 

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


6

Index for Notes to the Condensed Consolidated Financial Statements
T-Mobile US, Inc.
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
(in millions, except shares)Common Stock OutstandingTreasury Shares at CostPar Value and Additional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity
Balance as of March 31, 2019854,380,118  $(5) $38,100  $(521) $(11,393) $26,181  
Net income—  —  —  —  939  939  
Other comprehensive income—  —  —  (292) —  (292) 
Stock-based compensation—  —  143  —  —  143  
Exercise of stock options19,261  —  —  —  —  —  
Stock issued for employee stock purchase plan(36,710) —  —  —  —  —  
Issuance of vested restricted stock units206,143  —  —  —  —  —  
Issuance of restricted stock awards(20,769) —  —  —  —  —  
Shares withheld related to net share settlement of stock awards and stock options(56,041) —  (4) —  —  (4) 
Transfer RSU from NQDC plan(39,360) (3)  —  —  —  
Balance as of June 30, 2019854,452,642  $(8) $38,242  $(813) $(10,454) $26,967  
Balance as of December 31, 2018850,180,317  $(6) $38,010  $(332) $(12,954) $24,718  
Net income—  —  —  —  1,847  1,847  
Other comprehensive loss—  —  —  (481) —  (481) 
Stock-based compensation—  —  264  —  —  264  
Exercise of stock options51,135  —   —  —   
Stock issued for employee stock purchase plan1,135,801  —  69  —  —  69  
Issuance of vested restricted stock units4,550,115  —  —  —  —  —  
Issuance of restricted stock awards(20,769) —  —  —  —  —  
Shares withheld related to net share settlement of stock awards and stock options(1,420,662) —  (104) —  —  (104) 
Transfer RSU from NQDC plan(23,295) (2)  —  —  —  
Prior year Retained Earnings—  —  —  —  653  653  
Balance as of June 30, 2019854,452,642  $(8) $38,242  $(813) $(10,454) $26,967  

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





7

Index for Notes to the Condensed Consolidated Financial Statements
T-Mobile US, Inc.
Index for Notes to the Condensed Consolidated Financial Statements


87

Index for Notes to thethe Condensed Consolidated FinancialFinancial Statements
T-Mobile US, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements of T-Mobile US, Inc. (“T-Mobile,” “we,” “our,” “us” or the “Company”) include all adjustments of a normal recurring nature necessary for the fair presentation of the results for the interim periods presented. The results for the interim periods are not necessarily indicative of those for the full year. The condensed consolidated financial statements should be read in conjunction with our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.

On April 29, 2018, we entered into a Business Combination Agreement (the “Business Combination Agreement”) to merge with Sprint Corporation (“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”). On April 1, 2020, we completed the Merger and acquired Sprint (see Note 2 - Business Combination).

On July 26, 2019, pursuant to the requirement as set forth in the U.S. Department of Justice’s (the “DOJ”) complaint and proposed final judgement (the “Consent Decree), T-Mobile entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Sprint and DISH Network Corporation (“DISH”). Pursuant to the Asset Purchase Agreement and upon the terms and subject to the conditions thereof, on July 1, 2020 DISH acquired the prepaid wireless business operated under the Boost Mobile and Sprint prepaid brands (excluding the Assurance brand Lifeline customers and the prepaid wireless customers of Shenandoah Telecommunications Company and Swiftel Communications, Inc.), including customer accounts, inventory, contracts, intellectual property and certain other specified assets (the “Prepaid Business”) and assumed certain related liabilities (the “Prepaid Transaction”). Upon closing of the Prepaid Transaction, we received $1.4 billion from DISH, subject to a working capital adjustment.

The assets and liabilities of the Prepaid Business are presented as held for sale as of June 30, 2020 and revenues and expenses are presented as discontinued operations for the three and six months ended June 30, 2020.

The condensed consolidated financial statements include the balances and results of operations of T-Mobile and our consolidated subsidiaries. We consolidate majority-owned subsidiaries over which we exercise control, as well as variable interest entities (“VIEs”) where we are deemed to be the primary beneficiary and VIEs which cannot be deconsolidated, such as those related to our obligations to pay for the management and operation of certain of our wireless communications tower sites. Intercompany transactions and balances have been eliminated in consolidation.

The preparation of financial statements in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”) requires our management to make estimates and assumptions whichthat affect the financial statements and accompanying notes. Estimates are based on historical experience, where applicable, and other assumptions which ourthat management believes are reasonable under the circumstances, including but not limited to, the valuation of assets acquired and liabilities assumed through the Mergermerger (the “Merger”) with Sprint and the potential impacts arising from the COVID-19 pandemic.Corporation (“Sprint”). These estimates are inherently subject to judgment and actual results could differ from those estimates.

Significant Accounting PoliciesPronouncements Not Yet Adopted

Upon the close of our Merger with Sprint, we have adopted or applied the significant accounting policies below to the applicable transactions and activities of the consolidated company.

Spectrum Leases

Through the Merger, the Company acquired lease agreements (the “Agreements”) with various educational and non-profit institutions that provide us with the right to use Federal Communications Commission (“FCC”) spectrum licenses (Educational Broadband Services or “EBS spectrum”) in the 2.5 GHz band. In addition to the Agreements with educational institutions and private owners who hold the license, the Company also acquired direct ownership of spectrum licenses previously acquired by Sprint through government auctions or other acquisitions.

9

Index for Notes to the Condensed Consolidated FinancialStatements
The Agreements with educational and certain non-profit institutions are typically for five to ten years with automatic renewal provisions, bringing the total term of the agreement up to 30 years. Majority of the Agreements include a right of first refusal to acquire, lease or otherwise use the license at the end of the 2 automatic renewal periods.

Leased FCC spectrum licenses are recorded as executory contracts whereby, as a result of business combination accounting, an intangible asset or liability is recorded reflecting the extent to which contractual terms are favorable or unfavorable to current market rates. These intangible assets or liabilities are amortized over the estimated remaining useful life of the lease agreements. Contractual lease payments are recognized on a straight-line basis over the remaining term of the arrangement, including renewals, and are presented in Costs of services within our Condensed Consolidated Statements of Comprehensive Income.

Owned FCC spectrum licenses are classified as indefinite-lived intangible assets which are assessed for impairment annually, or more frequently, if facts and circumstances warrant.

The Agreements enhance the value of the Company’s owned spectrum licenses as the collective value is higher than the value of individual bands of spectrum within a specific geography. This value is derived from the ability to provide wireless service to customers across large geographic areas and maintain the same or similar wireless connectivity quality. This enhanced value from combining owned and leased spectrum licenses to create contiguous spectrum is referred to as an aggregation premium.
We recognized the aggregation premium as part of the FCC spectrum licenses indefinite-lived intangible assets which are assessed for impairment annually or more frequently if facts and circumstances warrant.

Brightstar Distribution

We have arrangements with Brightstar US, Inc. (“Brightstar”), a subsidiary of Softbank, whereby Brightstar provides supply chain and inventory management services to us in our indirect channels. T-Mobile may sell devices through Brightstar to T-Mobile indirect dealers.

The supply chain and inventory management arrangement includes, among other things, that Brightstar may purchase inventory from the original equipment manufacturers (“OEM”) to sell directly to our indirect dealers. As compensation for these services, we remit per unit fees to Brightstar for each device sold to these indirect dealers.

Devices sold from T-Mobile to Brightstar do not meet the criteria for a sale, as control is not transferred until devices are sold through to indirect dealers, and in some cases, end customers. Devices transferred from T-Mobile to Brightstar remain in inventory until control is transferred to the indirect dealers or end customers.

For service subscribers who choose to lease a device previously sold to the dealer, T-Mobile will repurchase the device from the dealer and originate a lease directly with the service subscriber. Repurchase activity from the dealer is estimated and treated as a right of return, reducing equipment revenue at the time of sale to the dealer. Upon lease to the end customer, T-Mobile recognizes lease revenue over the associated lease term within Equipment revenues in our Condensed Consolidated Statements of Comprehensive Income.

Device Leases

Through the Merger, we acquired device lease contracts in which Sprint is the lessor, substantially all of which are classified as operating leases, and the associated fixed assets. These leased devices were recorded as fixed assets at their acquisition date fair value and presented within Property and equipment, net on our Condensed Consolidated Balance Sheets. These devices are depreciated using the group method over the estimated remaining useful life to their estimated residual value. The estimated useful life reflects the period for which we estimate the group of leased devices will provide utility to us, which may be longer than the initial lease term based on customer options in the Sprint Flex Lease program to renew the lease on a month-to-month basis after the initial lease term concludes. Revenues associated with the leased wireless devices, net of lease incentives, are generally recognized straight-line over the lease term.

T-Mobile depreciates leased devices on a group basis using the straight-line method over the estimated useful life of the device, which considers the lease term (e.g., 18 months and month-to-month renewal options for the Sprint Flex Lease program), trade-in activity and write-offs for lost and stolen devices. Lost and stolen devices are incorporated into the estimates of depreciation expense and recognized as an adjustment to accumulated depreciation when the loss event occurs. The Company’s policy using the group method of depreciation has been applied to acquired leased devices as well as leases originated subsequent to the Merger close. Acquired leased devices are grouped based on the age of the device.
10

Index for Notes to the Condensed Consolidated FinancialStatements

Upon device upgrade or at lease end, customers in the Jump on Demand lease program must return or purchase their device. Customers in the Sprint Flex Lease program have the option to return or purchase their device or to renew their lease on a month-to-month basis at the end of the lease term. Returned devices are transferred from Property and equipment, net to Inventory on our Condensed Consolidated Balance Sheets and are valued at the lower of cost or net realizable value, with any write-down recognized as Cost of equipment sales in our Condensed Consolidated Statements of Comprehensive Income.

Cost to Acquire a Contract

T-Mobile capitalizes postpaid sales commissions for service activation as costs to acquire a contract and amortizes them over 24 months. Prepaid commissions are expensed as incurred as their estimated period of benefit does not extend beyond 12 months. Commissions paid upon device upgrade are not capitalized if a customer contract is less than one year. Commissions paid when the customer has a lease are treated as initial direct costs and recognized over the lease term.

T-Mobile policies for the capitalization and amortization of costs to acquire a contract are applied to the Sprint, Boost and Assurance Wireless brands subsequent to Merger close.

Device Purchases Cash Flow Presentation

T-Mobile classifies all device purchases as operating cash outflows as T-Mobile’s predominant strategy is to sell devices to customers rather than lease them. Devices acquired for sale or lease to Sprint, Boost and Assurance Wireless customers are similarly classified as operating cash outflows.

Imputed Interest on EIP Receivables

T-Mobile records the effects of financing on all equipment installment plan (“EIP”) loans regardless as to whether the financing is considered to be significant or not. The imputation of interest results in a discount of the EIP receivable thereby adjusting the transaction price of the contract with the customer, which is then allocated to the performance obligations of the arrangement.

For indirect channel loans to the end service customer in which the sale of the device was to the dealer (sell-in basis), the effect of imputing interest is recognized as a reduction to service revenue, the only performance obligation with the service customer as the device sale was recognized when transferred to the dealer, and over the service contract period.

T-Mobile policies for imputed interest on EIP receivables are applied to loans originated for Sprint and Boost customers subsequent to Merger close.

Cell Tower Lease-Out and Leaseback Arrangement

Prior to the Merger, Sprint entered into a lease-out and leaseback agreement with a tower operator (Global Signal, Inc. a third party that was subsequently acquired by Crown Castle International Corp. (“CCI”)). The tower operator was granted exclusive rights to lease 6,600 communications towers (lease-out) for 32 years, which were originally constructed by Sprint on land that Sprint leased from individual landowners. Sprint received upfront proceeds in 2005 of $1.2 billion and obtained the right to use a portion of the space on the towers with a stipulated monthly payment (leaseback), generally with a 10-year initial term with five-year renewal options.

The arrangement is accounted for as a financing with the cell towers owned by Sprint included in Property and equipment and a financing obligation for the amounts contractually due to CCI included in Tower obligations in our Condensed Consolidated Balance Sheets. The tower assets are depreciated to their estimated residual value and payments to CCI are recognized as interest expense and a reduction to the financing obligation. See Note 9 – Tower Obligationsfor further information on this arrangement.

Wireline revenue

Performance obligations related to our Wireline customers involve the provision of services to corporate customers. Wireline service performance obligations are typically satisfied over a period between 24 and 36 months. Amounts due for services are invoiced and collected periodically over the relevant service period. Wireline contracts are not subject to significant amounts of variable consideration, other than charges intended to partially recover taxes imposed on the Company, including fees related to the Universal Service Fund. Such fees are based on the customer's monthly usage and are therefore included in the corresponding distinct months of Wireline services. Our Wireline contracts do provide the customer with monthly options to
11

Index for Notes to the Condensed Consolidated FinancialStatements
purchase goods or services at prices commensurate with the standalone selling prices for those goods or services, as determined at contract inception. Wireline revenues are included within Roaming and other service revenues in our Condensed Consolidated Statements of Comprehensive Income.

Sprint Retirement Pension Plan

Through the Merger, we acquired the assets and assumed the liabilities associated with the Sprint Retirement Pension Plan (the “Pension Plan”), which is a defined benefit pension plan providing postretirement benefits to certain employees. As of December 31, 2005, the Pension Plan was amended to freeze benefit plan accruals for participants.

The investments in the Pension Plan are measured at fair value on a recurring basis each quarter using quoted market prices or the net asset value per share as a practical expedient. The projected benefit obligations associated with the Pension Plan are determined based on actuarial models utilizing mortality tables and discount rates applied to the expected benefit term.

Restricted Cash

Certain provisions of our debt agreements require us to maintain specified cash collateral balances. Amounts associated with these balances are considered to be restricted cash.

Advertising and Search Revenues

Effective April 1, 2020, certain of our advertising and search revenues are now presented within Roaming and other service revenues, resulting in a reclassification of $133 million of revenue for the three months ended March 31, 2020, and $120 million and $234 million for the three and six months ended June 30, 2019, respectively. These revenues were previously presented within Other revenues in our Condensed Consolidated Statements of Comprehensive Income. Prior periods have been reclassified to conform to current period presentation.

Accounting Pronouncements Adopted During the Current Year

Receivables and Expected Credit LossesReference Rate Reform

In June 2016,March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit LossesASU 2020-04, “Reference Rate Reform (Topic 326)848): MeasurementFacilitation of Credit Lossesthe Effects of Reference Rate Reform on Financial Instruments,Reporting.The standard provides temporary optional expedients 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 basisallows for certain exceptions to be presented at the net amountapplying existing GAAP for contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate 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 became effective for us, and we adopted the standard, on January 1, 2020. The new credit loss standard required a cumulative-effect adjustment to Accumulated deficit at the date of initial application, anddiscontinued as a result we did not restate prior periods presented in the condensed consolidated financial statements.

Under the new credit lossof reference rate reform. The standard we recognize lifetime expected credit losses at the inception of our credit risk exposures whereas we previously recognized credit losses only when it was probable that they had been incurred. We also recognize expected credit losses on our EIP receivables, which are inclusive of all installment receivables acquired in the Merger or issued thereafter, separately from, and in addition to, any unamortized discount on those receivables. Prior to the adoption of the new credit loss standard, we had offset our estimate of probable losses on our EIP receivables by the amount of the related unamortized discounts on those receivables. We have developed an expected credit loss model incorporating forward-looking loss indicators. The cumulative effect of initially applying the new credit loss standard on our receivables portfolio on January 1, 2020 was an increase to our allowance for credit losses of $91 million, a decrease to our net deferred tax liabilities of $24 million and an increase to our Accumulated deficit of $67 million.

For EIP receivables acquired in the Merger, we also recognize expected credit losses separately from, and in addition, to the acquisition date fair value of the acquired EIP receivables.

12

Index for Notes to the Condensed Consolidated FinancialStatements
Accounts Receivable Portfolio Segment

Accounts receivable consists primarily of amounts currently due from customers (e.g., for wireless services and monthly device lease payments), handset insurance administrators, wholesale partners, other carriers and third-party retail channels. Accounts receivable are presented in our Condensed Consolidated Balance Sheets at the amortized cost basis (i.e., the receivables’ outstanding principal balance adjusted for any write-offs), net of the allowance for expected credit losses. We have an arrangement to sell certain of our customer service accounts receivable on a revolving basis, which are treated as sales of financial assets.

EIP Receivables Portfolio Segment

We offer certain retail customers the option to pay for their devices and other purchases in installments, generally over a period of 24 months using an EIP. EIP receivables are presented in our Condensed Consolidated Balance Sheets at the amortized cost basis (i.e., the receivables’ outstanding principal balance adjusted for any write-offs and unamortized discounts), net of the allowance for expected credit losses. 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 expected 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 in Total service revenues and Equipment revenues in our Condensed 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. 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 Condensed Consolidated Statements of Comprehensive Income.

At the time that we originate EIP loans to customers, we recognize an allowance for credit losses that we expect to incur over the lifetime of such assets. This allowance represents the portion of the amortized cost basis of EIP receivables that we do not expect to collect.

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 Condensed Consolidated Balance Sheets. We have an arrangement to sell certain EIP receivables on a revolving basis, which are treated as sales of financial assets.

Allowance for Credit Losses

We maintain an allowance for expected credit losses and determine its appropriateness through an established process that assesses the lifetime credit losses that we expect to incur related to our receivable portfolio. We develop and document our allowance methodology at the portfolio segment level for the accounts receivable portfolio and EIP receivables 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 expected credit losses related to the total receivable 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 changes in credit and collections policies and forecasts of macro-economic conditions.

Total imputed discount and allowances, which includes all accounts receivable and EIP receivables acquired in the Merger or issued thereafter, were approximately 7.8% and 7.0% of the total amount of gross accounts receivable, including EIP receivables, at June 30, 2020 andadoption through December 31, 2019, respectively.

2022. We consider a receivable past due when a customer has not paid us byare currently evaluating the contractually specified payment due date. We write-off account balances if collection efforts are unsuccessful and the receivable balance is deemed uncollectible, based on customer credit quality and the aging of the receivable.

13

Index for Notes to the Condensed Consolidated FinancialStatements
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.” Theimpact this 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. The standard also requires the presentation of the amortization of the capitalized implementation costs in the same line item in the Condensed Consolidated Statements of Comprehensive Income as the fees associated with the hosting arrangement. The standard became effective for us, and we adopted the standard, on January 1, 2020. We adopted the standard on a prospective basis applying it to implementation costs incurred subsequent to January 1, 2020 and as a result did not restate the prior periods presented in the condensed consolidated financial statements. The adoption of the standard did notwill have, a material impactincluding optional expedients, on our condensed consolidated financial statements for the six months ended June 30, 2020.

Income Taxes

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The standard removes certain exceptions to the general principles in Topic 740. We early adopted the standard on January 1, 2020 and have applied the standard retrospectively to all periods presented. The adoption of this standard did not have an impact on our condensed consolidated financial statements.

Guarantor Financial Information

On March 2, 2020, the Securities and Exchange Commission (the “SEC”) adopted amendments to the financial disclosure requirements for guarantors and issuers of guaranteed securities, as well as for affiliates whose securities collateralize a registrant’s securities. The amendments revise Rules 3-10 and 3-16 of Regulation S-X, and relocate part of Rule 3-10 and all of Rule 3-16 to the new Article 13 in Regulation S-X, which is comprised of new Rules 13-01 and 13-02. We early adopted the requirements of the amendments on January 1, 2020, which included replacing guarantor condensed consolidating financial information with summarized financial information for the consolidated obligor group (Parent, Issuer, and Guarantor Subsidiaries) as well as no longer requiring guarantor cash flow information, financial information for non-guarantor subsidiaries, and a reconciliation to the consolidated results.

Accounting Pronouncements Not Yet Adopted

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not have, or are not expected to have, a significant impact on our present or future condensed consolidated financial statements.

Note 2 – Business Combination

Business Combination Agreement and Amendments

On April 29, 2018, we entered into a Business Combination Agreement with Sprint and the other parties named therein (as amended, the “Business Combination Agreement”) for the Merger. The Business Combination Agreement was subsequently amended to provide that, following the closing of the Merger and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”), SoftBank Group Corp. (“SoftBank”) would indemnify us against certain specified matters and the loss of value arising out of, or resulting from, cessation of access to spectrum under certain circumstances and subject to certain limitations and qualifications.

On February 20, 2020, T-Mobile, SoftBank and Deutsche Telekom AG (“DT”) entered into a letter agreement (the “Letter Agreement”). Pursuant to the Letter Agreement, SoftBank agreed to cause its applicable affiliates to surrender to T-Mobile, for no additional consideration, an aggregate of 48,751,557 shares of T-Mobile common stock (such number of shares, the “SoftBank Specified Shares Amount”), effective immediately following the Effective Time (as defined in the Business Combination Agreement), making SoftBank’s exchange ratio 11.31 shares of Sprint common stock for each share of T-Mobile common stock. This resulted in an effective exchange ratio of approximately 11.00 shares of Sprint common stock for each share of T-Mobile common stock immediately following the closing of the Merger, an increase from the originally agreed 9.75
8

Index for Notes to the Condensed Consolidated Financial Statements
shares. Sprint stockholders other than SoftBank received the original fixed exchange ratio of 0.10256 shares of T-Mobile common stock for each share of Sprint common stock, or the equivalent of approximately 9.75 shares of Sprint common stock for each share of T-Mobile common stock.

14The Letter Agreement requires T-Mobile to issue to SoftBank 48,751,557 shares of T-Mobile common stock, subject to the terms and conditions set forth in the Letter Agreement, for no additional consideration, if certain conditions are met. The issuance of these shares is contingent on the trailing 45-day volume-weighted average price per share of T-Mobile common stock on the NASDAQ Global Select Market being equal to or greater than $150.00, at any time during the period commencing on April 1, 2022 and ending on December 31, 2025. If the threshold price is not met, then NaN of the SoftBank Specified Shares Amount will be issued.

Index for Notes to the Condensed Consolidated FinancialStatements
Closing of Sprint Merger

On April 1, 2020, we completed the Merger, and as a result, Sprint and its subsidiaries became wholly-ownedwholly owned consolidated subsidiaries of T-Mobile. Sprint is a communicationswas the fourth-largest telecommunications company in the U.S., offering a comprehensive range of wireless and wireline communicationscommunication products and services. As a combined company, we expect to be able to rapidly launch a broad and deep nationwide 5G network, accelerate innovation, increase competition in the U.S. wireless video and broadband industries and achieve significant synergies and cost reductions by eliminating redundancies within the combined network as well as other business processes and operations.

Upon completion of the Merger, each share of Sprint common stock was exchanged for 0.10256 shares of T-Mobile common stock, or 9.75 shares of Sprint common stock for each share of T-Mobile common stock. After adjustments, including the holdback of the SoftBank Specified Shares Amount and fractional shares, we issued 373,396,310 shares of T-Mobile common stock to Sprint stockholders. The fair value of the T-Mobile common stock provided in exchange for Sprint common stock was approximately $31.3 billion.

Additional components of consideration included the repayment of certain of Sprint’s debt, replacement of equity awards attributable to pre-combination services, contingent consideration and contingent consideration.a cash payment received from SoftBank for certain reimbursed Merger expenses.

Immediately following the closing of the Merger and the surrender of the SoftBank Specified Shares Amount, pursuant to the Letter Agreement described above, DT and SoftBank held, directly or indirectly, approximately 43.6% and 24.7%, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 31.7% of the outstanding T-Mobile common stock held by other stockholders.

Consideration Transferred

The acquisition-date fair value of consideration transferred in the Merger totaled $40.8 billion, comprised of the following:
(in millions)April 1, 2020
Fair value of T-Mobile common stock issued to Sprint stockholders(1)
$31,328 
Fair value of T-Mobile replacement equity awards attributable to pre-combination service(2)
323 
Repayment of Sprint’s debt (including accrued interest and prepayment penalties)(3)
7,396 
Value of contingent consideration(4)
1,882 
Payment received from selling stockholder(5)
(102)
Total consideration exchanged$40,827 

(1) Represents the fair value of T-Mobile common stock issued to Sprint stockholders pursuant to the Business Combination Agreement, less shares surrendered by SoftBank pursuant to the Letter Agreement. The fair value is based on 373,396,310 shares of Sprint common stock issued and outstanding as of March 31, 2020, an exchange ratio of 0.10256 shares of T-Mobile common stock per share of Sprint common stock, less 48,751,557 T-Mobile shares surrendered by SoftBank which are treated as contingent consideration, and the closing price per share of T-Mobile common stock on NASDAQ on March 31, 2020, of $83.90, as shares were transferred to Sprint stockholders prior to the opening of markets on April 1, 2020.
(2) Equity-based awards held by Sprint employees prior to the acquisition date have been replaced with T-Mobile equity-based awards. The portion of the equity-based awards that relates to services performed by the employee prior to the acquisition date is included within consideration transferred, and includes stock options, restricted stock units and performance-based restricted stock units.
(3) Represents the cash consideration paid concurrent with the close of the Merger to retire certain Sprint debt, as required by change in control provisions of the debt, plus interest and prepayment penalties.
(4) Represents the fair value of the SoftBank Specified Shares Amount contingent consideration that may be issued as set forth in the Letter Agreement.
(5) Represents receipt of a cash payment from SoftBank for certain expenses associated with the Merger and is presented in Cash paid for acquisition of companies, net of cash acquired within our Condensed Consolidated Statements of Cash Flows.

The contingent consideration arrangement described within the Letter Agreement requires T-Mobile to issue to SoftBank 48,751,557 shares of T-Mobile common stock, subject to the terms and conditions set forth in the Letter Agreement, for no additional consideration. The issuance of these shares is contingent on the trailing 45-day volume-weighted average price per share of T-Mobile common stock on the NASDAQ Global Select Market being equal to or greater than $150.00, at any time during the period commencing on April 1, 2022 and ending on December 31, 2025. If the threshold price is not met, then NaN of the SoftBank Specified Shares Amount will be issued.Merger.

The SoftBank Specified Shares Amount was determined to be contingent consideration with an acquisition-date fair value of $1.9 billion. We estimated the fair value using the income approach, a probability-weighted discounted cash flow model,
9

Index for Notes to the Condensed Consolidated Financial Statements
whereby a Monte Carlo simulation method estimated the probability of different outcomes as the likelihood of achieving the 45-day volume-weighted average price threshold is not easily predicted. This fair value measurement is based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement as defined in ASC 820.820: Fair Value Measurement. The key
15

Index for Notes to the Condensed Consolidated FinancialStatements
assumptions in applying the income approach include estimated future share-price volatility, which was based on historical market trends and estimated future performance of T-Mobile.

The maximum amount of contingent consideration that could be issued to SoftBank has an estimated value of $7.3 billion, based on SoftBank Specified Shares Amount of 48,751,557 multiplied by the defined volume-weighted average price per share of $150.00. The contingent consideration that could be delivered to SoftBank is classified within equity and is not subject to remeasurement.

Fair Value of Assets Acquired and Liabilities Assumed

We accounted for the Merger as a business combination. The identifiable assets acquired and liabilities assumed of Sprint were recorded at their preliminary fair values as of the acquisition date and consolidated with those of T-Mobile. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires the use of significant judgmentsjudgment regarding estimates and assumptions. For the preliminary fair values of the assets acquired and liabilities assumed, we used the cost, income and market approaches, including market participant assumptions.

The following table summarizes the preliminary fair values for each major class of assets acquired and liabilities assumed at the acquisition date. We retained the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities. We are in the process of finalizing the valuation of the assets acquired and liabilities assumed including income tax related amounts. Therefore, the preliminary fair values set forth below are subject to adjustment as additional information is obtained and the valuations are completed.
(in millions)April 1, 2020
Cash and cash equivalents$2,2142,084 
Accounts receivable1,6101,775 
Equipment installment plan receivables1,0241,088 
Inventory658 
Prepaid expenses140 
Assets held for sale1,9481,908 
Other current assets388637 
Property and equipment17,22818,435 
Operating lease right-of-use assets6,583 
Financing lease right-of-use assets291 
Goodwill9,1989,423 
Spectrum licenses45,400 
Other intangible assets6,3256,280 
Equipment installment plan receivables due after one year, net247 
Other assets (1)
541540 
Total assets acquired$95,489 93,795 
Accounts payable and accrued liabilities$5,015 4,684 
Short-term debt2,760 
Deferred revenue508 
Short-term operating lease liabilities1,818 
Short-term financing lease liabilities
Liabilities held for sale475 
Other current liabilities284681 
Long-term debt29,037 
Tower obligations950 
Deferred tax liabilities4,2033,478 
Operating lease liabilities5,615 
Financing lease liabilities12 
Other long-term liabilities2,6144,305 
Total liabilities assumed$54,662 52,968 
Total consideration transferred$40,827 
(1) Included in Other assets acquired is $80 million in restricted cash.
10

Index for Notes to the Condensed Consolidated Financial Statements
Amounts previously disclosed for the estimated values of certain acquired assets and liabilities assumed have been adjusted based on additional information arising subsequent to the initial valuation. The measurement period adjustments we recognized during the three months ended March 31, 2021 did not have a significant impact on our Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021.

Intangible Assets and Liabilities

16

Index for Notes to the Condensed Consolidated FinancialStatements
Goodwill with a provisionallyan assigned value of $9.2$9.4 billion represents the excess of the consideration transferred over the estimated fair values of assets acquired and liabilities assumed. The preliminary goodwill recognized includes synergies expected to be achieved from the operations of the combined company, the assembled workforce of Sprint and intangible assets that do not qualify for separate recognition. Expected synergies from the Merger include the cost savings from the planned integration of network infrastructure, facilities, personnel and systems. NoneNaN of the goodwill resulting from the Merger is deductible for tax purposes. All of the goodwill acquired is allocated to the Wirelesswireless reporting unit.

Other intangible assets include $4.9 billion of subscribercustomer relationships with an 8 yeara weighted-average useful life of eight years and tradenames of $207 million with a useful life of 2two years. Leased spectrum arrangements that have favorable (asset) and unfavorable (liability) terms compared to current market rates were provisionally assigned fair values of $790$745 million and $197$125 million, respectively, with 18-year and 19-year weighted average useful lives, respectively.

The preliminary fair value of Spectrum licenses of $45.4 billion was estimated using the income approach, and thespecifically a Greenfield Method.model. This fair value measurement is based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement as defined in ASC 820.820: Fair Value Measurement. The key assumptions in applying the income approach include the discount rate, estimated market share, estimated capital and operating expenditures, forecasted service revenue and forecasted subscribera long-term growth rates and revenue over an estimated period of timerate for a hypothetical market participant that enters the wireless industry and builds a nationwide wireless network.

Acquired Receivables

The fair value of the assets acquired includeincludes Accounts receivable of $1.6$1.8 billion and EIPEquipment installment plan (“EIP”) receivables of $1.3 billion. The unpaid principal balance under these contracts is $1.7as of April 1, 2020, the date of the Merger, was $1.8 billion and $1.6 billion, respectively.The difference between the fair value and the unpaid principal balance primarily represents amounts expected to be uncollectible.

Indemnification Assets and Contingent Liabilities

Pursuant to Amendment No 2. to the Business Combination Agreement, SoftBank agreed to indemnify us against certain specified matters and losses. As of the Merger closeacquisition date, we recorded a contingent liability and June 30, 2020, we have not recorded an offsetting indemnification asset or contingent liability associated with these matters asfor the potential liabilities and associatedexpected reimbursement by SoftBank cannot be reasonably estimated.for certain Lifeline matters. The liability is presented in Accounts payable and accrued liabilities, and the indemnification asset is presented in Other current assets within our acquired assets and liabilities at the acquisition date. In November 2020, we entered into a consent decree with the FCC to resolve certain Lifeline matters, which resulted in a payment of $200 million by SoftBank. Final resolution of this matter could require making additional reimbursements and paying additional fines and penalties, which we do not expect to have a significant impact on our financial results. We expect that any liability incurredadditional liabilities related to these indemnified matters would be indemnified and reimbursed by SoftBank. See

Deferred Taxes
Note 17 - Commitments
As a result of the Merger, we acquired deferred tax assets for which a valuation allowance reserve is deemed to be necessary, as well as additional uncertain tax benefit reserves. The amount of the valuation allowance reserve and Contingencies for further information.uncertain tax benefit reserves was $851 million and $660 million, respectively.

Transaction Costs

We recognized transaction costs of $145$13 million and $25$38 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $184 million and $51 million for the six months ended June 30, 2020 and 2019, respectively. These costs were associated with legal and professional services and were recognized as Selling, general and administrative expenses in our Condensed Consolidated Statements of Comprehensive Income.
11


Index for Notes to the Condensed Consolidated Financial Statements
Pro Forma Information

The following unaudited pro forma financial information gives effect to the Merger transactionsTransactions as if they had been completed on January 1, 2019. The unaudited pro forma information was prepared in accordance with the requirements of ASC 805,805: Business Combinations, which is a different basis than pro forma information prepared under Article 11 of Regulation S-X (“Article 11”). As such, they are not directly comparable with historical results for stand-alone T-Mobile prior to April 1, 2020, historical results for T-Mobile from April 1, 2020 that reflect the Merger transactionsTransactions and are inclusive of the results and operations of Sprint, nor our previously provided pro forma financials prepared in accordance with Article 11. The pro forma results for the three and six months ended June 30,March 31, 2020 and 2019, include the impact of several significant nonrecurring pro forma adjustments to previously reported operating results. The pro forma adjustments are based on historically reported transactions by the respective companies. The pro forma results do not include any anticipated synergies or other expected benefits of the acquisition.
Three Months Ended June 30,Six Months Ended June 30,
(in millions, except per share amounts)2020201920202019
Total revenues$17,665  $17,460  $35,073  $35,079  
Income (loss) from continuing operations(35) 728  1,070  (1,071) 
Income from discontinued operations, net of tax320  423  677  846  
Net income (loss)285  1,154  1,747  (218) 
(in millions)Three Months Ended March 31, 2020
Total revenues$17,408 
Income from continuing operations1,111 
Income from discontinued operations, net of tax357 
Net income1,468 

Significant nonrecurring pro forma adjustments include:
17

Index for Notes to the Condensed Consolidated FinancialStatements
Transaction costs of $542$57 million that were incurred during the three months ended March 31, 2020 are assumed to have occurred on the pro forma close date of January 1, 2019, and are recognized as if incurred in the first quarter of 2019;
The Prepaid Business divested on July 1, 2020, is assumed to have been classified as discontinued operations as of January 1, 2019, and the related activities are presented in Income from discontinued operations, net of tax;
Permanent financing issued and debt redemptions occurring in connection with the closing of the Merger are assumed to have occurred on January 1, 2019, and historical interest expense associated with repaid borrowings is removed;
Tangible and intangible assets are assumed to be recorded at their assignedestimated fair values as of the pro forma close date of January 1, 2019 and are depreciated or amortized over their estimated useful lives; and
Accounting policies of Sprint are conformed to those of T-Mobile including depreciation for leased devices, Brightstar distribution, and amortization of costs to acquire a contract as described in Note 1 - Summary of Significant Accounting Policies for further information.and certain tower lease transactions.

The selected unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations would have been had the MergerTransactions actually occurred on January 1, 2019, nor do they purport to project the future consolidated results of operations.

For the periods subsequent to the Merger date, the acquired Sprint subsidiaries contributed total revenues of $6.3 billion and operating income of $15 million that were included in our Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020.

Financing

In connection with the entry into the Business Combination Agreement, T-Mobile USA, Inc. (“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”). On April 1, 2020, in connection with the closing of the Merger, we drew down on our $19.0 billion New Secured Bridge Loan Facility and our $4.0 billion New Secured Term Loan Facility (each as defined below). We used the net proceeds from the draw-down of the secured facilities to refinance certain existing debt of us, Sprint and our and Sprint’s respective subsidiaries and for post-closing general corporate purposes of the combined company. See Note 8 – Debtfor further information.

In connection with the financing provided for in the Commitment Letter, we incurred certain fees payable to the financial institutions. On April 1, 2020, in connection with the closing of the Merger, we paid $355 million in Commitment Letter fees to certain financial institutions. 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. On April 1, 2020, in connection with the closing of the Merger, we made a payment for requisite consents to DT of $13 million. SeeNote 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. On April 1, 2020, in connection with the closing of the Merger, we made payments for requisite consents to third-party note holders of $95 million. See Note 8 – Debtfor further information.

Regulatory Matters

On June 18, 2018, we filed a Public Interest StatementThe Transactions were the subject of various legal 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,regulatory proceedings involving 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.federal agencies. In connection with those proceedings and the lawsuit,approval of the Transactions, we settled withhave certain commitments and other obligations to various state attorneys general by making
18

Index for Notes to the Condensed Consolidated FinancialStatements
commitments regarding our operations, employment and network capabilities in those states.federal agencies and certain nongovernmental organizations. See Note 171 - Commitments and Contingencies for further information. On February 11, 2020, the U.S. District Court for the Southern District of New York issued judgment in favor of us, Sprint, and the other defendants, concluding the Merger was not reasonably likely to reduce competition, and denying the plaintiffs’ request to enjoin the Merger.

On July 26, 2019, the DOJ filed a Consent Decree which was agreed to by us, DT, Sprint, SoftBank and DISH with the U.S. District Court for the District of Columbia. The Consent Decree, which was approved by the Court on April 1, 2020 (the “Final Judgment”), fully resolved the DOJ’s investigation into the Merger and requires the parties to, among other things, carry out the divestitures to be made pursuant to the Asset Purchase Agreement (defined below) upon closing of the Merger.

On April 16, 2020, the California Public Utilities Commission voted unanimously to approve the Merger of our and Sprint’s operations within the state of California with several conditions, including requirements for faster speeds, broader coverage, job creation, and offerings for low-income customers.

Prepaid Transaction

On July 26, 2019, we entered into the Asset Purchase Agreement with Sprint and DISH, pursuant to which, following the consummation of the Merger, DISH would acquire the Prepaid Business.

On June 17, 2020, the DOJ determined that we have complied with the requirement in the Final Judgment to provide DISH the ability to cross-provision any new or existing customer of the Prepaid Business with a compatible handset onto our network. In connection with the DOJ determination, on June 17, 2020, T-Mobile, Sprint and DISH entered into the First Amendment to the Asset Purchase Agreement (the “First Amendment”). Pursuant to the First Amendment, T-Mobile, Sprint and DISH agreed to proceed with the closing of the Prepaid Transaction (as defined below) in accordance with the Asset Purchase Agreement on July 1, 2020, subject to the terms and conditions of the Asset Purchase Agreement and the terms and conditions of the Final Judgment.

Subsequent to June 30, 2020, on July 1, 2020, pursuant to the Asset Purchase Agreement, we completed the Prepaid Transaction. Upon closing of the Prepaid Transaction, we received $1.4 billion from DISH for the Prepaid Business, subject to a working capital adjustment. See Note 12 - Discontinued Operations for further information.

Shenandoah Personal Communications Company Affiliate Relationship

Sprint PCS (specifically Sprint Spectrum L.P.) is party to a variety of publicly filed agreements with Shenandoah Personal Communications Company LLC (“Shentel”), pursuant to which Shentel is the exclusive provider of Sprint PCS’s wireless mobility communications network products in certain parts of Maryland, North Carolina, Virginia, West Virginia, Kentucky, Ohio and PennsylvaniaPennsylvania. Pursuant to approximately 1.1 million subscribers. T-Mobile has through at least August 29, 2020one such agreement, the Sprint PCS Management Agreement, dated November 5, 1999 (as amended, supplemented and modified from time to determine whether it will exercisetime, the “Management Agreement”), Sprint PCS was granted an option to purchase Shentel’s wireless telecommunications network assets. Shouldassets used to provide services pursuant to the Management Agreement. On August 26, 2020, Sprint, now our direct subsidiary, on behalf of and as the direct or indirect owner of Sprint PCS, exercised its option by delivering a binding notice of exercise to Shentel. The exercise of this option triggered a requirement for the parties to engage three independent valuation providers to calculate the “entire business value” (the “Entire Business Value”) of such wireless telecommunications assets, pursuant to a formula and valuation process prescribed in the Management Agreement.

12

Index for Notes to the Condensed Consolidated Financial Statements
On February 1, 2021, in accordance with the Management Agreement and other agreed-upon terms, the Entire Business Value of Shentel’s wireless telecommunication assets used to provide services pursuant to the Management Agreement was determined to be $2.1 billion, and correspondingly, the base purchase price for such wireless telecommunication assets shall be ninety percent (90%) of that Entire Business Value amount ($1.9 billion), subject to certain other purchase price adjustments prescribed by the Management Agreement and such additional purchase price adjustments agreed by the parties. The parties are negotiating the remaining outstanding terms of a definitive agreement to govern the purchase option, there will be an appraisal process, which could be subjectof Shentel’s wireless telecommunication assets and expect the transaction to various legal challenges. If Sprint PCS declines to do so, Shentel has an opportunity to purchase the legacy T-Mobile wireless telecommunications network assetsclose in the Shentel service area and, should it declinethird quarter of 2021 after satisfying customary conditions to do so within 60 days, the affiliate agreement states that Sprint PCS must sell or decommission T-Mobile’s legacy wireless telecommunications network assets and transfer subscribers in the Shentel service area within two years.closing.

Note 3 – Receivables and Expected Credit Losses

We maintain an allowance for expected credit losses that assesses the lifetime credit losses that we expect to incur related to our receivable portfolio segments. Each period, management assesses the appropriateness of the level of allowance for credit losses by considering credit risk inherent within each portfolio segment as of period end.

We consider a receivable past due when a customer has not paid us by the contractually specified payment due date. Account balances are written off against the allowance for credit losses if collection efforts are unsuccessful and the receivable balance is deemed uncollectible, based on factors such as customer credit ratings as well as the length of time the amounts are past due.

Our portfolio of receivables is comprised of 2 portfolio segments: accounts receivable and EIP receivables.

Accounts Receivable Portfolio Segment

Our accounts receivable segment primarily consists of amounts currently due from customers, including service and leased device receivables, handsetdevice insurance administrators, wholesale partners, other carriers and third-party retail channels.channels and other carriers.

We estimate expected credit losses associated with our accounts receivable portfolio using an aging schedule methodology that utilizes historical information and current conditions to develop expected credit losses by aging bucket, including for receivables that are not past due.

To determine the appropriate credit loss percentages by aging bucket, we consider a number of factors, including our overall historical credit losses, net of recoveries and timely payment experience as well as current collection trends such as write-off
19

Index for Notes to the Condensed Consolidated FinancialStatements
frequency and severity, credit quality of the customer base, and other qualitative factors such as macro-economic conditions, including the expected economic impacts of the COVID-19 pandemic.pandemic (the “Pandemic”).

We consider the need to adjust our estimate of expected credit losses for reasonable and supportable forecasts of future economic conditions. To do so, we monitor professional forecasts of changes in real U.S. gross domestic product and forecasts of consumer credit behavior for comparable credit exposures. We also periodically evaluate other economic indicators such as unemployment rates to assess their level of correlation with our historical credit loss statistics.

EIP Receivables Portfolio Segment

Based upon customer credit profiles at the time of customer origination, we classify the EIP receivables segment into 2 customer classes of “Prime” and “Subprime.” Prime customer receivables are those with lower credit risk and Subprime customer receivables are those with higher credit risk. Customers may be required to make a down payment on their equipment purchases. In addition, certain customers within the Subprime category are required to pay an advancea 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.

Installment loans acquired in the Merger are included in EIP receivables. We applied our proprietary credit scoring model to the customers acquired in the Merger with an outstanding EIP receivable balance. Based on tenure, consumer credit risk score and credit profile, these acquired customers were classified into our customer classes of Prime or Subprime. Our proprietary credit scoring model is applied to all EIP arrangements originated after the Merger close date.

13

Index for Notes to the Condensed Consolidated Financial Statements
The following table summarizes the EIP receivables, including imputed discounts and related allowance for credit losses:
(in millions)June 30, 2020December 31, 2019
EIP receivables, gross (1)
$5,084  $4,582  
Unamortized imputed discount(229) (299) 
EIP receivables, net of unamortized imputed discount4,855  4,283  
Allowance for credit losses (2)
(262) (100) 
EIP receivables, net of allowance for credit losses and imputed discount$4,593  $4,183  
Classified on the balance sheet as:
Equipment installment plan receivables, net of allowance for credit losses and imputed discount$3,194  $2,600  
Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount1,399  1,583  
EIP receivables, net of allowance for credit losses and imputed discount$4,593  $4,183  
(1) Through the Merger, we acquired EIP receivables with a fair value of $1.3 billion as of April 1, 2020. As they were recorded at fair value, an imputed discount was not recognized on the acquired receivables.
(2) Allowance for credit losses as of June 30, 2020 was impacted by the cumulative effect of initially applying the new credit loss standard on our receivables portfolio on January 1, 2020, which resulted in an increase to our allowance for credit losses of $91 million.
(in millions)March 31,
2021
December 31,
2020
EIP receivables, gross$6,698 $6,213 
Unamortized imputed discount(356)(325)
EIP receivables, net of unamortized imputed discount6,342 5,888 
Allowance for credit losses(280)(280)
EIP receivables, net of allowance for credit losses and imputed discount$6,062 $5,608 
Classified on the balance sheet as:
Equipment installment plan receivables, net of allowance for credit losses and imputed discount$3,841 $3,577 
Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount2,221 2,031 
EIP receivables, net of allowance for credit losses and imputed discount$6,062 $5,608 

We manage our EIP receivables portfolio using delinquency and customer credit class and tenure as key credit quality indicators. As a part of the adoption of the new credit loss standard, we now disclose our EIP receivables portfolio disaggregated by origination year. EIP receivables acquired through the Merger are also presented by origination year. The following table presents the amortized cost of our EIP receivables by delinquency status, customer credit class, and year of origination as of June 30, 2020.March 31, 2021:

Originated in 2020Originated in 2019Originated prior to 2019Total EIP Receivables, net of
unamortized imputed discounts
Originated in 2021Originated in 2020Originated prior to 2020Total EIP Receivables, net of
unamortized imputed discounts
(in millions)(in millions)PrimeSubprimePrimeSubprimePrimeSubprimePrimeSubprimeGrand total(in millions)PrimeSubprimePrimeSubprimePrimeSubprimePrimeSubprimeGrand total
Current - 30 days past dueCurrent - 30 days past due$973  $1,222  $1,041  $1,034  $291  $146  $2,305  $2,402  $4,707  Current - 30 days past due$1,180 $1,005 $1,999 $1,455 $383 $225 $3,562 $2,685 $6,247 
31 - 60 days past due31 - 60 days past due 17  12  29    22  51  73  31 - 60 days past due13 20 21 30 51 
61 - 90 days past due61 - 90 days past due   15     25  34  61 - 90 days past due10 13 20 
More than 90 days past dueMore than 90 days past due   19    10  31  41  More than 90 days past due11 17 24 
EIP receivables, net of unamortized imputed discountEIP receivables, net of unamortized imputed discount$985  $1,253  $1,064  $1,097  $297  $159  $2,346  $2,509  $4,855  EIP receivables, net of unamortized imputed discount$1,185 $1,011 $2,022 $1,496 $390 $238 $3,597 $2,745 $6,342 

20

Index for Notes to the Condensed Consolidated FinancialStatements
We estimate expected credit losses on our EIP receivables by using historical data adjusted for current conditions to calculate default probabilities for our outstanding EIP loans. We consider various risk characteristics when calculating default probabilities, such as how long such loans have been outstanding, customer credit ratings, customer tenure, delinquency status and other correlated variables identified through statistical analyses. We multiply these estimated default probabilities by our estimated loss given default, which considers recoveries.

As we do for our accounts receivable portfolio segment, we consider the need to adjust our estimate of expected losses on EIP receivables for reasonable and supportable forecasts of economic conditions through monitoring of external professional forecasts and periodic internal statistical analyses, including the expected economic impacts of the COVID-19 pandemic.Pandemic.

For EIP receivables acquired in the Merger, the difference between the fair value and unpaid principal balance of the loan at the
acquisition date is accreted to interest income over the contractual life of the loan using the effective interest method. EIP receivables had a combined weighted average effective interest rate of 7.7% and 8.8%6.7% as of June 30, 2020both March 31, 2021 and December 31, 2019, respectively.2020.

14

Index for Notes to the Condensed Consolidated Financial Statements
Activity for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, in the allowance for credit losses and unamortized imputed discount balances for the accounts receivable and EIP receivables segments were as follows:
June 30, 2020June 30, 2019March 31, 2021March 31, 2020
(in millions)(in millions)Accounts Receivable AllowanceEIP Receivables AllowanceTotalAccounts Receivable AllowanceEIP Receivables AllowanceTotal(in millions)Accounts Receivable AllowanceEIP Receivables AllowanceTotalAccounts Receivable AllowanceEIP Receivables AllowanceTotal
Allowance for credit losses and imputed discount, beginning of periodAllowance for credit losses and imputed discount, beginning of period$61  $399  $460  $67  $449  $516  Allowance for credit losses and imputed discount, beginning of period$194 $605 $799 $61 $399 $460 
Beginning balance adjustment due to implementation of the new credit loss standardBeginning balance adjustment due to implementation of the new credit loss standard—  91  91  —  —  —  Beginning balance adjustment due to implementation of the new credit loss standard91 91 
Bad debt expenseBad debt expense178  168  346  31  113  144  Bad debt expense28 54 82 42 71 113 
Write-offs, net of recoveriesWrite-offs, net of recoveries(56) (96) (152) (37) (127) (164) Write-offs, net of recoveries(79)(54)(133)(34)(61)(95)
Change in imputed discount on short-term and long-term EIP receivablesChange in imputed discount on short-term and long-term EIP receivablesN/A10  10  N/A89  89  Change in imputed discount on short-term and long-term EIP receivablesN/A66 66 N/A
Impact on the imputed discount from sales of EIP receivablesImpact on the imputed discount from sales of EIP receivablesN/A(81) (81) N/A(84) (84) Impact on the imputed discount from sales of EIP receivablesN/A(35)(35)N/A(36)(36)
Allowance for credit losses and imputed discount, end of periodAllowance for credit losses and imputed discount, end of period$183  $491  $674  $61  $440  $501  Allowance for credit losses and imputed discount, end of period$143 $636 $779 $69 $469 $538 

Off-Balance-Sheet Credit Exposures

We do not have material, unmitigated off-balance-sheet credit exposures as of June 30, 2020.March 31, 2021. In connection with the sales of certain service and EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price assets included in our Condensed Consolidated Balance Sheets 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 for further information.

Note 4 – Sales of Certain Receivables

We have entered into transactions to sell certain service accounts receivable and EIP receivables. The transactions, including our continuing involvement with the sold receivables and the respective impacts to our condensed consolidated financial statements, are described below.

In conjunction with the Merger, the total principal amount outstanding under Sprint’s accounts receivable facilitySales of $2.3 billion was repaid on April 1, 2020, and the facility was terminated.EIP Receivables

Overview of the Transaction

In 2015, we entered into an arrangement to sell certain EIP receivables on a revolving basis (the “EIP sale arrangement”). The maximum funding commitment of the sale arrangement is $1.3 billion. The scheduled expiration date of the EIP sale arrangement is November 18, 2021.

On April 30, 2020, we agreed with the purchaser banks to update our collection policies to temporarily allow for flexibility for modifications to the EIP receivables sold that are impacted by the Pandemic and exclusion of such EIP receivables from all pool performance triggers.

As of both March 31, 2021 and December 31, 2020, 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 over which we do not exercise any level of control, nor does the third-party entity qualify as a VIE.

15

Index for Notes to the Condensed Consolidated Financial Statements
Variable Interest Entity

We determined that the EIP BRE is a VIE as its equity investment at risk lacks the obligation to absorb a certain portion of its expected losses. We have a variable interest in the EIP BRE and have determined that we are the primary beneficiary based on our ability to direct the activities which most significantly impact the EIP BRE’s economic performance. Those activities include selecting which receivables are transferred into the EIP BRE and sold in the EIP sale arrangement and funding of the EIP BRE. Additionally, our equity interest in the EIP BRE obligates us to absorb losses and gives us the right to receive benefits from the EIP BRE that could potentially be significant to the EIP BRE. Accordingly, we include the balances and results of operations of the EIP BRE in our condensed consolidated financial statements.

The following table summarizes the carrying amounts and classification of assets, which consist primarily of the deferred purchase price, and liabilities included in our Condensed Consolidated Balance Sheets with respect to the EIP BRE:
(in millions)March 31,
2021
December 31,
2020
Other current assets$390 $388 
Other assets113 120 
Other long-term liabilities

In addition, the EIP BRE is a separate legal entity with its own separate creditors who will be entitled, prior to any liquidation of the EIP BRE, to be satisfied prior to any value in the EIP BRE becoming available to us. Accordingly, the assets of the EIP BRE may not be used to settle our general obligations and creditors of the EIP BRE have limited recourse to our general credit.

Sales of Service Accounts Receivable

Overview of the Transaction

In 2014, we entered into an arrangement to sell certain service accounts receivable on a revolving basis (the “service receivable sale arrangement”). The maximum funding commitment of the service receivable sale arrangement is $950 million, and the facility expires in March 2021.2022. As of June 30, 2020March 31, 2021 and December 31, 2019,2020, the service receivable sale arrangement provided funding of $914$775 million and $924$772 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.
21

Index for Notes to the Condensed Consolidated FinancialStatements

In connection with the service receivable sale arrangement, we formed a wholly-ownedwholly owned subsidiary, which qualifies as a bankruptcy remote entity, to sell service accounts receivable (the “Service BRE”). The Service BRE does not qualify as a VIE, and dueIn March 2021, we amended the sale arrangement to conform its structure to the significantEIP sale arrangement (the “March 2021 Amendment”). This involved, among other things, removal of an unaffiliated special purpose entity that we did not consolidate under the original structure and changes in contractual counterparties. While the amendment simplified the structure of the arrangement making it more efficient, it did not impact the maximum funding commitment under, or the level of control we exercise overfunding provided by, the entity, it is consolidated. facility.

Pursuant to the amended service receivable sale arrangement, certain of our wholly-owned subsidiaries transferwholly owned subsidiary transfers selected receivables to the Service BRE. The Service BRE then sells the receivables to ana non-consolidated and unaffiliated third-party entity (the “Service VIE”),over which was established to facilitate the salewe do not exercise any level of beneficial ownership interests in the receivables to certain third parties.control and which does not qualify as a VIE.

Variable Interest Entity

WePrior to the March 2021 Amendment, the Service BRE did not qualify as a VIE, but due to the significant level of control we exercised over the entity, it was consolidated.

The March 2021 Amendment to the service receivable sale arrangement triggered a VIE reassessment, and we determined that the Service VIEBRE now qualifies as a VIE as it lacks sufficient equity to finance its activities.VIE. We have a variable interest in the Service VIE butBRE and have determined that we are not the primary beneficiary as we lack the powerbased on our ability to direct the activities that most significantly impact the Service VIE’sBRE’s economic performance. Those activities include committing the Service VIE to legal agreements to purchase or sell assets, selecting which receivables are purchasedtransferred into the Service BRE and sold in the service receivable sale arrangement determining whetherand funding the Service VIE will sell interestsBRE. Additionally, our equity interest in the purchased service receivablesService BRE obligates us to other parties, funding ofabsorb losses and gives us the entity and servicing of receivables. We do not hold the powerright 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 ofreceive benefits from the Service VIE, we are acting as an agent in our capacity as the servicer, and the counterpartyBRE that could potentially be significant 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. AsService BRE. Accordingly, we have determined we are not the primary beneficiary,include the balances and results of operations of the Service VIE are not includedBRE in our condensed consolidated financial statements.

16

Index for Notes to the Condensed Consolidated Financial Statements
The following table summarizes the carrying amounts and classification of assets, which consist primarily of the deferred purchase price, and liabilities included in our Condensed Consolidated Balance Sheets that relatewith respect to our variable interest in the Service VIE:
(in millions)June 30, 2020December 31, 2019
Other current assets$352  $350  
Accounts payable and accrued liabilities—  25  
Other current liabilities360  342  

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. In February 2020, we amended the EIP sale arrangement to provide for an alternative advance rate methodology for the EIP accounts receivables sold in the EIP sale arrangement and to make certain other administrative changes.

On April 30, 2020, we agreed with the purchaser banks to update our collection policies to temporarily allow for flexibility for modifications to the accounts receivable sold that are impacted by COVID-19 and exclusion of such accounts receivable from all pool performance triggers.

As of both June 30, 2020 and December 31, 2019, 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.
22

Index for Notes to the Condensed Consolidated FinancialStatements
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 condensed consolidated financial statements.

The following table summarizes the carrying amounts and classification of assets, which consists primarily of the deferred purchase price, and liabilities included in our Condensed Consolidated Balance Sheets that relate to the EIP BRE:
(in millions)(in millions)June 30, 2020December 31, 2019(in millions)March 31,
2021
December 31,
2020
Other current assetsOther current assets$383  $344  Other current assets$268 $378 
Other assets107  89  
Other long-term liabilities 18  
Other current liabilitiesOther current liabilities248 357 

In addition, the EIPService BRE is a separate legal entity with its own separate creditors who will be entitled, prior to any liquidation of the EIPService BRE, to be satisfied prior to any value in the EIPService BRE becoming available to us. Accordingly, the assets of the EIPService BRE may not be used to settle our general obligations, and creditors of the EIPService 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 Condensed 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 Condensed 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. WeAt inception, 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 Condensed Consolidated Statements of Comprehensive Income. The fair value of the deferred purchase price is determined based on a discounted cash flow model which uses primarily unobservableLevel 3 inputs, (Level 3 inputs), including customer default rates. As of June 30, 2020March 31, 2021 and December 31, 2019,2020, our deferred purchase price related to the sales of service receivables and EIP receivables was $841$769 million and $781$884 million, respectively.

The following table summarizes the impact of the sale of certain service receivables and EIP receivables in our Condensed Consolidated Balance Sheets:
(in millions)(in millions)June 30, 2020December 31, 2019(in millions)March 31,
2021
December 31,
2020
Derecognized net service receivables and EIP receivablesDerecognized net service receivables and EIP receivables$2,606  $2,584  Derecognized net service receivables and EIP receivables$2,537 $2,528 
Other current assetsOther current assets735  694  Other current assets658 766 
of which, deferred purchase priceof which, deferred purchase price733  692  of which, deferred purchase price656 764 
Other long-term assetsOther long-term assets107  89  Other long-term assets113 120 
of which, deferred purchase priceof which, deferred purchase price107  89  of which, deferred purchase price113 120 
Accounts payable and accrued liabilities—  25  
Other current liabilitiesOther current liabilities360  342  Other current liabilities248 357 
Other long-term liabilitiesOther long-term liabilities 18  Other long-term liabilities
Net cash proceeds since inceptionNet cash proceeds since inception1,839  1,944  Net cash proceeds since inception1,737 1,715 
Of which:Of which:Of which:
Change in net cash proceeds during the year-to-date periodChange in net cash proceeds during the year-to-date period(105) 65  Change in net cash proceeds during the year-to-date period22 (229)
Net cash proceeds funded by reinvested collectionsNet cash proceeds funded by reinvested collections1,944  1,879  Net cash proceeds funded by reinvested collections1,715 1,944 

We recognized lossesa gain from sales of receivables, including adjustments to the receivables’ fair values and changes in fair value of the deferred purchase price, of $30$18 million and $28a loss from sales of receivables of $25 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $55 million and $63 million for the six months ended June 30, 2020 and 2019, respectively, in Selling, general and administrative expense in our Condensed Consolidated Statements of Comprehensive Income.

2317

Index for Notes to thethe Condensed Consolidated FinancialFinancial Statements
Continuing Involvement

Pursuant to the sale arrangements described above, we have continuing involvement with the service receivables and EIP receivables we sell as we service the receivables, and are required to repurchase certain receivables, including ineligible receivables, aged receivables and receivables where write-off is imminent.imminent, and may be responsible for absorbing credit losses through reduced collections on our deferred purchase price assets. We continue to service the customers and their related receivables, including facilitating customer payment collection, in exchange for a monthly servicing fee. As the receivables are sold on a revolving basis, the customer payment collections on sold receivables may be reinvested in new receivable sales. At the direction of the purchasers of the sold receivables, we apply the same policies and procedures while servicing the sold receivables as we apply to our owned receivables, and we continue to maintain normal relationships with our customers. 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 June 30, 2020. 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.program.

Note 5 – Property and Equipment

The components of property and equipment were as follows:
(in millions)Useful LivesJune 30, 2020December 31, 2019
Land$236  $—  
Buildings and equipmentUp to 40 years3,554  2,587  
Wireless communications systemsUp to 20 years43,876  34,353  
Leasehold improvementsUp to 12 years1,666  1,345  
Capitalized softwareUp to 10 years15,020  12,705  
Leased wireless devicesUp to 19 months7,605  1,139  
Construction in progress3,933  2,973  
Accumulated depreciation and amortization(37,089) (33,118) 
Property and equipment, net$38,801  $21,984  

We capitalize interest associated with the acquisition or construction of certain property and equipment and spectrum intangible assets. We recognized capitalized interest of $119 million and $125 million for the three months ended June 30, 2020 and 2019, respectively, and $231 million and $243 million for the six months ended June 30, 2020 and 2019, respectively.

Total depreciation expense relating to property and equipment and financing lease right-of-use assets was $3.7 billion and $1.6 billion for the three months ended June 30, 2020 and 2019, respectively, and $5.4 billion and $3.1 billion for the six months ended June 30, 2020 and 2019, respectively. These amounts include depreciation expense related to leased wireless devices of $947 million and $125 million for the three months ended June 30, 2020 and 2019 respectively, and $1.1 billion and $309 million for the six months ended June 30, 2020 and 2019, respectively.

Asset retirement obligations are primarily for certain legal obligations to remediate leased property on which our network infrastructure and administrative assets are located.
24

Index for Notes to the Condensed Consolidated FinancialStatements
Activity in our asset retirement obligations was as follows:
(in millions)Six Months Ended June 30, 2020Twelve Months Ended
December 31, 2019
Asset retirement obligations, beginning of year$659  $609  
Fair value of liabilities acquired through Merger1,062  —  
Liabilities incurred 35  
Liabilities settled—  (2) 
Accretion expense22  32  
Changes in estimated cash flows—  (15) 
Asset retirement obligations, end of period$1,749  $659  
Classified on the balance sheet as:
Other long-term liabilities$1,749  $659  

The corresponding assets, net of accumulated depreciation, related to asset retirement obligations were $1.1 billion and $159 million as of June 30, 2020 and December 31, 2019, respectively.

Postpaid Billing System Impairment

In connection with the continuing integration of the businesses following the Merger, we evaluated the long-term billing system architecture strategy for our postpaid customers. In order to facilitate customer migration from the Sprint legacy billing platform, our postpaid billing system replacement plan and associated development will no longer serve our future needs. As a result, we recorded a non-cash impairment of $200 million related to capitalized software development costs for the three and six months ended June 30, 2020. The expense is included within Impairment expense in our Condensed Consolidated Statements of Comprehensive Income. There were 0 impairments recognized for the three and six months ended June 30, 2019.

Note 6 – Goodwill, Spectrum License Transactions and Other Intangible Assets

Goodwill

The changes in the carrying amount of goodwill for the sixthree months ended June 30, 2020March 31, 2021 and year ended December 31, 2019,2020, are as follows:
(in millions)Goodwill
Historical goodwill, net of accumulated impairment losses of $10,766$1,901 
Goodwill from acquisition in 201929 
Balance as of December 31, 20191,930 
Goodwill from acquisition of Sprintacquisitions in 20209,1989,405 
Layer3 goodwill impairment(218)
Balance as of December 31, 202011,117 
Purchase price adjustment of goodwill from acquisitions in 202022 
Goodwill from acquisitions in 202119 
Balance as of June 30, 2020March 31, 2021$10,91011,158 
Accumulated impairment losses at June 30, 2020March 31, 2021$(10,984)

On April 1, 2020, we completed our Merger with Sprint, which was accounted for as a business combination resulting in $9.2$9.4 billion in goodwill. The acquired goodwill was allocated to the Wirelesswireless reporting unit and will be tested for impairment at this level. See Note 2 - Business Combination for further information.

Goodwill Impairment Assessment

Certain non-financial assets, including goodwill and indefinite-lived intangible assets, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, these assets are required to be assessed for impairment when events or circumstances indicate that carrying value may not be recoverable, and at least annually for goodwill and indefinite-lived intangible assets. Accordingly, the nonrecurring measurement of the fair value of these assets are classified within Level 3 of the fair value hierarchy. In the event an impairment is required, the asset is adjusted to fair value, using market-based assumptions.

Our enhanced in-home broadband opportunity following the Merger, along with the acquisition of certain content rights, has created a strategic shift in our TVisionTM Home service offering allowing us the ability to develop a video product that will be complementary to the in-home broadband offering. As a result of the change in the stand-alone product offering plans and
25

Index for Notes to the Condensed Consolidated FinancialStatements
timing, we completed an interim goodwill impairment analysis for the Layer3 reporting unit and recognized a goodwill impairment of $218 million for the three and six months ended June 30, 2020. The expense is included within Impairment expense in our Condensed Consolidated Statements of Comprehensive Income. There were no goodwill impairments recognized for the three and six months ended June 30, 2019.

Application of the goodwill impairment test requires judgment including the determination of the fair value of the reporting unit. We employed an income approach to assess the fair value of the Layer3 reporting unit based on the present value of estimated future cash flows. Inherent in our preparation of cash flow projections are assumptions and estimates derived from a review of our business plans, expected growth rates, cost of capital and tax rates. We also made certain forecasts about future business strategies and economic conditions, market data, and other assumptions, such as estimates of subscribers for TVision services, average revenue and content cost per subscriber. The discount rate used was based on the weighted average cost of capital adjusted for the risk associated with business-specific characteristics and the uncertainty related to the business’s ability to execute on the projected cash flows.

Intangible Assets

Identifiable Intangible Assets Acquired

The following table summarizes the fair value of the intangible assets acquired in the Merger:
Weighted Average Useful Life (in years)Fair Value (inas of April 1, 2020
(in
millions)
Spectrum licensesIndefinite-lived$45,400 
Tradenames(1)
2 years207 
Customer relationships8 years4,900 
Favorable spectrum leases18 years790745 
Patent rights7 years51 
Other intangible assets7 years428 377 
Total intangible assets acquired$51,72551,680 
(1) Tradenames include the Sprint brandbrand.

Spectrum licenses are issued for a fixed period of time, typically for up to fifteen15 years; however, the FCC has granted license renewals routinely and at a nominal cost. The spectrum licenses acquired expire at various dates and we believe we will be able to meet all requirements necessary to secure renewal of our spectrum licenses at a nominal cost. Moreover, we determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our spectrum licenses. Therefore, we determined the spectrum licenses should be treated as indefinite-lived intangible assets. The fair value of spectrum licenses includes the value associated with aggregating a nationwide portfolio of owned and leased spectrum.

18

Index for Notes to the Condensed Consolidated Financial Statements
Favorable spectrum leases represent a lease contract where the market rate is higher than the future contractual lease payments. We lease this spectrum from third parties who hold the spectrum licenses. As these contracts pertain to intangible assets, they are excluded from the lease accounting guidance (ASC 842) and are accounted for as service contracts in which the expense is recognized on a straight-line basis over the lease team. Favorable spectrum leases of $790$745 million were recorded as an intangible asset as a result of purchase accounting and will beare amortized on a straight-line basis over the associated remaining lease term. Additionally, we recognized unfavorable spectrum lease liabilities of $200$125 million, which are also amortized over their respective remaining lease terms and are included in Other liabilities in our Condensed Consolidated Balance Sheets.

The customer relationshipsrelationship intangible assets represent the value associated with the acquired Sprint customers. The customer relationship intangible assets are amortized using the sum-of-the-yearssum-of-the-years’ digits method over periods of up to eight years.

Other intangible assets are amortized over the remaining period that the asset is expected to provide benefit to us.

Spectrum Licenses

The following table summarizes our spectrum license activity for the sixthree months ended June 30, 2020:
26

Index for Notes to the Condensed Consolidated FinancialStatements
March 31, 2021:
(in millions)20202021
Spectrum licenses, beginning of year$36,46582,828 
Spectrum license acquisitions98772 
Spectrum licenses acquired in Merger45,400 
Costs to clear spectrum181 
Spectrum licenses, end of period$82,87082,901 

Spectrum Transactions

In March 2020,2021, the FCCFederal Communications Commission (“FCC”), announced that we were the winning bidder of 2,384142 licenses in Auction 103 (37/39 GHz and 47 GHz spectrum bands)107 (C-band spectrum) for an aggregate purchase price of $873 million, net of an incentive payment of $59 million.$9.3 billion, excluding relocation costs. At the inception of Auction 103107 in October 2019,2020, we deposited $82 million with the FCC.$438 million. Upon conclusion of Auction 103107 in March 2020, we made a down payment of $93 million for the purchase price of the licenses won in the auction. On April 8, 2020,2021, we paid the FCC the remaining $698 million of the purchase price$8.9 billion for the licenses won in the auction. PriorWe expect to the Merger, the FCC announced that Sprint was the winning bidder of 127 licensesincur an additional $1.2 billion in Auction 103 (37/39 GHz and 47 GHz spectrum bands). All payments related to the licenses won were made by Sprint prior the Merger.relocation costs which will be paid through 2024.

The licensesaggregate cash payments made to the FCC are included in Spectrum licensesOther assets as of March 31, 2021 in our Condensed Consolidated Balance Sheets, asand will remain there until the corresponding licenses are received. The timing of June 30, 2020.when the licenses will be issued will be determined by the FCC after all post-auction procedures have been completed. Cash payments to acquire spectrum licenses and payments for costs to clear spectrum are included in Purchases of spectrum licenses and other intangible assets, including deposits in our Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 2020.March 31, 2021.

In April 2020, we acquired FCC licenses in the 800 MHz, 1.9 GHz, and 2.5 GHz bands as part of the Merger with Sprint at an estimated fair value of approximately $45.4 billion. See Note 2 - Business Combination for further information.

Other Intangible Assets

The components of Other intangible assets were as follows:
Useful LivesJune 30, 2020December 31, 2019Useful LivesMarch 31, 2021December 31, 2020
(in millions)(in millions)Gross AmountAccumulated AmortizationNet AmountGross AmountAccumulated AmortizationNet Amount(in millions)Useful LivesGross AmountAccumulated AmortizationNet AmountGross AmountAccumulated AmortizationNet Amount
Customer relationshipsCustomer relationshipsUp to 8 years$6,004  $(1,392) $4,612  $1,104  $(1,104) $—  Customer relationshipsUp to 8 years$4,903 $(1,153)$3,750 $4,900 $(865)$4,035 
Tradenames and patentsTradenames and patentsUp to 19 years590  (315) 275  323  (258) 65  Tradenames and patentsUp to 19 years603 (461)142 598 (412)186 
Favorable spectrum leasesFavorable spectrum leasesUp to 27 years790  (12) 778  —  —  —  Favorable spectrum leasesUp to 27 years741 (44)697 790 (35)755 
OtherOtherUp to 10 years477  (104) 373  100  (50) 50  OtherUp to 10 years377 (74)303 377 (55)322 
Other intangible assetsOther intangible assets$7,861  $(1,823) $6,038  $1,527  $(1,412) $115  Other intangible assets$6,624 $(1,732)$4,892 $6,665 $(1,367)$5,298 

Amortization expense for intangible assets subject to amortization was $387$366 million and $18$25 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $411 million and $35 million for the six months ended June 30, 2020 and 2019, respectively.

19

Index for Notes to the Condensed Consolidated Financial Statements
The estimated aggregate future amortization expense for intangible assets subject to amortization are summarized below:
(in millions)(in millions)Estimated Future Amortization(in millions)Estimated Future Amortization
Twelve Months Ending June 30,
2021$1,406  
Twelve Months Ending March 31,Twelve Months Ending March 31,
202220221,096  2022$1,154 
20232023904  2023941 
20242024749  2024785 
20252025590  2025627 
20262026468 
ThereafterThereafter1,293  Thereafter917 
TotalTotal$6,038  Total$4,892 
Substantially all of the estimated future amortization expense is associated with intangible assets acquired in the Merger.

27

Index for Notes to the Condensed Consolidated FinancialStatements
Note 76 – Fair Value Measurements

The carrying values of Cash and cash equivalents, Accounts receivable, Accounts receivable from affiliates, Accounts payable and accrued liabilities and borrowings under vendor financing arrangements with our primary network equipment suppliers 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 designate certain derivatives as hedging instruments in a qualifying hedge accounting relationship (cash flow hedge) to help minimize significant, unplanned fluctuations in cash flows caused by interest rate volatility. We do not use derivatives for trading or speculative purposes.
We record interest rate lock derivatives on our Condensed 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 Condensed Consolidated Statements of Cash Flows as the item being hedged.Rate Lock Derivatives
In October 2018, we entered into interest rate lock derivatives with notional amounts of $9.6 billion. In November 2019, we extended the mandatory termination date on our interest rate lock derivatives to June 3, 2020. For the three months ended March 31, 2020, we made net collateral transfers to certain of our derivative counterparties totaling $580 million, which included variation margin transfers to (or from) such derivative counterparties based on daily market movements. No amounts were transferred into the three months ended June 30,derivative counterparties subsequent to March 31, 2020. These collateral transfers are included in Net cash related to derivative contracts under collateral exchange arrangements within Net cash used in investing activities in our Condensed Consolidated Statements of Cash Flows.

We recorded interest rate lock derivatives on our Condensed Consolidated Balance Sheets at fair value that was 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 Condensed Consolidated Statements of Cash Flows as the item being hedged.

Aggregate changes in the fair value of the interest rate lock derivatives, net of tax and amortization, of $1.6 billion are presented in Accumulated other comprehensive loss as of both March 31, 2021 and December 31, 2020.
Between April 2 toand April 6, 2020, in connection with the issuance of an aggregate of $19.0 billion inof Senior Secured Notes bearing interest rates ranging from 3.500% to 4.500% and maturing in 2025 through 2050, we terminated our interest rate lock derivatives. See Note 8 - Debt for further information regarding the issuance of Senior Secured Notes. At the time of termination, the interest rate lock derivatives were a liability of $2.3 billion, of which $1.2 billion was cash-collateralized. The cash flows associated with the settlement of interest rate lock derivatives are presented on a gross basis in our Condensed Consolidated Statements of Cash Flows, with the total cash payments to settle the swaps of $2.3 billion presented in changes in Other current and long-term liabilities within Net cash provided by operating activities and the return of cash collateral of $1.2 billion presented as an inflow in Net cash related to derivative contracts under collateral exchange arrangements within Net cash used in investing activities.

The fair value of interest rate lock derivatives was a liability of $1.2 billion as of December 31, 2019, and was included in Other current liabilities in our Condensed Consolidated Balance Sheets. Aggregate changes in fair value, net of tax, of $1.7 billion and $868 million are presented in Accumulated other comprehensive loss as of June 30, 2020 and December 31, 2019, respectively.

Upon the terminationissuance of debt to which the hedged interest rate lock derivatives,risk related, we began amortizing the Accumulated other comprehensive loss with the derivatives into Interest expense.expense in a manner consistent with how the hedged interest payments affect earnings. For both the three and six months ended June 30, 2020, $39March 31, 2021, $46 million was amortized from Accumulated other comprehensive loss into Interest expense in the Condensed Consolidated Statements of Comprehensive Income. NaN amounts were amortized into Interest expense for the three months ended March 31, 2020. We expect to amortize $182$192 million of the Accumulated other comprehensive loss associated with the derivatives into interestInterest expense over the next 12 months.

20

Index for Notes to the Condensed Consolidated Financial Statements
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.

28

Index for Notes to the Condensed Consolidated FinancialStatements
The carrying amounts and fair values of our deferred purchase price assets, which are measured at fair value on a recurring basis and are included in our Condensed Consolidated Balance Sheets, were as follows:
Level within the Fair Value HierarchyJune 30, 2020December 31, 2019
(in millions)Carrying AmountFair ValueCarrying AmountFair Value
Assets:
Deferred purchase price assets3$841  $841  $781  $781  
$769 million and $884 million at March 31, 2021 and December 31, 2020, respectively. Fair value was equal to carrying amount at March 31, 2021 and December 31, 2020.

Debt

The fair value of our Senior Unsecured Notes and Senior Secured Notes and Secured Term Loan Facility to third parties was determined based on quoted market prices in active markets, and therefore were classified as Level 1 within the fair value hierarchy. The fair valuesvalue of our Senior Notes to affiliates and Incremental Term Loan Facility to affiliates werewas 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 and Incremental Term Loan Facility 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 and Incremental Term Loan Facility to affiliates. The fair value estimates were based on information available as of June 30, 2020,March 31, 2021 and December 31, 2019.2020. 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 Condensed Consolidated Balance Sheets were as follows:
Level within the Fair Value HierarchyJune 30, 2020December 31, 2019Level within the Fair Value HierarchyMarch 31, 2021December 31, 2020
(in millions)(in millions)
Carrying Amount (1)
Fair Value (1)
Carrying Amount (1)
Fair Value (1)
(in millions)Level within the Fair Value Hierarchy
Carrying Amount (1)
Fair Value (1)
Carrying Amount (1)
Fair Value (1)
Liabilities:Liabilities:Liabilities:
Senior Unsecured Notes to third partiesSenior Unsecured Notes to third parties1$34,354  $35,751  $10,958  $11,479  Senior Unsecured Notes to third parties1$34,648 $36,563 $29,966 $32,450 
Senior Notes to affiliatesSenior Notes to affiliates25,941  6,231  9,986  10,366  Senior Notes to affiliates24,721 4,941 4,716 4,991 
Senior Secured Notes to third partiesSenior Secured Notes to third parties127,998  30,909  —  —  Senior Secured Notes to third parties135,983 37,821 36,204 40,519 
Incremental Term Loan Facility to affiliates2—  —  4,000  4,000  
Secured Term Loan Facility to third parties13,896  4,000  —  —  
(1) Excludes $353$186 million and $25$240 million as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively, in vendor financing arrangements and other debt as the carrying values approximate fair value primarily due to the short-term maturities of majority of these instruments.

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 Condensed Consolidated Balance Sheets.

The carrying amounts of our guarantee liabilities measured at fair value on a non-recurring basis included in our Condensed Consolidated Balance Sheets were $51 million and $62 million as of June 30, 2020, and December 31, 2019, 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 $2.8 billion as of June 30, 2020. 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.

29

Index for Notes to the Condensed Consolidated FinancialStatements
Note 8 -7 – Debt

The following table sets forth the debt balances and activity as of, and for the sixthree months ended, June 30, 2020March 31, 2021:
(in millions)(in millions)December 31, 2019
Proceeds from Issuances and Borrowings (1)
Assumed Debt (2)
Note Redemptions (1)
Repayments (4)
Reclassifications (1)
Other (3)
June 30, 2020(in millions)December 31,
2020
Proceeds from Issuances and Borrowings (1)
Note Redemptions (1)
Repayments
Reclassifications (1)
Other (2)
March 31,
2021
Short-term debtShort-term debt$25  $18,782  $2,760  $(18,749) $(394) $1,395  $(1) $3,818  Short-term debt$4,579 $$$(274)$144 $(26)$4,423 
Long-term debtLong-term debt10,958  26,594  29,037  —  (2,310) (1,395) (101) 62,783  Long-term debt61,830 6,758 (1,964)(144)(85)66,395 
Total debt to third partiesTotal debt to third parties10,983  45,376  31,797  (18,749) (2,704) —  (102) 66,601  Total debt to third parties66,409 6,758 (1,964)(274)(111)70,818 
Short-term debt to affiliates—  —  —  (2,000) —  3,231   1,235  
Long-term debt to affiliatesLong-term debt to affiliates13,986  (13) —  (6,041) —  (3,231)  4,706  Long-term debt to affiliates4,716 4,721 
Total debtTotal debt$24,969  $45,363  $31,797  $(26,790) $(2,704) $—  $(93) $72,542  Total debt$71,125 $6,758 $(1,964)$(274)$$(106)$75,539 
(1)Issuances and borrowings, note redemptions, and reclassifications are recorded net of related issuance costs, discounts and premiums. Includes the issuance of $38 million in vendor financing agreements as well as payments for requisite consents to DT and third-party note holders of $13 million and $95 million, respectively, made on April 1, 2020 in connection with closing of the Merger, which were recognized as a reduction to Long-term debt in our Condensed Consolidated Balance Sheets.
(2)In connection with the Merger, we assumed certain of Sprint’s indebtedness, as described below.
(3)Other includes the amortization of premiums, discounts, debt issuance costs and consent fees.
(4)
In conjunction with
Our effective interest rate, excluding the Merger,impact of derivatives and capitalized interest, was approximately 4.3% and 5.2% for the three months ended March 31, 2021 and 2020, respectively, on weighted average debt outstanding of $73.7 billion and $25.0 billion for the three months ended March 31, 2021 and 2020, respectively. The weighted average debt outstanding was calculated by applying an average of the monthly ending balances of total principal amount outstanding under Sprint’s accounts receivable facilityshort-term and long-term debt and short-term and long-term debt to affiliates, net of $2.3 billion was repaid on April 1, 2020,unamortized premiums, discounts, debt issuance costs and the facility was terminated.consent fees.

21

Index for Notes to the Condensed Consolidated Financial Statements
Issuances and Borrowings

During the sixthree months ended June 30, 2020,March 31, 2021, we issued the following Senior Secured Notes and entered into the following Secured loan facilities:Notes:
(in millions)Principal IssuancesDiscounts and Issuance CostsNet Proceeds from Issuance of Long-Term DebtIssue Date
3.500% Senior Secured Notes due 2025$3,000  $12  $2,988  April 9, 2020
3.750% Senior Secured Notes due 20274,000  17  3,983  April 9, 2020
3.875% Senior Secured Notes due 20307,000  78  6,922  April 9, 2020
4.375% Senior Secured Notes due 20402,000  47  1,953  April 9, 2020
4.500% Senior Secured Notes due 20503,000  24  2,976  April 9, 2020
1.500% Senior Secured Notes due 20261,000   995  June 24, 2020
2.050% Senior Secured Notes due 20281,250   1,242  June 24, 2020
2.550% Senior Secured Notes due 20311,750  12  1,738  June 24, 2020
Total of Senior Secured Notes issued$23,000  $203  $22,797  
Secured bridge loan facility due 2021$19,000  $257  $18,743  April 1, 2020
Secured term loan facility due 20274,000  107  3,893  April 1, 2020
Total of Secured loan facilities issued$23,000  $364  $22,636  
Total Issuances and Borrowings$46,000  $567  $45,433  
(in millions)Principal IssuancesIssuance CostsNet Proceeds from Issuance of Long-Term DebtIssue Date
2.250% Senior Notes due 2026$1,000 $(7)$993 January 14, 2021
2.625% Senior Notes due 20291,000 (7)993 January 14, 2021
2.875% Senior Notes due 20311,000 (7)993 January 14, 2021
2.625% Senior Notes due 20261,200 (7)1,193 March 23, 2021
3.375% Senior Notes due 20291,250 (7)1,243 March 23, 2021
3.500% Senior Notes due 20311,350 (7)1,343 March 23, 2021
Total of Senior Notes issued$6,800 $(42)$6,758 

Commitment Letter

In connection with the entry into the Business Combination Agreement, T-Mobile USA entered into the Commitment Letter, with certain financial institutions named therein that committed to provide up to $27.0 billion in secured debt financing through May 1, 2020, including a $4.0 billion secured revolving credit facility, a $4.0 billion secured term loan facility, and a $19.0 billion secured bridge loan facility. The funding of the debt facilities provided for in the Commitment Letter was subject to the satisfaction of the conditions set forth therein, including consummation of the Merger.Credit Facilities

On April 1,October 30, 2020, in connection with the closing of the Merger, T-Mobile USA and certain of its affiliates, as guarantors,we entered into a Bridge Loan Credit Agreement with certain financial institutions named therein, providing for a $19.0$5.0 billion
30

Index for Notes to the Condensed Consolidated FinancialStatements
secured bridge loan facility (“New Secured Bridge Loan Facility”). The New Secured Bridge Loan Facility bears interest at a rate equal to a per annum rate of LIBOR plus a margin of 1.25% and matures on March 31, 2021.

On April 1, 2020, in connection with the closing of the Merger, T-Mobile USA and certain of its affiliates, as guarantors, entered into a Credit Agreement (the “New Credit Agreement”) with certain financial institutions named therein, providing for a $4.0 billion secured term loan facility (“New Secured Term Loan Facility”) and a $4.0 billion revolving credit facility (“New Revolving Credit Facility”). The New Secured Term Loan Facility bears interest at a rate equal to a per annum rate of LIBOR plus a margin of 3.00% and matures on April 1, 2027. The New Revolving Credit Facility bears interest at a rate equal to a per annum rate of LIBOR plus a margin of 1.25% with the margin subject to a reduction to 1.00% if T-Mobile’s Total First Lien Net Leverage Ratio (as defined in the New Credit Agreement) is less than or equal to 0.75 to 1.00. The commitments under the New Revolving Credit Facility mature on April 1, 2025. The New Credit Agreement contains customary representations, warranties and covenants, including a financial maintenance covenant of 3.3x with respect to T-Mobile’s Total First Lien Net Leverage Ratio commencing with the period ending September 30, 2020 and excess cash flow prepayment requirements commencing with the fiscal year ending December 31, 2021.

On April 1, 2020, in connection with the closing of the Merger, we drew down on our $19.0 billion New Secured Bridge Loan Facility and our $4.0 billion New Secured Term Loan Facility. We used the net proceeds of $22.6 billion from the draw down of the secured facilities to repay our $4.0 billion Incremental Term Loan Facility with DT and to repurchase from DT $4.0 billion of indebtedness to affiliates, consisting of $2.0 billion of 5.300% Senior Notes due 2021 and $2.0 billion of 6.000% Senior Notes due 2024, as well as to redeem certain debt of Sprint and Sprint’s subsidiaries, including the secured term loans due 2024 with a total principal amount outstanding of $5.9 billion, accounts receivable facility with a total amount outstanding of $2.3 billion, and Sprint’s 7.250% Guaranteed Notes due 2028 with a total principal amount outstanding of $1.0 billion, and for post-closing general corporate purposes of the combined company.

In connection with the financing provided for in the Commitment Letter, we incurred certain fees payable to the financial institutions, including certain financing fees on the senior secured term loan commitment and fees for structuring, funding, and providing the commitments.with certain financial institutions. On April 1, 2020, in connection with the closingJanuary 14, 2021, we issued an aggregate of $3.0 billion of Senior Notes. A portion of the Merger,senior secured term loan commitment was reduced by an amount equal to the aggregate gross proceeds of the Senior Notes, which reduced the commitment to $2.0 billion. On March 23, 2021, we paid $355 million in Commitment Letter fees to certain financial institutions.issued an aggregate of $3.8 billion of Senior Notes. The senior secured term loan commitment was terminated upon the issuance of the $3.8 billion of Senior Notes.

Senior Secured Notes

On April 9, 2020, T-Mobile USAJanuary 14, 2021, we issued $1.0 billion of 2.250% Senior Notes due 2026, $1.0 billion of 2.625% Senior Notes due 2029, and certain$1.0 billion of its affiliates, as guarantors, issued an aggregate of $19.0 billion in2.875% Senior Secured Notes bearing interest rates ranging from 3.500% to 4.500% and maturing in 2025 through 2050, and used the net proceeds of $18.8 billion together with cash on hand to repay all of the outstanding amounts under, and terminate, our $19.0 billion New Secured Bridge Loan Facility, as described above.due 2031.

On June 24, 2020, T-Mobile USA and certainMarch 23, 2021, we issued $1.2 billion of its affiliates, as guarantors, issued an aggregate of $4.0 billion in Senior Secured Notes bearing interest rates ranging from 1.500% to 2.550% and maturing in 2026 through 2031. The Senior Secured Notes were issued for refinancing callable2.625% Senior Notes and, subsequent to the issuance, we delivered and expect to deliver the noticesdue 2026, $1.25 billion of redemption on certain3.375% Senior Notes as set forth below under “Senior Secureddue 2029, and $1.35 billion of 3.500% Senior Notes – Redemptions and Repayments” and “Senior Notes to Affiliates.”
31

Index for Notes to the Condensed Consolidated FinancialStatements
due 2031.

Debt AssumedNote Redemption

In connection with the Merger,On March 27, 2021, we assumed the following indebtedness of Sprint:
(in millions)Fair value as of April 1, 2020Principal Outstanding as of June 30, 2020Carrying Value as of June 30, 2020
7.250% Senior Notes due 2021$2,324  $2,250  $2,312  
7.875% Senior Notes due 20234,682  4,250  4,653  
7.125% Senior Notes due 20242,746  2,500  2,733  
7.625% Senior Notes due 20251,677  1,500  1,669  
7.625% Senior Notes due 20261,701  1,500  1,694  
3.360% Senior Secured Series 2016-1 A-1 Notes due 2021 (1)
1,310  1,094  1,092  
4.738% Senior Secured Series 2018-1 A-1 Notes due 2025 (1)
2,153  2,100  2,150  
5.152% Senior Secured Series 2018-1 A-2 Notes due 2028 (1)
1,960  1,838  1,957  
7.000% Senior Notes due 20201,510  1,500  1,503  
11.500% Senior Notes due 20211,105  1,000  1,090  
6.000% Senior Notes due 20222,372  2,280  2,363  
6.875% Senior Notes due 20282,834  2,475  2,826  
8.750% Senior Notes due 20322,649  2,000  2,640  
Accounts receivable facility2,310  —  —  
Other debt464  362  353  
Total Debt Assumed$31,797  $26,649  $29,035  
(1)In connection with the closing of the Merger, we assumed Sprint’s spectrum-backed notes which are collateralized by the acquired directly held and third-party leased Spectrum licenses. See “Spectrum Financing” section below for further information.
32

Index for Notes to the Condensed Consolidated FinancialStatements

Redemptions and Repayments

During the six months ended June 30, 2020, we repaid the following loan facilities and redeemed the following Senior Notes to affiliates:
(in millions)Principal Amount
Write-off of Premiums and Issuance Costs (1)
Other (2)
Redemption or Repayment DateRedemption Price
Secured bridge loan facility due 2021$19,000  $251  $(47) April 9, 2020100 %
Total of Secured loan facility with Third Parties redeemed$19,000  $251  $(47) 
5.300% Senior Notes to affiliates due 2021 (3)
$2,000  $—  $—  April 1, 2020100 %
6.000% Senior Notes to affiliates due 2024 (3)
1,350(26) —  April 1, 2020100 %
6.000% Senior Notes to affiliates due 2024 (3)
650(15) —  April 1, 2020100 %
Incremental term loan facility to affiliates due 20222,000—  —  April 1, 2020100 %
Incremental term loan facility to affiliates due 20242,000—  —  April 1, 2020100 %
Total of Senior Notes and Incremental term loan facilities to affiliates redeemed$8,000  $(41) $—  
Total Redemptions$27,000  $210  $(47) 
Accounts receivable facility$2,310  $—  $—  April 1, 2020100 %
3.360% Senior Secured Series 2016-1 A-1 Notes due 2021219  —  —  June 1, 2020N/A
Other debt175  —  —  VariousN//A
Total Repayments$2,704  $—  $—  

(1)Write-off of premiums and issuance costs are included in Other expense, net in our Condensed Consolidated Statements of Comprehensive Income. Write-off of issuance costs are included in Loss on redemption of debt within Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows.
(2)Primarily represents a reimbursement of a portion of the commitment letter fees that were paid to financial institutions when we drew down on the Secured Bridge Loan Facility on April 1, 2020 and is included in Other expense, net in our Condensed Consolidated Statements of Comprehensive Income.
(3)Pursuant to the Financing Matters Agreement, the Senior Notes were effectively redeemed through a repurchase and were cancelled and retired in full on April 1, 2020.

On April 9, 2020, we repaid all of the outstanding amounts under, and terminated,our $19.0 billion New Secured Bridge Loan Facility. Additionally, in connection with the repayment of our New Secured Bridge Loan Facility, we received a reimbursement of $71 million, which represents a portion of the Commitment Letter fees that were paid to certain financial institutions when we drew down on the New Secured Bridge Loan Facility on April 1, 2020. The reimbursement is presented in Other expense, net in our Condensed Consolidated Statements of Comprehensive Income.

Prior to June 30, 2020, we delivered a notice of redemption on $1.0$2.0 billion aggregate principal amount of our 6.500% Senior Notes due 2024.2026. The notes were redeemed on July 4, 2020 at a redemption price equal to 102.170%103.250% of the principal amount of the notes (plus accrued and unpaid interest thereon), payableand were paid on July 6, 2020.March 26, 2021. The redemption premium was approximately $22$65 million and the write-offwrite off of issuance costs and consent fees was approximately $12 million. The outstanding principal amount$36 million, which was reclassified from Long-term debt to Short-term debtincluded in our Condensed Consolidated Balance Sheets as of June 30, 2020. We also delivered a notice of redemption on $1.25 billion aggregate principal amount of our 5.125% Senior Notes to affiliates due 2021, as further described below under “Senior Notes to Affiliates.”

In August 2020, we expect to deliver a notice of redemption on $1.7 billion aggregate principal amount of our 6.375% Senior Notes due 2025 and expect to redeem the Senior Notes on September 1, 2020.

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 lock up on sales thereby as to certain Senior Notes of T-Mobile USA held thereby. 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 Condensed Consolidated Balance Sheets. On April 1, 2020, in connection with the closing of the Merger, we:

33

Index for Notes to the Condensed Consolidated FinancialStatements
Repaid our $4.0 billion Incremental Term Loan Facility with DT, consisting of a $2.0 billion Incremental Term Loan Facility due 2022 and a $2.0 billion Incremental Term Loan Facility due 2024;
Terminated our revolving credit facility;
Repurchased from DT $4.0 billion of indebtedness to affiliates, consisting of $2.0 billion of 5.300% Senior Notes due 2021 and $2.0 billion of 6.000% Senior Notes due 2024;
Amended the $1.25 billion of 5.125% Senior Notes due 2025 and $1.25 billion of 5.375% Senior Notes due 2027, which represent indebtedness to affiliates, to change the maturity dates thereof to April 15, 2021 and April 15, 2022, respectively (the “2025 and 2027 Amendments”); and
Made an additional payment for requisite consents to DT of $13 million. These payments were recognized as a reduction to Long-term debt to affiliates in our Condensed 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 Debt Amendments (as defined below under “Consents on Debt to Third Parties”) and the 2025 and 2027 Amendments became effective immediately prior to the consummation of the Merger.

Senior Notes to Affiliates

Prior to June 30, 2020, we delivered a notice of redemption on $1.25 billion aggregate principal amount of our 5.125% Senior Notes to affiliates due 2021. The notes were redeemed on July 4, 2020 at a redemption price equal to 100% of the principal amount of the notes (plus accrued and unpaid interest thereon), payable on July 6, 2020. The write-off of discounts were approximately $15 million. The outstanding principal amount was reclassified from Long-term debt to Short-term debt in our Condensed Consolidated Balance Sheets as of June 30, 2020.

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 the greater of $9.0 billion and 150% of Consolidated Cash Flow to the greater of $9.0 billion and an amount that would not cause the Secured Debt to Cash Flow Ratio (calculatedOther expense, net of cash and cash equivalents) to exceed 2.00x (the “Ratio Secured Debt Amendments”) and in each case as such capitalized term is defined in the Indenture. In connection with receiving the requisite consents for the Ratio Secured Debt 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 Condensed 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 Amendments,” and together with the Ratio Secured Debt Amendments, the “Debt Amendments”). In connection with receiving the requisite consents for the Existing Sprint Spectrum and GAAP 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 Condensed 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 Indenture, pursuant to which, with respect to each of the Notes, the Debt Amendments would 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 Debt Amendments of $6 million during the second quarter of 2018, which we recognized as Selling, general and administrative expenses in our Condensed Consolidated Statements of Comprehensive Income. On April 1, 2020, in connection with the closingIncome and Losses on redemption of the Merger, we made additional payments to third-party note holders for requisite consents related to the Ratio Secured Debt Amendments of $54
34

Index for Notes to the Condensed Consolidated FinancialStatements
million and related to the Existing Sprint Spectrum and GAAP Amendments of $41 million. These payments were recognized as a reduction to Long-term debt in our Condensed Consolidated Balance Sheets. These payments increased the effective interest rateStatements of the related debt.

Spectrum Financing

On April 1, 2020, in connection with the closing of the Merger, we assumed Sprint’s spectrum-backed notes which are collateralized by the acquired directly held and third-party leased Spectrum licenses (collectively, “Spectrum Portfolio“) transferred to wholly-owned bankruptcy-remote special purpose entities (collectively, “Spectrum Financing SPEs”). As of June 30, 2020, the total outstanding obligations under these Notes was $5.0 billion.

In October 2016, certain subsidiaries of Sprint Communications, Inc. transferred the Spectrum Portfolio to the Spectrum Financing SPEs, which was used as collateral to raise an initial $3.5 billion in senior secured notes (the “2016 Spectrum-Backed Notes”) bearing interest at 3.360% per annum under a $7.0 billion securitization program. The 2016 Spectrum-Backed Notes are repayable over a five-year term, with interest-only payments over the first four quarters and amortizing quarterly principal payments thereafter commencing December 2017 through September 2021. During the quarter ended June 30, 2020, we made scheduled principal repayments of $219 million, resulting in a total principal amount outstanding related to the 2016 Spectrum-Backed Notes of $1.1 billion as of June 30, 2020, of which $875 million was classified as Short-term debt in the Condensed Consolidated Balance Sheets.

In March 2018, Sprint issued approximately $3.9 billion in aggregate principal amount of senior secured notes (the “2018 Spectrum-Backed Notes”, and together with the 2016 Spectrum-Backed Notes, the “Spectrum-Backed Notes”) under the existing $7.0 billion securitization program, consisting of 2 series of senior secured notes. The first series of notes totaled $2.1 billion in aggregate principal amount, bears interest at 4.738% per annum, and has quarterly interest-only payments until June 2021, and amortizing quarterly principal amounts thereafter commencing in June 2021 through March 2025. As of June 30, 2020, $131 million of the aggregate principal amount was classified as Short-term debt in the Condensed Consolidated Balance Sheets. The second series of notes totaled approximately $1.8 billion in aggregate principal amount, bears interest at 5.152% per annum, and has quarterly interest-only payments until June 2023, and amortizing quarterly principal amounts thereafter commencing in June 2023 through March 2028. The Spectrum Portfolio, which also serves as collateral for the Spectrum-Backed Notes, remains substantially identical to the original portfolio from October 2016.

Simultaneously with the October 2016 offering, Sprint Communications, Inc. entered a long-term lease with the Spectrum Financing SPEs for the ongoing use of the Spectrum Portfolio. Sprint Communications, Inc. is required to make monthly lease payments to the Spectrum Financing SPEs in an aggregate amount that is market-based relative to the spectrum usage rights as of the closing date and equal to $165 million per month. The lease payments, which are guaranteed by T-Mobile subsidiaries, are sufficient to service all outstanding series of the 2016 Spectrum Backed Notes and the lease also constitutes collateral for the senior secured notes. Because the Spectrum Financing SPEs are wholly owned T-Mobile US subsidiaries, these entities are consolidated and all intercompany activity has been eliminated.

Each Spectrum Financing SPE is a separate legal entity with its own separate creditors who will be entitled, prior to and upon the liquidation of the respective Spectrum Financing SPE, to be satisfied out of the Spectrum Financing SPE’s assets prior to any assets of such Spectrum Financing SPE becoming available to T-Mobile. Accordingly, the assets of each Spectrum Financing SPE are not available to satisfy the debts and other obligations owed to other creditors of T-Mobile until the obligations of such Spectrum Financing SPE under the spectrum-backed senior secured notes are paid in full. Certain provisions of the Spectrum Financing facility require us to maintain specified cash collateral balances. Amounts associated with these balances are considered to be restricted cash.Cash Flows.

Restricted Cash

Certain provisions of our debt agreements require us to maintain specified cash collateral balances. Amounts associated with these balances are considered to be restricted cash.

Standby Letters of Credit
Note 8 – Tower Obligations

For the purposes of securing our obligations to provide handset insurance services and for purposes of securing our general purpose obligations, we maintain standby letters of credit with certain financial institutions. We assumed certain of Sprint’s standby letters of credit in the Merger. Our outstanding standby letters of credit were $631 million and $113 million as of June 30, 2020 and December 31, 2019, respectively.

35

Index for Notes to the Condensed Consolidated FinancialStatements
Note 9 –Existing CCI Tower ObligationsLease Arrangements

In 2012, we conveyed to CCICrown Castle International Corp. (“CCI”) the exclusive right to manage and operate approximately 7,1006,200 tower sites (“CCI Lease Sites”) via a master prepaid lease with site lease terms ranging from 23 to 37 years (the “2012 Tower Transaction”). CCI has fixed-price purchase options for the CCI Lease Sites totaling approximately $2.0 billion, exercisable at the end of the lease term. We lease back a portion of the space at certain tower sites for an initial term of ten10 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 that lease space at the tower sites. Liabilities included the obligation to pay ground lease rentals, property taxes and other executory costs. Upon closing of
22

Index for Notes to the 2012 Tower Transaction, CCI acquired 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.Condensed Consolidated Financial Statements

We determined the SPEs containing the CCI Lease Sites (“Lease Site SPEs”) are VIEs as ourthey lack sufficient equity investment lacksto finance their activities. We have a variable interest in the Lease Site VIE but are not the primary beneficiary as we lack the power to direct the activities that most significantly impact the Lease Site VIE’s economic performance of the VIEs.performance. These activities include managing tenants and underlying ground leases, performing repair and maintenance on the towers, the obligation to absorb expected losses and the right to receive the expected future residual returns from the purchase option to acquire the CCI Lease Sites. As we determined that we are not the primary beneficiary and do not have a controlling financial interest in the Lease Site SPEs, the balances and operating results of the Lease Site SPEs are not included in our condensed consolidated financial statements.

Due to our continuing involvement withHowever, we also considered if this arrangement resulted in the sale of the CCI Lease Sites for which we would de-recognize the tower sites,assets. By assessing whether control had transferred, we previously determinedconcluded that transfer of control criteria, as discussed in the revenue standard, were not met. Accordingly, we were precluded from applying sale-leaseback accounting.recorded this arrangement as a financing whereby we recorded debt, a financial obligation, and the CCI Lease Sites tower assets remained on our balance sheet. We recorded long-term financial obligations in the amount of the net proceeds received and recognizedrecognize interest on the tower obligations at a rate of approximately 8% using the effective interest method. The tower obligations are increased by interest expense and amortized through contractual leaseback payments made by us to CCI and through net cash flows generated and retained by CCI from operation of the tower sites. The principal payments on the tower obligations are included in Other, net within Net cash provided by (used in) financing activities in our Condensed Consolidated Statements of Cash Flows.Our historical tower site asset costs are reported in Property and equipment, net in our Condensed Consolidated Balance Sheets and are depreciated.

Upon adoption of the lease accounting guidance (ASC 842), 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.

Acquired CCI Tower Lease Arrangements

Prior to the Merger, Sprint entered into a lease-out and leaseback arrangement with Global Signal Inc., a third party that was subsequently acquired by CCI, wherebythat conveyed to CCI the third party would leaseexclusive right to manage and operate approximately 6,400 tower sites (“Master Lease Sites”) or otherwise manage (“Managed Sites”) approximately 6,400 cell sites which included the towers and related assets.via a master prepaid lease. These agreements were assumed upon the close of the Merger, at which point the remaining term of the lease-out was approximately 17years with no renewal options. T-Mobile leases back space on certain of these towers. CCI has a fixed-pricefixed price purchase option for all (but not less than all) of the leased or subleased sites for approximately $2.3 billion, exercisable one year prior to the expiration of the agreement and ending 120 days prior to the expiration of the agreement. We lease back a portion of the space at certain tower sites for an initial term of 10 years, followed by optional renewals at customary terms.

We considered if this arrangement resulted in the sale of the Master Lease Sites for which we would de-recognize the tower assets. By assessing whether control had transferred, we concluded that transfer of control criteria, as discussed in the revenue standard, were not met. Accordingly, we recorded this arrangement as a financing whereby we recorded debt, a financial obligation, and the Master Lease Sites tower assets remained on our balance sheet.

As of the Merger close date, we recognized Property and equipment atwith a fair value of $1.5$2.8 billion and tower obligations related to amounts owed to CCI under the leaseback of $1.1 billion. Additionally, we recognized $1.7 billion asin Other long-term liabilities associated with contract terms that are unfavorable to current market rates, which includes unfavorable terms associated with the transfer of control criteriafixed-price purchase option in the revenue standard for the tower assets was not met.2037.

During the three months ended June 30, 2020, we recognizedWe recognize interest expense on the tower obligations at a rate of approximately 6% using the effective interest method. The tower obligations are increased by interest expense and amortized through contractual leaseback payments made by us to CCI. The principal payments on the tower obligations are included in Other, net within Net cash provided by (used in) financing activities in our Condensed Consolidated Statements of Cash Flows. The tower assets are reported in Property and equipment, net in our Condensed Consolidated Balance Sheets and are depreciated to their estimated residual values over the current leaseback periods, forexpected useful life of the tower, which the weighted average remaining term was six years as of June 30, 2020.is 20 years.

The following table summarizes the balances associated with both of the tower arrangements in the Condensed Consolidated Balance Sheets:
36

Index for Notes to the Condensed Consolidated FinancialStatements
(in millions)(in millions)June 30, 2020December 31, 2019(in millions)March 31,
2021
December 31,
2020
Property and equipment, netProperty and equipment, net$1,587  $198  Property and equipment, net$2,715 $2,838 
Tower obligationsTower obligations3,130  2,236  Tower obligations2,974 3,028 
Other long-term liabilitiesOther long-term liabilities1,712 1,712 

Future minimum payments related to the tower obligations are approximately $391$399 million for the year ending June 30, 2021, $763March 31, 2022, $690 million in total for the years ending June 30, 2022March 31, 2023 and 2023, $5882024, $601 million in total for years ending June 30, 2024 andMarch 31, 2025 and $7682026, and $549 million in total for years thereafter.

We are contingently liable for future ground lease payments through the remaining term of the CCI Lease Sites and the Master Lease Sites. These contingent obligations are not included in Operating lease liabilities as any amount due is contractually owed by CCI based on the subleasing arrangement. Under the Global Signal arrangement, we remain primarily liable for ground lease payments on
23

Index for Notes to the Condensed Consolidated Financial Statements
approximately 900 Managed Sitessites and have included lease liabilities of $292$282 million in our Operating lease liabilities as of June 30, 2020.March 31, 2021.

Note 109 – Revenue from Contracts with Customers

Disaggregation of Revenue

We provide wireless communications services to three primary categories of customers:

Postpaid customers generally include customers who are qualified to pay after receiving wireless communications services utilizing phones, home internet, wearables, DIGITS (a service that allows our customers to use multiple mobile numbers on any compatible smartphone or device with internet connection), or other connected devices which includes tablets and SyncUP products. Our postpaid customers include customers of T-Mobile and Sprint;
Prepaid customers generally include customers who pay for wireless communications services in advance. Our prepaid customers include customers of T-Mobile and Metro by T-Mobile;advance; and
Wholesale customers include Machine-to-Machine and Mobile Virtual Network Operator customers that operate on our network but are managed by wholesale partners.

Postpaid service revenues, including postpaid phone revenues and postpaid other revenues, were as follows:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
(in millions)(in millions)2020201920202019(in millions)20212020
Postpaid service revenuesPostpaid service revenuesPostpaid service revenues
Postpaid phone revenuesPostpaid phone revenues$9,341  $5,287  $14,918  $10,470  Postpaid phone revenues$9,483 $5,577 
Postpaid other revenuesPostpaid other revenues618  326  928  636  Postpaid other revenues820 310 
Total postpaid service revenuesTotal postpaid service revenues$9,959  $5,613  $15,846  $11,106  Total postpaid service revenues$10,303 $5,887 

We operate as a single operating segment. The balances presented within each revenue line item in our Condensed 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 handsetdevice insurance services. Revenue generated from the lease of mobile communication devices is included within Equipment revenues in our Condensed Consolidated Statements of Comprehensive Income.

We provide wireline communication services to domestic and international customers. Wireline service revenues of $211$197 million for the three and six months ended June 30, 2020 relate to the wireline operations acquired in the Merger andMarch 31, 2021 are presented in Roaming and other service revenues in our Condensed Consolidated Statements of Comprehensive Income.

Equipment revenues from the lease of mobile communication devices were as follows:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
(in millions)(in millions)2020201920202019(in millions)20212020
Equipment revenues from the lease of mobile communication devicesEquipment revenues from the lease of mobile communication devices$1,421  $143  $1,586  $304  Equipment revenues from the lease of mobile communication devices$1,041 $165 

37

Index for Notes to the Condensed Consolidated FinancialStatements
Contract Balances

The opening and closing balances of our contract asset and contract liability balances from contracts with customers as of December 31, 20192020 and June 30, 2020,March 31, 2021, were as follows:
(in millions)(in millions)Contract AssetsContract Liabilities(in millions)Contract AssetsContract Liabilities
Balance as of December 31, 2019$63  $560  
Balance as of June 30, 2020197  845  
Balance as of December 31, 2020Balance as of December 31, 2020$278 $824 
Balance as of March 31, 2021Balance as of March 31, 2021275 775 
ChangeChange$134  $285  Change$(3)$(49)

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. Through the Merger, we acquired contracts assets associated with promotional bill credits and subsidized devices with a value of $154 million as of April 1, 2020.

The change in the existing and acquired 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 $168
24

Index for Notes to the Condensed Consolidated Financial Statements
$205 million and $50$204 million as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively, was included in Other current assets in our Condensed Consolidated Balance Sheets.

Contract liabilities are recorded when fees are collected, or we have an unconditional right to consideration (a receivable) in advance of delivery of goods or services. Through the Merger, we assumed contract liabilities with a value of $252 million as of April 1, 2020. Additional changesChanges in contract liabilities are primarily related to the volume and rate plansactivity of active prepaid subscribers.customers. Contract liabilities are primarily included in Deferred revenue in our Condensed Consolidated Balance Sheets.

Revenues for the three and six months ended June 30,March 31, 2021 and 2020, and 2019, include the following:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
(in millions)(in millions)2020201920202019(in millions)20212020
Amounts included in the beginning of year contract liability balanceAmounts included in the beginning of year contract liability balance$10  $43  $538  $603  Amounts included in the beginning of year contract liability balance$683 $528 

Remaining Performance Obligations

As of June 30, 2020,March 31, 2021, the aggregate amount of transaction price allocated to remaining service performance obligations for postpaid contracts with subsidized devices and promotional bill credits that result in an extended service contract is $1.1$1.3 billion. We expect to recognize revenue as service is provided on these postpaid contracts over thean extended contract term of 24 months. Transaction price allocated to remaining service performance obligations associated with subsidized devices and promotional bill credits acquired through the Merger at April 1, 2020, was $1.0 billion.

Through the Merger, on April 1 2020, we acquired contracts associated with lease promotional credits with aggregate amount of transaction price allocated to remaining service and lease performance obligations of $4.8 billion and $2.6 billion, respectively. As of June 30, 2020,March 31, 2021, the aggregate amount of transaction price allocated to remaining service and lease performance obligations associated with operating leases was $4.4$1.3 billion and $2.5 billion,$766 million, respectively. We expect to recognize this revenue as service is provided over the lease contract term of 18 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 June 30, 2020, the aggregate amount of the contractual minimum consideration for wholesale, roaming and other service contracts is $696 million, $1.0 billion and $921 million for 2021, 2022 and 2023 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.

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 March 31, 2021, the aggregate amount of the contractual minimum consideration for wholesale, roaming and other service contracts is $1.0 billion, $1.2 billion and $945 million for 2021, 2022, and 2023 and beyond, respectively. These contracts have a remaining duration ranging from less than one year to nine years.

Contract Costs

The total balance of deferred incremental costs to obtain contracts was $939 million$1.2 billion and $906 million$1.1 billion as of June 30, 2020March 31, 2021 and December 31, 2019, respectively.2020, respectively, and is included in Other assets in our Condensed Consolidated Balance Sheets. Deferred contract costs incurred to obtain postpaid service contracts are amortized over a period of 24 months. The amortization period is monitored to reflect any significant change in assumptions. Amortization of
38

Index for Notes to the Condensed Consolidated FinancialStatements
deferred contract costs is included in Selling, general and administrative expenses in our Condensed Consolidated Statements of Comprehensive Income and was $205$248 million and $137$205 million for the three months ended June 30, 2020 and 2019, respectively, and $410 million and $253 million for the six months ended June 30, 2020 and 2019, respectively.

Immediately preceding the close of the Merger, Sprint had deferred costs to obtain postpaid contracts of approximately $1.7 billion. This balance was adjusted to zero as part of our purchase price allocation. Contract costs capitalized for new postpaid contracts will accumulate in Other assets in our Condensed Consolidated Balance Sheets from the Merger date. As a result, there will be a net benefit to Operating income in our Condensed Consolidated Statements of Comprehensive Income during the remainder of the year as capitalization of costs exceed amortization. As capitalized costs amortize into expense over time, the accretive benefit to Operating income anticipated for the remainder of the year is expected to moderate inMarch 31, 2021 and normalize in 2022.2020, 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 three and six months ended June 30, 2020March 31, 2021 and 2019.

Note 11 – Employee Compensation and Benefit Plans

Under our 2013 Omnibus Incentive Plan (the “Incentive Plan”), we are authorized to issue up to 101 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 June 30, 2020, there were approximately 25 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 the end of a performance period of generally up to three 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:
Three Months Ended June 30,Six Months Ended June 30,
(in millions, except shares, per share and contractual life amounts)2020201920202019
Stock-based compensation expense$259  $130  $397  $240  
Income tax benefit related to stock-based compensation$49  $25  $71  $45  
Weighted average fair value per stock award granted$99.80  $74.35  $96.93  $73.08  
Unrecognized compensation expense$824  $744  $824  $744  
Weighted average period to be recognized (years)2.02.02.02.0
Fair value of stock awards vested$367  $24  $815  $342  

Stock Awards

On April 1, 2020, we closed the Merger to combine T-Mobile and Sprint pursuant to the Business Combination Agreement. Pursuant to the Business Combination Agreement, upon the completion of the Merger, T-Mobile assumed Sprint’s stock compensation plans. In addition, pursuant to the Business Combination Agreement, at the Effective Time, each outstanding option to purchase Sprint common stock (other than under Sprint’s Employee Stock Purchase Plan), each award of time-based RSUs in respect of shares of Sprint common stock and each award of performance-based RSUs in respect of shares of Sprint common stock, in each case, that was outstanding as of immediately prior to the Effective Time was automatically adjusted by the Exchange Ratio (as defined in the Business Combination Agreement) and converted into an equity award of the same type covering shares of T-Mobile common stock, on the same terms and conditions, (including, if applicable, any continuing vesting requirements (but excluding any performance-based vesting conditions)) under the applicable Sprint plan and award agreement in effect immediately prior to the Effective Time (the “Assumed Awards”). The applicable amount of performance-based RSUs eligible for conversion was based on formulas and approximated 100% of target. Any accrued but unpaid dividend equivalents with respect to any such award of time-based RSUs or performance-based RSUs were assumed by T-Mobile at the Effective Time and became an obligation with respect to the applicable award of RSUs in respect of shares of T-Mobile common stock.2020.

3925

Index for Notes to the Condensed Consolidated FinancialStatements
On April 22, 2020, we filed a Form S-8 to register a total of 25,304,224 shares of common stock, representing those covered by the Sprint Corporation 1997 Long-Term Stock Incentive Program, the Sprint Corporation 2007 Omnibus Incentive Plan and the Sprint Corporation Amended and Restated 2015 Omnibus Incentive Plan that T-Mobile assumed in connection with the closing of the Merger. This included 7,043,843 shares of T-Mobile common stock issuable upon exercise or settlement of the Assumed Awards held by current directors, officers, employees and consultants of T-Mobile or its subsidiaries who were directors, officers, employees and consultants of Sprint or its subsidiaries immediately prior to the Effective Time, as well as (a) 12,420,945 shares of T-Mobile common stock that remain available for issuance under the 2015 Plan and (b) 5,839,436 additional shares of T-Mobile common stock subject to awards granted under the 2015 Plan that may become available for issuance under the 2015 Plan if any awards under the 2015 Plan are forfeited, lapse unexercised or are settled in cash.

Time-Based Restricted Stock Units and Restricted Stock Awards
(in millions, except shares, per share and contractual life amounts)Number of Units or AwardsWeighted Average Grant Date Fair ValueWeighted Average Remaining Contractual Term (Years)Aggregate Intrinsic Value
Nonvested, December 31, 201910,503,211  $67.31  0.9$824  
Assumed through acquisition1,852,527  83.90  
Granted5,484,615  95.16  
Vested(5,430,880) 68.58  
Forfeited(374,579) 78.57  
Nonvested, June 30, 202012,034,894  81.64  1.21,253  

Performance-Based Restricted Stock Units and Restricted Stock Awards
(in millions, except shares, per share and contractual life amounts)Number of Units or AwardsWeighted Average Grant Date Fair ValueWeighted Average Remaining Contractual Term (Years)Aggregate Intrinsic Value
Nonvested, December 31, 20193,803,539  $69.78  1.0$300  
Assumed through acquisition3,535,384  83.90  
Granted1,915,768  105.37  
Vested(3,457,232) 72.76  
Forfeited(130,933) 83.90  
Nonvested, June 30, 20205,666,526  83.68  0.9592  
PRSUs included in the table above are shown at target. Share payout can range from 0% to 200% based on different performance outcomes. Weighted average grant date fair value of RSU and PRSU assumed through acquisition is based on the fair value on the date assumed.

Payment of the underlying shares in connection with the vesting of RSU 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 RSU awards to cover certain of these tax obligations, with the net shares issued to the employee accounted for as outstanding common stock. We withheld 1,564,635 and 56,041 shares of common stock to cover tax obligations associated with the payment of shares upon vesting of stock awards and remitted cash of $138 million and $4 million to the appropriate tax authorities for the three months ended June 30, 2020 and 2019, respectively. We withheld 3,055,034 and 1,420,662 shares of common stock to cover tax obligations associated with the payment of shares upon vesting of stock awards and remitted cash of $279 million and $104 million to the appropriate tax authorities for the six months ended June 30, 2020 and 2019, respectively.

Employee Stock Purchase Plan

Our ESPP allows eligible employees to contribute up to 15% of their eligible earnings toward the semi-annual purchase of our shares of common stock at a discounted price, subject to an annual maximum dollar amount. Employees can purchase stock at a 15% discount applied to the closing stock price on the first or last day of the six-month offering period, whichever price is lower. The number of shares issued under our ESPP was 1,246,304 and 1,135,801 for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, the number of securities remaining available for future sale and issuance under the ESPP was 5,151,590. Sprint’s ESPP was terminated prior to the Merger close and legacy Sprint employees will be eligible to enroll in our ESPP on August 15, 2020.

Our ESPP provides for an annual increase in the aggregate number of shares of our common stock reserved for sale and authorized for issuance thereunder as of the first day of each fiscal year (beginning with fiscal year 2016) equal to the lesser of
40

Index for Notes to the Condensed Consolidated FinancialStatements
(i) 5,000,000 shares of our common stock, and (ii) the number of shares of T-Mobile common stock determined by the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”). For fiscal years 2016 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, the Layer3 TV, Inc. 2013 Stock Plan, and the Sprint 2015 Plan (collectively, the “Stock Option Plans”). No new awards may be granted under the Stock Option Plans, and no awards were granted during the six months ended June 30, 2020.

The following activity occurred under the Stock Option Plans:
SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual Term (Years)
Outstanding at December 31, 2019194,942  $13.80  2.9
Assumed through acquisition1,635,518  33.37  
Exercised(311,587) 46.92  
Expired/canceled(3,346) 45.99  
Outstanding at June 30, 20201,515,527  53.52  4.4
Exercisable at June 30, 20201,509,976  53.64  4.4
Weighted average grant date fair value of stock options assumed through acquisition is based on the fair value on the date assumed.

Stock options exercised under the Stock Option Plans generated proceeds of approximately $15 million and $1 million for the six months ended June 30, 2020 and 2019, respectively.

The grant-date fair value of share-based incentive compensation awards attributable to post-combination services, including restricted stock units and stock options, from our Merger with Sprint was approximately $163 million.

Pension Plan

Upon the completion of our Merger with Sprint, we assumed the Pension Plan which provides defined benefits and other postretirement benefits to participants. The Pension Plan was amended in 2005 to freeze plan accruals for participants. The plan assets acquired and obligations assumed were recognized at fair value on the Merger close date.

The components of net expense recognized for the Pension Plan were as follows:
(in millions)Three and Six Months Ended June 30, 2020
Interest on projected benefit obligations17 
Expected return on pension plan assets(15)
Net pension expense$

The net expense associated with the Pension Plan is included in Other expense, net of our Condensed Consolidated Statements of Comprehensive Income.

The fair value of our pension plan assets and certain other postretirement benefit plan assets in aggregate was $1.2 billion and our projected benefit obligations in aggregate was $2.1 billion as of both April 1, 2020 and June 30, 2020. As a result, the plans were underfunded by approximately $900 million as of both April 1, 2020 and June 30, 2020, and were recorded in Other long-term liabilities in our Condensed Consolidated Balance Sheets.

During the three months ended and six months ended June 30, 2020, we made contributions of $16 million to the benefit plan. No contributions were made in fiscal periods prior to April 1, 2020. We expect to make contributions to the Plan of $42 million through the year ended December 31, 2020.

41

Index for Notes to the Condensed Consolidated FinancialStatements
Employee Retirement Savings Plan

We sponsor retirement savings plans 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 $42 million and $29 million for the three months ended June 30, 2020 and 2019, respectively, and $79 million and $64 million for the six months ended June 30, 2020 and 2019, respectively.

Note 12 - Discontinued Operations

On July 26, 2019, we entered into an Asset Purchase Agreement with Sprint and DISH. On June 17, 2020, T-Mobile, Sprint and DISH entered into the First Amendment. Pursuant to the First Amendment to the Asset Purchase Agreement, T-Mobile, Sprint and DISH agreed to proceed with the closing of the Prepaid Transaction in accordance with the Asset Purchase Agreement on July 1, 2020, subject to the terms and conditions of the Asset Purchase Agreement and the terms and conditions of the Final Judgment.

Subsequent to June 30, 2020, on July 1, 2020, pursuant to the Asset Purchase Agreement, upon the terms and subject to the conditions thereof, we completed the Prepaid Transaction. Upon closing of the Prepaid Transaction, we received $1.4 billion from DISH for the Prepaid Business, subject to a working capital adjustment. The net cash received for the Prepaid Business will be presented in Cash received for disposition of companies within Net cash used in investing activities in our Condensed Consolidated Statements of Cash Flows. The close of the Prepaid Transaction did not have a significant impact on our Condensed Consolidated Statements of Comprehensive Income.

The assets of the Prepaid Business included EIP receivables originated pursuant to financed equipment purchases by customers of the Prepaid Business. At the time of the Prepaid Transaction, DISH did not hold certain licenses required to purchase or originate such contracts. In order to transfer the economics of the contracts to DISH without transferring ownership of them, the parties entered into a Participation Agreement under which we agreed to transfer a 100% participation interest in the contracts to DISH. Under the terms of the agreement, DISH retains all cash flows collected on these assets and there is no recourse against us for any credit losses on such loans. The proceeds received from DISH in exchange for this participation interest was a component of total consideration received for the Prepaid Transaction. We will temporarily continue to originate equipment installment contracts on DISH’s behalf under the same terms in exchange for an amount equal to the initial outstanding principal balance of the originated contracts, again without recourse against us for any credit losses.

Upon consummation of the Merger with Sprint, the assets and liabilities associated with the Prepaid Transaction were recorded at fair value and then subsequently classified as held for sale and are separately presented in our Condensed Consolidated Balance Sheets as of June 30, 2020. The EIP receivables balance in which DISH is acquiring a participation interest but is not acquiring ownership do not meet the criteria to be classified as held for sale.

The components of Assets held for sale were as follows:
(in millions)June 30, 2020
Assets
Accounts receivable$339 
Inventory142 
Goodwill and intangible assets1,425 
Operating lease right-of-use assets
Assets held for sale1,910 
Liabilities
Accounts payable and accrued liabilities422 
Deferred revenue180 
Operating lease liabilities
Liabilities held for sale606 
Assets held for sale, net$1,304 

No amounts were classified as held for sale as of December 31, 2019.

42


The results of the Prepaid Business include revenues and expenses directly attributable to the operations to be disposed of. Corporate and administrative expenses not directly attributable to the operations were not allocated to the Prepaid Business. The results of the Prepaid Business from April 1, 2020 through June 30, 2020 are presented in Income from discontinued operations, net of tax in our Condensed Consolidated Statements of Comprehensive Income.

The components of discontinued operations from the Merger date of April 1, 2020 through June 30, 2020 were as follows:
(in millions)Three and Six Months Ended June 30, 2020
Major classes of line items constituting pretax income from discontinued operations
Prepaid revenues$973 
Roaming and other service revenues27 
Total service revenues1,000 
Equipment revenues270 
Total revenues1,270 
Cost of services25 
Cost of equipment sales499 
Selling, general and administrative314 
Total operating expenses838 
Pretax income from discontinued operations432 
Income tax expense(112)
Income from discontinued operations$320 

Net cash provided by operating activities from the Prepaid Business included in the Condensed Consolidated Financial Statements of Cash Flows for the three and six months ended June 30, 2020, were $611 million. There were no cash flows from investing or financing related to the Prepaid Business for the three and six months ended June 30, 2020.

Continuing Involvement:
Upon the closing of the Prepaid Transaction, we and DISH entered into (i) a License Purchase Agreement pursuant to which (a) DISH has the option to purchase certain 800 MHz spectrum licenses for a total of approximately $3.6 billion in a transaction to be completed, subject to certain additional closing conditions, following an application for FCC approval to be filed three years following the closing of the Merger and (b) we will have the option to lease back from DISH, as needed, a portion of the spectrum sold for an additional two years following the closing of the spectrum sale transaction, (ii) a Transition Services Agreement providing for our provisioning of transition services to DISH in connection with the Prepaid Business for a period of up to three years following the closing of the Prepaid Transaction, (iii) a Master Network Services Agreement providing for the provisioning of network services to customers of the Prepaid Business for a period of up to seven years following the closing of the Prepaid Transaction, and (iv) an Option to Acquire Tower and Retail Assets offering DISH the option to acquire certain decommissioned towers and retail locations from us, subject to obtaining all necessary third-party consents, for a period of up to five years following the closing of the Prepaid Transaction.

In the event DISH breaches the License Purchase Agreement or fails to deliver the purchase price following the satisfaction or waiver of all closing conditions, DISH’s sole liability is to pay us a fee of approximately $72 million. Additionally, if DISH does not exercise the option to purchase the 800 MHz spectrum licenses, we have an obligation to offer the licenses for sale through an auction. If the specified minimum price of $3.6 billion was not met in the auction, we would retain the licenses. As the sale of 800 MHz spectrum licenses is not expected to close within one year, the criteria for presentation as an asset held for sale is not met.

Note 13 – Income Taxes

Within our Condensed Consolidated Statements of Comprehensive Income, we recorded Income tax expense on continuing operations of $2 million and $301 million for the three months ended June 30, 2020 and 2019, respectively, and $308 million and $596 million for the six months ended June 30, 2020 and 2019, respectively. The change for the three and six months ended June 30, 2020 was primarily from lower income before income taxes.

The effective tax rate from continuing operations was negative 0.7% for the three months ended June 30, 2020 and 24.4% for the three months ended June 30, 2019, and 29.4% and 24.4% for the six months ended June 30, 2020 and 2019, respectively.

43

Index for Notes to the Condensed Consolidated FinancialStatements
The negative effective income tax rate for the three months ended June 30, 2020, due to a small pre-tax loss, was primarily attributable to expenses that are not deductible for income tax purposes, including our Layer3 goodwill impairment and certain Merger-related costs.

The increase in the effective income tax rate for the six months ended June 30, 2020, was primarily due to a reduction in income before income taxes and increase in expenses that are not deductible for income tax purposes, primarily related to our Layer3 goodwill impairment and certain Merger-related costs.

As a result of the Merger, the Company acquired an estimated $1.1 billion of additional deferred tax assets for which a valuation allowance reserve is deemed to be necessary, plus an estimated $534 million in additional uncertain tax benefit reserves. Due to the size and complexity of the Merger, our estimate of these amounts is preliminary and is subject to finalization and adjustment, which could be material, during the measurement period of up to one year from the Merger date. During the measurement period, we will adjust these amounts if new information is obtained about facts or circumstances that existed as of the acquisition date that, if known, would have changed these amounts. See Note 2 - Business Combination for further information.

Note 14 - SoftBank Equity Transaction

On June 22, 2020, we entered into a Master Framework Agreement (the “Master Framework Agreement”), by and among the Company, SoftBank, SoftBank Group Capital Ltd, a wholly-owned subsidiary of SoftBank (“SBGC”), Delaware Project 4 L.L.C., a wholly-owned subsidiary of SoftBank, Delaware Project 6 L.L.C., a wholly-owned subsidiary of SoftBank, Claure Mobile LLC (“CM LLC”), DT, and T-Mobile Agent LLC, a wholly-owned subsidiary of the Company.

The Master Framework Agreement and related transactions were entered into to facilitate SoftBank’s monetization of a portion of our common stock held by SoftBank (the “SoftBank Monetization”). In connection with the Master Framework Agreement, DT waived the restriction on the transfer under its Proxy, Lock-Up and ROFR Agreement, dated April 1, 2020, with SoftBank (the “SoftBank Proxy Agreement”) with respect to approximately 198 million shares of our common stock held by SoftBank (the “Released Shares”). Upon the close of the Public Equity Offering (as defined below), we received a payment from SoftBank for $300 million for our role in facilitating the SoftBank Monetization. The payment received from SoftBank, net of tax, of $226 million was recorded as Additional paid-in capital in our Condensed Consolidated Balance Sheets and is presented as a reduction of Repurchases of common stock within Net cash provided by (used in) financing activities within our Condensed Consolidated Statements of Cash Flows.

Under the terms of the Master Framework Agreement and the agreements contemplated thereby, SBGC sold the Released Shares to us, and we participated in the following transactions:

Public Equity Offering:

On June 26, 2020, we completed a registered public offering of approximately 154.1 million shares of our common stock (the “Public Equity Offering”) at a price of $103.00 per share. The net proceeds of the Public Equity Offering were used to repurchase an equal number of issued and outstanding shares of our common stock from SBGC, pursuant to a Share Repurchase Agreement, dated as of June 22, 2020 (the “Share Repurchase Agreement”), between us and SBGC.

Mandatory Exchangeable Offering:

Concurrent with the Public Equity Offering, we sold approximately 19.4 million shares of our common stock to a third-party trust. The net proceeds from the sale of shares to the trust were used to repurchase an equal number of issued and outstanding shares of our common stock from SBGC.

The trust issued mandatory exchangeable trust securities, which entitle holders to receive quarterly distributions from the trust and a final mandatory exchange price to be settled on June 1, 2023 (“Mandatory Exchangeable Offering”).

The trust was required to use a portion of the net proceeds from the Mandatory Exchangeable Offering to purchase U.S. Treasury securities, to fund quarterly distributions on the mandatory exchangeable trust securities, and the holders of the mandatory exchangeable trust securities will be entitled to a final mandatory exchange amount on June 1, 2023 that will depend on the daily volume-weighted average price of shares of our common stock.

44

Index for Notes to the Condensed Consolidated FinancialStatements
The sale of shares through the Public Equity Offering and to the trust occurred simultaneously with the purchase of shares from SBGC. These simultaneous transactions did not result in a net change to our treasury shares or shares of common stock outstanding.

As these transactions occurred with separate counterparties, the exchange of shares and cash are presented on a gross basis in our Condensed Consolidated Statement of Equity and Condensed Consolidated Statements of Cash Flows, respectively. The shares sold are presented in Shares issued in secondary offering and the shares purchased from SBGC are presented in Shares repurchased from SoftBank within our Condensed Consolidated Statement of Equity. The cash received from the sale of shares is presented in Issuance of common stock and the cash paid to purchase shares from SoftBank are presented in Repurchases of common stock within Net cash provided by (used in) financing activities within our Condensed Consolidated Statements of Cash Flows.

The Company is not affiliated with the trust, will not retain any proceeds from the offering of the trust securities, and will have no ongoing interest, economic or otherwise, in the trust securities.

Rights Offering:

The Master Framework Agreement provides for the issuance of registered, transferable subscription rights (the “Rights Offering”) resulting in the sale of 19,750,000 shares of our common stock to our stockholders (other than SoftBank, DT and Marcelo Claure and their respective affiliates, who agreed to waive their ability to exercise or transfer such rights). The subscription rights provided the stockholders the option to purchase one share of common stock for every 20 shares of common stock owned, at the same price per share as the common stock sold in the Public Equity Offering of $103.00 per share.

The Rights Offering exercise period expired on July 27, 2020. On August 3, 2020, the Rights Offering closed, resulting in the sale of 19,750,000 shares of our common stock. The net proceeds from the Rights Offering were used to purchase an equal number of shares from SBGC pursuant to the Share Repurchase Agreement.

Marcelo Claure:

The Master Framework Agreement provided for the purchase of 5.0 million shares of our common stock by Marcelo Claure, a member of our board of directors, from us at the same price per share as the common stock sold in the Public Equity Offering of $103.00 per share.

Following receipt of the necessary regulatory approvals on July 16, 2020, the sale of shares to Marcelo Claure occurred simultaneously with our purchase of an equivalent number of shares from SBGC at the same price per share pursuant to the Share Repurchase Agreement.

Ownership Following the SoftBank Monetization:

Immediately following the transactions above, DT and SoftBank held, directly or indirectly, approximately 43.4%, and 8.6%, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 48.0% of the outstanding T-Mobile common stock held by other stockholders.

The SoftBank Proxy Agreement remains in effect with respect to the remaining shares of our common stock held by SoftBank. In addition, on June 22, 2020, DT, CM LLC, and Marcelo Claure entered into a Proxy, Lock-Up and ROFR Agreement (the “Claure Proxy Agreement,” together with the SoftBank Proxy Agreement, the “Proxy Agreements”), pursuant to which any shares of our common stock acquired after June 22, 2020 by Mr. Claure or CM LLC, an entity controlled by Mr. Claure, other than shares acquired as a result of Mr. Claure’s role as a director or officer of the Company, will be voted in the manner as directed by DT.

Accordingly, as a result of the Proxy Agreements, DT has voting control as of August 3, 2020 over approximately 52.4% of the outstanding T-Mobile common stock. In addition, as provided for in the Master Framework Agreement, DT also holds certain call options over approximately 101.5 million shares of our common stock held by SBGC.

DT Call Option:

In exchange for DT consenting to the transfer of the Released Shares and as provided for in the Master Framework Agreement, DT received direct and indirect call options over up to approximately 101.5 million shares of our common stock held by SBGC. The arrangement provides DT with a fixed-price call option to purchase up to approximately 44.9 million shares at a price of
45

Index for Notes to the Condensed Consolidated FinancialStatements
$101.46 per share indirectly from SBGC through a back-to-back arrangement where (i) DT can purchase such shares from us (the “DT Fixed-Price Call Option”) and (ii) we will fulfill our obligations under the DT Fixed-Price Call Option by simultaneously purchasing the same number of shares on the same economic terms from SBGC (the “T-Mobile Fixed-Price Call Option”). In addition, DT has a floating-price call option to purchase up to approximately 56.6 million shares from SBGC directly (the “DT Floating Option”).

The call options expire on June 22, 2024 (the “Expiration Time”). The back-to-back arrangement can be initiated by DT at any time prior to the Expiration Time. The DT Floating Option cannot be exercised until the earlier of (i) 30 days prior to the Expiration Time and (ii) the later of (x) the date the DT Fixed-Price Call Option and the T-Mobile Fixed-Price Call Option are exercised in full and (y) October 2, 2020.

Our obligations to DT under the DT Fixed-Price Call Option are secured solely by our rights under the T-Mobile Fixed-Price Call Option and DT has no recourse against us other than enforcement of this security arrangement.

The DT Fixed-Price Call Option and the T-Mobile Fixed-Price Call Option represent free-standing derivatives and are recorded at fair value and marked-to-market each period. The fair value of each call option was estimated at $875 million as of June 30, 2020 using the income approach. The fair value measurements are based on significant inputs not observable in the market and, therefore, represent a Level 3 measurement as defined in ASC 820. The key assumptions in applying the income approach include estimated share-price volatility, which was based on historical market trends and expected future performance of T-Mobile, as well as the assessment of counterparty credit risk.

The asset associated with the T-Mobile Fixed-Price Call Option is recorded within Other current assets in the Condensed Consolidated Balance Sheets, and the liability associated with the DT Fixed-Price Call Option is recorded within Other current liabilities in the Condensed Consolidated Balance Sheets. As the mark-to-market valuations of the T-Mobile Fixed-Price Call Option and the DT Fixed-Price Call Option move in equal and offsetting directions, there is no net impact on our Condensed Consolidated Income Statement.

Note 1510 – Earnings Per Share

The computation of basic and diluted earnings per share was as follows:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
(in millions, except shares and per share amounts)(in millions, except shares and per share amounts)2020201920202019(in millions, except shares and per share amounts)20212020
(Loss) income from continuing operations$(210) $939  $741  $1,847  
Income from discontinued operations, net of tax320  —  320  —  
Net incomeNet income$110  $939  $1,061  $1,847  Net income$933 $951 
Weighted average shares outstanding - basicWeighted average shares outstanding - basic1,236,528,444  854,368,443  1,047,338,364  852,796,369  Weighted average shares outstanding - basic1,243,520,026 858,148,284 
Effect of dilutive securities:Effect of dilutive securities:Effect of dilutive securities:
Outstanding stock options and unvested stock awardsOutstanding stock options and unvested stock awards—  5,767,150  9,782,025  8,094,501  Outstanding stock options and unvested stock awards9,263,538 7,850,248 
Weighted average shares outstanding - dilutedWeighted average shares outstanding - diluted1,236,528,444  860,135,593  1,057,120,389  860,890,870  Weighted average shares outstanding - diluted1,252,783,564 865,998,532 
Basic earnings (loss) per share:
Continuing operations$(0.17) $1.10  $0.71  $2.16  
Discontinued operations0.26  —  0.30  —  
Earnings per share - basicEarnings per share - basic$0.09  $1.10  $1.01  $2.16  Earnings per share - basic$0.75 $1.11 
Diluted earnings (loss) per share:
Continuing operations$(0.17) $1.09  $0.70  $2.14  
Discontinued operations0.26  —  0.30  —  
Earnings per share - dilutedEarnings per share - diluted$0.09  $1.09  $1.00  $2.14  Earnings per share - diluted$0.74 $1.10 
Potentially dilutive securities:Potentially dilutive securities:Potentially dilutive securities:
Outstanding stock options and unvested stock awardsOutstanding stock options and unvested stock awards10,234,947  67,856  443,679  39,342  Outstanding stock options and unvested stock awards1,807,812 
SoftBank contingent consideration(1)SoftBank contingent consideration(1)48,751,557  24,375,778  SoftBank contingent consideration(1)48,751,557 

On April(1) Represents the weighted average SoftBank Specified Shares outstanding from January 1, 2020, in connection with2021, through March 31, 2021. No SoftBank Specified Shares were outstanding during the closing of the Merger, we amended and restated the Company’s certificate of incorporation in the form of the Fifth Amended and Restated Certificate of Incorporation (the “Restated Certificate”). Pursuant
46

Index for Notes to the Condensed Consolidated FinancialStatements
to the Restated Certificate, the authorized capital stock of T-Mobile consists of 2,000,000,000 shares of T-Mobile common stock and 100,000,000 shares of preferred stock, par value $0.00001 per share.three months ended March 31, 2020.

As of June 30, 2020,March 31, 2021, 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 June 30, 2020March 31, 2021 and 2019.2020. Potentially dilutive securities were not included in the computation of diluted earnings per share if to do so would have been anti-dilutive or if there was a net loss from continuing operations for the period.

The SoftBank Specified Shares Amount of 48,751,557 was determined to be contingent consideration for the Merger and is not dilutive until the defined volume-weighted average price per share is reached.

Note 16 - Leases

Lessee

We are a lessee for non-cancelable operating and financing leases for cell sites, switch sites, retail stores, network equipment and office facilities with contractual terms that generally extend through 2029. Additionally, we lease dark fiber through non-cancelable operating leases with contractual terms that generally extend through 2041. The majority of cell site leases have 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.

Through the Merger, we acquired leases of real property, including cell sites, switch sites, dark fiber, retail stores and office facilities and recorded lease liabilities and associated right-of-use assets based on the discounted lease payments. Lease terms that are favorable or unfavorable to market terms were recorded as an adjustment to lease right-of-use assets on our Condensed Consolidated Balance Sheets. Favorable and unfavorable leases are amortized on a straight-line basis over the associated remaining lease term.

The components of lease expense were as follows:
Three Months Ended June 30,Six Months Ended June 30,
(in millions)2020201920202019
Operating lease expense$1,139  $634  $1,823  $1,236  
Financing lease expense:
Amortization of right-of-use assets180  117  325  230  
Interest on lease liabilities20  20  40  40  
Total financing lease expense200  137  365  270  
Variable lease expense71  58  133  123  
Total lease expense$1,410  $829  $2,321  $1,629  

Information relating to the lease term and discount rate is as follows:
June 30, 2020
Weighted Average Remaining Lease Term (Years)
Operating leases6
Financing leases3
Weighted Average Discount Rate
Operating leases4.0 %
Financing leases3.5 %

Maturities of lease liabilities as of June 30, 2020, were as follows:
47

Index for Notes to the Condensed Consolidated FinancialStatements
(in millions)Operating LeasesFinance Leases
Twelve Months Ending June 30,
2021$4,771  $1,094  
20224,104  805  
20233,363  445  
20242,782  92  
20252,249  63  
Thereafter5,021  85  
Total lease payments22,290  2,584  
Less imputed interest2,639  128  
Total$19,651  $2,456  

Interest payments for financing leases were $20 million and $21 million for the three months ended June 30, 2020 and 2019, respectively, and $40 million and $41 million for the six months ended June 30, 2020 and 2019, respectively.

As of June 30, 2020, we have additional operating leases for cell sites and commercial properties that have not yet commenced with future lease payments of approximately $340 million.

As of June 30, 2020, we were contingently liable for future ground lease payments related to certain tower obligations. These contingent obligations are not included in the above table as the amounts owed are contractually owed by Crown Castle International Corp. based on the subleasing arrangement. See Note 9 - Tower Obligationsfor further information.

Lessor

Our leasing programs (“Leasing Programs”), which include JUMP! On Demand and the Sprint Flex Lease program acquired through the Merger, allow customers to lease a device (handset or tablet) over a period of, generally, 18 months and upgrade it for a new device when eligibility requirements are met. At the end of the initial term, customers are given the opportunity to return the device, purchase the device or extend the lease on a month-to-month basis. Upon device upgrade or at lease end, customers must return or purchase their device. The purchase price of the device is established at lease commencement and is based on the type of device leased and any down payment made. The Leasing Programs do not contain any residual value guarantees or variable lease payments, and there are no restrictions or covenants imposed by these leases. Leased wireless devices are included in Property and equipment, net in our Condensed Consolidated Balance Sheets.

Through the Merger, we acquired leased wireless devices with a fair value of $5.8 billion as of April 1, 2020.

The components of leased wireless devices under our Leasing Programs were as follows:
(in millions)Average Remaining Useful LifeJune 30, 2020December 31, 2019
Leased wireless devices, gross12 months$7,605  $1,139  
Accumulated depreciation(984) (407) 
Leased wireless devices, net$6,621  $732  

For equipment revenues from the lease of mobile communication devices, see Note 10 - Revenue from Contracts with Customers.

Future minimum payments expected to be received over the lease term related to 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 June 30,
2021$2,848  
2022297  
Total$3,145  

Note 1711 – Commitments and Contingencies

48

Index for Notes to the Condensed Consolidated FinancialStatements
Purchase Commitments

We have commitments for non-dedicated transportation lines with varying expiration terms that generally extend through 2029. In addition, we have commitments to purchase wireless devices, network services, equipment, software, marketing sponsorship agreements and other items in the ordinary course of business, with various terms through 2043.

Our purchase commitments are approximately $3.9 billion for the year ending March 31, 2022, $4.3 billion in total for the years ending March 31, 2023 and 2024, $2.2 billion in total for the years ending March 31, 2025 and 2026 and $1.6 billion in total for the years thereafter. These amounts are not reflective of our entire anticipated purchases under the related agreements but are determined based on the non-cancelable quantities or termination amounts to which we are contractually obligated.

Our purchase commitments, including purchase commitments assumed through the Merger, are approximately $4.2 billion for the year ending June 30, 2021, $3.5 billion in total for the years ending June 30, 2022 and 2023, $1.6 billion in total for the years ending June 30, 2024 and 2025 and $1.3 billion in total for the years thereafter.

Spectrum Leases

In connection with the Merger, we assumed certain spectrum lease contracts from Sprint that include service obligations to the lessors. Certain of the spectrum leases provide for minimum lease payments, additional charges, renewal options and escalation clauses. Leased spectrum agreements have varying expiration terms that generally extend through 2050. We expect that all renewal periods in our spectrum leases will be exercised by us.

Our spectrum lease and service credit commitments, including renewal periods, are approximately $277$340 million for the year ending June 30, 2021, $595March 31, 2022, $662 million in total for the years ending June 30, 2022March 31, 2023 and 2023, $5882024, $579 million in total for the years ending June 30, 2024 andMarch 31, 2025 and $5.22026 and $5.0 billion in total for the years thereafter.

We accrue a monthly obligation for the services and equipment based on the total estimated available service credits divided by the term of the lease. The obligation is reduced by services provided and as actual invoices are presented and paid to the lessors. The maximum remaining service commitment on June 30, 2020March 31, 2021 was $93$91 million and is expected to be incurred over the term of the related lease agreements, which generally range from 15 to 30 years.
26

Index for Notes to the Condensed Consolidated Financial Statements

Merger Commitments

In connection with the regulatory proceedings and approvals of the Transactions, we madehave commitments and other obligations to various state and federal agencies and certain nongovernmental organizations, including pursuant to the DOJConsent Decree agreed to by us, DT, Sprint, SoftBank and FCC.DISH Network Corporation (“DISH”) and entered by the U.S. District Court for the District of Columbia, and the FCC’s memorandum opinion and order approving our applications for approval of the Merger. These commitments and obligations include, among other things, extensive 5G network build-out commitments, obligations to deliver high-speed wireless services to the vast majority of Americans, including Americans residing in rural areas, and the marketing of an in-home broadband product where spectrum capacity is available. Other commitments relate to national security, pricing, service, employment and support of diversity initiatives. Many of the commitments specify time frames for compliance. Failure to fulfill our obligations under theseand commitments in a timely manner could result in substantial fines, penalties, or other legal and administrative actions.

OurWe expect that our monetary commitments associated with these settlementsmatters are approximately $12.2$24 million for the year ended June 30, 2021, $44.4ending March 31, 2022, $37 million in total for the years ended June 30, 2022 andending March 31, 2023 and $17.22024 and $11 million in total for the years ended June 30, 2024ending March 31, 2025 and 2025.2026. These amounts do not represent our entire anticipated costs to achieve specified network coverage and performance requirements, employment targets or commitments to provide access to affordable rate plans, but represent only those amounts for which we are required to make a specified payment in connection with our commitments or settlements.

Contingencies and Litigation

Litigation Matters

On February 28, 2020, we received a Notice of Apparent Liability for Forfeiture and Admonishment from the FCC (“FCC NAL”), which proposed a penalty against us for allegedly violating section 222 of the Communications Act and the FCC’s regulations governing the privacy of customer information. We recorded an accrual for an estimated payment amount as of June 30, 2020, which was included in Accounts payable and accrued liabilities in our Condensed Consolidated Balance Sheets.

On April 1, 2020, in connection with the closing of the Merger, we assumed the contingencies and litigation matters of Sprint.
Those matters include a wide variety of disputes, claims, government agency investigations and enforcement actions, and other proceedings, including, among other things, certain ongoing FCC and state government agency investigations into Sprint’s Lifeline program. In September 2019, Sprint notified the FCC that it had claimed monthly subsidies for serving subscribers even though these subscribers may not have met usage requirements under Sprint's usage policy for the Lifeline program, due to an inadvertent coding issue in the system used to identify qualifying subscriber usage that occurred in July 2017 while the
49

Index for Notes to the Condensed Consolidated FinancialStatements
system was being updated. Sprint has made a number of payments to reimburse the federal government and certain states for excess subsidy payments. Resolution of these matters could require making additional reimbursements and paying additional fines and penalties.

We note that pursuant to Amendment No 2. to the Business Combination Agreement, SoftBank agreed to indemnify us against certain specified matters and losses (including the Lifeline matter noted above). As of the Merger close date and June 30, 2020, we have not recorded an indemnification asset or contingent liability associated with these matters as the potential liabilities and associated reimbursement by SoftBank cannot be reasonably estimated. We expect that any liability incurred related to these indemnified matters would be indemnified and reimbursed by SoftBank.

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 claims of patent infringement (most of which are asserted by non-practicing entities primarily seeking monetary damages), class actions, and proceedings to enforce FCC rules and regulations. TheThose Litigation Matters described above have progressed toare at various stages, and some of them may proceed to trial, arbitration, hearing, or other adjudication that could result in fines, penalties, or awards of monetary or injunctive relief in the coming 12 months if they are not otherwise resolved. We have established an accrual with respect to certain of these matters, where appropriate, which is reflected in the condensed consolidated financial statements but that is not 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, uncertainty concerning legal theories and their resolution by courts or regulators, uncertain damage theories and demands, and a less than fully developed factual record. WhileFor Litigation Matters which may result in a contingent gain, we recognize such gains in the condensed consolidated financial statements when the gain is realized or realizable. We do not expect that the ultimate resolution of these proceedings,Litigation Matters, individually or in the aggregate, will have a material adverse effect on our financial position, but we note that an unfavorable outcome of some or all of these proceedingsthe specific matters identified below could have a material adverse impact on results of operations or cash flows for a particular period. This assessment is based on our current understanding of relevant facts and circumstances. As such, our view of these matters is subject to inherent uncertainties and may change in the future.

On February 28, 2020, we received a Notice of Apparent Liability for Forfeiture and Admonishment from the FCC, which proposed a penalty against us for allegedly violating section 222 of the Communications Act and the FCC’s regulations governing the privacy of customer information. In the first quarter of 2020, we recorded an accrual for an estimated payment amount. We maintained the accrual as of March 31, 2021, which was included in Accounts payable and accrued liabilities in our Condensed Consolidated Balance Sheets.

On April 1, 2020, in connection with the closing of the Merger, we assumed the contingencies and litigation matters of Sprint. Those matters include a wide variety of disputes, claims, government agency investigations and enforcement actions, and other proceedings. These matters include, among other things, certain ongoing FCC and state government agency investigations into Sprint’s Lifeline program. In September 2019, Sprint notified the FCC that it had claimed monthly subsidies for serving subscribers even though these subscribers may not have met usage requirements under Sprint's usage policy for the Lifeline program, due to an inadvertent coding issue in the system used to identify qualifying subscriber usage that occurred in July 2017 while the system was being updated. Sprint has made a number of payments to reimburse the federal government and certain states for excess subsidy payments. Resolution of these matters could require making additional reimbursements and paying additional fines and penalties.
27

Index for Notes to the Condensed Consolidated Financial Statements

We note that pursuant to Amendment No. 2 to the Business Combination Agreement, SoftBank agreed to indemnify us against certain specified matters and losses, including those relating to Lifeline matters. Resolution of these matters could require making additional reimbursements and paying additional fines and penalties, which we do not expect to have a significant impact on our financial results. We expect that any additional liabilities related to these indemnified matters would be indemnified and reimbursed by SoftBank. See Note 2 - Business Combination for further information.

Note 18 -12 – Restructuring Costs

We have begunUpon close of the Merger, we began implementing a restructuring and integration plan as a part of our initiativeinitiatives to realize cost synergies fromefficiencies and reduce redundancies. The major activities associated with the acquisition of Sprint. We recognized restructuring costs of $482 million for the three and six months ended June 30, 2020, including stock-based compensation of $67 million. These restructuring costs were primarily relatedinitiatives to severance costs anddate include contract termination costs associated with store rationalization. Our restructuring liability asthe rationalization of June 30, 2020 was $255 million.retail stores, distribution channels, duplicative backhaul services and other agreements, severance costs associated with the integration of redundant processes and functions and the decommissioning of network infrastructure including cell sites and equipment to achieve synergies in network costs.

The following table summarizes the expenses incurred in connection with our restructuring initiatives:
(in millions)Three Months Ended March 31, 2021Plan to Date
Contract termination costs$$184 
Severance costs16 401 
Network decommissioning12 509 
Total restructuring plan expenses$34 $1,094 

The expenses associated with the restructuring initiatives are included in Costs of services and Selling, general and administrative in our Condensed Consolidated Statements of Comprehensive Income. No expenses were incurred related to our restructuring initiatives for the three months ended March 31, 2020.

Our restructuring initiatives also include the acceleration or termination of certain of our operating and financing leases for cell sites, switch sites, retail stores, network equipment and office facilities. Incremental expenses associated with accelerating amortization of the right-of-use assets on lease contracts were $123 million for the three months ended March 31, 2021 and are included within Costs of services and Selling, general and administrative in our Condensed Consolidated Statements of Comprehensive Income. No restructuring expenses were incurred related to the acceleration or termination of leases for the three months ended March 31, 2020.

The changes in the liabilities associated with our restructuring initiatives, including expenses incurred and cash payments, are as follows:
(in millions)December 31,
2020
Expenses IncurredCash Payments
Adjustments for Non-Cash Items (1)
March 31,
2021
Contract termination costs$81 $$(44)$$43 
Severance costs52 16 (38)(5)25 
Network decommissioning30 12 (28)(2)12 
Total$163 $34 $(110)$(7)$80 
(1) Non-cash items consists of non-cash stock-based compensation included within Severance costs and the write-off of assets within Network decommissioning.

The liabilities accrued in connection with our restructuring initiatives are presented in Accounts payable and accrued liabilities in our Condensed Consolidated Balance Sheets.

Our restructuring activities are expected to occur over the next three years with substantially all costs incurred by the end of fiscal year 2023. We are evaluating additional restructuring initiatives, which are dependent on consultations and negotiation with certain counterparties and the expected impact on our business operations, which could affect the amount or timing of the restructuring costs and related payments.

28

Index for Notes to the Condensed Consolidated Financial Statements
Note 1913 – Additional Financial Information

Supplemental Condensed Consolidated Balance Sheets Information

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities are summarized as follows:
(in millions)(in millions)June 30, 2020December 31, 2019(in millions)March 31,
2021
December 31,
2020
Accounts payableAccounts payable$4,960  $4,322  Accounts payable$4,559 $5,564 
Payroll and related benefitsPayroll and related benefits1,182  802  Payroll and related benefits785 1,163 
Property and other taxes, including payrollProperty and other taxes, including payroll1,242  682  Property and other taxes, including payroll1,540 1,540 
InterestInterest780  227  Interest777 771 
CommissionsCommissions338  251  Commissions327 399 
Toll and interconnectToll and interconnect224  156  Toll and interconnect233 217 
AdvertisingAdvertising140  127  Advertising109 135 
OtherOther482  179  Other382 407 
Accounts payable and accrued liabilitiesAccounts payable and accrued liabilities$9,348  $6,746  Accounts payable and accrued liabilities$8,712 $10,196 

Book overdrafts included in accounts payable and accrued liabilities were $380$285 million and $463$628 million as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.

50

Index for Notes to the Condensed Consolidated FinancialStatements
Supplemental Condensed Consolidated Statements of Comprehensive Income Information

Related Party Transactions

Deutsche Telekom

We have related party transactions associated with DT or its affiliates in the ordinary course of business, which are included in the Consolidated Financial Statements.

The following table summarizes the impact of significant transactions with DT or its affiliates included in Operating expenses in the Condensed Consolidated Statements of Comprehensive Income:
Three Months Ended June 30,Six Months Ended June 30,
(in millions)2020201920202019
Discount related to roaming expenses$(2) $—  $(5) $(2) 
Fees incurred for use of the T-Mobile brand20  23  43  44  
International long distance agreement11  11  22  20  

We have an agreement with DT in which we receive reimbursement of certain administrative expenses, which were $1 million and $3 million for the three months ended June 30, 2020 and 2019, respectively, and $3 million and $5 million for the six months ended June 30, 2020 and 2019, respectively.

Brightstar

We have arrangements with Brightstar, whereby Brightstar provides supply chain and inventory management services to us in our indirect channels. As of June 30, 2020, T-Mobile began the process of terminating and restructuring most of its arrangements with Brightstar, save for reverse logistics and trade-in services.

Amounts included in our consolidated financial statements associated with these supply chain and inventory management arrangements with Brightstar were as follows:
(in millions)Three and Six Months Ended June 30, 2020
Consolidated balance sheet:
Accounts receivable$23 
Accounts payable and accrued expenses and other current liabilities46 
Consolidated income statement:
Roaming and other service revenues$19 
Equipment sales42 
Cost of equipment sales66 

SoftBank

On June 22, 2020, we entered into a Master Framework Agreement and related transactions with SoftBank related to the SoftBank Monetization as described in Note 14 - SoftBank Equity Transaction. On July 27, 2020, in connection with the SoftBank Monetization, the Rights Offering exercise period closed, and on August 3, 2020, the Rights Offering closed, resulting in the sale of 19,750,000 shares of our common stock. On August 3, 2020, upon completion of the SoftBank Monetization, DT and SoftBank held, directly or indirectly, approximately 43.4% and 8.6%, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 48.0% of the outstanding T-Mobile common stock held by other stockholders. As a result of the Proxy Agreements, DT has voting control as of August 3, 2020 over approximately 52.4% of the outstanding T-Mobile common stock. In addition, as provided for in the Master Framework Agreement, DT also holds certain call options over approximately 101.5 million shares of our common stock held by SBGC.

For more information regarding our related party transactions with SoftBank, see Note 2 - Business Combination and Note 14 - SoftBank Equity Transactionof the Notes to the Condensed Consolidated Financial Statements.
51

Index for Notes to the Condensed Consolidated FinancialStatements

Supplemental Consolidated Statements of Cash Flows Information

The following table summarizes T-Mobile’s supplemental cash flow information:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
(in millions)(in millions)2020201920202019(in millions)20212020
Interest payments, net of amounts capitalizedInterest payments, net of amounts capitalized$608  $245  $949  $585  Interest payments, net of amounts capitalized$945 $341 
Operating lease paymentsOperating lease payments$1,269  $703  $2,144  $1,391  Operating lease payments1,651 875 
Income tax paymentsIncome tax payments$31  $40  $55  $72  Income tax payments22 24 
Non-cash investing and financing activitiesNon-cash investing and financing activitiesNon-cash investing and financing activities
Non-cash beneficial interest obtained in exchange for securitized receivablesNon-cash beneficial interest obtained in exchange for securitized receivables$1,486  $1,616  $3,099  $3,128  Non-cash beneficial interest obtained in exchange for securitized receivables1,381 1,613 
Non-cash consideration for the acquisition of Sprint$33,533  $—  $33,533  $—  
Decrease in accounts payable and accrued liabilities for purchases of property and equipment$(38) $(113) $(339) $(446) 
Change in accounts payable and accrued liabilities for purchases of property and equipmentChange in accounts payable and accrued liabilities for purchases of property and equipment(173)(301)
Leased devices transferred from inventory to property and equipmentLeased devices transferred from inventory to property and equipment$1,444  $167  $1,753  $314  Leased devices transferred from inventory to property and equipment485 309 
Returned leased devices transferred from property and equipment to inventoryReturned leased devices transferred from property and equipment to inventory$(538) $(67) $(597) $(124) Returned leased devices transferred from property and equipment to inventory(445)(59)
Short-term debt assumed for financing of property and equipment$38  $50  $38  $300  
Operating lease right-of-use assets obtained in exchange for lease obligationsOperating lease right-of-use assets obtained in exchange for lease obligations$658  $1,400  $1,213  $2,094  Operating lease right-of-use assets obtained in exchange for lease obligations911 555 
Financing lease right-of-use assets obtained in exchange for lease obligationsFinancing lease right-of-use assets obtained in exchange for lease obligations$515  $368  $693  $548  Financing lease right-of-use assets obtained in exchange for lease obligations109 178 


Note 20 – Subsequent Events

On July 1, 2020, pursuant to the Asset Purchase Agreement, upon the terms and subject to the conditions thereof, we completed the Prepaid Transaction. Upon closing of the transaction, we received $1.4 billion from DISH for the Prepaid Business, subject to a working capital adjustment. See Note 12 - Discontinued Operations for further information.

On July 4, 2020, we redeemed $1.0 billion aggregate principal amount of our 6.500% Senior Notes due 2024 and $1.25 billion aggregate principal amount of our 5.125% Senior Notes to affiliates due 2021. See Note 8 - Debtfor further information.

Upon receipt of the necessary regulatory approvals on July 16, 2020, the sale of 5.0 million shares of our common stock to Marcelo Claure occurred simultaneously with our purchase of an equivalent number of shares of our common stock from SBGC at the same price per share. See Note 14 - SoftBank Equity Transaction for further information.

On July 27, 2020, the Rights Offering exercise period closed and on August 3, 2020, the Rights Offering closed, resulting in the sale of 19,750,000 shares of our common stock. The net proceeds used from the Rights Offering were used to purchase shares of our common stock from SBGC. See Note 14 - SoftBank Equity Transaction for further information.

In August 2020, we expect to deliver a notice of redemption on $1.7 billion aggregate principal amount of our 6.375% Senior Notes due 2025 and expect to redeem the Senior Notes on September 1, 2020. See Note 8 - Debtfor further information.
5229

Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (“Form 10-Q”) includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including information concerning our future results of operations, are forward-looking statements. These forward-looking statements are generally identified by the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “could” or similar expressions. Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. The following important factors, along with the Risk Factors included in Part II,I, Item 1A below,of this Form 10-Q, could affect future results and cause those results to differ materially from those expressed in the forward-looking statements:

failure to realizenatural disasters, public health crises, including the expected benefits and synergies of the mergerCOVID-19 pandemic (the “Merger”) with Sprint Corporation (“Sprint”“Pandemic”), pursuant to the Business Combination Agreement with Sprint and the other parties named therein (as amended, the “Business Combination Agreement”) and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”) in the expected timeframes, in partterrorist attacks or at all;similar incidents;
adverse economic, political or market conditions in the U.S. and international markets, including those caused by the COVID-19 pandemic, and the impact that any of the foregoing may have on us and our customers and other stakeholders;Pandemic;
costs of or difficultiescompetition, industry consolidation and changes in integrating Sprint’s network and operations into our network and operations, including intellectual property and communications systems, administrative and information technology infrastructure and accounting, financial reporting and internal control systems;the market condition for wireless services;
changes in key customers, suppliers, employeesdata loss or other business relationships as a result of the consummation of the Transactions;security breaches;
the risk that our business, investor confidence in our financial resultsscarcity and stock price may be adversely affected if our internal controls are not effective;cost of additional wireless spectrum, and regulations relating to spectrum use;
the riskour inability to retain or motivate key personnel, hire qualified personnel or maintain our corporate culture;
our inability to take advantage of future material weaknesses resulting from the differences between T-Mobile’stechnological developments on a timely basis;
system failures and Sprint’s internal controls environments as we work to integratebusiness disruptions, allowing for unauthorized use of or interference with our network and align policies and practices;other systems;
the impacts of the actions we have taken and conditions we have agreed to in connection with the regulatory proceedings and approvals of the Transactions (as defined below), including the Prepaid Transaction (as defined in Note 2 - Business Combinationsacquisition by DISH Network Corporation (“DISH”) of the Notes toprepaid wireless business operated under the Condensed Consolidated Financial Statements)Boost Mobile and Sprint prepaid brands (excluding the Assurance brand Lifeline customers and the prepaid wireless customers of Shenandoah Personal Communications Company LLC (“Shentel”) and Swiftel Communications, Inc.), including customer accounts, inventory, contracts, intellectual property and certain other specified assets (the “Prepaid Business”), and the assumption of certain related liabilities (the “Prepaid Transaction”), the complaint and proposed final judgment (the “Consent Decree”) agreed to by us, Deutsche Telekom AG (“DT”), Sprint Corporation (“Sprint”), SoftBank Group Corp. (“SoftBank”) and DISH Network Corporation (“DISH”) with the U.S. District Court for the District of Columbia, which was approved by the Court on April 1, 2020, the proposed commitments filed with the Secretary of the FCC,Federal Communications Commission (“FCC”), which we announced on May 20, 2019, certain national security commitments and undertakings, and any other commitments or undertakings entered into including but not limited to those we have made to certain states and nongovernmental organizations (collectively, the “Government Commitments”);, and the challenges in satisfying the Government Commitments in the required time frames and the significant cumulative cost incurred in tracking, monitoring and complying with them;
our inability to manage the ongoing commercial and transition services arrangements that we entered into with DISH in connection with suchthe Prepaid Transaction, which we completed on July 1, 2020 (collectively, the “Divestiture Transaction”);, and known or unknown liabilities arising in connection therewith;
the assumptioneffects of significant liabilities, includingany future acquisition, investment, or merger involving us;
any disruption or failure of our third parties (including key suppliers) to provide products or services for the liabilitiesoperation of Sprint in connection with, and significant costs, including financing costs,our business;
the occurrence of high fraud rates or volumes related to the Transactions;device financing, customer payment cards, third-party dealers, employees, subscriptions, identities or account takeover fraud;
our abilitysubstantial level of indebtedness and our inability to make payments onservice our debt or to repay existing or future indebtedness when dueobligations in accordance with their terms or to comply with the restrictive covenants contained therein;
adverse changes in the ratings of our debt securities or adverse conditions in the credit markets;
natural disasters, public health crises, including the COVID-19 pandemic, terrorist attacksrisk of future material weaknesses we may identify while we work to integrate and align policies, principles and practices of the two companies following the Merger (as defined below), or similar incidents;any other failure by us to maintain effective internal controls, and the resulting significant costs and reputational damage;
competition, industry consolidation andany changes in regulations or in the market for wireless services,regulatory framework under which could negatively affect our ability to attract and retain customers;we operate;
laws and regulations relating to the effectshandling of any future merger, investment, or acquisition involving us, as well as the effects of mergers, investments or acquisitions in the technology, media and telecommunications industry;
breaches of our and/or our third-party vendors’ networks, information technologyprivacy and data security, resulting in unauthorized access to customer confidential information;
inability to implement and maintain effective cybersecurity measures over critical business systems;protection;
5330

Table of Contents
challenges in implementing our business strategies or funding our operations, including payment for additional spectrum or network upgrades;
the impact on our networks and business from major system and network failures;
difficulties in managing growth in wireless data services, including network quality;
material changes in available technology and the effects of such changes, including product substitutions and deployment costs and performance;
the timing, scope and financial impact of our deployment of advanced network and business technologies;
the occurrence of high fraud rates related to device financing, customer credit cards, dealers, subscriptions, or account take over fraud;
our inability to retain and hire key personnel;
any changes in the regulatory environments in which we operate, including any increase in restrictions on the ability to operate our networks and changes in data privacy laws;
unfavorable outcomes of existing or future litigation or regulatory actions, including litigation or regulatory actions related to the Transactions;legal proceedings;
the possibility that we may be unableour offering of regulated financial services products and exposure to adequately protect our intellectual property rights or be accuseda wide variety of infringing the intellectual property rights of others;state and federal regulations;
changes innew or amended tax laws or regulations or administrative interpretations and existing standards andjudicial decisions affecting the resolutionscope or application of disputes with any taxing jurisdictions;tax laws or regulations;
the possibility that we may be unable to renew our spectrum leases on attractive terms or acquire new spectrumthe possible revocation of our existing licenses or leases at reasonable costs and terms;
any disruption or failure of third parties (including key suppliers) to provide products or services;
material adverse changes in labor matters, including labor campaigns, negotiations or additional organizing activity, and any resulting financial, operational and/or reputational impact;
changes in accounting assumptionsthe event that regulatory agencies, including the U.S. Securities and Exchange Commission (the “SEC”), may require, which could result in an impact on earnings; andwe violate applicable laws;
interests of our significant stockholders that may differ from the interests of other stockholders.stockholders;
future sales of our common stock by DT and SoftBank and our inability to attract additional equity financing outside the United States due to foreign ownership limitations by the FCC;
the volatility of our stock price and our lack of plan to pay cash dividends in the foreseeable future;
failure to realize the expected benefits and synergies of the merger (the “Merger”) with Sprint, pursuant to the Business Combination Agreement with Sprint and the other parties named therein (as amended, the “Business Combination Agreement”) and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”) in the expected timeframes or in the amounts anticipated;
any delay and costs of, or difficulties in, integrating our business and Sprint’s business and operations, and unexpected additional operating costs, customer loss and business disruption, including maintaining relationships with employees, customers, suppliers or vendors;
unanticipated difficulties, disruption, or significant delays in our long-term strategy to migrate Sprint’s legacy customers onto T-Mobile’s existing billing platforms; and
changes to existing or the issuance of new accounting standards by the Financial Accounting Standards Board or other regulatory agencies.

Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. In this Form 10-Q, unless the context indicates otherwise, references to “T-Mobile,” “our Company,” “the Company,” “we,” “our,” and “us” refer to T-Mobile US, Inc. as a standalone company prior to April 1, 2020, the date we completed the Merger with Sprint, and on and after April 1, 2020, refer to the combined company as a result of the Merger.

Investors and others should note that we announce material financial and operational information to our investors using our investor relations website, press releases, SEC filings and public conference calls and webcasts. We intend to also use certain social media accounts as means of disclosing information about us and our services and for complying with our disclosure obligations under Regulation FD (the @TMobileIR Twitter account (https://twitter.com/TMobileIR) and the @MikeSievert Twitter account (https://twitter.com/MikeSievert) account,, which Mr. Sievert also uses as a means for personal communications and observations). The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these social media channels in addition to following our press releases, SEC filings and public conference calls and webcasts. The social media channels that we intend to use as a means of disclosing the information described above may be updated from time to time as listed on our investor relationsInvestor Relations website.

Overview

The objectives of our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are to provide users of our condensed consolidated financial statements with the following:

A narrative explanation from the perspective of management of our financial condition, results of operations, cash flows, liquidity and certain other factors that may affect future results;
Context to the financial statements; and
Information that allows assessment of the likelihood that past performance is indicative of future performance.

Our MD&A is performed on a consolidated basis and is inclusive of the results and operations of Sprint prospectively from the close of ourthe Merger on April 1, 2020. The Merger enhanced our spectrum portfolio, increased our customer base, enhancedaltered our spectrum portfolio, altered our
54

Table of Contents
product mix by increasing the portion of customers who finance their devices with leasing programs and created redundancies withinopportunities for synergies in our network.operations. We anticipate an initial increase in our combined operating costs, which we expect to decrease as we realize synergies. We expect the trends and results of operations of the combined company to be materially different than those of the standalone entities.

31

Table of Contents
Our MD&A is provided as a supplement to, and should be read together with, our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2020,March 31, 2021, included in Part I, Item 1 of this Form 10-Q and audited consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019.2020. Except as expressly stated, the financial condition and results of operations discussed throughout our MD&A are those of T-Mobile US, Inc. and its consolidated subsidiaries.

Beginning with the second quarter of 2020, we have discontinued the use of “Branded” to describe the results and metrics associated with our flagship brands including T-Mobile, Metro by T-Mobile, and Sprint.

Sprint Merger

Transaction Overview

On April 1, 2020, we completed ourthe Merger with Sprint, a communications company offering a comprehensive range of wireless and wireline communications products and services. As a result, Sprint and its subsidiaries became wholly-ownedwholly owned consolidated subsidiaries of T-Mobile. Upon completion of the Merger, each share of Sprint common stock was exchanged for 0.10256 shares of T-Mobile common stock. After adjustments and fractional shares, we issued 373,396,310 shares of T-Mobile common stock to Sprint stockholders. The fair value of the T-Mobile common stock provided in exchange for Sprint common stock was approximately $31.3 billion. Additional components of consideration included the repayment of certain of Sprint’s debt, replacement of equity awards attributable to pre-combination services and contingent consideration issuable to SoftBank.

We accounted for the acquisition as a business combination. Our preliminary purchase price allocation as of the date of acquisition resulted in an aggregate fair value of assets acquired of $93.8 billion, including Spectrum licenses of $45.4 billion, assumed liabilities of $53.0 billion and the recognition of $9.2 billion in goodwill.

After closing of the Merger, DT and SoftBank held, directly or indirectly, approximately 43.6% and 24.7%, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 31.7% of the outstanding T-Mobile common stock held by other stockholders.

For more information regarding the Merger, see Note 2 – Business Combinations of the Notes to the Condensed Consolidated Financial Statements.

On June 22, 2020, we entered into a Master Framework Agreement and related transactions with SoftBank to facilitate the SoftBank Monetization as described in Note 14 - SoftBank Equity Transactionof the Notes to the Condensed Consolidated Financial Statements. On August 3, 2020, upon completion of the SoftBank Monetization, DT and SoftBank held, directly or indirectly, approximately 43.4% and 8.6% respectively, of the outstanding T-Mobile common stock, with the remaining approximately 48.0% of the outstanding T-Mobile common stock held by other stockholders. As a result of the Proxy Agreements, DT has voting control as of August 3, 2020 over approximately 52.4% of the outstanding T-Mobile common stock. In addition, as provided for in the Master Framework Agreement, DT also holds certain call options over approximately 101.5 million shares of our common stock held by SBGC.

Sprint PCS (specifically Sprint Spectrum L.P.) is party to a variety of publicly filed agreements with Shenandoah Personal Communications Company (“Shentel”), pursuant to which Shentel is the exclusive provider of Sprint PCS’s wireless mobility communications network products in certain parts of Virginia, West Virginia, Kentucky, Ohio, and Pennsylvania to approximately 1.1 million subscribers. Sprint PCS has at least through August 29, 2020 to determine whether it will exercise an option to purchase Shentel’s wireless telecommunications network assets. Should Sprint PCS exercise the purchase option, there will be an appraisal process, which could be subject to various legal challenges. If Sprint PCS declines to do so, Shentel has an opportunity to purchase the legacy T-Mobile wireless telecommunications network assets in the Shentel service area and, should it decline to do so within 60 days, the affiliate agreement states that Sprint PCS must sell or decommission T-Mobile’s legacy wireless telecommunications network assets and transfer subscribers in the Shentel service area within two years.

55

Table of Contents
Sale of Boost Mobile and Sprint Prepaid Brands

In connection with obtaining regulatory approval for the Merger, on July 1, 2020, DISH acquired the prepaid wireless business operated under the Boost Mobile and Sprint prepaid brands (excluding the Assurance brand Lifeline customers and the prepaid wireless customers of Shentel and Swiftel Communications, Inc.), including customer accounts, inventory, contracts, intellectual property and certain other specified assets (the “Prepaid Business”), and assumed certain related liabilities (the “Prepaid Transaction”). The assets and liabilities associated with the Prepaid Transaction are presented as held for sale in our Condensed Consolidated Balance Sheets as of June 30, 2020. The results of the Prepaid Business from April 1, 2020 through June 30, 2020 are presented in Income from discontinued operations, net of tax in our Condensed Consolidated Statements of Comprehensive Income and do not include corporate and administrative expenses not directly attributable to the operations of the Prepaid Business.

Upon the closing of the Prepaid Transaction, we entered into a Master Network Services Agreement (the “MVNO Agreement”) providing for the provisioning of network services to customers of the Prepaid Business for a period of up to seven years following the closing of the Prepaid Transaction. The revenue generated through this agreement will be presented within Wholesale revenues in our Condensed Consolidated Statements of Comprehensive Income beginning upon the close of the Prepaid Transaction on July 1, 2020.

We have included the pre-tax results of our discontinued operations in our determination of Adjusted EBITDA, a Non-GAAP measure, to reflect contributions of the Prepaid Business that will be replaced by the MVNO Agreement beginning on July 1, 2020. See “Adjusted EBITDA” in in the “Performance Measures” section of this MD&A

For more information regarding the Prepaid Transaction, see Note 12 – Discontinued Operations of the Notes to the Condensed Consolidated Financial Statements.

Impact on Results of Operations and Performance Measures for the Three and Six Months Ended June 30, 2020

The Merger has altered the size and scope of our operations, impacting our assets, liabilities, obligations, capital requirements and performance measures. We expect the trends and results of operations of the combined company to be materially different than those of the standalone entities. As a combined company, we expect to be able to achieve synergies, rapidly launch a broadenhance the breadth and deepdepth of our nationwide 5G network, accelerate innovation, and increase competition in the U.S. wireless, video and broadband industries. Amongindustries and achieve significant synergies and cost reductions by eliminating redundancies within the expected synergies are reduction in redundant cell sites from combining networks, back officecombined network as well as other business processes and operations.

For more information technology efficiencies andregarding the evolution of our distribution and retail footprint including the combiningMerger, see Note 2 – Business Combination of the Sprint and T-Mobile brand operations, unifying underNotes to the T-Mobile brand nationwide starting on August 2, 2020.Condensed Consolidated Financial Statements.

Merger-Related Costs

Merger-related costs generally include transactioninclude:

Integration costs such asto achieve efficiencies in network, retail, information technology and back office operations;
Restructuring costs, including severance, store rationalization and network decommissioning; and
Transaction costs, including legal and professional services restructuring costs including severancerelated to the completion of the Merger and store rationalization and other integration costs to achieve synergies in network, retail, IT and back office operations. acquisitions of affiliates.

Transaction costs and restructuring costs are disclosed in Note 2 – Business CombinationsCombination and Note 1812 - Restructuring Costs, respectively. Merger-related costs have been excluded from the calculationour calculations of Adjusted EBITDA aand Core Adjusted EBITDA, which are non-GAAP financial measure,measures, as we do not consider these costs to be reflective of our ongoing operating performance. See “Adjusted EBITDA and Core Adjusted EBITDA” in the “Performance Measures” section of this MD&A. Cash payments for merger-relatedMerger-related costs, including payments related to our restructuring plan, are included in Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows.

Merger-related costs during the three and six months ended June 30,March 31, 2021 and 2020 and 2019 are presented below:
(in millions)Three Months Ended March 31,Change
20212020$%
Merger-related costs
Cost of services, exclusive of depreciation and amortization$136 $— $136 NM
Cost of equipment sales17 — 17 NM
Selling, general and administrative145 143 %
Total Merger-related costs$298 $143 $155 108 %
Cash payments for Merger-related costs$277 $161 $116 72 %
NM - Not Meaningful

(in millions)Three Months Ended June 30,ChangeSix Months Ended
June 30,
Change
20202019$%20202019$%
Merger-related costs
Cost of services, exclusive of depreciation and amortization$40  $—  $40  NM$40  $—  $40  NM
Selling, general & administrative758  222  536  241 %901  335  566  169 %
Total Merger-related costs$798  $222  $576  259 %$941  $335  $606  181 %
Cash payments for Merger-related costs$370  $151  $219  145 %$531  $185  $346  187 %
Merger-related costs will be impacted by restructuring and integration activities expected to occur over the next three years as we implement initiatives to realize cost efficiencies from the Merger. Transaction costs, including legal and professional service fees related to the completion of the Merger and acquisitions of affiliates, are expected to decrease in periods subsequent to the close of the Merger.

5632

Table of Contents
NM - Not MeaningfulRestructuring

Upon the close of the Merger, we began implementing restructuring initiatives to realize cost efficiencies from the Merger. The major activities associated with the restructuring initiatives to date include:

Contract termination costs associated with rationalization of retail stores, distribution channels, duplicative network and backhaul services and other agreements;
Severance costs associated with the reduction of redundant processes and functions; and
The decommissioning of certain small cell sites and distributed antenna systems to achieve synergies in network costs.

Anticipated Impacts

Our restructuring activities are expected to occur over the next three years with substantially all costs incurred by the end of fiscal year 2023. We are evaluating additional restructuring initiatives which are dependent on consultations and negotiation with certain counterparties and the expected impact on our business operations, which could affect the amount or timing of the restructuring costs and related payments. We expect our principal sources of funding to be sufficient to meet our liquidity requirements and anticipated payments associated with the restructuring initiatives.

As a result of our ongoing restructuring activities, we expect to realize cost efficiencies by eliminating redundancies within our combined network as well as other business processes and operations. We expect these activities to result in a reduction of expenses withinCost of services and Selling, general and administrative in our Condensed Consolidated Statements of Comprehensive Income.

COVID-19 Pandemic

The COVID-19 pandemicPandemic has resulted in a widespread health crisis that has adversely affected businesses, economies, and financial markets worldwide, and has caused significant volatility in the U.S. and international debt and equity markets. The impact of COVID-19the Pandemic has been wide-ranging, including, but not limited to, the temporary closures of many businesses and schools, “shelter in place” orders, travel restrictions, social distancing guidelines and other governmental, business and individual actions taken in response to the COVID-19 pandemic.Pandemic. These restrictions have impacted, and will continue to impact, our business, including the demand for our products and services and the ways in which our customers purchase and use them. In addition, the COVID-19 pandemicPandemic has resulted in economic uncertainty and a significant increase in unemployment in the United States, which could affect our customers’ purchasing decisions and ability to make timely payments. DuringThroughout this past year, the quarter, while the impact of the COVID-19 pandemicPandemic has peaked, subsided and subsequently subsided in some jurisdictions,seen a resurgence, leading to phased re-openings, other areas have seen resurgences of COVID-19 cases andas well as continuing or renewed containment measures. The introduction and expanding availability of vaccines, as well as our continued social distancing measures and incremental cleaning efforts, have facilitated the continued operation of our retail stores. We will continue to monitor the Pandemic and its impacts and may adjust our actions as needed to continue to provide our products and services to our communities and employees.

As a critical communications infrastructure provider as designated by the government, our focus has been on providing crucial connectivity to our customers and impacted communities while ensuring the safety and well-being of our employees.

Our Response

We have taken a variety of steps to help mitigate the impact of COVID-19 on our customers and to protect the health and well-being of our workforce and communities:

To Protect and Support Our Employees and Communities

Before the Merger, in mid-March, approximately 80% of T-Mobile and 70% of Sprint company-owned store locations, as well as many third-party retailer locations, that sell our T-Mobile, Metro by T-Mobile and Sprint brands, were temporarily closed. In compliance with the regulations of various states, we have since reopened a number of our previously closed stores.
We supplemented pay for certain of our employees and commissions for third-party dealers impacted by COVID-19 and provided access to incremental paid time off for employees experiencing symptoms, taking care of children who were home due to school closures or caring for individuals impacted by COVID-19;
We implemented remote working arrangements for many employees with more than 14,000 internal care employees and over 31,000 global care employees transitioned to a work-from-home environment. We also encouraged our corporate and administrative employees to work remotely, if possible.

To Keep Our Customers Connected

In March, we committed to the FCC’s Keep Americans Connected pledge (the “Pledge”), and at the FCC’s request, later extended our commitment to June 30, 2020. During this period, we pledged to:
Not terminate service to any residential or small business customers because of their inability to pay their bills due to disruptions caused by the COVID-19 pandemic; and
Waive any late fees that any residential or small business customers incur because of their economic circumstances related to the COVID-19 pandemic.
After the Pledge extension ended, we continued to work with our customers to help them maintain service and become current on their accounts, while avoiding financial hardship.
We also took additional temporary steps in March to ensure that all current T-Mobile customers with smartphone data plans were provided connectivity to learn and work remotely through June 30, 2020, including:
Providing unlimited high-speed smartphone data to current customers as of March 13, 2020 who had legacy plans without unlimited high-speed data (excluding roaming);
Giving T-Mobile postpaid and Metro by T-Mobile customers on smartphone plans with mobile hotspot data the ability to add 10GB of Smartphone Mobile HotSpot each month (20GB total);
Working with our Lifeline partners to provide customers up to 5GB per month of free data;
57

Table of Contents
Increasing the data allowance, at no extra charge, to schools and students using our EmpowerED digital learning program to ensure each participant has access to at least 20GB of data per month; and
Providing free international calling to landlines (and in many cases mobile numbers) to countries that were significantly impacted by COVID-19 through May 13, 2020.
In addition, during the pandemic we:
Offered our customers creative, new COVID-safe solutions such as virtual selling and curbside pickup;
Launched T-Mobile Connect, a new, competitive $15 per month prepaid option we had previously announced but launched in March 2020, ahead of schedule to provide a reliable, low-cost connection for many Americans facing financial strain;
Partnered with multiple spectrum holders and the FCC to successfully deploy additional 600 MHz spectrum on a temporary basis, effectively doubling total 600 MHz LTE capacity across the nation to help ensure customers can stay connected during this critical time;
Worked to keep our network fully operational as an essential service to first responders, 911 communications and our customers and continued to expand our 5G network, while adhering to governmental guidelines; and
We unveiled our latest Un-carrier move, Scam Shield, a service to help block robocalls and reduce scam calls for customers by using a free app that gives the user control over T-Mobile’s anti-scam protections like Scam ID, Scam Block, and Caller ID. Scam Shield is available to all our customers to combat the rapid increase in scams, including those related to COVID-19.

We continue to monitor the COVID-19 pandemic and its impacts and may adjust our actions as needed to continue to serve our employees and communities and to provide our products and services to our employees and communities.

Impact on Results of Operations and Performance Measures for the Three and Six Months Ended June 30, 2020

For the three and six months ended June 30, 2020, we incurred $341 million and $458 million, respectively, before taxes, in supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs, which are included in Selling, general and administrative expenses in our Condensed Consolidated Statements of Comprehensive Income. Substantially all of these costs were incurred from March onward, as COVID-19 had a minimal impact on our expenses in January and February. These costs have been excluded from the calculation of Adjusted EBITDA, a non-GAAP financial measure, as they represent direct, incremental costs as a result of our response to COVID-19 that we do not consider to be indicative of our ongoing operating performance. See “Adjusted EBITDA” in the “Performance Measures” section of this MD&A.

Additional impacts of COVID-19 for the three and six months ended June 30, 2020, which primarily impacted our results from March onward, include:
Lower net customer additions due to lower switching activity in the industry from social distancing rules and temporary retail store closures, which impacted our ability to sell devices and services and to persuade potential customers to switch to our network during the crisis;
Lower postpaid phone and prepaid churn due to social distancing rules and retail store closures;
Lower Total service revenues from lower net customer additions and customer concessions as part of our commitments to the Pledge and other efforts to keep our customers connected;
Lower Equipment revenues and lower Cost of equipment sales due to lower switching activity in the industry from social distancing rules and retail store closures, which impacted our ability to sell devices; and
Higher bad debt expense due to the recording of estimated losses associated with the adoption of the new credit loss standard, which includes the impact of our commitment to the Pledge through collection holds and the macro-economic impacts of COVID-19.

Expected Continued Impact on Results of Operations and Performance Measures

We will continue to monitor developments regarding the COVID-19 pandemic and evaluate the appropriate steps we need to take as a business to align with guidelines from state, local and federal government agencies and to do what is best for our employees and customers. We expect our business, liquidity, financial condition, and operating results to continue to be adversely impacted by the COVID-19 pandemic for the remainder of 2020 and thereafter. The extent to which the COVID-19 pandemic impacts our business, operations and financial results will depend on numerous future developments that we are not able to predict at this time, including the duration and scope of the pandemic, the success of governmental, business and
58

Table of Contents
individual actions that have been and continue to be taken in response to the pandemic, and the impact on economic activity from the pandemic and actions taken in response. Such impacts may include:
Lower net customer additions due to lower switching activity in the industry from social distancing rules, temporary retail store closures and reduced consumer spending caused by widespread unemployment and other adverse economic effects, partially offset by lower churn;
Lower Equipment revenues and lower Cost of equipment sales from lower device sales due to lower switching activity in the industry from social distancing rules and temporary retail store closures, which will impact our ability to sell devices;
Higher bad debt expense on our service and equipment installment plan (“EIP”) receivable portfolios due to adverse macro-economic conditions. Should these adverse conditions worsen, our operating and financial results could be negatively impacted;
Continued costs to protect and support our employees and customers, which increased during the second quarter as a result of a full quarter of COVID-19 impacts compared to the first quarter because COVID-19 primarily only impacted costs during the last month of the first quarter;
Higher device insurance fulfillment costs due to a lower supply of returned devices; and
Potential disruptions in our supply chains.

In addition, we have reevaluated, and continue to assess, our spending, including for marketing purposes like advertising, capital projects like build-out of our stores, travel, third-party services and certain operating expenses. We have taken actions to adjust our spending given the significant uncertainty around the magnitude and duration of any recessionary impacts arising from the COVID-19 pandemic.

For additional risks to our business and industry, see Item 1A. Risk Factors.

Un-Carrier Moves

Scam Shield

On July 16, 2020, we unveiled our latest Un-carrier move with a comprehensive set of protections against scams and robocalls. The move, called Scam Shield, is our response to the growing number of scam calls with an unparalleled set of free safeguards, including technology built into T-Mobile’s network, to protect customers in the T-Mobile family of brands against scams and robocalls. Scam Shield addresses this complex problem with a solution designed to help stop scammers, give the customer more information about the identity of the caller and protect their personal information.

Brand and Retail Unification

On August 2, 2020, we unified our retail operations and rebranded thousands of Sprint stores to T-Mobile stores while rolling out the tools and systems across our distribution footprint to serve all customers in all stores. At the same time, we launched our 4 lines for $25 each per month limited time promotion, giving customers unlimited data and 5G access.
5933

Table of Contents
Results of Operations

Set forth below is a summary of our unaudited condensed consolidated financial results:
Three Months Ended June 30,ChangeSix Months Ended
June 30,
ChangeThree Months Ended March 31,Change
(in millions)(in millions)20202019$%20202019$%(in millions)20212020$%
RevenuesRevenuesRevenues
Postpaid revenuesPostpaid revenues$9,959  $5,613  $4,346  77 %$15,846  $11,106  $4,740  43 %Postpaid revenues$10,303 $5,887 $4,416 75 %
Prepaid revenuesPrepaid revenues2,311  2,379  (68) (3)%4,684  4,765  (81) (2)%Prepaid revenues2,351 2,373 (22)(1)%
Wholesale revenuesWholesale revenues408  313  95  30 %733  617  116  19 %Wholesale revenues897 325 572 176 %
Roaming and other service revenuesRoaming and other service revenues552  241  311  129 %813  449  364  81 %Roaming and other service revenues641 261 380 146 %
Total service revenuesTotal service revenues13,230  8,546  4,684  55 %22,076  16,937  5,139  30 %Total service revenues14,192 8,846 5,346 60 %
Equipment revenuesEquipment revenues4,269  2,263  2,006  89 %6,386  4,779  1,607  34 %Equipment revenues5,346 2,117 3,229 153 %
Other revenuesOther revenues172  170   %322  343  (21) (6)%Other revenues221 150 71 47 %
Total revenuesTotal revenues17,671  10,979  6,692  61 %28,784  22,059  6,725  30 %Total revenues19,759 11,113 8,646 78 %
Operating expensesOperating expensesOperating expenses
Cost of services, exclusive of depreciation and amortization shown separately belowCost of services, exclusive of depreciation and amortization shown separately below3,098  1,649  1,449  88 %4,737  3,195  1,542  48 %Cost of services, exclusive of depreciation and amortization shown separately below3,384 1,639 1,745 106 %
Cost of equipment sales, exclusive of depreciation and amortization shown separately belowCost of equipment sales, exclusive of depreciation and amortization shown separately below3,667  2,661  1,006  38 %6,196  5,677  519  %Cost of equipment sales, exclusive of depreciation and amortization shown separately below5,142 2,529 2,613 103 %
Selling, general and administrativeSelling, general and administrative5,604  3,543  2,061  58 %9,292  6,985  2,307  33 %Selling, general and administrative4,805 3,688 1,117 30 %
Impairment expense418  —  418  NM418  —  418  NM
Depreciation and amortizationDepreciation and amortization4,064  1,585  2,479  156 %5,782  3,185  2,597  82 %Depreciation and amortization4,289 1,718 2,571 150 %
Total operating expensesTotal operating expenses16,851  9,438  7,413  79 %26,425  19,042  7,383  39 %Total operating expenses17,620 9,574 8,046 84 %
Operating incomeOperating income820  1,541  (721) (47)%2,359  3,017  (658) (22)%Operating income2,139 1,539 600 39 %
Other income (expense)Other income (expense)Other income (expense)
Interest expenseInterest expense(776) (182) (594) 326 %(961) (361) (600) 166 %Interest expense(792)(185)(607)328 %
Interest expense to affiliatesInterest expense to affiliates(63) (101) 38  (38)%(162) (210) 48  (23)%Interest expense to affiliates(46)(99)53 (54)%
Interest incomeInterest income   50 %18  12   50 %Interest income12 (9)(75)%
Other expense, netOther expense, net(195) (22) (173) 786 %(205) (15) (190) 1,267 %Other expense, net(125)(10)(115)NM
Total other expense, netTotal other expense, net(1,028) (301) (727) 242 %(1,310) (574) (736) 128 %Total other expense, net(960)(282)(678)240 %
(Loss) income from continuing operations before income taxes(208) 1,240  (1,448) (117)%1,049  2,443  (1,394) (57)%
Income before income taxesIncome before income taxes1,179 1,257 (78)(6)%
Income tax expenseIncome tax expense(2) (301) 299  (99)%(308) (596) 288  (48)%Income tax expense(246)(306)60 (20)%
(Loss) income from continuing operations(210) 939  (1,149) (122)%741  1,847  (1,106) (60)%
Income from discontinued operations, net of tax320  —  320  NM320  —  320  NM
Net incomeNet income$110  $939  $(829) (88)%$1,061  $1,847  $(786) (43)%Net income$933 $951 $(18)(2)%
Statement of Cash Flows DataStatement of Cash Flows DataStatement of Cash Flows Data
Net cash provided by operating activitiesNet cash provided by operating activities$777  $2,147  $(1,370) (64)%2,394  $3,539  $(1,145) (32)%Net cash provided by operating activities$3,661 $1,617 $2,044 126 %
Net cash used in investing activitiesNet cash used in investing activities(6,356) (1,615) (4,741) 294 %(7,936) (2,581) (5,355) 207 %Net cash used in investing activities(11,239)(1,580)(9,659)611 %
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities15,628  (866) 16,494  (1,905)%15,175  (1,056) 16,231  (1,537)%Net cash provided by (used in) financing activities3,874 (453)4,327 NM
Non-GAAP Financial MeasuresNon-GAAP Financial MeasuresNon-GAAP Financial Measures
Adjusted EBITDAAdjusted EBITDA$7,017  $3,461  $3,556  103 %$10,682  $6,745  $3,937  58 %Adjusted EBITDA6,905 3,665 3,240 88 %
Free Cash Flow, excluding gross payments for the settlement of interest rate swaps1,4411,16927223 %2,1731,78738622 %
Core Adjusted EBITDACore Adjusted EBITDA5,864 3,500 2,364 68 %
Free Cash FlowFree Cash Flow1,304 73257278 %
NM - Not Meaningful

6034

Table of Contents
The following discussion and analysis is for the three and six months ended June 30, 2020,March 31, 2021, compared to the same period in 20192020 unless otherwise stated.

Total revenues increased $6.7$8.6 billion, or 61%, for the three months ended and increased $6.7 billion, or 30%, for the six months ended June 30, 2020.78%. The components of these changesthis change are discussed below.

Postpaid revenues increased $4.3$4.4 billion, or 77%75%, for the three months ended and increased $4.7 billion, or 43%, for the six months ended June 30, 2020 primarily from:

Higher average postpaid phone customers, primarily from customers acquired in the Merger and the growing success of new customer segments and rate plans, as well as continued growth in existing and Greenfield markets;new markets, along with promotional activities;
Higher average postpaid other customers, primarily from customers acquired in the Merger and growth in wearable products, specifically the Apple Watch, as well as in other connected devices, primarily duerelated to growth inpublic and educational institution customers on lower average rate plans;sector customers; and
Higher postpaid phone ARPU.ARPU, primarily as a result of customers acquired in the Merger. See “Postpaid Phone ARPU” in the “Performance Measures” section of this MD&A.

Prepaid revenues decreasedwere essentially flat.

Wholesale revenues $68 million, or 3%, for the three months ended and decreased $81increased $572 million, or 2%176%, for the six months ended June 30, 2020, primarily from:

Lower average prepaid customers primarily from a base adjustment, recordedOur Master Network Service Agreement with DISH, which went into effect on July 18, 2019, for certain T-Mobile prepaid products now offered1, 2020; and distributed by a current MVNO partner; partially offset by
Higher prepaid phone ARPU. See “Prepaid Phone ARPU” in the “Performance Measures” section of this MD&A.

Wholesale revenues increased $95 million, or 30%, for the three months ended and increased $116 million, or 19%, for the six months ended June 30, 2020, primarily from customersCustomers acquired in the Merger and the continued success of our MVNO partnerships.Merger.

Roaming and other service revenuesincreased $311 million, or129%, for the three months ended and increased $364$380 million, or 81%146%, for the six months ended June 30, 2020, primarily from:

Inclusion of wireline operations acquired in the Merger; and
Higher Lifeline, advertising and affiliate revenues, primarily due to operations acquired in the Merger; partially offset by
Lower international roaming due to the impact of COVID-19 and lower domestic roaming due to the receipt of roaming revenue generated from Sprint customers roaming on the T-Mobile network in periods before the Merger.

Equipment revenuesincreased $2.0 billion, or 89%, for the three months ended and increased $1.6$3.2 billion, or 34%153%, for the six months ended June 30, 2020.

The increase for the three months ended June 30, 2020, was primarily from:

An increase of $1.3$1.7 billion in device sales revenue, excluding purchased leased devices, primarily from:
An increase in the number of devices sold, excluding purchased leased devices, due to an increase in our customer base primarily due to the Merger; and
Higher average revenue per device sold, excluding purchased leased devices, due to an increase in the high-end device mix primarily driven by a larger postpaid customer base as a result of the Merger;
An increase of $876 million in lease revenues due to a higher number of customer devices under lease, primarily from leases acquired in the Merger;
An increase of $353$237 million in sales of leased devices, primarily due to a larger base of leased devices as a result of the Merger; and
An increase of $227 million in revenues primarily related to the liquidation of a higher volume of returned devices primarily as a result of the Merger.

Other revenues increased$71 million, or 47%, primarily from higher interest income on our EIP receivables.

Operating expenses increased $8.0 billion, or 84%. The components of this change are discussed below.

Cost of services, exclusive of depreciation and amortization, increased $1.7 billion, or 106%, primarily from:

An increase in expenses associated with leases, backhaul agreements and other network expenses acquired in the
35

Table of Contents
Merger and the continued build-out of our nationwide 5G network;
Higher employee-related and benefit-related costs primarily due to increased headcount as a result of the Merger;
An increase of $136 million for the three months ended March 31, 2021, in Merger-related costs including incremental costs associated with network decommissioning and integration; and
An increase in repair and maintenance costs, primarily due to the Merger and severe weather occurring during the three months ended March 31, 2021.

Cost of equipment sales, exclusive of depreciation and amortization, increased $2.6 billion, or 103%, primarily from:

An increase of $2.0 billion in device cost of equipment sales, revenue, excluding purchased leased devices, primarily from a 20%from:
An increase in the number of devices sold, excluding purchased leased devices, due to an increase in our customer base primarily due to the MergerMerger; and
Higher average costs per device sold, excluding purchased leased devices, due to an increase in connectedthe high-end device sales,mix primarily to educational institutions;driven by a larger postpaid customer base as a result of the Merger;
An increase of $231$255 million in leased device cost of equipment sales, from leased devices, primarily due to an increase in purchaseda larger base of leased devices as a result of the Merger; and
An increase of $165 million in revenues primarily related to the liquidation of returned devices as a result of the Merger.

The increase for the six months ended June 30, 2020, was primarily from:

61

Table of Contents
An increase of $1.3 billion in lease revenues due to a higher number of customer devices under lease, primarily from leases acquired in the Merger;
An increase of $232 million in equipment sales from leased devices, primarily due to an increase in purchased leased devices as a result of the Merger; and
An increase of $176 million in revenues primarily related to the liquidation of returned devices as a result of the Merger; partially offset by
A decrease of $33 million in device sales revenue, excluding purchased leased devices, primarily from:
Lower average revenue per device sold due to an increase in the lower-end device mix; partially offset by
A 1% increase in the number of devices sold, excluding purchased leased devices, due to an increase in our customer base primarily due to the Merger and an increase in connected device sales to educational institutions, offset by social distancing rules and retail store closures arising from COVID-19, which had a stronger impact in the first quarter of 2020.

Other revenues were essentially flat for the three months ended and decreased $21 million, or 6%, for the six months ended June 30, 2020.

Operating expenses increased$7.4 billion,or 79%, for the three months ended and increased $7.4 billion, or 39%, for the six months ended June 30, 2020. The components of these changes are discussed below.

Cost of services, exclusive of depreciation and amortization, increased$1.4 billion,or 88%, for the three months ended and increased $1.5 billion, or 48%, for the six months ended June 30, 2020 primarily from:

An increase in expenses associated with leases, backhaul agreements and tower expenses acquired in the Merger and the continued build-out of our nationwide 5G network;
Higher employee-related and benefit-related costs primarily due to increased headcount as a result of the Merger;
Costs associated with wireline operations acquired in the Merger;
An increase in repair and maintenance costs, primarily due to the Merger; and
An increase in regulatory and roaming costs primarily due to the Merger, partially offset by lower international roaming costs.

Cost of equipment sales, exclusive of depreciation and amortization, increased$1.0 billion, or 38%, for the three months ended and increased $519 million, or 9%, for the six months ended June 30, 2020.

The increase for the three months ended June 30, 2020, was primarily from:

An increase of $416 million in device cost of equipment sales, excluding purchased leased devices, primarily from:
A 20% increase in the number of devices sold, excluding purchased leased devices, due to an increase in our customer base primarily due to the Merger and an increase in connected device sales primarily to educational institutions; partially offset by
Lower average costs per device sold due to an increase in the low-end device mix;
An increase of $314$159 million in costs related to the liquidation of a higher volume of returned devices primarily as a result of the Merger and higher extended warranty costs; and
An increase of $292 million in leased device cost of equipment sales, primarily due to an increase in purchased leased devices as a result of the Merger.
62

Table of Contents

The increase for the six months ended June 30, 2020, was primarily from:

An increase of $326 million in costs related to the liquidation of returned devices as a result of the Merger as well as higher extended warranty costs; and
An increase of $299 million in leased device cost of equipment sales, primarily due to an increase in purchased leased devices as a result of the Merger; partially offset by
A decrease of $72 million in device cost of equipment sales, excluding purchased leased devices, primarily from:
Lower average cost per device sold due to an increase in the low-end device mix; partially offset by
A 1% increase in the number of devices sold, excluding purchased leased devices, due to an increase in our customer base primarily due to the Merger and an increase in connected device sales to educational institutions, offset by social distancing rules and retail store closures arising from COVID-19, which had a stronger impact in the first quarter of 2020.

Selling, general and administrative expenses increased$2.1 billion,or 58%, for the three months ended and increased $2.3 $1.1 billion, or 33%30%, for the six months ended June 30, 2020.primarily from:

The increase forHigher external labor and professional services, advertising and lease expense from the three months ended June 30, 2020, was primarily from:

Merger;
Higher employee-related costs due to an increase in the number of employees primarily from the Merger;
Higher external labor and professional services, advertising, lease and rent expense primarily from the Merger;
$758 million of Merger-related costs including transaction costs associated with legal and professional services and restructuring costs including severance and store rationalization, compared to $222 million of Merger-related costs in the three months ended June 30, 2019;
Higher commission expense, primarily due to an increase in our retail workforce from the Merger,higher gross customer additions; partially offset by commissions capitalized in excess of commissions expensed, including a net benefit from new contract costs capitalized subsequent to Merger close that are in excess of the related amortization; and
HigherLower bad debt expense primarily due to customers acquired as a result of the Merger and the recording of estimated losses associated with the new credit loss standard including $125 million of incremental bad debt for the estimated macro-economic impacts of COVID-19 of which $46 million is related to our commitments to the Pledge.expense.
Selling, general and administrative expenses for the three months ended June 30,March 31, 2020 included $341$117 million of supplemental employee payroll, third partythird-party commissions and cleaning-related COVID-19 costs.

The increase There were insignificant COVID-19 costs for the sixthree months ended June 30, 2020, was primarily from:

March 31, 2021.
Higher employee-relatedMerger-related costs due to an increase in the number of employees primarily from the Merger;
Higher external labor and professional services, advertising, lease and rent expense from the Merger;
$901$145 million, of Merger-related costs including transaction costs associated with legal and professional servicesservice and restructuring costs including severance and store rationalization, in the three months ended March 31, 2021, compared to $335$143 million of Merger-related costs in the sixthree months ended June 30, 2019;
Higher commission expense primarily due to an increase in our retail workforce from the Merger and an increase of $87 million related to commissions expensed in excess of commissions capitalized; partially offset by a net benefit from new contract costs capitalized subsequent to Merger close that are in excess of the related amortization as these costs will amortize into expense over time and lower commissions expense from compensation structure changes;
Higher legal-related expenses from recording an estimated accrual associated with the FCC Notice of Apparent Liability and commitments associated with the Merger; and
Higher bad debt expense primarily due to customers acquired as a result of the Merger and the recording of estimated losses associated with the new credit loss standard including $155 million of incremental bad debt for the estimated macro-economic impacts of COVID-19 of which $46 million is related to our commitments to the Pledge.
Selling, general and administrative expenses for the six months ended June 30, 2020, included $458 million of supplemental employee payroll, third party commissions and cleaning-related COVID-19 costs.

63

Table of Contents
Impairment expense was $418 million for the three and six months ended June 30, 2020 and consisted of the following:

A $218 million impairment on the goodwill in the Layer3 reporting unit; and
A $200 million impairment on the capitalized software development costs related to our postpaid billing system.

For more information regarding the impairments above, see Note 5 – Property and Equipment and Note 6 – Goodwill, Spectrum License Transactions and Other Intangible Assets of the Notes to the Condensed Consolidated Financial Statements.March 31, 2020.

Depreciation and amortization increased$2.5 billion, or 156%, for the three months ended and increased $2.6 billion, or 82%150%, for the six months ended June 30, 2020, primarily as a result of the Merger, including:

Higher depreciation expense from assets acquired in the Merger, excluding leased devices, and network expansion from the continued build-out of our nationwide 5G network;
Higher depreciation expense on leased devices resulting from a higher total numberlarger base of customerleased devices under lease, primarily from customers acquired inas a result of the Merger; and
Higher amortization from intangible assets acquired in the Merger.

Operating income, the components of which are discussed above, decreased $721increased $600 million, or 47%, for the three months ended and decreased $658 million, or 22%, for the six months ended June 30, 2020.39%.

Interest expense increased$594 $607 million, or 326%328%, for the three months ended and increased $600 million, or 166%, for the six months ended June 30, 2020 primarily from:

The assumption of debt with a fair value of $31.8 billion in connection with the Merger;
The issuance of an aggregate principal amount of $19.0$31.8 billion inof Senior Secured Notes and the entry into a $4.0 billion secured term loan in April 2020 in connection with the Merger; and2020;
Amortization of $39 million related to interest rate swap derivatives beginning upon settlement in April 2020; and
The issuance of an aggregate principal amount of $3.0 billion of Senior Notes in January 2021; partially offset by
The repayment of an aggregate principal amount of $4.2 billion of Senior Notes in 2020.

36

Table of Contents
Interest expense to affiliatesdecreased $38$53 million, or 38%54%, forprimarily from the three months ended and decreased $48 million, or 23%, for the six months ended June 30, 2020.

The decrease for the three months ended June 30, 2020, was primarily from:

The redemption of an aggregate principal amount of $4.0$5.25 billion inof Senior Notes to Affiliatesaffiliates and the repayment of an aggregate principal amount of $4.0 billion in Incremental term loan facility to affiliates in April 2020;2020, partially offset by
Lower capitalized interest.

The decrease for the six months ended June 30, 2020, was primarily from:

The redemption of an aggregate of $4.0 billion in Senior Notes to Affiliates and the repayment of an aggregate of $4.0 billion in Incremental term loan facility to affiliates in 2020; and
The redemption of $600 million in Senior Reset Notes in April 2019; partially offset by
Lower lower capitalized interest.

Other expense, net increased$173 $115 million, for the three months ended and increased $190 million for the six months ended June 30, 2020, primarily from losses on the extinguishment of the $19.0 billion New Secured Bridge Loan Facility and $4.0 billion Senior Notes to Affiliates.debt.

(Loss) income from continuing operationsIncome before income taxes, the components of which are discussed above, was ($208)decreased $78 million, and $1.2 billion for the three months ended June 30, 2020 and 2019, respectively, and was $1.0 billion and $2.4 billion for the six months ended June 30, 2020 and 2019, respectively.
64

Table of Contents

(Loss) income from continuing operations before income taxes for the three and six months ended June 30, 2020 was primarily impacted by:
Merger-related costs including restructuring costs;
Impairment expense; and
Make-whole commissions and incremental bad debt as a result of the macro-economic impacts of COVID-19.or 6%.

Income tax expense decreased $299$60 million, or 99%20%, primarily from:

An increase in excess tax benefits related to the vesting of restricted stock awards and lower income before taxes for the three months ended and decreased $288 million, or 48%, for the six months ended June 30, 2020.

The decrease forMarch 31, 2021, compared to the three months ended June 30, 2020, was primarily from:

March 31, 2020.
Lower income before income taxes; partially offset by
A negative effective tax rate due to a small pre-tax loss primarily attributable to expenses that are not deductible for tax purposes including our Layer3 goodwill impairment and certain merger-related costs. The effective tax rate was (0.7)% for the three months ended June 30, 202020.9% and 24.4% for the three months ended June 30, 2019.

The decrease for the six months ended June 30,March 31, 2021 and 2020, was primarily from:

Lower income before income taxes; partially offset by
A higher effective tax rate, primarily due to a reduction in income before income taxes and an increase in expenses that are not deductible for income tax purposes primarily related to our Layer 3 goodwill impairment and certain Merger-related costs. The effective tax rate was 29.4% and 24.4% for the six months ended June 30, 2020 and 2019, respectively.

(Loss) income from continuing operations, was $(210) million and $939 million for the three months ended June 30, 2020 and 2019, respectively, and was $741 million and $1.8 billion for the six months ended June 30, 2020 and 2019, respectively,
primarily due to lower Operating income and higher Interest expense, partially offset by lower Income tax expense.

Income from discontinued operations, net of tax was $320 million for both the three and six months ended June 30, 2020 and consists of the results of the Prepaid Business that was divested on July 1, 2020. The components of discontinued operations, net of tax from April 1, 2020 through June 30, 2020 are presented in the table below:
Three and Six Months Ended June 30, 2020
(in millions)
Major classes of line items constituting pretax income from discontinued operations
Prepaid revenues$973 
Roaming and other service revenues27 
Total service revenues1,000 
Equipment revenues270 
Total revenues1,270 
Cost of services25 
Cost of equipment sales499 
Selling, general and administrative314 
Total operating expenses838 
Pretax income from discontinued operations432 
Income tax expense(112)
Net income from discontinued operations$320 

For more information regarding the Prepaid Transaction, see Note 12 – Discontinued Operations of the Notes to the Condensed Consolidated Financial Statements.

Net income, the components of which are discussed above, decreased $829$18 million, or 88%2%, for the three months ended and decreased $786 million, or 43%, for the six months ended June 30, 2020, primarily due to lower Operating income and higher interest expense, partially offset by Income from discontinued operations, net of tax and lower Income tax expense.

65

Table of Contents
Net income for the three months ended June 30, 2020 included the following:

Merger-related costs, net of tax, of $635$220 million for the three months ended June 30, 2020,March 31, 2021, compared to $175$117 million for the three months ended June 30, 2019.
The negative impact of supplemental employee payroll, net of government reimbursements, third-party commissions and cleaning-related COVID-19 costs, net of tax, of $253 million for the three months ended June 30, 2020, compared to no impact for the three months ended June 30, 2019.
Impairment expense of $366 million, net of tax, for the three months ended June 30, 2020, compared to no impairment expense for the three months ended June 30, 2019. The impairment of goodwill of $218 million in the Layer3 reporting unit is not deductible for tax purposes.

Net income for the six months ended June 30, 2020, included the following:

Merger-related costs, net of tax, of $752 million for the six months ended June 30, 2020, compared to $268 million for the six months ended June 30, 2019.March 31, 2020.
The negative impact of supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs, net of tax, of $339$86 million for the sixthree months ended June 30,March 31, 2020, compared to no impact for the sixthree months ended June 30, 2019.
Impairment expense of $366 million, net of tax, for the six months ended June 30, 2020, compared to no impairment expense for the six months ended June 30, 2019. The impairment of goodwill of $218 million in the Layer3 reporting unit is not deductible for tax purposes.March 31, 2021.

Guarantor Financial Information

On March 2, 2020, the SEC adopted amendments to the financial disclosure requirements for guarantors and issuers of guaranteed securities, as well for affiliates whose securities collateralize a registrant’s securities. We early adopted the requirements of the amendments on January 1, 2020, which included replacing guarantor condensed consolidating financial information with summarized financial information for the consolidated obligor group (Parent, Issuer, and Guarantor Subsidiaries) as well as no longer requiring guarantor cash flow information, financial information for non-guarantor subsidiaries, nor a reconciliation to the consolidated results.

On April 1, 2020, in connection with the closing of the Merger, we assumed certain registered debt to third parties issued by Sprint, Sprint Communications, Inc. and Sprint Capital Corporation (collectively, the “Sprint Issuers”). Amounts previously disclosed for the estimated values of certain acquired assets and liabilities assumed have been adjusted based on additional information arising subsequent to the initial valuation. These revisions to the estimated values did not have a significant impact on our summarized financial information for the consolidated obligor group.

Pursuant to the applicable indentures and supplemental indentures, the long-term debtSenior Notes to affiliates and third parties issued by T-Mobile USA, Inc. and the Sprint Issuers (collectively, the “Issuers”) isare fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by T-Mobile (“Parent”) and certain of the Parent’s 100% owned subsidiaries (“Guarantor Subsidiaries”).

Pursuant to the applicable indentures and supplemental indentures, the Senior Secured Notes to third parties issued by T-Mobile USA, Inc. are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by Parent and the Guarantor Subsidiaries, except for the Unsecured Guarantees of Sprint Corporation, Sprint Communications, Inc., and Sprint Capital Corporation, which are provided on a senior unsecured basis.

The guarantees of the Guarantor Subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The indentures, supplemental indentures and credit facilitiesagreements governing the long-term debt contain covenants that, among other things, limit the ability of the Issuers or borrowers and the Guarantor Subsidiaries to incur more debt, pay dividends and make distributions, make certain investments, repurchase stock, create liens or other encumbrances, enter into transactions with affiliates, enter into transactions that restrict dividends or distributions from subsidiaries, and merge, consolidate or sell, or otherwise dispose of, substantially all of their assets. Certain provisions of each of the credit facilities,agreements, indentures and supplemental indentures relating to the long-term debt restrict the ability of the Issuers or borrowers to loan funds or make payments to Parent. However, the Issuers or borrowers and Guarantor Subsidiaries are allowed to make certain permitted payments to the Parent under the terms of the indentures, supplemental indentures and the supplemental indentures.

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. We early adopted the standard on January 1, 2020 and have applied the standard retrospectively to all periods presented. Upon the adoption of the standard, deferred tax assets of non-guarantor entities in aggregate of $163 million were reclassified and netted with the deferred tax liabilities of the guarantor obligor group of the debt issued by T-Mobile USA, Inc. The adoption of this standard did not have an impact on our condensed consolidated financial statements.credit agreements.

6637

Table of Contents
In March 2020, certain Guarantor Subsidiaries became Non-Guarantor Subsidiaries. Certain prior period amounts have been reclassifiedBasis of Presentation

The following tables include summarized financial information of the obligor groups of debt issued by T-Mobile USA, Inc., Sprint, Sprint Communications, Inc., and Sprint Capital Corporation. The summarized financial information of each obligor group is presented on a combined basis with balances and transactions within the obligor group eliminated. Investments in and the equity in earnings of non-guarantor subsidiaries which would otherwise be consolidated in accordance with U.S. GAAP are excluded from the below summarized financial information pursuant to conform to the current period’s presentation.SEC Regulation S-X Rule 13-01.

The summarized balance sheet information for the consolidated obligor group of debt issued by T-Mobile USA, Inc. is presented in the table below:
(in millions)(in millions)June 30, 2020December 31, 2019(in millions)March 31, 2021December 31, 2020
Current assetsCurrent assets$23,105  $8,177  Current assets$17,615 $22,638 
Noncurrent assetsNoncurrent assets163,040  77,684  Noncurrent assets173,783 165,294 
Current liabilitiesCurrent liabilities21,487  11,885  Current liabilities17,959 19,982 
Noncurrent liabilitiesNoncurrent liabilities101,662  45,187  Noncurrent liabilities117,678 112,930 
Due to non-guarantorsDue to non-guarantors7,054  —  Due to non-guarantors7,697 7,433 
Due from non-guarantors—  346  
Due to related partiesDue to related parties6,067  14,173  Due to related parties4,829 4,873 
Due from related partiesDue from related parties24  20  Due from related parties20 22 

The summarized results of operations information for the consolidated obligor group of debt issued by T-Mobile USA, Inc. is presented in the table below:
Six Months Ended June 30, 2020Year Ended December 31, 2019Three Months Ended March 31, 2021Year Ended December 31, 2020
(in millions)(in millions)(in millions)Three Months Ended March 31, 2021Year Ended December 31, 2020
Total revenuesTotal revenues$28,071  $43,431  Total revenues$19,429 $67,112 
Operating incomeOperating income1,525  4,761  Operating income1,429 4,335 
Net incomeNet income1,061  3,468  Net income335 1,148 
Revenue from non-guarantorsRevenue from non-guarantors656�� 974  Revenue from non-guarantors404 1,496 
Operating expenses to non-guarantorsOperating expenses to non-guarantors656 2,127 
Other expense to non-guarantorsOther expense to non-guarantors(36)(114)

The summarized balance sheet information for the consolidated obligor group of debt issued by Sprint and Sprint Communications, Inc. is presented in the table below:
(in millions)June 30, 2020
Current assets$1,619 
Noncurrent assets130,938 
Current liabilities4,716 
Noncurrent liabilities64,845 
Due from non-guarantors49,254 
Due to related parties6,025 

(in millions)March 31, 2021December 31, 2020
Current assets$620 $2,646 
Noncurrent assets29,521 26,278 
Current liabilities4,192 4,209 
Noncurrent liabilities69,002 65,161 
Due from non-guarantors29,257 25,993 
Due to related parties4,789 4,786 

The summarized results of operations information for the consolidated obligor group of debt issued by Sprint and Sprint Communications, Inc., since the acquisition of Sprint on April 1, 2020, is presented in the table below:
Three Months Ended June 30, 2020
(in millions)
Total revenues$
Operating income(15)
Net income110 
Revenue from non-guarantors
Three Months Ended March 31, 2021Nine Months Ended December 31, 2020
(in millions)
Total revenues$$10 
Operating loss(1)(15)
Net loss(495)(2,229)
Revenue from non-guarantors
Other income, net, from non-guarantors680 1,084 

38

Table of Contents
The summarized balance sheet information for the consolidated obligor group of debt issued by Sprint Capital Corporation is presented in the table below:

(in millions)June 30, 2020
Current assets$1,619 
Noncurrent assets136,235 
Current liabilities4,788 
Noncurrent liabilities70,070 
Due from non-guarantors58,276 
Due to related parties6,025 
(in millions)March 31, 2021December 31, 2020
Current assets$620 $2,646 
Noncurrent assets38,586 35,330 
Current liabilities4,263 4,281 
Noncurrent liabilities74,083 70,253 
Due from non-guarantors38,322 35,046 
Due to related parties4,789 4,786 

67

Table of Contents
The summarized results of operations information for the consolidated obligor group of debt issued by Sprint Capital Corporation, since the acquisition of Sprint on April 1, 2020, is presented in the table below:
Three Months Ended June 30, 2020
(in millions)
Total revenues$
Operating income(15)
Net income110 
Revenue from non-guarantors
Three Months Ended March 31, 2021Nine Months Ended December 31, 2020
(in millions)
Total revenues$$10 
Operating loss(1)(15)
Net loss(475)(2,165)
Revenue from non-guarantors
Other income, net, from non-guarantors773 1,085 


Affiliates Whose Securities Collateralize Securities Registered or Being Registered

For a description of the collateral arrangements relating to securities of affiliates that collateralize the Senior Secured Notes, please refer to the section entitled “Affiliates Whose Securities Collateralize the Notes and the Guarantees” in the Company’s Registration Statement on Form S-4/A filed with the SEC on April 21, 2021, which section is incorporated herein by reference.

The assets, liabilities and results of operations of the combined affiliates whose securities are pledged as Collateral are not materially different than the corresponding amounts presented in the condensed consolidated financial statements of the Company.

Performance Measures

In managing our business and assessing financial performance, we supplement the information provided by our financial statements with other operating or statistical data and non-GAAP financial measures. These operating and financial measures are utilized by our management to evaluate our operating performance and, in certain cases, our ability to meet liquidity requirements. Although companies in the wireless industry may not define each of these measures in precisely the same way, we believe that these measures facilitate comparisons with other companies in the wireless industry on key operating and financial measures.

The performance measures presented below include the impact of the Merger on a prospective basis from the close date of April 1, 2020. Historical results were not restated.

Customers

A customer is generally defined as a SIM number with a unique T-Mobile identifier which is associated with an account that generates revenue. Customers are qualified either for postpaid service utilizing phones, home internet, wearables, DIGITS or other connected devices, which includesinclude tablets and SyncUp products, where they generally pay after receiving service, or prepaid service, where they generally pay in advance. Our postpaid customers include customersadvance of T-Mobile and Sprint. Our prepaid customers include customers of T-Mobile and Metro by T-Mobile.receiving service.

39

Table of Contents
The following table sets forth the number of ending customers:
As of June 30, 2020ChangeAs of March 31, 2021Change
(in thousands)(in thousands)20202019#%(in thousands)20212020#%
Customers, end of periodCustomers, end of periodCustomers, end of period
Postpaid phone customers (1)(2)
Postpaid phone customers (1)(2)
65,105  38,590  26,515  69 %
Postpaid phone customers (1)(2)
67,402 40,797 26,605 65 %
Postpaid other customers (1)(2)
Postpaid other customers (1)(2)
12,648  6,056  6,592  109 %
Postpaid other customers (1)(2)
15,170 7,014 8,156 116 %
Total postpaid customersTotal postpaid customers77,753  44,646  33,107  74 %Total postpaid customers82,572 47,811 34,761 73 %
Prepaid customers (1), (2)
20,574  21,337  (763) (4)%
Prepaid customers (1)
Prepaid customers (1)
20,865 20,732 133 %
Total customersTotal customers98,327  65,983  32,344  49 %Total customers103,437 68,543 34,894 51 %
Acquired customers, net of base adjustments (2)
Acquired customers, net of base adjustments (2)
12 — 12 NM
NM - Not Meaningful
(1) Includes customers acquired in connection with the Merger and certain customer base adjustments. See Customer Base Adjustments and Net Customer Additions tables below.
(2) On July 18, 2019, we entered into an agreement whereby certain T-Mobile prepaid products will now be offered and distributed by a current MVNO partner. As a result, we included a base adjustment inIn the thirdfirst quarter of 2019 to reduce prepaid2021, we acquired 11,000 postpaid phone customers by 616,000.and 1,000 postpaid other customers through our acquisition of an affiliate.

Total customers increased 32,344,000,34,894,000, or 49%51%, primarily from:

Higher postpaid phone customers, primarily due to postpaid phone customers acquired in the Merger and the success of new customer segments and rate plans and continued growth in existing and Greenfieldnew markets, along with ongoing promotional activities; and
Higher postpaid other customers, primarily due to postpaid other customers acquired in the Merger and growth in wearable products, specifically the Apple Watch as well as other connected devices, primarily duerelated to growth inpublic and educational institution customers; partially offset bysector customers and wearable products; and
LowerHigher prepaid customers, driven primarily by a reduction of 616,000 customers resulting from a base adjustment for certain T-Mobile prepaid products now offered and distributed by a current MVNO partner, partially offset bydue to the continued success of our prepaid brandsbusiness due to ongoing promotional activities and rate plan offers.offers, partially offset by customer base adjustments made to align the customer reporting policies of T-Mobile and Sprint.

Customer Base Adjustments
68

Table of Contents

Certain adjustments were made to align the customer reporting policies of T-Mobile and Sprint.

The adjustments made to the reported T-Mobile and Sprint ending customer base as of March 31, 2020, are presented below:
(in thousands)Postpaid phone customersPostpaid other customersTotal postpaid customersPrepaid customersTotal customers
Reconciliation to beginning customers
T-Mobile customers as reported, end of period March 31, 202040,797 7,014 47,811 20,732 68,543 
Sprint customers as reported, end of period March 31, 202025,916 8,428 34,344 8,256 42,600 
Total combined customers, end of period March 31, 202066,713 15,442 82,155 28,988 111,143 
Adjustments
Reseller reclassification to wholesale customers (1)
(199)(2,872)(3,071)— (3,071)
EIP reclassification from postpaid to prepaid (2)
(963)— (963)963 — 
Divested prepaid customers (3)
— — — (9,207)(9,207)
Rate plan threshold (4)
(182)(918)(1,100)— (1,100)
Customers with non-phone devices (5)
(226)226 — — — 
Collection policy alignment (6)
(150)(46)(196)— (196)
Miscellaneous adjustments (7)
(141)(43)(184)(302)(486)
Total Adjustments(1,861)(3,653)(5,514)(8,546)(14,060)
Adjusted beginning customers as of April 1, 202064,852 11,789 76,641 20,442 97,083 
(1) In connection with the closing of the Merger, we refined our definition of wholesale customers resulting in the reclassification of certain postpaid and prepaid reseller customers to wholesale customers. Starting with the three months ended March 31, 2020, we discontinued reporting wholesale customers to focus on postpaid and prepaid customers and wholesale revenues, which we consider more relevant than the number of wholesale customers given the expansion of M2M and IoT products.
(2) Prepaid customers with a device installment billing plan historically included as Sprint postpaid customers have been reclassified to prepaid customers to align with T-Mobile policy.
(3) Customers associated with the Sprint wireless prepaid and Boost Mobile brands that were divested on July 1, 2020, have been excluded from our reported customers.
(4) Customers who have rate plans with monthly recurring charges which are considered insignificant have been excluded from our reported customers.
(5) Customers with postpaid phone rate plans without a phone (e.g., non-phone devices) have been reclassified from postpaid phone to postpaid other customers to align with T-Mobile policy.
40

Table of Contents
(6) Certain Sprint customers subject to collection activity for an extended period of time have been excluded from our reported customers to align with T-Mobile policy.
(7) Miscellaneous insignificant adjustments to align with T-Mobile policy.

Net Customer Additions (Losses)

The following table sets forth the number of net customer additions:additions (losses):
Three Months Ended June 30,ChangeSix Months Ended
June 30,
ChangeThree Months Ended March 31,Change
(in thousands)(in thousands)20202019#%20202019#%(in thousands)20212020#%
Net customer additionsNet customer additionsNet customer additions
Postpaid phone customersPostpaid phone customers253  710  (457) (64)%705  1,366  (661) (48)%Postpaid phone customers773 452 321 71 %
Postpaid other customersPostpaid other customers859  398  461  116 %1,184  761  423  56 %Postpaid other customers437 325 112 34 %
Total postpaid customersTotal postpaid customers1,112  1,108   NM1,889  2,127  (238) (11)%Total postpaid customers1,210 777 433 56 %
Prepaid customers (1)
Prepaid customers (1)
133  131   % 200  (195) (98)%
Prepaid customers (1)
151 (128)279 NM
Total customersTotal customers1,245  1,239   NM1,894  2,327  (433) (19)%Total customers1,361 649 712 110 %
Acquired customers, net of base adjustments29,228  —  29,228  NM29,228  —  29,228  NM
NM - Not Meaningful
(1) On July 18, 2019, we entered into an agreement whereby certain T-Mobile prepaid products will now be offered and distributed by a current MVNO partner. As a result, we included a base adjustment in the third quarter of 2019 to reduce prepaid customers by 616,000.

Total net customer additions increased 6,000, for the three months ended and decreased 433,000,712,000, or 19%110%, for the six months ended June 30, 2020.primarily from:

The increaseHigher postpaid phone net customer additions, primarily due to expanded retail presence as a result of the Merger and increased retail store traffic due to closures arising from the Pandemic in the prior period, as well as increased growth from T-Mobile for Business, partially offset by higher churn from customers acquired in the three months ended June 30, 2020 was primarily from:Merger;

Higher prepaid net customer additions, primarily due to lower churn; and
Higher postpaid other net customer additions, primarily due to expanded retail presence as a result of the Merger, higher gross additions from connected devices, primarily
69

Table of Contents
and increased retail store traffic due to educational institution additions, partially offset by lower switching activityclosures arising from the Pandemic in the industry from social distancing rules and retail store closures due to COVID-19; and
Higher prepaid net customer additions primarily due to lower churn and promotional activity in the marketplace partially offset by lower switching activity in the industry from social distancing rules and retail store closures due to COVID-19; partially offset by
Lower postpaid phone net customer additions primarily due to lower switching activity in the industry from social distancing rules and retail store closures due to COVID-19 and an increase in churn from the inclusion of the customer base acquired in the Merger.

The decrease for the six months ended June 30, 2020 was primarily from:

Lower postpaid phone net customer additions primarily due to lower switching activity in the industry from social distancing rules and retail store closures due to COVID-19 and an increase in churn from the inclusion of the customer base acquired in the Merger; and
Lower prepaid net customers additions primarily due to lower switching activity in the industry from social distancing rules and retail store closures due to COVID-19, partially offset by lower churn and promotional activity in the marketplace; partially offset by
Higher postpaid other net customer additions primarily due to higher gross additions from connected devices primarily due to educational institution additionsprior period and lower churn, partially offset by lower switching activity in the industry from social distancing rules and retail store closures due to COVID-19.churn.

Churn

Churn represents the number of customers whose service was disconnected as a percentage of the average number of customers during the specified period further divided by the number of months in the period. The number of customers whose service was disconnected is presented net of customers that subsequently have their service restored within a certain period of time. We believe that churn provides management, investors and analysts with useful information to evaluate customer retention and loyalty.

The following table sets forth the churn:
Three Months Ended June 30,Bps ChangeSix Months Ended
June 30,
Bps ChangeThree Months Ended March 31,Change
20202019202020192021Change
Postpaid phone churnPostpaid phone churn0.80 %0.78 %2 bps0.82 %0.83 %-1 bpsPostpaid phone churn0.98 %0.86 %12 bps
Prepaid churnPrepaid churn2.81 %3.49 %-68 bps3.17 %3.67 %-50 bpsPrepaid churn2.78 %3.52 %-74 bps

Postpaid phone churn increased two12 basis points, for the three months ended June 30, 2020, primarily due to the inclusion of the customer base acquired in the Merger offset by lower switching activity in the industry due to social distancing rules and temporary retail store closures arising from COVID-19.

Postpaid phone churn decreased one basis point for the six months ended June 30, 2020, primarily impacted by lower switching activity in the industry due to social distancing rules and temporary retail store closures arising from COVID-19, offset by the inclusion of the customer base acquired in the Merger.with higher churn.

Prepaid churn decreased 6874 basis points, for the three months ended and decreased 50 basis points for the six months ended June 30, 2020, primarily due to lower switching activity in the industry due to social distancing rules and temporary retail store closures arising from COVID-19 and the continued successimproved quality of our prepaid brands due to promotional activities and rate plan offers.

During the three and six months ended June 30, 2020, we have seen lower churn due to social distancing rules and temporary retail store closures arising from the COVID-19 pandemic.recently acquired customers.
7041

Table of Contents

Total Postpaid Accounts

A postpaid account is generally defined as a billing account number that generates revenue. Postpaid accounts are generally comprised of customers that are qualified for postpaid service utilizing phones, home internet, wearables, DIGITS or other connected devices which includesinclude tablets and SyncUp products, where they generally pay after receiving service.

As of June 30, 2020ChangeAs of March 31, 2021Change
(in thousands)(in thousands)20202019#%(in thousands)20212020#%
Accounts, end of periodAccounts, end of periodAccounts, end of period
Total postpaid customer accounts(1)
Total postpaid customer accounts(1)
25,486  14,480  11,006  76 %
Total postpaid customer accounts(1)
26,014 15,244 10,770 71 %
(1) Includes accounts acquired in connection with the Merger and certain account base adjustments. See Account Base Adjustments table below.

Total postpaid customer accounts increased 11,006,000,10,770,000, or 76%71%, primarily due to 10,150,000 accounts acquired in the Merger, the growing success of new customer segments and rate plans, continued growth in existing and Greenfieldnew markets, improvements in network quality, industry-leading customer service,including our home internet product, along with ongoing promotional activities, partially offset by lower switching activity in the industry from social distancing rules and temporary retail store closures arising from COVID-19.activities.

Account Base Adjustments

Certain adjustments were made to align the account reporting policies of T-Mobile and Sprint.

The adjustments made to the reported T-Mobile and Sprint ending account base as of March 31, 2020 are presented below:
(in thousands)Postpaid Accounts
Reconciliation to beginning accounts
T-Mobile accounts as reported, end of period March 31, 202015,244 
Sprint accounts, end of period March 31, 202011,246 
Total combined accounts, end of period March 31, 202026,490 
Adjustments
Reseller reclassification to wholesale accounts (1)
(1)
EIP reclassification from postpaid to prepaid (2)
(963)
Rate plan threshold (3)
(18)
Collection policy alignment (4)
(76)
Miscellaneous adjustments (5)
(47)
Total Adjustments(1,105)
Adjusted beginning accounts as of April 1, 202025,385 
(1) In connection with the closing of the Merger, we refined our definition of wholesale accounts resulting in the reclassification of certain postpaid and prepaid reseller accounts to wholesale accounts.
(2) Prepaid accounts with a customer with a device installment billing plan historically included as Sprint postpaid accounts have been reclassified to prepaid accounts to align with T-Mobile policy.
(3) Accounts with customers who have rate plans with monthly recurring charges which are considered insignificant have been excluded from our reported accounts.
(4) Certain Sprint accounts subject to collection activity for an extended period of time have been excluded from our reported accounts to align with T-Mobile policy.
(5) Miscellaneous insignificant adjustments to align with T-Mobile policy.















42

Table of Contents
Average Revenue Per User

ARPU represents the average monthly service revenue earned from customers. We believe ARPU provides management, investors and analysts with useful information to assess and evaluate our service revenue per customer and assist in forecasting our future service revenues generated from our customer base. Postpaid phone ARPU excludes postpaid other customers and related revenues, which includesinclude home internet, wearables, DIGITS and other connected devices such as tablets and SyncUp products.
71

Table of Contents

The following table illustrates the calculation of our operating measure ARPU and reconciles this measure to the related service revenues:
(in millions, except average number of customers and ARPU)(in millions, except average number of customers and ARPU)Three Months Ended June 30,ChangeSix Months Ended
June 30,
Change(in millions, except average number of customers and ARPU)Three Months Ended March 31,Change
20202019$%20202019S%(in millions, except average number of customers and ARPU)20212020$%
Calculation of Postpaid Phone ARPUCalculation of Postpaid Phone ARPUCalculation of Postpaid Phone ARPU
Postpaid service revenuesPostpaid service revenues$9,959  $5,613  $4,346  77 %$15,846  $11,106  $4,740  43 %Postpaid service revenues$10,303 $5,887 $4,416 75 %
Less: Postpaid other revenuesLess: Postpaid other revenues(618) (326) (292) 90 %(928) (636) (292) 46 %Less: Postpaid other revenues(820)(310)(510)165 %
Postpaid phone service revenuesPostpaid phone service revenues$9,341  $5,287  $4,054  77 %$14,918  $10,470  $4,448  42 %Postpaid phone service revenues9,483 5,577 3,906 70 %
Divided by: Average number of postpaid phone customers (in thousands) and number of months in periodDivided by: Average number of postpaid phone customers (in thousands) and number of months in period64,889  38,226  26,663  70 %52,737  37,865  14,872  39 %Divided by: Average number of postpaid phone customers (in thousands) and number of months in period66,834 40,585 26,249 65 %
Postpaid phone ARPUPostpaid phone ARPU$47.99  $46.10  $1.89  %$47.15  $46.09  $1.06  %Postpaid phone ARPU$47.30 $45.80 $1.50 %
Calculation of Prepaid ARPUCalculation of Prepaid ARPUCalculation of Prepaid ARPU
Prepaid service revenuesPrepaid service revenues$2,311  $2,379  $(68) (3)%$4,684  $4,765  $(81) (2)%Prepaid service revenues$2,351 $2,373 $(22)(1)%
Divided by: Average number of prepaid customers (in thousands) and number of months in periodDivided by: Average number of prepaid customers (in thousands) and number of months in period20,380  21,169  (789) (4)%20,570  21,146  (576) (3)%Divided by: Average number of prepaid customers (in thousands) and number of months in period20,728 20,759 (31)— %
Prepaid ARPUPrepaid ARPU$37.80  $37.46  $0.34  %$37.95  $37.56  $0.39  %Prepaid ARPU$37.81 $38.11 $(0.30)(1)%

Postpaid Phone ARPU

Postpaid phone ARPU increased $1.89,$1.50, or 4%3%, for the three months ended and increased $1.06, or 2%, for the six months ended June 30, 2020; primarily due to:

The net impact of customers acquired in the Merger, which have higher ARPU (net of changes arising from the reduction in base due to policy adjustments and reclassification of certain ARPU components from the acquired customers being moved to other revenue lines);
Continued growth in existing and Greenfield markets; and
Higher premium service revenues; partially offset by
A reduction in certain non-recurring charges including the impact of COVID-19.Ongoing promotional activity.

Prepaid ARPU

Prepaid ARPU increased $0.34,decreased $0.30, or 1%, for the three months ended and increased $0.39, or 1%, for the six months ended June 30, 2020, primarily due to:

The impacts of certain adjustments to our customer base, including the removal of certain prepaid customers associated with products now offered and distributed by a current MVNO partner as those customers had lower ARPU; partially offset by
Dilution from ourongoing promotional activities; and
A reduction in certain non-recurring charges to customer accounts in connection with our response to COVID-19.activity.

Average Revenue Per Account

Average Revenue per Account (“ARPA”) represents the average monthly postpaid service revenue earned per account. We believe postpaid ARPA provides management, investors and analysts with useful information to assess and evaluate our postpaid service revenue realization and assist in forecasting our future postpaid service revenues on a per account basis. We consider postpaid ARPA to be indicative of our revenue growth potential given the increase in the average number of postpaid phone customers per account and increases in postpaid other customers, including home internet, wearables, DIGITS or other connected devices, which includesinclude tablets and SyncUp products.

43

Table of Contents
The following table illustrates the calculation of our operating measure ARPA and reconciles this measure to the related service revenues:
72

Table of Contents
(in millions, except average number of accounts, ARPA)Three Months Ended June 30,ChangeSix Months Ended
June 30,
Change
20202019$%20202019$%
Calculation of Postpaid ARPA
Postpaid service revenues$9,959  $5,613  $4,346  77 %$15,846  $11,106  $4,740  43 %
Divided by: Average number of postpaid accounts (in thousands) and number of months in period25,424  14,354  11,070  77 %20,289  14,231  6,058  43 %
Postpaid ARPA$130.57  $130.36  $0.21  NM$130.16  $130.07  $0.09  NM

NM - Not Meaningful
(in millions, except average number of accounts, ARPA)Three Months Ended March 31,Change
20212020$%
Calculation of Postpaid ARPA
Postpaid service revenues$10,303 $5,887 $4,416 75 %
Divided by: Average number of postpaid accounts (in thousands) and number of months in period25,840 15,155 10,685 71 %
Postpaid ARPA$132.91 $129.47 $3.44 %

Postpaid ARPA

Postpaid ARPA was essentially flat for the three months ended and six months ended June 30, 2020.` Substantially offsetting impacts include:increased $3.44, or 3%, primarily due to:

An increase in customers per account, including further penetration in connected devices;
Higher premium service revenues; and
The net impact of customers acquired in the Merger; as well as
The growing success of new customer segments and rate plans, including further penetration in connected devices; and
Higher premium service revenues;partially offset by
An increase in ourOngoing promotional activities; and
A reduction in certain non-recurring charges including the impact of COVID-19.activity.

Adjusted EBITDA and Core Adjusted EBITDA

Beginning in the first quarter of 2021, we are disclosing Core Adjusted EBITDA as a financial measure to improve comparability as we de-emphasize device leasing programs as part of our value proposition.

Adjusted EBITDA represents earnings before Interest expense, net of Interest income, Income tax expense, Depreciation and amortization, non-cash Stock-basedstock-based compensation and certain income and expenses not reflective of our ongoing operating performance. Core Adjusted EBITDA represents Adjusted EBITDA less device lease revenues. Net income margin represents Net income divided by Service revenues. Adjusted EBITDA margin represents Adjusted EBITDA divided by Service revenues. Core Adjusted EBITDA margin represents Core Adjusted EBITDA divided by Service revenues.

Adjusted EBITDA is aand Core Adjusted EBITDA are non-GAAP financial measuremeasures utilized by our management to monitor the financial performance of our operations. We use Adjusted EBITDA internally as a measure to evaluate and compensate our personnel and management for their performance,performance. We use Adjusted EBITDA and Core Adjusted EBITDA as a benchmarkbenchmarks to evaluate our operating performance in comparison to our competitors. Management believes analysts and investors use Adjusted EBITDA and Core Adjusted EBITDA as a supplemental measuremeasures to evaluate overall operating performance and facilitate comparisons with other wireless communications services companies because it isthey are indicative of our ongoing operating performance and trends by excluding the impact of interest expense from financing, non-cash depreciation and amortization from capital investments, non-cash stock-based compensation, Merger-related costs including network decommissioning costs costs related to the Merger,and incremental costs directly attributable to COVID-19 and impairment expense,the Pandemic, as they are not indicative of our ongoing operating performance, as well as certain other nonrecurring income and expenses. Management believes analysts and investors use Core Adjusted EBITDA hasbecause it normalizes for the transition in the Company’s device financing strategy, by excluding the impact of device lease revenues from Adjusted EBITDA, to align with the exclusion of the related depreciation expense on leased devices from Adjusted EBITDA. Adjusted EBITDA and Core Adjusted EBITDA have limitations as an analytical tooltools and should not be considered in isolation or as a substitutesubstitutes for income from operations, net income or any other measure of financial performance reported in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).

7344

Table of Contents
The following table illustrates the calculation of Adjusted EBITDA and Core Adjusted EBITDA and reconciles Adjusted EBITDA and Core Adjusted EBITDA to Net income, which we consider to be the most directly comparable GAAP financial measure:
Three Months Ended June 30,ChangeSix Months Ended
June 30,
Change
(in millions)20202019$%20202019$%
Net income$110  $939  $(829) (88)%$1,061  $1,847  $(786) (43)%
Adjustments:
Income from discontinued operations, net of tax(320) —  (320) NM(320) —  (320) NM
(Loss) income from continuing operations(210) 939  (1,149) (122)%741  1,847  (1,106) (60)%
Interest expense776  182  594  326 %961  361  600  166 %
Interest expense to affiliates63  101  (38) (38)%162  210  (48) (23)%
Interest income(6) (4) (2) 50 %(18) (12) (6) 50 %
Other expense, net195  22  173  786 %205  15  190  1,267 %
Income tax expense 301  (299) (99)%308  596  (288) (48)%
Operating income820  1,541  (721) (47)%2,359  3,017  (658) (22)%
Depreciation and amortization4,064  1,585  2,479  156 %5,782  3,185  2,597  82 %
Operating income from discontinued operations (1)
432  —  432  NM432  —  432  NM
Stock-based compensation (2)
139  111  28  25 %262  204  58  28 %
Merger-related costs798  222  576  259 %941  335  606  181 %
COVID-19-related costs341  —  341  NM458  —  458  NM
Impairment expense418  —  418  NM418  —  418  NM
Other, net (3)
   150 %30   26  650 %
Adjusted EBITDA$7,017  $3,461  $3,556  103 %$10,682  $6,745  $3,937  58 %
Net income margin (Net income divided by Service revenues)%11 %-1,000 bps%11 %-600 bps
Adjusted EBITDA margin (Adjusted EBITDA divided by Service revenues)53 %40 %1,300 bps48 %40 %800 bps

Three Months Ended March 31,Change
(in millions)20212020$%
Net income$933 $951 $(18)(2)%
Adjustments:
Interest expense792 185 607 328 %
Interest expense to affiliates46 99 (53)(54)%
Interest income(3)(12)(75)%
Other expense, net125 10 115 NM
Income tax expense246 306 (60)(20)%
Operating income2,139 1,539 600 39 %
Depreciation and amortization4,289 1,718 2,571 150 %
Stock-based compensation (1)
130 123 %
Merger-related costs298 143 155 108 %
COVID-19-related costs— 117 (117)(100)%
Other, net (2)
49 25 24 96 %
Adjusted EBITDA6,905 3,665 3,240 88 %
Lease revenues(1,041)(165)(876)531 %
Core Adjusted EBITDA$5,864 $3,500 $2,364 68 %
Net income margin (Net income divided by Service revenues)%11 %-400 bps
Adjusted EBITDA margin (Adjusted EBITDA divided by Service revenues)49 %41 %800 bps
Core Adjusted EBITDA margin (Core Adjusted EBITDA divided by Service revenues)41 %40 %100 bps
NM - Not Meaningful
(1)Following the Prepaid Transaction, starting on July 1, 2020, we will provide MVNO services to customers of the divested brands. We have included the operating income from discontinued operations in our determination of Adjusted EBITDA to reflect contributions of the Prepaid Business that will be replaced by the MVNO Agreement beginning on July 1, 2020 in order to enable management, analysts and investors to better assess ongoing operating performance and trends.
(2)Stock-based compensation includes payroll tax impacts and may not agree to stock-based compensation expense in the condensed consolidated financial statements. Additionally, certain stock-based compensation expenses associated with the Transactions have been included in Merger-related costs.
(3)(2)Other, net may not agree to the Condensed Consolidated Statements of Comprehensive Income primarily due to certain non-routine operating activities, such as other special items that would not be expected to reoccur or are not reflective of T-Mobile’s ongoing operating performance, and are therefore excluded in Adjusted EBITDA and Core Adjusted EBITDA.

Adjusted EBITDA increased $3.6$3.2 billion or 103%, for the three months ended and increased $3.9 billion, or 58%, for the six months ended June 30, 2020.

88%. The Merger increased our customer base, increased our spectrum portfolio, altered our product mix by increasing the portion of customers who financed their devices with leasing programs and impacted our network and operating cost.

components comprising Adjusted EBITDA are discussed further above. The increase for the three months ended June 30, 2020 was primarily due to:

Higher Total service revenues, as further discussed above;revenues; and
Higher equipmentEquipment revenues, as further discussed above;including an increase in lease revenues of $876 million; partially offset by
Higher Cost of equipment sales, excluding Merger-related costs;
Higher Cost of services expenses, excluding Merger-related costs; and
Higher Selling, general and administrative expenses, excluding Merger-related costs and supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs; and
Higher Cost of equipment sales.costs.

74

Table of Contents
Core Adjusted EBITDA increased $2.4 billion or 68%. The increase for the six months ended June 30, 2020 was primarily due to:

Higher service revenues, as further discussed above; and
Higher equipment revenues, as further discussed above; partially offset by
Higher Cost of services expenses, excluding Merger-related costs;
Higher Selling, general and administrative expenses, excluding Merger-related costs and supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs; and
Higher Cost of equipment sales.
The impact from commission costs capitalization and amortization, including a benefit from new costs capitalized as result of the merger, reducedto an increase in Adjusted EBITDA, by $87 million for the six months ended for the June 30, 2020, compared to the six months ended June 30, 2019.as discussed above, excluding lease revenues.

Liquidity and Capital Resources

Our principal sources of liquidity are our cash and cash equivalents and cash generated from operations, proceeds from issuance of long-term debt and common stock, financing leases, the sale of certain receivables, financing arrangements of vendor payables which effectively extend payment terms and the New Revolving Credit Facility (as defined below). In connection with the closing of the Merger on April 1, 2020, we incurred a substantial amount of additional third-party indebtedness which increased our future financial commitments, including aggregate interest payments. Further, the incurrence of additional indebtedness may inhibit our ability to incur new debt under the terms governing our existing and future indebtedness, which may make it more difficult for us to incur new debt in the future to finance our business strategy.

45

Table of Contents
Cash Flows

The following is a condensed schedule of our cash flows for the three and six months ended June 30, 2020March 31, 2021 and 2019:2020:
Three Months Ended June 30,ChangeSix Months Ended
June 30,
ChangeThree Months Ended March 31,Change
(in millions)(in millions)20202019$%20202019$%(in millions)20212020$%
Net cash provided by operating activitiesNet cash provided by operating activities$777  $2,147  $(1,370) (64)%$2,394  $3,539  $(1,145) (32)%Net cash provided by operating activities$3,661 $1,617 $2,044 126 %
Net cash used in investing activitiesNet cash used in investing activities(6,356) (1,615) (4,741) 294 %(7,936) (2,581) (5,355) 207 %Net cash used in investing activities(11,239)(1,580)(9,659)611 %
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities15,628  (866) 16,494  (1,905)%15,175  (1,056) 16,231  (1,537)%Net cash provided by (used in) financing activities3,874 (453)4,327 NM
NM - Not meaningful

Operating Activities

Net cash provided by operating activities decreased $1.4increased $2.0 billion, or 64%126%, for the three months ended and decreased $1.1 billion, or 32%, for the six months ended June 30, 2020.

The decrease for the three months ended June 30, 2020, was primarily from:

A $3.7$2.5 billion increase in Net income, adjusted for non-cash income and expense; partially offset by
A $436 million increase in net cash outflows from changes in working capital, primarily due to the one-time impact of $2.3 billion in gross payments for the settlement of interest rate swaps related to Merger financing for the three months ended June 30, 2020, higher use of cash from Accounts payable and accrued liabilities, Equipment installment plan receivables and Other current and long-term liabilities, Accounts payable and accrued liabilities and Inventories, partially offset by lower use from Accounts receivable;receivable and
Lower Net income; partially offset by
Higher net non-cash adjustments to Net income. Inventories.
Net cash provided by operating activities includes $370$277 million and $151$161 million in payments for Merger-related costs for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively.
Net cash provided by operating activities includes $243 million and $0 in payments for supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs for the three months ended June 30, 2020 and 2019, respectively.

75

Table of Contents
The decrease for the six months ended June 30, 2020, was primarily from:
A $3.7 billion increase in net cash outflows from changes in working capital, primarily due to the one-time impact of $2.3 billion in gross payments for the settlement of interest rate swaps related to Merger financing for the six months ended June 30, 2020, including higher use from Other current and long-term liabilities, Accounts payable and accrued liabilities and Inventories, partially offset by lower use from Accounts receivable; and
Lower Net income; partially offset by
Higher net non-cash adjustments to Net income.
Net cash provided by operating activities includes $531 million and $185 million in payments for Merger-related costs for the six months ended June 30, 2020 and 2019, respectively.
Net cash provided by operating activities includes $255 million and $0 in payments for supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs for the six months ended June 30, 2020 and 2019, respectively.

Investing Activities

Net cash used in investing activities increased $4.7$9.7 billion, or 294%, for the three months ended and increased $5.4 billion, or 207%, for the six months ended June 30, 2020.

611%. The use of cash for the three months ended June 30, 2020, was primarily from:

$5.08.9 billion in cashPurchases of spectrum licenses and other intangible assets, including deposits, primarily due to $8.9 billion paid for spectrum licenses won at the acquisitionconclusion of Sprint, net of cashAuction 107 in March 2021; and restricted cash acquired;
$2.33.2 billion in Purchases of property and equipment, including capitalized interest, from network integration related to the Merger and the continued build-out of our nationwide 5G network; and
$745 million in Purchases of spectrum licenses and other intangible assets, including deposits; partially offset by
$1.2 billion related to derivative contracts under collateral exchange arrangements, for more information regarding these contracts, see Note 7 - Fair Value Measurements of the Notes to the Condensed Consolidated Financial Statements; and
$602891 million in Proceeds related to beneficial interests in securitization transactions.

The use of cash for the six months ended June 30, 2020, was primarily from:

$5.0 billion in cash paid for the acquisition of Sprint, net of cash and restricted cash acquired;
$4.0 billion in Purchases of property and equipment, including capitalized interest, from network integration related to the Merger and the continued build-out of our nationwide 5G network; and
$844 million in Purchases of spectrum licenses and other intangible assets, including deposits; partially offset by
$1.5 billion in Proceeds related to beneficial interests in securitization transactions; and
$632 million related to derivative contracts under collateral exchange arrangements, for more information regarding these contracts, see Note 7 - Fair Value Measurements of the Notes to the Condensed Consolidated Financial Statements.

Financing Activities

Net cash provided by (used in) financing activities increased $16.5 billion for the three months ended and $16.2 billion for the six months ended June 30, 2020.

$4.3 billion. The source of cash for the three and six months ended June 30, 2020, was primarily from:

$26.76.8 billion in Proceeds from the issuance of long-term debt, net of discounts and issuance costs, driven primarily byfrom the issuance of $23.0$6.8 billion in Senior Secured Notes and a draw of $4.0 billion on the New Secured Term Loan Facility;Notes; partially offset by
$18.7 billion in Proceeds from the issuance of short-term debt, net of discounts and issuance costs, driven by a $19.0 billion draw on the New Secured Bridge Loan Facility in connection with the closing of the Merger; and
$300 million in net proceeds from the SoftBank Equity transaction, see Note 14 - SoftBank Equity Transaction of the Notes to the Condensed Consolidated Financial Statements; partially offset by
76

Table of Contents
$18.9 billion in Repayments of short-term debt, net of refunds for issuance costs, for the repayment of the $19.0 billion draw on the New Secured Bridge Loan Facility; and
$10.52.2 billion in Repayments of long-term debt driven by the repaymentredemption of $2.0 billion aggregate principal amount of our $4.0 billion Incremental Term Loan Facility with DT, $4.0 billion of6.500% Senior Notes held by DT, $2.3 billiondue 2026 and repayments of outstanding principal for the termination of the accounts receivable facility assumed in the Merger, and $219 million inaggregate principal payments for theamount of our 3.360% Senior Secured Series 2016-1 A-1 Notes assumeddue 2021;
$287 million in the Merger.Repayments of financing lease obligations; and
$218 million in Tax withholdings on share-based awards.

Cash and Cash Equivalents

As of June 30, 2020,March 31, 2021, our Cash and cash equivalents were $11.1$6.7 billion compared to $1.5$10.4 billion at December 31, 2019.2020.

46

Table of Contents
Free Cash Flow

Free Cash Flow represents Net cash provided by operating activities less cash 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. Free Cash Flow and Free Cash Flow, excluding gross payments for the settlement of interest rate swaps, 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.

We have presented the impact of the sales in theThe table below which illustrates theprovides a reconciliation of Free Cash Flow and Free Cash Flow, excluding gross payments for the settlement of interest rate swaps and reconciles each fromto Net cash provided by operating activities, which we consider to be the most directly comparable GAAP financial measure.
Three Months Ended June 30,ChangeSix Months Ended
June 30,
ChangeThree Months Ended March 31,Change
(in millions)(in millions)20202019$%20202019$%(in millions)20212020$%
Net cash provided by operating activitiesNet cash provided by operating activities$777  $2,147  $(1,370) (64)%$2,394  $3,539  $(1,145) (32)%Net cash provided by operating activities$3,661 $1,617 $2,044 126 %
Cash purchases of property and equipmentCash purchases of property and equipment(2,257) (1,789) (468) 26 %(4,010) (3,720) (290) %Cash purchases of property and equipment(3,183)(1,753)(1,430)82 %
Proceeds related to beneficial interests in securitization transactionsProceeds related to beneficial interests in securitization transactions602  839  (237) (28)%1,470  1,996  (526) (26)%Proceeds related to beneficial interests in securitization transactions891 868 23 %
Cash payments for debt prepayment or debt extinguishment costsCash payments for debt prepayment or debt extinguishment costs(24) (28)  (14)%(24) (28)  (14)%Cash payments for debt prepayment or debt extinguishment costs(65)— (65)NM
Free Cash FlowFree Cash Flow(902) 1,169  (2,071) (177)%(170) 1,787  (1,957) (110)%Free Cash Flow$1,304 $732 $572 78 %
Gross cash paid for the settlement of interest rate swaps2,343  —  2,343  NM2,343  —  2,343  NM
Free Cash Flow, excluding gross payments for the settlement of interest rate swaps$1,441  $1,169  $272  23 %$2,173  $1,787  $386  22 %
NM - Not Meaningful

Free Cash Flow excluding gross payments for the settlement of interest rate swaps related to Merger financing, increased $272$572 million, or 23%, for the three months ended and increased $386 million, or 22%, for the six months ended June 30, 2020.

78%. The increase for the three months ended June 30, 2020, was primarily impacted by the following:

LowerHigher Net cash provided by operating activities, as described above; partially offset by
Higher Cash purchases of property and equipment, including capitalized interest of $119$84 million and $125$112 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, from network integration related to the Merger and the continued build-out of our nationwide 5G network;
Lower Proceeds related to our deferred purchase price from securitization transactions; and
The one-time impact of gross payments for the settlement of interest rate swaps related to Merger financing of $2.3 billion, which is excluded from the calculation Free Cash Flow.network.
Free Cash Flow includes $370$277 million and $151$161 million in payments for Merger-related costs for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively.
Free Cash Flow includes $243 million and $0 in payments for supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs for the three months ended June 30, 2020 and 2019, respectively.
77

Table of Contents

The increase for the six months ended June 30, 2020, was impacted by the following:

Lower Net cash provided by operating activities, as described above;
Lower Proceeds related to our deferred purchase price from securitization transactions;
Higher Cash purchases of property and equipment, including capitalized interest of $231 million and $243 million for the six months ended June 30, 2020 and 2019, respectively, from network integration related to the Merger and the continued build-out of our nationwide 5G network; and
The one-time impact of gross payments for the settlement of interest rate swaps related to Merger financing of $2.3 billion, which is excluded from the calculation Free Cash Flow.
Free Cash Flow includes $531 million and $185 million in payments for Merger-related costs for the six months ended June 30, 2020 and 2019, respectively.
Free Cash Flow includes $255 million and $0 in payments for supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs for the six months ended June 30, 2020 and 2019, respectively.

Borrowing Capacity and Debt Financing

As of June 30, 2020, our total debt and financing lease liabilities were $75.0 billion, excluding our tower obligations, of which $67.5 billion was classified as long-term debt and $1.4 billion was classified as long-term financing lease liabilities.

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 June 30, 2020,March 31, 2021, there were no outstanding balances.balances under such financing arrangement.

We also maintain vendor financing arrangements primarily with our main network equipment suppliers. Under the respective agreements, we can obtain extended financing terms. During the three and six months ended June 30, 2020,March 31, 2021, we repaid $151$55 million and $176 million, respectively, underassociated with the vendor financing arrangements. Payments on certain vendor financing agreementsarrangements and other financial liabilities. These payments are included in Repayments of short-term debt for purchases of inventory, property and equipment net,and other financial liabilities, in our Condensed Consolidated Statements of Cash Flows. As of June 30, 2020 and DecemberMarch 31, 2019,2021, the outstanding balance under the vendor financing arrangements and other debtfinancial liabilities was $353$186 million, and $25of which $96 million respectively.

On April 1, 2020,was assumed in connection with the closing of the Merger, T-Mobile USA and certainMerger. As of its affiliates, as guarantors, entered intoMarch 31, 2020, there were no outstanding borrowings under the vendor financing agreements.

We maintain a Bridge Loanrevolving credit facility (the “Revolving Credit AgreementFacility”) with certain financial institutions named therein, providing for a $19.0 billion secured bridge loan facility (“New Secured Bridge Loan Facility”).an aggregate commitment amount of $5.5 billion. As of March 31, 2021, there was no outstanding balance under the Revolving Credit Facility.

On April 1,October 30, 2020, in connection with the closing of the Merger, T-Mobile USA and certain of its affiliates, as guarantors,we entered into a Credit Agreement (the “New Credit Agreement”)$5.0 billion senior secured term loan commitment with certain financial institutions named therein, providing for a $4.0institutions. On January 14, 2021, we issued an aggregate of $3.0 billion of Senior Notes. The senior secured term loan facility (“New Secured Term Loan Facility”) and a $4.0commitment was reduced by an amount equal to the aggregate gross proceeds of the Senior Notes, which reduced the commitment to $2.0 billion. On March 23, 2021, we issued an aggregate of $3.8 billion revolving credit facility (“New Revolving Credit Facility”).of Senior Notes. The senior secured term loan commitment was terminated upon the issuance of the $3.8 billion of Senior Notes.

On April 1, 2020, in connection withDebt Financing

As of March 31, 2021, our total debt and financing lease liabilities were $77.9 billion, excluding our tower obligations, of which $71.1 billion was classified as long-term debt and $1.3 billion was classified as long-term financing lease liabilities.

During the closing of the Merger,three months ended March 31, 2021, we drew down on our $19.0 billion New Secured Bridge Loan Facility and our $4.0 billion New Secured Term Loan Facility. We used theissued long-term debt for net proceeds of $22.6$6.8 billion from the draw down of the secured facilities to repay our $4.0 billion Incremental Term Loan Facilityand redeemed and repaid short- and long-term debt with DT and to repurchase from DT $4.0 billion of indebtedness to affiliates, consisting of $2.0 billion of 5.300% Senior Notes due 2021 and $2.0 billion of 6.000% Senior Notes due 2024, as well as to redeem certain debt of Sprint and Sprint’s subsidiaries, including the secured term loans due 2024 with a totalan aggregate principal amount outstanding of $5.9 billion, accounts receivable facility with a total amount outstanding of $2.3 billion, and Sprint’s 7.250% Guaranteed Notes due 2028 with a total principal amount outstanding of $1.0 billion, and for post-closing general corporate purposes of the combined company.

billion.
7847

Table of Contents
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 incurred certain fees payable to the financial institutions, including certain financing fees on the secured term loan commitment and fees for structuring, funding, and providing the commitments. On April 1, 2020, in connection with the closing of the Merger, we paid $355 million in Commitment Letter fees to certain financial institutions which were recognized in Selling, general and administrative expenses in our Condensed Consolidated Statements of Comprehensive Income.

On April 9, 2020, T-Mobile USA and certain of its affiliates, as guarantors, issued $3.0 billion of 3.500% Senior Secured Notes due 2025, $4.0 billion of 3.750% Senior Secured Notes due 2027, $7.0 billion of 3.875% Senior Secured Notes due 2030, $2.0 billion of 4.375% Senior Secured Notes due 2040, and $3.0 billion of 4.500% Senior Secured Notes due 2050 and used the net proceeds of $18.8 billion together with cash on hand to repay at par all of the outstanding amounts under, and terminate,our $19.0 billion New Secured Bridge Loan Facility. Additionally, in connection with the repayment of our New Secured Bridge Loan Facility, we received a reimbursement of $71 million, which represents a portion of the Commitment Letter fees that were paid to certain financial institutions when we drew down on the New Secured Bridge Loan Facility on April 1, 2020.

For more information regarding our borrowing capacity and debt financing see Note 8 - Debt of the Notes to the Condensed Consolidated Financial Statements.

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. On April 1, 2020, in connection with the closing of the Merger, we made payments for requisite consents to third-party note holders of $95 million.

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. On April 1, 2020, in connection with the closing of the Merger, we made an additional payment for requisite consents to DT of $13 million.

For more information regarding consents on debt,transactions, see Note 87 - Debt of the Notes to the Condensed Consolidated Financial Statements.

Interest Rate Lock DerivativesSpectrum Auction

In April 2020,March 2021, the FCC announced that we were the winning bidder of 142 licenses in connection with the issuance ofAuction 107 (C-band spectrum) for an aggregate purchase price of $19.0$9.3 billion, excluding relocation costs. At the inception of Auction 107 in October 2020, we deposited $438 million. Upon conclusion of Auction 107 in March 2021, we paid the FCC the remaining $8.9 billion for the licenses won in the auction. We expect to incur an additional $1.2 billion in Senior Secured Notes, we terminated our interest rate lock derivative. At the time of termination, the interest rate lock derivatives were a liability of $2.3 billion, ofrelocation costs which $1.2 billion was cash-collateralized. Consequently, the net cash required to settle the interest rate lock derivatives was an additional $1.1 billion and waswill be paid at termination.through 2024.

For more information regarding the termination of our interest rate lock derivative,spectrum licenses, see Note 75 - Fair Value MeasurementsGoodwill, Spectrum License Transactions and Other Intangible Assets of the Notes to the Condensed Consolidated Financial Statements.

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 March 31, 2021, we derecognized net receivables of $2.5 billion upon sale through these arrangements. 

For more information regarding these off-balance sheet arrangements, see Note 4 – Sales of Certain Receivables of the Notes to the Condensed Consolidated Financial Statements.

Future Sources and Uses of Liquidity

We may seek additional sources of liquidity, including through the issuance of additional long-term debt in 2020,2021, 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, and redemption of high yield callable debt.debt and the execution of our integration plan.

We determine future liquidity requirements, for both operations and capital expenditures, based in large part upon projected financial and operating performance, and opportunities to acquire additional spectrum. We regularly review and update these projections for changes in current and projected financial and operating results, general economic conditions, the competitive landscape and other factors. We have incurred, and will incur, substantial expenses as a result of completing the Transactions, the Divestiture Transaction and complianceto comply with the Government Commitments, and we are also expected to incur substantial
79

Table of Contents
restructuring expenses in connection with integrating and coordinating T-Mobile’s and Sprint’s businesses, operations, policies and procedures. While we have assumed that a certain level of transaction-relatedMerger-related expenses will be incurred, factors beyond our control, including required consultation and negotiation with certain counterparties, could affect the total amount or the timing of these expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately. These expenses could exceed the costs historically borne by us and adversely affect our financial condition and results of operations. There are a number of additional risks and uncertainties, including those due to the impact of the COVID-19 pandemic,Pandemic, that could cause our financial and operating results and capital requirements to differ materially from our projections, which could cause future liquidity to differ materially from our assessment.

The indentures, supplemental indentures and credit facilitiesagreements governing our long-term debt to affiliates and third parties, excluding financing leases, contain covenants that, among other things, limit the ability of the Issuers or borrowers and the Guarantor Subsidiaries to incur more debt, pay dividends and make distributions 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,agreements, indentures and supplemental indentures relating to the long-term debt to affiliates and third parties restrict the ability of the Issuers or borrowers to loan funds or make payments to the Parent. However, the Issuers or borrowers are allowed to make certain permitted payments to the Parent under the terms of each of the credit facilities,agreements, indentures and supplemental indentures relating to the long-term debt to affiliates and third parties. We were in compliance with all restrictive debt covenants as of June 30, 2020.March 31, 2021.

The Merger
48

Table of Contents
Shentel Wireless Asset Acquisition

In connectionSprint PCS (specifically Sprint Spectrum L.P.) is party to a variety of publicly filed agreements with Shentel, pursuant to which Shentel is the closingexclusive provider of Sprint PCS’s wireless mobility communications network products in certain parts of Maryland, North Carolina, Virginia, West Virginia, Kentucky, Ohio and Pennsylvania. Pursuant to one such agreement, the Merger,Sprint PCS Management Agreement, dated November 5, 1999 (as amended, supplemented and modified from time to time, the “Management Agreement”), Sprint PCS was granted an option to purchase Shentel’s wireless telecommunications assets used to provide services pursuant to the Management Agreement. On August 26, 2020, Sprint, now our indirect subsidiary, on April 1, 2020, we assumed Sprint’s liabilities, which include accounts payablebehalf of and accrued liabilities, short-term debt, operatingas the direct or indirect owner of Sprint PCS, exercised its option by delivering a binding notice of exercise to Shentel. T-Mobile’s exercise of its option triggered a requirement for the parties to engage three independent valuation providers to calculate the “entire business value” (the “Entire Business Value”) of such wireless telecommunications assets, pursuant to a formula and financing lease liabilities, net pension plan liabilities, deferred tax liabilities and long-term debt with an aggregate fair value of $31.8 billion.valuation process prescribed in the Management Agreement.

For more information regardingOn February 1, 2021, in accordance with the Merger, see Note 2 –Management Agreement and other agreed-upon terms, the Entire Business CombinationsValue of the NotesShentel’s wireless telecommunications assets used to provide services pursuant to the Condensed Consolidated Financial Statements.Management Agreement was determined to be $2.1 billion, and correspondingly, the base purchase price for such wireless telecommunications assets shall be ninety percent (90%) of that Entire Business Value amount ($1.9 billion), subject to certain other purchase price adjustments prescribed by the Management Agreement and such additional purchase price adjustments agreed by the parties. The parties are negotiating the remaining outstanding terms of a definitive agreement to govern the purchase of Shentel’s wireless telecommunication assets and expect the transaction to close in the third quarter of 2021 after satisfying customary conditions to closing.

Financing Lease Facilities

We have entered into uncommitted financing lease facilities with certain partners that provide us with the ability to enter into financing leases for network equipment and services. As of June 30, 2020,March 31, 2021, we have committed to $4.6$5.2 billion of financing leases under these financing lease facilities, of which $473 million and $646$108 million was executed during the three and six months ended June 30, 2020, respectively.March 31, 2021. We expect to enter into up to an additional $554 million$1.1 billion in financing lease commitments during 2020.the year ending December 31, 2021.

Capital Expenditures

Our liquidity requirements have been driven primarily by capital expenditures for spectrum licenses, and the construction, expansion and upgrading of our network infrastructure.infrastructure and the integration of the networks, spectrum, technology, personnel, customer base and business practices of T-Mobile and Sprint. Property and equipment capital expenditures primarily relate to the integration of our spectrum licenses, including the pending acquisition of C-band licenses won in Auction 107, acquired Sprint 2.5 GHz spectrum licenses and existing 600 MHz spectrum licenses as we build out our nationwide 5G network.

Since April 1, 2020, we have incurred, and We expect to incur significantthe majority of our remaining capital expenditures in the near term related to the integration of the T-Mobilethese efforts to occur in 2021 and Sprint businesses in order to fully realize the anticipated synergies associated with the Merger, including the2022, after which we expect a reduction in redundant cell sites from combining networks, back office and information technology efficiencies and the evolution of our distribution and retail footprint including the combining of the Sprint and T-Mobile brand operations.

For more information regarding our property and equipment and spectrum licenses, see Note 5 – Property and Equipment and Note 6 - Goodwill, Spectrum License Transactions and Other Intangible Assetsof the Notes to the Condensed Consolidated Financial Statements, respectively.

80

Table of Contents
Spectrum Auction

In March 2020, the FCC announced that we were the winning bidder of 2,384 licenses in Auction 103 (37/39 GHz and 47 GHz spectrum bands) for an aggregate price of $873 million, net of an incentive payment of $59 million. At the inception of Auction 103 in October 2019, we deposited $82 million with the FCC. Upon conclusion of Auction 103 in March 2020, we made a down payment of $93 million for the purchase price of the licenses won in the auction. On April 8, 2020, we paid the FCC the remaining $698 million of the purchase price for the licenses won in the auction. Prior to the Merger, the FCC announced that Sprint was the winning bidder of 127 licenses in Auction 103 (37/39 GHz and 47 GHz spectrum bands). All payments related to the licenses won were made by Sprint prior the Merger.capital expenditure requirements.

For more information regarding our spectrum licenses, see Note 65 - Goodwill, Spectrum License Transactions and Other Intangible Other Intangible Assetsof the Notes to the Condensed Consolidated Financial Statements.

Debt Redemptions

Prior to June 30, 2020, we delivered a notice of redemption on $1.0 billion aggregate principal amount of our 6.500% Senior Notes due 2024. The notes were redeemed on July 4, 2020 at a redemption price equal to 102.170% of the principal amount of the notes (plus accrued and unpaid interest thereon), payable on July 6, 2020. The redemption premium was approximately $22 million and the write off of issuance costs and consent fees was approximately $12 million. The outstanding principal amount was reclassified from Long-term debt to Short-term debt in our Condensed Consolidated Balance Sheets as of June 30, 2020.

Prior to June 30, 2020, we also delivered a notice of redemption on $1.25 billion aggregate principal amount of our 5.125% Senior Notes to affiliates due 2021. The notes were redeemed on July 4, 2020 at a redemption price equal to 100% of the principal amount of the notes (plus accrued and unpaid interest thereon), payable on July 6, 2020. The write off of discounts were approximately $12 million. The outstanding principal amount was reclassified from Long-term debt to Short-term debt in our Condensed Consolidated Balance Sheets as of June 30, 2020.

In August 2020, we expect to deliver a notice of redemption on $1.7 billion aggregate principal amount of our 6.375% Senior Notes due 2025 and expect to redeem the Senior Notes on September 1, 2020.

For more information regarding debt redemptions, see Note 8 - Debtof the Notes to the Condensed Consolidated Financial Statements.

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

In connection with the regulatory approvals of the Transactions, we made commitments to various state and federal agencies, including the DOJ and FCC.

For more information regarding these commitments, see Note 17 – Commitments and Contingenciesof the Notes to the Condensed Consolidated Financial Statements.

Between April 2 to April 6, 2020, in connection with the issuance of senior secured notes, we terminated our interest rate lock derivatives.

For more information regarding our interest rate lock derivatives, see Note 7 - Fair Value Measurements of the Notes to the Condensed Consolidated Financial Statements.

The contractual commitments and purchase obligations of Sprint were assumed upon the completion of the Merger. These contractual commitments and purchase obligations are primarily commitments to purchase wireless devices, network services, equipment, software, marketing sponsorship agreements and other items in the ordinary course of business.

81

Table of Contents
For more information regarding our contractual commitments and purchase obligations, see Note 17 - Commitments and Contingenciesof the Notes to the Condensed Consolidated Financial Statements.


The following table summarizes our contractual obligations and borrowings as of June 30, 2020 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 Year1 - 3 Years4 - 5 YearsMore Than 5 YearsTotal
Long-term debt (1)
$5,076  $11,102  $16,184  $38,286  $70,648  
Interest on long-term debt3,559  6,187  4,653  9,632  24,031  
Financing lease liabilities, including imputed interest1,094  1,250  155  85  2,584  
Tower obligations (2)
391  763  588  768  2,510  
Operating lease liabilities, including imputed interest4,771  7,467  5,031  5,021  22,290  
Purchase obligations (3)
4,248  3,483  1,629  1,323  10,683  
Spectrum leases and service credits (4)
277  $595  $588  $5,160  $6,620  
Total contractual obligations$19,416  $30,847  $28,828  $60,275  $139,366  
(1)Represents principal amounts of long-term debt to affiliates and third parties at maturity, excluding unamortized premiums, discounts, debt issuance costs, consent fees, and financing lease obligations. See Note 8 – Debt of the Notes to the Condensed Consolidated Financial Statements for further information.
(2)Future minimum payments, including principal and interest payments, related to the tower obligations. See Note 9 – Tower Obligations of the Notes to the Condensed 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 June 30, 2020 under normal business purposes. See Note 17 – Commitments and Contingencies of the Notes to the Condensed Consolidated Financial Statements for further information.
(4)Spectrum lease agreements are typically for five to ten years with two automatic renewal provisions, bringing the total term of the agreements up to 30 years.

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 19 – Additional Financial Information of the Notes to the Condensed Consolidated Financial Statements for further information.

The purchase obligations reflected in the table above are primarily commitments to purchase 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.

Related Party TransactionsOff-Balance Sheet Arrangements

SoftBankWe 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 March 31, 2021, we derecognized net receivables of $2.5 billion upon sale through these arrangements. 

On June 22, 2020, we entered into a Master Framework Agreement and related transactions with SoftBank to facilitate the SoftBank Monetization as described inFor more information regarding these off-balance sheet arrangements, see Note 14 - SoftBank Equity Transaction4 – Sales of Certain Receivables of the Notes to the Condensed Consolidated Financial Statements. On August 3, 2020,

Future Sources and Uses of Liquidity

We may seek additional sources of liquidity, including through the issuance of additional long-term debt in 2021, 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 the execution of our integration plan.

We determine future liquidity requirements, for both operations and capital expenditures, based in large part upon completionprojected financial and operating performance, and opportunities to acquire additional spectrum. We regularly review and update these projections for changes in current and projected financial and operating results, general economic conditions, the competitive landscape and other factors. We have incurred, and will incur, substantial expenses to comply with the Government Commitments, and we are also expected to incur substantial restructuring expenses in connection with integrating and coordinating T-Mobile’s and Sprint’s businesses, operations, policies and procedures. While we have assumed that a certain level of Merger-related expenses will be incurred, factors beyond our control, including required consultation and negotiation with certain counterparties, could affect the total amount or the timing of these expenses. These expenses could exceed the costs historically borne by us and adversely affect our financial condition and results of operations. There are a number of additional risks and uncertainties, including those due to the impact of the SoftBank Monetization, DTPandemic, that could cause our financial and SoftBank held, directly or indirectly, approximately 43.4%operating results and 8.6%, respectively, ofcapital requirements to differ materially from our outstanding common stock, withprojections, which could cause future liquidity to differ materially from our assessment.

The indentures, supplemental indentures and credit agreements governing our long-term debt to affiliates and third parties, excluding financing leases, contain covenants that, among other things, limit the remaining approximately 48.0% of our outstanding common stock held by other stockholders. As a resultability of the Proxy Agreements, DT has voting control as of August 3, 2020 over approximately 52.4% ofIssuers or borrowers and the outstanding T-Mobile common stock. In addition, as provided for in the Master Framework Agreement, DT also holds certain call options over approximately 101.5 million shares ofGuarantor Subsidiaries to incur more debt, pay dividends and make distributions on our common stock, heldmake certain investments, repurchase stock, create liens or other encumbrances, enter into transactions with affiliates, enter into transactions that restrict dividends or distributions from subsidiaries, and merge, consolidate or sell, or otherwise dispose of, substantially all of their assets. Certain provisions of each of the credit agreements, indentures and supplemental indentures relating to the long-term debt to affiliates and third parties restrict the ability of the Issuers or borrowers to loan funds or make payments to Parent. However, the Issuers or borrowers are allowed to make certain permitted payments to Parent under the terms of each of the credit agreements, indentures and supplemental indentures relating to the long-term debt to affiliates and third parties. We were in compliance with all restrictive debt covenants as of March 31, 2021.

48

Table of Contents
Shentel Wireless Asset Acquisition

Sprint PCS (specifically Sprint Spectrum L.P.) is party to a variety of publicly filed agreements with Shentel, pursuant to which Shentel is the exclusive provider of Sprint PCS’s wireless mobility communications network products in certain parts of Maryland, North Carolina, Virginia, West Virginia, Kentucky, Ohio and Pennsylvania. Pursuant to one such agreement, the Sprint PCS Management Agreement, dated November 5, 1999 (as amended, supplemented and modified from time to time, the “Management Agreement”), Sprint PCS was granted an option to purchase Shentel’s wireless telecommunications assets used to provide services pursuant to the Management Agreement. On August 26, 2020, Sprint, now our indirect subsidiary, on behalf of and as the direct or indirect owner of Sprint PCS, exercised its option by SBGC.delivering a binding notice of exercise to Shentel. T-Mobile’s exercise of its option triggered a requirement for the parties to engage three independent valuation providers to calculate the “entire business value” (the “Entire Business Value”) of such wireless telecommunications assets, pursuant to a formula and valuation process prescribed in the Management Agreement.

On July 27, 2020,February 1, 2021, in connectionaccordance with the SoftBank Monetization,Management Agreement and other agreed-upon terms, the Rights Offering exercise period closed,Entire Business Value of Shentel’s wireless telecommunications assets used to provide services pursuant to the Management Agreement was determined to be $2.1 billion, and on August 3, 2020,correspondingly, the Rights Offering closed, resultingbase purchase price for such wireless telecommunications assets shall be ninety percent (90%) of that Entire Business Value amount ($1.9 billion), subject to certain other purchase price adjustments prescribed by the Management Agreement and such additional purchase price adjustments agreed by the parties. The parties are negotiating the remaining outstanding terms of a definitive agreement to govern the purchase of Shentel’s wireless telecommunication assets and expect the transaction to close in the salethird quarter of 19,750,000 shares2021 after satisfying customary conditions to closing.

Financing Lease Facilities

We have entered into uncommitted financing lease facilities with certain partners that provide us with the ability to enter into financing leases for network equipment and services. As of March 31, 2021, we have committed to $5.2 billion of financing leases under these financing lease facilities, of which $108 million was executed during the three months ended March 31, 2021. We expect to enter into up to an additional $1.1 billion in financing lease commitments during the year ending December 31, 2021.

Capital Expenditures

Our liquidity requirements have been driven primarily by capital expenditures for spectrum licenses, the construction, expansion and upgrading of our common stock.network infrastructure and the integration of the networks, spectrum, technology, personnel, customer base and business practices of T-Mobile and Sprint. Property and equipment capital expenditures primarily relate to the integration of our spectrum licenses, including the pending acquisition of C-band licenses won in Auction 107, acquired Sprint 2.5 GHz spectrum licenses and existing 600 MHz spectrum licenses as we build out our nationwide 5G network. We expect the majority of our remaining capital expenditures related to these efforts to occur in 2021 and 2022, after which we expect a reduction in capital expenditure requirements.

For more information regarding our related party transactions with SoftBank,spectrum licenses, see Note 25 - Business CombinationGoodwill, Spectrum License Transactions and Note 14 -
82

Table of Contents
SoftBank Equity TransactionOther Intangible Assets of the Notes to the Condensed Consolidated Financial Statements.

Marcelo Claure

On June 22, 2020, we entered into a Master Framework Agreement which provided for the purchase of shares of our common stock by Marcelo Claure, a member of our board of directors, from us at a specified price.

For more information regarding our related party transactions with Marcelo Claure, see Note 14 - SoftBank Equity Transactionof the Notes to the Condensed Consolidated Financial Statements.

BrightstarDividends

We have arrangements with Brightstar, a subsidiary of SoftBank, whereby Brightstar provides supply chainnever paid or declared any cash dividends on our common stock, and inventory management services to us in our indirect channels.

For more information regarding our related party transactions with Brightstar, see Note 1 - Summary of Significant Accounting Policies and Note 19 - Additional Financial Informationof the Notes to the Condensed Consolidated Financial Statements.

Deutsche Telekom

We have related party transactions associated with DT or its affiliates in the ordinary course of business, including intercompany servicing and licensing.

For more information regarding these transactions, see Note 19 - Additional Financial Informationof the Notes to the Condensed Consolidated Financial Statements.

On April 1, 2020, in connection with the closing of the Merger, we repaid our $4.0 billion Incremental Term Loan Facility with DT and repurchased from DT $4.0 billion of indebtedness to affiliates, consisting of $2.0 billion of 5.300% Senior Notes due 2021 and $2.0 billion of 6.000% Senior Notes due 2024 as well as made an additional payment for requisite consents to DT of $13 million.

On July 4, 2020, we redeemed $1.25 billion aggregate principal amount of our 5.125% Senior Notes to affiliates due 2021.

For more information regarding our related party debt transactions, see Note 8 - Debtof the Notes to the Condensed Consolidated Financial Statements.
Disclosure of Iranian Activities under Section 13(r) of the Securities Exchange Act of 1934

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act of 1934, as amended (“Exchange Act”). Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction. Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law.

As of the date of this report, we are not aware of any activity, transaction or dealing by us or any of our affiliates for the three months ended June 30, 2020, 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 areintend to declare or pay any cash dividends on our affiliates solely due to their common control with either DT or SoftBank. We have relied upon DT and SoftBank for information regarding their respective activities, transactions and dealings.

DT, through certain of its non-U.S. subsidiaries, is party to roaming and interconnect agreements with the following mobile and fixed line telecommunication providers in Iran, some of which are or may be government-controlled entities: Irancell Telecommunications Services Company, Telecommunication Kish Company, Mobile Telecommunication Company of Iran, and Telecommunication Infrastructure Company of Iran. In addition, during the three months ended June 30, 2020, 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 arestock in the process of being terminated.For the three months ended June 30, 2020, gross revenues of all DT affiliates
83

Table of Contents
generated by roaming and interconnection traffic and telecommunications services with the Iranian parties identified herein were less than $0.1 million,foreseeable future. Our credit facilities and the estimated net profits were less than $0.1 million.

In addition, DT, through certain of its non-U.S. subsidiariesindentures and supplemental indentures governing our long-term debt to affiliates and third parties, excluding financing leases, contain covenants that, operate a fixed-line network in their respective European home countries (in particular Germany), provides telecommunications services in the ordinary course of businessamong other things, restrict our ability to the Embassy of Iran in those European countries. Gross revenues and net profits recorded from these activities for the three months ended June 30, 2020 were less than $0.1 million. We understand that DT intends to continue these activities.

Separately, SoftBank, through one of its non-U.S. subsidiaries, provides roaming services in Iran through Irancell Telecommunications Services Company. During the three months ended June 30, 2020, SoftBank had no gross revenues from such services and no net profit was generated. We understand that the SoftBank subsidiary intends to continue such services. This subsidiary also provides telecommunications services in the ordinary course of business to accounts affiliated with the Embassy of Iran in Japan. During the three months ended June 30, 2020, SoftBank estimates that gross revenues and net profit generated by such services were both under $3,500. We understand that the SoftBank subsidiary is obligated under contract and intends to continue such services.

In addition, SoftBank, through one of its non-U.S. indirect subsidiaries, provides office supplies to the Embassy of Iran in Japan. SoftBank estimates that gross revenue and net profit generated by such services during the three months ended June 30, 2020 were under $1,000 and $200, respectively. We understand that the SoftBank subsidiary intends to continue such activities.declare or pay dividends on our common stock.

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 June 30, 2020,March 31, 2021, we derecognized net receivables of $2.6$2.5 billion upon sale through these arrangements. 

For more information regarding these off-balance sheet arrangements, see Note 4 – Sales of Certain Receivables of the Notes to the Condensed Consolidated Financial Statements.

Future Sources and Uses of Liquidity

We may seek additional sources of liquidity, including through the issuance of additional long-term debt in 2021, 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 the execution of our integration plan.

We determine future liquidity requirements, for both operations and capital expenditures, based in large part upon projected financial and operating performance, and opportunities to acquire additional spectrum. We regularly review and update these projections for changes in current and projected financial and operating results, general economic conditions, the competitive landscape and other factors. We have incurred, and will incur, substantial expenses to comply with the Government Commitments, and we are also expected to incur substantial restructuring expenses in connection with integrating and coordinating T-Mobile’s and Sprint’s businesses, operations, policies and procedures. While we have assumed that a certain level of Merger-related expenses will be incurred, factors beyond our control, including required consultation and negotiation with certain counterparties, could affect the total amount or the timing of these expenses. These expenses could exceed the costs historically borne by us and adversely affect our financial condition and results of operations. There are a number of additional risks and uncertainties, including those due to the impact of the Pandemic, that could cause our financial and operating results and capital requirements to differ materially from our projections, which could cause future liquidity to differ materially from our assessment.

The indentures, supplemental indentures and credit agreements governing our long-term debt to affiliates and third parties, excluding financing leases, contain covenants that, among other things, limit the ability of the Issuers or borrowers and the Guarantor Subsidiaries to incur more debt, pay dividends and make distributions 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 agreements, indentures and supplemental indentures relating to the long-term debt to affiliates and third parties restrict the ability of the Issuers or borrowers to loan funds or make payments to Parent. However, the Issuers or borrowers are allowed to make certain permitted payments to Parent under the terms of each of the credit agreements, indentures and supplemental indentures relating to the long-term debt to affiliates and third parties. We were in compliance with all restrictive debt covenants as of March 31, 2021.

48

Table of Contents
Shentel Wireless Asset Acquisition

Sprint PCS (specifically Sprint Spectrum L.P.) is party to a variety of publicly filed agreements with Shentel, pursuant to which Shentel is the exclusive provider of Sprint PCS’s wireless mobility communications network products in certain parts of Maryland, North Carolina, Virginia, West Virginia, Kentucky, Ohio and Pennsylvania. Pursuant to one such agreement, the Sprint PCS Management Agreement, dated November 5, 1999 (as amended, supplemented and modified from time to time, the “Management Agreement”), Sprint PCS was granted an option to purchase Shentel’s wireless telecommunications assets used to provide services pursuant to the Management Agreement. On August 26, 2020, Sprint, now our indirect subsidiary, on behalf of and as the direct or indirect owner of Sprint PCS, exercised its option by delivering a binding notice of exercise to Shentel. T-Mobile’s exercise of its option triggered a requirement for the parties to engage three independent valuation providers to calculate the “entire business value” (the “Entire Business Value”) of such wireless telecommunications assets, pursuant to a formula and valuation process prescribed in the Management Agreement.

On February 1, 2021, in accordance with the Management Agreement and other agreed-upon terms, the Entire Business Value of Shentel’s wireless telecommunications assets used to provide services pursuant to the Management Agreement was determined to be $2.1 billion, and correspondingly, the base purchase price for such wireless telecommunications assets shall be ninety percent (90%) of that Entire Business Value amount ($1.9 billion), subject to certain other purchase price adjustments prescribed by the Management Agreement and such additional purchase price adjustments agreed by the parties. The parties are negotiating the remaining outstanding terms of a definitive agreement to govern the purchase of Shentel’s wireless telecommunication assets and expect the transaction to close in the third quarter of 2021 after satisfying customary conditions to closing.

Financing Lease Facilities

We have entered into uncommitted financing lease facilities with certain partners that provide us with the ability to enter into financing leases for network equipment and services. As of March 31, 2021, we have committed to $5.2 billion of financing leases under these financing lease facilities, of which $108 million was executed during the three months ended March 31, 2021. We expect to enter into up to an additional $1.1 billion in financing lease commitments during the year ending December 31, 2021.

Capital Expenditures

Our liquidity requirements have been driven primarily by capital expenditures for spectrum licenses, the construction, expansion and upgrading of our network infrastructure and the integration of the networks, spectrum, technology, personnel, customer base and business practices of T-Mobile and Sprint. Property and equipment capital expenditures primarily relate to the integration of our spectrum licenses, including the pending acquisition of C-band licenses won in Auction 107, acquired Sprint 2.5 GHz spectrum licenses and existing 600 MHz spectrum licenses as we build out our nationwide 5G network. We expect the majority of our remaining capital expenditures related to these efforts to occur in 2021 and 2022, after which we expect a reduction in capital expenditure requirements.

For more information regarding our spectrum licenses, see Note 5 - Goodwill, Spectrum License Transactions and Other Intangible Assetsof the Notes to the Condensed Consolidated Financial Statements.

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.

Related Party Transactions

We have related party transactions associated with DT, SoftBank or their affiliates in the ordinary course of business, including intercompany servicing and licensing.

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,
49

Table of Contents
whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction. Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law.

As of the date of this report, we are not aware of any activity, transaction or dealing by us or any of our affiliates for the three months ended March 31, 2021, 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 either DT or SoftBank. We have relied upon DT and SoftBank for information regarding their respective activities, transactions and dealings.

DT, through certain of its non-U.S. subsidiaries, is party to roaming and interconnect agreements with the following mobile and fixed line telecommunication providers in Iran, some of which are or may be government-controlled entities: Irancell Telecommunications Services Company, Telecommunication Kish Company, Mobile Telecommunication Company of Iran, and Telecommunication Infrastructure Company of Iran. In addition, during the three months ended March 31, 2021, DT, through certain of its non-U.S. subsidiaries, provided basic telecommunications services to two 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 and Europäisch-Iranische Handelsbank. These services have been terminated or are in the process of being terminated.For the three months ended March 31, 2021, 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 three months ended March 31, 2021 were less than $0.1 million. We understand that DT intends to continue these activities.

Separately, SoftBank, through one of its non-U.S. subsidiaries, provides roaming services in Iran through Irancell Telecommunications Services Company. During the three months ended March 31, 2021, SoftBank had no gross revenues from such services and no net profit was generated. We understand that the SoftBank subsidiary intends to continue such services. This subsidiary also provides telecommunications services in the ordinary course of business to accounts affiliated with the Embassy of Iran in Japan. During the three months ended March 31, 2021, SoftBank estimates that gross revenues and net profit generated by such services were both under $0.1 million. We understand that the SoftBank subsidiary is obligated under contract and intends to continue such services.

In addition, SoftBank, through one of its non-U.S. indirect subsidiaries, provides office supplies to the Embassy of Iran in Japan. SoftBank estimates that gross revenue and net profit generated by such services during the three months ended March 31, 2021, were both under $0.1 million. We understand that the SoftBank subsidiary intends to continue such activities.

Critical Accounting Policies and Estimates

Preparation of our condensed consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. Except as described below and in Note 1 - Summary of Significant Accounting Policies, thereThere have been no material changes to the critical accounting policies and estimates as previously disclosed in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019,2020, and which are hereby incorporated by reference herein other than the updated risk factors below.

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
84

Table of Contents
added to the market capitalization. We believe short-term fluctuations in share price may not necessarily reflect the underlying aggregate fair value. No events or change in circumstances have occurred in the current quarter that indicate the fair value of the Wireless reporting unit may be below its carrying amount at June 30, 2020.

Concurrent with the acquisition, management also revisited the plans for our TVisionTM Home service offering and the integration of this offering with the Sprint customer base. Additionally, we expect our significantly enhanced spectrum position following the Merger will allow us to accelerate our in-home broadband internet service strategy. The enhanced in-home broadband opportunity, along with the acquisition of certain content rights, has created a strategic shift in our TVisionTM Home service offering allowing us the ability to develop a video product which will be complementary to the in-home broadband offering. Management has updated its forecast, which includes a reimagining of the stand-alone product offering to potential customers that is expected to launch by the end of 2020. Based on these events and changes in circumstances, we determined that recoverability of the carrying amount of goodwill for the Layer3 reporting unit should be evaluated for impairment. 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 2025, which took into account assumptions for a delayed launch, estimates of subscribers for TVision services, average revenue and content cost per subscriber, operating costs and capital expenditures;
Cash flows beyond 2025 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; and
We used a discount rate of 30% to risk adjust the cash flow projections in determining the estimated fair value.

The carrying value of the Layer3 reporting unit exceeded its estimated fair value as of June 30, 2020. Accordingly, during the three and six months ended June 30, 2020 we recorded an impairment loss of $218 million, which is included in “Impairment expense” in our consolidated statements of comprehensive income.

For more information regarding our impairment assessments, see Note 1 - Summary of Significant Accounting Policies andNote 6 – Goodwill, Spectrum License Transactions and Other Intangible Assets of the Notes to the Condensed Consolidated Financial Statements.herein.

Accounting Pronouncements Not Yet Adopted

For information regarding recently issued accounting standards, see Note 1 – Summary of Significant Accounting Policies of the Notes to the Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposedThere have been no material changes 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 sensitivitiesas previously disclosed in Part II, Item 7A of our debt portfolio.Annual Report on Form 10-K for the year ended December 31, 2020.

Through March 31, 2020, we were exposed to changes in interest rates on our Incremental Term Loan Facility with DT, our majority stockholder. On April 1, 2020, in connection with the closing of the Merger, we drew down on a $19.0 billion New Secured Bridge Loan Facility and a $4.0 billion New Secured Term Loan Facility. We used a portion of the net proceeds from the draw down of the secured facilities to repay our $4.0 billion Incremental Term Loan Facility with DT. See Note 8 - Debt of the Notes to the Condensed Consolidated Financial Statements for further information regarding the issuance of New Secured Bridge Loan Facility and New Secured Term Loan Facility.
50

Through April 1, 2020, we were exposed to changes in the benchmark interest rate associated with our interest rate lock derivatives. Between April 2 to April 6, 2020, in connection with the issuance of an aggregate of $19.0 billion in Senior Secured Notes, we terminated our interest rate lock derivatives. See Note 8 - Debt of the Notes to the Condensed Consolidated Financial Statements for further information regarding the issuance of senior secured notes. At the time of termination, the
85

Table of Contents
interest rate lock derivatives were a liability of $2.3 billion, of which $1.2 billion was cash-collateralized. Consequently, the net cash outflow required to settle the interest rate lock derivatives was an additional $1.1 billion and was paid at termination. Aggregate changes in fair value, net of tax, of $1.7 billion is presented in Accumulated other comprehensive loss as of June 30, 2020. Upon the termination of the interest rate derivatives, we began amortizing the Accumulated other comprehensive loss with the derivatives into Interest expense over periods of 8 to 10 years. For both the three and six months ended June 30, 2020, $39 million was amortized from Accumulated other comprehensive loss into Interest expense in the Condensed Consolidated Statements of Comprehensive Income.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure information required to be disclosed in our periodic reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls include the use of a Disclosure Committee which is comprised of representatives from our Accounting, Legal, Treasury, Technology, Risk Management, Government Affairs and Investor Relations functions and are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this Form 10-Q.

The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) are filed as exhibits 31.1 and 31.2, respectively, to this Form 10-Q.

Changes in Internal Control over Financial Reporting

On April 1, 2020, we completed our Merger with Sprint and have implemented new processes and internal controls to assist us in the preparation and disclosure of financial information. Given the significance of the Sprint acquisition and the complexity of systems and business processes, we intend to exclude the acquired Sprint business from our assessment and report on internal control over financial reporting for the year ending December 31, 2020. Other than as discussed above, thereThere 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.

8651

Table of Contents
PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For more information regarding ourthe legal proceedings in which we are involved, see Note 2 - Business CombinationsCombination and Note 171 – Commitments and Contingencies of the Notes to the Condensed Consolidated Financial Statements.

Item 1A. Risk Factors

Other than the updated risk factorsfactor below, there have been no material changes in theour risk factors as previously disclosed in Part II,I, Item IA1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, which amended and restated the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019. These risk factors should be considered carefully in evaluating T-Mobile. Our business, financial condition, liquidity, or operating results, as well as the price of our common stock and other securities, could be materially adversely affected by any of these risks. In addition, many of these risks have been or may be heightened by impacts of the COVID-19 pandemic.2020.

Risks Related to Our BusinessFifth Amended and Restated Certificate of Incorporation designates the Wireless Industry

The COVID-19 pandemic has adversely affected, and will continue to adversely affect, our business, liquidity, financial condition, and operating results.

The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected businesses, economies and financial markets worldwide. It has impacted, and will continue to impact,Court of Chancery of the demand for our products and services, the ways in which our customers use them, and our suppliers’ ability to provide products to us. As a result, our business, liquidity, financial condition, and operating results have been, and will continue to be, adversely impacted by the COVID-19 pandemic. For example, the COVID-19 pandemic has caused a widespread increase in unemployment and is expected to result in reduced consumer spending and has resulted in a recession beginning in February 2020. In addition, public and private sector policies and initiatives to reduce the transmissionState of COVID-19, suchDelaware as the imposition of travel restrictions, the promotion of social distancing, the adoption of work-from-home initiatives, government forbearance programssole and online learning by companiesexclusive forum for certain actions and institutions,proceedings, which could affect our operations, consumer and business spending, and the amount and ways our customers use our networks and our other products and services. In addition, COVID-19 may affectlimit the ability of our suppliers and vendorsstockholders to provide products and services to us and our customers’ ability to timely payobtain a judicial forum of their choice for services. Further,disputes with the continued spread of COVID-19 has led to extreme disruption and volatility in the global capital markets and may lead to a significant economic recession, which could have a further adverse impact on our business, financial condition and operating results, including potentially decreased access to capital marketsCompany or a reduced ability to issue debt on terms acceptable to us. Additionally, there may be a potential impairment of goodwill, spectrum licensesits directors, officers or long-lived assets if the adverse impact on operating results and cash flows continues for a prolonged period of time. During the quarter, while the impact of the COVID-19 pandemic peaked and subsequently subsided in some jurisdictions, leading to phased re-openings, other areas have seen resurgences of COVID-19 cases and continuing or renewed containment measures.employees.

BeforeOur Fifth Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) provides that, unless we consent in writing to the Merger,selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or employee of the Company to the Company or its stockholders, (iii) any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware, the Certificate of Incorporation or the Company’s bylaws or (iv) any other action asserting a claim arising under, in mid-March, approximately 80%connection with, and governed by the internal affairs doctrine. This choice of T-Mobile and 70% of Sprint company-owned store locations, as well as many third-party retailer locations that sellforum provision does not waive our T-Mobile, Metro by T-Mobile and Sprint brands, were closed. In compliance with our obligations under the federal securities laws and the rules and regulations thereunder. Moreover, the provision does not apply to suits brought to enforce a duty or liability created by the Exchange Act or by the Securities Act of various states, we have since reopened a number of our previously closed stores. We continue to monitor conditions and will re-open and re-close stores1933, as needed to ensure the safety of both customers and employees. Our plans to potentially re-open and re-close additional stores depend on safe and healthy operating environments and compliance with local and state mandates and orders.amended.

In addition,This choice of forum provision may increase costs to bring a claim, discourage claims or limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder finds favorable for disputes with the Company or its directors, officers or employees, which may discourage such lawsuits against the Company and its directors, officers and employees, even though an action, if successful, might benefit our stockholders. Alternatively, if a court were to find the choice of forum provision to be inapplicable or unenforceable in an effort to assist customers impacted by the COVID-19 pandemic, on March 13, 2020,action, we pledgedmay incur additional costs associated with resolving such matters in other jurisdictions, which could increase our support for the Pledge ensuring residential and small business customers with financial impacts resulting from the pandemic do not lose service. We extended the Pledge until June 30 and, despite the Pledge ending, expect to continue to work with our customers to help them maintain service and become current on their accounts, which may impact our financial results. In addition, these initiatives may continue to divert our resources from network buildout and put additional strain on our network, potentially leading to slower speeds impacting our customer experience.

The extent to which the COVID-19 pandemic impacts our liquidity, financial condition and operating results will depend on future developments, which are highly uncertain and cannot be predicted, including the duration and scopecosts of the COVID-19 pandemic, government, social, business and other actions that have been and will be taken in response to the COVID-19 pandemic, and its effect on short-term and long-term economic conditions.
87

Table of Contents
Any material weaknesses we identify while we work to integrate and align policies, principles and practices of the two companies following the Merger, or any other failure by us to maintain effective internal controls, could result in a loss of investor confidence regarding our financial statements. Additionally, the trading price of our stock and our access to capital could be negatively impacted, and we could be subject to significant costs and reputational damage that could have an adverse impact on our business, financial condition or operating results.

Under Section 404 of the Sarbanes-Oxley Act, we, along with our independent registered public accounting firm, will be required to report on the effectiveness of our internal control over financial reporting. This requirement is subject to an exemption for business combinations during the most recent fiscal year, which we plan to utilize due to the Merger. Any identified material weakness in internal control over financial reporting will still be reported, as obligated.

While we work to integrate and align policies, principles and practices of the two companies following the Merger, as a result of the differences in control environments and cultures, we could potentially identify material weaknesses that could result in materially inaccurate financial statements, materially inaccurate disclosures, or failure to prevent error or fraud for the combined company. There can be no assurance that remediation of any material weaknesses identified during integration of the two companies, will be completed in a timely manner or that the remedial measures will prevent other control deficiencies or material weaknesses. Subsequent testing of the operational effectiveness of the financial reporting systems and internal controls will be necessary to conclude that any material weaknesses identified have been fully remediated. If we are unable to remediate material weaknesses in internal control over financial reporting, then our ability to analyze, record and report financial information free of material misstatements, to prepare financial statements within the time periods specified by the rules and forms of the SEC and otherwise to comply with the requirements of Section 404 of the Sarbanes-Oxley Act will be adversely affected. The occurrence of, or failure to remediate, any future material weaknesses in internal control over financial reporting may result in material misstatements of our financial statements.

The effectiveness of our internal control over financial reporting is subject to various inherent limitations, including judgments used in decision-making, the nature and complexity of the transactions we undertake, assumptions about the likelihood of future events, the soundness of our systems, cost limitations, and other factors. If we or our independent registered public accounting firm is unable to conclude that we have effective internal control over financial reporting, or if material weaknesses in our internal controls are discovered, such as through the identification of any material weaknesses as we complete our assessment of Sprint’s legacy control environment, or occur in the future or we otherwise must restate our financial statements, it could materiallylitigation and adversely affect our business financial condition or operating results, restrict our ability to access the capital markets, require the expenditure of significant resources to correct the weaknesses or deficiencies, subject us to fines, penalties, investigations or judgments, harm our reputation, or otherwise cause a decline in investor confidence.

In connection with the Merger, we are evaluating the long-term billing system architecture strategy for our customers. Our long-term strategy is to facilitate the migration of Sprint’s legacy customers onto T-Mobile’s existing billing platforms. The combined company will operate and maintain multiple billing systems until such migration is completed. Any unanticipated difficulties, disruption, or significant delays could have adverse operational, financial, and reputational effects on our business.

Following the closing of the Merger, the combined company is operating and maintaining multiple billing systems. We expect to continue to do so until successful migration of Sprint’s legacy customers to T-Mobile’s existing billing platforms. We may encounter unanticipated difficulties or experience delays in the ongoing integration efforts with respect to billing, causing major system or business disruptions. In addition, we or the supporting vendors may experience errors, cyber-attacks, or other operational disruptions that could negatively impact us and over which we may have limited control. Interruptions and/or failure of these billing systems could disrupt our operations and impact our ability to provide or bill for our services, retain customers, attract new customers, or negatively impact overall customer experience. Any occurrence of the foregoing could cause material adverse effects on our operations and financial condition, material weaknesses in our internal control over financial reporting, and reputational damage.









88

Table of Contents
Risks Related to Ownership of our Common Stock

Each of DT, which controls a majority of the voting power of our common stock, and SoftBank, a significant stockholder of T-Mobile, may have interests that differ from the interests of our other stockholders.

Upon the completion of the Transactions, DT and SoftBank entered into the SoftBank Proxy Agreement, and on June 22, 2020, DT, CM LLC, and Marcelo Claure entered into the Claure Proxy Agreement. Pursuant to the Proxy Agreements, at any meeting of our stockholders, the shares of our common stock beneficially owned by SoftBank or CM LLC will be voted in the manner as directed by DT.

Accordingly, DT controls a majority of the voting power of our common stock and therefore we are a “controlled company,” as defined in The NASDAQ Stock Market LLC (“NASDAQ”) listing rules, and are not subject to NASDAQ requirements that would otherwise require us to have a majority of independent directors, a nominating committee composed solely of independent directors or a compensation committee composed solely of independent directors. Accordingly, our stockholders will not be afforded the same protections generally as stockholders of other NASDAQ-listed companies with respect to corporate governance for so long as we rely on these exemptions from the corporate governance requirements.

In addition, pursuant to our certificate of incorporation and the Amended and Restated Stockholders’ Agreement as long as DT beneficially owns 30% or more of our outstanding common stock, we are restricted from taking certain actions without DT’s prior written consent, including (a) incurring indebtedness above certain levels based on a specified debt to cash flow ratio, (b) taking any action that would cause a default under any instrument evidencing indebtedness involving DT or its affiliates, (c) acquiring or disposing of assets or entering into mergers or similar acquisitions in excess of $1.0 billion, (d) changing the size of our board of directors, (e) subject to certain exceptions, issuing equity of 10% or more of the then-outstanding shares of our common stock, or issuing equity to redeem debt held by DT, (f) repurchasing or redeeming equity securities or making any extraordinary or in-kind dividend other than on a pro rata basis, or (g) making certain changes involving our CEO. We are also restricted from amending our certificate of incorporation and bylaws in any manner that could adversely affect DT’s rights under the Amended and Restated Stockholders’ Agreement for as long as DT beneficially owns 5% or more of our outstanding common stock. These restrictions could prevent us from taking actions that our board of directors may otherwise determine are in the best interests of the Company and our stockholders or that may be in the best interests of our other stockholders.

DT effectively has control over all matters submitted to our stockholders for approval, including the election or removal of directors, changes to our certificate of incorporation, a sale or merger of our Company and other transactions requiring stockholder approval under Delaware law. DT’s controlling interest may have the effect of making it more difficult for a third party to acquire, or discouraging a third party from seeking to acquire, the Company. DT and SoftBank as significant stockholders may have strategic, financial, or other interests different from our other stockholders, including as the holder of a substantial amount of our indebtedness and as the counterparty in a number of commercial arrangements, and may make decisions adverse to the interests of our other stockholders.

In addition, we license certain trademarks from DT, including the right to use the trademark “T-Mobile” as a name for the Company and our flagship brand, under a trademark license agreement, as amended, with DT. As described in more detail in our Proxy Statement on Schedule 14A filed with the SEC on April 21, 2020 under the heading “Transactions with Related Persons and Approval,” we are obligated to pay DT a royalty in an amount equal to 0.25% (the “royalty rate”) of the net revenue (as defined in the trademark license) generated by products and services sold by the Company under the licensed trademarks subject to a cap of $80.0 million per calendar year through December 31, 2028. We and DT are obligated to negotiate a new trademark license when (i) DT has 50% or less of the voting power of the outstanding shares of capital stock of the Company or (ii) any third party owns or controls, directly or indirectly, 50% or more of the voting power of the outstanding shares of capital stock of the Company, or otherwise has the power to direct or cause the direction of the management and policies of the Company. If we and DT fail to agree on a new trademark license, either we or DT may terminate the trademark license and such termination shall be effective, in the case of clause (i) above, on the third anniversary after notice of termination and, in the case of clause (ii) above, on the second anniversary after notice of termination. A further increase in the royalty rate or termination of the trademark license could have a material adverse effect on our business, financial condition and operating results.

89

Table of Contents
Risks Related to Integration

Our business and Sprint’s businesses may not be integrated successfully or such integration may be more difficult, time consuming or costly than expected. Operating costs, customer loss and business disruption, including difficulties in satisfying all of the Government Commitments and maintaining relationships with employees, customers, suppliers or vendors, may be greater than expected.

The combination of two independent businesses is complex, costly and time-consuming, and may divert significant management attention and resources to combining our and Sprint’s business practices and operations. This process, as well as the Government Commitments, may disrupt our business or otherwise impact our ability to compete. The failure to meet the challenges involved in combining our and Sprint’s businesses, and to realize the anticipated benefits of the Transactions could cause an interruption of, or a loss of momentum in, our activities and could adversely affect our results of operations. The overall combination of our and Sprint’s businesses, and compliance with the Government Commitments may also result in material unanticipated problems, expenses, liabilities, competitive responses and impacts, and loss of customer and other business relationships. The difficulties of combining the operations of the companies, and satisfying all of the Government Commitments include, among others:
diversion of management attention to integration matters;
difficulties in integrating operations and systems, including intellectual property and communications systems, administrative and information technology infrastructure, supplier and vendor arrangements and financial reporting and internal control systems;
challenges in conforming standards, controls, procedures and accounting and other policies, business cultures and compensation structures between the two companies;
differences in control environments and cultures, and the potential identification of material weaknesses while we work to integrate and align policies, principles and practices;
alignment of key performance measurements may result in a greater need to communicate and manage clear expectations while we work to integrate and align policies and practices;
difficulties in integrating employees and attracting and retaining key personnel;
the transition of management to the combined company management team, and the need to address possible differences in corporate cultures and management philosophies;
challenges in retaining existing customers and obtaining new customers;
difficulties in achieving anticipated cost savings, synergies, accretion targets, business opportunities, financing plans and growth prospects from the combination;
difficulties in managing the expanded operations of a significantly larger and more complex company;
the impact of the additional debt financing incurred in connection with the Transactions;
the possible unfavorable outcomes in connection with the relationship between Sprint PCS and Shentel, including disadvantageous pricing pursuant to the contractual appraisal process for purchasing (or selling) wireless telecommunications assets in the region, costly and lengthy proceedings related to disputes, and delays and other adverse effects on operations and business in the Shentel service area;
known or potential unknown liabilities of Sprint that are larger than expected;
the limitations to the indemnifications provided by SoftBank against certain losses following the closing of the Transactions and the uncertainties over SoftBank’s ability to fulfill such obligations; and
other potential adverse consequences and unforeseen increased expenses or liabilities associated with the Transactions and the Government Commitments.
Additionally, uncertainties over the integration process could cause customers, suppliers, distributors, dealers, retailers and others to seek to change or cancel our existing business relationships or to refuse to renew existing relationships. Suppliers, distributors and content and application providers may also delay or cease developing new products for us that are necessary for the operations of our business due to uncertainties. Competitors may also target our existing customers by highlighting potential uncertainties and integration difficulties.
Some of these factors are outside our control, and any one of them could result in lower revenues, higher costs and diversion of management time and energy, which could materially impact our business, financial condition and results of operations. In addition, even if the integration is successful, the full benefits of the Transactions including, among others, the synergies, cost savings or sales or growth opportunities may not be realized, as a result of the Divestiture Transaction, the Government Commitments and/or the other actions and conditions we have agreed to in connection with the Transactions, or otherwise. Further, we have incurred, and expect to continue to incur, significant costs, expenses and fees for professional services and
90

Table of Contents
other transaction costs in connection with the Transactions. Additional unanticipated costs may be incurred in the integration process and in connection with the Divestiture Transaction and the Government Commitments, including potential penalties that could arise if we fail to fulfill our obligations thereunder. As a result, it cannot be assured that we will realize the full benefits expected from the Transactions within the anticipated time frames or at all.

Our business may be adversely impacted if we are not able to successfully manage the ongoing commercial and transition services arrangements entered into in connection with the Divestiture Transaction and known or unknown liabilities arising in connection therewith.

On July 1, 2020, we completed the Divestiture Transaction. In connection with the closing of the Divestiture Transaction, we and DISH entered into certain commercial and transition services arrangements, including a Master Network Services Agreement (the “MNSA”) and a Spectrum Purchase Agreement (the “Spectrum Purchase Agreement”). Pursuant to the MNSA, DISH will receive network services from the Company for a period of seven years. As set forth in the MNSA, the Company will provide to DISH, among other things, (a) legacy network services for certain Boost Mobile prepaid end users on the Sprint network, (b) T-Mobile network services for certain end users that have been migrated to the T-Mobile network or provisioned on the T-Mobile network by or on behalf of DISH and (c) infrastructure mobile network operator services to assist in the access and integration of the DISH network. Pursuant to the Spectrum Purchase Agreement, DISH is expected to purchase all of Sprint’s 800 MHz spectrum (approximately 13.5 MHz of nationwide spectrum) for a total of approximately $3.6 billion. The covered spectrum sale will not occur before the third anniversary of the Merger (i.e., not before April 1, 2023) but must be divested within the later of three years after the closing of the Divestiture Transaction and five days after receipt of the approval from the FCC for the transfer, following an application for FCC approval to be filed by the third anniversary of the closing of the Merger. T-Mobile may exercise an option to lease back 4 MHz (2 MHz downlink + 2 MHz uplink) of the spectrum for two years following the closing of the 800 MHz spectrum sale at the same per person rate used to calculate the purchase price paid by DISH to T-Mobile – a rate of approximately $68 million per year.

Failure to successfully manage these ongoing commercial and transition services arrangements entered into in connection with the Divestiture Transaction and liabilities arising in connection therewith may result in material unanticipated problems, including diversion of management time and energy, significant expenses and liabilities. There may also be other potential adverse consequences and unforeseen increased expenses or liabilities associated with the Divestiture Transaction, the occurrence of which could materially impact our business, financial condition, liquidity and results of operations. In addition, there may be an increase in competition from DISH and other third parties that DISH may enter into commercial agreements with, who are significantly larger and with greater resources and scale advantages as compared to us. Such increased competition may result in our loss of customers and other business relationships.condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

The following transactions were executed in connection with the SoftBank Monetization as disclosed in SoftBank’s Schedule 13D/A filed on June 15, 2020.

Trust Securities Offering

On June 26, 2020, the 2020 Cash Mandatory Exchangeable Trust, a Delaware statutory trust (“Trust”) unaffiliated with us, closed a private Mandatory Exchangeable Offering of its 2020 Cash Mandatory Exchangeable Trust Securities (“Trust Securities”) for an aggregate offering price of $2,000,000,000, including the full exercise by the initial purchasers of their option to purchase an additional $139,535,000 aggregate offering price of the Trust Securities. At the closing of the Mandatory Exchangeable Offering, we sold 19,417,400 shares of our common stock to the Trust in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). We transferred to SBGC the cash proceeds received from such sale of shares of our common stock to the Trust and we did not retain any proceeds. In addition, in connection with the sale of the shares of our common stock to the Trust, we received a contingent value right note representing the right to receive on June 1, 2023 a number of shares of common stock based on the daily volume-weighted average price of shares of common stock during an observation period and we sold, assigned and transferred such note to SBGC. The Trust is required to use a portion of the net proceeds from the Mandatory Exchangeable Offering to purchase U.S. Treasury securities to fund quarterly distributions on the Trust Securities, and the holders of the Trust Securities will be entitled to a final mandatory exchange cash amount on June 1, 2023 that will depend on the daily volume-weighted average price of shares of our common stock during an observation period before the final exchange date. We are not affiliated with the Trust, will not retain any proceeds from the offering of the Trust Securities, and will have no ongoing interest, economic or otherwise, in the Trust Securities.
91

Table of Contents

Director Purchase

Pursuant to the Master Framework Agreement, we entered into a Share Purchase Agreement, dated as of June 22, 2020, together with Marcelo Claure and CM LLC pursuant to which we sold 5,000,000 shares of our common stock to CM LLC, an entity controlled by Mr. Claure (in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act) at a price of $103.00 per share. Mr. Claure’s purchase was funded with the proceeds of a loan from SoftBank. Pursuant to our policy on securities trading, such shares may not be pledged, directly or indirectly, as collateral for a loan. The shares of our common stock we sold to CM LLC were purchased from SBGC pursuant to the Share Repurchase Agreement. We transferred to SBGC the cash proceeds received from CM LLC and we did not retain any proceeds.

Share Repurchases

Share repurchase activity during the three months ended June 30, 2020 was as follows:
(in millions)
Total Number of Shares Purchased (1)
Average Price Paid per Share (2)
Total number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
4/1/20 - 4/30/20$—  $—  $—  $—  
5/1/20 - 5/31/20—  —  —  —  
6/1/20 - 6/30/20178,564,426  99.80  —  —  
Total$178,564,426  $99.80  $—  $—  
(1) In connection with the SoftBank Monetization, SBGC sold or committed to sell shares of our common stock through indirect transactions including (i) the registered Public Equity Offering of 154,147,026 shares of our common stock we resold (including shares purchased pursuant to the underwriters’ full exercise of their option to purchase additional shares), (ii) the private Mandatory Exchangeable Offering of Trust Securities by the Trust, to which we resold 19,417,400 shares of our common stock (including shares delivered as a result of the initial purchasers’ full exercise of their option to purchase additional trust securities) and (iii) following the receipt of necessary regulatory approvals, a resale by us of 5,000,000 shares of our common stock to an entity controlled by Marcelo Claure, one of our directors (the “Director Purchase”). Pursuant to the Share Repurchase Agreement, for every share of common stock we resold in the Public Equity Offering, the Mandatory Exchangeable Offering and the Director Purchase, we agreed to repurchase one share of common stock from SBGC for consideration equivalent to that we received in such sales. Consequently, the Public Equity Offering, the Mandatory Exchangeable Offering and the Director Purchase did not involve gain or loss to us and did not affect the number of outstanding shares of common stock or our capitalization. Further, we are not affiliated with the Trust, will not retain any proceeds from the offering of the Trust Securities, and will have no ongoing interest, economic or otherwise, in the Trust Securities.

Amounts in the table above include 5,000,000 shares repurchased with respect to the Director Purchase, which settled in July 2020 following receipt of regulatory approvals.

(2) The consideration we paid to SBGC in respect of the shares purchased was equal to the consideration we received for the shares we sold. Accordingly, we made no net cash outlay in connection with the sale and purchase transactions. The volume-weighted average price of the cash consideration was approximately $99.80 per share. In addition to this cash amount, we assigned to SBGC a Contingent Value Right Note issued by the Trust, representing the right to receive on June 1, 2023 a number of shares of our common stock based on the daily volume-weighted average price of shares of our common stock during an observation period.None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

9252

Table of Contents
Item 6. Exhibits

Incorporated by Reference
Exhibit No.Exhibit DescriptionFormDate of First FilingExhibit NumberFiled Herein
2.18-K6/17/20202.1
3.18-K4/1/20203.1
3.28-K4/1/20203.2
4.18-K4/13/20204.1
4.28-K4/13/20204.2
4.38-K4/13/20204.3
4.48-K4/13/20204.4
4.58-K4/13/20204.5
4.68-K4/13/20204.6
4.7X
4.88-K6/26/20204.2
4.98-K6/26/20204.3
4.108-K6/26/20204.4
Incorporated by Reference
Exhibit No.Exhibit DescriptionFormDate of First FilingExhibit NumberFiled Herein
4.18-K1/14/20214.2
4.28-K1/14/20214.3
4.38-K1/14/20214.4
4.48-K3/23/20214.2
4.58-K3/23/20214.3
4.68-K3/23/20214.4
10.1*X
10.2*X
10.3*X
10.4*X
10.5X
10.6X
9353

Table of Contents
4.118-K6/26/20204.5
4.12X
4.13X
4.1410-Q
(SEC File No. 001-04721)
11/2/19984(b)
4.158-K
(SEC File No. 001-04721)
2/3/19994(b)
4.168-K
(SEC File No. 001-04721)
10/29/200199
4.178-K
(SEC File No. 001-04721)
9/11/20134.5
4.188-K
(SEC File No. 001-04721)
5/18/20184.1
4.19X
4.208-K
(SEC File No. 001-04721)
11/9/20114.1
4.218-K
(SEC File No. 001-04721)
11/9/20114.2
4.228-K
(SEC File No. 001-04721)
8/14/20124.1
4.238-K
(SEC File No. 001-04721)
11/14/20124.1
4.248-K
(SEC File No. 001-04721)
11/20/20124.1
94

Table of Contents
4.258-K
(SEC File No. 001-04721)
9/11/20134.4
4.268-K
(SEC File No. 001-04721)
5/14/20184.2
4.27X
4.288-K
(SEC File No. 001-04721)
9/11/20134.1
4.298-K
(SEC File No. 001-04721)
9/11/20134.2
4.308-K
(SEC File No. 001-04721)
9/11/20134.3
4.318-K
(SEC File No. 001-04721)
12/12/20134.1
4.328-K
(SEC File No. 001-04721)
2/24/20154.1
4.338-K
(SEC File No. 001-04721)
2/22/20184.1
4.348-K
(SEC File No. 001-04721)
5/14/20184.1
4.358-K
(SEC File No. 001-04721)
2/3/20204.2
4.36X
4.378-K
(SEC File No. 001-04721)
3/12/20184.1
4.388-K
(SEC File No. 001-04721)
6/6/20184.1
95

Table of Contents
4.398-K
(SEC File No. 001-04721)
1/31/20194.1
4.408-K
(SEC File No. 001-04721)
11/2/20164.1
4.418-K
(SEC File No. 001-04721)
11/2/20164.2
4.428-K
(SEC File No. 001-04721)
3/21/201810.2
4.438-K
(SEC File No. 001-04721)
3/21/201810.1
4.448-K4/13/20204.7
4.458-K6/26/20204.2
4.4613D/A6/24/202049
22.1X
31.1X
31.2X
32.1*X
32.2*X
101.INSXBRL 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.SCHXBRL Taxonomy Extension Schema Document.X
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.X
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.X
101.LABXBRL Taxonomy Extension Label Linkbase Document.X
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.X
104
Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).

10.7X
10.8X
22.1X
31.1X
31.2X
32.1**X
32.2**X
101.INSXBRL 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.SCHXBRL Taxonomy Extension Schema Document.X
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.X
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.X
101.LABXBRL Taxonomy Extension Label Linkbase Document.X
101.PREXBRL Taxonomy Extension Presentation Linkbase.X
104Cover Page Interactive Data File (the cover page XBRL tags)

*Indicates a management contract or compensatory plan or arrangement.
**Furnished herein.
9654

Table of Contents


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


T-MOBILE US, INC.
August 6, 2020May 4, 2021/s/ Peter Osvaldik
Peter Osvaldik
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Authorized Signatory)

9755