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, 2018.
The condensed consolidated financial statements include the balances and results of operations of T-Mobile and our consolidated subsidiaries. We consolidate majority-owned subsidiaries over which we exercise control, as well as variable interest entities (“VIE”) where we are deemed to be the primary beneficiary and VIEs which cannot be deconsolidated, such as those related to Tower obligations (Tower obligations are included in VIEs related to the 2012 Tower Transaction. See
Note 7 - Tower Obligations
for further information). 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 which affect the financial statements and accompanying notes. Estimates are based on historical experience, where applicable, and other assumptions which our management believes are reasonable under the circumstances. These estimates are inherently subject to judgment and actual results could differ from those estimates.
Accounting Pronouncements Adopted During the Current Year
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842),” and has since modified the standard with several ASUs (collectively, the “new lease standard”). The new lease standard is effective for us, and we adopted the standard, on January 1, 2019.
We adopted the standard by recognizing and measuring leases at the adoption date with a cumulative effect of initially applying the guidance recognized at the date of initial application and as a result did not restate the prior periods presented in the Condensed Consolidated Financial Statements.
The new lease standard provides for a number of optional practical expedients in transition. We did not elect the “package of practical expedients” and as a result reassessed under the new lease standard our prior accounting conclusions about lease identification, lease classification and initial direct costs. We elected to use hindsight for determining the reasonably certain lease term. We did not elect the practical expedient pertaining to land easements as it is not applicable to us.
The new lease standard provides practical expedients and policy elections for an entity’s ongoing accounting. Generally, we elected the practical expedient to not separate lease and non-lease components in arrangements whereby we are the lessee. For arrangements in which we are lessor we did not elect this practical expedient. We did not elect the short-term lease recognition exemption, which includes the recognition of right-of-use assets and lease liabilities for existing short-term leases at transition. We have also applied this election to all active leases at transition.
The most significant judgments and impacts upon adoption of the standard include the following:
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•
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In evaluating contracts to determine if they qualify as a lease, we consider factors such as if we have obtained or transferred substantially all of the rights to the underlying asset through exclusivity, if we can or if we have transferred the ability to direct the use of the asset by making decisions about how and for what purpose the asset will be used and if the lessor has substantive substitution rights.
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•
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We recognized right-of-use assets and operating lease liabilities for operating leases that have not previously been recorded. The lease liability for operating leases is based on the net present value of future minimum lease payments.
|
The right-of-use asset for operating leases is based on the lease liability adjusted for the reclassification of certain balance sheet amounts such as prepaid rent and deferred rent, which we remeasured at adoption due to the application of hindsight to our lease term estimates. Deferred and prepaid rent will no longer be presented separately.
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•
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Capital lease assets previously included within
Property and equipment, net
were reclassified to financing lease right-of-use assets, and capital lease liabilities previously included in
Short-term debt
and
Long-term debt
were reclassified to financing lease liabilities in our Condensed Consolidated Balance Sheet.
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|
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•
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Certain line items in the
Condensed Consolidated Statements of Cash Flows
and the “Supplementary disclosure of cash flow information” have been renamed to align with the new terminology presented in the new standard; “Repayment of capital lease obligations” is now presenting as “
Repayments of financing lease obligations
” and “Assets acquired under capital lease obligations” is now presenting as “Financing lease right-of-use assets obtained in exchange for lease obligations.” In the “Operating Activities” section of the
Condensed Consolidated Statements of Cash Flows
we have added “Operating lease right-of-use assets” and “Short and long-term operating lease liabilities” which represent the change in the operating lease asset and liability, respectively. Additionally, in the “Supplemental disclosure of cash flow information” section of the
Condensed Consolidated Statements of Cash Flows
we have added “Operating lease payments,” and in the “Noncash investing and financing activities” section we have added “Operating lease right-of-use assets obtained in exchange for lease obligations.”
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•
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In determining the discount rate used to measure the right-of-use asset and lease liability, we use rates implicit in the lease, or if not readily available, we use our incremental borrowing rate. Our incremental borrowing rate is based on an estimated secured rate comprised of a risk-free LIBOR rate plus a credit spread as secured by our assets.
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•
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Certain of our lease agreements include rental payments based on changes in the consumer price index (“CPI”). Lease liabilities are not remeasured as a result of changes in the CPI; instead, changes in the CPI are treated as variable lease payments and are excluded from the measurement of the right-of-use asset and lease liability. These payments are recognized in the period in which the related obligation was incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
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•
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We elected the use of hindsight whereby we applied current lease term assumptions that are applied to new leases in determining the expected lease term period for all cell sites. Upon adoption of the new standard and application of hindsight, our expected lease term has shortened to reflect payments due for the initial non-cancelable lease term only. This assessment corresponds to our lease term assessment for new leases and aligns with the payments that have been disclosed as lease commitments in prior years. As a result, the average remaining lease term for cell sites has decreased from approximately
nine
to
five years
based on lease contracts in effect at transition on January 1, 2019. The aggregate impact of using the hindsight is an estimated decrease in
Total operating expense
of
$240 million
in fiscal year 2019.
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•
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We were also required to reassess the previously failed sale-leasebacks of certain T-Mobile-owned wireless communication tower sites and determine whether the transfer of the assets to the tower operator under the arrangement met the transfer of control criteria in the revenue standard and whether a sale should be recognized.
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•
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We concluded that a sale has not occurred for the
6,200
tower sites transferred to Crown Castle International Corp. (“CCI”) pursuant to a master prepaid lease arrangement; therefore, these sites will continue to be accounted for as failed sale-leasebacks.
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•
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We concluded that a sale should be recognized for the
900
tower sites transferred to CCI pursuant to the sale of a subsidiary and the
500
tower sites transferred to Phoenix Tower International (“PTI”). Upon adoption on January 1, 2019, we derecognized our existing long-term financial obligation and the tower-related property and equipment associated with these
1,400
previously failed sale-leaseback tower sites and recognized a lease liability and right-of-use asset for the leaseback of the tower sites. The estimated impacts from the change in accounting conclusion are primarily a decrease in
Other revenues
of
$44 million
and a decrease in
Interest expense
of
$34 million
.
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•
|
Rental revenues and expenses associated with co-location tower sites are presented on a net basis under the new lease standard. These revenues and expenses were presented on a gross basis under the former lease standard.
|
Including the impacts from a change in the accounting conclusion on the
1,400
previously failed sale-leaseback tower sites, the cumulative effect of initially applying the new lease standard on January 1, 2019 is as follows:
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January 1, 2019
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(in millions)
|
Beginning Balance
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Cumulative Effect Adjustment
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Beginning Balance, As Adjusted
|
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Assets
|
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|
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Other current assets
|
$
|
1,676
|
|
|
$
|
(78
|
)
|
|
$
|
1,598
|
|
|
Property and equipment, net
|
23,359
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|
|
(2,339
|
)
|
|
21,020
|
|
|
Operating lease right-of-use assets
|
—
|
|
|
9,251
|
|
|
9,251
|
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|
Financing lease right-of-use assets
|
—
|
|
|
2,271
|
|
|
2,271
|
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|
Other intangible assets, net
|
198
|
|
|
(12
|
)
|
|
186
|
|
|
Other assets
|
1,623
|
|
|
(71
|
)
|
|
1,552
|
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Liabilities and Stockholders’ Equity
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Accounts payable and accrued liabilities
|
7,741
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|
(65
|
)
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|
7,676
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|
Other current liabilities
|
787
|
|
|
28
|
|
|
815
|
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|
Short-term and long-term debt
|
12,965
|
|
|
(2,015
|
)
|
|
10,950
|
|
|
Tower obligations
|
2,557
|
|
|
(345
|
)
|
|
2,212
|
|
|
Deferred tax liabilities
|
4,472
|
|
|
231
|
|
|
4,703
|
|
|
Deferred rent expense
|
2,781
|
|
|
(2,781
|
)
|
|
—
|
|
|
Short-term and long-term operating lease liabilities
|
—
|
|
|
11,364
|
|
|
11,364
|
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|
Short-term and long-term financing lease liabilities
|
—
|
|
|
2,016
|
|
|
2,016
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|
Other long-term liabilities
|
967
|
|
|
(64
|
)
|
|
903
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Accumulated deficit
|
$
|
(12,954
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)
|
|
$
|
653
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|
$
|
(12,301
|
)
|
Including the impacts from the change in the accounting conclusion on the
1,400
previously failed sale-leaseback tower sites and the change in presentation on the income statement of the
6,200
tower sites for which a sale did not occur, the cumulative effects of initially applying the new lease standard for fiscal year 2019 are estimated as follows:
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•
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The aggregate impact is a decrease in
Other revenues
of
$185 million
, a decrease in
Total operating expense
s of
$380 million
, a decrease in
Interest expense
of
$34 million
and an increase to
Net income
of
$175 million
.
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•
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The expected impact on our
Condensed Consolidated Statements of Cash Flows
is a decrease in
Net cash provided by operating activities
of
$10 million
and a decrease in Net cash used in financing activities of
$10 million
.
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For arrangements where we are the lessor, including arrangements to lease devices to our service customers, the adoption of the new lease standard did not have a material impact on our financial statements as these leases are classified as operating leases.
Device lease payments are presented as Equipment revenues and recognized as earned on a straight-line basis over the lease term. Recognition of equipment revenue on lease contracts that are determined to not be probable of collection are limited to the amount of payments received. We have made an accounting policy election to exclude from the consideration in the contract all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer (for example, sales, use, value added, and some excise taxes).
At operating lease inception, leased wireless devices are transferred from Inventory to Property and equipment, net. Leased wireless devices are depreciated to their estimated residual value over the period expected to provide utility to us, which is generally shorter than the lease term and considers expected losses. Returned devices transferred from Property and equipment, net are recorded as Inventory and are valued at the lower of cost or market with any write-down to market recognized as Cost of equipment sales in our Consolidated Statements of Comprehensive Income.
We do not have any leasing transactions with related parties. See
Note 10 - Leases
for further information.
We have implemented significant new lease accounting systems, processes and internal controls over lease accounting to assist us in the application of the new lease standard.
Accounting Pronouncements Not Yet Adopted
Financial Instruments
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses,” which amends the scope and transition requirements of ASU 2016-13. The standard requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectibility of the reported amount. The standard will become effective for us beginning January 1, 2020 and will require a cumulative-effect adjustment to Accumulated deficit as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). We are currently evaluating the impact this guidance will have on our Consolidated Financial Statements.
Cloud Computing Arrangements
In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard will become effective for us beginning January 1, 2020 and can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption is permitted for us at any time. We are currently evaluating the impact this guidance will have on our Consolidated Financial Statements and the timing of adoption.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (the “SEC”) did not have, or are not expected to have, a significant impact on our present or future Consolidated Financial Statements.
Note 2 - Significant Transactions
Business Combinations
Proposed Sprint Transaction
On April 29, 2018, we entered into a Business Combination Agreement (the “Business Combination Agreement”) to merge with Sprint Corporation (“Sprint”). See
Note 3 - Business Combinations
for further information.
Sales of Certain Receivables
In February 2019, the service receivable sale arrangement was amended to extend the scheduled expiration date, as well as extend certain third-party credit support under the arrangement, to March 2021. See
Note 5 – Sales of Certain Receivables
for further information.
Note Redemption
In
March 2019
, we delivered a notice of redemption on
$600 million
aggregate principal amount of our
9.332%
Senior Reset Notes due
2023
(the “DT Senior Reset Notes”) held by Deutsche Telekom AG (“DT”), our majority stockholder. The notes will be redeemed on April 28, 2019, at a redemption price equal to
104.666%
of the principal amount of the notes (plus accrued and unpaid interest thereon), payable on April 29, 2019. The redemption premium is
$28 million
. The outstanding principal amount was reclassified from Long-term debt to affiliates to Short-term debt to affiliates in our Condensed Consolidated Balance Sheets as of
March 31, 2019
.
Certain components of the reset features were required to be bifurcated from the DT Senior Reset Notes and are separately accounted for as embedded derivatives. The balance of embedded derivatives was reclassified from Other long-term liabilities to Other current liabilities in our Condensed Consolidated Balance Sheets as of March 31, 2019. The write-off of embedded derivatives upon redemption will be
$11 million
. See
Note 6 - Fair Value Measurements
for further information.
Note 3 – Business Combinations
Proposed Sprint Transactions
On April 29, 2018, we entered into a Business Combination Agreement to merge with Sprint in an all-stock transaction at a fixed exchange ratio of
0.10256
shares of T-Mobile common stock for each share of Sprint common stock, or
9.75
shares of Sprint common stock for each share of T-Mobile common stock (the “Merger”). The combined company will be named “T-Mobile” and, as a result of the Merger, is expected to be able to rapidly launch a broad and deep nationwide 5G network, accelerate innovation and increase competition in the U.S. wireless, video and broadband industries. Neither T-Mobile nor Sprint on its own could generate comparable benefits to consumers.
The Merger and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”) have been approved by the boards of directors of T-Mobile and Sprint and the required approvals of the stockholders of each of T-Mobile and Sprint have been obtained. Immediately following the Merger, it is anticipated that DT and SoftBank Group Corp. (“SoftBank”) will hold, directly or indirectly, on a fully diluted basis, approximately
41.7%
and
27.4%
, respectively, of the outstanding T-Mobile common stock, with the remaining approximately
30.9%
of the outstanding T-Mobile common stock held by other stockholders, based on closing share prices and certain other assumptions as of December 31, 2018.
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, the “Commitment Letter”). The funding of the debt facilities provided for in the Commitment Letter is subject to the satisfaction of the conditions set forth therein, including consummation of the Merger. The proceeds of the debt financing provided for in the Commitment Letter will be used to refinance certain existing debt of us, Sprint and our and Sprint’s respective subsidiaries and for post-closing working capital needs of the combined company. In connection with the financing provided for in the Commitment Letter, we expect to incur certain fees if the Merger closes. There were
no
fees accrued as of
March 31, 2019
. We also may be required to draw down on the
$7 billion
secured term loan facility prior to closing and, if so, will be required to place the proceeds in escrow and pay interest thereon until the Merger closes.
In connection with the entry into the Business Combination Agreement, DT and T-Mobile USA entered into a financing matters agreement, dated as of April 29, 2018, pursuant to which DT agreed, among other things, to consent to the incurrence by T-Mobile USA of secured debt in connection with and after the consummation of the Merger. If the Merger is consummated, we will make payments for requisite consents to DT. There were
no
consent payments accrued as of
March 31, 2019
.
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 existing debt of us and our subsidiaries. If the Merger is consummated, we will make payments for requisite consents to third-party note holders. There were
no
consent payments accrued as of
March 31, 2019
.
Under the terms of the Business Combination Agreement, Sprint may be required to reimburse us for
33%
of the upfront consent and related bank fees we paid, or
$14 million
, if the Business Combination Agreement is terminated. There were
no
reimbursements accrued as of
March 31, 2019
. On May 18, 2018, Sprint also obtained consents necessary to effect certain amendments to certain existing debt of Sprint and its subsidiaries. Under the terms of the Business Combination Agreement, we may also be required to reimburse Sprint for
67%
of the upfront consent and related bank fees it paid, or
$161 million
, if the Business Combination Agreement is terminated. There were
no
fees accrued as of
March 31, 2019
.
For the three months ended
March 31, 2019
, we recognized merger-related costs of
$113 million
. These costs generally included consulting and legal fees and were recognized as
Selling, general and administrative
expenses in our
Condensed Consolidated Statements of Comprehensive Income
.
The consummation of the Transactions is subject to regulatory approvals and certain other customary closing conditions. We expect to receive federal regulatory approval in the first half of 2019. The Business Combination Agreement contains certain termination rights for both Sprint and us. If we terminate the Business Combination Agreement in connection with a failure to satisfy the closing condition related to specified minimum credit ratings for the combined company on the closing date of the Merger (after giving effect to the Merger) from at least two of the three credit rating agencies, then in certain circumstances, we may be required to pay Sprint an amount equal to
$600 million
.
On June 18, 2018, we filed the Public Interest Statement and applications for approval of our Merger with Sprint with the Federal Communications Commission (“FCC”). On July 18, 2018, the FCC issued a Public Notice formally accepting our applications and establishing a period for public comment. The transaction remains subject to FCC review. The FCC’s informal transaction review clock, which has stopped and started several times as T-Mobile and Sprint have filed additional information, is currently set to expire on June 3, 2019.
Note 4 – Receivables and Allowance for Credit Losses
Our portfolio of receivables is comprised of
two
portfolio segments, accounts receivable and EIP receivables. Our accounts receivable segment primarily consists of amounts currently due from customers, including service and leased device receivables, other carriers and third-party retail channels.
Based upon customer credit profiles, we classify the EIP receivables segment into
two
customer classes of “Prime” and “Subprime.” Prime customer receivables are those with lower delinquency risk and Subprime customer receivables are those with higher delinquency risk. Customers may be required to make a down payment on their equipment purchases. In addition, certain customers within the Subprime category are required to pay an advance deposit.
To determine a customer’s credit profile, we use a proprietary credit scoring model that measures the credit quality of a customer using several factors, such as credit bureau information, consumer credit risk scores and service and device plan characteristics.
The following table summarizes the EIP receivables, including imputed discounts and related allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
March 31,
2019
|
|
December 31,
2018
|
|
EIP receivables, gross
|
$
|
4,573
|
|
|
$
|
4,534
|
|
|
Unamortized imputed discount
|
(341
|
)
|
|
(330
|
)
|
|
EIP receivables, net of unamortized imputed discount
|
4,232
|
|
|
4,204
|
|
|
Allowance for credit losses
|
(104
|
)
|
|
(119
|
)
|
|
EIP receivables, net
|
$
|
4,128
|
|
|
$
|
4,085
|
|
|
Classified on the balance sheet as:
|
|
|
|
|
Equipment installment plan receivables, net
|
$
|
2,466
|
|
|
$
|
2,538
|
|
|
Equipment installment plan receivables due after one year, net
|
1,662
|
|
|
1,547
|
|
|
EIP receivables, net
|
$
|
4,128
|
|
|
$
|
4,085
|
|
To determine the appropriate level of the allowance for credit losses, we consider a number of credit quality indicators, including historical credit losses and timely payment experience as well as current collection trends such as write-off frequency and severity, aging of the receivable portfolio, credit quality of the customer base and other qualitative factors such as macro-economic conditions.
We write off account balances if collection efforts are unsuccessful and the receivable balance is deemed uncollectible, based on customer credit quality and the aging of the receivable.
For EIP receivables, subsequent to the initial determination of the imputed discount, we assess the need for and, if necessary, recognize an allowance for credit losses to the extent the amount of estimated probable losses on the gross EIP receivable balances exceed the remaining unamortized imputed discount balances.
The EIP receivables had weighted average effective imputed interest rates of
9.8%
and
10.0%
as of
March 31, 2019
and December 31,
2018
, respectively.
Activity for the
three months ended
March 31, 2019
and
2018
in the allowance for credit losses and unamortized imputed discount balances for the accounts receivable and EIP receivables segments were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
March 31, 2018
|
|
(in millions)
|
Accounts Receivable Allowance
|
|
EIP Receivables Allowance
|
|
Total
|
|
Accounts Receivable Allowance
|
|
EIP Receivables Allowance
|
|
Total
|
|
Allowance for credit losses and imputed discount, beginning of period
|
$
|
67
|
|
|
$
|
449
|
|
|
$
|
516
|
|
|
$
|
86
|
|
|
$
|
396
|
|
|
$
|
482
|
|
|
Bad debt expense
|
15
|
|
|
59
|
|
|
74
|
|
|
4
|
|
|
50
|
|
|
54
|
|
|
Write-offs, net of recoveries
|
(19
|
)
|
|
(74
|
)
|
|
(93
|
)
|
|
(14
|
)
|
|
(67
|
)
|
|
(81
|
)
|
|
Change in imputed discount on short-term and long-term EIP receivables
|
N/A
|
|
|
53
|
|
|
53
|
|
|
N/A
|
|
|
53
|
|
|
53
|
|
|
Impact on the imputed discount from sales of EIP receivables
|
N/A
|
|
|
(42
|
)
|
|
(42
|
)
|
|
N/A
|
|
|
(51
|
)
|
|
(51
|
)
|
|
Allowance for credit losses and imputed discount, end of period
|
$
|
63
|
|
|
$
|
445
|
|
|
$
|
508
|
|
|
$
|
76
|
|
|
$
|
381
|
|
|
$
|
457
|
|
Management considers the aging of receivables to be an important credit indicator. The following table provides delinquency status for the unpaid principal balance for receivables within the EIP portfolio segment, which we actively monitor as part of our current credit risk management practices and policies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
(in millions)
|
Prime
|
|
Subprime
|
|
Total EIP Receivables, gross
|
|
Prime
|
|
Subprime
|
|
Total EIP Receivables, gross
|
|
Current - 30 days past due
|
$
|
2,091
|
|
|
$
|
2,395
|
|
|
$
|
4,486
|
|
|
$
|
1,987
|
|
|
$
|
2,446
|
|
|
$
|
4,433
|
|
|
31 - 60 days past due
|
14
|
|
|
25
|
|
|
39
|
|
|
15
|
|
|
32
|
|
|
47
|
|
|
61 - 90 days past due
|
6
|
|
|
15
|
|
|
21
|
|
|
6
|
|
|
19
|
|
|
25
|
|
|
More than 90 days past due
|
7
|
|
|
20
|
|
|
27
|
|
|
7
|
|
|
22
|
|
|
29
|
|
|
Total receivables, gross
|
$
|
2,118
|
|
|
$
|
2,455
|
|
|
$
|
4,573
|
|
|
$
|
2,015
|
|
|
$
|
2,519
|
|
|
$
|
4,534
|
|
Note 5 – Sales of Certain Receivables
We have entered into transactions to sell certain service and EIP receivables. The transactions, including our continuing involvement with the sold receivables and the respective impacts to our
condensed consolidated financial statements
, are described below.
Sales of Service Accounts Receivable
Overview of the Transaction
In 2014, we entered into an arrangement to sell certain service accounts receivable on a revolving basis (the “service receivable sale arrangement”). The maximum funding commitment of the service receivable sale arrangement is
$950 million
. In February 2019, the service receivable sale arrangement was amended to extend the scheduled expiration date, as well as certain third-party credit support under the arrangement, to March 2021. As of
March 31, 2019
and
December 31, 2018
, the service receivable sale arrangement provided funding of
$891 million
and
$774 million
, respectively. Sales of receivables occur daily and are settled on a monthly basis. The receivables consist of service charges currently due from customers and are short-term in nature.
In connection with the service receivable sale arrangement, we formed a wholly-owned subsidiary, which qualifies as a bankruptcy remote entity, to sell service accounts receivable (the “Service BRE”). The Service BRE does not qualify as a VIE, and due to the significant level of control we exercise over the entity, it is consolidated. Pursuant to the service receivable sale arrangement, certain of our wholly-owned subsidiaries transfer selected receivables to the Service BRE. The Service BRE then sells the receivables to an unaffiliated entity (the “Service VIE”), which was established to facilitate the sale of beneficial ownership interests in the receivables to certain third parties.
Variable Interest Entity
We determined that the Service VIE qualifies as a VIE as it lacks sufficient equity to finance its activities. We have a variable interest in the Service VIE but are not the primary beneficiary as we lack the power to direct the activities that most significantly impact the Service VIE’s economic performance. Those activities include committing the Service VIE to legal agreements to purchase or sell assets, selecting which receivables are purchased in the service receivable sale arrangement, determining whether the Service VIE will sell interests in the purchased service receivables to other parties, funding of the entity and servicing of receivables. We do not hold the power to direct the key decisions underlying these activities. For example, while we act as the servicer of the sold receivables, which is considered a significant activity of the Service VIE, we are acting as an agent in our capacity as the servicer and the counterparty to the service receivable sale arrangement has the ability to remove us as the servicing agent of the receivables at will with no recourse available to us. As we have determined we are not the primary beneficiary, the balances and results of the Service VIE are not included in our
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 our variable interest in the Service VIE:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
March 31,
2019
|
|
December 31,
2018
|
|
Other current assets
|
$
|
342
|
|
|
$
|
339
|
|
|
Accounts payable and accrued liabilities
|
—
|
|
|
59
|
|
|
Other current liabilities
|
230
|
|
|
149
|
|
Sales of EIP Receivables
Overview of the Transaction
In 2015, we entered into an arrangement to sell certain EIP accounts receivable on a revolving basis (the “EIP sale arrangement”). The maximum funding commitment of the EIP sale arrangement is
$1.3 billion
, and the scheduled expiration date is November 2020.
As of both
March 31, 2019
and December 31,
2018
, the EIP sale arrangement provided funding of
$1.3 billion
. Sales of EIP receivables occur daily and are settled on a monthly basis.
In connection with this EIP sale arrangement, we formed a wholly-owned subsidiary, which qualifies as a bankruptcy remote entity (the “EIP BRE”). Pursuant to the EIP sale arrangement, our wholly-owned subsidiary transfers selected receivables to the EIP BRE. The EIP BRE then sells the receivables to a non-consolidated and unaffiliated third-party entity for which we do not exercise any level of control, nor does the third-party entity qualify as a VIE.
Variable Interest Entity
We determined that the EIP BRE is a VIE as its equity investment at risk lacks the obligation to absorb a certain portion of its expected losses. We have a variable interest in the EIP BRE and determined that we are the primary beneficiary based on our ability to direct the activities which most significantly impact the EIP BRE’s economic performance. Those activities include selecting which receivables are transferred into the EIP BRE and sold in the EIP sale arrangement and funding of the EIP BRE. Additionally, our equity interest in the EIP BRE obligates us to absorb losses and gives us the right to receive benefits from the EIP BRE that could potentially be significant to the EIP BRE. Accordingly, we include the balances and results of operations of the EIP BRE in our
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)
|
March 31,
2019
|
|
December 31,
2018
|
|
Other current assets
|
$
|
327
|
|
|
$
|
321
|
|
|
Other assets
|
71
|
|
|
88
|
|
|
Other long-term liabilities
|
20
|
|
|
22
|
|
In addition, the EIP BRE is a separate legal entity with its own separate creditors who will be entitled, prior to any liquidation of the EIP BRE, to be satisfied prior to any value in the EIP BRE becoming available to us. Accordingly, the assets of the EIP BRE may not be used to settle our general obligations and creditors of the EIP BRE have limited recourse to our general credit.
Sales of Receivables
The transfers of service receivables and EIP receivables to the non-consolidated entities are accounted for as sales of financial assets. Once identified for sale, the receivable is recorded at the lower of cost or fair value. Upon sale, we derecognize the net carrying amount of the receivables.
We recognize the cash proceeds received upon sale in
Net cash provided by operating activities
in our
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. 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 unobservable inputs (Level 3 inputs), including customer default rates. As of
March 31, 2019
and December 31,
2018
, our deferred purchase price related to the sales of service receivables and EIP receivables was
$738 million
and
$746 million
, respectively.
The following table summarizes the impacts of the sale of certain service receivables and EIP receivables in our
Condensed Consolidated Balance Sheets
:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
March 31,
2019
|
|
December 31,
2018
|
|
Derecognized net service receivables and EIP receivables
|
$
|
2,546
|
|
|
$
|
2,577
|
|
|
Other current assets
|
669
|
|
|
660
|
|
|
of which, deferred purchase price
|
667
|
|
|
658
|
|
|
Other long-term assets
|
71
|
|
|
88
|
|
|
of which, deferred purchase price
|
71
|
|
|
88
|
|
|
Accounts payable and accrued liabilities
|
—
|
|
|
59
|
|
|
Other current liabilities
|
230
|
|
|
149
|
|
|
Other long-term liabilities
|
20
|
|
|
22
|
|
|
Net cash proceeds since inception
|
1,861
|
|
|
1,879
|
|
|
Of which:
|
|
|
|
|
Change in net cash proceeds during the year-to-date period
|
(18
|
)
|
|
(179
|
)
|
|
Net cash proceeds funded by reinvested collections
|
1,879
|
|
|
2,058
|
|
We recognized losses from sales of receivables, including adjustments to the receivables’ fair values and changes in fair value of the deferred purchase price, of
$35 million
and
$52 million
for the
three months ended
March 31, 2019
and
2018
, respectively, in
Selling, general and administrative
expense in our
Condensed Consolidated Statements of Comprehensive Income
.
Continuing Involvement
Pursuant to the sale arrangements described above, we have continuing involvement with the service receivables and EIP receivables we sell as we service the receivables and are required to repurchase certain receivables, including ineligible receivables, aged receivables and receivables where write-off is imminent. We continue to service the customers and their related receivables, including facilitating customer payment collection, in exchange for a monthly servicing fee. As the receivables are sold on a revolving basis, the customer payment collections on sold receivables may be reinvested in new receivable sales. While servicing the receivables, we apply the same policies and procedures to the sold receivables as we apply to our owned receivables, and we continue to maintain normal relationships with our customers. Pursuant to the EIP sale
arrangement, under certain circumstances, we are required to deposit cash or replacement EIP receivables primarily for contracts terminated by customers under our JUMP! Program.
In addition, we have continuing involvement with the sold receivables as we may be responsible for absorbing additional credit losses pursuant to the sale arrangements. Our maximum exposure to loss related to the involvement with the service receivables and EIP receivables sold under the sale arrangements was
$1.1 billion
as of
March 31, 2019
. The maximum exposure to loss, which is a required disclosure under GAAP, represents an estimated loss that would be incurred under severe, hypothetical circumstances whereby we would not receive the deferred purchase price portion of the contractual proceeds withheld by the purchasers and would also be required to repurchase the maximum amount of receivables pursuant to the sale arrangements without consideration for any recovery. As we believe the probability of these circumstances occurring is remote, the maximum exposure to loss is not an indication of our expected loss.
Note 6 – 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 our revolving credit facility with DT, our majority stockholder, approximate fair value due to the short-term maturities of these instruments.
Derivative Financial Instruments
Interest rate lock derivatives
Periodically, we use derivatives to manage exposure to market risk, such as interest rate risk. We 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 enter into and designate interest rate lock derivatives (forward-starting swap instruments) as cash flow hedges to reduce variability in cash flows due to changes in interest payments attributable to increases or decreases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt.
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.
In October 2018, we entered into interest rate lock derivatives with notional amounts of
$9.6 billion
. The fair value of interest rate lock derivatives was a liability of
$703 million
and
$447 million
as of
March 31, 2019
and December 31, 2018, respectively, and were included in
Other current liabilities
in our
Condensed Consolidated Balance Sheets
. As of and for the three months ended
March 31, 2019
,
no
amounts were accrued or amortized into Interest expense in the
Condensed Consolidated Statements of Comprehensive Income
while changes in fair value, net of tax, of
$521 million
and
$332 million
are presented in
Accumulated other comprehensive income
as of
March 31, 2019
and December 31, 2018, respectively. There were no cash payments or receipts associated with these derivatives for the three months ended
March 31, 2019
.
Embedded derivatives
In
March 2019
, we delivered a notice of redemption on
$600 million
aggregate principal amount of our
9.332%
Senior Reset Notes due
2023
held by DT. The notes will be redeemed effective April 28, 2019, at a redemption price equal to
104.666%
of the principal amount of the notes (plus accrued and unpaid interest thereon), payable on April 29, 2019. The balance of embedded derivatives associated with the DT Senior Reset Notes was reclassified from Other long-term liabilities to Other current liabilities in our Condensed Consolidated Balance Sheets as of
March 31, 2019
. The write-off of embedded derivatives upon redemption will be
$11 million
.
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 5 – Sales of Certain Receivables
for further information.
The carrying amounts and fair values of our assets measured at fair value on a recurring basis included in our
Condensed Consolidated Balance Sheets
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level within the Fair Value Hierarchy
|
|
March 31, 2019
|
|
December 31, 2018
|
|
(in millions)
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Deferred purchase price assets
|
3
|
|
$
|
738
|
|
|
$
|
738
|
|
|
$
|
746
|
|
|
$
|
746
|
|
Long-term Debt
The fair value of our Senior Notes to third parties was determined based on quoted market prices in active markets, and therefore was classified as Level
1
within the fair value hierarchy. The fair values of our
Senior Notes to affiliates
,
Incremental Term Loan Facility to affiliates
and
Senior Reset Notes to affiliates
were determined based on a discounted cash flow approach using market interest rates of instruments with similar terms and maturities and an estimate for our standalone credit risk. Accordingly, our
Senior Notes to affiliates
,
Incremental Term Loan Facility to affiliates
and
Senior Reset Notes to affiliates
were classified as Level
2
within the fair value hierarchy.
Although we have determined the estimated fair values using available market information and commonly accepted valuation methodologies, considerable judgment was required in interpreting market data to develop fair value estimates for the
Senior Notes to affiliates
,
Incremental Term Loan Facility to affiliates
and
Senior Reset Notes to affiliates
. The fair value estimates were based on information available as of
March 31, 2019
and December 31,
2018
. As such, our estimates are not necessarily indicative of the amount we could realize in a current market exchange.
The carrying amounts and fair values of our short-term and long-term debt included in our
Condensed Consolidated Balance Sheets
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level within the Fair Value Hierarchy
|
|
March 31, 2019
|
|
December 31, 2018
|
|
(in millions)
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Senior Notes to third parties
|
1
|
|
$
|
10,952
|
|
|
$
|
11,354
|
|
|
$
|
10,950
|
|
|
$
|
10,945
|
|
|
Senior Notes to affiliates
|
2
|
|
9,985
|
|
|
10,201
|
|
|
9,984
|
|
|
9,802
|
|
|
Incremental Term Loan Facility to affiliates
|
2
|
|
4,000
|
|
|
4,000
|
|
|
4,000
|
|
|
3,976
|
|
|
Senior Reset Notes to affiliates
|
2
|
|
598
|
|
|
632
|
|
|
598
|
|
|
640
|
|
Guarantee Liabilities
We offer a device trade-in program, JUMP!, which provides eligible customers a specified-price trade-in right to upgrade their device. For customers who enroll in JUMP!, we recognize a liability and reduce revenue for the portion of revenue which represents the estimated fair value of the specified-price trade-in right guarantee, incorporating the expected probability and timing of handset upgrade and the estimated fair value of the handset which is returned. Accordingly, our guarantee liabilities were classified as Level
3
within the fair value hierarchy. When customers upgrade their device, the difference between the EIP balance credit to the customer and the fair value of the returned device is recorded against the guarantee liabilities. Guarantee liabilities are included in Other current liabilities in our Consolidated Balance Sheets.
The carrying amounts of our guarantee liabilities measured at fair value on a non-recurring basis included in our
Condensed Consolidated Balance Sheets
were
$76 million
and
$73 million
as of
March 31, 2019
and December 31,
2018
, respectively.
The total estimated remaining gross EIP receivable balances of all enrolled handset upgrade program customers, which are the remaining EIP amounts underlying the JUMP! guarantee, including EIP receivables that have been sold, was
$3.1 billion
as of
March 31, 2019
. This is not an indication of our expected loss exposure as it does not consider the expected fair value of the used handset or the probability and timing of the trade-in.
Note 7 – Tower Obligations
In 2012, we conveyed to CCI the exclusive right to manage and operate approximately
7,100
T-Mobile-owned wireless communication tower sites (“CCI Tower Sites”) in exchange for net proceeds of
$2.5 billion
(the “2012 Tower Transaction”). Rights to approximately
6,200
of the tower sites were transferred to CCI via a master prepaid lease with site lease terms
ranging from
23
to
37
years (“CCI Lease Sites”), while the remaining tower sites were sold to CCI (“CCI Sales Sites”). CCI has fixed-price purchase options for the CCI Lease Sites totaling approximately
$2.0 billion
, exercisable at the end of the lease term. We lease back space at certain tower sites for an initial term of
ten years
, followed by optional renewals at customary terms.
In 2015, we conveyed to PTI the exclusive right to manage and operate certain T-Mobile-owned wireless communication tower sites (“PTI Sales Sites”) in exchange for net proceeds of approximately
$140 million
(the “2015 Tower Transaction”). As of
March 31, 2019
, rights to approximately
150
of the tower sites remain operated by PTI under a management agreement (“PTI Managed Sites”). We lease back space at certain tower sites for an initial term of
ten years
, followed by optional renewals at customary terms.
Assets and liabilities associated with the operation of the tower sites were transferred to SPEs. Assets included ground lease agreements or deeds for the land on which the towers are situated, the towers themselves and existing subleasing agreements with other mobile network operator tenants, who lease space at the tower sites. Liabilities included the obligation to pay ground lease rentals, property taxes and other executory costs. Upon closing of the 2012 Tower Transaction, CCI acquired all of the equity interests in the SPE containing CCI Sales Sites and an option to acquire the CCI Lease Sites at the end of their respective lease terms and entered into a master lease agreement under which we agreed to lease back space at certain of the tower sites. Upon closing of the 2015 Tower Transaction, PTI acquired all of the equity interests in the SPEs containing PTI Sales Sites and entered into a master lease agreement under which we agreed to lease back space at certain of the tower sites.
We determined the SPEs containing the CCI Lease Sites (“Lease Site SPEs”) are VIEs as our equity investment lacks the power to direct the activities that most significantly impact the economic performance of the VIEs. These activities include managing tenants and underlying ground leases, performing repair and maintenance on the towers, the obligation to absorb expected losses and the right to receive the expected future residual returns from the purchase option to acquire the CCI Lease Sites. As we determined that we are not the primary beneficiary and do not have a controlling financial interest in the Lease Site SPEs, the balances and operating results of the Lease Site SPEs are not included in our Consolidated Financial Statements.
Due to our continuing involvement with the tower sites, we previously determined that we were precluded from applying sale-leaseback accounting. We recorded long-term financial obligations in the amount of the net proceeds received and recognized interest on the tower obligations at a rate of approximately
8%
for the 2012 Tower Transaction and
5%
for the 2015 Tower Transaction using the effective interest method. The tower obligations are increased by interest expense and amortized through contractual leaseback payments made by us to CCI or PTI and through net cash flows generated and retained by CCI or PTI from operation of the tower sites. Our historical tower site asset costs continue to be reported in
Property and equipment, net
in our
Condensed Consolidated Balance Sheets
and are depreciated.
Upon adoption of the new leasing standard we were required to reassess the previously failed sale-leasebacks and determine whether the transfer of the assets to the tower operator under the arrangement met the transfer of control criteria in the revenue standard and whether a sale should be recognized. We concluded that a sale has not occurred for the CCI Lease Sites and these sites continue to be accounted for as a failed sale-leaseback. We concluded that a sale had occurred for the CCI Sales Sites and the PTI Sales Sites and therefore we derecognized our existing long-term financial obligation and the tower-related property and equipment associated with these sites as part of the cumulative effect adjustment on January 1, 2019.
The following table summarizes the balances of the failed sale-leasebacks in the
Condensed Consolidated Balance Sheets
:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
March 31,
2019
|
|
December 31,
2018
|
|
Property and equipment, net
|
$
|
237
|
|
|
$
|
329
|
|
|
Tower obligations
|
2,244
|
|
|
2,557
|
|
Future minimum payments related to the tower obligations are approximately
$157 million
for the year ended March 31,
2020
,
$314 million
in total for the years ended March 31,
2021
and
2022
,
$314 million
in total for years ended March 31,
2023
and
2024
and
$574 million
in total for years thereafter.
We are contingently liable for future ground lease payments through the remaining term of the CCI Lease Sites. These contingent obligations are not included in
Operating lease liabilities
as any amount due is contractually owed by CCI based on the subleasing arrangement. See
Note 10 - Leases
for further information.
Note 8 – Revenue from Contracts with Customers
Disaggregation of Revenue
We provide wireless communication services to three primary categories of customers:
|
|
|
|
•
|
Branded postpaid customers generally include customers who are qualified to pay after receiving wireless communication services utilizing phones, DIGITS, or connected devices which includes tablets, wearables and SyncUP DRIVE™ ;
|
|
|
|
|
•
|
Branded prepaid customers generally include customers who pay for wireless communication services in advance. Our branded prepaid customers include customers of T-Mobile and Metro by T-Mobile; and
|
|
|
|
|
•
|
Wholesale customers include Machine-to-Machine (“M2M”) and Mobile Virtual Network Operator (“MVNO”) customers that operate on our network but are managed by wholesale partners.
|
Branded postpaid service revenues, including branded postpaid phone revenues and branded postpaid other revenues, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(in millions)
|
2019
|
|
2018
|
|
Branded postpaid service revenues
|
|
|
|
|
Branded postpaid phone revenues
|
$
|
5,183
|
|
|
$
|
4,811
|
|
|
Branded postpaid other revenues
|
310
|
|
|
259
|
|
|
Total branded postpaid service revenues
|
$
|
5,493
|
|
|
$
|
5,070
|
|
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 handset insurance services. Revenue generated from the lease of mobile communication devices is included within
Equipment revenues
in our
Condensed Consolidated Statements of Comprehensive Income
.
Equipment revenues
from the lease of mobile communication devices were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(in millions)
|
2019
|
|
2018
|
|
Equipment revenues from the lease of mobile communication devices
|
$
|
161
|
|
|
$
|
171
|
|
Contract Balances
The opening and closing balances of our contract asset and contract liability balances from contracts with customers as of
December 31, 2018
and
March 31, 2019
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Contract Assets Included in Other Current Assets
|
|
Contract Liabilities Included in Deferred Revenue
|
|
Balance as of December 31, 2018
|
$
|
51
|
|
|
$
|
645
|
|
|
Balance as of March 31, 2019
|
44
|
|
|
615
|
|
|
Change
|
$
|
(7
|
)
|
|
$
|
(30
|
)
|
Contract assets primarily represent revenue recognized for equipment sales with promotional bill credits offered to customers that are paid over time and are contingent on the customer maintaining a service contract. The change in the contract asset balance includes customer activity related to new promotions, offset by billings on existing contracts and impairment which is recognized as bad debt expense.
Contract liabilities are recorded when fees are collected, or we have an unconditional right to consideration (a receivable) in advance of delivery of goods or services. The change in contract liabilities is primarily related to customer activity associated with our prepaid plans including the receipt of cash payments and the satisfaction of our performance obligations.
Revenues for the
three months ended
March 31, 2019
, include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(in millions)
|
2019
|
|
2018
|
|
Amounts included in the beginning of period contract liability balance
|
$
|
560
|
|
|
$
|
528
|
|
Remaining Performance Obligations
As of
March 31, 2019
, the aggregate amount of transaction price allocated to remaining service performance obligations for branded postpaid contracts with promotional bill credits that result in an extended service contract is
$269 million
. We expect to recognize this revenue as service is provided over the extended contract term in the next
24 months
.
Certain of our wholesale, roaming and other service contracts include variable consideration based on usage. This variable consideration has been excluded from the disclosure of remaining performance obligations. As of
March 31, 2019
, the aggregate amount of the contractual minimum consideration allocated to remaining service performance obligations for wholesale, roaming and other service contracts is
$901 million
,
$1.1 billion
and
$1.5 billion
for
2019
,
2020
and
2021
and beyond, respectively. These contracts have a remaining duration of less than
one
to
six 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. The aggregate amount of the transaction price allocated to remaining service performance obligations includes the estimated amount to be invoiced to the customer.
Contract Costs
The total balance of deferred incremental costs to obtain contracts as of
March 31, 2019
was
$719 million
compared to
$644 million
as of
December 31, 2018
. Deferred contract costs incurred to obtain postpaid service contracts are amortized over a period of
24 months
. The amortization period is monitored to reflect any significant change in assumptions. Amortization of deferred contract costs was
$116 million
and
$35 million
for the
three months ended
March 31, 2019
and 2018, respectively.
The deferred contract cost asset is assessed for impairment on a periodic basis. There were
no
impairment losses recognized on deferred contract cost assets for the
three months ended
March 31, 2019
and 2018.
Note 9 – Earnings Per Share
The computation of basic and diluted earnings per share was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(in millions, except shares and per share amounts)
|
2019
|
|
2018
|
|
Net income
|
$
|
908
|
|
|
$
|
671
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
851,223,498
|
|
|
855,222,664
|
|
|
Effect of dilutive securities:
|
|
|
|
|
Outstanding stock options and unvested stock awards
|
7,419,983
|
|
|
7,021,420
|
|
|
Weighted average shares outstanding - diluted
|
858,643,481
|
|
|
862,244,084
|
|
|
|
|
|
|
|
Earnings per share - basic
|
$
|
1.07
|
|
|
$
|
0.78
|
|
|
Earnings per share - diluted
|
$
|
1.06
|
|
|
$
|
0.78
|
|
|
|
|
|
|
|
Potentially dilutive securities:
|
|
|
|
|
Outstanding stock options and unvested stock awards
|
266,452
|
|
|
67,580
|
|
As of
March 31, 2019
, we had authorized
100 million
shares of preferred stock, with a par value of
$0.00001
per share. There was
no
preferred stock outstanding as of
March 31, 2019
and
2018
.
Potentially dilutive securities were not included in the computation of diluted earnings per share if to do so would have been anti-dilutive.
Note 10 - Leases
Leases (Topic 842) Disclosures
Lessee
We are lessee for non-cancellable operating and finance leases for cell sites, switch sites, retail stores and office facilities with contractual terms through
2029
. The majority of cell site leases have an initial non-cancelable term of
five
to
ten years
with several renewal options that can extend the lease term from
five
to
thirty-five years
. In addition, we have finance leases for network equipment that generally have a non-cancelable lease term of
two
to
four years
; the finance leases do not have renewal options and contain a bargain purchase option at the end of the lease.
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
(in millions)
|
Three Months Ended March 31, 2019
|
|
Operating lease expense
|
$
|
602
|
|
|
Financing lease expense:
|
|
|
Amortization of right-of-use assets
|
113
|
|
|
Interest on lease liabilities
|
20
|
|
|
Total financing lease expense
|
133
|
|
|
Variable lease expense
|
65
|
|
|
Total lease expense
|
$
|
800
|
|
Information relating to the lease term and discount rate is as follows:
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Weighted Average Remaining Lease Term (Years)
|
|
|
Operating leases
|
6
|
|
|
Financing leases
|
3
|
|
|
Weighted Average Discount Rate
|
|
|
Operating leases
|
5.4
|
%
|
|
Financing leases
|
4.5
|
%
|
Maturities of lease liabilities as of March 31, 2019, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Operating Leases
|
|
Finance Leases
|
|
Twelve Months Ending March 31,
|
|
|
|
|
2020
|
$
|
2,623
|
|
|
$
|
961
|
|
|
2021
|
2,446
|
|
|
644
|
|
|
2022
|
2,196
|
|
|
380
|
|
|
2023
|
1,814
|
|
|
115
|
|
|
2024
|
1,350
|
|
|
73
|
|
|
Thereafter
|
3,300
|
|
|
108
|
|
|
Total lease payments
|
13,729
|
|
|
2,281
|
|
|
Less imputed interest
|
(2,188
|
)
|
|
(146
|
)
|
|
Total
|
$
|
11,541
|
|
|
$
|
2,135
|
|
Interest payments for financing leases for the three months ended March 31, 2019 were
$20 million
.
As of March 31, 2019, we have additional operating leases, for cell sites and commercial properties, that have not yet commenced with lease payments of approximately
$350 million
.
As of March 31, 2019, we were contingently liable for future ground lease payments related to the tower obligations. These contingent obligations are not included in the above table as the amounts owed are contractually owed by CCI based on the subleasing arrangement. See
Note 7 - Tower Obligations
for further information.
Lessor
JUMP! On Demand allows customers to lease a device (handset or tablet) over a period of up to
18 months
and upgrade it for a new device up to one time per month. Upon device upgrade or at lease end, customers must return or purchase their device. The purchase price at the expiration of the lease is established at lease commencement and reflects the estimated residual value of the device, which reflects the estimated fair value of the underlying asset at the end of the lease term. The JUMP! On Demand leases do not contain any residual value guarantees or variable lease payments, and there are no restrictions or covenants imposed by these leases. Leased wireless devices are included in
Property and equipment, net
in our
Condensed Consolidated Balance Sheets
.
The components of leased wireless devices under our JUMP! On Demand program were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
March 31,
2019
|
|
December 31,
2018
|
|
Leased wireless devices, gross
|
$
|
1,080
|
|
|
$
|
1,159
|
|
|
Accumulated depreciation
|
(638
|
)
|
|
(622
|
)
|
|
Leased wireless devices, net
|
$
|
442
|
|
|
$
|
537
|
|
Future minimum payments expected to be received over the lease term related to the leased wireless devices, which exclude optional residual buy-out amounts at the end of the lease term, are summarized below:
|
|
|
|
|
|
|
|
(in millions)
|
Total
|
|
Twelve Months Ending March 31,
|
|
|
2020
|
$
|
352
|
|
|
2021
|
46
|
|
|
Total
|
$
|
398
|
|
Leases (Topic 840) Disclosures
On January 1, 2019, we adopted the new lease standard using a modified-retrospective approach by recognizing and measuring leases at the adoption date with a cumulative effect of initially applying the guidance recognized at the date of initial application and did not restate the prior periods presented in our Consolidated Financial Statements. As such, prior periods presented in our Consolidated Financial Statements continue to be in accordance with the former lease standard, Topic 840 Leases. See
Note 1 - Summary of Significant Accounting Policies
for further information.
Operating Leases
Under the previous lease standard, we had non-cancellable operating leases for cell sites, switch sites, retail stores and office facilities. As of December 31, 2018, these leases had contractual terms expiring through
2028
, with the majority of cell site leases having an initial non-cancelable term of
five
to
ten years
with several renewal options. In addition, we had operating leases for dedicated transportation lines with varying expiration terms through
2027
.
Our commitments under leases existing as of December 31, 2018 were approximately
$2.7 billion
for the year ending December 31, 2019,
$4.7 billion
in total for the years ending December 31, 2020 and 2021,
$3.3 billion
in total for the years ending December 31, 2022 and 2023 and
$3.8 billion
in total for years thereafter.
Total rent expense under operating leases, including dedicated transportation lines, was
$734 million
for the three months ended March 31, 2018, and was classified as Cost of services and Selling, general and administrative expense in our Condensed Consolidated Statements of Comprehensive Income.
Lessor
As of December 31, 2018, the future minimum payments expected to be received over the lease term related to the leased wireless devices, which exclude optional residual buy-out amounts at the end of the lease term, are summarized below:
|
|
|
|
|
|
|
|
(in millions)
|
Total
|
|
Year Ended December 31,
|
|
|
2019
|
$
|
419
|
|
|
2020
|
59
|
|
|
Total
|
$
|
478
|
|
Capital Leases
Within property and equipment, wireless communication systems include capital lease agreements for network equipment with varying expiration terms through
2033
. Capital lease assets and accumulated amortization were
$3.1 billion
and
$867 million
as of December 31, 2018.
As of December 31, 2018, the future minimum payments required under capital leases, including interest and maintenance, over their remaining terms are summarized below:
|
|
|
|
|
|
|
|
(in millions)
|
Future Minimum Payments
|
|
Year Ended December 31,
|
|
|
2019
|
$
|
909
|
|
|
2020
|
631
|
|
|
2021
|
389
|
|
|
2022
|
102
|
|
|
2023
|
66
|
|
|
Thereafter
|
106
|
|
|
Total
|
$
|
2,203
|
|
|
Included in Total
|
|
|
Interest
|
$
|
143
|
|
|
Maintenance
|
45
|
|
Note 11 – Commitments and Contingencies
Purchase Commitments
In September 2018, we signed a reciprocal long-term spectrum lease with Sprint. The lease includes an offsetting amount to be received from Sprint for the lease of our spectrum. Lease payments began in the fourth quarter of 2018. The minimum commitment under this lease as of
March 31, 2019
is
$523 million
. The reciprocal long-term lease is a distinct transaction from the Merger.
Under the previous lease standard certain of our network backhaul arrangements were accounted for as operating leases. Obligations under these agreements were included within our operating lease commitments as of December 31, 2018.
These agreements no longer qualify as leases under the new lease standard. Our commitments under these agreements as of
March 31, 2019
, were approximately
$131 million
for the year ending March 31, 2020,
$224 million
in total for the years ended March 31, 2021 and 2022,
$158 million
in total for the years ended March 31, 2023 and 2024, and
$190 million
in total for years thereafter.
Interest rate lock derivatives
In October 2018, we entered into interest rate lock derivatives with notional amounts of
$9.6 billion
. These interest rate lock derivatives were designated as cash flow hedges to reduce variability in cash flows due to changes in interest payments attributable to increases or decreases in the benchmark interest rate during the period leading up to the probable issuance of
fixed-rate debt. The fair value of interest rate lock derivatives as of
March 31, 2019
was a liability of
$703 million
and is included in
Other current liabilities
in our
Condensed Consolidated Balance Sheets
. See
Note 6 – Fair Value Measurements
for further information.
Renewable Energy Purchase Agreements
In April 2019, T-Mobile USA entered into a Renewable Energy Purchase Agreement (“REPA”) with a third party that is based on the expected operation of a solar photovoltaic electrical generation facility located in Texas and will remain in effect until the fifteenth anniversary of the respective facility’s entry into commercial operation. Commercial operation of the facility is expected to occur in July 2021. The REPA does not contain a defined commitment, volume, or penalty amount.
Contingencies and Litigation
Litigation Matters
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. The Litigation Matters described above have progressed to various stages and some of them may proceed to trial, arbitration, hearing or other adjudication that could 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 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. While we do not expect that the ultimate resolution of these proceedings, individually or in the aggregate, will have a material adverse effect on our financial position, an unfavorable outcome of some or all of these proceedings could have a material adverse impact on results of operations or cash flows for a particular period. This assessment is based on our current understanding of relevant facts and circumstances. As such, our view of these matters is subject to inherent uncertainties and may change in the future.
Note 12 – Subsequent Event
Note 13 – Guarantor Financial Information
Pursuant to the applicable indentures and supplemental indentures, the long-term debt to affiliates and third parties issued by T-Mobile USA (“Issuer”) is fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by T-Mobile (“Parent”) and certain of the Issuer’s
100%
owned subsidiaries (“Guarantor Subsidiaries”).
The guarantees of the Guarantor Subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The indentures and credit facilities governing the long-term debt contain covenants that, among other things, limit the ability of the Issuer and the Guarantor Subsidiaries to incur more debt, pay dividends and make distributions, make certain investments, repurchase stock, create liens or other encumbrances, enter into transactions with affiliates, enter into transactions that restrict dividends or distributions from subsidiaries, and merge, consolidate or sell, or otherwise dispose of, substantially all of their assets. Certain provisions of each of the credit facilities, indentures and supplemental indentures relating to the long-term debt restrict the ability of the Issuer to loan funds or make payments to Parent. However, the Issuer and Guarantor Subsidiaries are allowed to make certain permitted payments to the Parent under the terms of the indentures and the supplemental indentures.
On October 23, 2018, SLMA LLC was formed as a limited liability company in Delaware to serve as an escrow subsidiary to facilitate the contemplated issuance of notes by Parent in connection with the Transactions. SLMA LLC is an indirect, 100% owned finance subsidiary of Parent, as such term is used in Rule 3-10(b) of Regulation S-X, and has been designated as an unrestricted subsidiary under Issuer’s existing debt securities. Any debt securities that may be issued from time to time by SLMA LLC will be fully and unconditionally guaranteed by Parent.
Presented below is the condensed consolidating financial information as of
March 31, 2019
and December 31,
2018
, and for the
three months ended
March 31, 2019
and
2018
.
Condensed Consolidating Balance Sheet Information
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent
|
|
Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating and Eliminating Adjustments
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
1,314
|
|
|
$
|
120
|
|
|
$
|
—
|
|
|
$
|
1,439
|
|
|
Accounts receivable, net
|
—
|
|
|
—
|
|
|
1,465
|
|
|
284
|
|
|
—
|
|
|
1,749
|
|
|
Equipment installment plan receivables, net
|
—
|
|
|
—
|
|
|
2,466
|
|
|
—
|
|
|
—
|
|
|
2,466
|
|
|
Accounts receivable from affiliates
|
—
|
|
|
5
|
|
|
16
|
|
|
—
|
|
|
(5
|
)
|
|
16
|
|
|
Inventory
|
—
|
|
|
—
|
|
|
1,260
|
|
|
1
|
|
|
—
|
|
|
1,261
|
|
|
Other current assets
|
—
|
|
|
—
|
|
|
1,155
|
|
|
659
|
|
|
—
|
|
|
1,814
|
|
|
Total current assets
|
3
|
|
|
7
|
|
|
7,676
|
|
|
1,064
|
|
|
(5
|
)
|
|
8,745
|
|
|
Property and equipment, net
(1)
|
—
|
|
|
—
|
|
|
21,155
|
|
|
309
|
|
|
—
|
|
|
21,464
|
|
|
Operating lease right-of-use assets
|
—
|
|
|
—
|
|
|
9,505
|
|
|
4
|
|
|
—
|
|
|
9,509
|
|
|
Financing lease right-of-use assets
|
—
|
|
|
—
|
|
|
2,338
|
|
|
1
|
|
|
—
|
|
|
2,339
|
|
|
Goodwill
|
—
|
|
|
—
|
|
|
1,683
|
|
|
218
|
|
|
—
|
|
|
1,901
|
|
|
Spectrum licenses
|
—
|
|
|
—
|
|
|
35,618
|
|
|
—
|
|
|
—
|
|
|
35,618
|
|
|
Other intangible assets, net
|
—
|
|
|
—
|
|
|
97
|
|
|
77
|
|
|
—
|
|
|
174
|
|
|
Investments in subsidiaries, net
|
26,686
|
|
|
48,221
|
|
|
—
|
|
|
—
|
|
|
(74,907
|
)
|
|
—
|
|
|
Intercompany receivables and note receivables
|
—
|
|
|
5,275
|
|
|
—
|
|
|
—
|
|
|
(5,275
|
)
|
|
—
|
|
|
Equipment installment plan receivables due after one year, net
|
—
|
|
|
—
|
|
|
1,662
|
|
|
—
|
|
|
—
|
|
|
1,662
|
|
|
Other assets
|
—
|
|
|
7
|
|
|
1,596
|
|
|
211
|
|
|
(153
|
)
|
|
1,661
|
|
|
Total assets
|
$
|
26,689
|
|
|
$
|
53,510
|
|
|
$
|
81,330
|
|
|
$
|
1,884
|
|
|
$
|
(80,340
|
)
|
|
$
|
83,073
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
—
|
|
|
$
|
136
|
|
|
$
|
6,883
|
|
|
$
|
311
|
|
|
$
|
—
|
|
|
$
|
7,330
|
|
|
Payables to affiliates
|
—
|
|
|
189
|
|
|
58
|
|
|
—
|
|
|
(5
|
)
|
|
242
|
|
|
Short-term debt
|
—
|
|
|
250
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250
|
|
|
Short-term debt to affiliates
|
—
|
|
|
598
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
598
|
|
|
Deferred revenue
|
—
|
|
|
—
|
|
|
665
|
|
|
—
|
|
|
—
|
|
|
665
|
|
|
Short-term operating lease liabilities
|
—
|
|
|
—
|
|
|
2,199
|
|
|
3
|
|
|
—
|
|
|
2,202
|
|
|
Short-term financing lease liabilities
|
—
|
|
|
—
|
|
|
911
|
|
|
—
|
|
|
—
|
|
|
911
|
|
|
Other current liabilities
|
—
|
|
|
714
|
|
|
157
|
|
|
258
|
|
|
—
|
|
|
1,129
|
|
|
Total current liabilities
|
—
|
|
|
1,887
|
|
|
10,873
|
|
|
572
|
|
|
(5
|
)
|
|
13,327
|
|
|
Long-term debt
|
—
|
|
|
10,952
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,952
|
|
|
Long-term debt to affiliates
|
—
|
|
|
13,985
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,985
|
|
|
Tower obligations
(1)
|
—
|
|
|
—
|
|
|
76
|
|
|
2,168
|
|
|
—
|
|
|
2,244
|
|
|
Deferred tax liabilities
|
—
|
|
|
—
|
|
|
5,078
|
|
|
—
|
|
|
(153
|
)
|
|
4,925
|
|
|
Operating lease liabilities
|
—
|
|
|
—
|
|
|
9,337
|
|
|
2
|
|
|
—
|
|
|
9,339
|
|
|
Financing lease liabilities
|
—
|
|
|
—
|
|
|
1,224
|
|
|
—
|
|
|
—
|
|
|
1,224
|
|
|
Negative carrying value of subsidiaries, net
|
—
|
|
|
—
|
|
|
761
|
|
|
—
|
|
|
(761
|
)
|
|
—
|
|
|
Intercompany payables and debt
|
508
|
|
|
—
|
|
|
4,412
|
|
|
355
|
|
|
(5,275
|
)
|
|
—
|
|
|
Other long-term liabilities
|
—
|
|
|
—
|
|
|
876
|
|
|
20
|
|
|
—
|
|
|
896
|
|
|
Total long-term liabilities
|
508
|
|
|
24,937
|
|
|
21,764
|
|
|
2,545
|
|
|
(6,189
|
)
|
|
43,565
|
|
|
Total stockholders' equity (deficit)
|
26,181
|
|
|
26,686
|
|
|
48,693
|
|
|
(1,233
|
)
|
|
(74,146
|
)
|
|
26,181
|
|
|
Total liabilities and stockholders' equity
|
$
|
26,689
|
|
|
$
|
53,510
|
|
|
$
|
81,330
|
|
|
$
|
1,884
|
|
|
$
|
(80,340
|
)
|
|
$
|
83,073
|
|
|
|
|
|
(1)
|
Assets and liabilities for Non-Guarantor Subsidiaries are primarily included in VIEs related to the 2012 Tower Transaction. See
Note 7 – Tower Obligations
for further information.
|
Condensed Consolidating Balance Sheet Information
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent
|
|
Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating and Eliminating Adjustments
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
1,079
|
|
|
$
|
121
|
|
|
$
|
—
|
|
|
$
|
1,203
|
|
|
Accounts receivable, net
|
—
|
|
|
—
|
|
|
1,510
|
|
|
259
|
|
|
—
|
|
|
1,769
|
|
|
Equipment installment plan receivables, net
|
—
|
|
|
—
|
|
|
2,538
|
|
|
—
|
|
|
—
|
|
|
2,538
|
|
|
Accounts receivable from affiliates
|
—
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
Inventory
|
—
|
|
|
—
|
|
|
1,084
|
|
|
—
|
|
|
—
|
|
|
1,084
|
|
|
Other current assets
|
—
|
|
|
—
|
|
|
1,031
|
|
|
645
|
|
|
—
|
|
|
1,676
|
|
|
Total current assets
|
2
|
|
|
1
|
|
|
7,253
|
|
|
1,025
|
|
|
—
|
|
|
8,281
|
|
|
Property and equipment, net
(1)
|
—
|
|
|
—
|
|
|
23,062
|
|
|
297
|
|
|
—
|
|
|
23,359
|
|
|
Goodwill
|
—
|
|
|
—
|
|
|
1,683
|
|
|
218
|
|
|
—
|
|
|
1,901
|
|
|
Spectrum licenses
|
—
|
|
|
—
|
|
|
35,559
|
|
|
—
|
|
|
—
|
|
|
35,559
|
|
|
Other intangible assets, net
|
—
|
|
|
—
|
|
|
116
|
|
|
82
|
|
|
—
|
|
|
198
|
|
|
Investments in subsidiaries, net
|
25,314
|
|
|
46,516
|
|
|
—
|
|
|
—
|
|
|
(71,830
|
)
|
|
—
|
|
|
Intercompany receivables and note receivables
|
—
|
|
|
5,174
|
|
|
—
|
|
|
—
|
|
|
(5,174
|
)
|
|
—
|
|
|
Equipment installment plan receivables due after one year, net
|
—
|
|
|
—
|
|
|
1,547
|
|
|
—
|
|
|
—
|
|
|
1,547
|
|
|
Other assets
|
—
|
|
|
7
|
|
|
1,540
|
|
|
221
|
|
|
(145
|
)
|
|
1,623
|
|
|
Total assets
|
$
|
25,316
|
|
|
$
|
51,698
|
|
|
$
|
70,760
|
|
|
$
|
1,843
|
|
|
$
|
(77,149
|
)
|
|
$
|
72,468
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
—
|
|
|
$
|
228
|
|
|
$
|
7,240
|
|
|
$
|
273
|
|
|
$
|
—
|
|
|
$
|
7,741
|
|
|
Payables to affiliates
|
—
|
|
|
157
|
|
|
43
|
|
|
—
|
|
|
—
|
|
|
200
|
|
|
Short-term debt
|
—
|
|
|
—
|
|
|
841
|
|
|
—
|
|
|
—
|
|
|
841
|
|
|
Deferred revenue
|
—
|
|
|
—
|
|
|
698
|
|
|
—
|
|
|
—
|
|
|
698
|
|
|
Other current liabilities
|
—
|
|
|
447
|
|
|
164
|
|
|
176
|
|
|
—
|
|
|
787
|
|
|
Total current liabilities
|
—
|
|
|
832
|
|
|
8,986
|
|
|
449
|
|
|
—
|
|
|
10,267
|
|
|
Long-term debt
|
—
|
|
|
10,950
|
|
|
1,174
|
|
|
—
|
|
|
—
|
|
|
12,124
|
|
|
Long-term debt to affiliates
|
—
|
|
|
14,582
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,582
|
|
|
Tower obligations
(1)
|
—
|
|
|
—
|
|
|
384
|
|
|
2,173
|
|
|
—
|
|
|
2,557
|
|
|
Deferred tax liabilities
|
—
|
|
|
—
|
|
|
4,617
|
|
|
—
|
|
|
(145
|
)
|
|
4,472
|
|
|
Deferred rent expense
|
—
|
|
|
—
|
|
|
2,781
|
|
|
—
|
|
|
—
|
|
|
2,781
|
|
|
Negative carrying value of subsidiaries, net
|
—
|
|
|
—
|
|
|
676
|
|
|
—
|
|
|
(676
|
)
|
|
—
|
|
|
Intercompany payables and debt
|
598
|
|
|
—
|
|
|
4,234
|
|
|
342
|
|
|
(5,174
|
)
|
|
—
|
|
|
Other long-term liabilities
|
—
|
|
|
20
|
|
|
926
|
|
|
21
|
|
|
—
|
|
|
967
|
|
|
Total long-term liabilities
|
598
|
|
|
25,552
|
|
|
14,792
|
|
|
2,536
|
|
|
(5,995
|
)
|
|
37,483
|
|
|
Total stockholders' equity (deficit)
|
24,718
|
|
|
25,314
|
|
|
46,982
|
|
|
(1,142
|
)
|
|
(71,154
|
)
|
|
24,718
|
|
|
Total liabilities and stockholders' equity
|
$
|
25,316
|
|
|
$
|
51,698
|
|
|
$
|
70,760
|
|
|
$
|
1,843
|
|
|
$
|
(77,149
|
)
|
|
$
|
72,468
|
|
|
|
|
|
(1)
|
Assets and liabilities for Non-Guarantor Subsidiaries are primarily included in VIEs related to the 2012 Tower Transaction. See
Note 7 – Tower Obligations
for further information.
|
Condensed Consolidating Statement of Comprehensive Income Information
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent
|
|
Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating and Eliminating Adjustments
|
|
Consolidated
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,859
|
|
|
$
|
732
|
|
|
$
|
(314
|
)
|
|
$
|
8,277
|
|
|
Equipment revenues
|
—
|
|
|
—
|
|
|
2,570
|
|
|
—
|
|
|
(54
|
)
|
|
2,516
|
|
|
Other revenues
|
—
|
|
|
6
|
|
|
273
|
|
|
50
|
|
|
(42
|
)
|
|
287
|
|
|
Total revenues
|
—
|
|
|
6
|
|
|
10,702
|
|
|
782
|
|
|
(410
|
)
|
|
11,080
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services, exclusive of depreciation and amortization shown separately below
|
—
|
|
|
—
|
|
|
1,568
|
|
|
6
|
|
|
(28
|
)
|
|
1,546
|
|
|
Cost of equipment sales, exclusive of depreciation and amortization shown separately below
|
—
|
|
|
—
|
|
|
2,798
|
|
|
272
|
|
|
(54
|
)
|
|
3,016
|
|
|
Selling, general and administrative
|
—
|
|
|
1
|
|
|
3,494
|
|
|
275
|
|
|
(328
|
)
|
|
3,442
|
|
|
Depreciation and amortization
|
—
|
|
|
—
|
|
|
1,578
|
|
|
22
|
|
|
—
|
|
|
1,600
|
|
|
Total operating expense
|
—
|
|
|
1
|
|
|
9,438
|
|
|
575
|
|
|
(410
|
)
|
|
9,604
|
|
|
Operating income
|
—
|
|
|
5
|
|
|
1,264
|
|
|
207
|
|
|
—
|
|
|
1,476
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
—
|
|
|
(112
|
)
|
|
(20
|
)
|
|
(47
|
)
|
|
—
|
|
|
(179
|
)
|
|
Interest expense to affiliates
|
—
|
|
|
(109
|
)
|
|
(5
|
)
|
|
—
|
|
|
5
|
|
|
(109
|
)
|
|
Interest income
|
—
|
|
|
5
|
|
|
7
|
|
|
1
|
|
|
(5
|
)
|
|
8
|
|
|
Other income (expense), net
|
—
|
|
|
8
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
7
|
|
|
Total other expense, net
|
—
|
|
|
(208
|
)
|
|
(19
|
)
|
|
(46
|
)
|
|
—
|
|
|
(273
|
)
|
|
Income (loss) before income taxes
|
—
|
|
|
(203
|
)
|
|
1,245
|
|
|
161
|
|
|
—
|
|
|
1,203
|
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
(261
|
)
|
|
(34
|
)
|
|
—
|
|
|
(295
|
)
|
|
Earnings of subsidiaries
|
908
|
|
|
1,111
|
|
|
7
|
|
|
—
|
|
|
(2,026
|
)
|
|
—
|
|
|
Net income
|
$
|
908
|
|
|
$
|
908
|
|
|
$
|
991
|
|
|
$
|
127
|
|
|
$
|
(2,026
|
)
|
|
$
|
908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
908
|
|
|
$
|
908
|
|
|
$
|
991
|
|
|
$
|
127
|
|
|
$
|
(2,026
|
)
|
|
$
|
908
|
|
|
Other comprehensive (loss) income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, net of tax
|
(189
|
)
|
|
(189
|
)
|
|
65
|
|
|
—
|
|
|
124
|
|
|
(189
|
)
|
|
Total comprehensive income
|
$
|
719
|
|
|
$
|
719
|
|
|
$
|
1,056
|
|
|
$
|
127
|
|
|
$
|
(1,902
|
)
|
|
$
|
719
|
|
Condensed Consolidating Statement of Comprehensive Income Information
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent
|
|
Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating and Eliminating Adjustments
|
|
Consolidated
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,487
|
|
|
$
|
540
|
|
|
$
|
(221
|
)
|
|
$
|
7,806
|
|
|
Equipment revenues
|
—
|
|
|
—
|
|
|
2,407
|
|
|
—
|
|
|
(54
|
)
|
|
2,353
|
|
|
Other revenues
|
—
|
|
|
1
|
|
|
249
|
|
|
55
|
|
|
(9
|
)
|
|
296
|
|
|
Total revenues
|
—
|
|
|
1
|
|
|
10,143
|
|
|
595
|
|
|
(284
|
)
|
|
10,455
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services, exclusive of depreciation and amortization shown separately below
|
—
|
|
|
—
|
|
|
1,580
|
|
|
9
|
|
|
—
|
|
|
1,589
|
|
|
Cost of equipment sales, exclusive of depreciation and amortization shown separately below
|
—
|
|
|
—
|
|
|
2,664
|
|
|
236
|
|
|
(55
|
)
|
|
2,845
|
|
|
Selling, general and administrative
|
—
|
|
|
—
|
|
|
3,157
|
|
|
236
|
|
|
(229
|
)
|
|
3,164
|
|
|
Depreciation and amortization
|
—
|
|
|
—
|
|
|
1,554
|
|
|
21
|
|
|
—
|
|
|
1,575
|
|
|
Total operating expenses
|
—
|
|
|
—
|
|
|
8,955
|
|
|
502
|
|
|
(284
|
)
|
|
9,173
|
|
|
Operating income
|
—
|
|
|
1
|
|
|
1,188
|
|
|
93
|
|
|
—
|
|
|
1,282
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
—
|
|
|
(174
|
)
|
|
(29
|
)
|
|
(48
|
)
|
|
—
|
|
|
(251
|
)
|
|
Interest expense to affiliates
|
—
|
|
|
(166
|
)
|
|
(5
|
)
|
|
—
|
|
|
5
|
|
|
(166
|
)
|
|
Interest income
|
—
|
|
|
6
|
|
|
5
|
|
|
—
|
|
|
(5
|
)
|
|
6
|
|
|
Other (expense) income, net
|
—
|
|
|
(32
|
)
|
|
42
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
Total other (expense) income, net
|
—
|
|
|
(366
|
)
|
|
13
|
|
|
(48
|
)
|
|
—
|
|
|
(401
|
)
|
|
Income (loss) before income taxes
|
—
|
|
|
(365
|
)
|
|
1,201
|
|
|
45
|
|
|
—
|
|
|
881
|
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
(199
|
)
|
|
(11
|
)
|
|
—
|
|
|
(210
|
)
|
|
Earnings (loss) of subsidiaries
|
671
|
|
|
1,036
|
|
|
(6
|
)
|
|
—
|
|
|
(1,701
|
)
|
|
—
|
|
|
Net income
|
$
|
671
|
|
|
$
|
671
|
|
|
$
|
996
|
|
|
$
|
34
|
|
|
$
|
(1,701
|
)
|
|
$
|
671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
671
|
|
|
$
|
671
|
|
|
$
|
996
|
|
|
$
|
34
|
|
|
$
|
(1,701
|
)
|
|
$
|
671
|
|
|
Other comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss, net of tax
|
(3
|
)
|
|
(3
|
)
|
|
(3
|
)
|
|
—
|
|
|
6
|
|
|
(3
|
)
|
|
Total comprehensive income
|
$
|
668
|
|
|
$
|
668
|
|
|
$
|
993
|
|
|
$
|
34
|
|
|
$
|
(1,695
|
)
|
|
$
|
668
|
|
Condensed Consolidating Statement of Cash Flows Information
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent
|
|
Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating and Eliminating Adjustments
|
|
Consolidated
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
$
|
—
|
|
|
$
|
(248
|
)
|
|
$
|
2,797
|
|
|
$
|
(1,017
|
)
|
|
$
|
(140
|
)
|
|
$
|
1,392
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
—
|
|
|
—
|
|
|
(1,926
|
)
|
|
(5
|
)
|
|
—
|
|
|
(1,931
|
)
|
|
Purchases of spectrum licenses and other intangible assets, including deposits
|
—
|
|
|
—
|
|
|
(185
|
)
|
|
—
|
|
|
—
|
|
|
(185
|
)
|
|
Proceeds related to beneficial interests in securitization transactions
|
—
|
|
|
—
|
|
|
9
|
|
|
1,148
|
|
|
—
|
|
|
1,157
|
|
|
Other, net
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
Net cash (used in) provided by investing activities
|
—
|
|
|
—
|
|
|
(2,109
|
)
|
|
1,143
|
|
|
—
|
|
|
(966
|
)
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowing on revolving credit facility, net
|
—
|
|
|
885
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
885
|
|
|
Repayments of revolving credit facility
|
—
|
|
|
—
|
|
|
(885
|
)
|
|
—
|
|
|
—
|
|
|
(885
|
)
|
|
Repayments of financing lease obligations
|
—
|
|
|
—
|
|
|
(85
|
)
|
|
(1
|
)
|
|
—
|
|
|
(86
|
)
|
|
Intercompany advances, net
|
—
|
|
|
(636
|
)
|
|
622
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
Tax withholdings on share-based awards
|
—
|
|
|
—
|
|
|
(100
|
)
|
|
—
|
|
|
—
|
|
|
(100
|
)
|
|
Intercompany dividend paid
|
—
|
|
|
—
|
|
|
—
|
|
|
(140
|
)
|
|
140
|
|
|
—
|
|
|
Other, net
|
1
|
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
Net cash provided (used in) by financing activities
|
1
|
|
|
249
|
|
|
(453
|
)
|
|
(127
|
)
|
|
140
|
|
|
(190
|
)
|
|
Change in cash and cash equivalents
|
1
|
|
|
1
|
|
|
235
|
|
|
(1
|
)
|
|
—
|
|
|
236
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
2
|
|
|
1
|
|
|
1,079
|
|
|
121
|
|
|
—
|
|
|
1,203
|
|
|
End of period
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
1,314
|
|
|
$
|
120
|
|
|
$
|
—
|
|
|
$
|
1,439
|
|
Condensed Consolidating Statement of Cash Flows Information
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Parent
|
|
Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating and Eliminating Adjustments
|
|
Consolidated
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
1
|
|
|
$
|
(404
|
)
|
|
$
|
2,374
|
|
|
$
|
(1,201
|
)
|
|
$
|
—
|
|
|
$
|
770
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
—
|
|
|
—
|
|
|
(1,366
|
)
|
|
—
|
|
|
—
|
|
|
(1,366
|
)
|
|
Purchases of spectrum licenses and other intangible assets, including deposits
|
—
|
|
|
—
|
|
|
(51
|
)
|
|
—
|
|
|
—
|
|
|
(51
|
)
|
|
Proceeds related to beneficial interests in securitization transactions
|
—
|
|
|
—
|
|
|
13
|
|
|
1,282
|
|
|
—
|
|
|
1,295
|
|
|
Acquisition of companies, net of cash
|
—
|
|
|
—
|
|
|
(333
|
)
|
|
—
|
|
|
—
|
|
|
(333
|
)
|
|
Other, net
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
Net cash (used in) provided by investing activities
|
—
|
|
|
—
|
|
|
(1,744
|
)
|
|
1,282
|
|
|
—
|
|
|
(462
|
)
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
—
|
|
|
2,494
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,494
|
|
|
Proceeds from borrowing on revolving credit facility, net
|
—
|
|
|
2,170
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,170
|
|
|
Repayments of revolving credit facility
|
—
|
|
|
—
|
|
|
(1,725
|
)
|
|
—
|
|
|
—
|
|
|
(1,725
|
)
|
|
Repayments of financing lease obligations
|
—
|
|
|
—
|
|
|
(172
|
)
|
|
—
|
|
|
—
|
|
|
(172
|
)
|
|
Repayments of long-term debt
|
—
|
|
|
—
|
|
|
(999
|
)
|
|
—
|
|
|
—
|
|
|
(999
|
)
|
|
Repurchases of common stock
|
(666
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(666
|
)
|
|
Intercompany advances, net
|
590
|
|
|
(4,260
|
)
|
|
3,679
|
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
Tax withholdings on share-based awards
|
—
|
|
|
—
|
|
|
(74
|
)
|
|
—
|
|
|
—
|
|
|
(74
|
)
|
|
Cash payments for debt prepayment or debt extinguishment costs
|
—
|
|
|
—
|
|
|
(31
|
)
|
|
—
|
|
|
—
|
|
|
(31
|
)
|
|
Other, net
|
2
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
Net cash provided by (used in) financing activities
|
(74
|
)
|
|
404
|
|
|
679
|
|
|
(9
|
)
|
|
—
|
|
|
1,000
|
|
|
Change in cash and cash equivalents
|
(73
|
)
|
|
—
|
|
|
1,309
|
|
|
72
|
|
|
—
|
|
|
1,308
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
74
|
|
|
1
|
|
|
1,086
|
|
|
58
|
|
|
—
|
|
|
1,219
|
|
|
End of period
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
2,395
|
|
|
$
|
130
|
|
|
$
|
—
|
|
|
$
|
2,527
|
|