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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from    to
Commission File Number: 1-33409
tmuslogo.jpg
T-MOBILE US, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
20-0836269
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

12920 SE 38th Street
Bellevue, Washington
(Address of principal executive offices)
98006-1350
(Zip Code)
(425)
378-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, par value $0.00001 per share
 
TMUS
 
The NASDAQ Stock Market LLC

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

Large accelerated filer                             Accelerated filer             
Non-accelerated filer                             Smaller reporting company        
Emerging growth company    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        Yes  No 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Shares Outstanding as of July 22, 2019

Common Stock, par value $0.00001 per share
 
854,457,048





T-Mobile US, Inc.
Form 10-Q
For the Quarter Ended June 30, 2019

Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
T-Mobile US, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions, except share and per share amounts)
June 30,
2019
 
December 31,
2018
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
1,105

 
$
1,203

Accounts receivable, net of allowances of $61 and $67
1,817

 
1,769

Equipment installment plan receivables, net
2,446

 
2,538

Accounts receivable from affiliates
18

 
11

Inventory
998

 
1,084

Other current assets
1,730

 
1,676

Total current assets
8,114

 
8,281

Property and equipment, net
21,847

 
23,359

Operating lease right-of-use assets
10,439

 

Financing lease right-of-use assets
2,589

 

Goodwill
1,901

 
1,901

Spectrum licenses
36,430

 
35,559

Other intangible assets, net
157

 
198

Equipment installment plan receivables due after one year, net
1,604

 
1,547

Other assets
1,707

 
1,623

Total assets
$
84,788

 
$
72,468

Liabilities and Stockholders' Equity
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued liabilities
$
7,260

 
$
7,741

Payables to affiliates
198

 
200

Short-term debt
300

 
841

Deferred revenue
620

 
698

Short-term operating lease liabilities
2,268

 

Short-term financing lease liabilities
963

 

Other current liabilities
1,564

 
787

Total current liabilities
13,173

 
10,267

Long-term debt
10,954

 
12,124

Long-term debt to affiliates
13,985

 
14,582

Tower obligations
2,247

 
2,557

Deferred tax liabilities
5,090

 
4,472

Operating lease liabilities
10,145

 

Financing lease liabilities
1,314

 

Deferred rent expense

 
2,781

Other long-term liabilities
913

 
967

Total long-term liabilities
44,648

 
37,483

Commitments and contingencies (Note 12)


 


Stockholders' equity
 
 
 
Common Stock, par value $0.00001 per share, 1,000,000,000 shares authorized; 855,970,789 and 851,675,119 shares issued, 854,452,642 and 850,180,317 shares outstanding

 

Additional paid-in capital
38,242

 
38,010

Treasury stock, at cost, 1,518,147 and 1,494,802 shares issued
(8
)
 
(6
)
Accumulated other comprehensive loss
(813
)
 
(332
)
Accumulated deficit
(10,454
)
 
(12,954
)
Total stockholders' equity
26,967

 
24,718

Total liabilities and stockholders' equity
$
84,788

 
$
72,468


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

3

Index for Notes to the Condensed Consolidated Financial Statements

T-Mobile US, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions, except share and per share amounts)
2019
 
2018
 
2019
 
2018
Revenues
 
 
 
 
 
 
 
Branded postpaid revenues
$
5,613

 
$
5,164

 
$
11,106

 
$
10,234

Branded prepaid revenues
2,379

 
2,402

 
4,765

 
4,804

Wholesale revenues
313

 
275

 
617

 
541

Roaming and other service revenues
121

 
90

 
215

 
158

Total service revenues
8,426

 
7,931

 
16,703

 
15,737

Equipment revenues
2,263

 
2,325

 
4,779

 
4,678

Other revenues
290

 
315

 
577

 
611

Total revenues
10,979

 
10,571

 
22,059

 
21,026

Operating expenses
 
 
 
 
 
 
 
Cost of services, exclusive of depreciation and amortization shown separately below
1,649

 
1,530

 
3,195

 
3,119

Cost of equipment sales, exclusive of depreciation and amortization shown separately below
2,661

 
2,772

 
5,677

 
5,617

Selling, general and administrative
3,543

 
3,185

 
6,985

 
6,349

Depreciation and amortization
1,585

 
1,634

 
3,185

 
3,209

Total operating expense
9,438

 
9,121

 
19,042

 
18,294

Operating income
1,541

 
1,450

 
3,017

 
2,732

Other income (expense)
 
 
 
 
 
 
 
Interest expense
(182
)
 
(196
)
 
(361
)
 
(447
)
Interest expense to affiliates
(101
)
 
(128
)
 
(210
)
 
(294
)
Interest income
4

 
6

 
12

 
12

Other expense, net
(22
)
 
(64
)
 
(15
)
 
(54
)
Total other expense, net
(301
)
 
(382
)
 
(574
)
 
(783
)
Income before income taxes
1,240

 
1,068

 
2,443

 
1,949

Income tax expense
(301
)
 
(286
)
 
(596
)
 
(496
)
Net income
$
939

 
$
782

 
$
1,847

 
$
1,453

 
 
 
 
 
 
 
 
Net income
$
939

 
$
782

 
$
1,847

 
$
1,453

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
Unrealized gain on available-for-sale securities, net of tax effect of $0, $1, $0 and $0

 
3

 

 

Unrealized loss on cash flow hedges, net of tax effect of $(102), $0, $(168), and $0
(292
)
 

 
(481
)
 

Other comprehensive (loss) income
(292
)
 
3

 
(481
)
 

Total comprehensive income
$
647

 
$
785

 
$
1,366

 
$
1,453

Earnings per share
 
 
 
 
 
 
 
Basic
$
1.10

 
$
0.92

 
$
2.16

 
$
1.71

Diluted
$
1.09

 
$
0.92

 
$
2.14

 
$
1.69

Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
854,368,443

 
847,660,488

 
852,796,369

 
851,420,686

Diluted
860,135,593

 
852,040,670

 
860,890,870

 
858,728,832


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

4

Index for Notes to the Condensed Consolidated Financial Statements

T-Mobile US, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2019
 
2018
 
2019
 
2018
Operating activities
 
 
 
 
 
 
 
Net income
$
939

 
$
782

 
$
1,847

 
$
1,453

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
 
 
 
Depreciation and amortization
1,585

 
1,634

 
3,185

 
3,209

Stock-based compensation expense
130

 
112

 
240

 
209

Deferred income tax expense
267

 
272

 
555

 
478

Bad debt expense
71

 
75

 
144

 
129

Losses from sales of receivables
28

 
27

 
63

 
79

Deferred rent expense

 
7

 

 
11

Losses on redemption of debt
19

 
90

 
19

 
122

Changes in operating assets and liabilities
 
 
 
 
 
 
 
Accounts receivable
(805
)
 
(1,136
)
 
(1,948
)
 
(2,009
)
Equipment installment plan receivables
(150
)
 
(286
)
 
(400
)
 
(508
)
Inventories
162

 
125

 
(103
)
 
158

Operating lease right-of-use assets
469

 

 
904

 

Other current and long-term assets
(83
)
 
(248
)
 
(170
)
 
(116
)
Accounts payable and accrued liabilities
43

 
(79
)
 
56

 
(1,107
)
Short and long-term operating lease liabilities
(521
)
 

 
(1,043
)
 

Other current and long-term liabilities
(27
)
 
(105
)
 
94

 
(60
)
Other, net
20

 
(9
)
 
96

 
(17
)
Net cash provided by operating activities
2,147

 
1,261

 
3,539

 
2,031

Investing activities
 
 
 
 
 
 
 
Purchases of property and equipment, including capitalized interest of $125 and $102 and $243 and $145
(1,789
)
 
(1,629
)
 
(3,720
)
 
(2,995
)
Purchases of spectrum licenses and other intangible assets, including deposits
(665
)
 
(28
)
 
(850
)
 
(79
)
Proceeds related to beneficial interests in securitization transactions
839

 
1,323

 
1,996

 
2,618

Acquisition of companies, net of cash acquired

 
(5
)
 

 
(338
)
Other, net

 
33

 
(7
)
 
26

Net cash used in investing activities
(1,615
)
 
(306
)
 
(2,581
)
 
(768
)
Financing activities
 
 
 
 
 
 
 
Proceeds from issuance of long-term debt

 

 

 
2,494

Payments of consent fees related to long-term debt

 
(38
)
 

 
(38
)
Proceeds from borrowing on revolving credit facility
880

 
2,070

 
1,765

 
4,240

Repayments of revolving credit facility
(880
)
 
(2,195
)
 
(1,765
)
 
(3,920
)
Repayments of financing lease obligations
(229
)
 
(155
)
 
(315
)
 
(327
)
Repayments of long-term debt
(600
)
 
(2,350
)
 
(600
)
 
(3,349
)
Repurchases of common stock

 
(405
)
 

 
(1,071
)
Tax withholdings on share-based awards
(4
)
 
(10
)
 
(104
)
 
(84
)
Cash payments for debt prepayment or debt extinguishment costs
(28
)
 
(181
)
 
(28
)
 
(212
)
Other, net
(5
)
 
(3
)
 
(9
)
 

Net cash used in financing activities
(866
)
 
(3,267
)
 
(1,056
)
 
(2,267
)
Change in cash and cash equivalents
(334
)
 
(2,312
)
 
(98
)
 
(1,004
)
Cash and cash equivalents
 
 
 
 
 
 
 
Beginning of period
1,439

 
2,527

 
1,203

 
1,219

End of period
$
1,105

 
$
215

 
$
1,105

 
$
215

Supplemental disclosure of cash flow information
 
 
 
 
 
 
 
Interest payments, net of amounts capitalized
$
245

 
$
559

 
$
585

 
$
937

Operating lease payments (1)
703

 

 
1,391

 

Income tax payments
40

 
10

 
72

 
11

Noncash investing and financing activities
 
 
 
 
 
 
 
Noncash beneficial interest obtained in exchange for securitized receivables
$
1,616

 
$
1,205

 
$
3,128

 
$
2,333

Changes in accounts payable for purchases of property and equipment
(113
)
 
(386
)
 
(446
)
 
(750
)
Leased devices transferred from inventory to property and equipment
167

 
280

 
314

 
584

Returned leased devices transferred from property and equipment to inventory
(67
)
 
(90
)
 
(124
)
 
(172
)
Short-term debt assumed for financing of property and equipment
50

 
54

 
300

 
291

Operating lease right-of-use assets obtained in exchange for lease obligations

1,400

 

 
2,094

 

Financing lease right-of-use assets obtained in exchange for lease obligations

368

 
176

 
548

 
318

(1) On January 1, 2019, we adopted ASU 2016-02, “Leases (Topic 842),” which requires certain supplemental cash flow disclosures. Where these disclosures or a comparable figure were not required under the former lease standard, we have not retrospectively presented historical amounts. See Note 1 – Summary of Significant Accounting Policies for additional details.
   
The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Index for Notes to the Condensed Consolidated Financial Statements


T-Mobile US, Inc.
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
(in millions, except shares)
Common Stock Outstanding
 
Treasury Shares at Cost
 
Par Value and Additional Paid-in Capital
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
Total Stockholders' Equity
Balance as of March 31, 2019
854,380,118

 
$
(5
)
 
$
38,100

 
$
(521
)
 
$
(11,393
)
 
$
26,181

Net income

 

 

 

 
939

 
939

Other comprehensive loss

 

 

 
(292
)
 

 
(292
)
Stock-based compensation

 

 
143

 

 

 
143

Exercise of stock options
19,261

 

 

 

 

 

Stock issued for employee stock purchase plan
(36,710
)
 

 

 

 

 

Issuance of vested restricted stock units
206,143

 

 

 

 

 

Forfeiture of restricted stock awards
(20,769
)
 

 

 

 

 

Shares withheld related to net share settlement of stock awards and stock options
(56,041
)
 

 
(4
)
 

 

 
(4
)
Repurchases of common stock

 

 

 

 

 

Transfer RSU to NQDC plan
(39,360
)
 
(3
)
 
3

 

 

 

Balance as of June 30, 2019
854,452,642

 
$
(8
)
 
$
38,242

 
$
(813
)
 
$
(10,454
)
 
$
26,967

 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2018
850,180,317

 
$
(6
)
 
$
38,010

 
$
(332
)
 
$
(12,954
)
 
$
24,718

Net income

 

 

 

 
1,847

 
1,847

Other comprehensive loss

 

 

 
(481
)
 

 
(481
)
Stock-based compensation

 

 
264

 

 

 
264

Exercise of stock options
51,135

 

 
1

 

 

 
1

Stock issued for employee stock purchase plan
1,135,801

 

 
69

 

 

 
69

Issuance of vested restricted stock units
4,550,115

 

 

 

 

 

Forfeiture of restricted stock awards
(20,769
)
 

 

 

 

 

Shares withheld related to net share settlement of stock awards and stock options
(1,420,662
)
 

 
(104
)
 

 

 
(104
)
Repurchases of common stock

 

 

 

 

 

Transfer RSU from NQDC plan
(23,295
)
 
(2
)
 
2

 

 

 

Prior year retained earnings

 

 

 

 
653

 
653

Balance as of June 30, 2019
854,452,642

 
$
(8
)
 
$
38,242

 
$
(813
)
 
$
(10,454
)
 
$
26,967



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

6

Index for Notes to the Condensed Consolidated Financial Statements

T-Mobile US, Inc.
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
(in millions, except shares)
Common Stock Outstanding
 
Treasury Shares at Cost
 
Par Value and Additional Paid-in Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated Deficit
 
Total Stockholders' Equity
Balance as of March 31, 2018
853,066,229

 
$
(7
)
 
$
38,057

 
$
5

 
$
(15,179
)
 
$
22,876

Net income

 

 

 

 
782

 
782

Other comprehensive income

 

 

 
3

 

 
3

Stock-based compensation

 

 
126

 

 

 
126

Exercise of stock options
59,106

 

 
1

 

 

 
1

Stock issued for employee stock purchase plan
(17
)
 

 

 

 

 

Issuance of vested restricted stock units
508,554

 

 

 

 

 

Shares withheld related to net share settlement of stock awards and stock options
(167,907
)
 

 
(10
)
 

 

 
(10
)
Repurchases of common stock
(6,240,219
)
 

 
(388
)
 

 

 
(388
)
Transfer RSU to NQDC plan

 

 

 

 

 

Prior year retained earnings

 

 

 
(8
)
 
8

 

Balance as of June 30, 2018
847,225,746

 
$
(7
)
 
$
37,786

 
$

 
$
(14,389
)
 
$
23,390

 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2017
859,406,651

 
$
(4
)
 
$
38,629

 
$
8

 
$
(16,074
)
 
$
22,559

Net income

 

 

 

 
1,453

 
1,453

Stock-based compensation

 

 
234

 

 

 
234

Exercise of stock options
137,541

 

 
3

 

 

 
3

Stock issued for employee stock purchase plan
1,069,495

 

 
55

 

 

 
55

Issuance of vested restricted stock units
4,455,559

 

 

 

 

 

Issuance of restricted stock awards
354,459

 

 

 

 

 

Shares withheld related to net share settlement of stock awards and stock options
(1,403,806
)
 

 
(84
)
 

 

 
(84
)
Repurchases of common stock
(16,738,758
)
 

 
(1,054
)
 

 

 
(1,054
)
Transfer RSU from NQDC plan
(55,395
)
 
(3
)
 
3

 

 

 

Prior year retained earnings

 

 

 
(8
)
 
232

 
224

Balance as of June 30, 2018
847,225,746

 
$
(7
)
 
$
37,786

 
$

 
$
(14,389
)
 
$
23,390


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


7

Index for Notes to the Condensed Consolidated Financial Statements

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



8

Index for Notes to the Condensed Consolidated Financial Statements

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

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements of T-Mobile US, Inc. (“T-Mobile,” “we,” “our,” “us” or “the Company”) include all adjustments of a normal recurring nature necessary for the fair presentation of the results for the interim periods presented. The results for the interim periods are not necessarily indicative of those for the full year. The condensed consolidated financial statements should be read in conjunction with our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 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 8 - 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:

In evaluating contracts to determine if they qualify as a lease, we consider factors such as if we have obtained or transferred substantially all of the rights to the underlying asset through exclusivity, if we can or if we have transferred the ability to direct the use of the asset by making decisions about how and for what purpose the asset will be used and if the lessor has substantive substitution rights.

We recognized right-of-use assets and operating lease liabilities for operating leases that have not previously been recorded. The lease liability for operating leases is based on the net present value of future minimum lease payments.

9

Index for Notes to the Condensed Consolidated Financial Statements

The right-of-use asset for operating leases is based on the lease liability adjusted for the reclassification of certain balance sheet amounts such as prepaid rent and deferred rent, which we remeasured at adoption due to the application of hindsight to our lease term estimates. Deferred and prepaid rent will no longer be presented separately.

Capital lease assets previously included within Property and equipment, net were reclassified to financing lease right-of-use assets, and capital lease liabilities previously included in Short-term debt and Long-term debt were reclassified to financing lease liabilities in our Condensed Consolidated Balance Sheet.

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 lease 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.”

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.

Certain of our lease agreements include rental payments based on changes in the consumer price index (“CPI”). Lease liabilities are not remeasured as a result of changes in the CPI; instead, changes in the CPI are treated as variable lease payments and are excluded from the measurement of the right-of-use asset and lease liability. These payments are recognized in the period in which the related obligation was incurred. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

We elected the use of hindsight whereby we applied current lease term assumptions that are applied to new leases in determining the expected lease term period for all cell sites. Upon adoption of the new lease standard and application of hindsight, our expected lease term has shortened to reflect payments due for the initial non-cancelable lease term only. This assessment corresponds to our lease term assessment for new leases and aligns with the payments that have been disclosed as lease commitments in prior years. As a result, the average remaining lease term for cell sites has decreased from approximately nine to five years based on lease contracts in effect at transition on January 1, 2019. The aggregate impact of using the hindsight is an estimated decrease in Total operating expense of $240 million in fiscal year 2019.

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.

We concluded that a sale has not occurred for the 6,200 tower sites transferred to Crown Castle International Corp. (“CCI”) pursuant to a master prepaid lease arrangement; therefore, these sites will continue to be accounted for as failed sale-leasebacks.

We concluded that a sale should be recognized for the 900 tower sites transferred to CCI pursuant to the sale of a subsidiary and for the 500 tower sites transferred to Phoenix Tower International (“PTI”). Upon adoption on January 1, 2019, we derecognized our existing long-term financial obligation and the tower-related property and equipment associated with these 1,400 previously failed sale-leaseback tower sites and recognized a lease liability and right-of-use asset for the leaseback of the tower sites. The 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 in fiscal year 2019.

Rental revenues and expenses associated with co-location tower sites are presented on a net basis under the new lease standard. These revenues and expenses were presented on a gross basis under the former lease standard.

10

Index for Notes to the Condensed Consolidated Financial Statements

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:
 
January 1, 2019
(in millions)
Beginning Balance

Cumulative Effect Adjustment

Beginning Balance, As Adjusted
Assets
 
 
 
 
 
Other current assets
$
1,676

 
$
(78
)
 
$
1,598

Property and equipment, net
23,359

 
(2,339