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 March 31, 2020

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

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 April 30, 2020
Common Stock, par value $0.00001 per share	1,235,763,488

1

T-Mobile US, Inc.

Form 10-Q

For the Quarter Ended March 31, 2020

Table of Contents

PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements	3
		Condensed Consolidated Balance Sheets	3
		Condensed Consolidated Statements of Comprehensive Income	4
		Condensed Consolidated Statements of Cash Flows	5
		Consolidated Statement of Stockholders’ Equity	6
		Notes to the Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
	Item 4.	Controls and Procedures	50
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	51
	Item 1A.	Risk Factors	51
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67
	Item 3.	Defaults Upon Senior Securities	67
	Item 4.	Mine Safety Disclosures	67
	Item 5.	Other Information	67
	Item 6.	Exhibits	68
		SIGNATURE	70

2

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)	March 31, 2020		December 31, 2019
Assets
Current assets
Cash and cash equivalents	$	1,112	$	1,528
Accounts receivable, net of allowance for credit losses of $69 and $61	1,836		1,888
Equipment installment plan receivables, net of allowance for credit losses and imputed discount of $386 and $333	2,406		2,600
Accounts receivable from affiliates	26		20
Inventory	1,225		964
Other current assets	2,882		2,305
Total current assets	9,487		9,305
Property and equipment, net	22,149		21,984
Operating lease right-of-use assets	10,956		10,933
Financing lease right-of-use assets	2,749		2,715
Goodwill	1,930		1,930
Spectrum licenses	36,471		36,465
Other intangible assets, net	91		115
Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount of $83 and $66	1,367		1,583
Other assets	2,026		1,891
Total assets	$	87,226	$	86,921
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities	$	6,003	$	6,746
Payables to affiliates	228		187
Short-term debt	—		25
Short-term debt to affiliates	2,000		—
Deferred revenue	619		631
Short-term operating lease liabilities	2,187		2,287
Short-term financing lease liabilities	918		957
Other current liabilities	2,801		1,673
Total current liabilities	14,756		12,506
Long-term debt	10,959		10,958
Long-term debt to affiliates	11,987		13,986
Tower obligations	2,230		2,236
Deferred tax liabilities	5,618		5,607
Operating lease liabilities	10,464		10,539
Financing lease liabilities	1,276		1,346
Other long-term liabilities	959		954
Total long-term liabilities	43,493		45,626
Commitments and contingencies (Note 11)
Stockholders' equity
Common Stock, par value $0.00001 per share, 1,000,000,000 shares authorized; 862,636,935 and 858,418,615 shares issued, 861,128,106 and 856,905,400 shares outstanding	—		—
Additional paid-in capital	38,597		38,498
Treasury stock, at cost, 1,508,829 and 1,513,215 shares issued	(11)		(8)
Accumulated other comprehensive loss	(1,660)		(868)
Accumulated deficit	(7,949)		(8,833)
Total stockholders' equity	28,977		28,789
Total liabilities and stockholders' equity	$	87,226	$	86,921

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

3

T-Mobile US, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended March 31,
(in millions, except share and per share amounts)	2020		2019
Revenues
Branded postpaid revenues	$	5,887	$	5,493
Branded prepaid revenues	2,373		2,386
Wholesale revenues	325		304
Roaming and other service revenues	128		94
Total service revenues	8,713		8,277
Equipment revenues	2,117		2,516
Other revenues	283		287
Total revenues	11,113		11,080
Operating expenses
Cost of services, exclusive of depreciation and amortization shown separately below	1,639		1,546
Cost of equipment sales, exclusive of depreciation and amortization shown separately below	2,529		3,016
Selling, general and administrative	3,688		3,442
Depreciation and amortization	1,718		1,600
Total operating expenses	9,574		9,604
Operating income	1,539		1,476
Other income (expense)
Interest expense	(185)		(179)
Interest expense to affiliates	(99)		(109)
Interest income	12		8
Other (expense) income, net	(10)		7
Total other expense, net	(282)		(273)
Income before income taxes	1,257		1,203
Income tax expense	(306)		(295)
Net income	$	951	$	908
Net income	$	951	$	908
Other comprehensive loss, net of tax
Unrealized loss on cash flow hedges, net of tax effect of $(276) and $(66)	(792)		(189)
Other comprehensive loss	(792)		(189)
Total comprehensive income	$	159	$	719
Earnings per share
Basic	$	1.11	$	1.07
Diluted	$	1.10	$	1.06
Weighted average shares outstanding
Basic	858,148,284		851,223,498
Diluted	865,998,532		858,643,481

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

4

T-Mobile US, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
(in millions)	2020		2019
Operating activities
Net income	$	951	$	908
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	1,718		1,600
Stock-based compensation expense	138		110
Deferred income tax expense	310		288
Bad debt expense	113		73
Losses from sales of receivables	25		35
Changes in operating assets and liabilities
Accounts receivable	(748)		(1,143)
Equipment installment plan receivables	69		(250)
Inventories	(511)		(265)
Operating lease right-of-use assets	527		435
Other current and long-term assets	6		(87)
Accounts payable and accrued liabilities	(405)		13
Short and long-term operating lease liabilities	(725)		(522)
Other current and long-term liabilities	79		121
Other, net	70		76
Net cash provided by operating activities	1,617		1,392
Investing activities
Purchases of property and equipment, including capitalized interest of $112 and $118	(1,753)		(1,931)
Purchases of spectrum licenses and other intangible assets, including deposits	(99)		(185)
Proceeds related to beneficial interests in securitization transactions	868		1,157
Net cash related to derivative contracts under collateral exchange arrangements	(580)		—
Other, net	(16)		(7)
Net cash used in investing activities	(1,580)		(966)
Financing activities
Proceeds from borrowing on revolving credit facility	—		885
Repayments of revolving credit facility	—		(885)
Repayments of financing lease obligations	(282)		(86)
Repayments of short-term debt for purchases of inventory, property and equipment, net	(25)		—
Tax withholdings on share-based awards	(141)		(100)
Other, net	(5)		(4)
Net cash used in financing activities	(453)		(190)
Change in cash and cash equivalents	(416)		236
Cash and cash equivalents
Beginning of period	1,528		1,203
End of period	$	1,112	$	1,439
Supplemental disclosure of cash flow information
Interest payments, net of amounts capitalized	$	341	$	340
Operating lease payments	875		688
Income tax payments	24		32
Non-cash investing and financing activities
Non-cash beneficial interest obtained in exchange for securitized receivables	$	1,613	$	1,512
Decrease in accounts payable for purchases of property and equipment	(301)		(333)
Leased devices transferred from inventory to property and equipment	309		147
Returned leased devices transferred from property and equipment to inventory	(59)		(57)
Short-term debt assumed for financing of property and equipment	—		250
Operating lease right-of-use assets obtained in exchange for lease obligations	555		694
Financing lease right-of-use assets obtained in exchange for lease obligations	178		180

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

5

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 December 31, 2018	850,180,317	$	(6)	$	38,010	$	(332)	$	(12,954)	$	24,718
Net income	—	—		—		—		908		908
Other comprehensive loss	—	—		—		(189)		—		(189)
Stock-based compensation	—	—		121		—		—		121
Exercise of stock options	31,874	—		1		—		—		1
Stock issued for employee stock purchase plan	1,172,511	—		69		—		—		69
Issuance of vested restricted stock units	4,343,972	—		—		—		—		—
Shares withheld related to net share settlement of stock awards and stock options	(1,364,621)	—		(100)		—		—		(100)
Distribution from NQDC plan	16,065	1		(1)		—		—		—
Prior year Retained Earnings	—	—		—		—		653		653
Balance as of March 31, 2019	854,380,118	$	(5)	$	38,100	$	(521)	$	(11,393)	$	26,181
Balance as of December 31, 2019	856,905,400	$	(8)	$	38,498	$	(868)	$	(8,833)	$	28,789
Net income	—	—		—		—		951		951
Other comprehensive loss	—	—		—		(792)		—		(792)
Executive put option	(342,000)	—		1		—		—		1
Stock-based compensation	—	—		152		—		—		152
Exercise of stock options	49,193	—		1		—		—		1
Stock issued for employee stock purchase plan	1,246,317	—		83		—		—		83
Issuance of vested restricted stock units	4,755,209	—		—		—		—		—
Shares withheld related to net share settlement of stock awards and stock options	(1,490,399)	—		(141)		—		—		(141)
Distribution from NQDC plan	4,386	(3)		3		—		—		—
Prior year Retained Earnings	—	—		—		—		(67)		(67)
Balance as of March 31, 2020	861,128,106	$	(11)	$	38,597	$	(1,660)	$	(7,949)	$	28,977

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

6

T-Mobile US, Inc.

Index for Notes to the Condensed Consolidated Financial Statements

Note 1	Summary of Significant Accounting Policies	8
Note 2	Business Combination	10
Note 3	Receivables and Allowance for Credit Losses	13
Note 4	Sales of Certain Receivables	15
Note 5	Spectrum License Transactions	18
Note 6	Fair Value Measurements	18
Note 7	Debt	20
Note 8	Revenue from Contracts with Customers	22
Note 9	Earnings Per Share	24
Note 10	Leases	24
Note 11	Commitments and Contingencies	26
Note 12	Subsequent Events	27

7

T-Mobile US, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation

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

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 our obligations to pay for the management and operation of certain of our wireless communications tower sites (“Tower Obligations”). 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, including but not limited to the potential impacts arising from the COVID-19 pandemic. Due to the uncertainty around the magnitude and duration of the impacts of the COVID-19 pandemic, these estimates are inherently subject to judgment and actual results could differ from those estimates.

Accounting Pronouncements Adopted During the Current Year

Receivables and Expected Credit Losses

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and has since modified the standard with several ASUs (collectively, the “new credit loss standard”). The new credit loss standard requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectibility of the reported amount. The new credit loss standard became effective for us, and we adopted the standard, on January 1, 2020. The new credit loss standard required a cumulative-effect adjustment to Accumulated deficit at the date of initial application, and as a result, we did not restate prior periods presented in the condensed consolidated financial statements.

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

Accounts Receivable Portfolio Segment

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

8

EIP Receivables Portfolio Segment

We offer certain retail customers the option to pay for their devices and other purchases in installments over a period of, generally, 24 months and up to 36 months using an EIP. EIP receivables are presented in our Condensed Consolidated Balance Sheets at the amortized cost basis (i.e., the receivables’ outstanding principal balance adjusted for any write-offs and unamortized discounts), net of the allowance for expected credit losses. At the time of an installment sale, we impute a discount for interest if the EIP term exceeds 12 months as there is no stated rate of interest on the EIP receivables. The EIP receivables are recorded at their present value, which is determined by discounting expected future cash payments at the imputed interest rate. The difference between the recorded amount of the EIP receivables and their unpaid principal balance (i.e., the contractual amount due from the customer) results in a discount which is allocated to the performance obligations of the arrangement and recorded as a reduction in transaction price in Total service revenues and Equipment revenues in our Condensed Consolidated Statements of Comprehensive Income. We determine the imputed discount rate based primarily on current market interest rates and the estimated credit risk on the EIP receivables. The imputed discount on EIP receivables is amortized over the financed installment term using the effective interest method and recognized as Other revenues in our Condensed Consolidated Statements of Comprehensive Income.

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

The current portion of the EIP receivables is included in Equipment installment plan receivables, net and the long-term portion of the EIP receivables is included in Equipment installment plan receivables due after one year, net in our Condensed Consolidated Balance Sheets. We have an arrangement to sell certain EIP receivables on a revolving basis, which are treated as sales of financial assets.

Allowance for Credit Losses

We maintain an allowance for expected credit losses and determine its appropriateness through an established process that assesses the lifetime credit losses that we expect to incur related to our receivable portfolio. We develop and document our allowance methodology at the portfolio segment level for the accounts receivable portfolio and EIP receivables portfolio segments. While we attribute portions of the allowance to our respective accounts receivable and EIP portfolio segments, the entire allowance is available to absorb expected credit losses related to the total receivable portfolio.

Our process involves procedures to appropriately consider the unique risk characteristics of our accounts receivable and EIP receivable portfolio segments. For each portfolio segment, losses are estimated collectively for groups of receivables with similar characteristics. Our allowance levels are influenced by receivable volumes, receivable delinquency status, historical loss experience and other conditions influencing loss expectations, such as changes in credit and collections policies and forecasts of macro-economic conditions.

Total imputed discount and allowances were approximately 8.7% and 7.0% of the total amount of gross accounts receivable, including EIP receivables, at March 31, 2020 and December 31, 2019.

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

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 also requires the presentation of the amortization of the capitalized implementation costs in the same line item in the Condensed Consolidated Statements of Comprehensive Income as the fees associated with the hosting arrangement. The standard became effective for us, and we adopted the standard, on January 1, 2020. We adopted the standard on a prospective basis applying it to implementation costs incurred subsequent to January 1, 2020 and as a result did not restate the prior periods presented in the condensed consolidated financial statements. The adoption of the standard did not have a material impact on our condensed consolidated financial statements for the three months ended March 31, 2020.

9

Income Taxes

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

Guarantor Financial Information

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

Accounting Pronouncements Not Yet Adopted

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

Note 2 – Business Combination

Business Combination and Amendments

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”).

On July 26, 2019, in connection with the entry into the Asset Purchase Agreement, described below, we and the other parties to the Business Combination Agreement entered into Amendment No. 1 (“Amendment No. 1”) to the Business Combination Agreement. Amendment No. 1 extended the Outside Date (as defined in the Business Combination Agreement) to November 1, 2019, or, if the Marketing Period (as defined in the Business Combination Agreement) had started and was in effect at such date, then January 2, 2020.

On February 20, 2020, we and the other parties to the Business Combination Agreement entered into Amendment No. 2 (“Amendment No. 2”) to the Business Combination Agreement, extending the Outside Date to July 1, 2020.

In addition, pursuant to Amendment No. 2, SoftBank Group Corp. (“SoftBank”) agreed to indemnify T-Mobile and its subsidiaries following the closing of the Merger and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”) against (i) any monetary losses arising out of or resulting from certain specified matters and (ii) the loss of value to T-Mobile and its subsidiaries arising out of or resulting from cessation of access to spectrum of Sprint or its subsidiaries under certain circumstances, subject to limitations and qualifications contained in Amendment No. 2.

Concurrently with entry into Amendment No. 2, T-Mobile, SoftBank and Deutsche Telekom AG (“DT”) entered into a letter agreement (the “Letter Agreement”). Pursuant to the Letter Agreement, SoftBank agreed to cause its applicable affiliates to surrender to T-Mobile, for no additional consideration, an aggregate of 48,751,557 shares of T-Mobile common stock (such number of shares, the “SoftBank Specified Shares Amount”), effective immediately following the Effective Time (as defined in the Business Combination Agreement), making SoftBank’s exchange ratio 11.31 shares of Sprint common stock for each share of T-Mobile common stock. This resulted in an effective exchange ratio of approximately 11.00 shares of Sprint common stock for each share of T-Mobile common stock immediately following the closing of the Merger, an increase from the originally agreed 9.75 shares. Sprint shareholders other than SoftBank received the original fixed exchange ratio of 0.10256 shares of T-Mobile common stock for each share of Sprint common stock, or the equivalent of approximately 9.75 shares of Sprint common stock for each share of T-Mobile common stock.

10

The Letter Agreement further provides that if the trailing 45-day volume-weighted average price per share of T-Mobile common stock on the NASDAQ Global Select Market is equal to or greater than $150.00 at any time during the period commencing on April 1, 2022 and ending on December 31, 2025, T-Mobile will issue to SoftBank, for no additional consideration, a number of shares of T-Mobile common stock equal to the SoftBank Specified Shares Amount, subject to the terms and conditions set forth in the Letter Agreement.

Sprint Merger

Subsequent to March 31, 2020, on April 1, 2020, we completed the Merger, and as a result, Sprint and its subsidiaries became wholly-owned consolidated subsidiaries of T-Mobile. Sprint is a communications company offering a comprehensive range of wireless and wireline communications products and services. As a combined company, we expect to be able to rapidly launch a broad and deep nationwide 5G network, accelerate innovation, increase competition in the U.S. wireless, video and broadband industries and achieve synergies.

Upon completion of the Merger, each share of Sprint common stock was exchanged for 0.10256 shares of T-Mobile common stock, or 9.75 shares of Sprint common stock for each share of T-Mobile common stock. After adjustments, including the holdback of the SoftBank Specified Shares Amount and fractional shares, we issued 373,396,310 shares of T-Mobile common stock to Sprint shareholders. Based on the T-Mobile closing share price as of March 31, 2020 of $83.90, the value of the T-Mobile common stock provided in exchange for Sprint common stock was approximately $31.3 billion.

In addition to the exchange of common stock, the consideration transferred also included the assumption and repayment of certain outstanding debt balances of Sprint, the replacement of equity awards of certain Sprint employees for services provided prior to the Merger and contingent consideration payable to SoftBank, pursuant to the Letter Agreement described above. Our valuation of these components of consideration is not yet complete.

The major classes of assets acquired through the Merger include cash and cash equivalents, accounts receivable, equipment installment plan receivables, inventory, fixed assets and network equipment, operating and financing lease right-of-use assets, spectrum licenses and other intangible assets. The major classes of liabilities assumed include accounts payable and accrued liabilities, short-term debt, operating and financing lease liabilities, net pension plan liabilities, deferred tax liabilities and long-term debt with an aggregate principal balance of $26.5 billion.

Due to the limited time since the acquisition date, restrictions on access to Sprint information arising from antitrust considerations prior to the closing of the Merger and the size and complexity of the Transactions, the accounting for the business combination is not yet complete. We are not able to provide the valuation of certain components of consideration transferred or provide the allocation of consideration paid to the assets acquired or liabilities assumed, including any indemnification assets and contingent consideration. Supplemental pro forma revenue and earnings of the combined company are predicated on the completion of the business combination accounting and allocation of consideration.

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

Subsequent to March 31, 2020, on April 22, 2020, we filed a Form S-8 to register a total of 25,304,224 shares of common stock, representing those covered by the Sprint Corporation 1997 Long-Term Stock Incentive Program (the “1997 Program”), the Sprint Corporation 2007 Omnibus Incentive Plan (the “2007 Plan”) and the Sprint Corporation Amended and Restated 2015 Omnibus Incentive Plan (as amended and restated, the “2015 Plan” and, together with the 2007 Plan and the 1997 Program, the “Sprint Plans”) that T-Mobile assumed in connection with the closing of the Merger.

We recognized Merger-related costs of $143 million and $113 million for the three months ended March 31, 2020 and 2019, respectively. 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. Payments for Merger-related costs were $161 million and $34 million for the three months ended March 31, 2020 and 2019, respectively, and were recognized within Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows.

Financing

In connection with the entry into the Business Combination Agreement, T-Mobile USA, Inc. (“T-Mobile USA”) entered into a commitment letter, dated as of April 29, 2018 (as amended and restated on May 15, 2018 and on September 6, 2019, the

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“Commitment Letter”). The funding of the debt facilities provided for in the Commitment Letter was subject to the satisfaction of the conditions set forth therein, including consummation of the Merger. Subsequent to March 31, 2020, on April 1, 2020, in connection with the closing of the Merger, we drew down on our $19.0 billion New Secured Bridge Loan Facility and our $4.0 billion New Secured Term Loan Facility (each as defined below). We used the net proceeds from the draw down of the secured facilities to refinance certain existing debt of us, Sprint and our and Sprint’s respective subsidiaries and for post-closing general corporate purposes of the combined company. See Note 7 – Debt for further information.

In connection with the financing provided for in the Commitment Letter, we incurred certain fees payable to the financial institutions. Subsequent to March 31, 2020, on April 1, 2020, in connection with the closing of the Merger, we paid $355 million in Commitment Letter fees to certain financial institutions, of which $30 million were accrued for as of March 31, 2020, and were recognized in Selling, general and administrative expenses in our Condensed Consolidated Statements of Comprehensive Income. See Note 7 – Debt for further information.

In connection with the entry into the Business Combination Agreement, DT and T-Mobile USA entered into a Financing Matters Agreement, dated as of April 29, 2018 (the “Financing Matters Agreement”), pursuant to which DT agreed, among other things, to consent to, subject to certain conditions, certain amendments to certain existing debt owed to DT, in connection with the Merger. Subsequent to March 31, 2020, on April 1, 2020, in connection with the closing of the Merger, we made a payment for requisite consents to DT of $13 million. There was no consent payment accrued as of March 31, 2020. See Note 7 – Debt for further information.

On May 18, 2018, under the terms and conditions described in the Consent Solicitation Statement dated as of May 14, 2018 (the "Consent Solicitation Statement"), we obtained consents necessary to effect certain amendments to certain existing debt of us and our subsidiaries. Subsequent to March 31, 2020, on April 1, 2020, in connection with the closing of the Merger, we made payments for requisite consents to third-party note holders of $95 million. There were no consent payments accrued as of March 31, 2020. See Note 7 – Debt for further information.

Regulatory Matters

On June 18, 2018, we filed a Public Interest Statement and applications for approval of the Merger 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. On May 20, 2019, to facilitate the FCC’s review and approval of the FCC license transfers associated with the proposed Merger, we and Sprint filed with the FCC a written ex parte presentation (the “Presentation”) relating to the proposed Merger. The Presentation included proposed commitments from us and Sprint. The FCC approved the Merger on November 5, 2019.

On June 11, 2019, a number of state attorneys general filed a lawsuit against us, DT, Sprint, and SoftBank in the U.S. District Court for the Southern District of New York, alleging that the Merger, if consummated, would violate Section 7 of the Clayton Act and so should be enjoined. In connection with the lawsuit, we settled with certain state attorneys general by making commitments regarding our operations, employment and network capabilities in those states. See Note 11 - Commitments and Contingencies for further information. On February 11, 2020, the U.S. District Court for the Southern District of New York issued judgment in favor of us, Sprint, and the other defendants, concluding the Merger was not reasonably likely to reduce competition, and denying the plaintiffs’ request to enjoin the Merger.

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

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

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Prepaid Transaction

On July 26, 2019, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Sprint and DISH. We and Sprint are collectively referred to as the “Sellers.” Pursuant to the Asset Purchase Agreement, upon the terms and subject to the conditions thereof, following the consummation of the Merger, DISH will acquire Sprint’s prepaid wireless business, currently operated under the Boost Mobile and Sprint prepaid brands (excluding the Assurance brand Lifeline customers and the prepaid wireless customers of Shenandoah Telecommunications Company and Swiftel Communications, Inc.), including customer accounts, inventory, contracts, intellectual property and certain other specified assets (the “Prepaid Business”), and will assume certain related liabilities (the “Prepaid Transaction”). DISH will pay the Sellers $1.4 billion for the Prepaid Business, subject to a working capital adjustment. The consummation of the Prepaid Transaction is subject to customary closing conditions and is expected to close in the middle of 2020.

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

Note 3 – Receivables and Expected Credit Losses

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

Accounts Receivable Portfolio Segment

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

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

To determine the appropriate credit loss percentages by aging bucket, we consider a number of factors, including our overall historical credit losses, net of recoveries and timely payment experience as well as current collection trends such as write-off frequency and severity, credit quality of the customer base, and other qualitative factors such as macro-economic conditions, including an expected economic slowdown or recession as a result of the COVID-19 pandemic.

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

EIP Receivables Portfolio Segment

Based upon customer credit profiles, we classify the EIP receivables segment into two customer classes of “Prime” and “Subprime.” Prime customer receivables are those with lower credit risk and Subprime customer receivables are those with higher credit risk. Customers may be required to make a down payment on their equipment purchases. 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.

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The following table summarizes the EIP receivables, including imputed discounts and related allowance for credit losses:

(in millions)	March 31, 2020		December 31, 2019
EIP receivables, gross	$	4,242	$	4,582
Unamortized imputed discount	(268)		(299)
EIP receivables, net of unamortized imputed discount	3,974		4,283
Allowance for credit losses (1)	(201)		(100)
EIP receivables, net of allowance for credit losses and imputed discount	$	3,773	$	4,183
Classified on the balance sheet as:
Equipment installment plan receivables, net of allowance for credit losses and imputed discount	$	2,406	$	2,600
Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount	1,367		1,583
EIP receivables, net of allowance for credit losses and imputed discount	$	3,773	$	4,183

(1) Allowance for credit losses as of March 31, 2020, was impacted by the cumulative effect of initially applying the new credit loss standard on our receivables portfolio on January 1, 2020, of $91 million.

We manage our EIP receivables portfolio using delinquency and customer credit class as key credit quality indicators. The following table presents the amortized cost of our EIP receivables by delinquency status, customer credit class, and year of origination. As a part of the adoption of the new credit loss standard, we now disclose our EIP receivables portfolio disaggregated by origination year. The information is updated as of March 31, 2020.

	Originated in 2020				Originated in 2019				Originated prior to 2019				Total EIP Receivables, net of unamortized imputed discounts
(in millions)	Prime		Subprime		Prime		Subprime		Prime		Subprime		Prime		Subprime		Grand total
Current - 30 days past due	$	504	$	519	$	1,168	$	1,082	$	375	$	234	$	2,047	$	1,835	$	3,882
31 - 60 days past due	2		4		10		23		4		6		16		33		49
61 - 90 days past due	—		—		5		11		1		3		6		14