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, 2021

or

☐          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from    to

Commission File Number: 1-33409

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 28, 2021
Common Stock, par value $0.00001 per share	1,246,857,781

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T-Mobile US, Inc.

Form 10-Q

For the Quarter Ended March 31, 2021

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
		Condensed 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	30
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
	Item 4.	Controls and Procedures	51
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	52
	Item 1A.	Risk Factors	52
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
	Item 3.	Defaults Upon Senior Securities	52
	Item 4.	Mine Safety Disclosures	52
	Item 5.	Other Information	52
	Item 6.	Exhibits	53
		Signatures	55

2

Index for Notes to the Condensed Consolidated Financial Statements

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, 2021		December 31, 2020
Assets
Current assets
Cash and cash equivalents	$	6,677	$	10,385
Accounts receivable, net of allowance for credit losses of $143 and $194	3,592		4,254
Equipment installment plan receivables, net of allowance for credit losses and imputed discount of $512 and $478	3,841		3,577
Accounts receivable from affiliates	20		22
Inventory	2,209		2,527
Prepaid expenses	670		624
Other current assets	1,770		2,496
Total current assets	18,779		23,885
Property and equipment, net	40,549		41,175
Operating lease right-of-use assets	27,793		28,021
Financing lease right-of-use assets	2,899		3,028
Goodwill	11,158		11,117
Spectrum licenses	82,901		82,828
Other intangible assets, net	4,892		5,298
Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount of $124 and $127	2,221		2,031
Other assets	12,140		2,779
Total assets	$	203,332	$	200,162
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities	$	8,712	$	10,196
Payables to affiliates	108		157
Short-term debt	4,423		4,579
Deferred revenue	972		1,030
Short-term operating lease liabilities	3,498		3,868
Short-term financing lease liabilities	1,013		1,063
Other current liabilities	769		810
Total current liabilities	19,495		21,703
Long-term debt	66,395		61,830
Long-term debt to affiliates	4,721		4,716
Tower obligations	2,974		3,028
Deferred tax liabilities	10,154		9,966
Operating lease liabilities	26,602		26,719
Financing lease liabilities	1,316		1,444
Other long-term liabilities	5,298		5,412
Total long-term liabilities	117,460		113,115
Commitments and contingencies (Note 11)
Stockholders' equity
Common Stock, par value $0.00001 per share, 2,000,000,000 shares authorized; 1,248,334,491 and 1,243,345,584 shares issued, 1,246,773,175 and 1,241,805,706 shares outstanding	—		—
Additional paid-in capital	72,839		72,772
Treasury stock, at cost, 1,561,316 and 1,539,878 shares issued	(14)		(11)
Accumulated other comprehensive loss	(1,545)		(1,581)
Accumulated deficit	(4,903)		(5,836)
Total stockholders' equity	66,377		65,344
Total liabilities and stockholders' equity	$	203,332	$	200,162

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

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T-Mobile US, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended March 31,
(in millions, except share and per share amounts)	2021		2020
Revenues
Postpaid revenues	$	10,303	$	5,887
Prepaid revenues	2,351		2,373
Wholesale revenues	897		325
Roaming and other service revenues	641		261
Total service revenues	14,192		8,846
Equipment revenues	5,346		2,117
Other revenues	221		150
Total revenues	19,759		11,113
Operating expenses
Cost of services, exclusive of depreciation and amortization shown separately below	3,384		1,639
Cost of equipment sales, exclusive of depreciation and amortization shown separately below	5,142		2,529
Selling, general and administrative	4,805		3,688
Depreciation and amortization	4,289		1,718
Total operating expenses	17,620		9,574
Operating income	2,139		1,539
Other income (expense)
Interest expense	(792)		(185)
Interest expense to affiliates	(46)		(99)
Interest income	3		12
Other expense, net	(125)		(10)
Total other expense, net	(960)		(282)
Income before income taxes	1,179		1,257
Income tax expense	(246)		(306)
Net income	$	933	$	951
Net income	$	933	$	951
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on cash flow hedges, net of tax effect of $12 and $(276)	34		(792)
Unrealized gain on foreign currency translation adjustment, net of tax effect of $— and $—	2		—
Other comprehensive income (loss)	36		(792)
Total comprehensive income	$	969	$	159
Earnings per share
Basic	$	0.75	$	1.11
Diluted	$	0.74	$	1.10
Weighted average shares outstanding
Basic	1,243,520,026		858,148,284
Diluted	1,252,783,564		865,998,532

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)	2021		2020
Operating activities
Net income	$	933	$	951
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	4,289		1,718
Stock-based compensation expense	138		138
Deferred income tax expense	211		310
Bad debt expense	82		113
(Gains) losses from sales of receivables	(18)		25
Losses on redemption of debt	101		—
Changes in operating assets and liabilities
Accounts receivable	96		(748)
Equipment installment plan receivables	(727)		69
Inventories	279		(511)
Operating lease right-of-use assets	1,124		527
Other current and long-term assets	54		6
Accounts payable and accrued liabilities	(1,384)		(405)
Short and long-term operating lease liabilities	(1,369)		(725)
Other current and long-term liabilities	(217)		79
Other, net	69		70
Net cash provided by operating activities	3,661		1,617
Investing activities
Purchases of property and equipment, including capitalized interest of $84 and $112	(3,183)		(1,753)
Purchases of spectrum licenses and other intangible assets, including deposits	(8,922)		(99)
Proceeds related to beneficial interests in securitization transactions	891		868
Net cash related to derivative contracts under collateral exchange arrangements	—		(580)
Acquisition of companies, net of cash and restricted cash acquired	(29)		—
Other, net	4		(16)
Net cash used in investing activities	(11,239)		(1,580)
Financing activities
Proceeds from issuance of long-term debt	6,763		—
Repayments of financing lease obligations	(287)		(282)
Repayments of short-term debt for purchases of inventory, property and equipment and other financial liabilities	(55)		(25)
Repayments of long-term debt	(2,219)		—
Tax withholdings on share-based awards	(218)		(141)
Cash payments for debt prepayment or debt extinguishment costs	(65)		—
Other, net	(45)		(5)
Net cash provided by (used in) financing activities	3,874		(453)
Change in cash and cash equivalents, including restricted cash	(3,704)		(416)
Cash and cash equivalents, including restricted cash
Beginning of period	10,463		1,528
End of period	$	6,759	$	1,112

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, 2020	1,241,805,706	$	(11)	$	72,772	$	(1,581)	$	(5,836)	$	65,344
Net income	—	—		—		—		933		933
Other comprehensive income	—	—		—		36		—		36
Stock-based compensation	—	—		154		—		—		154
Exercise of stock options	80,802	—		3		—		—		3
Stock issued for employee stock purchase plan	1,272,253	—		125		—		—		125
Issuance of vested restricted stock units	5,421,839	—		—		—		—		—
Shares withheld related to net share settlement of stock awards and stock options	(1,785,987)	—		(218)		—		—		(218)
Transfer RSU from NQDC plan	(21,438)	(3)		3		—		—		—
Balance as of March 31, 2021	1,246,773,175	$	(14)	$	72,839	$	(1,545)	$	(4,903)	$	66,377
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	8
Note 3	Receivables and Expected Credit Losses	13
Note 4	Sales of Certain Receivables	15
Note 5	Goodwill, Spectrum License Transactions and Other Intangible Assets	18
Note 6	Fair Value Measurements	20
Note 7	Debt	21
Note 8	Tower Obligations	22
Note 9	Revenue from Contracts with Customers	24
Note 10	Earnings Per Share	26
Note 11	Commitments and Contingencies	26
Note 12	Restructuring Costs	28
Note 13	Additional Financial Information	29

7

T-Mobile US, Inc.

Notes to the Condensed Consolidated Financial Statements

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, 2020.

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

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

Accounting Pronouncements Not Yet Adopted

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The standard provides temporary optional expedients and allows for certain exceptions to applying existing GAAP for contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued as a result of reference rate reform. The standard is available for adoption through December 31, 2022. We are currently evaluating the impact this standard will have, including optional expedients, on our condensed consolidated financial statements.

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

Note 2 – Business Combination

Business Combination Agreement and Amendments

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

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

8

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

The Letter Agreement requires T-Mobile to issue to SoftBank 48,751,557 shares of T-Mobile common stock, subject to the terms and conditions set forth in the Letter Agreement, for no additional consideration, if certain conditions are met. The issuance of these shares is contingent on the trailing 45-day volume-weighted average price per share of T-Mobile common stock on the NASDAQ Global Select Market being equal to or greater than $150.00, at any time during the period commencing on April 1, 2022 and ending on December 31, 2025. If the threshold price is not met, then none of the SoftBank Specified Shares Amount will be issued.

Closing of Sprint Merger

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 was the fourth-largest telecommunications company in the U.S., offering a comprehensive range of wireless and wireline communication 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 and broadband industries and achieve significant synergies and cost reductions by eliminating redundancies within the combined network as well as other business processes and operations.

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

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

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

Consideration Transferred

The acquisition-date fair value of consideration transferred in the Merger totaled $40.8 billion, comprised of the following:

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

(1) Represents the fair value of T-Mobile common stock issued to Sprint stockholders pursuant to the Business Combination Agreement, less shares surrendered by SoftBank pursuant to the Letter Agreement. The fair value is based on 373,396,310 shares of Sprint common stock issued and outstanding as of March 31, 2020, an exchange ratio of 0.10256 shares of T-Mobile common stock per share of Sprint common stock, less 48,751,557 T-Mobile shares surrendered by SoftBank which are treated as contingent consideration, and the closing price per share of T-Mobile common stock on NASDAQ on March 31, 2020, of $83.90, as shares were transferred to Sprint stockholders prior to the opening of markets on April 1, 2020.

(2) Equity-based awards held by Sprint employees prior to the acquisition date have been replaced with T-Mobile equity-based awards. The portion of the equity-based awards that relates to services performed by the employee prior to the acquisition date is included within consideration transferred, and includes stock options, restricted stock units and performance-based restricted stock units.

(3) Represents the cash consideration paid concurrent with the close of the Merger to retire certain Sprint debt, as required by change in control provisions of the debt, plus interest and prepayment penalties.

(4) Represents the fair value of the SoftBank Specified Shares Amount contingent consideration that may be issued as set forth in the Letter Agreement.

(5) Represents receipt of a cash payment from SoftBank for certain expenses associated with the Merger.

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

9

whereby a Monte Carlo simulation method estimated the probability of different outcomes as the likelihood of achieving the 45-day volume-weighted average price threshold is not easily predicted. This fair value measurement is based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement as defined in ASC 820: Fair Value Measurement. The key assumptions in applying the income approach include estimated future share-price volatility, which was based on historical market trends and estimated future performance of T-Mobile.

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

Fair Value of Assets Acquired and Liabilities Assumed

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

The following table summarizes the fair values for each major class of assets acquired and liabilities assumed at the acquisition date. We retained the services of certified valuation specialists to assist with assigning values to certain acquired assets and assumed liabilities.

(in millions)	April 1, 2020
Cash and cash equivalents	$	2,084
Accounts receivable	1,775
Equipment installment plan receivables	1,088
Inventory	658
Prepaid expenses	140
Assets held for sale	1,908
Other current assets	637
Property and equipment	18,435
Operating lease right-of-use assets	6,583
Financing lease right-of-use assets	291
Goodwill	9,423
Spectrum licenses	45,400
Other intangible assets	6,280
Equipment installment plan receivables due after one year, net	247
Other assets (1)	540
Total assets acquired	95,489
Accounts payable and accrued liabilities	5,015
Short-term debt	2,760
Deferred revenue	508
Short-term operating lease liabilities	1,818
Short-term financing lease liabilities	8
Liabilities held for sale	475
Other current liabilities	681
Long-term debt	29,037
Tower obligations	950
Deferred tax liabilities	3,478
Operating lease liabilities	5,615
Financing lease liabilities	12
Other long-term liabilities	4,305
Total liabilities assumed	54,662
Total consideration transferred	$	40,827

(1) Included in Other assets acquired is $80 million in restricted cash.

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

Intangible Assets and Liabilities

Goodwill with an assigned value of $9.4 billion represents the excess of the consideration transferred over the fair values of assets acquired and liabilities assumed. The goodwill recognized includes synergies expected to be achieved from the operations of the combined company, the assembled workforce of Sprint and intangible assets that do not qualify for separate recognition. Expected synergies from the Merger include the cost savings from the planned integration of network infrastructure, facilities, personnel and systems. None of the goodwill resulting from the Merger is deductible for tax purposes. All of the goodwill acquired is allocated to the wireless reporting unit.

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

The fair value of Spectrum licenses of $45.4 billion was estimated using the income approach, specifically a Greenfield model. This fair value measurement is based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement as defined in ASC 820: Fair Value Measurement. The key assumptions in applying the income approach include the discount rate, estimated market share, estimated capital and operating expenditures, forecasted service revenue and a long-term growth rate for a hypothetical market participant that enters the wireless industry and builds a nationwide wireless network.

Acquired Receivables

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

Indemnification Assets and Contingent Liabilities

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

Deferred Taxes

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

Transaction Costs

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

11

Pro Forma Information

The following unaudited pro forma financial information gives effect to the Transactions as if they had been completed on January 1, 2019. The unaudited pro forma information was prepared in accordance with the requirements of ASC 805: Business Combinations, which is a different basis than pro forma information prepared under Article 11 of Regulation S-X (“Article 11”). As such, they are not directly comparable with historical results for stand-alone T-Mobile prior to April 1, 2020, historical results for T-Mobile from April 1, 2020 that reflect the Transactions and are inclusive of the results and operations of Sprint, nor our previously provided pro forma financials prepared in accordance with Article 11. The pro forma results for the three months ended March 31, 2020 include the impact of several significant nonrecurring pro forma adjustments to previously reported operating results. The pro forma adjustments are based on historically reported transactions by the respective companies. The pro forma results do not include any anticipated synergies or other expected benefits of the acquisition.

(in millions)	Three Months Ended March 31, 2020
Total revenues	$	17,408
Income from continuing operations	1,111
Income from discontinued operations, net of tax	357
Net income	1,468

Significant nonrecurring pro forma adjustments include:

•Transaction costs of $57 million that were incurred during the three months ended March 31, 2020 are assumed to have occurred on the pro forma close date of January 1, 2019, and are recognized as if incurred in the first quarter of 2019;

•The Prepaid Business divested on July 1, 2020, is assumed to have been classified as discontinued operations as of January 1, 2019, and the related activities are presented in Income from discontinued operations, net of tax;

•Permanent financing issued and debt redemptions occurring in connection with the closing of the Merger are assumed to have occurred on January 1, 2019, and historical interest expense associated with repaid borrowings is removed;

•Tangible and intangible assets are assumed to be recorded at their estimated fair values as of January 1, 2019 and are depreciated or amortized over their estimated useful lives; and

•Accounting policies of Sprint are conformed to those of T-Mobile including depreciation for leased devices, Brightstar distribution, amortization of costs to acquire a contract and certain tower lease transactions.

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

Regulatory Matters

The Transactions were the subject of various legal and regulatory proceedings involving a number of state and federal agencies. In connection with those proceedings and the approval of the Transactions, we have certain commitments and other obligations to various state and federal agencies and certain nongovernmental organizations. See Note 11 - Commitments and Contingencies for further information.

Shenandoah Personal Communications Company Affiliate Relationship

Sprint PCS (specifically Sprint Spectrum L.P.) is party to a variety of publicly filed agreements with Shenandoah Personal Communications Company LLC (“Shentel”), pursuant to which Shentel is the exclusive provider of Sprint PCS’s wireless mobility communications network products in certain parts of Maryland, North Carolina, Virginia, West Virginia, Kentucky, Ohio and Pennsylvania. Pursuant to one such agreement, the Sprint PCS Management Agreement, dated November 5, 1999 (as amended, supplemented and modified from time to time, the “Management Agreement”), Sprint PCS was granted an option to purchase Shentel’s wireless telecommunications assets used to provide services pursuant to the Management Agreement. On August 26, 2020, Sprint, now our direct subsidiary, on behalf of and as the direct or indirect owner of Sprint PCS, exercised its option by delivering a binding notice of exercise to Shentel. The exercise of this option triggered a requirement for the parties to engage three independent valuation providers to calculate the “entire business value” (the “Entire Business Value”) of such wireless telecommunications assets, pursuant to a formula and valuation process prescribed in the Management Agreement.

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

Note 3 – Receivables and Expected Credit Losses

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

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

Our portfolio of receivables is comprised of 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, device insurance administrators, wholesale partners, third-party retail channels and other carriers.

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

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

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

EIP Receivables Portfolio Segment

Based upon customer credit profiles at the time of customer origination, we classify the EIP receivables segment into 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 a deposit.

To determine a customer’s credit profile, we use a proprietary credit scoring model that measures the credit quality of a customer using several factors, such as credit bureau information, consumer credit risk scores and service and device plan characteristics.

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

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

(in millions)	March 31, 2021		December 31, 2020
EIP receivables, gross	$	6,698	$	6,213
Unamortized imputed discount	(356)		(325)
EIP receivables, net of unamortized imputed discount	6,342		5,888
Allowance for credit losses	(280)		(280)
EIP receivables, net of allowance for credit losses and imputed discount	$	6,062	$	5,608
Classified on the balance sheet as:
Equipment installment plan receivables, net of allowance for credit losses and imputed discount	$	3,841	$	3,577
Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount	2,221		2,031
EIP receivables, net of allowance for credit losses and imputed discount	$	6,062	$	5,608

We manage our EIP receivables portfolio using delinquency and customer credit class 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 of March 31, 2021:

	Originated in 2021				Originated in 2020				Originated prior to 2020				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	$	1,180	$	1,005	$	1,999	$	1,455	$	383	$	225	$	3,562	$	2,685	$	6,247
31 - 60 days past due	5		5		13		20		3		5		21		30		51
61 - 90 days past due	—		1		5		10		2		2		7		13		20
More than 90 days past due	—		—		5		11		2		6		7		17		24
EIP receivables, net of unamortized imputed discount	$	1,185	$	1,011	$	2,022	$	1,496	$	390	$	238	$	3,597	$	2,745	$	6,342

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

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

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

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Activity for the three months ended March 31, 2021 and 2020, in the allowance for credit losses and unamortized imputed discount balances for the accounts receivable and EIP receivables segments were as follows:

	March 31, 2021						March 31, 2020
(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	$	194	$	605	$	799	$	61	$	399	$	460
Beginning balance adjustment due to implementation of the new credit loss standard	—		—		—		—		91		91
Bad debt expense	28		54		82		42		71		113
Write-offs, net of recoveries	(79)		(54)		(133)		(34)		(61)		(95)
Change in imputed discount on short-term and long-term EIP receivables	N/A		66		66		N/A		5		5
Impact on the imputed discount from sales of EIP receivables	N/A		(35)		(35)		N/A		(36)		(36)
Allowance for credit losses and imputed discount, end of period	$	143	$	636	$	779	$	69	$	469	$	538

Off-Balance-Sheet Credit Exposures

We do not have material, unmitigated off-balance-sheet credit exposures as of March 31, 2021. In connection with the sales of certain service and EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price assets included in our Condensed Consolidated Balance Sheets measured at fair value that are based on a discounted cash flow model using Level 3 inputs, including customer default rates and credit worthiness, dilutions and recoveries. See Note 4 – Sales of Certain Receivables for further information.

Note 4 – Sales of Certain Receivables

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

Sales of EIP Receivables

Overview of the Transaction

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

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

As of both March 31, 2021 and December 31, 2020, the EIP sale arrangement provided funding of $1.3 billion. Sales of EIP receivables occur daily and are settled on a monthly basis.

In connection with this EIP sale arrangement, we formed a wholly owned subsidiary, which qualifies as a bankruptcy remote entity (the “EIP BRE”). Pursuant to the EIP sale arrangement, our wholly owned subsidiary transfers selected receivables to the EIP BRE. The EIP BRE then sells the receivables to a non-consolidated and unaffiliated third-party entity over which we do not exercise any level of control, nor does the third-party entity qualify as a VIE.

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Variable Interest Entity

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

The following table summarizes the carrying amounts and classification of assets, which consist primarily of the deferred purchase price, and liabilities included in our Condensed Consolidated Balance Sheets with respect to the EIP BRE:

(in millions)	March 31, 2021		December 31, 2020
Other current assets	$	390	$	388
Other assets	113		120
Other long-term liabilities	4		4

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

Sales of Service Accounts Receivable

Overview of the Transaction