UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2014
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 | 98006-1350 | |
(Address of principal executive offices) | (Zip Code) | |
(425) 378-4000 | ||
(Registrant’s telephone number, including area code) | ||
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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
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 October 23, 2014 | ||
Common Stock, $0.00001 par value per share | 807,350,358 | ||
T-Mobile US, Inc.
Form 10-Q
For the Quarter Ended September 30, 2014
Table of Contents
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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) | September 30, 2014 | December 31, 2013 | |||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 5,787 | $ | 5,891 | |||
Accounts receivable, net of deferred interest and allowances of $465 and $381 | 4,433 | 3,619 | |||||
Accounts receivable from affiliates | 82 | 41 | |||||
Inventory | 674 | 586 | |||||
Current portion of deferred tax assets, net | 950 | 839 | |||||
Other current assets | 1,369 | 1,252 | |||||
Total current assets | 13,295 | 12,228 | |||||
Property and equipment, net of accumulated depreciation of $21,410 and $19,649 | 15,798 | 15,349 | |||||
Goodwill | 1,683 | 1,683 | |||||
Spectrum licenses | 21,689 | 18,122 | |||||
Other intangible assets, net of accumulated amortization of $726 and $476 | 956 | 1,204 | |||||
Other assets | 1,694 | 1,367 | |||||
Total assets | $ | 55,115 | $ | 49,953 | |||
Liabilities and Stockholders' Equity | |||||||
Current liabilities | |||||||
Accounts payable and accrued liabilities | $ | 6,057 | $ | 4,567 | |||
Current payables to affiliates | 315 | 199 | |||||
Short-term debt | 1,168 | 244 | |||||
Deferred revenue | 452 | 445 | |||||
Other current liabilities | 613 | 353 | |||||
Total current liabilities | 8,605 | 5,808 | |||||
Long-term debt to affiliates | 5,600 | 5,600 | |||||
Long-term debt | 16,284 | 14,345 | |||||
Long-term financial obligation | 2,510 | 2,496 | |||||
Deferred tax liabilities | 4,744 | 4,645 | |||||
Deferred rents | 2,289 | 2,113 | |||||
Other long-term liabilities | 558 | 701 | |||||
Total long-term liabilities | 31,985 | 29,900 | |||||
Commitments and contingencies | |||||||
Stockholders' equity | |||||||
Preferred stock, par value $0.00001 per share, 100,000,000 shares authorized; no shares issued and outstanding | — | — | |||||
Common stock, par value $0.00001 per share, 1,000,000,000 shares authorized; 808,680,349 and 803,262,309 shares issued, 807,297,844 and 801,879,804 shares outstanding | — | — | |||||
Additional paid-in capital | 37,466 | 37,330 | |||||
Treasury stock, at cost, 1,382,505 and 1,382,505 shares issued | — | — | |||||
Accumulated other comprehensive income | 1 | 3 | |||||
Accumulated deficit | (22,942 | ) | (23,088 | ) | |||
Total stockholders' equity | 14,525 | 14,245 | |||||
Total liabilities and stockholders' equity | $ | 55,115 | $ | 49,953 | |||
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 (Loss)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(in millions, except shares and per share amounts) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Revenues | |||||||||||||||
Branded postpaid revenues | $ | 3,670 | $ | 3,302 | $ | 10,628 | $ | 9,849 | |||||||
Branded prepaid revenues | 1,790 | 1,594 | 5,174 | 3,339 | |||||||||||
Wholesale revenues | 171 | 157 | 517 | 449 | |||||||||||
Roaming and other service revenues | 53 | 85 | 186 | 262 | |||||||||||
Total service revenues | 5,684 | 5,138 | 16,505 | 13,899 | |||||||||||
Equipment sales | 1,561 | 1,467 | 4,609 | 3,452 | |||||||||||
Other revenues | 105 | 83 | 296 | 242 | |||||||||||
Total revenues | 7,350 | 6,688 | 21,410 | 17,593 | |||||||||||
Operating expenses | |||||||||||||||
Cost of services, exclusive of depreciation and amortization shown separately below | 1,488 | 1,444 | 4,405 | 3,880 | |||||||||||
Cost of equipment sales | 2,308 | 2,015 | 6,809 | 4,837 | |||||||||||
Selling, general and administrative | 2,283 | 1,933 | 6,530 | 5,286 | |||||||||||
Depreciation and amortization | 1,138 | 987 | 3,322 | 2,630 | |||||||||||
Cost of MetroPCS business combination | 97 | 12 | 131 | 51 | |||||||||||
Gains on disposal of spectrum licenses | (13 | ) | — | (770 | ) | — | |||||||||
Other, net | — | — | — | 52 | |||||||||||
Total operating expenses | 7,301 | 6,391 | 20,427 | 16,736 | |||||||||||
Operating income | 49 | 297 | 983 | 857 | |||||||||||
Other income (expense) | |||||||||||||||
Interest expense to affiliates | (83 | ) | (183 | ) | (186 | ) | (586 | ) | |||||||
Interest expense | (260 | ) | (151 | ) | (807 | ) | (311 | ) | |||||||
Interest income | 97 | 50 | 255 | 125 | |||||||||||
Other income (expense), net | (14 | ) | (7 | ) | (32 | ) | 105 | ||||||||
Total other expense, net | (260 | ) | (291 | ) | (770 | ) | (667 | ) | |||||||
Income (loss) before income taxes | (211 | ) | 6 | 213 | 190 | ||||||||||
Income tax expense (benefit) | (117 | ) | 42 | 67 | 135 | ||||||||||
Net income (loss) | $ | (94 | ) | $ | (36 | ) | $ | 146 | $ | 55 | |||||
Other comprehensive income (loss), net of tax | |||||||||||||||
Net gain on cross currency interest rate swaps, net of tax effect of $0, $0, $0, and $13 | — | — | — | 23 | |||||||||||
Net loss on foreign currency translation, net of tax effect of $0, $0, $0 and ($37) | — | — | — | (62 | ) | ||||||||||
Unrealized gain (loss) on available-for-sale securities, net of tax effect of $0, $0, ($1) and $0 | 1 | — | (2 | ) | — | ||||||||||
Other comprehensive income (loss), net of tax | 1 | — | (2 | ) | (39 | ) | |||||||||
Total comprehensive income (loss) | $ | (93 | ) | $ | (36 | ) | $ | 144 | $ | 16 | |||||
Earnings (loss) per share | |||||||||||||||
Basic | $ | (0.12 | ) | $ | (0.05 | ) | $ | 0.18 | $ | 0.09 | |||||
Diluted | (0.12 | ) | (0.05 | ) | 0.18 | 0.09 | |||||||||
Weighted average shares outstanding | |||||||||||||||
Basic | 807,221,761 | 726,877,458 | 804,572,685 | 642,957,645 | |||||||||||
Diluted | 807,221,761 | 726,877,458 | 813,507,827 | 645,520,524 | |||||||||||
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 Cash Flows
(Unaudited)
Nine Months Ended September 30, | |||||||
(in millions) | 2014 | 2013 | |||||
Operating activities | |||||||
Net cash provided by operating activities | $ | 2,791 | $ | 2,541 | |||
Investing activities | |||||||
Purchases of property and equipment | (3,018 | ) | (3,143 | ) | |||
Purchases of spectrum licenses and other intangible assets | (2,390 | ) | (52 | ) | |||
Short term affiliate loan receivable, net | — | 300 | |||||
Cash and cash equivalents acquired in MetroPCS business combination | — | 2,144 | |||||
Change in restricted cash equivalents | — | (100 | ) | ||||
Investments in unconsolidated affiliates, net | (30 | ) | (22 | ) | |||
Other, net | (2 | ) | 5 | ||||
Net cash used in investing activities | (5,440 | ) | (868 | ) | |||
Financing activities | |||||||
Proceeds from issuance of long-term debt | 2,993 | 498 | |||||
Proceeds from issuance of short-term debt for purchases of inventory | 100 | — | |||||
Repayments of short-term debt for purchases of inventory, property and equipment | (514 | ) | (194 | ) | |||
Repayments related to a variable interest entity | — | (80 | ) | ||||
Distribution to affiliate | — | (41 | ) | ||||
Proceeds from exercise of stock options | 25 | 116 | |||||
Taxes paid related to net share settlement of stock awards | (72 | ) | — | ||||
Excess tax benefit from stock-based compensation | 34 | 4 | |||||
Other, net | (21 | ) | (5 | ) | |||
Net cash provided by financing activities | 2,545 | 298 | |||||
Change in cash and cash equivalents | (104 | ) | 1,971 | ||||
Cash and cash equivalents | |||||||
Beginning of period | 5,891 | 394 | |||||
End of period | $ | 5,787 | $ | 2,365 | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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T-Mobile US, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 1 – Basis of Presentation
The unaudited condensed consolidated financial statements of T-Mobile US, Inc. (“T-Mobile” 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 the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2013. Certain prior period amounts have been reclassified to conform to the current presentation.
The condensed consolidated financial statements include the balances and results of operations of T-Mobile and its consolidated subsidiaries. T-Mobile consolidates all majority-owned subsidiaries over which it exercises control, as well as variable interest entities (“VIE”) where it is deemed to be the primary beneficiary and VIEs which cannot be deconsolidated. Intercompany transactions and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the financial statements and accompanying notes. Actual results could differ from those estimates.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers.” The standard requires entities to recognize revenue through the application of a five-step model, which includes identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations, and recognition of revenue as the entity satisfies the performance obligations. The standard will become effective for T-Mobile beginning January 1, 2017. The Company is currently evaluating the guidance to determine the potential impact on T-Mobile’s financial condition, results of operations and cash flows, and financial statement disclosures.
Note 2 – Acquisitions and Other Transactions
Spectrum License Transactions
In November 2013 and January 2014, T-Mobile entered into agreements with Verizon Communications Inc. (“Verizon”) for the acquisition of 700 MHz A-Block, Advanced Wireless Service (“AWS”) and Personal Communications Service (“PCS”) spectrum licenses for cash and the exchange of certain AWS and PCS spectrum licenses. Upon closing of the transactions in April 2014, T-Mobile received 700 MHz A-Block, AWS and PCS spectrum licenses, paid Verizon $2.4 billion in cash and transferred certain AWS and PCS spectrum licenses. T-Mobile recorded the spectrum licenses received at their fair value of $4.5 billion. In addition, T-Mobile recognized a non-cash gain of $731 million included in gains on disposal of spectrum licenses for the nine months ended September 30, 2014.
In 2014, T-Mobile entered into transactions with various companies for the acquisition of 700 MHz A-Block, AWS and PCS spectrum licenses with an estimated aggregate fair value of approximately $0.4 billion, which cover more than 28 million people, for cash and the exchange of certain AWS and PCS spectrum licenses, which cover approximately 6 million people. Non-cash gains are expected to be recognized upon closing of the transactions, which are expected to occur during the fourth quarter of 2014 and first quarter of 2015. The transactions are subject to regulatory approval and other customary closing conditions.
Debt
In June 2014, the Company entered into a handset financing arrangement with affiliates of Deutsche Bank AG which allows for up to $108 million in borrowings. Under the handset financing arrangement, the Company can effectively extend payment terms for invoices payable to certain handset vendors. The interest rate on the handset financing arrangement is determined based on LIBOR plus a specified margin per the arrangement. Obligations under the handset financing arrangement are included in short-term debt. In the third quarter of 2014, T-Mobile utilized and paid $100 million under the handset financing arrangement. As of September 30, 2014, there was no outstanding balance.
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In September 2014, the Company issued $1.3 billion of 6.000% Senior Notes due 2023 and $1.7 billion of 6.375% Senior Notes due 2025, for which certain subsidiaries are guarantors. See Note 7 – Guarantor Financial Information for further information regarding the condensed consolidating financial information of T-Mobile’s guarantor subsidiaries. A portion of the proceeds from the issuance of the notes will be used to redeem the $1.0 billion of 7.875% Senior Notes due 2018. As notice of redemption was provided in September 2014, the 7.875% Senior Notes were included in short-term debt as of September 30, 2014.
Transaction with MetroPCS
On April 30, 2013, the business combination involving T-Mobile USA, Inc. (“T-Mobile USA”) and MetroPCS Communications, Inc. (“MetroPCS”) was completed. In connection with the business combination, MetroPCS acquired all of the outstanding capital stock of T-Mobile USA beneficially owned by Deutsche Telekom AG (“Deutsche Telekom”) in consideration for the issuance of shares of common stock representing a majority of the fully diluted shares of the combined company. MetroPCS was subsequently renamed T-Mobile US, Inc. and is the consolidated parent of the Company’s subsidiaries, including T-Mobile USA. The business combination was accounted for as a reverse acquisition with T-Mobile USA as the accounting acquirer. Accordingly, T-Mobile USA’s historical financial statements became the historical financial statements of the combined company. The common shares outstanding and earnings (loss) per share presented for periods up to April 30, 2013 reflect the common shares issued to T-Mobile Global Holding GmbH, an indirect wholly-owned subsidiary of Deutsche Telekom, in connection with the reverse acquisition. Additionally, the acquired assets and liabilities of MetroPCS were included in the condensed consolidated balance sheets as of April 30, 2013 and the results of its operations and cash flows are included in the condensed consolidated statements of comprehensive income (loss) and cash flows for periods beginning after May 1, 2013.
The Company recognized the following expenses included in cost of MetroPCS business combination:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(in millions) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Network decommissioning costs, including effects of deferred items | $ | 97 | $ | — | $ | 97 | $ | — | |||||||
Transaction and integration costs | — | 12 | 34 | 51 | |||||||||||
Cost of MetroPCS business combination | $ | 97 | $ | 12 | $ | 131 | $ | 51 | |||||||
Network Decommissioning Costs
Prior to the closing of the business combination with MetroPCS, T-Mobile developed integration plans which included the decommissioning of the MetroPCS Code Division Multiple Access (“CDMA”) network and certain other redundant network cell sites. In July 2014, T-Mobile began decommissioning the MetroPCS CDMA network and redundant network cell sites. Network decommissioning costs primarily relate to the acceleration of lease costs for decommissioned cell sites for which T-Mobile will no longer receive any economic benefit. Accrued liabilities for network decommissioning costs will be relieved as cash payments are made over the remaining lease terms. In addition, network decommissioning costs include the write off of deferred items related to certain cell sites, which consist of prepaid rent expense, favorable leases, unfavorable leases and deferred rent expense. During the third quarter of 2014, T-Mobile recognized network decommissioning costs, including effects of deferred items, of $97 million and expects to incur additional network decommissioning costs of $150 million to $200 million in the fourth quarter of 2014 for certain cell sites.
T-Mobile expects to decommission additional cell sites in 2015 and 2016. Currently, T-Mobile is unable to estimate the expected network decommissioning costs and related future cash expenditures for those cell sites due to uncertainties regarding the specific cell sites to be decommissioned and the timing of such decommissioning.
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The following table summarizes the activity related to the accrual for network decommissioning costs:
(in millions) | September 30, 2014 | ||
Balances, beginning of period | $ | — | |
Network decommissioning costs | 99 | ||
Cash payments | (2 | ) | |
Balances, end of period | $ | 97 | |
Classified on the balance sheet as: | |||
Accounts payable and accrued liabilities | $ | 33 | |
Other long-term liabilities | 64 | ||
Network decommissioning costs accrual | $ | 97 | |
Transaction and Integration Costs
Transaction and integration costs generally included costs for personnel associated with the change in control and other acquisition-related charges and costs for personnel, professional services and combining information technology infrastructures associated with ongoing integration activities.
Factoring Arrangement
Transaction Overview
In February 2014, T-Mobile entered into a two-year factoring arrangement to sell certain service accounts receivable on a revolving basis with a maximum funding limit of $500 million, subject to change upon notification to certain third parties. Sales of receivables occur daily and are settled on a monthly basis. The receivables consist of service charges currently due from customers and are short-term in nature. In connection with the factoring arrangement, the Company formed a wholly-owned subsidiary, which qualifies as a bankruptcy remote special purpose entity (“Factoring SPE”). Pursuant to the factoring arrangement, certain subsidiaries of T-Mobile transfer selected receivables to the Factoring SPE. The Factoring SPE then sells the receivables to an unaffiliated entity (“Factoring VIE”), which was established to facilitate the sale of ownership interests in the receivables to certain third parties.
Variable Interest Entity
The Company determined the Factoring VIE is a VIE as it lacks sufficient equity to finance its activities. The Company has a variable interest in the Factoring VIE, but is not the primary beneficiary as it lacks the power to direct the activities that most significantly impact the Factoring VIE’s economic performance. The activities which most significantly impact the Factoring VIE’s economic performance include committing the Factoring VIE to legal agreements to purchase or sell assets, selecting which receivables are purchased in the factoring arrangement, determining whether the Factoring VIE will sell interests in the purchased service receivables to other parties, and servicing of the receivables. While T-Mobile acts as the servicer of the sold receivables, which is considered a significant activity of the VIE, the Company is acting as an agent in its capacity as the servicer and the counterparty to the factoring arrangement has the ability to remove T-Mobile as the servicing agent of the receivables at will with no recourse available to T-Mobile. As the Company has determined it is not the primary beneficiary and does not hold any equity interest, the results of the Factoring VIE are not consolidated into the Company’s condensed consolidated financial statements.
Sales of Receivables
The sales of receivables through the factoring arrangement are treated as sales of financial assets. Upon sale, T-Mobile derecognizes the receivables, as well as the related allowances, and recognizes the net proceeds in cash provided by operating activities.
As of September 30, 2014, T-Mobile derecognized net receivables of $719 million through the factoring arrangement. For the nine months ended September 30, 2014, T-Mobile received net cash proceeds of $456 million. The proceeds were net of a receivable for the remainder of the purchase price (“deferred purchase price”), which is received from collections on the service receivables. The deferred purchase price represents a financial asset that can be settled in such a way that T-Mobile may not recover substantially all of its recorded investment due to the creditworthiness of customers. As a result, T-Mobile elected at
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inception to classify the deferred purchase price as a trading security carried at fair value with unrealized gains and losses from changes in fair value included in selling, general and administrative expense. The fair value of the deferred purchase price was determined based on a discounted cash flow model which uses unobservable inputs (Level 3 inputs), including customer default rates. Due to the short-term nature of the underlying financial assets, the carrying value approximated fair value. As of September 30, 2014, other current assets related to the factoring arrangement, which were held by the Factoring SPE and primarily consisted of the deferred purchase price, were $235 million.
Net expenses resulting from the sales of receivables are recognized in selling, general and administrative expense. Prior to the sales of receivables, T-Mobile recognizes impairment charges, rather than bad debt expense, to reduce the receivables to fair value for estimated losses resulting from uncollectible balances. Net expenses also include any resulting gains or losses from the sales of receivables, unrealized gains and losses related to the deferred purchase price, and factoring fees. For the three and nine months ended September 30, 2014, T-Mobile recognized net expenses of $67 million and $157 million, respectively.
Continuing Involvement
T-Mobile has continuing involvement with the sold receivables as it services the receivables and is required to repurchase certain receivables, including aged receivables and receivables where write-off is imminent, pursuant to the factoring arrangement. T-Mobile will continue to service the customer and their related receivables, including facilitating customer payment collection, in exchange for a monthly servicing fee. As the receivables are sold on a revolving basis, the customer payment collections are reinvested in new receivable sales. While servicing the receivables the same policies and procedures are applied to the sold receivables that apply to owned receivables, and T-Mobile continues to maintain routine business relationships with its customers.
In addition, T-Mobile has continuing involvement related to the sold receivables as it may be responsible for absorbing additional credit losses pursuant to the agreement. The Company’s maximum exposure to loss related to the involvement with the Factoring VIE was $495 million as of September 30, 2014. The maximum exposure to loss, which is required disclosure under GAAP, represents an estimated loss that would be incurred under severe, hypothetical circumstances whereby the Company would not receive the portion of the contractual proceeds withheld by the Factoring VIE and would also be required to repurchase the maximum amount of receivables pursuant to the agreement without consideration for any recovery. As T-Mobile believes the probability of these circumstances occurring is very remote, the maximum exposure to loss is not an indication of the Company’s expected loss.
Note 3 – Equipment Installment Plan Receivables
T-Mobile offers certain retail customers the option to pay for their devices and other purchases in installments over a period of up to 24 months using an Equipment Installment Plan (“EIP”). The carrying values of EIP receivables approximate fair value as the receivables are recorded at their present value, net of the deferred interest and additional allowance for credit losses. The current portion of the EIP receivables is included in accounts receivable, net and the long-term portion of the EIP receivables is included in other assets. At the time of sale, the Company imputes interest, inclusive of credit risk, on the EIP receivables and records the deferred interest as a reduction to equipment sales and as an allowance against the related accounts receivable. Interest income is recognized over the financed installment term.
The following table summarizes the EIP receivables:
(in millions) | September 30, 2014 | December 31, 2013 | |||||
EIP receivables, gross | $ | 4,403 | $ | 2,882 | |||
Deferred interest | (309 | ) | (276 | ) | |||
EIP receivables, net of deferred interest | 4,094 | 2,606 | |||||
Allowance for credit losses | (131 | ) | (60 | ) | |||
EIP receivables, net | $ | 3,963 | $ | 2,546 | |||
Classified on the balance sheet as: | |||||||
Accounts receivable, net | $ | 2,553 | $ | 1,471 | |||
Other assets | 1,410 | 1,075 | |||||
EIP receivables, net | $ | 3,963 | $ | 2,546 | |||
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Based upon customer credit profiles, T-Mobile classifies EIP receivables into the credit categories of “Prime” and “Subprime”. T-Mobile uses proprietary scoring systems that measure the credit quality of the EIP receivables using several factors, such as credit bureau information, consumer credit risk scores and service plan characteristics. Prime customer receivables are those with lower delinquency risk and Subprime customer receivables are those with higher delinquency risk. Customers within the Subprime category may be required to pay a significant down payment on their equipment purchases. In addition, certain customers within the Subprime category are required to pay an advance deposit.
The balance and aging of the EIP receivables on a gross basis by credit category were as follows:
September 30, 2014 | December 31, 2013 | ||||||||||||||||||||||
(in millions) | Prime | Subprime | Total | Prime | Subprime | Total | |||||||||||||||||
Unbilled | $ | 2,239 | $ | 1,925 | $ | 4,164 | $ | 1,482 | $ | 1,270 | $ | 2,752 | |||||||||||
Billed - Current | 88 | 84 | 172 | 45 | 45 | 90 | |||||||||||||||||
Billed - Past Due | 26 | 41 | 67 | 15 | 25 | 40 | |||||||||||||||||
EIP receivables, gross | $ | 2,353 | $ | 2,050 | $ | 4,403 | $ | 1,542 | $ | 1,340 | $ | 2,882 | |||||||||||
EIP receivables for which invoices have not yet been generated for the customer are classified as Unbilled. EIP receivables for which invoices have been generated but which are not past the contractual due date are classified as Billed - Current. EIP receivables for which invoices have been generated and the payment is past the contractual due date are classified as Billed - Past Due.
T-Mobile maintains an additional allowance for credit losses exceeding the credit risk recorded as deferred interest. The allowance is based on a number of factors, including collection experience, aging of the accounts receivable portfolio, credit quality of the customer base, and other qualitative factors such as macro-economic conditions. T-Mobile writes off account balances if collection efforts were unsuccessful and future collection is unlikely based on customer credit ratings and the length of time from the original billing date. Equipment sales that are not reasonably assured to be collectible are recorded on a cash basis as payments are received.
Activity in the deferred interest and allowance for credit losses for the EIP receivables was as follows:
(in millions) | September 30, 2014 | ||
Deferred interest and allowance for credit losses, beginning of period | $ | 336 | |
Bad debt expense | 217 | ||
Write-offs, net of recoveries | (146 | ) | |
Change in deferred interest on short-term and long-term EIP receivables | 33 | ||
Deferred interest and allowance for credit losses, end of period | $ | 440 | |
Deferred interest and allowance for credit losses includes the long-term portion of deferred interest of $56 million and $64 million as of September 30, 2014 and December 31, 2013, respectively.
Note 4 – Fair Value Measurements and Derivative Instruments
Derivative Financial Instruments
Embedded Derivatives
In connection with the business combination with MetroPCS, T-Mobile issued senior reset notes to Deutsche Telekom. The interest rates are adjusted at the reset dates to rates defined in the applicable supplemental indentures to manage interest rate risk related to the senior reset notes. The Company determined certain components of the reset feature are required to be bifurcated from the senior reset notes and separately accounted for as embedded derivative instruments not designated as hedges. T-Mobile held five embedded derivatives as of September 30, 2014 and December 31, 2013, respectively.
The embedded derivatives are carried at fair value with unrealized gains and losses from changes in fair value included in interest expense to affiliates. The fair value of the embedded derivatives was determined using a lattice-based valuation model by determining the fair value of the senior reset notes with and without the embedded derivatives included. The fair value of the senior reset notes with the embedded derivatives utilizes the contractual term of each senior reset note, reset rates calculated based on the spread between specified yield curves and the yield curve on T-Mobile long-term debt adjusted pursuant to the applicable supplemental indentures, and interest rate volatility. Interest rate volatility is a significant unobservable input (Level
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3) as it is derived based on weighted risk-free rate volatility and credit spread volatility. Significant increases or decreases in the weighting of risk-free volatility and credit spread volatility, in isolation, would result in a higher or lower fair value of the embedded derivatives. The embedded derivatives were classified as Level 3 in the fair value hierarchy.
Interest Rate Swaps
Prior to the closing of the business combination with MetroPCS, T-Mobile managed interest rate risk related to its long-term debt to affiliates by entering into interest rate swap agreements. T-Mobile held seven interest rate swaps with a total notional amount of $3.6 billion as of December 31, 2012. These interest rate swap agreements were not designated as hedging instruments.
In April 2013, prior to the closing of the business combination with MetroPCS, Deutsche Telekom recapitalized T-Mobile by retiring the existing T-Mobile long-term debt to affiliates and all related derivative instruments, which included the interest rate swaps. The related balance in accumulated other comprehensive income (“AOCI”) was reclassified into net income (loss). As of September 30, 2014 and December 31, 2013, there were no outstanding interest rate swaps.
Cross Currency Interest Rate Swaps
Prior to the closing of the business combination with MetroPCS, T-Mobile managed foreign currency risk along with interest rate risk through cross currency interest rate swap agreements related to its intercompany Euro denominated long-term debt to affiliates, which were entered into upon assumption of the notes to fix the future interest and principal payments in U.S. dollars, as well as to mitigate the impact of foreign currency transaction gains or losses over the terms of the long-term debt to affiliates extending to 2025. T-Mobile had three cross currency interest rate swaps with a total notional amount of $2.3 billion as of December 31, 2012. These cross currency interest rate swaps were designated as cash flow hedges and met the criteria for hedge accounting. The hedges were evaluated as highly effective prior to the closing of the business combination with MetroPCS, thus no gains (losses) were recognized due to hedge ineffectiveness.
In April 2013, prior to the closing of the business combination with MetroPCS, Deutsche Telekom recapitalized T-Mobile by retiring the existing T-Mobile long-term debt to affiliates and all related derivative instruments, which included cross currency interest rate swaps. The related balance in AOCI was reclassified into net income (loss). As of September 30, 2014 and December 31, 2013, there were no outstanding cross currency interest rate swaps.
Fair values of derivative instruments measured on a recurring basis by level were as follows:
Balance Sheet Location | September 30, 2014 | ||||||||||||||||
(in millions) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Embedded derivatives | Other current assets | $ | — | $ | — | $ | 10 | $ | 10 | ||||||||
Embedded derivatives | Other assets | — | — | 21 | 21 | ||||||||||||
Balance Sheet Location | December 31, 2013 | ||||||||||||||||
(in millions) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Embedded derivatives | Other long-term liabilities | $ | — | $ | — | $ | 13 | $ | 13 | ||||||||
The following table summarizes the activity related to derivatives instruments:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(in millions) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Loss recognized in other comprehensive income (loss): | |||||||||||||||
Cross currency interest rate swaps | $ | — | $ | — | $ | — | $ | (17 | ) | ||||||
Gain (loss) recognized in interest expense to affiliates: | |||||||||||||||
Embedded derivatives | (10 | ) | (10 | ) | 44 | (15 | ) | ||||||||
Interest rate swaps | — | — | — | 8 | |||||||||||
Cross currency interest rate swaps | — | — | — | 53 | |||||||||||
11
Long-term Debt
The fair value of the Company’s long-term debt to affiliates was determined based on a discounted cash flow approach which considers the future cash flows discounted at current rates. The approach includes an estimate for the stand-alone credit risk of T-Mobile. The Company’s long-term debt to affiliates was classified as Level 2 in the fair value hierarchy. The fair value of the Company’s long-term debt to third parties was determined based on quoted market prices in active markets and therefore, the long-term debt is classified as Level 1 in the fair value hierarchy.
The carrying amounts and fair values of the Company’s long-term debt, including the current portion, were as follows:
September 30, 2014 | December 31, 2013 | ||||||||||||||
(in millions) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||
Long-term debt to affiliates | $ | 5,600 | $ | 5,796 | $ | 5,600 | $ | 5,866 | |||||||
Long-term debt to third parties principal, excluding capital leases | 16,600 | 16,937 | 13,600 | 14,251 | |||||||||||
Although the Company has determined the estimated fair value amounts using available market information and commonly accepted valuation methodologies, considerable judgment is required in interpreting market data to develop fair value estimates for the long-term debt. The fair value estimates are based on information available as of September 30, 2014 and December 31, 2013. As such, the Company’s estimates are not necessarily indicative of the amount that the Company could realize in a current market exchange.
Note 5 – Commitments and Contingencies
Commitments
Guarantee Liabilities
T-Mobile offers a handset upgrade program, Just Upgrade My Phone (“JUMP!”), which provides eligible customers a specified-price trade-in right to upgrade their device. Participating customers must purchase a device from T-Mobile, have a qualifying monthly wireless service plan with T-Mobile, and finance their device using an EIP, which is treated as a single multiple-element arrangement when entered into at or near the same time. Upon qualifying JUMP! program upgrades, the customers’ remaining EIP balance is settled provided they trade in their eligible used device in good working condition and purchase a new device from T-Mobile on a new EIP.
For customers who enroll in the trade-in program, the Company defers the portion of equipment sales revenue which represents the estimated value of the specified-price trade-in right guarantee. The guarantee liabilities are valued based on various economic and customer behavioral assumptions, including the customer's estimated remaining EIP balance at trade-in, the expected fair value of the used handset at trade-in, and the probability and timing of trade-in. T-Mobile assesses guarantee liabilities at each reporting date to determine if facts and circumstances would indicate the incurrence of incremental contingent liabilities is probable and if so, reasonably estimable. The recognition and subsequent adjustments of the contingent guarantee liabilities as a result of these assessments are recorded as adjustments to revenue. When customers upgrade their devices, the difference between the trade-in credit to the customer and the fair value of the returned devices is recorded against the guarantee liabilities. Guarantee liabilities included in other current liabilities were $312 million and $191 million as of September 30, 2014 and December 31, 2013, respectively. The estimated EIP receivable balance if all enrolled handset upgrade program customers were to claim their benefit, not including any trade-in value of the required used handset, was $2.3 billion as of September 30, 2014. This is not an indication of the Company’s expected loss exposure because it does not consider the expected fair value of the used handset, which is required to be in good working condition at trade-in, nor does it consider the probability and timing of trade-in.
Contingencies and Litigation
T-Mobile is involved in various lawsuits, regulatory proceedings, and other similar matters, including class actions and intellectual property claims (such as patent infringement claims), that arise in the ordinary course of business. Specifically, T-Mobile faces actual and potential litigation and other legal and regulatory proceedings that challenge customer billing and other business practices, and seek awards of damages, restitution, injunctive relief, and/or penalties. T-Mobile has established an accrual with respect to certain of these matters, where appropriate, which is reflected in the condensed consolidated financial statements but that T-Mobile does not consider, individually or in the aggregate, material. An accrual is established when T-Mobile believes it is both probable that a loss has been incurred and an amount can be reasonably estimated. For other matters,
12
where the Company has not determined that a loss is probable or because the amount of loss cannot be reasonably estimated, the Company has not recorded an accrual due to various factors typical in contested proceedings, including but not limited to: uncertainty concerning legal theories and their resolution by courts or regulators; uncertain damage theories and demands; and a less than fully developed factual record. While T-Mobile does not expect that the ultimate resolution of these proceedings, individually or in the aggregate, including the Federal Trade Commission (“FTC”) litigation and related matters described below, will have a material adverse effect on the Company’s financial position, an unfavorable outcome of some or all of these proceedings could have a material adverse impact on results of operations or cash flows for a particular period. This assessment is based on T-Mobile’s current understanding of relevant facts and circumstances. As such, T-Mobile’s view of these matters is subject to inherent uncertainties and may change in the future.
As T-Mobile has previously disclosed, the FTC, Federal Communications Commission (“FCC”), state Attorneys General and other government agencies have engaged in investigations and inquiries regarding third-party billing of unauthorized charges, a practice sometimes referred to as “cramming,” and are seeking restitution and changes in business practices. In particular, these investigations and inquiries have focused on alleged unauthorized billing for premium Short Message Service (“SMS”) content. Premium SMS content was provided to customers by third parties that sent text alerts on topics of interest, such as weather and sports scores, and ringtones. T-Mobile, along with the other major wireless carriers, stopped billing for these services in late 2013. In June 2014, T-Mobile announced and then implemented a comprehensive refund program, under which T-Mobile has notified current and former customers who paid for premium SMS content and have not already received a refund how to request a summary of these charges and a refund for those charges customers assert to have been unauthorized. T-Mobile accrued the estimated cost of the refund program as a $24 million reduction to service revenues during the second quarter of 2014. On July 1, 2014, the FTC filed a lawsuit alleging that T-Mobile allowed third-party merchants to include unauthorized premium SMS content charges on customer bills, and seeking restitution and changes in business practices (Federal Trade Commission v. T-Mobile USA, Inc., Case No. 2:14-cv-00967-JLR, W.D. Washington). This complaint did not seek a specified sum as monetary relief. T-Mobile is currently in settlement negotiations with the FTC, the FCC and the state Attorneys General. Based on this development, in addition to the revenue reduction recognized in the second quarter of 2014 in connection with the comprehensive refund program, T-Mobile has accrued an additional $29 million in the third quarter of 2014 for anticipated settlement payments.
Note 6 – Additional Financial Information
Supplemental Balance Sheet Information
Cash and Cash Equivalents
T-Mobile is required to restrict cash equivalents as collateral for certain agreements. Restricted cash equivalents included in other current assets were $100 million as of September 30, 2014 and December 31, 2013, respectively.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities are summarized as follows:
(in millions) | September 30, 2014 | December 31, 2013 | |||||
Accounts payable | $ | 4,187 | $ | 3,026 | |||
Property and other taxes, including payroll | 624 | 534 | |||||
Payroll and related benefits | 446 | 394 | |||||
Interest | 251 | 272 | |||||
Dealer commissions | 144 | 118 | |||||
Toll and interconnect | 130 | 74 | |||||
Advertising | 59 | 42 | |||||
Other | 216 | 107 | |||||
Accounts payable and accrued liabilities | $ | 6,057 | $ | 4,567 | |||
Accumulated Other Comprehensive Income
There were no significant effects on net income (loss) of amounts reclassified from AOCI for the three and nine months ended September 30, 2014.
13
The following table presents the effects on net income (loss) of amounts reclassified from AOCI (in millions):
Amount Reclassified from AOCI to Income | ||||||||||
AOCI Component | Location | Three Months Ended September 30, 2013 | Nine Months Ended September 30, 2013 | |||||||
Cross Currency Interest Rate Swaps | Interest expense to affiliates | $ | — | $ | (53 | ) | ||||
Income tax effect | — | 20 | ||||||||
Net of tax | — | (33 | ) | |||||||
Foreign Currency Translation | Other income, net | — | 166 | |||||||
Income tax effect | — | (62 | ) | |||||||
Net of tax | — | 104 | ||||||||
Total reclassifications, net of tax | $ | — | $ | 71 | ||||||
Supplemental Statements of Comprehensive Income (Loss) Information
Earnings (Loss) Per Share
The computation of basic and diluted earnings (loss) per share was as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(in millions, except shares and per share amounts) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Basic and Diluted Earnings (Loss) Per Share: | |||||||||||||||
Net income (loss) | $ | (94 | ) | $ | (36 | ) | $ | 146 | $ | 55 | |||||
Weighted average shares outstanding - basic | 807,221,761 | 726,877,458 | 804,572,685 | 642,957,645 | |||||||||||
Dilutive effect of outstanding stock options and awards | — | — | 8,935,142 | 2,562,879 | |||||||||||
Weighted average shares outstanding - diluted | 807,221,761 | 726,877,458 | 813,507,827 | 645,520,524 | |||||||||||
Earnings (loss) per share - basic | $ | (0.12 | ) | $ | (0.05 | ) | $ | 0.18 | $ | 0.09 | |||||
Earnings (loss) per share - diluted | (0.12 | ) | (0.05 | ) | 0.18 | 0.09 | |||||||||
Potentially dilutive securities were not included in the computation of diluted earnings (loss) per share for certain periods if to do so would have been antidilutive. As the Company incurred a net loss for the three months ended September 30, 2014 and 2013, all outstanding stock options of 4,529,919 and 8,200,306 and unvested stock awards of 16,761,698 and 24,928,415 as of September 30, 2014 and 2013, respectively, were excluded. For the nine months ended September 30, 2014 and 2013, potentially dilutive outstanding stock options of 1,382,436 and 4,484,084 and unvested stock awards of 32,458 and 2,765,055 as of September 30, 2014 and 2013, respectively, were excluded. Unvested performance stock units were based on the number of shares ultimately expected to vest based on T-Mobile’s business performance against the specified performance goal.
14
Supplemental Statements of Cash Flows Information
The following table summarizes T-Mobile’s supplemental cash flows information:
Nine Months Ended September 30, | |||||||
(in millions) | 2014 | 2013 | |||||
Interest and income tax payments: | |||||||
Interest payments | $ | 1,008 | $ | 784 | |||
Income tax payments | 23 | 21 | |||||
Noncash investing and financing activities: | |||||||
Increase in accounts payable for purchases of property and equipment | 235 | 53 | |||||
Proceeds from issuance of short-term debt for financing of property and equipment purchases | 256 | 372 | |||||
Retirement of long-term debt to affiliates | — | 14,450 | |||||
Elimination of net unamortized discounts and premiums on long-term debt to affiliates | — | 434 | |||||
Issuance of new long-term debt to affiliates | — | 11,200 | |||||
Settlement of accounts receivable from affiliates and other outstanding balances | — | 363 | |||||
Income tax benefit from debt recapitalization | — | 178 | |||||
Net assets acquired in MetroPCS business combination, excluding cash acquired | — | 827 | |||||
Note 7 – Guarantor Financial Information
Pursuant to the applicable indentures and supplemental indentures, the long-term debt, excluding capital leases, issued by T-Mobile USA (“Issuer”) is fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by T-Mobile (“Parent”) and certain of the Issuer’s 100% owned subsidiaries (“Guarantor Subsidiaries”). The guarantees of the Guarantor Subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The indentures governing the long-term debt contain covenants that, among other things, limit the ability of the Issuer and the Guarantor Subsidiaries to: incur more debt; pay dividends and make distributions; make certain investments; repurchase stock; create liens or other encumbrances; enter into transactions with affiliates; enter into transactions that restrict dividends or distributions from subsidiaries; and merge, consolidate, or sell, or otherwise dispose of, substantially all of their assets. Certain provisions of each of the indentures and the supplemental indentures relating to the long-term debt restrict the ability of the Issuer to loan funds or make payments to Parent. However, the Issuer and Guarantor Subsidiaries are allowed to make certain permitted payments to the Parent under the terms of the indentures and the supplemental indentures.
In February 2014, T-Mobile entered into a factoring arrangement to sell certain service accounts receivable on a revolving basis. In connection with the factoring arrangement, the Company formed the Factoring SPE, which is included in the Non-Guarantor Subsidiaries condensed consolidating financial information. See Note 2 – Acquisitions and Other Transactions for further information regarding the factoring arrangement.
In April 2014, Parent contributed $1.7 billion of cash to the Issuer in connection with the Verizon 700 MHz A-Block spectrum license acquisition. The transaction was recorded as an equity contribution and reflected in investments in subsidiaries, net on the Parent’s condensed consolidating balance sheet information. In addition, the contribution was presented as an investing activity from the Parent to the Issuer in the condensed consolidating statement of cash flows information.
In September 2014, the Issuer issued unsecured senior notes of $3.0 billion. See Note 2 – Acquisitions and Other Transactions for further information regarding the issuance of long-term debt.
Presented below is the condensed consolidating financial information as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013, respectively. As the business combination with MetroPCS was treated as a “reverse acquisition” and the Issuer was treated as the accounting acquirer, the Issuer’s historical financial statements are the historical financial statements of Parent for comparative purposes. As a result the Parent column only reflects activity in the condensed consolidating financial statements presented below for periods subsequent to the consummation of the business combination on April 30, 2013. The equity method of accounting is used to account for ownership interests in subsidiaries, where applicable.
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Condensed Consolidating Balance Sheet Information
As of September 30, 2014
(in millions) | Parent | Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating and Eliminating Adjustments | Consolidated | |||||||||||||||||
Assets | |||||||||||||||||||||||
Current assets | |||||||||||||||||||||||
Cash and cash equivalents | $ | 1,292 | $ | 4,315 | $ | 68 | $ | 112 | $ | — | $ | 5,787 | |||||||||||
Accounts receivable, net | — | — | 4,270 | 163 | — | 4,433 | |||||||||||||||||
Accounts receivable from affiliates | — | — | 82 | — | — | 82 | |||||||||||||||||
Inventory | — | — | 674 | — | — | 674 | |||||||||||||||||
Current portion of deferred tax assets, net | — | — | 935 | 15 | — | 950 | |||||||||||||||||
Other current assets | — | 10 | 1,088 | 271 | — | 1,369 | |||||||||||||||||
Total current assets | 1,292 | 4,325 | 7,117 | 561 | — | 13,295 | |||||||||||||||||
Property and equipment, net of accumulated depreciation | — | — | 15,264 | 534 | — | 15,798 | |||||||||||||||||
Goodwill | — | — | 1,683 | — | — | 1,683 | |||||||||||||||||
Spectrum licenses | — | — | 21,689 | — | — | 21,689 | |||||||||||||||||
Other intangible assets, net of accumulated amortization | — | — | 956 | — | — | 956 | |||||||||||||||||
Investments in subsidiaries, net | 13,369 | 30,057 | — | — | (43,426 | ) | — | ||||||||||||||||
Intercompany receivables | — | 1,972 | — | — | (1,972 | ) | — | ||||||||||||||||
Other assets | 2 | 41 | 1,641 | 96 | (86 | ) | 1,694 | ||||||||||||||||
Total assets | $ | 14,663 | $ | 36,395 | $ | 48,350 | $ | 1,191 | $ | (45,484 | ) | $ | 55,115 | ||||||||||
Liabilities and Stockholders' Equity | |||||||||||||||||||||||
Current liabilities | |||||||||||||||||||||||
Accounts payable and accrued liabilities | $ | — | $ | 250 | $ | 5,607 | $ | 200 | $ | — | $ | 6,057 | |||||||||||
Current payables to affiliates | — | 137 | 178 | — | — | 315 | |||||||||||||||||
Short-term debt | — | 1,145 | 23 | — | — | 1,168 | |||||||||||||||||
Deferred revenue | — | — | 452 | — | — | 452 | |||||||||||||||||
Other current liabilities | — | — | 613 | — | — | 613 | |||||||||||||||||
Total current liabilities | — | 1,532 | 6,873 | 200 | — | 8,605 | |||||||||||||||||
Long-term debt to affiliates | — | 5,600 | — | — | — | 5,600 | |||||||||||||||||
Long-term debt | — | 15,894 | 390 | — | — | 16,284 | |||||||||||||||||
Long-term financial obligation | — | — | 368 | 2,142 | — | 2,510 | |||||||||||||||||
Deferred tax liabilities | — | — | 4,830 | — | (86 | ) | 4,744 | ||||||||||||||||
Deferred rents | — | — | 2,289 | — | — | 2,289 | |||||||||||||||||
Negative carrying value of subsidiaries, net | — | — | 582 | — | (582 | ) | — | ||||||||||||||||
Intercompany payables | 138 | — | 1,745 | 89 | (1,972 | ) | — | ||||||||||||||||
Other long-term liabilities | — | — | 558 | — | — | 558 | |||||||||||||||||
Total long-term liabilities | 138 | 21,494 | 10,762 | 2,231 | (2,640 | ) | 31,985 | ||||||||||||||||
Total stockholders' equity | 14,525 | 13,369 | 30,715 | (1,240 | ) | (42,844 | ) | 14,525 | |||||||||||||||
Total liabilities and stockholders' equity | $ | 14,663 | $ | 36,395 | $ | 48,350 | $ | 1,191 | $ | (45,484 | ) | $ | 55,115 | ||||||||||
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Condensed Consolidating Balance Sheet Information
As of December 31, 2013
(in millions) | Parent | Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating and Eliminating Adjustments | Consolidated | |||||||||||||||||
Assets | |||||||||||||||||||||||
Current assets | |||||||||||||||||||||||
Cash and cash equivalents | $ | 2,960 | $ | 2,698 | $ | 57 | $ | 176 | $ | — | $ | 5,891 | |||||||||||
Accounts receivable, net | — | — | 3,541 | 78 | — | 3,619 | |||||||||||||||||
Accounts receivable from affiliates | — | — | 41 | — | — | 41 | |||||||||||||||||
Inventory | — | — | 586 | — | — | 586 | |||||||||||||||||
Current portion of deferred tax assets, net | — | — | 824 | 15 | — | 839 | |||||||||||||||||
Other current assets | — | — | 1,250 | 2 | — | 1,252 | |||||||||||||||||
Total current assets | 2,960 | 2,698 | 6,299 | 271 | — | 12,228 | |||||||||||||||||
Property and equipment, net of accumulated depreciation | — | — | 14,754 | 595 | — | 15,349 | |||||||||||||||||
Goodwill | — | — | 1,683 | — | — | 1,683 | |||||||||||||||||
Spectrum licenses | — | — | 18,122 | — | — | 18,122 | |||||||||||||||||
Other intangible assets, net of accumulated amortization | — | — | 1,204 | — | — | 1,204 | |||||||||||||||||
Investments in subsidiaries, net | 11,484 | 29,123 | — | — | (40,607 | ) | — | ||||||||||||||||
Intercompany receivables | — | — | 418 | — | (418 | ) | — | ||||||||||||||||
Other assets | 2 | 24 | 1,292 | 93 | (44 | ) | 1,367 | ||||||||||||||||
Total assets | $ | 14,446 | $ | 31,845 | $ | 43,772 | $ | 959 | $ | (41,069 | ) | $ | 49,953 | ||||||||||
Liabilities and Stockholders' Equity | |||||||||||||||||||||||
Current liabilities | |||||||||||||||||||||||
Accounts payable and accrued liabilities | $ | — | $ | 273 | $ | 4,218 | $ | 76 | $ | — | $ | 4,567 | |||||||||||
Current payables to affiliates | — | 56 | 143 | — | — | 199 | |||||||||||||||||
Short-term debt | — | 226 | 18 | — | — | 244 | |||||||||||||||||
Deferred revenue | — | — | 445 | — | — | 445 | |||||||||||||||||
Other current liabilities | — | — | 313 | 40 | — | 353 | |||||||||||||||||
Total current liabilities | — | 555 | 5,137 | 116 | — | 5,808 | |||||||||||||||||
Long-term debt to affiliates | — | 5,600 | — | — | — | 5,600 | |||||||||||||||||
Long-term debt | — | 14,010 | 335 | — | — | 14,345 | |||||||||||||||||
Long-term financial obligation | — | — | 365 | 2,131 | — | 2,496 | |||||||||||||||||
Deferred tax liabilities | — | — | 4,689 | — | (44 | ) | 4,645 | ||||||||||||||||
Deferred rents | — | — | 2,113 | — | — | 2,113 | |||||||||||||||||
Negative carrying value of subsidiaries, net | — | — | 779 | — | (779 | ) | — | ||||||||||||||||
Intercompany payables | 201 | 183 | — | 34 | (418 | ) | — | ||||||||||||||||
Other long-term liabilities | — | 13 | 688 | — | — | 701 | |||||||||||||||||
Total long-term liabilities | 201 | 19,806 | 8,969 | 2,165 | (1,241 | ) | 29,900 | ||||||||||||||||
Total stockholders' equity | 14,245 | 11,484 | 29,666 | (1,322 | ) | (39,828 | ) | 14,245 | |||||||||||||||
Total liabilities and stockholders' equity | $ | 14,446 | $ | 31,845 | $ | 43,772 | $ | 959 | $ | (41,069 | ) | $ | 49,953 | ||||||||||
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Condensed Consolidating Statement of Comprehensive Income (Loss) Information
Three Months Ended September 30, 2014
(in millions) | Parent | Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating and Eliminating Adjustments | Consolidated | |||||||||||||||||
Revenues | |||||||||||||||||||||||
Service revenues | $ | — | $ | — | $ | 5,449 | $ | 346 | $ | (111 | ) | $ | 5,684 | ||||||||||
Equipment sales | — | — | 1,697 | — | (136 | ) | 1,561 | ||||||||||||||||
Other revenues | — | — | 74 | 34 | (3 | ) | 105 | ||||||||||||||||
Total revenues | — | — | 7,220 | 380 | (250 | ) | 7,350 | ||||||||||||||||
Operating expenses | |||||||||||||||||||||||
Cost of services | — | — | 1,483 | 5 | — | 1,488 | |||||||||||||||||
Cost of equipment sales | — | — | 2,245 | 209 | (146 | ) | 2,308 | ||||||||||||||||
Selling, general and administrative | — | — | 2,248 | 139 | (104 | ) | 2,283 | ||||||||||||||||
Depreciation and amortization | — | — | 1,118 | 20 | — | 1,138 | |||||||||||||||||
Cost of MetroPCS business combination | — | — | 97 | — | — | 97 | |||||||||||||||||
Gains on disposal of spectrum licenses | — | — | (13 | ) | — | — | (13 | ) | |||||||||||||||
Total operating expenses | — | — | 7,178 | 373 | (250 | ) | 7,301 | ||||||||||||||||
Operating income | — | — | 42 | 7 | — | 49 | |||||||||||||||||
Other income (expense) | |||||||||||||||||||||||
Interest expense to affiliates | — | (83 | ) | — | — | — | (83 | ) | |||||||||||||||
Interest expense | — | (204 | ) | (11 | ) | (45 | ) | — | (260 | ) | |||||||||||||
Interest income | — | — | 97 | — | — | 97 | |||||||||||||||||
Other income, net | — | 83 | 3 | — | (100 | ) | (14 | ) | |||||||||||||||
Total other income (expense), net | — | (204 | ) | 89 | (45 | ) | (100 | ) | (260 | ) | |||||||||||||
Income (loss) before income taxes | — | (204 | ) | 131 | (38 | ) | (100 | ) | (211 | ) | |||||||||||||
Income tax benefit | — | — | (103 | ) | (14 | ) | — | (117 | ) | ||||||||||||||
Earnings (loss) of subsidiaries | (94 | ) | 110 | (13 | ) | — | (3 | ) | — | ||||||||||||||
Net income (loss) | (94 | ) | (94 | ) | 221 | (24 | ) | (103 | ) | (94 | ) | ||||||||||||
Other comprehensive income, net of tax | 1 | 1 | 1 | — | (2 | ) | 1 | ||||||||||||||||
Total comprehensive income (loss) | $ | (93 | ) | $ | (93 | ) | $ | 222 | $ | (24 | ) | $ | (105 | ) | $ | (93 | ) | ||||||
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Condensed Consolidating Statement of Comprehensive Income (Loss) Information
Three Months Ended September 30, 2013
(in millions) | Parent | Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating and Eliminating Adjustments | Consolidated | |||||||||||||||||
Revenues | |||||||||||||||||||||||
Service revenues | $ | — | $ | — | $ | 4,958 | $ | 219 | $ | (39 | ) | $ | 5,138 | ||||||||||
Equipment sales | — | — | 1,643 | — | (176 | ) | 1,467 | ||||||||||||||||
Other revenues | — | — | 59 | 30 | (6 | ) | 83 | ||||||||||||||||
Total revenues | — | — | 6,660 | 249 | (221 | ) | 6,688 | ||||||||||||||||
Operating expenses | |||||||||||||||||||||||
Cost of services | — | — | 1,443 | 6 | (5 | ) | 1,444 | ||||||||||||||||
Cost of equipment sales | — | — | 2,052 | 155 | (192 | ) | 2,015 | ||||||||||||||||
Selling, general and administrative | — | — | 1,910 | 47 | (24 | ) | 1,933 | ||||||||||||||||
Depreciation and amortization | — | — | 966 | 21 | — | 987 | |||||||||||||||||
Cost of MetroPCS business combination | — | — | 12 | — | — | 12 | |||||||||||||||||
Total operating expenses | — | — | 6,383 | 229 | (221 | ) | 6,391 | ||||||||||||||||
Operating income | — | — | 277 | 20 | — | 297 | |||||||||||||||||
Other income (expense) | |||||||||||||||||||||||
Interest expense to affiliates | — | (183 | ) | — | — | — | (183 | ) | |||||||||||||||
Interest expense | — | (84 | ) | (24 | ) | (43 | ) | — | (151 | ) | |||||||||||||
Interest income | — | — | 50 | — | — | 50 | |||||||||||||||||
Other income (expense), net | — | (9 | ) | 2 | — | — | (7 | ) | |||||||||||||||
Total other income (expense), net | — | (276 | ) | 28 | (43 | ) | — | (291 | ) | ||||||||||||||
Income (loss) before income taxes | — | (276 | ) | 305 | (23 | ) | — | 6 | |||||||||||||||
Income tax expense (benefit) | — | — | 49 | (7 | ) | — | 42 | ||||||||||||||||
Earnings (loss) of subsidiaries | (36 | ) | 240 | (13 | ) | — | (191 | ) | — | ||||||||||||||
Net income (loss) | (36 | ) | (36 | ) | 243 | (16 | ) | (191 | ) | (36 | ) | ||||||||||||
Other comprehensive income (loss), net of tax | — | — | — | — | — | — | |||||||||||||||||
Total comprehensive income (loss) | $ | (36 | ) | $ | (36 | ) | $ | 243 | $ | (16 | ) | $ | (191 | ) | $ | (36 | ) | ||||||