What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-05 compared with 2020-08-06 · 374 added, 415 removed, 569 unchanged (58% of the section changed)

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Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements.

The following important factors, along with the Risk Factors included in Part II, Item 1A below, could affect future results and cause those results to differ materially from those expressed in the forward-looking statements:

The following important factors, along with the Risk Factors included in Part II, Item 1A below and the risk factors previously disclosed in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, which amended and restated the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, as further amended by the risk factors previously disclosed in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, could affect future results and cause those results to differ materially from those expressed in the forward-looking statements:

• failure to realize the expected benefits and synergies of the merger (the “Merger”) with Sprint Corporation (“Sprint”), pursuant to the Business Combination Agreement with Sprint and the other parties named therein (as amended, the “Business Combination Agreement”) and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”) in the expected timeframes, in part or at all;

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• the risk of future material weaknesses resulting from the differences between T-Mobile’s and Sprint’s internal controls environments as we work to integrate and align policies and practices;

• the impacts of the actions we have taken and conditions we have agreed to in connection with the regulatory proceedings and approvals of the Transactions including the Prepaid Transaction (as defined in Note 2 - Business Combinations of the Notes to the Condensed Consolidated Financial Statements) the complaint and proposed final judgment (the “Consent Decree”) agreed to by us, Deutsche Telekom AG (“DT”), Sprint, SoftBank Group Corp.

• the impacts of the actions we have taken and conditions we have agreed to in connection with the regulatory proceedings and approvals of the Transactions including the Prepaid Transaction (as defined in Note 2 - Business Combination of the Notes to the Condensed Consolidated Financial Statements) the complaint and proposed final judgment (the “Consent Decree”) agreed to by us, Deutsche Telekom AG (“DT”), Sprint, SoftBank Group Corp.

(“SoftBank”) and DISH Network Corporation (“DISH”) with the U.S.

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Our MD&A is performed on a consolidated basis and is inclusive of the results and operations of Sprint prospectively from the close of our Merger on April 1, 2020.

The Merger increased our customer base, enhanced our spectrum portfolio, altered our

product mix by increasing the portion of customers who finance their devices with leasing programs and created redundancies within our network.

The Merger enhanced our spectrum portfolio, increased our customer base, altered our product mix by increasing the portion of customers who finance their devices with leasing programs and created opportunity for synergies in our operations.

We anticipate an initial increase in our combined operating costs which we expect to decrease as we realize synergies.

We expect the trends and results of operations of the combined company to be materially different than those of the standalone entities.

Our MD&A is provided as a supplement to, and should be read together with, our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2020, included in Part I, Item 1 of this Form 10-Q and audited consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019.

Our MD&A is provided as a supplement to, and should be read together with, our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2020, included in Part I, Item 1 of this Form 10-Q and audited consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019.

Except as expressly stated, the financial condition and results of operations discussed throughout our MD&A are those of T-Mobile US, Inc.

and its consolidated subsidiaries.

Beginning with the second quarter of 2020, we have discontinued the use of “Branded” to describe the results and metrics associated with our flagship brands including T-Mobile, Metro by T-Mobile, and Sprint.

Beginning with the second quarter of 2020, we have discontinued the use of “Branded” to describe the results and metrics associated with our flagship brands including T-Mobile and Metro by T-Mobile.

Sprint Merger

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As a result, Sprint and its subsidiaries became wholly owned consolidated subsidiaries of T-Mobile.

Upon completion of the Merger, each share of Sprint common stock was exchanged for 0.10256 shares of T-Mobile common stock.

After adjustments 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 and contingent consideration issuable to SoftBank.

We accounted for the acquisition as a business combination.

Our preliminary purchase price allocation as of the date of acquisition resulted in an aggregate fair value of assets acquired of $93.8 billion, including Spectrum licenses of $45.4 billion, assumed liabilities of $53.0 billion and the recognition of $9.2 billion in goodwill.

After closing of the Merger, 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.

The Merger has altered the size and scope of our operations, impacting our assets, liabilities, obligations, capital requirements and performance measures.

We expect the trends and results of operations of the combined company to be materially different than those of the standalone entities.

As a combined company, we expect to be able to enhance the breadth and depth of our nationwide 5G network, accelerate innovation, increase competition in the U.S.

wireless, video 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

For more information regarding the Merger, see Note 2 – Business Combinations of the Notes to the Condensed Consolidated Financial Statements.

On June 22, 2020, we entered into a Master Framework Agreement and related transactions with SoftBank to facilitate the SoftBank Monetization as described in Note 14 - SoftBank Equity Transaction of the Notes to the Condensed Consolidated Financial Statements.

On August 3, 2020, upon completion of the SoftBank Monetization, DT and SoftBank held, directly or indirectly, approximately 43.4% and 8.6% respectively, of the outstanding T-Mobile common stock, with the remaining approximately 48.0% of the outstanding T-Mobile common stock held by other stockholders.

As a result of the Proxy Agreements, DT has voting control as of August 3, 2020 over approximately 52.4% of the outstanding T-Mobile common stock.

In addition, as provided for in the Master Framework Agreement, DT also holds certain call options over approximately 101.5 million shares of our common stock held by SBGC.

Sprint PCS (specifically Sprint Spectrum L.P.) is party to a variety of publicly filed agreements with Shenandoah Personal Communications Company (“Shentel”), pursuant to which Shentel is the exclusive provider of Sprint PCS’s wireless mobility communications network products in certain parts of Virginia, West Virginia, Kentucky, Ohio, and Pennsylvania to approximately 1.1 million subscribers.

Sprint PCS has at least through August 29, 2020 to determine whether it will exercise an option to purchase Shentel’s wireless telecommunications network assets.

Should Sprint PCS exercise the purchase option, there will be an appraisal process, which could be subject to various legal challenges.

If Sprint PCS declines to do so, Shentel has an opportunity to purchase the legacy T-Mobile wireless telecommunications network assets in the Shentel service area and, should it decline to do so within 60 days, the affiliate agreement states that Sprint PCS must sell or decommission T-Mobile’s legacy wireless telecommunications network assets and transfer subscribers in the Shentel service area within two years.

Brand and Retail Unification

On August, 2, 2020, we combined the Sprint and T-Mobile operations under the T-Mobile brand nationwide.

We combined our retail operations and rebranded thousands of Sprint stores to T-Mobile stores while implementing the tools and systems across our distribution footprint to serve all customers in all stores.

Sale of Boost Mobile and Sprint Prepaid Brands

In connection with obtaining regulatory approval for the Merger, on July 1, 2020, DISH acquired the prepaid wireless business operated under the Boost Mobile and Sprint prepaid brands (excluding the Assurance brand Lifeline customers and the prepaid wireless customers of Shentel and Swiftel Communications, Inc.), including customer accounts, inventory, contracts, intellectual property and certain other specified assets (the “Prepaid Business”), and assumed certain related liabilities (the “Prepaid Transaction”).

The assets and liabilities associated with the Prepaid Transaction are presented as held for sale in our Condensed Consolidated Balance Sheets as of June 30, 2020.

The results of the Prepaid Business from April 1, 2020 through June 30, 2020 are presented in Income from discontinued operations, net of tax in our Condensed Consolidated Statements of Comprehensive Income and do not include corporate and administrative expenses not directly attributable to the operations of the Prepaid Business.

For more information, see Note 12 - Discontinued Operations of the Notes to the Condensed Consolidated Financial Statements.

Upon the closing of the Prepaid Transaction, we entered into a Master Network Services Agreement (the “MVNO Agreement”) providing for the provisioning of network services to customers of the Prepaid Business for a period of up to seven years following the closing of the Prepaid Transaction.

The revenue generated through this agreement will be presented within Wholesale revenues in our Condensed Consolidated Statements of Comprehensive Income beginning upon the close of the Prepaid Transaction on July 1, 2020.

We have included the pre-tax results of our discontinued operations in our determination of Adjusted EBITDA, a Non-GAAP measure, to reflect contributions of the Prepaid Business that will be replaced by the MVNO Agreement beginning on July 1, 2020.

See “Adjusted EBITDA” in in the “ Performance Measures ” section of this MD&A

For more information regarding the Prepaid Transaction, see Note 12 – Discontinued Operations of the Notes to the Condensed Consolidated Financial Statements.

Impact on Results of Operations and Performance Measures for the Three and Six Months Ended June 30, 2020

The Merger has altered the size and scope of our operations, impacting our assets, liabilities, obligations, capital requirements and performance measures.

We expect the trends and results of operations of the combined company to be materially different than those of the standalone entities.

As a combined company, we expect to be able to achieve synergies, rapidly launch a broad and deep nationwide 5G network, accelerate innovation, and increase competition in the U.S.

wireless, video and broadband industries.

Among the expected synergies are reduction in redundant cell sites from combining networks, back office and information technology efficiencies and the evolution of our distribution and retail footprint including the combining of the Sprint and T-Mobile brand operations, unifying under the T-Mobile brand nationwide starting on August 2, 2020.

The revenue generated through this agreement is presented within Wholesale revenues in our Condensed Consolidated Statements of Comprehensive Income as of the close of the Prepaid Transaction on July 1, 2020.

We included the pre-tax results of our discontinued operations in our determination of Adjusted EBITDA, a Non-GAAP measure, to reflect contributions of the Prepaid Business that was replaced by the MVNO Agreement beginning on July 1, 2020.

See “Adjusted EBITDA” in the “ Performance Measures ” section of this MD&A.

Merger-Related Costs

Merger-related costs generally include transaction costs such as legal and professional services, restructuring costs including severance and store rationalization and other integration costs to achieve synergies in network, retail, IT and back office operations.

Transaction costs and restructuring costs are disclosed in Note 2 – Business Combinations and Note 18 - Restructuring Costs , respectively.

Merger-related costs have been excluded from the calculation of Adjusted EBITDA, a non-GAAP financial measure, as we do not consider these costs to be reflective of our ongoing operating performance.

Merger-related costs generally include:

• Transaction costs, including legal and professional services related to the completion of the Merger;

• Restructuring costs, including severance, store rationalization and network decommissioning;

• Integration costs to achieve efficiencies in network, retail, information technology and back office operations.

Transaction and restructuring costs are disclosed in Note 2 – Business Combination and Note 18 - Restructuring Costs , respectively.

Merger-related costs have been excluded from our calculation of Adjusted EBITDA, a non-GAAP financial measure, as we do not consider these costs to be reflective of our ongoing operating performance.

See “Adjusted EBITDA” in the “ Performance Measures ” section of this MD&A.

Cash payments for merger-related costs are included in Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows.

Merger-related costs during the three and six months ended June 30, 2020 and 2019 are presented below:

(in millions) Three Months Ended June 30, Change Six Months Ended

June 30, Change

Cash payments for Merger-related costs, including payments related to our restructuring plan, are included in Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows.

Merger-related costs during the three and nine months ended September 30, 2020 and 2019 are presented below:

(in millions) Three Months Ended September 30, Change Nine Months Ended September 30, Change

2020 2019 $ % 2020 2019 $ %

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Cost of services, exclusive of depreciation and amortization $ 79 $ — $ 79 NM $ 119 $ — $ 119 NM

Selling, general & administrative 758 222 536 241 % 901 335 566 169 %

Selling, general and administrative 209 159 50 31 % 1,110 494 616 125 %

Total Merger-related costs $ 288 $ 159 $ 129 81 % $ 1,229 $ 494 $ 735 149 %

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Merger-related costs will be impacted by restructuring and integration activities expected to occur over the next three years as we implement initiatives to realize cost efficiencies from the Merger.

Transaction costs including legal and professional service fees related to the completion of the Merger are expected to decrease in periods subsequent to the close of the Merger.

Restructuring

Upon the close of the Merger, we began implementing restructuring initiatives to realize cost efficiencies from the Merger.

The major activities associated with the restructuring initiatives to date include:

• Contract termination costs associated with rationalization of retail stores, distribution channels, duplicative backhaul services and other agreements;

• Severance costs associated with the reduction of redundant processes and functions;

• The decommissioning of certain small cell sites and distributed antenna systems to achieve synergies in network costs.

Anticipated Impacts

Our restructuring activities are expected to occur over the next three years with substantially all costs incurred by fiscal year 2023.

We are evaluating additional restructuring initiatives which are dependent on consultations and negotiation with certain counterparties and the expected impact on our business operations, which could affect the amount or timing of the restructuring costs and related payments.

We expect our principal sources of funding to be sufficient to meet our liquidity requirements and anticipated payments associated with the restructuring initiatives.

As a result of our ongoing restructuring activities, we expect to realize cost efficiencies by eliminating redundancies within our combined network as well as other business processes and operations.

We expect these activities to result in a reduction of expenses within Cost of services and Selling, general and administrative in our Condensed Consolidated Statements of Comprehensive Income.

COVID-19 Pandemic

The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected businesses, economies, and financial markets worldwide, and has caused significant volatility in the U.S.

The COVID-19 Pandemic (the “Pandemic”) has resulted in a widespread health crisis that has adversely affected businesses, economies, and financial markets worldwide, and has caused significant volatility in the U.S.

and international debt and equity markets.

The impact of COVID-19 has been wide-ranging, including, but not limited to, the temporary closures of many businesses and schools, “shelter in place” orders, travel restrictions, social distancing guidelines and other governmental, business and individual actions taken in response to the COVID-19 pandemic.

The impact of the Pandemic has been wide-ranging, including, but not limited to, the temporary closures of many businesses and schools, “shelter in place” orders, travel restrictions, social distancing guidelines and other governmental, business and individual actions taken in response to the Pandemic.

These restrictions have impacted, and will continue to impact, our business, including the demand for our products and services and the ways in which our customers purchase and use them.

In addition, the COVID-19 pandemic has resulted in economic uncertainty and a significant increase in unemployment in the United States, which could affect our customers’ purchasing decisions and ability to make timely payments.

During the quarter, while the impact of the COVID-19 pandemic peaked and subsequently subsided in some jurisdictions, leading to phased re-openings, other areas have seen resurgences of COVID-19 cases and continuing or renewed containment measures.

In addition, the Pandemic has resulted in economic uncertainty and a significant increase in unemployment in the United States, which could affect our customers’ purchasing decisions and ability to make timely payments.

Throughout the year, the Pandemic has peaked, subsided and seen a resurgence, leading to phased re-openings, as well as, continuing or renewed containment measures.

As a critical communications infrastructure provider as designated by the government, our focus has been on providing crucial connectivity to our customers and impacted communities while ensuring the safety and well-being of our employees.

We have taken a variety of steps to help mitigate the impact of COVID-19 on our customers and to protect the health and well-being of our workforce and communities:

We have taken a variety of steps to help mitigate the impact of the Pandemic on our customers and to protect the health and well-being of our workforce and communities:

To Protect and Support Our Employees and Communities

• Before the Merger, in mid-March, approximately 80% of T-Mobile and 70% of Sprint company-owned store locations, as well as many third-party retailer locations, that sell our T-Mobile, Metro by T-Mobile and Sprint brands, were temporarily closed.

In compliance with the regulations of various states, we have since reopened a number of our previously closed stores.

• We supplemented pay for certain of our employees and commissions for third-party dealers impacted by COVID-19 and provided access to incremental paid time off for employees experiencing symptoms, taking care of children who were home due to school closures or caring for individuals impacted by COVID-19;

• We implemented remote working arrangements for many employees with more than 14,000 internal care employees and over 31,000 global care employees transitioned to a work-from-home environment.

In compliance with the regulations of various states, we have since reopened substantially all our previously closed stores.

• At the onset of the Pandemic, we supplemented pay for certain of our employees and commissions for third-party dealers and provided access to incremental paid time off for employees experiencing symptoms, taking care of children who were home due to school closures or caring for individuals impacted by the Pandemic.

• We implemented remote working arrangements for many employees with a significant portion of our internal and global care employees transitioned to a work-from-home environment.

We also encouraged our corporate and administrative employees to work remotely, if possible.

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During this period, we pledged to:

• Not terminate service to any residential or small business customers because of their inability to pay their bills due to disruptions caused by the COVID-19 pandemic;

• Waive any late fees that any residential or small business customers incur because of their economic circumstances related to the COVID-19 pandemic.

• Not terminate service to any residential or small business customers because of their inability to pay their bills due to disruptions caused by the Pandemic;

• Waive any late fees that any residential or small business customers incurred because of their economic circumstances related to the Pandemic.

• After the Pledge extension ended, we continued to work with our customers to help them maintain service and become current on their accounts, while avoiding financial hardship.

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• Working with our Lifeline partners to provide customers up to 5GB per month of free data;

• Increasing the data allowance, at no extra charge, to schools and students using our EmpowerED digital learning program to ensure each participant has access to at least 20GB of data per month;

• Providing free international calling to landlines (and in many cases mobile numbers) to countries that were significantly impacted by COVID-19 through May 13, 2020.

• In addition, during the pandemic we:

• Offered our customers creative, new COVID-safe solutions such as virtual selling and curbside pickup;

• Launched T-Mobile Connect, a new, competitive $15 per month prepaid option we had previously announced but launched in March 2020, ahead of schedule to provide a reliable, low-cost connection for many Americans facing financial strain;

• Partnered with multiple spectrum holders and the FCC to successfully deploy additional 600 MHz spectrum on a temporary basis, effectively doubling total 600 MHz LTE capacity across the nation to help ensure customers can stay connected during this critical time;

• Worked to keep our network fully operational as an essential service to first responders, 911 communications and our customers and continued to expand our 5G network, while adhering to governmental guidelines;

• We unveiled our latest Un-carrier move, Scam Shield, a service to help block robocalls and reduce scam calls for customers by using a free app that gives the user control over T-Mobile’s anti-scam protections like Scam ID, Scam Block, and Caller ID.

Scam Shield is available to all our customers to combat the rapid increase in scams, including those related to COVID-19.

We continue to monitor the COVID-19 pandemic and its impacts and may adjust our actions as needed to continue to serve our employees and communities and to provide our products and services to our employees and communities.

Impact on Results of Operations and Performance Measures for the Three and Six Months Ended June 30, 2020

For the three and six months ended June 30, 2020, we incurred $341 million and $458 million, respectively, before taxes, in supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs, which are included in Selling, general and administrative expenses in our Condensed Consolidated Statements of Comprehensive Income.

Substantially all of these costs were incurred from March onward, as COVID-19 had a minimal impact on our expenses in January and February.

These costs have been excluded from the calculation of Adjusted EBITDA, a non-GAAP financial measure, as they represent direct, incremental costs as a result of our response to COVID-19 that we do not consider to be indicative of our ongoing operating performance.

• Increasing the data allowance, at no extra charge, to schools and students using our EmpowerED digital learning program to ensure each participant had access to at least 20GB of data per month;

• Providing free international calling to landlines (and in many cases mobile numbers) to countries that were significantly impacted by the Pandemic through May 13, 2020.

• In addition:

• We are offering our customers creative, new COVID-safe solutions such as virtual selling and curbside pickup;

• We partnered with multiple spectrum holders and the FCC to successfully deploy additional 600 MHz spectrum on a temporary basis (through June 30, 2020), effectively doubling total 600 MHz LTE capacity across the nation to help ensure customers can stay connected during this critical time;

• We are working to keep our network fully operational as an essential service to first responders, 911 communications and our customers and continued to expand our 5G network, while adhering to governmental guidelines.

We continue to monitor the Pandemic and its impacts and may adjust our actions as needed to continue to provide our products and services to our communities and employees.

Impact on Results of Operations and Performance Measures for the Nine Months Ended September 30, 2020

For the nine months ended September 30, 2020, we incurred $458 million, before taxes, in supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs, which are included in Selling, general and administrative expenses in our Condensed Consolidated Statements of Comprehensive Income.

These costs have been excluded from the calculation of Adjusted EBITDA, a non-GAAP financial measure, as they represent direct, incremental costs as a result of our response to the Pandemic.

Subsequent to June 30, 2020, supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs were not significant.

See “Adjusted EBITDA” in the “ Performance Measures ” section of this MD&A.

Additional impacts of COVID-19 for the three and six months ended June 30, 2020, which primarily impacted our results from March onward, include:

• Lower net customer additions due to lower switching activity in the industry from social distancing rules and temporary retail store closures, which impacted our ability to sell devices and services and to persuade potential customers to switch to our network during the crisis;

• Lower postpaid phone and prepaid churn due to social distancing rules and retail store closures;

• Lower Total service revenues from lower net customer additions and customer concessions as part of our commitments to the Pledge and other efforts to keep our customers connected;

• Lower Equipment revenues and lower Cost of equipment sales due to lower switching activity in the industry from social distancing rules and retail store closures, which impacted our ability to sell devices;

• Higher bad debt expense due to the recording of estimated losses associated with the adoption of the new credit loss standard, which includes the impact of our commitment to the Pledge through collection holds and the macro-economic impacts of COVID-19.

Expected Continued Impact on Results of Operations and Performance Measures

We will continue to monitor developments regarding the COVID-19 pandemic and evaluate the appropriate steps we need to take as a business to align with guidelines from state, local and federal government agencies and to do what is best for our employees and customers.

We expect our business, liquidity, financial condition, and operating results to continue to be adversely impacted by the COVID-19 pandemic for the remainder of 2020 and thereafter.

The extent to which the COVID-19 pandemic impacts our business, operations and financial results will depend on numerous future developments that we are not able to predict at this time, including the duration and scope of the pandemic, the success of governmental, business and

individual actions that have been and continue to be taken in response to the pandemic, and the impact on economic activity from the pandemic and actions taken in response.

We will continue to monitor developments regarding the Pandemic and evaluate the appropriate steps needed to align with guidelines from state, local and federal government agencies and to do what is best for our employees and customers.

The extent to which the Pandemic impacts our business, operations and financial results will depend on numerous future developments that we are not able to predict at this time, including the duration and scope of the Pandemic, the success of governmental, business and individual actions that have been and continue to be taken in response to the Pandemic, and the impact on economic activity from the Pandemic and actions taken in response.

Such impacts may include:

• Lower net customer additions due to lower switching activity in the industry from social distancing rules, temporary retail store closures and reduced consumer spending caused by widespread unemployment and other adverse economic effects, partially offset by lower churn;

• Lower Equipment revenues and lower Cost of equipment sales from lower device sales due to lower switching activity in the industry from social distancing rules and temporary retail store closures, which will impact our ability to sell devices;

• Lower net customer additions due to lower switching activity in the industry from reduced store traffic due to temporary retail store closures and reduced consumer spending caused by widespread unemployment and other adverse economic effects, partially offset by lower churn;

• Lower Equipment revenues and lower Cost of equipment sales from lower device sales due to lower switching activity in the industry from reduced store traffic due to temporary retail store closures, which may impact our ability to sell devices;

• Higher bad debt expense on our service and equipment installment plan (“EIP”) receivable portfolios due to adverse macro-economic conditions.

Should these adverse conditions worsen, our operating and financial results could be negatively impacted;

• Continued costs to protect and support our employees and customers, which increased during the second quarter as a result of a full quarter of COVID-19 impacts compared to the first quarter because COVID-19 primarily only impacted costs during the last month of the first quarter;

• Higher device insurance fulfillment costs due to a lower supply of returned devices;

• Continued costs to protect and support our employees and customers;

• Potential disruptions in our supply chains.

In addition, we have reevaluated, and continue to assess, our spending, including for marketing purposes like advertising, capital projects like build-out of our stores, travel, third-party services and certain operating expenses.

We have taken actions to adjust our spending given the significant uncertainty around the magnitude and duration of any recessionary impacts arising from the COVID-19 pandemic.

We have taken actions to adjust our spending given the significant uncertainty around the magnitude and duration of any recessionary impacts arising from the Pandemic.

For additional risks to our business and industry, see Item 1A.

Risk Factors .

Un-Carrier Moves

On July 16, 2020, we unveiled our latest Un-carrier move with a comprehensive set of protections against scams and robocalls.

The move, called Scam Shield, is our response to the growing number of scam calls with an unparalleled set of free safeguards, including technology built into T-Mobile’s network, to protect customers in the T-Mobile family of brands against scams and robocalls.

Scam Shield addresses this complex problem with a solution designed to help stop scammers, give the customer more information about the identity of the caller and protect their personal information.

Brand and Retail Unification

On August 2, 2020, we unified our retail operations and rebranded thousands of Sprint stores to T-Mobile stores while rolling out the tools and systems across our distribution footprint to serve all customers in all stores.

At the same time, we launched our 4 lines for $25 each per month limited time promotion, giving customers unlimited data and 5G access.

Results of Operations

Set forth below is a summary of our unaudited condensed consolidated financial results:

Three Months Ended June 30, Change Six Months Ended

June 30, Change

Three Months Ended September 30, Change Nine Months Ended

September 30, Change

(in millions) 2020 2019 $ % 2020 2019 $ %

Postpaid revenues $ 10,209 $ 5,746 $ 4,463 78 % $ 26,055 $ 16,852 $ 9,203 55 %

Prepaid revenues 2,311 2,379 (68) (3) % 4,684 4,765 (81) (2) %

Prepaid revenues 2,383 2,385 (2) NM 7,067 7,150 (83) (1) %

Wholesale revenues 930 321 609 190 % 1,663 938 725 77 %

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Interest income 3 5 (2) (40) % 21 17 4 24 %

Other expense, net (195) (22) (173) 786 % (205) (15) (190) 1,267 %

Other (expense) income, net (99) 3 (102) NM (304) (12) (292) NM

Total other expense, net (905) (276) (629) 228 % (2,215) (850) (1,365) 161 %

(Loss) income from continuing operations before income taxes (208) 1,240 (1,448) (117) % 1,049 2,443 (1,394) (57) %

Income from continuing operations before income taxes 1,660 1,195 465 39 % 2,709 3,638 (929) (26) %

Income tax expense (407) (325) (82) 25 % (715) (921) 206 (22) %

(Loss) income from continuing operations (210) 939 (1,149) (122) % 741 1,847 (1,106) (60) %

Income from continuing operations 1,253 870 383 44 % 1,994 2,717 (723) (27) %

Income from discontinued operations, net of tax — — — NM 320 — 320 NM

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Net cash used in investing activities (1,132) (657) (475) 72 % (9,068) (3,238) (5,830) 180 %

Net cash provided by (used in) financing activities 15,628 (866) 16,494 (1,905) % 15,175 (1,056) 16,231 (1,537) %

Net cash (used in) provided by financing activities (6,144) (543) (5,601) 1,031 % 9,031 (1,599) 10,630 (665) %

Non-GAAP Financial Measures

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The following discussion and analysis is for the three and six months ended June 30, 2020, compared to the same period in 2019 unless otherwise stated.

Total revenues increased $6.7 billion, or 61%, for the three months ended and increased $6.7 billion, or 30%, for the six months ended June 30, 2020.

The following discussion and analysis is for the three and nine months ended September 30, 2020, compared to the same period in 2019 unless otherwise stated.

Total revenues increased $8.2 billion, or 74%, for the three months ended and increased $14.9 billion, or 45%, for the nine months ended September 30, 2020.

The components of these changes are discussed below.

Postpaid revenues increased $4.3 billion, or 77%, for the three months ended and increased $4.7 billion, or 43%, for the six months ended June 30, 2020 primarily from:

• Higher average postpaid phone customers, primarily from customers acquired in the Merger and the growing success of new customer segments and rate plans as well as continued growth in existing and Greenfield markets;

• Higher average postpaid other customers, primarily from customers acquired in the Merger and growth in wearable products, specifically the Apple Watch, as well as in other connected devices primarily due to growth in educational institution customers on lower average rate plans;

Postpaid revenues increased $4.5 billion, or 78%, for the three months ended and increased $9.2 billion, or 55%, for the nine months ended September 30, 2020 primarily from:

• Higher average postpaid phone customers, primarily from customers acquired in the Merger and the success of new customer segments and rate plans as well as continued growth in existing and new markets;

• Higher average postpaid other customers, primarily from customers acquired in the Merger and growth in other connected devices, primarily due to growth in educational institution customers, as well as in wearable products;

• Higher postpaid phone ARPU.

See “Postpaid Phone ARPU” in the “ Performance Measures ” section of this MD&A.

Prepaid revenues decreased $68 million , or 3%, for the three months ended and decreased $81 million, or 2%, for the six months ended June 30, 2020, primarily from:

• Lower average prepaid customers primarily from a base adjustment, recorded on July 18, 2019, for certain T-Mobile prepaid products now offered and distributed by a current MVNO partner;

partially offset by

• Higher prepaid phone ARPU.

See “Prepaid Phone ARPU” in the “ Performance Measures ” section of this MD&A.

Wholesale revenues increased $95 million, or 30%, for the three months ended and increased $116 million, or 19%, for the six months ended June 30, 2020, primarily from customers acquired in the Merger and the continued success of our MVNO partnerships.

Roaming and other service revenues increased $311 million, or 129%, for the three months ended and increased $364 million, or 81%, for the six months ended June 30, 2020, primarily from:

Prepaid revenues were essentially flat for the three and nine months ended September 30, 2020 and were primarily impacted by:

• Lower average prepaid customers;

• Higher prepaid ARPU.

See “Prepaid ARPU” in the “ Performance Measures ” section of this MD&A.

Wholesale revenues increased $609 million, or 190%, for the three months ended and increased $725 million, or 77%, for the nine months ended September 30, 2020, primarily from:

• Our Master Network Service Agreement with DISH, which went into effect on July 1, 2020;

• Customers acquired in the Merger;

• The continued success of our existing MVNO partnerships.

Roaming and other service revenues increased $356 million, or 136%, for the three months ended and increased $720 million, or 101%, for the nine months ended September 30, 2020, primarily from:

• Inclusion of wireline operations acquired in the Merger;

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partially offset by

• Lower international roaming due to the impact of COVID-19 and lower domestic roaming due to the receipt of roaming revenue from Sprint in periods before the Merger.

Equipment revenues increased $2.0 billion , or 89%, for the three months ended and increased $1.6 billion, or 34%, for the six months ended June 30, 2020.

The increase for the three months ended June 30, 2020, was primarily from:

• Lower international roaming due to the impact of the Pandemic and lower domestic roaming due to revenue generated from Sprint customers roaming on the T-Mobile network in periods before the Merger.

Equipment revenues increased $2.8 billion , or 127%, for the three months ended and increased $4.4 billion, or 63%, for the nine months ended September 30, 2020.

The increase for the three months ended September 30, 2020, was primarily from:

• An increase of $1.2 billion in lease revenues due to a higher number of customer devices under lease, primarily from leases acquired in the Merger;

• An increase of $353 million in device sales revenue, excluding purchased leased devices, primarily from a 20% increase in the number of devices sold, excluding purchased leased devices, due to an increase in our customer base primarily due to the Merger and an increase in connected device sales, primarily to educational institutions;

• An increase of $231 million in equipment sales from leased devices, primarily due to an increase in purchased leased devices as a result of the Merger;

• An increase of $965 million in device sales revenue, excluding purchased leased devices and devices sold to educational institutions, primarily from:

• A 27% increase in the number of devices sold, excluding purchased leased devices and devices sold to educational institutions, due to an increase in our customer base primarily due to the Merger;

• Higher average revenue per device sold due to an increase in the high-end device mix due to the Merger;

• An increase of $298 million in revenues primarily related to the liquidation of returned devices as a result of the Merger;

The increase for the six months ended June 30, 2020, was primarily from:

• An increase of $1.3 billion in lease revenues due to a higher number of customer devices under lease, primarily from leases acquired in the Merger;

• An increase of $211 million in equipment sales from leased devices, primarily due to an increase in purchased leased devices as a result of the Merger.

The increase for the nine months ended September 30, 2020, was primarily from:

• An increase of $2.5 billion in lease revenues due to a higher number of customer devices under lease, primarily from leases acquired in the Merger;

• An increase of $925 million in device sales revenue, excluding purchased leased devices and devices sold to educational institutions, primarily from:

• A 9% increase in the number of devices sold, excluding purchased leased devices and devices sold to educational institutions;

• Higher average revenue per device sold due to an increase in the high-end device mix due to the Merger;

• An increase of $470 million in revenues primarily related to the liquidation of returned devices as a result of the Merger;

partially offset by

• A decrease of $33 million in device sales revenue, excluding purchased leased devices, primarily from:

• Lower average revenue per device sold due to an increase in the lower-end device mix;

partially offset by

• A 1% increase in the number of devices sold, excluding purchased leased devices, due to an increase in our customer base primarily due to the Merger and an increase in connected device sales to educational institutions, offset by social distancing rules and retail store closures arising from COVID-19, which had a stronger impact in the first quarter of 2020.

Other revenues were essentially flat for the three months ended and decreased $21 million, or 6%, for the six months ended June 30, 2020.

Operating expenses increased $7.4 billion, or 79%, for the three months ended and increased $7.4 billion, or 39%, for the six months ended June 30, 2020.

• An increase of $444 million in equipment sales from leased devices, primarily due to an increase in purchased leased devices as a result of the Merger.

Operating expenses increased $7.1 billion, or 74%, for the three months ended and increased $14.5 billion, or 51%, for the nine months ended September 30, 2020.

The components of these changes are discussed below.

Cost of services , exclusive of depreciation and amortization, increased $1.4 billion, or 88%, for the three months ended and increased $1.5 billion, or 48%, for the six months ended June 30, 2020 primarily from:

• An increase in expenses associated with leases, backhaul agreements and tower expenses acquired in the Merger and the continued build-out of our nationwide 5G network;

• Higher employee-related and benefit-related costs primarily due to increased headcount as a result of the Merger;

• Costs associated with wireline operations acquired in the Merger;

Cost of services , exclusive of depreciation and amortization, increased $1.6 billion, or 91%, for the three months ended and increased $3.1 billion, or 63%, for the nine months ended September 30, 2020 primarily from:

• An increase in expenses associated with leases, backhaul agreements and other network expenses acquired in the Merger and the continued build-out of our nationwide 5G network;

• An increase in repair and maintenance costs, primarily due to the Merger;

• An increase in regulatory and roaming costs primarily due to the Merger, partially offset by lower international roaming costs.

Cost of equipment sales , exclusive of depreciation and amortization, increased $1.0 billion , or 38%, for the three months ended and increased $519 million, or 9%, for the six months ended June 30, 2020.

The increase for the three months ended June 30, 2020, was primarily from:

• An increase of $416 million in device cost of equipment sales, excluding purchased leased devices, primarily from:

• A 20% increase in the number of devices sold, excluding purchased leased devices, due to an increase in our customer base primarily due to the Merger and an increase in connected device sales primarily to educational institutions;

partially offset by

• Lower average costs per device sold due to an increase in the low-end device mix;

• An increase of $314 million in costs related to the liquidation of returned devices as a result of the Merger and higher extended warranty costs;

• Higher employee-related and benefit-related costs primarily due to increased headcount as a result of the Merger;

• An increase in regulatory and roaming costs primarily due to the Merger.

• An increase of $79 million and $119 million for the three and nine months ended September 30, 2020, respectively, in Merger-related costs including incremental costs associated with accelerating amortization of the right-of-use assets and the decommissioning of certain small cell sites and distributed antenna systems.

Cost of equipment sales , exclusive of depreciation and amortization, increased $1.7 billion , or 62%, for the three months ended and increased $2.2 billion, or 26%, for the nine months ended September 30, 2020.

The increase for the three months ended September 30, 2020, was primarily from:

• An increase of $1.0 billion in device cost of equipment sales, excluding purchased leased devices and devices sold to educational institutions, primarily from:

• A 27% increase in the number of devices sold, excluding purchased leased devices and devices sold to educational institutions, due to an increase in our customer base primarily due to the Merger, and

• Higher average costs per device sold due to an increase in the high-end device mix due to the Merger;

• An increase of $339 million in costs related to the liquidation of returned devices as a result of the Merger and higher cost devices used for device insurance claims fulfillment;

• An increase of $256 million in leased device cost of equipment sales, primarily due to an increase in purchased leased devices as a result of the Merger.

The increase for the six months ended June 30, 2020, was primarily from:

• An increase of $326 million in costs related to the liquidation of returned devices as a result of the Merger as well as higher extended warranty costs;

The increase for the nine months ended September 30, 2020, was primarily from:

• An increase of $922 million in device cost of equipment sales, excluding purchased leased devices and devices sold to educational institutions, primarily from:

• A 9% increase in the number of devices sold, excluding purchased leased devices and devices sold to educational institutions, due to an increase in our customer base primarily due to the Merger and

• Higher average costs per device sold due to an increase in the high-end device mix due to the Merger;

• An increase of $665 million in costs related to the liquidation of returned devices as a result of the Merger and higher cost devices used for device insurance claims fulfillment;

• An increase of $555 million in leased device cost of equipment sales, primarily due to an increase in purchased leased devices as a result of the Merger.

partially offset by

• A decrease of $72 million in device cost of equipment sales, excluding purchased leased devices, primarily from:

• Lower average cost per device sold due to an increase in the low-end device mix;

partially offset by

Selling, general and administrative expenses increased $2.1 billion, or 58%, for the three months ended and increased $2.3 billion, or 33%, for the six months ended June 30, 2020.

The increase for the three months ended June 30, 2020, was primarily from:

• Higher employee-related costs due to an increase in the number of employees primarily from the Merger;

• Higher external labor and professional services, advertising, lease and rent expense primarily from the Merger;

• $758 million of Merger-related costs including transaction costs associated with legal and professional services and restructuring costs including severance and store rationalization, compared to $222 million of Merger-related costs in the three months ended June 30, 2019;

• Higher commission expense primarily due to an increase in our retail workforce from the Merger, partially offset by commissions capitalized in excess of commissions expensed, including a net benefit from new contract costs capitalized subsequent to Merger close that are in excess of the related amortization;

• Higher bad debt expense primarily due to customers acquired as a result of the Merger and the recording of estimated losses associated with the new credit loss standard including $125 million of incremental bad debt for the estimated macro-economic impacts of COVID-19 of which $46 million is related to our commitments to the Pledge.

• Selling, general and administrative expenses for the three months ended June 30, 2020, included $341 million of supplemental employee payroll, third party commissions and cleaning-related COVID-19 costs.

The increase for the six months ended June 30, 2020, was primarily from:

Selling, general and administrative expenses increased $1.4 billion, or 39%, for the three months ended and increased $3.7 billion, or 35%, for the nine months ended September 30, 2020.

The increase for the three months ended September 30, 2020, was primarily from:

• Higher employee-related costs due to an increase in the number of employees primarily from the Merger;

• Higher external labor and professional services, advertising, lease and rent expense from the Merger;

• $901 million of Merger-related costs including transaction costs associated with legal and professional services and restructuring costs including severance and store rationalization, compared to $335 million of Merger-related costs in the six months ended June 30, 2019;

• Higher commission expense primarily due to an increase in our retail workforce from the Merger and an increase of $87 million related to commissions expensed in excess of commissions capitalized;

partially offset by a net benefit from new contract costs capitalized subsequent to Merger close that are in excess of the related amortization as these costs will amortize into expense over time and lower commissions expense from compensation structure changes;

• Higher external labor and professional services, advertising and lease and rent expense primarily from the Merger;

• Higher commission expense due to higher gross customer additions primarily from the Merger;

• $209 million of Merger-related costs primarily related to restructuring costs including severance and store rationalization, compared to $159 million of Merger-related costs in the three months ended September 30, 2019.

The increase for the nine months ended September 30, 2020, was primarily from:

• Higher employee-related costs due to an increase in the number of employees primarily from the Merger and costs associated with our restructuring plan;

• Higher external labor and professional services, lease and rent and advertising expense from the Merger;

• $1.1 billion of Merger-related costs including transaction costs associated with legal and professional services and restructuring costs including severance and store rationalization, compared to $494 million of Merger-related costs in the nine months ended September 30, 2019;

• Higher commission expense primarily due to higher gross customer additions primarily from the Merger and an increase of $69 million related to commissions expensed in excess of commissions capitalized, including the impact of a net benefit from contract costs capitalized subsequent to Merger close as these costs will amortize into expense over time, partially offset by lower commissions expense due to lower prepaid gross additions and compensation structure changes;

• Higher bad debt expense primarily due to customers acquired as a result of the Merger and the recording of estimated losses associated with the new credit loss standard, including $155 million of incremental bad debt for the estimated macro-economic impacts of the Pandemic, of which $46 million is related to our commitments to the Pledge;

• Higher legal-related expenses from recording an estimated accrual associated with the FCC Notice of Apparent Liability and commitments associated with the Merger.

• Higher bad debt expense primarily due to customers acquired as a result of the Merger and the recording of estimated losses associated with the new credit loss standard including $155 million of incremental bad debt for the estimated macro-economic impacts of COVID-19 of which $46 million is related to our commitments to the Pledge.

• Selling, general and administrative expenses for the six months ended June 30, 2020, included $458 million of supplemental employee payroll, third party commissions and cleaning-related COVID-19 costs.

Impairment expense was $418 million for the three and six months ended June 30, 2020 and consisted of the following:

• Selling, general and administrative expenses for the nine months ended September 30, 2020 included $458 million of supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs.

Impairment expense was $418 million for the nine months ended September 30, 2020, and consisted of the following:

• A $218 million impairment on the goodwill in the Layer3 reporting unit;

• A $200 million impairment on the capitalized software development costs related to our postpaid billing system.

For more information regarding the impairments above, see Note 5 – Property and Equipmen t and Note 6 – Goodwill, Spectrum License Transactions and Ot h er Intangible Asse t s of the Notes to the Condensed Consolidated Financial Statements.

Depreciation and amortization increased $2.5 billion , or 156%, for the three months ended and increased $2.6 billion, or 82%, for the six months ended June 30, 2020, primarily as a result of the Merger including:

• There was no impairment expense for the three months ended September 30, 2020, or the three and nine months ended September 30, 2019.

For more information regarding the impairments above, see Note 5 – Property and Equipmen t and Note 6 – Goodwill, Spectrum License Transactions and Oth er Intangible Assets of the Notes to the Condensed Consolidated Financial Statements.

Depreciation and amortization increased $2.5 billion , or 151%, for the three months ended and increased $5.1 billion, or 105%, for the nine months ended September 30, 2020, primarily as a result of the Merger including:

• Higher depreciation expense from assets acquired in the Merger, excluding leased devices, and network expansion from the continued build-out of our nationwide 5G network;

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• Higher amortization from intangible assets acquired in the Merger.

Operating income , the components of which are discussed above, decreased $721 million, or 47%, for the three months ended and decreased $658 million, or 22%, for the six months ended June 30, 2020.

Interest expense increased $594 million, or 326%, for the three months ended and increased $600 million, or 166%, for the six months ended June 30, 2020 primarily from:

Operating income , the components of which are discussed above, increased $1.1 billion, or 74%, for the three months ended and increased $436 million, or 10%, for the nine months ended September 30, 2020.

Interest expense increased $581 million, or 316%, for the three months ended and increased $1.2 billion, or 217%, for the nine months ended September 30, 2020, primarily from:

• The assumption of debt with a fair value of $31.8 billion in connection with the Merger;

• The issuance of an aggregate of $19.0 billion in Senior Secured Notes and the entry into a $4.0 billion secured term loan in April 2020 in connection with the Merger;

• Amortization of $39 million related to interest rate swap derivatives beginning upon settlement in April 2020.

Interest expense to affiliates decreased $38 million, or 38%, for the three months ended and decreased $48 million, or 23%, for the six months ended June 30, 2020.

The decrease for the three months ended June 30, 2020, was primarily from:

• The redemption of an aggregate of $4.0 billion in Senior Notes to Affiliates and the repayment of an aggregate of $4.0 billion in Incremental term loan facility to affiliates in April 2020;

partially offset by

• Lower capitalized interest.

The decrease for the six months ended June 30, 2020, was primarily from:

• The redemption of an aggregate of $4.0 billion in Senior Notes to Affiliates and the repayment of an aggregate of $4.0 billion in Incremental term loan facility to affiliates in 2020;

• The redemption of $600 million in Senior Reset Notes in April 2019;

partially offset by

• Lower capitalized interest.

Other expense, net increased $173 million for the three months ended and increased $190 million for the six months ended June 30, 2020, primarily from losses on the extinguishment of the $19.0 billion New Secured Bridge Loan Facility and $4.0 billion Senior Notes to Affiliates.

(Loss) income from continuing operations before income taxes, the components of which are discussed above, was ($208) million and $1.2 billion for the three months ended June 30, 2020 and 2019, respectively, and was $1.0 billion and $2.4 billion for the six months ended June 30, 2020 and 2019, respectively.

(Loss) income from continuing operations before income taxes for the three and six months ended June 30, 2020 was primarily impacted by:

• Merger-related costs including restructuring costs;

• Impairment expense;

• Make-whole commissions and incremental bad debt as a result of the macro-economic impacts of COVID-19.

Income tax expense decreased $299 million, or 99%, for the three months ended and decreased $288 million, or 48%, for the six months ended June 30, 2020.

The decrease for the three months ended June 30, 2020, was primarily from:

• Lower income before income taxes;

• Amortization of interest rate swap derivatives beginning upon settlement in April 2020.

Interest expense to affiliates decreased $56 million, or 56%, for the three months ended and decreased $104 million, or 34%, for the nine months ended September 30, 2020, primarily from the redemption of an aggregate of $4.0 billion in Senior Notes to affiliates and the repayment of an aggregate of $4.0 billion in Incremental term loan facility to affiliates in April 2020.

Other (expense) income, net increased $102 million for the three months ended and increased $292 million for the nine months ended September 30, 2020, primarily from losses on the extinguishment of debt.

Income from continuing operations before income taxes, the components of which are discussed above, was $1.7 billion and $1.2 billion for the three months ended September 30, 2020 and 2019, respectively, and was $2.7 billion and $3.6 billion for the nine months ended September 30, 2020 and 2019, respectively.

Income tax expense increased $82 million, or 25%, for the three months ended and decreased $206 million, or 22%, for the nine months ended September 30, 2020.

The increase for the three months ended September 30, 2020, was primarily from:

• Higher income before income taxes;

partially offset by

• A negative effective tax rate due to a small pre-tax loss primarily attributable to expenses that are not deductible for tax purposes including our Layer3 goodwill impairment and certain merger-related costs.

The effective tax rate was (0.7)% for the three months ended June 30, 2020 and 24.4% for the three months ended June 30, 2019.

The decrease for the six months ended June 30, 2020, was primarily from:

• A lower effective tax rate, primarily due to increases in income before taxes and excess tax benefits and the benefit of a reduction in the valuation allowance against deferred tax assets related to federal tax credits.

The effective tax rate was 24.5% for the three months ended September 30, 2020 and 27.1% for the three months ended September 30, 2019.

The decrease for the nine months ended September 30, 2020, was primarily from:

• Lower income before income taxes;

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• A higher effective tax rate, primarily due to a reduction in income before income taxes and an increase in expenses that are not deductible for income tax purposes primarily related to our Layer 3 goodwill impairment and certain Merger-related costs.

The effective tax rate was 29.4% and 24.4% for the six months ended June 30, 2020 and 2019, respectively.

(Loss) income from continuing operations, was $(210) million and $939 million for the three months ended June 30, 2020 and 2019, respectively, and was $741 million and $1.8 billion for the six months ended June 30, 2020 and 2019, respectively,

primarily due to lower Operating income and higher Interest expense, partially offset by lower Income tax expense.

Income from discontinued operations, net of tax was $320 million for both the three and six months ended June 30, 2020 and consists of the results of the Prepaid Business that was divested on July 1, 2020.

The components of discontinued operations, net of tax from April 1, 2020 through June 30, 2020 are presented in the table below:

Three and Six Months Ended June 30, 2020

(in millions)

Major classes of line items constituting pretax income from discontinued operations

Prepaid revenues $ 973

Roaming and other service revenues 27

Total service revenues 1,000

Equipment revenues 270

Total revenues 1,270

Cost of services 25

Cost of equipment sales 499

Selling, general and administrative 314

Total operating expenses 838

Pretax income from discontinued operations 432

Income tax expense (112)

Net income from discontinued operations $ 320

The effective tax rate was 26.4% and 25.3% for the nine months ended September 30, 2020 and 2019, respectively.

Income from continuing operations, was $1.3 billion and $870 million for the three months ended September 30, 2020 and 2019, respectively, and was $2.0 billion and $2.7 billion for the nine months ended September 30, 2020 and 2019, respectively.

The increase for the three months ended September 30, 2020, was primarily from:

• Higher operating income;

partially offset by

• Higher Interest expense;

• Higher Other (expense) income, net;

• Higher Income tax expense

The decrease for the nine months ended September 30, 2020, was primarily from:

• Higher Interest expense;

• Higher Other (expense) income, net;

partially offset by

• Higher operating income;

• Lower Income tax expense

Income from discontinued operations, net of tax was $320 million for the nine months ended September 30, 2020, and consists of the results of the Prepaid Business that was divested on July 1, 2020.

There were no discontinued operations for the three months ended September 30, 2020 and for the three and nine months ended September 30, 2019.

For more information regarding the Prepaid Transaction, see Note 12 – Discontinued Operations of the Notes to the Condensed Consolidated Financial Statements.

Net income , the components of which are discussed above, decreased $829 million, or 88%, for the three months ended and decreased $786 million, or 43%, for the six months ended June 30, 2020, primarily due to lower Operating income and higher interest expense, partially offset by Income from discontinued operations, net of tax and lower Income tax expense.

Net income for the three months ended June 30, 2020 included the following:

• Merger-related costs, net of tax, of $635 million for the three months ended June 30, 2020, compared to $175 million for the three months ended June 30, 2019.

• The negative impact of supplemental employee payroll, net of government reimbursements, third-party commissions and cleaning-related COVID-19 costs, net of tax, of $253 million for the three months ended June 30, 2020, compared to no impact for the three months ended June 30, 2019.

• Impairment expense of $366 million, net of tax, for the three months ended June 30, 2020, compared to no impairment expense for the three months ended June 30, 2019.

The impairment of goodwill of $218 million in the Layer3 reporting unit is not deductible for tax purposes.

Net income for the six months ended June 30, 2020, included the following:

• Merger-related costs, net of tax, of $752 million for the six months ended June 30, 2020, compared to $268 million for the six months ended June 30, 2019.

• The negative impact of supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs, net of tax, of $339 million for the six months ended June 30, 2020, compared to no impact for the six months ended June 30, 2019.

• Impairment expense of $366 million, net of tax, for the six months ended June 30, 2020, compared to no impairment expense for the six months ended June 30, 2019.

For more information regarding the Prepaid Transaction, see Note 12 – Discontinued Operations of the Notes to the Condensed Consolidated Financial Statements.

Net income , the components of which are discussed above, increased $383 million, or 44%, for the three months ended and decreased $403 million, or 15%, for the nine months ended September 30, 2020.

Net income for the three months ended September 30, 2020 included merger-related costs, net of tax, of $208 million for the three months ended September 30, 2020, compared to $128 million for the three months ended September 30, 2019.

Net income for the nine months ended September 30, 2020, included the following:

• Merger-related costs, net of tax, of $960 million for the nine months ended September 30, 2020, compared to $396 million for the nine months ended September 30, 2019.

• The negative impact of supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs, net of tax, of $339 million for the nine months ended September 30, 2020, compared to no impact for the nine months ended September 30, 2019.

• Impairment expense of $366 million, net of tax, for the nine months ended September 30, 2020, compared to no impairment expense for the nine months ended September 30, 2019.

The impairment of goodwill of $218 million in the Layer3 reporting unit is not deductible for tax purposes.

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On March 2, 2020, the SEC adopted amendments to the financial disclosure requirements for guarantors and issuers of guaranteed securities, as well for affiliates whose securities collateralize a registrant’s securities.

We early adopted the requirements of the amendments on January 1, 2020, which included replacing guarantor condensed consolidating financial information with summarized financial information for the consolidated obligor group (Parent, Issuer, and Guarantor Subsidiaries) as well as no longer requiring guarantor cash flow information, financial information for non-guarantor subsidiaries, nor a reconciliation to the consolidated results.

We early adopted the requirements of the amendments on January 1, 2020, which included replacing guarantor condensed consolidating financial

information with summarized financial information for the consolidated obligor group (Parent, Issuer, and Guarantor Subsidiaries) as well as no longer requiring guarantor cash flow information, financial information for non-guarantor subsidiaries, nor a reconciliation to the consolidated results.

On April 1, 2020, in connection with the closing of the Merger, we assumed certain registered debt to third parties issued by Sprint, Sprint Communications, Inc.

and Sprint Capital Corporation (collectively, the “Sprint Issuers”).

Amounts previously disclosed for the estimated values of certain acquired assets and liabilities assumed have been revised based on additional information arising subsequent to the initial valuation.

These revisions to the estimated values did not have a significant impact on our summarized financial information for the consolidated obligor group.

Pursuant to the applicable indentures and supplemental indentures, the long-term debt to affiliates and third parties issued by T-Mobile USA, Inc.

and the Sprint Issuers (collectively, the “Issuers”) is fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by T-Mobile (“Parent”) and certain of the Parent’s 100% owned subsidiaries (“Guarantor Subsidiaries”).

and the Sprint Issuers (collectively, the “Issuers”) is fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by T-Mobile (“Parent”) and certain of Parent’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.

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Certain provisions of each of the credit facilities, indentures and supplemental indentures relating to the long-term debt restrict the ability of the Issuers to loan funds or make payments to Parent.

However, the Issuers and Guarantor Subsidiaries are allowed to make certain permitted payments to the Parent under the terms of the indentures and the supplemental indentures.

However, the Issuers and Guarantor Subsidiaries are allowed to make certain permitted payments to Parent under the terms of the indentures and the supplemental indentures.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740):

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Upon the adoption of the standard, deferred tax assets of non-guarantor entities in aggregate of $163 million were reclassified and netted with the deferred tax liabilities of the guarantor obligor group of the debt issued by T-Mobile USA, Inc.

The adoption of this standard did not have an impact on our condensed consolidated financial statements.

The adoption of this standard did not have a material impact on our condensed consolidated financial statements for the nine months ended September 30, 2020.

In March 2020, certain Guarantor Subsidiaries became Non-Guarantor Subsidiaries.

2 unchanged sentences

is presented in the table below:

(in millions) June 30, 2020 December 31, 2019

(in millions) September 30, 2020 December 31, 2019

Current assets $ 18,035 $ 8,177

8 unchanged sentences

is presented in the table below:

Six Months Ended June 30, 2020 Year Ended December 31, 2019

Nine Months Ended September 30, 2020 Year Ended December 31, 2019

(in millions)

5 unchanged sentences

is presented in the table below:

(in millions) June 30, 2020

(in millions) September 30, 2020

Current assets $ 1,051

6 unchanged sentences

is presented in the table below:

Three Months Ended June 30, 2020

Six Months Ended September 30, 2020

(in millions)

Total revenues $ 4

Operating income (15)

Operating loss (17)

Net income 1,363

1 unchanged sentence

The summarized balance sheet information for the consolidated obligor group of debt issued by Sprint Capital Corporation is presented in the table below:

(in millions) June 30, 2020

(in millions) September 30, 2020

Current assets $ 1,051

5 unchanged sentences

The summarized results of operations information for the consolidated obligor group of debt issued by Sprint Capital Corporation is presented in the table below:

Three Months Ended June 30, 2020

Six Months Ended September 30, 2020

(in millions)

Total revenues $ 4

Operating income (15)

Operating loss (17)

Net income 1,363

8 unchanged sentences

Customers are qualified either for postpaid service utilizing phones, wearables, DIGITS or other connected devices which includes tablets and SyncUp products, where they generally pay after receiving service, or prepaid service, where they generally pay in advance.

Our postpaid customers include customers of T-Mobile and Sprint.

Our postpaid customers include customers of T-Mobile.

Our prepaid customers include customers of T-Mobile and Metro by T-Mobile.

The following table sets forth the number of ending customers:

As of June 30, 2020 Change

As of September 30, 2020 Change

(in thousands) 2020 2019 # %

10 unchanged sentences

See Customer Base Adjustments and Net Customer Additions tables below.

(2) On July 18, 2019, we entered into an agreement whereby certain T-Mobile prepaid products will now be offered and distributed by a current MVNO partner.

As a result, we included a base adjustment in the third quarter of 2019 to reduce prepaid customers by 616,000.

Total customers increased 33,859,000, or 51%, primarily from:

• Higher postpaid phone customers primarily due to postpaid phone customers acquired in the Merger and the success of new customer segments and rate plans and continued growth in existing and Greenfield markets, along with promotional activities;

• Higher postpaid other customers primarily due to postpaid other customers acquired in the Merger and growth in wearable products, specifically the Apple Watch as well as other connected devices primarily due to growth in educational institution customers;

• Higher postpaid phone customers primarily due to customers acquired in the Merger and the success of new customer segments and rate plans and continued growth in existing and new markets, along with promotional activities;

• Higher postpaid other customers primarily due to customers acquired in the Merger and growth in other connected devices primarily related to educational institution customers and wearable products;

partially offset by

• Lower prepaid customers driven primarily by a reduction of 616,000 customers resulting from a base adjustment for certain T-Mobile prepaid products now offered and distributed by a current MVNO partner, partially offset by the continued success of our prepaid brands due to promotional activities and rate plan offers.

• Lower prepaid customers primarily due to the customer base adjustments made to align the customer reporting policies of T-Mobile and Sprint, partially offset by the continued success of our prepaid business due to promotional activities and rate plan offers.

Customer Base Adjustments

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The following table sets forth the number of net customer additions:

Three Months Ended June 30, Change Six Months Ended

June 30, Change

Three Months Ended September 30, Change Nine Months Ended

September 30, Change

(in thousands) 2020 2019 # % 2020 2019 # %

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Postpaid other customers 1,290 320 970 303 % 2,474 1,081 1,393 129 %

Total postpaid customers 1,112 1,108 4 NM 1,889 2,127 (238) (11) %

Total postpaid customers 1,979 1,074 905 84 % 3,868 3,201 667 21 %

Prepaid customers 56 62 (6) (10) % 61 262 (201) (77) %

133 131 2 2 % 5 200 (195) (98) %

Total customers 1,245 1,239 6 NM 1,894 2,327 (433) (19) %

Total customers 2,035 1,136 899 79 % 3,929 3,463 466 13 %

Acquired customers, net of base adjustments — — — NM 29,228 — 29,228 NM

NM - Not Meaningful

(1) On July 18, 2019, we entered into an agreement whereby certain T-Mobile prepaid products will now be offered and distributed by a current MVNO partner.

As a result, we included a base adjustment in the third quarter of 2019 to reduce prepaid customers by 616,000.

Total net customer additions increased 6,000, for the three months ended and decreased 433,000, or 19%, for the six months ended June 30, 2020.

The increase for the three months ended June 30, 2020 was primarily from:

• Higher postpaid other net customer additions primarily due to higher gross additions from connected devices primarily

due to educational institution additions, partially offset by lower switching activity in the industry from social distancing rules and retail store closures due to COVID-19;

• Higher prepaid net customer additions primarily due to lower churn and promotional activity in the marketplace partially offset by lower switching activity in the industry from social distancing rules and retail store closures due to COVID-19;

Total net customer additions increased 899,000, or 79%, for the three months ended and increased 466,000, or 13%, for the nine months ended September 30, 2020.

The increase for the three months ended September 30, 2020, was primarily from:

• Higher postpaid other net customer additions primarily due to higher gross additions from connected devices primarily due to educational institution additions, partially offset by lower switching activity in the industry from reduced store traffic arising from the Pandemic;

partially offset by

• Lower postpaid phone net customer additions primarily due to lower switching activity in the industry from social distancing rules and retail store closures due to COVID-19 and an increase in churn from the inclusion of the customer base acquired in the Merger.

The decrease for the six months ended June 30, 2020 was primarily from:

• Lower prepaid net customers additions primarily due to lower switching activity in the industry from social distancing rules and retail store closures due to COVID-19, partially offset by lower churn and promotional activity in the marketplace;

• Lower postpaid phone net customer additions primarily due to higher churn from customer acquired in the merger, partially offset by lower switching activity in the industry from reduced store traffic arising from the Pandemic;

• Lower prepaid net customer additions primarily due to lower switching activity in the industry from reduced store traffic arising from the Pandemic, partially offset by lower churn.

The increase for the nine months ended September 30, 2020, was primarily from:

• Higher postpaid other net customer additions primarily due to higher gross additions from connected devices primarily due to educational institution additions and lower churn, partially offset by lower switching activity in the industry from reduced store traffic due to retail store closures arising from the Pandemic;

partially offset by

• Higher postpaid other net customer additions primarily due to higher gross additions from connected devices primarily due to educational institution additions and lower churn, partially offset by lower switching activity in the industry from social distancing rules and retail store closures due to COVID-19.

• Lower prepaid net customers additions primarily due to lower switching activity in the industry from reduced store traffic due to retail store closures arising from the Pandemic, partially offset by lower churn.

Churn represents the number of customers whose service was disconnected as a percentage of the average number of customers during the specified period.

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The following table sets forth the churn:

Three Months Ended June 30, Bps Change Six Months Ended

June 30, Bps Change

Three Months Ended September 30, Bps Change Nine Months Ended

September 30, Bps Change

2020 2019 2020 2019

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Prepaid churn 2.86 % 3.98 % -112 bps 3.07 % 3.77 % -70 bps

Postpaid phone churn increased two basis points for the three months ended June 30, 2020, primarily due to the inclusion of the customer base acquired in the Merger, offset by lower switching activity in the industry due to social distancing rules and temporary retail store closures arising from COVID-19.

Postpaid phone churn decreased one basis point for the six months ended June 30, 2020, primarily impacted by lower switching activity in the industry due to social distancing rules and temporary retail store closures arising from COVID-19, offset by the inclusion of the customer base acquired in the Merger.

Prepaid churn decreased 68 basis points for the three months ended and decreased 50 basis points for the six months ended June 30, 2020, primarily due to lower switching activity in the industry due to social distancing rules and temporary retail store closures arising from COVID-19 and the continued success of our prepaid brands due to promotional activities and rate plan offers.

During the three and six months ended June 30, 2020, we have seen lower churn due to social distancing rules and temporary retail store closures arising from the COVID-19 pandemic.

Postpaid phone churn was essentially flat for the three and nine months ended September 30, 2020, primarily due to the inclusion of the customer base acquired in the Merger, offset by lower switching activity in the industry due to reduced store traffic due to temporary retail store closures arising from the Pandemic.

Prepaid churn decreased 112 basis points for the three months ended and decreased 70 basis points for the nine months ended September 30, 2020, primarily due to lower switching activity in the industry due to reduced store traffic due to temporary retail store closures arising from the Pandemic and the continued success of our prepaid products due to promotional activities and rate plan offers.

During the nine months ended September 30, 2020, we have seen lower churn due to reduced store traffic due to temporary retail store closures arising from the Pandemic.

Total Postpaid Accounts

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Postpaid accounts are generally comprised of customers that are qualified for postpaid service utilizing phones, wearables, DIGITS or other connected devices which includes tablets and SyncUp products, where they generally pay after receiving service.

As of June 30, 2020 Change

As of September 30, 2020 Change

(in thousands) 2020 2019 # %

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See Account Base Adjustments table below.

Total postpaid customer accounts increased 11,006,000, or 76%, primarily due to 10,150,000 accounts acquired in the Merger, the growing success of new customer segments and rate plans, continued growth in existing and Greenfield markets, improvements in network quality, industry-leading customer service, along with promotional activities, partially offset by lower switching activity in the industry from social distancing rules and temporary retail store closures arising from COVID-19.

Total postpaid customer accounts increased 10,889,000, or 74%, primarily due to 10,150,000 accounts acquired in the Merger, the success of new customer segments and rate plans, continued growth in existing and new markets, along with promotional activities, improvements in network quality and industry-leading customer service, partially offset by lower switching activity in the industry from reduced store traffic due to retail store closures arising from the Pandemic.

Account Base Adjustments

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The following table illustrates the calculation of our operating measure ARPU and reconciles this measure to the related service revenues:

(in millions, except average number of customers and ARPU) Three Months Ended June 30, Change Six Months Ended

June 30, Change

(in millions, except average number of customers and ARPU) Three Months Ended September 30, Change Nine Months Ended

September 30, Change

2020 2019 $ % 2020 2019 S %

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Postpaid Phone ARPU

Postpaid phone ARPU increased $1.89, or 4%, for the three months ended and increased $1.06, or 2%, for the six months ended June 30, 2020;

primarily due to:

Postpaid phone ARPU increased $2.33, or 5%, for the three months ended and increased $1.56, or 3%, for the nine months ended September 30, 2020.

The increase for the three months ended September 30, 2020 was primarily due to:

• The net impact of customers acquired in the Merger, which have higher ARPU (net of changes arising from the reduction in base due to policy adjustments and reclassification of certain ARPU components from the acquired customers being moved to other revenue lines);

• Continued growth in existing and Greenfield markets;

• Higher premium service revenues;

partially offset by

• A reduction in certain non-recurring charges including the impact of COVID-19.

Prepaid ARPU increased $0.34, or 1%, for the three months ended and increased $0.39, or 1%, for the six months ended June 30, 2020, primarily due to:

• An increase in our promotional activities;

• A reduction in certain non-recurring charges.

The increase for the nine months ended September 30, 2020 was primarily due to:

• Higher premium service revenues;

partially offset by

• A reduction in certain non-recurring charges including the impact of the Pandemic.

Prepaid ARPU increased $0.33, or 1%, for the three months ended and increased $0.37, or 1%, for the nine months ended September 30, 2020, primarily due to:

• The impacts of certain adjustments to our customer base, including the removal of certain prepaid customers associated with products now offered and distributed by a current MVNO partner as those customers had lower ARPU;

partially offset by

• Dilution from our promotional activities;

• A reduction in certain non-recurring charges to customer accounts in connection with our response to COVID-19.

• Dilution from promotional rate plans;

• A reduction in certain non-recurring charges.

Average Revenue Per Account

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The following table illustrates the calculation of our operating measure ARPA and reconciles this measure to the related service revenues:

(in millions, except average number of accounts, ARPA) Three Months Ended June 30, Change Six Months Ended

June 30, Change

(in millions, except average number of accounts, ARPA) Three Months Ended September 30, Change Nine Months Ended

September 30, Change

2020 2019 $ % 2020 2019 $ %

2 unchanged sentences

Average number of postpaid accounts (in thousands) and number of months in period 25,582 14,602 10,980 75 % 22,054 14,355 7,699 54 %

Postpaid ARPA $ 130.57 $ 130.36 $ 0.21 NM $ 130.16 $ 130.07 $ 0.09 NM

Postpaid ARPA $ 133.03 $ 131.15 $ 1.88 1 % $ 131.27 $ 130.44 $ 0.83 1 %

NM - Not Meaningful

Postpaid ARPA

Postpaid ARPA was essentially flat for the three months ended and six months ended June 30, 2020.` Substantially offsetting impacts include:

Postpaid ARPA increased $1.88, or 1%, for the three months ended and increased $0.83, or 1%, for the nine months ended September 30, 2020.

The increase for the three months ended September 30, 2020 was primarily due to:

• An increase in the average account size, including further penetration in connected devices, and the success of new customer segments and rate plans;

• Higher premium service revenues;

• The net impact of customers acquired in the Merger;

• The growing success of new customer segments and rate plans, including further penetration in connected devices;

partially offset by

• An increase in our promotional activities;

• A reduction in certain non-recurring charges.

The increase for the nine months ended September 30, 2020 was primarily due to:

• An increase in the average account size, including further penetration in connected devices, and the success of new customer segments and rate plans;

• Higher premium service revenues;

• The net impact of customers acquired in the Merger;

partially offset by

• An increase in our promotional activities;

• A reduction in certain non-recurring charges including the impact of COVID-19.

• A reduction in certain non-recurring charges including the impact of the Pandemic.

Adjusted EBITDA

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The following table illustrates the calculation of Adjusted EBITDA and reconciles Adjusted EBITDA to Net income, which we consider to be the most directly comparable GAAP financial measure:

Three Months Ended June 30, Change Six Months Ended

June 30, Change

Three Months Ended September 30, Change Nine Months Ended

September 30, Change

(in millions) 2020 2019 $ % 2020 2019 $ %

1 unchanged sentence

Income from discontinued operations, net of tax — — — NM (320) — (320) NM

(Loss) income from continuing operations (210) 939 (1,149) (122) % 741 1,847 (1,106) (60) %

Income from continuing operations 1,253 870 383 44 % 1,994 2,717 (723) (27) %

Interest expense 765 184 581 316 % 1,726 545 1,181 217 %

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Interest income (3) (5) 2 (40) % (21) (17) (4) 24 %

Other expense, net 195 22 173 786 % 205 15 190 1,267 %

Other expense, net 99 (3) 102 NM 304 12 292 NM

Income tax expense 407 325 82 25 % 715 921 (206) (22) %

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Merger-related costs 288 159 129 81 % 1,229 494 735 149 %

COVID-19-related costs 341 — 341 NM 458 — 458 NM

COVID-19-related costs (3)

— — — NM 458 — 458 NM

Impairment expense — — — NM 418 — 418 NM

5 unchanged sentences

NM - Not Meaningful

(1) Following the Prepaid Transaction, starting on July 1, 2020, we will provide MVNO services to customers of the divested brands.

We have included the operating income from discontinued operations in our determination of Adjusted EBITDA to reflect contributions of the Prepaid Business that will be replaced by the MVNO Agreement beginning on July 1, 2020 in order to enable management, analysts and investors to better assess ongoing operating performance and trends.

(1) Following the Prepaid Transaction, starting on July 1, 2020, we provide MVNO services to DISH.

We have included the operating income from discontinued operations from April 1, 2020 through June 30, 2020, in our determination of Adjusted EBITDA to reflect contributions of the Prepaid Business that were replaced by the MVNO Agreement beginning on July 1, 2020 in order to enable management, analysts and investors to better assess ongoing operating performance and trends.

(2) Stock-based compensation includes payroll tax impacts and may not agree to stock-based compensation expense in the condensed consolidated financial statements.

Additionally, certain stock-based compensation expenses associated with the Transactions have been included in Merger-related costs.

(3) Supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs were not significant for the three months ended September 30, 2020.

(4) Other, net may not agree to the Condensed Consolidated Statements of Comprehensive Income primarily due to certain non-routine operating activities, such as other special items that would not be expected to reoccur or are not reflective of T-Mobile’s ongoing operating performance, and are therefore excluded in Adjusted EBITDA.

Adjusted EBITDA increased $3.6 billion, or 103%, for the three months ended and increased $3.9 billion, or 58%, for the six months ended June 30, 2020.

The Merger increased our customer base, increased our spectrum portfolio, altered our product mix by increasing the portion of customers who financed their devices with leasing programs and impacted our network and operating cost.

The increase for the three months ended June 30, 2020 was primarily due to:

• Higher service revenues, as further discussed above;

• Higher equipment revenues, as further discussed above;

Adjusted EBITDA increased $3.7 billion, or 110%, for the three months ended and increased $7.7 billion, or 76%, for the nine months ended September 30, 2020.

The components comprising Adjusted EBITDA are discussed further above.

The increase for the three months ended September 30, 2020 was primarily due to:

• Higher service revenues;

• Higher equipment revenues;

partially offset by

• Higher Cost of services expenses, excluding Merger-related costs;

• Higher Selling, general and administrative expenses, excluding Merger-related costs and supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs;

• Higher Cost of equipment sales;

The increase for the six months ended June 30, 2020 was primarily due to:

• Higher service revenues, as further discussed above;

• Higher equipment revenues, as further discussed above;

• Higher Cost of services expenses, excluding Merger-related costs;

• Higher Selling, general and administrative expenses, excluding Merger-related costs.

The increase for the nine months ended September 30, 2020 was primarily due to:

• Higher service revenues;

• Higher equipment revenues;

partially offset by

• Higher Cost of services expenses, excluding Merger-related costs;

• Higher Selling, general and administrative expenses, excluding Merger-related costs and supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs;

• Higher Cost of equipment sales;

• The impact from commission costs capitalization and amortization, including a benefit from new costs capitalized as result of the merger, reduced Adjusted EBITDA by $87 million for the six months ended for the June 30, 2020, compared to the six months ended June 30, 2019.

• Higher Selling, general and administrative expenses, excluding Merger-related costs and supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs.

• The impact from commission costs capitalization and amortization, including a net benefit from costs capitalized as result of the Merger, reduced Adjusted EBITDA by $69 million for the nine months ended for the September 30, 2020, compared to the nine months ended September 30, 2019.

Liquidity and Capital Resources

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Further, the incurrence of additional indebtedness may inhibit our ability to incur new debt under the terms governing our existing and future indebtedness, which may make it more difficult for us to incur new debt in the future to finance our business strategy.

The following is a condensed schedule of our cash flows for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30, Change Six Months Ended

June 30, Change

The following is a condensed schedule of our cash flows for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30, Change Nine Months Ended

September 30, Change

(in millions) 2020 2019 $ % 2020 2019 $ %

1 unchanged sentence

Net cash used in investing activities (1,132) (657) (475) 72 % (9,068) (3,238) (5,830) 180 %

Net cash provided by (used in) financing activities 15,628 (866) 16,494 (1,905) % 15,175 (1,056) 16,231 (1,537) %

Net cash (used in) provided by financing activities (6,144) (543) (5,601) NM 9,031 (1,599) 10,630 (665) %

Operating Activities

Net cash provided by operating activities decreased $1.4 billion, or 64%, for the three months ended and decreased $1.1 billion, or 32%, for the six months ended June 30, 2020.

The decrease for the three months ended June 30, 2020, was primarily from:

• A $3.7 billion increase in net cash outflows from changes in working capital, primarily due to the one-time impact of $2.3 billion in gross payments for the settlement of interest rate swaps related to Merger financing for the three months ended June 30, 2020, higher use from Other current and long-term liabilities, Accounts payable and accrued liabilities and Inventories, partially offset by lower use from Accounts receivable;

• Lower Net income;

Net cash provided by operating activities increased $1.0 billion, or 59%, for the three months ended and decreased $121 million, or 2%, for the nine months ended September 30, 2020.

The increase for the three months ended September 30, 2020, was primarily from:

• Higher net non-cash adjustments to Net income, primarily from depreciation and amortization;

• Higher Net income;

partially offset by

• Higher net non-cash adjustments to Net income.

• Net cash provided by operating activities includes $370 million and $151 million in payments for Merger-related costs for the three months ended June 30, 2020 and 2019, respectively.

• Net cash provided by operating activities includes $243 million and $0 in payments for supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs for the three months ended June 30, 2020 and 2019, respectively.

The decrease for the six months ended June 30, 2020, was primarily from:

• A $3.7 billion increase in net cash outflows from changes in working capital, primarily due to the one-time impact of $2.3 billion in gross payments for the settlement of interest rate swaps related to Merger financing for the six months ended June 30, 2020, including higher use from Other current and long-term liabilities, Accounts payable and accrued liabilities and Inventories, partially offset by lower use from Accounts receivable;

• A $2.1 billion increase in net cash outflows from changes in working capital, primarily due to higher use from Accounts receivable, Accounts payable and accrued liabilities and Inventories.

• Net cash provided by operating activities includes $379 million and $124 million in payments for Merger-related costs for the three months ended September 30, 2020 and 2019, respectively.

• Net cash provided by operating activities includes $198 million and $0 in payments for supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs for the three months ended September 30, 2020 and 2019, respectively.

The decrease for the nine months ended September 30, 2020, was primarily from:

• A $5.8 billion increase in net cash outflows from changes in working capital, primarily due to the one-time impact of $2.3 billion in gross payments for the settlement of interest rate swaps related to Merger financing for the nine months ended September 30, 2020, included in the use from Other current and long-term liabilities, as well as higher use from Accounts payable and accrued liabilities and Inventories;

• Lower Net income;

partially offset by

• Higher net non-cash adjustments to Net income.

• Net cash provided by operating activities includes $531 million and $185 million in payments for Merger-related costs for the six months ended June 30, 2020 and 2019, respectively.

• Net cash provided by operating activities includes $255 million and $0 in payments for supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs for the six months ended June 30, 2020 and 2019, respectively.

• Higher net non-cash adjustments to Net income, primarily from depreciation and amortization.

• Net cash provided by operating activities includes $910 million and $309 million in payments for Merger-related costs for the nine months ended September 30, 2020 and 2019, respectively.

• Net cash provided by operating activities includes $454 million and $0 in payments for supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs for the nine months ended September 30, 2020 and 2019, respectively.

Investing Activities

Net cash used in investing activities increased $4.7 billion, or 294%, for the three months ended and increased $5.4 billion, or 207%, for the six months ended June 30, 2020.

The use of cash for the three months ended June 30, 2020, was primarily from:

• $5.0 billion in cash paid for the acquisition of Sprint, net of cash and restricted cash acquired;

Net cash used in investing activities increased $475 million, or 72%, for the three months ended and increased $5.8 billion, or 180%, for the nine months ended September 30, 2020.

The use of cash for the three months ended September 30, 2020, was primarily from:

• $3.2 billion in Purchases of property and equipment, including capitalized interest, from network integration related to the Merger and the continued build-out of our nationwide 5G network;

• $745 million in Purchases of spectrum licenses and other intangible assets, including deposits;

partially offset by

• $1.2 billion related to derivative contracts under collateral exchange arrangements, for more information regarding these contracts, see Note 7 - Fair Value Measurements of the Notes to the Condensed Consolidated Financial Statements;

• $1.2 billion in Proceeds from the divestiture of the prepaid business;

• $855 million in Proceeds related to beneficial interests in securitization transactions;

The use of cash for the six months ended June 30, 2020, was primarily from:

• $5.0 billion in cash paid for the acquisition of Sprint, net of cash and restricted cash acquired;

• $17 million in net Refunds of spectrum licenses and other intangible assets, including deposits, primarily due to refunds of spectrum license deposits.

The use of cash for the nine months ended September 30, 2020, was primarily from:

• $7.2 billion in Purchases of property and equipment, including capitalized interest, from network integration related to the Merger and the continued build-out of our nationwide 5G network;

• $5.0 billion in cash paid for the acquisition of Sprint, net of cash and restricted cash acquired;

• $827 million in Purchases of spectrum licenses and other intangible assets, including deposits;

1 unchanged sentence

• $2.3 billion in Proceeds related to beneficial interests in securitization transactions;

• $632 million related to derivative contracts under collateral exchange arrangements, for more information regarding these contracts, see Note 7 - Fair Value Measurements of the Notes to the Condensed Consolidated Financial Statements.

• $1.2 billion in Proceeds from the divestiture of the prepaid business;

• $632 million related to derivative contracts under collateral exchange arrangements, for more information regarding these contracts;

see Note 7 - Fair Value Measurements of the Notes to the Condensed Consolidated Financial Statements.

Financing Activities

Net cash provided by (used in) financing activities increased $16.5 billion for the three months ended and $16.2 billion for the six months ended June 30, 2020.

The source of cash for the three and six months ended June 30, 2020, was primarily from:

Net cash (used in) provided by financing activities decreased $5.6 billion for the three months ended and increased $10.6 billion for the nine months ended September 30, 2020.

The use of cash for the three months ended September 30, 2020, was primarily from:

• $5.7 billion in Repayments of long-term debt driven by the repayment of $1.7 billion aggregate principal amount of our 6.375% Senior Notes due 2025, $1.5 billion aggregate principal amount of our 7.000% Senior Notes due 2020, $1.25 billion aggregate principal amount of 5.125% Senior Notes due 2021 held by DT, $1.0 billion aggregate principal amount of our 6.500% Senior Notes due 2024, and $219 million aggregate principal amount of our 3.360% Senior Secured Series 2016-1 A-1 Notes due 2021;

• $246 million in Repayments of financing lease obligations.

The source of cash for the nine months ended September 30, 2020, was primarily from:

• $26.7 billion in Proceeds from the issuance of long-term debt, net of discounts and issuance costs, driven primarily by the issuance of $23.0 billion in Senior Secured Notes and a draw of $4.0 billion on the New Secured Term Loan Facility;

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• $18.9 billion in Repayments of short-term debt, net of refunds for issuance costs, for the repayment of the $19.0 billion draw on the New Secured Bridge Loan Facility;

• $10.5 billion in Repayments of long-term debt driven by the repayment of our $4.0 billion Incremental Term Loan Facility with DT, $4.0 billion of Senior Notes held by DT, $2.3 billion of outstanding principal for the termination of the accounts receivable facility assumed in the Merger, and $219 million in principal payments for the Senior Secured Notes assumed in the Merger.

• $16.2 billion in Repayments of long-term debt driven by the repayment of $5.3 billion aggregate principal amount of 5.125% Senior Notes due 2021 held by DT, our $4.0 billion Incremental Term Loan Facility with DT, $2.3 billion of outstanding principal for the termination of the accounts receivable facility assumed in the Merger, $1.7 billion aggregate principal amount of our 6.375% Senior Notes due 2025, $1.5 billion aggregate principal amount of our 7.000% Senior Notes due 2020, $1.0 billion aggregate principal amount of our 6.500% Senior Notes due 2024 and $438 million aggregate principal amount of our 3.360% Senior Secured Series 2016-1 A-1 Notes due 2021;

• $764 million in Repayments of financing lease obligations.

Cash and Cash Equivalents

As of June 30, 2020, our Cash and cash equivalents were $11.1 billion compared to $1.5 billion at December 31, 2019.

As of September 30, 2020, our Cash and cash equivalents were $6.6 billion compared to $1.5 billion at December 31, 2019.

Free Cash Flow

Free Cash Flow represents Net cash provided by operating activities less cash payments for Purchases of property and equipment, including Proceeds from sales of tower sites and Proceeds related to beneficial interests in securitization transactions, less Cash payments for debt prepayment or debt extinguishment.

Free Cash Flow and Free Cash Flow, excluding gross payments for the settlement of interest rate swaps, is a non-GAAP financial measure utilized by our management, investors and analysts of our financial information to evaluate cash available to pay debt and provide further investment in the business.

We have presented the impact of the sales in the table below, which illustrates the reconciliation of Free Cash Flow and Free Cash Flow, excluding gross payments for the settlement of interest rate swaps and reconciles each from Net cash provided by operating activities, which we consider to be the most directly comparable GAAP financial measure.

Three Months Ended June 30, Change Six Months Ended

June 30, Change

Free Cash Flow and Free Cash Flow, excluding gross payments for the settlement of interest rate swaps, are non-GAAP financial measures utilized by our management, investors and analysts of our financial information to evaluate cash available to pay debt and provide further investment in the business.

The table below illustrates the reconciliation of Free Cash Flow and Free Cash Flow, excluding gross payments for the settlement of interest rate swaps from Net cash provided by operating activities, which we consider to be the most directly comparable GAAP financial measure.

Three Months Ended September 30, Change Nine Months Ended

September 30, Change

(in millions) 2020 2019 $ % 2020 2019 $ %

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Proceeds related to beneficial interests in securitization transactions 855 900 (45) (5) % 2,325 2,896 (571) (20) %

Cash payments for debt prepayment or debt extinguishment costs (24) (28) 4 (14) % (24) (28) 4 (14) %

Cash payments for debt prepayment or debt extinguishment costs (58) — (58) NM (82) (28) (54) 193 %

Free Cash Flow 352 1,134 (782) (69) % 182 2,921 (2,739) (94) %

2 unchanged sentences

NM - Not Meaningful

Free Cash Flow, excluding gross payments for the settlement of interest rate swaps related to Merger financing, increased $272 million, or 23%, for the three months ended and increased $386 million, or 22%, for the six months ended June 30, 2020.

The increase for the three months ended June 30, 2020, was impacted by the following:

• Lower Net cash provided by operating activities, as described above;

• Higher Cash purchases of property and equipment, including capitalized interest of $119 million and $125 million for the three months ended June 30, 2020 and 2019, respectively, from network integration related to the Merger and the continued build-out of our nationwide 5G network;

• Lower Proceeds related to our deferred purchase price from securitization transactions;

• The one-time impact of gross payments for the settlement of interest rate swaps related to Merger financing of $2.3 billion, which is excluded from the calculation Free Cash Flow.

• Free Cash Flow includes $370 million and $151 million in payments for Merger-related costs for the three months ended June 30, 2020 and 2019, respectively.

• Free Cash Flow includes $243 million and $0 in payments for supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs for the three months ended June 30, 2020 and 2019, respectively.

The increase for the six months ended June 30, 2020, was impacted by the following:

• Lower Net cash provided by operating activities, as described above;

Free Cash Flow, excluding gross payments for the settlement of interest rate swaps related to Merger financing, decreased $782 million, or 69%, for the three months ended and decreased $396 million, or 14%, for the nine months ended September 30, 2020.

The decrease for the three months ended September 30, 2020, was primarily impacted by the following:

• Higher Cash purchases of property and equipment, including capitalized interest of $108 million and $118 million for the three months ended September 30, 2020 and 2019, respectively, from network integration related to the Merger and the continued build-out of our nationwide 5G network;

partially offset by

• Higher Net cash provided by operating activities, as described above.

• Free Cash Flow includes $379 million and $124 million in payments for Merger-related costs for the three months ended September 30, 2020 and 2019, respectively.

• Free Cash Flow includes $198 million and $0 in payments for supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs for the three months ended September 30, 2020 and 2019, respectively.

The decrease for the nine months ended September 30, 2020, was primarily impacted by the following:

• Higher Cash purchases of property and equipment, including capitalized interest of $339 million and $361 million for the nine months ended September 30, 2020 and 2019, respectively, from network integration related to the Merger and the continued build-out of our nationwide 5G network;

• Lower Proceeds related to our deferred purchase price from securitization transactions;

• Higher Cash purchases of property and equipment, including capitalized interest of $231 million and $243 million for the six months ended June 30, 2020 and 2019, respectively, from network integration related to the Merger and the continued build-out of our nationwide 5G network;

• The one-time impact of gross payments for the settlement of interest rate swaps related to Merger financing of $2.3 billion, which is excluded from the calculation Free Cash Flow.

• Free Cash Flow includes $531 million and $185 million in payments for Merger-related costs for the six months ended June 30, 2020 and 2019, respectively.

• Free Cash Flow includes $255 million and $0 in payments for supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs for the six months ended June 30, 2020 and 2019, respectively.

Borrowing Capacity and Debt Financing

As of June 30, 2020, our total debt and financing lease liabilities were $75.0 billion, excluding our tower obligations, of which $67.5 billion was classified as long-term debt and $1.4 billion was classified as long-term financing lease liabilities.

• Free Cash Flow includes $910 million and $309 million in payments for Merger-related costs for the nine months ended September 30, 2020 and 2019, respectively.

• Free Cash Flow includes $454 million and $0 in payments for supplemental employee payroll, third-party commissions and cleaning-related COVID-19 costs for the nine months ended September 30, 2020 and 2019, respectively.

Borrowing Capacity

We maintain a financing arrangement with Deutsche Bank AG, which allows for up to $108 million in borrowings.

Under the financing arrangement, we can effectively extend payment terms for invoices payable to certain vendors.

As of June 30, 2020, there were no outstanding balances.

As of September 30, 2020, there were no outstanding balances under such financing arrangements.

We maintain vendor financing arrangements primarily with our main network equipment suppliers.

Under the respective agreements, we can obtain extended financing terms.

During the three and six months ended June 30, 2020, we repaid $151 million and $176 million, respectively, under the vendor financing arrangements.

Payments on certain vendor financing agreements are included in Repayments of short-term debt for purchases of inventory, property and equipment, net, in our Condensed Consolidated Statements of Cash Flows.

As of June 30, 2020 and December 31, 2019, the outstanding balance under the vendor financing arrangements and other debt was $353 million and $25 million, respectively.

On April 1, 2020, in connection with the closing of the Merger, T-Mobile USA and certain of its affiliates, as guarantors, entered into a Bridge Loan Credit Agreement with certain financial institutions named therein, providing for a $19.0 billion secured bridge loan facility (“New Secured Bridge Loan Facility”).

On April 1, 2020, in connection with the closing of the Merger, T-Mobile USA and certain of its affiliates, as guarantors, entered into a Credit Agreement (the “New Credit Agreement”) with certain financial institutions named therein, providing for a $4.0 billion secured term loan facility (“New Secured Term Loan Facility”) and a $4.0 billion revolving credit facility (“New Revolving Credit Facility”).

On April 1, 2020, in connection with the closing of the Merger, we drew down on our $19.0 billion New Secured Bridge Loan Facility and our $4.0 billion New Secured Term Loan Facility.

We used the net proceeds of $22.6 billion from the draw down of the secured facilities to repay our $4.0 billion Incremental Term Loan Facility with DT and to repurchase from DT $4.0 billion of indebtedness to affiliates, consisting of $2.0 billion of 5.300% Senior Notes due 2021 and $2.0 billion of 6.000% Senior Notes due 2024, as well as to redeem certain debt of Sprint and Sprint’s subsidiaries, including the secured term loans due 2024 with a total principal amount outstanding of $5.9 billion, accounts receivable facility with a total amount outstanding of $2.3 billion, and Sprint’s 7.250% Guaranteed Notes due 2028 with a total principal amount outstanding of $1.0 billion, and for post-closing general corporate purposes of the combined company.

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

In connection with the financing provided for in the Commitment Letter, we incurred certain fees payable to the financial institutions, including certain financing fees on the secured term loan commitment and fees for structuring, funding, and providing the commitments.

On April 1, 2020, in connection with the closing of the Merger, we paid $355 million in Commitment Letter fees to certain financial institutions which were recognized in Selling, general and administrative expenses in our Condensed Consolidated Statements of Comprehensive Income.

On April 9, 2020, T-Mobile USA and certain of its affiliates, as guarantors, issued $3.0 billion of 3.500% Senior Secured Notes due 2025, $4.0 billion of 3.750% Senior Secured Notes due 2027, $7.0 billion of 3.875% Senior Secured Notes due 2030, $2.0 billion of 4.375% Senior Secured Notes due 2040, and $3.0 billion of 4.500% Senior Secured Notes due 2050 and used the net proceeds of $18.8 billion together with cash on hand to repay at par all of the outstanding amounts under, and terminate, our $19.0 billion New Secured Bridge Loan Facility.

Additionally, in connection with the repayment of our New Secured Bridge Loan Facility, we received a reimbursement of $71 million, which represents a portion of the Commitment Letter fees that were paid to certain financial institutions when we drew down on the New Secured Bridge Loan Facility on April 1, 2020.

For more information regarding our borrowing capacity and debt financing, see Note 8 - Debt of the Notes to the Condensed Consolidated Financial Statements.

Consents on Debt

On May 18, 2018, under the terms and conditions described in the Consent Solicitation Statement dated as of May 14, 2018, we obtained consents necessary to effect certain amendments to certain of our existing debt and certain existing debt of our subsidiaries.

On April 1, 2020, in connection with the closing of the Merger, we made payments for requisite consents to third-party note holders of $95 million.

In connection with the entry into the Business Combination Agreement, DT and T-Mobile USA entered into a Financing Matters Agreement, dated as of April 29, 2018, pursuant to which DT agreed, among other things, to consent to the incurrence by T-Mobile USA of secured debt in connection with and after the consummation of the Merger.

On April 1, 2020, in connection with the closing of the Merger, we made an additional payment for requisite consents to DT of $13 million.

For more information regarding consents on debt, see Note 8 - Debt of the Notes to the Condensed Consolidated Financial Statements.

During the three and nine months ended September 30, 2020, we repaid $231 million and $407 million, respectively, associated with the vendor financing arrangements and other financial liabilities.

These payments are included in Repayments of short-term debt for purchases of inventory, property and equipment and other financial liabilities, in our Condensed Consolidated Statements of Cash Flows.

As of September 30, 2020 and December 31, 2019, the outstanding balance under the vendor financing arrangements and other financial liabilities was $312 million and $25 million, respectively.

On April 1, 2020, in connection with the closing of the Merger, T-Mobile USA and certain of its affiliates, as guarantors, entered into a Credit Agreement (the “New Credit Agreement”) with certain financial institutions named therein, providing for a $4.0 billion secured term loan facility and a $4.0 billion revolving credit facility (the “New Revolving Credit Facility”).

On September 16, 2020, we increased the aggregate commitment under the New Revolving Credit Facility to $5.5 billion through an amendment to the Credit Agreement.

As of September 30, 2020, there was no outstanding balance under the New Revolving Credit Facility.

Subsequent to September 30, 2020, on October 9, 2020, we repaid at par all of the outstanding amounts under, and terminated, our New Secured Term Loan Facility.

Subsequent to September 30, 2020, on October 30, 2020, we entered into a $5.0 billion senior secured term loan commitment with certain financial institutions.

Up to $5.0 billion of loans under the commitment may be drawn at any time (subject to customary conditions precedent) through June 30, 2021.

If drawn, the facility matures in 364 days with one six-month extension exercisable at our discretion.

Proceeds may be used for general corporate purposes and will accrue interest at a rate of LIBOR plus a margin of 1.25% per annum.

Debt Financing

As of September 30, 2020, our total debt and financing lease liabilities were $69.2 billion, excluding our tower obligations, of which $63.1 billion was classified as long-term debt and $1.4 billion was classified as long-term financing lease liabilities.

During the nine months ended September 30, 2020, we issued short- and long-term debt for proceeds of $45.5 billion and redeemed and repaid short- and long-term debt totaling $35.4 billion.

Additionally, in connection with the closing of the Merger, we assumed certain indebtedness of Sprint totaling $31.8 billion.

Subsequent to September 30, 2020, on October 6, 2020, T-Mobile USA issued $500 million of 2.050% Senior Secured Notes due 2028, $750 million of 2.550% Senior Secured Notes due 2031, $1.25 billion of 3.000% Senior Secured Notes due 2041, and $1.5 billion of 3.300% Senior Secured Notes due 2051.

On October 9, 2020, we used the net proceeds of $4.0 billion to repay at par all of the outstanding amounts under, and terminate, the New Secured Term Loan Facility.

Subsequent to September 30, 2020, on October 28, 2020, T-Mobile USA issued $1.0 billion of 2.250% Senior Secured Notes due 2031, $1.25 billion of 3.000% Senior Secured Notes due 2041, $1.5 billion of 3.300% Senior Secured Notes due 2051 and $1.0 billion of 3.600% Senior Secured Notes due 2060.

We intend to use the net proceeds of $4.6 billion for general corporate purposes, which may include among other things, acquisitions of additional spectrum and refinancing existing indebtedness on an ongoing basis.

Subsequent to September 30, 2020, on October 30, 2020, we entered into a $5.0 billion senior secured term loan commitment with certain financial institutions.

Up to $5.0 billion of loans under the commitment may be drawn at any time (subject to customary conditions precedent) through June 30, 2021.

If drawn, the facility matures in 364 days with one six-month extension exercisable at our discretion.

Proceeds may be used for general corporate purposes and will accrue interest at a rate of LIBOR plus a margin of 1.25% per annum.

For more information regarding our debt financing transactions, see Note 8 - Debt of the Notes to the Condensed Consolidated Financial Statements.

Spectrum Auction

In March 2020, the FCC announced that we were the winning bidder of 2,384 licenses in Auction 103 (37/39 GHz and 47 GHz spectrum bands) for an aggregate price of $873 million, net of an incentive payment of $59 million.

At the inception of Auction 103 in October 2019, we deposited $82 million with the FCC.

Upon conclusion of Auction 103 in March 2020, we made a down payment of $93 million for the purchase price of the licenses won in the auction.

On April 8, 2020, we paid the FCC the remaining $698 million of the purchase price for the licenses won in the auction.

Prior to the Merger, the FCC announced that Sprint was the winning bidder of 127 licenses in Auction 103 (37/39 GHz and 47 GHz spectrum bands).

All payments related to the licenses won were made by Sprint prior the Merger.

For more information regarding our spectrum licenses, see Note 6 - Goodwill, Spectrum License Transactions and Other Intangible Assets of the Notes to the Condensed Consolidated Financial Statements.

Interest Rate Lock Derivatives

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Excluding liquidity that could be needed for spectrum acquisitions, or for other assets, we expect our principal sources of funding to be sufficient to meet our anticipated liquidity needs for business operations for the next 12 months as well as our longer-term liquidity needs.

Our intended use of any such funds is for general corporate purposes, including for capital expenditures, spectrum purchases, opportunistic investments and acquisitions and redemption of high yield callable debt.

Our intended use of any such funds is for general corporate purposes, including for capital expenditures, spectrum purchases, opportunistic investments and acquisitions, redemption of high yield callable debt and the execution of our integration plan.

We determine future liquidity requirements, for both operations and capital expenditures, based in large part upon projected financial and operating performance, and opportunities to acquire additional spectrum.

We regularly review and update these projections for changes in current and projected financial and operating results, general economic conditions, the competitive landscape and other factors.

expenses in connection with integrating and coordinating T-Mobile’s and Sprint’s businesses, operations, policies and procedures.

While we have assumed that a certain level of transaction-related expenses will be incurred, factors beyond our control could affect the total amount or the timing of these expenses.

Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately.

We have incurred, and will incur, substantial expenses as a result of completing the Transactions, the Divestiture Transaction and compliance with the Government Commitments, and we are also expected to incur substantial restructuring expenses in connection with integrating and coordinating T-Mobile’s and Sprint’s businesses, operations, policies and procedures.

While we have assumed that a certain level of Merger-related expenses will be incurred, factors beyond our control, including required consultation and negotiation with certain counterparties, could affect the total amount or the timing of these expenses.

These expenses could exceed the costs historically borne by us and adversely affect our financial condition and results of operations.

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The indentures and credit facilities governing our long-term debt to affiliates and third parties, excluding financing leases, contain covenants that, among other things, limit the ability of the Issuers and the Guarantor Subsidiaries to incur more debt, pay dividends and make distributions on our common stock, make certain investments, repurchase stock, create liens or other encumbrances, enter into transactions with affiliates, enter into transactions that restrict dividends or distributions from subsidiaries, and merge, consolidate or sell, or otherwise dispose of, substantially all of their assets.

Certain provisions of each of the credit facilities, indentures and supplemental indentures relating to the long-term debt to affiliates and third parties restrict the ability of the Issuers to loan funds or make payments to the Parent.

However, the Issuers are allowed to make certain permitted payments to the Parent under the terms of each of the credit facilities, indentures and supplemental indentures relating to the long-term debt to affiliates and third parties.

We were in compliance with all restrictive debt covenants as of June 30, 2020.

However, the Issuers are allowed to make certain permitted payments to Parent under the terms of each of the credit facilities, indentures and supplemental indentures relating to the long-term debt to affiliates and third parties.

We were in compliance with all restrictive debt covenants as of September 30, 2020.

In connection with the closing of the Merger, on April 1, 2020, we assumed Sprint’s liabilities, which include accounts payable and accrued liabilities, short-term debt, operating and financing lease liabilities, net pension plan liabilities, deferred tax liabilities and long-term debt with an aggregate fair value of $31.8 billion.

For more information regarding the Merger, see Note 2 – Business Combinations of the Notes to the Condensed Consolidated Financial Statements.

For more information regarding the Merger, see Note 2 – Business Combination of the Notes to the Condensed Consolidated Financial Statements.

Financing Lease Facilities

We have entered into uncommitted financing lease facilities with certain partners that provide us with the ability to enter into financing leases for network equipment and services.

As of June 30, 2020, we have committed to $4.6 billion of financing leases under these financing lease facilities, of which $473 million and $646 million was executed during the three and six months ended June 30, 2020, respectively.

As of September 30, 2020, we have committed to $4.8 billion of financing leases under these financing lease facilities, of which $211 million and $857 million was executed during the three and nine months ended September 30, 2020, respectively.

We expect to enter into up to an additional $343 million in financing lease commitments during 2020.

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Property and equipment capital expenditures primarily relate to the integration of our acquired Sprint 2.5 GHz spectrum licenses and existing 600 MHz spectrum licenses as we build out our nationwide 5G network.

Since April 1, 2020, we have incurred, and expect to incur significant capital expenditures in the near term related to the integration of the T-Mobile and Sprint businesses in order to fully realize the anticipated synergies associated with the Merger, including the reduction in redundant cell sites from combining networks, back office and information technology efficiencies and the evolution of our distribution and retail footprint including the combining of the Sprint and T-Mobile brand operations.

For more information regarding our property and equipment and spectrum licenses, see Note 5 – Property and Equipment and Note 6 - Goodwill, Spectrum License Transactions and Other I nt angible A ssets of the Notes to the Condensed Consolidated Financial Statements, respectively.

Spectrum Auction

At the inception of Auction 103 in October 2019, we deposited $82 million with the FCC.

Upon conclusion of Auction 103 in March 2020, we made a down payment of $93 million for the purchase price of the licenses won in the auction.

On April 8, 2020, we paid the FCC the remaining $698 million of the purchase price for the licenses won in the auction.

Prior to the Merger, the FCC announced that Sprint was the winning bidder of 127 licenses in Auction 103 (37/39 GHz and 47 GHz spectrum bands).

All payments related to the licenses won were made by Sprint prior the Merger.

For more information regarding our spectrum licenses, see Note 6 - Goodwill, Spectrum License Transactions and Oth er Intang i ble Assets of the Notes to the Condensed Consolidated Financial Statements.

Debt Redemptions

Prior to June 30, 2020, we delivered a notice of redemption on $1.0 billion aggregate principal amount of our 6.500% Senior Notes due 2024.

The notes were redeemed on July 4, 2020 at a redemption price equal to 102.170% of the principal amount of the notes (plus accrued and unpaid interest thereon), payable on July 6, 2020.

The redemption premium was approximately $22 million and the write off of issuance costs and consent fees was approximately $12 million.

The outstanding principal amount was reclassified from Long-term debt to Short-term debt in our Condensed Consolidated Balance Sheets as of June 30, 2020.

Prior to June 30, 2020, we also delivered a notice of redemption on $1.25 billion aggregate principal amount of our 5.125% Senior Notes to affiliates due 2021.

The notes were redeemed on July 4, 2020 at a redemption price equal to 100% of the principal amount of the notes (plus accrued and unpaid interest thereon), payable on July 6, 2020.

The write off of discounts were approximately $12 million.

The outstanding principal amount was reclassified from Long-term debt to Short-term debt in our Condensed Consolidated Balance Sheets as of June 30, 2020.

In August 2020, we expect to deliver a notice of redemption on $1.7 billion aggregate principal amount of our 6.375% Senior Notes due 2025 and expect to redeem the Senior Notes on September 1, 2020.

For more information regarding debt redemptions, see Note 8 - Debt of the Notes to the Condensed Consolidated Financial Statements.

Since April 1, 2020, we have incurred, and expect to continue to incur significant capital expenditures in the near term related to the integration of the T-Mobile and Sprint businesses in order to fully realize the anticipated synergies associated with the Merger, including the reduction in redundant cell sites from combining networks, back office and information technology efficiencies and the evolution of our distribution and retail footprint including the combining of the Sprint and T-Mobile brand operations.

For more information regarding our property and equipment and spectrum licenses, see Note 5 – Property and Equipment and Note 6 - Goodwill, Spectrum License Transactions and Other Intangible Assets of the Notes to the Condensed Consolidated Financial Statements, respectively.

We have never paid or declared any cash dividends on our common stock, and we do not intend to declare or pay any cash dividends on our common stock in the foreseeable future.

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For more information regarding these commitments, see Note 17 – Commitments and Contingencies of the Notes to the Condensed Consolidated Financial Statements.

Between April 2 to April 6, 2020, in connection with the issuance of senior secured notes, we terminated our interest rate lock derivatives.

For more information regarding our interest rate lock derivatives, see Note 7 - Fair Value Measurements of the Notes to the Condensed Consolidated Financial Statements.

The contractual commitments and purchase obligations of Sprint were assumed upon the completion of the Merger.

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For more information regarding our contractual commitments and purchase obligations, see Note 17 - Commitments and Contingencies of the Notes to the Condensed Consolidated Financial Statements.

The following table summarizes our contractual obligations and borrowings as of June 30, 2020 and the timing and effect that such commitments are expected to have on our liquidity and capital requirements in future periods:

The following table summarizes our contractual obligations and borrowings as of September 30, 2020 and the timing and effect that such commitments are expected to have on our liquidity and capital requirements in future periods:

(in millions) Less Than 1 Year 1 - 3 Years 4 - 5 Years More Than 5 Years Total

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For certain contracts that include fixed volume purchase commitments and fixed prices for various products, the purchase obligations are calculated using fixed volumes and contractually fixed prices for the products that are expected to be purchased.

This table does not include open purchase orders as of June 30, 2020 under normal business purposes.

This table does not include open purchase orders as of September 30, 2020 under normal business purposes.

See Note 17 – Commitments and Contingencies of the Notes to the Condensed Consolidated Financial Statements for further information.

(4) Spectrum lease agreements are typically for five to ten years with two automatic renewal provisions, bringing the total term of the agreements up to 30 years.

(4) Spectrum lease agreements are typically for five to 10 years with automatic renewal provisions, bringing the total term of the agreements up to 30 years.

Certain commitments and obligations are included in the table based on the year of required payment or an estimate of the year of payment.

Other long-term liabilities have been omitted from the table above due to the uncertainty of the timing of payments, combined with the absence of historical trending to be used as a predictor of such payments.

Other long-term liabilities have been omitted from the table above due to the uncertainty of the timing of payments,

combined with the absence of historical trending to be used as a predictor of such payments.

See Note 19 – Additional Financial Information of the Notes to the Condensed Consolidated Financial Statements for further information.

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On August 3, 2020, upon completion of the SoftBank Monetization, DT and SoftBank held, directly or indirectly, approximately 43.4% and 8.6%, respectively, of our outstanding common stock, with the remaining approximately 48.0% of our outstanding common stock held by other stockholders.

As a result of the Proxy Agreements, DT has voting control as of August 3, 2020 over approximately 52.4% of the outstanding T-Mobile common stock.

As of September 30, 2020, DT and SoftBank held, directly or indirectly, approximately 43.4% and 8.6%, respectively, of our outstanding common stock, with the remaining approximately 48.0% of our outstanding common stock held by other stockholders.

As a result of the Proxy Agreements, DT has voting control as of September 30, 2020 over approximately 52.4% of the outstanding T-Mobile common stock.

In addition, as provided for in the Master Framework Agreement, DT also holds certain call options over approximately 101.5 million shares of our common stock held by SBGC.

On July 27, 2020, in connection with the SoftBank Monetization, the Rights Offering exercise period closed, and on August 3, 2020, the Rights Offering closed, resulting in the sale of 19,750,000 shares of our common stock.

For more information regarding our related party transactions with SoftBank, see Note 2 - Business Combination and Note 14 -

SoftBank Eq uity Trans action of the Notes to the Condensed Consolidated Financial Statements.

For more information regarding our related party transactions with SoftBank, see Note 2 - Business Combination and Note 14 - SoftBank Equity Transaction of the Notes to the Condensed Consolidated Financial Statements.

Marcelo Claure

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affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S.

As of the date of this report, we are not aware of any activity, transaction or dealing by us or any of our affiliates for the three months ended June 30, 2020, that requires disclosure in this report under Section 13(r) of the Exchange Act, except as set forth below with respect to affiliates that we do not control and that are our affiliates solely due to their common control with either DT or SoftBank.

As of the date of this report, we are not aware of any activity, transaction or dealing by us or any of our affiliates for the three months ended September 30, 2020, that requires disclosure in this report under Section 13(r) of the Exchange Act, except as set forth below with respect to affiliates that we do not control and that are our affiliates solely due to their common control with either DT or SoftBank.

We have relied upon DT and SoftBank for information regarding their respective activities, transactions and dealings.

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Irancell Telecommunications Services Company, Telecommunication Kish Company, Mobile Telecommunication Company of Iran, and Telecommunication Infrastructure Company of Iran.

In addition, during the three months ended June 30, 2020, DT, through certain of its non-U.S.

In addition, during the three months ended September 30, 2020, DT, through certain of its non-U.S.

subsidiaries, provided basic telecommunications services to three customers in Germany identified on the Specially Designated Nationals and Blocked Persons List maintained by the U.S.

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These services have been terminated or are in the process of being terminated.

For the three months ended June 30, 2020, gross revenues of all DT affiliates

generated by roaming and interconnection traffic and telecommunications services with the Iranian parties identified herein were less than $0.1 million, and the estimated net profits were less than $0.1 million.

For the three months ended September 30, 2020, gross revenues of all DT affiliates generated by roaming and interconnection traffic and telecommunications services with the Iranian parties identified herein were less than $0.1 million, and the estimated net profits were less than $0.1 million.

In addition, DT, through certain of its non-U.S.

subsidiaries that operate a fixed-line network in their respective European home countries (in particular Germany), provides telecommunications services in the ordinary course of business to the Embassy of Iran in those European countries.

Gross revenues and net profits recorded from these activities for the three months ended June 30, 2020 were less than $0.1 million.

Gross revenues and net profits recorded from these activities for the three months ended September 30, 2020 were less than $0.1 million.

We understand that DT intends to continue these activities.

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subsidiaries, provides roaming services in Iran through Irancell Telecommunications Services Company.

During the three months ended June 30, 2020, SoftBank had no gross revenues from such services and no net profit was generated.

During the three months ended September 30, 2020, SoftBank had no gross revenues from such services and no net profit was generated.

We understand that the SoftBank subsidiary intends to continue such services.

This subsidiary also provides telecommunications services in the ordinary course of business to accounts affiliated with the Embassy of Iran in Japan.

During the three months ended June 30, 2020, SoftBank estimates that gross revenues and net profit generated by such services were both under $3,500.

During the three months ended September 30, 2020, SoftBank estimates that gross revenues and net profit generated by such services were both under $0.1 million.

We understand that the SoftBank subsidiary is obligated under contract and intends to continue such services.

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indirect subsidiaries, provides office supplies to the Embassy of Iran in Japan.

SoftBank estimates that gross revenue and net profit generated by such services during the three months ended June 30, 2020 were under $1,000 and $200, respectively.

SoftBank estimates that gross revenue and net profit generated by such services during the three months ended September 30, 2020, were both under $0.1 million.

We understand that the SoftBank subsidiary intends to continue such activities.

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We have arrangements, as amended from time to time, to sell certain EIP accounts receivable and service accounts receivable on a revolving basis as a source of liquidity.

As of June 30, 2020, we derecognized net receivables of $2.6 billion upon sale through these arrangements.

As of September 30, 2020, we derecognized net receivables of $2.5 billion upon sale through these arrangements.

For more information regarding these off-balance sheet arrangements, see Note 4 – Sales of Certain Receivables of the Notes to the Condensed Consolidated Financial Statements.

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GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities.

Except as described below and in Note 1 - Summary of Significant Accounting P oli cies , there have been no material changes to the critical accounting policies and estimates as previously disclosed in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019, and which are hereby incorporated by reference herein other than the updated risk factors below.

Except as described below and in Note 1 - Summary of Significant Accounting Policies , there have been no material changes to the critical accounting policies and estimates as previously disclosed in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019, and which are hereby incorporated by reference herein other than the updated risk factors below.

Evaluation of Goodwill and Indefinite-Lived Intangible Assets for Impairment

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We recognize market capitalization is subject to volatility and will monitor changes in market capitalization to determine whether declines, if any, necessitate an interim impairment review.

In the event market capitalization does decline below its book value, we will consider the length, severity and reasons for the decline when assessing whether potential impairment exists, including considering whether a control premium should be

added to the market capitalization.

We believe short-term fluctuations in share price may not necessarily reflect the underlying aggregate fair value.

No events or change in circumstances have occurred in the current quarter that indicate the fair value of the Wireless reporting unit may be below its carrying amount at June 30, 2020.

No events or change in circumstances have occurred in the current quarter that indicate the fair value of the Wireless reporting unit may be below its carrying amount at September 30, 2020.

Concurrent with the acquisition, management also revisited the plans for our TVision TM Home service offering and the integration of this offering with the Sprint customer base.

Additionally, we expect our significantly enhanced spectrum position following the Merger will allow us to accelerate our in-home broadband internet service strategy.

The enhanced in-home broadband opportunity, along with the acquisition of certain content rights, has created a strategic shift in our TVision TM Home service offering allowing us the ability to develop a video product which will be complementary to the in-home broadband offering.

Management has updated its forecast, which includes a reimagining of the stand-alone product offering to potential customers that is expected to launch by the end of 2020.

The enhanced in-home broadband opportunity, along with the acquisition of certain content rights, created a strategic shift in our TVision TM Home service offering allowing us the ability to develop a video product which will be complementary to the in-home broadband offering.

As of June 30, 2020, management updated its forecast, which included a reimagining of the stand-alone product offering to potential customers that is expected to launch by the end of 2020.

Based on these events and changes in circumstances, we determined that recoverability of the carrying amount of goodwill for the Layer3 reporting unit should be evaluated for impairment.

We employed a quantitative approach to assess the Layer3 reporting unit.

The fair value of the Layer3 reporting unit is determined using an income approach, which is based on estimated discounted future cash flows.

The fair value of the Layer3 reporting unit was determined using an income approach, which was based on estimated discounted future cash flows.

We made estimates and assumptions regarding future cash flows, discount rates and long-term growth rates to determine the reporting unit’s estimated fair value.

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The carrying value of the Layer3 reporting unit exceeded its estimated fair value as of June 30, 2020.

Accordingly, during the three and six months ended June 30, 2020 we recorded an impairment loss of $218 million, which is included in “Impairment expense” in our consolidated statements of comprehensive income.

Accordingly, during the nine months ended September 30, 2020, we recorded an impairment loss of $218 million, which is included in “Impairment expense” in our Condensed Consolidated Statements of Comprehensive Income.

For more information regarding our impairment assessments, see Note 1 - Summary of Significant Accounting Policies and Note 6 – Goodwill, Spectrum License Transactions and Other Intangible Assets of the Notes to the Condensed Consolidated Financial Statements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis