T-Mobile US, Inc. 10-Q

Item 1. Financial Statements T-Mobile US, Inc. Condensed Consolidated Balance Sheets (Unaudited) (in millions, except share and per share amounts) September 30, 2021 December 31, 2020 Assets Current assets Cash and cash equivalents $ 4,055 $ 10,385 Accounts receivable, net of allowance for credit losses of $ 129 and $ 194 4,109 4,254 Equipment installment plan receivables, net of allowance for credit losses and imputed discount of $ 469 and $ 478 4,306 3,577 Accounts receivable from affiliates 21 22 Inventory 1,762 2,527 Prepaid expenses 943 624 Other current assets 1,576 2,496 Total current assets 16,772 23,885 Property and equipment, net 39,355 41,175 Operating lease right-of-use assets 27,446 28,021 Financing lease right-of-use assets 3,396 3,028 Goodwill 12,188 11,117 Spectrum licenses 92,589 82,828 Other intangible assets, net 5,047 5,298 Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount of $ 109 and $ 127 2,280 2,031 Other assets 3,052 2,779 Total assets $ 202,125 $ 200,162 Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued liabilities $ 8,735 $ 10,196 Payables to affiliates 92 157 Short-term debt 2,096 4,579 Short-term debt to affiliates 2,240 — Deferred revenue 914 1,030 Short-term operating lease liabilities 3,077 3,868 Short-term financing lease liabilities 1,154 1,063 Other current liabilities 939 810 Total current liabilities 19,247 21,703 Long-term debt 66,645 61,830 Long-term debt to affiliates 1,494 4,716 Tower obligations 2,862 3,028 Deferred tax liabilities 10,370 9,966 Operating lease liabilities 26,279 26,719 Financing lease liabilities 1,587 1,444 Other long-term liabilities 5,214 5,412 Total long-term liabilities 114,451 113,115 Commitments and contingencies (Note 13) Stockholders' equity Common Stock, par value $ 0.00001 per share, 2,000,000,000 shares authorized; 1,250,573,992 and 1,243,345,584 shares issued, 1,249,035,065 and 1,241,805,706 shares outstanding — — Additional paid-in capital 73,152 72,772 Treasury stock, at cost, 1,538,927 and 1,539,878 shares issued ( 13 ) ( 11 ) Accumulated other comprehensive loss ( 1,478 ) ( 1,581 ) Accumulated deficit ( 3,234 ) ( 5,836 ) Total stockholders' equity 68,427 65,344 Total liabilities and stockholders' equity $ 202,125 $ 200,162 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Index for Notes to the Condensed Consolidated Financial Statements T-Mobile US, Inc. Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (in millions, except share and per share amounts) 2021 2020 2021 2020 Revenues Postpaid revenues $ 10,804 $ 10,209 $ 31,599 $ 26,055 Prepaid revenues 2,481 2,383 7,259 7,067 Wholesale revenues 944 930 2,776 1,663 Other service revenues 493 617 1,772 1,430 Total service revenues 14,722 14,139 43,406 36,215 Equipment revenues 4,660 4,953 15,221 11,339 Other revenues 242 180 706 502 Total revenues 19,624 19,272 59,333 48,056 Operating expenses Cost of services, exclusive of depreciation and amortization shown separately below 3,538 3,314 10,413 8,051 Cost of equipment sales, exclusive of depreciation and amortization shown separately below 5,145 4,367 15,740 10,563 Selling, general and administrative 5,212 4,876 14,840 14,168 Impairment expense — — — 418 Depreciation and amortization 4,145 4,150 12,511 9,932 Total operating expenses 18,040 16,707 53,504 43,132 Operating income 1,584 2,565 5,829 4,924 Other income (expense) Interest expense ( 780 ) ( 765 ) ( 2,392 ) ( 1,726 ) Interest expense to affiliates ( 58 ) ( 44 ) ( 136 ) ( 206 ) Interest income 2 3 7 21 Other expense, net ( 60 ) ( 99 ) ( 186 ) ( 304 ) Total other expense, net ( 896 ) ( 905 ) ( 2,707 ) ( 2,215 ) Income from continuing operations before income taxes 688 1,660 3,122 2,709 Income tax benefit (expense) 3 ( 407 ) ( 520 ) ( 715 ) Income from continuing operations 691 1,253 2,602 1,994 Income from discontinued operations, net of tax — — — 320 Net income $ 691 $ 1,253 $ 2,602 $ 2,314 Net income $ 691 $ 1,253 $ 2,602 $ 2,314 Other comprehensive income (loss), net of tax Unrealized gain (loss) on cash flow hedges, net of tax effect of $ 12 , $ 12 , $ 36 , and $( 261 ) 35 33 103 ( 757 ) Unrealized (loss) gain on foreign currency translation adjustment, net of tax effect of $ 0 , $ 1 , $ 0 , and $ 1 ( 3 ) 4 — 4 Other comprehensive income (loss) 32 37 103 ( 753 ) Total comprehensive income $ 723 $ 1,290 $ 2,705 $ 1,561 Earnings per share Basic earnings per share: Continuing operations $ 0.55 $ 1.01 $ 2.09 $ 1.79 Discontinued operations — — — 0.29 Basic $ 0.55 $ 1.01 $ 2.09 $ 2.08 Diluted earnings per share: Continuing operations $ 0.55 $ 1.00 $ 2.07 $ 1.78 Discontinued operations — — — 0.28 Diluted $ 0.55 $ 1.00 $ 2.07 $ 2.06 Weighted average shares outstanding Basic 1,248,189,719 1,238,450,665 1,246,441,464 1,111,511,964 Diluted 1,253,661,245 1,249,798,740 1,254,391,787 1,122,040,528 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Index for Notes to the Condensed Consolidated Financial Statements T-Mobile US, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2021 2020 2021 2020 Operating activities Net income $ 691 $ 1,253 $ 2,602 $ 2,314 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 4,145 4,150 12,511 9,932 Stock-based compensation expense 131 161 403 558 Deferred income tax (benefit) expense ( 27 ) 335 410 743 Bad debt expense 105 143 259 489 Losses (gains) from sales of receivables 4 ( 18 ) ( 26 ) 37 Losses on redemption of debt 55 108 184 271 Impairment expense — — — 418 Changes in operating assets and liabilities Accounts receivable ( 454 ) ( 1,538 ) ( 2,197 ) ( 2,784 ) Equipment installment plan receivables ( 530 ) ( 306 ) ( 1,825 ) ( 110 ) Inventories 41 ( 549 ) 904 ( 1,613 ) Operating lease right-of-use assets 1,334 1,062 3,730 2,526 Other current and long-term assets ( 88 ) ( 8 ) ( 188 ) ( 106 ) Accounts payable and accrued liabilities 111 ( 964 ) ( 1,245 ) ( 2,630 ) Short and long-term operating lease liabilities ( 2,046 ) ( 1,145 ) ( 4,411 ) ( 2,947 ) Other current and long-term liabilities ( 87 ) ( 51 ) ( 351 ) ( 2,162 ) Other, net 92 139 157 230 Net cash provided by operating activities 3,477 2,772 10,917 5,166 Investing activities Purchases of property and equipment, including capitalized interest of $( 46 ), $( 108 ), $( 187 ), and $( 339 ) ( 2,944 ) ( 3,217 ) ( 9,397 ) ( 7,227 ) (Purchases) refunds of spectrum licenses and other intangible assets, including deposits ( 407 ) 17 ( 9,337 ) ( 827 ) Proceeds from sales of tower sites — — 31 — Proceeds related to beneficial interests in securitization transactions 1,071 855 3,099 2,325 Net cash related to derivative contracts under collateral exchange arrangements — — — 632 Acquisition of companies, net of cash and restricted cash acquired ( 1,886 ) — ( 1,916 ) ( 5,000 ) Proceeds from the divestiture of prepaid business — 1,238 — 1,238 Other, net 14 ( 25 ) 46 ( 209 ) Net cash used in investing activities ( 4,152 ) ( 1,132 ) ( 17,474 ) ( 9,068 ) Financing activities Proceeds from issuance of long-term debt 1,989 — 11,758 26,694 Payments of consent fees related to long-term debt — — — ( 109 ) Repayments of financing lease obligations ( 266 ) ( 246 ) ( 822 ) ( 764 ) Repayments of short-term debt for purchases of inventory, property and equipment and other financial liabilities ( 76 ) ( 231 ) ( 167 ) ( 407 ) Repayments of long-term debt ( 4,600 ) ( 5,678 ) ( 9,969 ) ( 16,207 ) Issuance of common stock — 2,550 — 19,840 Repurchases of common stock — ( 2,546 ) — ( 19,536 ) Proceeds from issuance of short-term debt — — — 18,743 Repayments of short-term debt — — — ( 18,929 ) Tax withholdings on share-based awards ( 14 ) ( 72 ) ( 308 ) ( 351 ) Cash payments for debt prepayment or debt extinguishment costs ( 45 ) ( 58 ) ( 116 ) ( 82 ) Other, net ( 48 ) 137 ( 139 ) 139 Net cash (used in) provided by financing activities ( 3,060 ) ( 6,144 ) 237 9,031 Change in cash and cash equivalents, including restricted cash ( 3,735 ) ( 4,504 ) ( 6,320 ) 5,129 Cash and cash equivalents, including restricted cash Beginning of period 7,878 11,161 10,463 1,528 End of period $ 4,143 $ 6,657 $ 4,143 $ 6,657 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Index for Notes to the Condensed Consolidated Financial Statements T-Mobile US, Inc. Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) (in millions, except shares) Common Stock Outstanding Treasury Shares at Cost Par Value and Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity Balance as of June 30, 2021 1,247,920,536 $ ( 14 ) $ 72,919 $ ( 1,510 ) $ ( 3,925 ) $ 67,470 Net income — — — — 691 691 Other comprehensive income — — — 32 — 32 Stock-based compensation — — 147 — — 147 Exercise of stock options 14,578 — 1 — — 1 Stock issued for employee stock purchase plan 917,444 — 100 — — 100 Issuance of vested restricted stock units 256,605 — — — — — Shares withheld related to net share settlement of stock awards and stock options ( 92,992 ) — ( 14 ) — — ( 14 ) Transfers with NQDC plan 18,894 1 ( 1 ) — — — Balance as of September 30, 2021 1,249,035,065 $ ( 13 ) $ 73,152 $ ( 1,478 ) $ ( 3,234 ) $ 68,427 Balance as of December 31, 2020 1,241,805,706 $ ( 11 ) $ 72,772 $ ( 1,581 ) $ ( 5,836 ) $ 65,344 Net income — — — — 2,602 2,602 Other comprehensive income — — — 103 — 103 Stock-based compensation — — 451 — — 451 Exercise of stock options 195,618 — 10 — — 10 Stock issued for employee stock purchase plan 2,189,697 — 225 — — 225 Issuance of vested restricted stock units 7,281,702 — — — — — Shares withheld related to net share settlement of stock awards and stock options ( 2,438,609 ) — ( 308 ) — — ( 308 ) Transfers with NQDC plan 951 ( 2 ) 2 — — — Balance as of September 30, 2021 1,249,035,065 $ ( 13 ) $ 73,152 $ ( 1,478 ) $ ( 3,234 ) $ 68,427 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Index for Notes to the Condensed Consolidated Financial Statements T-Mobile US, Inc. Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) (in millions, except shares) Common Stock Outstanding Treasury Shares at Cost Par Value and Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity Balance as of June 30, 2020 1,237,338,994 $ ( 12 ) $ 72,505 $ ( 1,658 ) $ ( 7,839 ) $ 62,996 Net income — — — — 1,253 1,253 Other comprehensive income — — — 37 — 37 Stock-based compensation — — 177 — — 177 Exercise of stock options 483,266 — 27 — — 27 Stock issued for employee stock purchase plan 897,732 — 65 — — 65 Issuance of vested restricted stock units 2,383,098 — — — — — Shares withheld related to net share settlement of stock awards and stock options ( 648,872 ) — ( 72 ) — — ( 72 ) Transfers with NQDC plan 4,400 1 ( 1 ) — — — Shares issued in secondary offering (1) 24,750,000 — 2,550 — — 2,550 Shares repurchased from SoftBank (2) ( 24,750,000 ) — ( 2,546 ) — — ( 2,546 ) Balance as of September 30, 2020 1,240,458,618 $ ( 11 ) $ 72,705 $ ( 1,621 ) $ ( 6,586 ) $ 64,487 Balance as of December 31, 2019 856,905,400 $ ( 8 ) $ 38,498 $ ( 868 ) $ ( 8,833 ) $ 28,789 Net income — — — — 2,314 2,314 Other comprehensive loss — — — ( 753 ) — ( 753 ) Executive put option ( 342,000 ) — 1 — — 1 Stock-based compensation — — 601 — — 601 Exercise of stock options 794,853 — 42 — — 42 Stock issued for employee stock purchase plan 2,144,036 — 148 — — 148 Issuance of vested restricted stock units 11,295,402 — — — — — Shares withheld related to net share settlement of stock awards and stock options ( 3,703,906 ) — ( 351 ) — — ( 351 ) Transfers with NQDC plan ( 31,477 ) ( 3 ) 3 — — — Shares issued in secondary offering (1) 198,314,426 — 19,766 — — 19,766 Shares repurchased from SoftBank (1) ( 198,314,426 ) — ( 19,536 ) — — ( 19,536 ) Merger consideration 373,396,310 — 33,533 — — 33,533 Prior year Retained Earnings — — — — ( 67 ) ( 67 ) Balance as of September 30, 2020 1,240,458,618 $ ( 11 ) $ 72,705 $ ( 1,621 ) $ ( 6,586 ) $ 64,487 (1) Shares issued includes 5.0 million shares of our common stock purchased by Marcelo Claure, one of our directors. (2) On June 22, 2020, we entered into a Master Framework Agreement and related transactions with SoftBank Group Corp. (“SoftBank”) to facilitate SoftBank’s monetization of a portion of our common stock held by SoftBank. We received a payment of $ 304 million from SoftBank. This amount, net of tax, was treated as a reduction of the purchase price of the shares acquired from SoftBank and was recorded as Additional paid-in capital. The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Index for Notes to the Condensed Consolidated Financial Statements T-Mobile US, Inc. Index for Notes to the Condensed Consolidated Financial Statements Note 1 Summary of Significant Accounting Policies 9 Note 2 Business Combinations 9 Note 3 Receivables and Expected Credit Losses 15 Note 4 Sales of Certain Receivables 18 Note 5 Goodwill, Spectrum License Transactions and Other Intangible Assets 20 Note 6 Fair Value Measurements 22 Note 7 Debt 24 Note 8 Tower Obligations 26 Note 9 Revenue from Contracts with Customers 27 Note 10 Income Taxes 29 Note 11 Earnings Per Share 29 Note 12 Leases 30 Note 13 Commitments and Contingencies 30 Note 14 Restructuring Costs 33 Note 15 Additional Financial Information 34 8 Index for Notes to the Condensed Consolidated Financial Statements T-Mobile US, Inc. Notes to the Condensed Consolidated Financial Statements Note 1 – Summary of Significant Accounting Policies Basis of Presentation The unaudited condensed consolidated financial statements of T-Mobile US, Inc. (“T-Mobile,” “we,” “our,” “us” or the “Company”) include all adjustments of a normal recurring nature necessary for the fair presentation of the results for the interim periods presented. The results for the interim periods are not necessarily indicative of those for the full year. The condensed consolidated financial statements should be read in conjunction with our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020. The condensed consolidated financial statements include the balances and results of operations of T-Mobile and our consolidated subsidiaries. We consolidate majority-owned subsidiaries over which we exercise control, as well as variable interest entities (“VIEs”) where we are deemed to be the primary beneficiary and VIEs which cannot be deconsolidated, such as those related to our obligations to pay for the management and operation of certain of our wireless communications tower sites. Intercompany transactions and balances have been eliminated in consolidation. The preparation of financial statements in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”) requires our management to make estimates and assumptions that affect the financial statements and accompanying notes. Estimates are based on historical experience, where applicable, and other assumptions that management believes are reasonable under the circumstances, including but not limited to, the valuation of assets acquired and liabilities assumed through the merger (the “Merger”) with Sprint Corporation (“Sprint”) and through our acquisitions of affiliates. These estimates are inherently subject to judgment and actual results could differ from those estimates. Accounting Pronouncements Not Yet Adopted Reference Rate Reform In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” and has since modified the standard with ASU 2021-01, “Reference Rate Reform (Topic 848): Scope” (together, the “reference rate reform standard”). The reference rate reform standard provides temporary optional expedients and allows for certain exceptions to applying existing GAAP for contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued as a result of reference rate reform. The reference rate reform standard is available for adoption through December 31, 2022, and the optional expedients for contract modifications must be elected for all arrangements within a given Accounting Standards Codification (“ASC”) Topic or Industry Subtopic. We expect to elect the optional expedients for eligible contract modifications accounted for under a given ASC Topic as they occur through December 31, 2022. The application of these expedients is not expected to have a material impact on our consolidated financial statements. Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the U.S. Securities and Exchange Commission did not have, or are not expected to have, a significant impact on our present or future consolidated financial statements. Note 2 – Business Combinations Business Combination Agreement and Amendments On April 29, 2018, we entered into a Business Combination Agreement with Sprint and the other parties named therein (as amended, the “Business Combination Agreement”) for the Merger. The Business Combination Agreement was subsequently amended to provide that, following the closing of the Merger and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”), SoftBank would indemnify us against certain specified matters and the loss of value arising out of, or resulting from, cessation of access to spectrum under certain circumstances and subject to certain limitations and qualifications. On February 20, 2020, T-Mobile, SoftBank and Deutsche Telekom AG (“DT”) entered into a letter agreement (the “Letter Agreement”). Pursuant to the Letter Agreement, SoftBank agreed to cause its applicable affiliates to surrender to T-Mobile, for 9 Index for Notes to the Condensed Consolidated Financial Statements no additional consideration, an aggregate of 48,751,557 shares of T-Mobile common stock (such number of shares, the “SoftBank Specified Shares Amount”), effective immediately following the Effective Time (as defined in the Business Combination Agreement), making SoftBank’s exchange ratio 11.31 shares of Sprint common stock for each share of T-Mobile common stock. This resulted in an effective exchange ratio of approximately 11.00 shares of Sprint common stock for each share of T-Mobile common stock immediately following the closing of the Merger, an increase from the originally agreed 9.75 shares. Sprint stockholders, other than SoftBank, received the original fixed exchange ratio of 0.10256 shares of T-Mobile common stock for each share of Sprint common stock, or the equivalent of approximately 9.75 shares of Sprint common stock for each share of T-Mobile common stock. The Letter Agreement requires T-Mobile to issue to SoftBank 48,751,557 shares of T-Mobile common stock, subject to the terms and conditions set forth in the Letter Agreement, for no additional consideration, if certain conditions are met. The issuance of these shares is contingent on the trailing 45-day volume-weighted average price per share of T-Mobile common stock on the NASDAQ Global Select Market being equal to or greater than $ 150.00 , at any time during the period commencing on April 1, 2022 and ending on December 31, 2025. If the threshold price is not met, then none of the SoftBank Specified Shares Amount will be issued. Closing of Sprint Merger On April 1, 2020, we completed the Merger, and as a result, Sprint and its subsidiaries became wholly owned consolidated subsidiaries of T-Mobile. Sprint was the fourth-largest telecommunications company in the U.S., offering a comprehensive range of wireless and wireline communication products and services. As a combined company, we have been able to rapidly launch a broad and deep nationwide 5G network, accelerate innovation, increase competition in the U.S. wireless and broadband industries and achieve significant synergies and cost reductions by eliminating redundancies within the combined network as well as other business processes and operations. Upon completion of the Merger, each share of Sprint common stock was exchanged for 0.10256 shares of T-Mobile common stock, or 9.75 shares of Sprint common stock for each share of T-Mobile common stock. After adjustments, including the holdback of the SoftBank Specified Shares Amount and fractional shares, we issued 373,396,310 shares of T-Mobile common stock to Sprint stockholders. The fair value of the T-Mobile common stock provided in exchange for Sprint common stock was approximately $ 31.3 billion. Additional components of consideration included the repayment of certain of Sprint’s debt, replacement of equity awards attributable to pre-combination services, contingent consideration and a cash payment received from SoftBank for certain reimbursed Merger expenses. Immediately following the closing of the Merger and the surrender of the SoftBank Specified Shares Amount, pursuant to the Letter Agreement described above, DT and SoftBank held, directly or indirectly, approximately 43.6 % and 24.7 %, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 31.7 % of the outstanding T-Mobile common stock held by other stockholders. As of September 30, 2021, DT and SoftBank held, directly or indirectly, approximately 46.8 % and 4.9 %, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 48.3 % of the outstanding T-Mobile common stock held by other stockholders. Pursuant to the Proxy, Lock-up and ROFR Agreement, dated as of April 1, 2020, by and between DT and SoftBank and the Proxy, Lock-up and ROFR Agreement, dated as of June 22, 2020 by and among DT, Marcelo Claure and Claure Mobile LLC, a Delaware limited liability company wholly owned by Mr. Claure, as of September 30, 2021, DT has voting control over approximately 52.0 % of the outstanding T-Mobile common stock. Consideration Transferred The acquisition-date fair value of consideration transferred in the Merger totaled $ 40.8 billion, comprised of the following: (in millions) April 1, 2020 Fair value of T-Mobile common stock issued to Sprint stockholders (1) $ 31,328 Fair value of T-Mobile replacement equity awards attributable to pre-combination service (2) 323 Repayment of Sprint’s debt (including accrued interest and prepayment penalties) (3) 7,396 Fair value of contingent consideration (4) 1,882 Payment received from selling stockholder (5) ( 102 ) Total consideration exchanged $ 40,827 (1) Represents the fair value of T-Mobile common stock issued to Sprint stockholders pursuant to the Business Combination Agreement, less shares surrendered by SoftBank pursuant to the Letter Agreement. The fair value is based on 373,396,310 shares of T-Mobile common stock issued at an 10 Index for Notes to the Condensed Consolidated Financial Statements exchange ratio of 0.10256 shares of T-Mobile common stock per share of Sprint common stock, less 48,751,557 T-Mobile shares surrendered by SoftBank which are treated as contingent consideration, and the closing price per share of T-Mobile common stock on NASDAQ on March 31, 2020, of $ 83.90 , as shares were transferred to Sprint stockholders prior to the opening of markets on April 1, 2020. (2) Equity-based awards held by Sprint employees prior to the acquisition date have been replaced with T-Mobile equity-based awards. The portion of the equity-based awards that relates to services performed by the employee prior to the acquisition date is included within consideration transferred, and includes stock options, restricted stock units and performance-based restricted stock units. (3) Represents the cash consideration paid concurrent with the close of the Merger to retire certain Sprint debt, as required by change in control provisions of the debt, plus interest and prepayment penalties. (4) Represents the fair value of the SoftBank Specified Shares Amount contingent consideration that may be issued as set forth in the Letter Agreement. (5) Represents receipt of a cash payment from SoftBank for certain reimbursed Merger expenses. The SoftBank Specified Shares Amount was determined to be contingent consideration with an acquisition-date fair value of $ 1.9 billion. We estimated the fair value using the income approach, a probability-weighted discounted cash flow model, whereby a Monte Carlo simulation method estimated the probability of different outcomes as the likelihood of achieving the 45-day volume-weighted average price threshold is not easily predicted. This fair value measurement is based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement as defined in ASC 820: Fair Value Measurement. The key assumptions in applying the income approach include the estimated future share-price volatility, which was based on historical market trends and the estimated future performance of T-Mobile. The maximum amount of contingent consideration that could be issued to SoftBank has an estimated value of $ 7.3 billion, based on SoftBank Specified Shares Amount of 48,751,557 multiplied by the defined volume-weighted average price per share of $ 150.00 . The contingent consideration that could be delivered to SoftBank is classified within equity and is not subject to remeasurement. Fair Value of Assets Acquired and Liabilities Assumed We accounted for the Merger as a business combination. The identifiable assets acquired and liabilities assumed of Sprint were recorded at their fair values as of the acquisition date and consolidated with those of T-Mobile. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires the use of significant judgment regarding estimates and assumptions. For the fair values of the assets acquired and liabilities assumed, we used the cost, income and market approaches, including market participant assumptions. The following table summarizes the fair values for each major class of assets acquired and liabilities assumed at the acquisition date. We retained the services of certified valuation specialists to assist with assigning values to certain acquired assets and assumed liabilities. 11 Index for Notes to the Condensed Consolidated Financial Statements (in millions) April 1, 2020 Cash and cash equivalents $ 2,084 Accounts receivable 1,775 Equipment installment plan receivables 1,088 Inventory 658 Prepaid expenses 140 Assets held for sale 1,908 Other current assets 637 Property and equipment 18,435 Operating lease right-of-use assets 6,583 Financing lease right-of-use assets 291 Goodwill 9,423 Spectrum licenses 45,400 Other intangible assets 6,280 Equipment installment plan receivables due after one year, net 247 Other assets (1) 540 Total assets acquired 95,489 Accounts payable and accrued liabilities 5,015 Short-term debt 2,760 Deferred revenue 508 Short-term operating lease liabilities 1,818 Short-term financing lease liabilities 8 Liabilities held for sale 475 Other current liabilities 681 Long-term debt 29,037 Tower obligations 950 Deferred tax liabilities 3,478 Operating lease liabilities 5,615 Financing lease liabilities 12 Other long-term liabilities 4,305 Total liabilities assumed 54,662 Total consideration transferred $ 40,827 (1) Included in Other assets acquired is $ 80 million in restricted cash. Amounts initially disclosed for the estimated values of certain acquired assets and liabilities assumed were adjusted through March 31, 2021 (the close of the measurement period) based on information arising after the initial valuation. Intangible Assets and Liabilities Goodwill with an assigned value of $ 9.4 billion represents the excess of the consideration transferred over the fair values of assets acquired and liabilities assumed. The goodwill recognized includes synergies expected to be achieved from the operations of the combined company, the assembled workforce of Sprint and intangible assets that do not qualify for separate recognition. Expected synergies from the Merger include the cost savings from the planned integration of network infrastructure, facilities, personnel and systems. None of the goodwill resulting from the Merger is deductible for tax purposes. All of the goodwill acquired is allocated to the wireless reporting unit. Other intangible assets include $ 4.9 billion of customer relationships with a weighted-average useful life of eight years and tradenames of $ 207 million with a useful life of two years . Leased spectrum arrangements that have favorable (asset) and unfavorable (liability) terms compared to current market rates were assigned fair values of $ 745 million and $ 125 million, respectively, with 18 -year and 19 -year weighted average useful lives, respectively. 12 Index for Notes to the Condensed Consolidated Financial Statements The fair value of Spectrum licenses of $ 45.4 billion was estimated using the income approach, specifically a Greenfield model. This fair value measurement is based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement as defined in ASC 820: Fair Value Measurement. The key assumptions in applying the income approach include the discount rate, estimated market share, estimated capital and operating expenditures, forecasted service revenue and a long-term growth rate for a hypothetical market participant that enters the wireless industry and builds a nationwide wireless network. Acquired Receivables The fair value of the assets acquired includes Accounts receivable of $ 1.8 billion and Equipment installment plan (“EIP”) receivables of $ 1.3 billion. The unpaid principal balance under these contracts as of April 1, 2020, the date of the Merger, was $ 1.8 billion and $ 1.6 billion, respectively. The difference between the fair value and the unpaid principal balance primarily represents amounts expected to be uncollectible. Indemnification Assets and Contingent Liabilities Pursuant to Amendment No 2. to the Business Combination Agreement, SoftBank agreed to indemnify us against certain specified matters and losses. As of the acquisition date, we recorded a contingent liability and an offsetting indemnification asset for the expected reimbursement by SoftBank for certain Lifeline matters. The liability is presented in Accounts payable and accrued liabilities, and the indemnification asset is presented in Other current assets within our acquired assets and liabilities at the acquisition date. In November 2020, we entered into a consent decree with the Federal Communications Commission (“FCC”) to resolve certain Lifeline matters, which resulted in a payment of $ 200 million by SoftBank. Final resolution of these matters could require making additional reimbursements and paying additional fines and penalties, which we do not expect to have a significant impact on our financial results. We expect that any additional liabilities related to these matters would be indemnified and reimbursed by SoftBank. Deferred Taxes As a result of the Merger, we acquired deferred tax assets for which a valuation allowance reserve is deemed to be necessary, as well as additional uncertain tax benefit reserves. As of the date of the Merger, the amount of the valuation allowance reserve and uncertain tax benefit reserves was $ 851 million and $ 660 million, respectively. Transaction Costs We recognized transaction costs of $ 15 million and $ 8 million for the three months ended September 30, 2021 and 2020, respectively, and $ 28 million and $ 192 million for the nine months ended September 30, 2021 and 2020, respectively. These costs were associated with legal and professional services and were recognized as Selling, general and administrative expenses in our Condensed Consolidated Statements of Comprehensive Income. Pro Forma Information The following unaudited pro forma financial information gives effect to the Transactions as if they had been completed on January 1, 2019. The unaudited pro forma information was prepared in accordance with the requirements of ASC 805: Business Combinations, which is a different basis than pro forma information prepared under Article 11 of Regulation S-X (“Article 11”). As such, they are not directly comparable with historical results for stand-alone T-Mobile prior to April 1, 2020, historical results for T-Mobile from April 1, 2020 that reflect the Transactions and are inclusive of the results and operations of Sprint, nor our previously provided pro forma financials prepared in accordance with Article 11. The pro forma results for the three and nine months ended September 30, 2020 include the impact of several significant nonrecurring pro forma adjustments to previously reported operating results. The pro forma adjustments are based on historically reported transactions by the respective companies. The pro forma results do not include any anticipated synergies or other expected benefits of the acquisition. (in millions) Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 Total revenues $ 19,269 $ 54,342 Income from continuing operations 1,359 2,461 Income from discontinued operations, net of tax — 677 Net income 1,359 3,138 13 Index for Notes to the Condensed Consolidated Financial Statements Significant nonrecurring pro forma adjustments include: • Transaction costs of $ 9 million and $ 211 million that were incurred during the three and nine months ended September 30, 2020, respectively, are assumed to have occurred on the pro forma close date of January 1, 2019, and are recognized as if incurred in the first quarter of 2019; • The Prepaid Business divested on July 1, 2020, is assumed to have been classified as discontinued operations as of January 1, 2019, and the related activities are presented in Income from discontinued operations, net of tax; • Permanent financing issued and debt redemptions occurring in connection with the closing of the Merger are assumed to have occurred on January 1, 2019, and historical interest expense associated with repaid borrowings is removed; • Tangible and intangible assets are assumed to be recorded at their estimated fair values as of January 1, 2019 and are depreciated or amortized over their estimated useful lives; and • Accounting policies of Sprint are conformed to those of T-Mobile including depreciation for leased devices, distribution arrangements with Brightstar US, Inc., amortization of costs to acquire a contract and certain tower lease transactions. The selected unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations would have been had the Transactions actually occurred on January 1, 2019, nor do they purport to project the future consolidated results of operations. Regulatory Matters The Transactions were the subject of various legal and regulatory proceedings involving a number of state and federal agencies. In connection with those proceedings and the approval of the Transactions, we have certain commitments and other obligations to various state and federal agencies and certain nongovernmental organizations. See Note 1 3 - Commitments and Contingencies for further information. Shenandoah Personal Communications Company Affiliate Relationship Sprint PCS (specifically Sprint Spectrum L.P.) was party to a variety of publicly filed agreements with Shenandoah Personal Communications Company LLC (“Shentel”), pursuant to which Shentel was the exclusive provider of Sprint PCS’s wireless mobility communications network products in certain parts of Maryland, North Carolina, Virginia, West Virginia, Kentucky, Ohio and Pennsylvania. Pursuant to one such agreement, the Sprint PCS Management Agreement, dated November 5, 1999 (as amended, supplemented and modified from time to time, the “Management Agreement”), Sprint PCS was granted an option to purchase Shentel’s wireless telecommunications assets (the “Wireless Assets”) used to provide services pursuant to the Management Agreement. On August 26, 2020, Sprint, now our indirect subsidiary, on behalf of and as the direct or indirect owner of Sprint PCS, exercised its option by delivering a binding notice of exercise to Shentel. On May 28, 2021, T-Mobile USA, Inc., a Delaware corporation and our direct wholly owned subsidiary, entered into an asset purchase agreement (the “Purchase Agreement”) with Shentel, for the acquisition of the Wireless Assets for an aggregate purchase price of approximately $ 1.9 billion in cash, subject to certain adjustments prescribed by the Management Agreement and such additional adjustments agreed by the parties. Closing of Shentel Wireless Assets Acquisition On July 1, 2021, upon the completion of certain customary conditions, including the receipt of certain regulatory approvals, we closed on the acquisition of the Wireless Assets pursuant to the Purchase Agreement, and as a result, T-Mobile became the legal owner of the Wireless Assets. Through this transaction, we reacquired the exclusive rights to deliver Sprint’s wireless network services in Shentel’s former affiliate territory and simplified our operations. Concurrently, and as agreed to through the Purchase Agreement, T-Mobile and Shentel entered into certain separate transactions, including the effective settlement of the pre-existing arrangements between T-Mobile and Shentel under the Management Agreement. In exchange, T-Mobile transferred cash of approximately $ 2.0 billion, approximately $ 1.9 billion of which was determined to be consideration transferred for the Wireless Assets and the remainder of which was determined to relate to separate transactions, primarily associated with the effective settlement of pre-existing arrangements between T-Mobile and Shentel. Accordingly, these separate transactions are not included in the calculation of the consideration transferred in exchange for the Wireless Assets, and the settlement of pre-existing arrangements between T-Mobile and Shentel did not result in material gains or losses. 14 Index for Notes to the Condensed Consolidated Financial Statements Prior to the acquisition of the Wireless Assets, revenues generated from our affiliate relationship with Shentel were presented as Other service revenues. Upon the close of the transaction, revenues generated from postpaid customers within the reacquired territory are presented as Postpaid revenues within our Condensed Consolidated Statements of Comprehensive Income. The financial results of the Wireless Assets since the closing through September 30, 2021, were not material to our Condensed Consolidated Statements of Comprehensive Income, nor were they material to our prior period consolidated results on a pro forma basis. Fair Value of Assets Acquired and Liabilities Assumed We have accounted for the acquisition of the Wireless Assets as a business combination. The identifiable assets acquired and liabilities assumed were recorded at their preliminary fair values as of the acquisition date and consolidated with those of T-Mobile. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires the use of significant judgment regarding estimates and assumptions. For the preliminary fair values of the assets acquired and liabilities assumed, we used the cost, income and market approaches, including market participant assumptions. The following table summarizes the preliminary fair values for each major class of assets acquired and liabilities assumed at the acquisition date. We retained the services of certified valuation specialists to assist with assigning values to certain acquired assets and assumed liabilities. We are in the process of finalizing the valuation of the assets acquired and liabilities assumed, including income tax related amounts. Therefore, the preliminary fair values set forth below are subject to further adjustment as additional information is obtained and the valuations are completed. (in millions) July 1, 2021 Inventory $ 2 Property and equipment 136 Operating lease right-of-use assets 308 Goodwill 1,035 Other intangible assets 770 Other assets 7 Total assets acquired 2,258 Short-term operating lease liabilities 73 Operating lease liabilities 264 Other long-term liabilities 35 Total liabilities assumed 372 Total consideration transferred $ 1,886 Intangible Assets and Liabilities Goodwill with a provisionally assigned value of $ 1.0 billion, substantially all of which is deductible for tax purposes, represents the anticipated cost savings from the operations of the combined company resulting from the planned integration of network infrastructure and facilities, the assembled workforce hired concurrently with the acquisition of Wireless Assets, and the intangible assets that do not qualify for separate recognition. All of the goodwill acquired is allocated to the wireless reporting unit. Other intangible assets include $ 770 million of reacquired rights to provide services in Shentel’s former affiliate territory which is being amortized on a straight-line basis over a useful life of approximately nine years in line with the remaining term of the Management Agreement upon the acquisition of the Wireless Assets, which represents the period of expected economic benefits associated with the re-acquisition of such rights. This fair value measurement is based on significant inputs not observable in the market, and therefore, represents a Level 3 measurement as defined in ASC 820. The key assumptions in applying the income approach include forecasted subscriber growth rates, revenue over an estimated period of time, the discount rate, estimated capital expenditures, estimated income taxes and the long-term growth rate, as well as forecasted earnings before interest, taxes, depreciation and amortization (“EBITDA”) margins. Note 3 – Receivables and Expected Credit Losses We maintain an allowance for expected credit losses that assesses the lifetime credit losses that we expect to incur related to our receivable portfolio segments. Each period, management assesses the appropriateness of the level of allowance for credit losses by considering credit risk inherent within each portfolio segment as of period end. 15 Index for Notes to the Condensed Consolidated Financial Statements We consider a receivable past due when a customer has not paid us by the contractually specified payment due date. Account balances are written off against the allowance for credit losses if collection efforts are unsuccessful and the receivable balance is deemed uncollectible, based on factors such as customer credit ratings as well as the length of time the amounts are past due. Our portfolio of receivables is comprised of two portfolio segments: accounts receivable and EIP receivables. Accounts Receivable Portfolio Segment Our accounts receivable segment primarily consists of amounts currently due from customers, including service and leased device receivables, device insurance administrators, wholesale partners, third-party retail channels and other carriers. We estimate expected credit losses associated with our accounts receivable portfolio using an aging schedule methodology that utilizes historical information and current conditions to develop expected credit losses by aging bucket, including for receivables that are not past due. To determine the appropriate credit loss percentages by aging bucket, we consider a number of factors, including our overall historical credit losses, net of recoveries and timely payment experience as well as current collection trends such as write-off frequency and severity, credit quality of the customer base, and other qualitative factors such as macro-economic conditions, including the expected economic impacts of the COVID-19 pandemic (the “Pandemic”). We consider the need to adjust our estimate of expected credit losses for reasonable and supportable forecasts of future economic conditions. To do so, we monitor professional forecasts of changes in real U.S. gross domestic product and forecasts of consumer credit behavior for comparable credit exposures. We also periodically evaluate other economic indicators such as unemployment rates to assess their level of correlation with our historical credit loss statistics. EIP Receivables Portfolio Segment Based upon customer credit profiles at the time of customer origination, we classify the EIP receivables segment into two customer classes of “Prime” and “Subprime.” Prime customer receivables are those with lower credit risk and Subprime customer receivables are those with higher credit risk. Customers may be required to make a down payment on their equipment purchases. In addition, certain customers within the Subprime category may be required to pay a deposit. To determine a customer’s credit profile, we use a proprietary credit scoring model that measures the credit quality of a customer using several factors, such as credit bureau information, consumer credit risk scores and service and device plan characteristics. Installment loans acquired in the Merger are included in EIP receivables. We applied our proprietary credit scoring model to the customers acquired in the Merger with an outstanding EIP receivable balance. Based on tenure, consumer credit risk score and credit profile, these acquired customers were classified into our customer classes of Prime or Subprime. The following table summarizes the EIP receivables, including imputed discounts and related allowance for credit losses: (in millions) September 30, 2021 December 31, 2020 EIP receivables, gross $ 7,164 $ 6,213 Unamortized imputed discount ( 330 ) ( 325 ) EIP receivables, net of unamortized imputed discount 6,834 5,888 Allowance for credit losses ( 248 ) ( 280 ) EIP receivables, net of allowance for credit losses and imputed discount $ 6,586 $ 5,608 Classified on the balance sheet as: Equipment installment plan receivables, net of allowance for credit losses and imputed discount $ 4,306 $ 3,577 Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount 2,280 2,031 EIP receivables, net of allowance for credit losses and imputed discount $ 6,586 $ 5,608 16 Index for Notes to the Condensed Consolidated Financial Statements We manage our EIP receivables portfolio using delinquency and customer credit class as key credit quality indicators. The following table presents the amortized cost of our EIP receivables by delinquency status, customer credit class and year of origination as of September 30, 2021: Originated in 2021 Originated in 2020 Originated prior to 2020 Total EIP Receivables, net of unamortized imputed discounts (in millions) Prime Subprime Prime Subprime Prime Subprime Prime Subprime Grand total Current - 30 days past due $ 2,726 $ 1,917 $ 1,218 $ 712 $ 95 $ 38 $ 4,039 $ 2,667 $ 6,706 31 - 60 days past due 17 30 9 14 1 1 27 45 72 61 - 90 days past due 6 10 4 6 — 1 10 17 27 More than 90 days past due 4 9 3 8 2 3 9 20 29 EIP receivables, net of unamortized imputed discount $ 2,753 $ 1,966 $ 1,234 $ 740 $ 98 $ 43 $ 4,085 $ 2,749 $ 6,834 We estimate expected credit losses on our EIP receivables by using historical data adjusted for current conditions to calculate default probabilities for our outstanding EIP loans. We consider various risk characteristics when calculating default probabilities, such as how long such loans have been outstanding, customer credit ratings, customer tenure, delinquency status and other correlated variables identified through statistical analyses. We multiply these estimated default probabilities by our estimated loss given default, which considers recoveries. As we do for our accounts receivable portfolio segment, we consider the need to adjust our estimate of expected losses on EIP receivables for reasonable and supportable forecasts of economic conditions through monitoring external professional forecasts and periodic internal statistical analyses, including the expected economic impacts of the Pandemic. For EIP receivables acquired in the Merger, the difference between the fair value and unpaid principal balance of the loan at the acquisition date is accreted to interest income over the contractual life of the loan using the effective interest method. EIP receivables had a combined weighted average effective interest rate of 6.1 % and 6.7 % as of September 30, 2021 and December 31, 2020, respectively. Activity for the nine months ended September 30, 2021 and 2020, in the allowance for credit losses and unamortized imputed discount balances for the accounts receivable and EIP receivables segments were as follows: September 30, 2021 September 30, 2020 (in millions) Accounts Receivable Allowance EIP Receivables Allowance Total Accounts Receivable Allowance EIP Receivables Allowance Total Allowance for credit losses and imputed discount, beginning of period $ 194 $ 605 $ 799 $ 61 $ 399 $ 460 Beginning balance adjustment due to implementation of the new credit loss standard — — — — 91 91 Bad debt expense 127 132 259 261 228 489 Write-offs, net of recoveries ( 192 ) ( 164 ) ( 356 ) ( 114 ) ( 130 ) ( 244 ) Change in imputed discount on short-term and long-term EIP receivables N/A 109 109 N/A 60 60 Impact on the imputed discount from sales of EIP receivables N/A ( 104 ) ( 104 ) N/A ( 111 ) ( 111 ) Allowance for credit losses and imputed discount, end of period $ 129 $ 578 $ 707 $ 208 $ 537 $ 745 Off-Balance-Sheet Credit Exposures We do not have material, unmitigated off-balance-sheet credit exposures as of September 30, 2021. In connection with the sales of certain service and EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price assets included in our Condensed Consolidated Balance Sheets measured at fair value that are based on a discounted cash flow model using Level 3 inputs, including customer default rates and credit worthiness, dilutions and recoveries. See Note 4 – Sales of Certain Receivables for further information. 17 Index for Notes to the Condensed Consolidated Financial Statements Note 4 – Sales of Certain Receivables We have entered into transactions to sell certain service accounts receivable and EIP receivables. The transactions, including our continuing involvement with the sold receivables and the respective impacts to our condensed consolidated financial statements, are described below. Sales of EIP Receivables Overview of the Transaction In 2015, we entered into an arrangement to sell certain EIP receivables on a revolving basis (the “EIP sale arrangement”). The maximum funding commitment of the sale arrangement is $ 1.3 billion. The scheduled expiration date of the EIP sale arrangement is November 18, 2021. As of both September 30, 2021 and December 31, 2020, the EIP sale arrangement provided funding of $ 1.3 billion. Sales of EIP receivables occur daily and are settled on a monthly basis. In connection with this EIP sale arrangement, we formed a wholly owned subsidiary, which qualifies as a bankruptcy remote entity (the “EIP BRE”). Pursuant to the EIP sale arrangement, our wholly owned subsidiary transfers selected receivables to the EIP BRE. The EIP BRE then sells the receivables to a non-consolidated and unaffiliated third-party entity over which we do not exercise any level of control, nor does the third-party entity qualify as a VIE. Variable Interest Entity We determined that the EIP BRE is a VIE as its equity investment at risk lacks the obligation to absorb a certain portion of its expected losses. We have a variable interest in the EIP BRE and have determined that we are the primary beneficiary based on our ability to direct the activities which most significantly impact the EIP BRE’s economic performance. Those activities include selecting which receivables are transferred into the EIP BRE and sold in the EIP sale arrangement and funding of the EIP BRE. Additionally, our equity interest in the EIP BRE obligates us to absorb losses and gives us the right to receive benefits from the EIP BRE that could potentially be significant to the EIP BRE. Accordingly, we include the balances and results of operations of the EIP BRE in our condensed consolidated financial statements. The following table summarizes the carrying amounts and classification of assets, which consist primarily of the deferred purchase price, and liabilities included in our Condensed Consolidated Balance Sheets with respect to the EIP BRE: (in millions) September 30, 2021 December 31, 2020 Other current assets $ 388 $ 388 Other assets 170 120 Other long-term liabilities 3 4 In addition, the EIP BRE is a separate legal entity with its own separate creditors who will be entitled, prior to any liquidation of the EIP BRE, to be satisfied prior to any value in the EIP BRE becoming available to us. Accordingly, the assets of the EIP BRE may not be used to settle our general obligations and creditors of the EIP BRE have limited recourse to our general credit. Sales of Service Accounts Receivable Overview of the Transaction In 2014, we entered into an arrangement to sell certain service accounts receivable on a revolving basis (the “service receivable sale arrangement”). The maximum funding commitment of the service receivable sale arrangement is $ 950 million, and the facility expires in March 2022. As of September 30, 2021 and December 31, 2020, the service receivable sale arrangement provided funding of $ 775 million and $ 772 million, respectively. Sales of receivables occur daily and are settled on a monthly basis. The receivables consist of service charges currently due from customers and are short-term in nature. In connection with the service receivable sale arrangement, we formed a wholly owned subsidiary, which qualifies as a bankruptcy remote entity, to sell service accounts receivable (the “Service BRE”). In March 2021, we amended the sale arrangement to conform its structure to the EIP sale arrangement (the “March 2021 Amendment”). This involved, among other things, removal of an unaffiliated special purpose entity that we did not consolidate under the original structure and changes in 18 Index for Notes to the Condensed Consolidated Financial Statements contractual counterparties. While the amendment simplified the structure of the arrangement making it more efficient, it did not impact the maximum funding commitment under, or the level of funding provided by, the facility. Pursuant to the amended service receivable sale arrangement, our wholly owned subsidiary transfers selected receivables to the Service BRE. The Service BRE then sells the receivables to a non-consolidated and unaffiliated third-party entity over which we do not exercise any level of control and which does not qualify as a VIE. Variable Interest Entity Prior to the March 2021 Amendment, the Service BRE did not qualify as a VIE, but due to the significant level of control we exercised over the entity, it was consolidated. The March 2021 Amendment to the service receivable sale arrangement triggered a VIE reassessment, and we determined that the Service BRE now qualifies as a VIE. We have a variable interest in the Service BRE and have determined that we are the primary beneficiary based on our ability to direct the activities that most significantly impact the Service BRE’s economic performance. Those activities include selecting which receivables are transferred into the Service BRE and sold in the service receivable sale arrangement and funding the Service BRE. Additionally, our equity interest in the Service BRE obligates us to absorb losses and gives us the right to receive benefits from the Service BRE that could potentially be significant to the Service BRE. Accordingly, we include the balances and results of operations of the Service BRE in our condensed consolidated financial statements. The following table summarizes the carrying amounts and classification of assets, which consist primarily of the deferred purchase price, and liabilities included in our Condensed Consolidated Balance Sheets with respect to the Service BRE: (in millions) September 30, 2021 December 31, 2020 Other current assets $ 207 $ 378 Other current liabilities 344 357 In addition, the Service BRE is a separate legal entity with its own separate creditors who will be entitled, prior to any liquidation of the Service BRE, to be satisfied prior to any value in the Service BRE becoming available to us. Accordingly, the assets of the Service BRE may not be used to settle our general obligations, and creditors of the Service BRE have limited recourse to our general credit. Sales of Receivables The transfers of service receivables and EIP receivables to the non-consolidated entities are accounted for as sales of financial assets. Once identified for sale, the receivable is recorded at the lower of cost or fair value. Upon sale, we derecognize the net carrying amount of the receivables. We recognize the cash proceeds received upon sale in Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows. We recognize proceeds net of the deferred purchase price, consisting of a receivable from the purchasers that entitles us to certain collections on the receivables. We recognize the collection of the deferred purchase price in Net cash used in investing activities in our Condensed Consolidated Statements of Cash Flows as Proceeds related to beneficial interests in securitization transactions. The deferred purchase price represents a financial asset that is primarily tied to the creditworthiness of the customers and which can be settled in such a way that we may not recover substantially all of our recorded investment, due to default by the customers on the underlying receivables. At inception, we elected to measure the deferred purchase price at fair value with changes in fair value included in Selling, general and administrative expense in our Condensed Consolidated Statements of Comprehensive Income. The fair value of the deferred purchase price is determined based on a discounted cash flow model which uses primarily Level 3 inputs, including customer default rates. As of September 30, 2021 and December 31, 2020, our deferred purchase price related to the sales of service receivables and EIP receivables was $ 764 million and $ 884 million, respectively. 19 Index for Notes to the Condensed Consolidated Financial Statements The following table summarizes the impact of the sale of certain service receivables and EIP receivables in our Condensed Consolidated Balance Sheets: (in millions) September 30, 2021 December 31, 2020 Derecognized net service receivables and EIP receivables $ 2,459 $ 2,528 Other current assets 595 766 of which, deferred purchase price 594 764 Other long-term assets 170 120 of which, deferred purchase price 170 120 Other current liabilities 344 357 Other long-term liabilities 3 4 Net cash proceeds since inception 1,753 1,715 Of which: Change in net cash proceeds during the year-to-date period 38 ( 229 ) Net cash proceeds funded by reinvested collections 1,715 1,944 We recognized a loss from sales of receivables, including adjustments to the receivables’ fair values and changes in fair value of the deferred purchase price, of $ 4 million and a gain of $ 18 million, respectively, for the three months ended September 30, 2021 and 2020, respectively, and a gain of $ 26 million and a loss of $ 37 million for the nine months ended September 30, 2021 and 2020, respectively, in Selling, general and administrative expense in our Condensed Consolidated Statements of Comprehensive Income. Continuing Involvement Pursuant to the sale arrangements described above, we have continuing involvement with the service receivables and EIP receivables we sell as we service the receivables, are required to repurchase certain receivables, including ineligible receivables, aged receivables and receivables where write-off is imminent, and may be responsible for absorbing credit losses through reduced collections on our deferred purchase price assets. We continue to service the customers and their related receivables, including facilitating customer payment collection, in exchange for a monthly servicing fee. As the receivables are sold on a revolving basis, the customer payment collections on sold receivables may be reinvested in new receivable sales. At the direction of the purchasers of the sold receivables, we apply the same policies and procedures while servicing the sold receivables as we apply to our owned receivables, and we continue to maintain normal relationships with our customers. Pursuant to the EIP sale arrangement, under certain circumstances, we are required to deposit cash or replacement EIP receivables primarily for contracts terminated by customers under our JUMP! program. Note 5 – Goodwill, Spectrum License Transactions and Other Intangible Assets Goodwill The changes in the carrying amount of goodwill for the nine months ended September 30, 2021, and the year ended December 31, 2020, are as follows: (in millions) Goodwill Balance as of December 31, 2019, net of accumulated impairment losses of $ 10,766 $ 1,930 Goodwill from acquisitions in 2020 9,405 Layer3 goodwill impairment ( 218 ) Balance as of December 31, 2020 11,117 Purchase price adjustment of goodwill from acquisitions in 2020 22 Goodwill from acquisitions in 2021 1,049 Balance as of September 30, 2021 $ 12,188 Accumulated impairment losses at September 30, 2021 $ ( 10,984 ) On April 1, 2020, we completed the Merger, which was accounted for as a business combination resulting in $ 9.4 billion in goodwill. The acquired goodwill was allocated to the wireless reporting unit and will be tested for impairment at this level. See Note 2 - Business Combinations for further information. 20 Index for Notes to the Condensed Consolidated Financial Statements On July 1, 2021, we completed our acquisition of the Wireless Assets from Shentel, which was accounted for as a business combination resulting in $ 1.0 billion in goodwill. The acquired goodwill was allocated to the wireless reporting unit and will be tested for impairment at this level. See Note 2 - Business Combinations for further information. Intangible Assets Identifiable Intangible Assets Acquired in the Sprint Merger The following table summarizes the fair value of the intangible assets acquired in the Sprint Merger: Weighted Average Useful Life (in years) Fair Value as of April 1, 2020 (in millions) Spectrum licenses Indefinite-lived $ 45,400 Tradenames (1) 2 years 207 Customer relationships 8 years 4,900 Favorable spectrum leases 18 years 745 Other intangible assets 7 years 428 Total intangible assets acquired $ 51,680 (1) Tradenames include the Sprint brand. Spectrum licenses are issued for a fixed period of time, typically up to 15 years; however, the FCC has granted license renewals routinely and at a nominal cost. The spectrum licenses acquired expire at various dates and we believe we will be able to meet all requirements necessary to secure renewal of our spectrum licenses at a nominal cost. Moreover, we determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our spectrum licenses. Therefore, we determined the spectrum licenses should be treated as indefinite-lived intangible assets. The fair value of spectrum licenses includes the value associated with aggregating a nationwide portfolio of owned and leased spectrum. Favorable spectrum leases represent a contract where the market rate is higher than the future contractual lease payments. We lease this spectrum from third parties who hold the spectrum licenses. As these contracts pertain to intangible assets, they are excluded from the lease accounting guidance (ASC 842) and are accounted for as service contracts in which the expense is recognized on a straight-line basis over the lease team. Favorable spectrum leases of $ 745 million were recorded as an intangible asset as a result of purchase accounting and are amortized on a straight-line basis over the associated remaining lease term. Additionally, we recognized unfavorable spectrum lease liabilities of $ 125 million, which are also amortized over their respective remaining lease terms and are included in Other liabilities in our Condensed Consolidated Balance Sheets. The customer relationship intangible assets represent the value associated with the acquired Sprint customers. The customer relationship intangible assets are amortized using the sum-of-the-years’ digits method over periods of up to eight years . Other intangible assets are amortized over the remaining period that the asset is expected to provide benefit to us. Identifiable Intangible Assets Acquired in the Shentel Acquisition We reacquired certain rights under the Management Agreement in connection with the acquisition of the Wireless Assets that provided us the ability to fully do business in Shentel’s former affiliate territories. We recognized an intangible asset for these reacquired rights at its preliminary fair value of $ 770 million as of July 1, 2021. The reacquired rights intangible asset is being amortized on a straight-line basis over a useful life of approximately nine years in line with the remaining term of the Management Agreement upon the acquisition of the Wireless Assets. Spectrum Licenses The following table summarizes our spectrum license activity for the nine months ended September 30, 2021: (in millions) 2021 Spectrum licenses, beginning of year $ 82,828 Spectrum license acquisitions 9,515 Spectrum licenses transferred to held for sale ( 15 ) Costs to clear spectrum 261 Spectrum licenses, end of period $ 92,589 21 Index for Notes to the Condensed Consolidated Financial Statements In March 2021, the FCC announced that we were the winning bidder of 142 licenses in Auction 107 (“C-band spectrum”) for an aggregate purchase price of $ 9.3 billion, excluding relocation costs. At the inception of Auction 107 in October 2020, we deposited $ 438 million. Upon conclusion of Auction 107 in March 2021, we paid the FCC the remaining $ 8.9 billion for the licenses won in the auction. On July 23, 2021, the FCC issued to us the licenses won in Auction 107. The licenses are included in Spectrum licenses in our Condensed Consolidated Balance Sheets as of September 30, 2021. Cash payments to acquire spectrum licenses and payments for costs to clear spectrum are included in (Purchases) refunds of spectrum licenses and other intangible assets, including deposits in our Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2021. We expect to incur an additional $ 1.0 billion in relocation costs which will be paid through 2024. As of September 30, 2021, the activities that are necessary to get the C-band spectrum ready for its intended use have not begun, as such, capitalization of the interest associated with the costs of acquiring the C-band spectrum has not begun. Other Intangible Assets The components of Other intangible assets were as follows: Useful Lives September 30, 2021 December 31, 2020 (in millions) Gross Amount Accumulated Amortization Net Amount Gross Amount Accumulated Amortization Net Amount Customer relationships Up to 8 years $ 4,903 $ ( 1,643 ) $ 3,260 $ 4,900 $ ( 865 ) $ 4,035 Reacquired rights Up to 9 years 770 ( 23 ) 747 — — — Tradenames and patents Up to 19 years 610 ( 511 ) 99 598 ( 412 ) 186 Favorable spectrum leases Up to 27 years 731 ( 64 ) 667 790 ( 35 ) 755 Other Up to 10 years 377 ( 103 ) 274 377 ( 55 ) 322 Other intangible assets $ 7,391 $ ( 2,344 ) $ 5,047 $ 6,665 $ ( 1,367 ) $ 5,298 Amortization expense for intangible assets subject to amortization was $ 316 million and $ 383 million for the three months ended September 30, 2021 and 2020, respectively, and $ 977 million and $ 794 million for the nine months ended September 30, 2021 and 2020, respectively. The estimated aggregate future amortization expense for intangible assets subject to amortization are summarized below: (in millions) Estimated Future Amortization Twelve Months Ending September 30, 2022 $ 1,128 2023 956 2024 799 2025 641 2026 480 Thereafter 1,043 Total $ 5,047 Substantially all of the estimated future amortization expense is associated with intangible assets acquired in the Merger and through our acquisitions of affiliates. Note 6 – Fair Value Measurements The carrying values of Cash and cash equivalents, Accounts receivable, Accounts receivable from affiliates, Accounts payable and accrued liabilities and borrowings under vendor financing arrangements with our primary network equipment suppliers approximate fair value due to the short-term maturities of these instruments. Derivative Financial Instruments Periodically, we use derivatives to manage exposure to market risk, such as interest rate risk. We designate certain derivatives as hedging instruments in a qualifying hedge accounting relationship (cash flow hedge) to help minimize significant, unplanned fluctuations in cash flows caused by interest rate volatility. We do not use derivatives for trading or speculative purposes. 22 Index for Notes to the Condensed Consolidated Financial Statements Interest Rate Lock Derivatives In October 2018, we entered into interest rate lock derivatives with notional amounts of $ 9.6 billion. In November 2019, we extended the mandatory termination date on our interest rate lock derivatives to June 3, 2020. For the three months ended March 31, 2020, we made net collateral transfers to certain of our derivative counterparties totaling $ 580 million, which included variation margin transfers to (or from) such derivative counterparties based on daily market movements. No amounts were transferred to the derivative counterparties subsequent to March 31, 2020. These collateral transfers are included in Net cash related to derivative contracts under collateral exchange arrangements within Net cash used in investing activities in our Condensed Consolidated Statements of Cash Flows. We recorded interest rate lock derivatives on our Condensed Consolidated Balance Sheets at fair value that was derived primarily from observable market data, including yield curves. Interest rate lock derivatives were classified as Level 2 in the fair value hierarchy. Cash flows associated with qualifying hedge derivative instruments are presented in the same category on the Condensed Consolidated Statements of Cash Flows as the item being hedged. Aggregate changes in the fair value of the interest rate lock derivatives, net of tax and amortization, of $ 1.5 billion and $ 1.6 billion are presented in Accumulated other comprehensive loss on our Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020, respectively. Between April 2 and April 6, 2020, in connection with the issuance of an aggregate of $ 19.0 billion of Senior Secured Notes bearing interest rates ranging from 3.500 % to 4.500 % and maturing in 2025 through 2050, we terminated our interest rate lock derivatives. At the time of termination in the second quarter of 2020, the interest rate lock derivatives were a liability of $ 2.3 billion, of which $ 1.2 billion was cash-collateralized. The cash flows associated with the settlement of interest rate lock derivatives are presented on a gross basis in our Condensed Consolidated Statements of Cash Flows, with the total cash payments to settle the swaps of $ 2.3 billion presented in changes in Other current and long-term liabilities within Net cash provided by operating activities and the return of cash collateral of $ 1.2 billion presented as an inflow in Net cash related to derivative contracts under collateral exchange arrangements within Net cash used in investing activities for the nine months ended September 30, 2020. Upon the issuance of debt to which the hedged interest rate risk related, we began amortizing the Accumulated other comprehensive loss related to the derivatives into Interest expense in a manner consistent with how the hedged interest payments affect earnings. For the three and nine months ended September 30, 2021, $ 47 million and $ 140 million, respectively, was amortized from Accumulated other comprehensive loss into Interest expense in the Condensed Consolidated Statements of Comprehensive Income. For the three and nine months ended September 30, 2020, $ 44 million and $ 83 million, respectively, was amortized from Accumulated other comprehensive loss into Interest expense. We expect to amortize $ 200 million of the Accumulated other comprehensive loss associated with the derivatives into Interest expense over the next 12 months. Deferred Purchase Price Assets In connection with the sales of certain service and EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price assets measured at fair value that are based on a discounted cash flow model using unobservable Level 3 inputs, including customer default rates. See Note 4 – Sales of Certain Receivables for further information. The carrying amounts of our deferred purchase price assets, which are measured at fair value on a recurring basis and are included in our Condensed Consolidated Balance Sheets, were $ 764 million and $ 884 million at September 30, 2021 and December 31, 2020, respectively. Fair value was equal to carrying amount at September 30, 2021 and December 31, 2020. Debt The fair value of our Senior Unsecured Notes and Senior Secured Notes to third parties was determined based on quoted market prices in active markets, and therefore were classified as Level 1 within the fair value hierarchy. The fair value of our Senior Notes to affiliates was determined based on a discounted cash flow approach using market interest rates of instruments with similar terms and maturities and an estimate for our standalone credit risk. Accordingly, our Senior Notes to affiliates were classified as Level 2 within the fair value hierarchy. Although we have determined the estimated fair values using available market information and commonly accepted valuation methodologies, considerable judgment was required in interpreting market data to develop fair value estimates for the Senior 23 Index for Notes to the Condensed Consolidated Financial Statements Notes to affiliates. The fair value estimates were based on information available as of September 30, 2021 and December 31, 2020. As such, our estimates are not necessarily indicative of the amount we could realize in a current market exchange. The carrying amounts and fair values of our short-term and long-term debt included in our Condensed Consolidated Balance Sheets were as follows: Level within the Fair Value Hierarchy September 30, 2021 December 31, 2020 (in millions) Carrying Amount (1) Fair Value (1) Carrying Amount (1) Fair Value (1) Liabilities: Senior Unsecured Notes to third parties 1 $ 31,408 $ 33,465 $ 29,966 $ 32,450 Senior Notes to affiliates 2 3,734 3,884 4,716 4,991 Senior Secured Notes to third parties 1 37,264 39,802 36,204 40,519 (1) Excludes $ 69 million and $ 240 million as of September 30, 2021 and December 31, 2020, respectively, in vendor financing arrangements and other debt as the carrying values approximate fair value primarily due to the short-term maturities of these instruments. Note 7 – Debt The following table sets forth the debt balances and activity as of, and for the nine months ended, September 30, 2021 : (in millions) December 31, 2020 Proceeds from Issuances and Borrowings (1) Note Redemptions (1) Repayments Reclassifications (1) Other (2) September 30, 2021 Short-term debt $ 4,579 $ — $ ( 2,250 ) $ ( 1,063 ) $ 920 $ ( 90 ) $ 2,096 Long-term debt 61,830 11,758 ( 5,737 ) ( 23 ) ( 920 ) ( 263 ) 66,645 Total debt to third parties 66,409 11,758 ( 7,987 ) ( 1,086 ) — ( 353 ) 68,741 Short-term debt to affiliates — — — — 2,231 9 2,240 Long-term debt to affiliates 4,716 — ( 996 ) — ( 2,231 ) 5 1,494 Total debt $ 71,125 $ 11,758 $ ( 8,983 ) $ ( 1,086 ) $ — $ ( 339 ) $ 72,475 (1) Issuances and borrowings, note redemptions, and reclassifications are recorded net of related issuance costs, discounts and premiums. (2) Other includes the amortization of premiums, discounts, debt issuance costs and consent fees. Our effective interest rate, excluding the impact of derivatives and capitalized interest, was approximately 4.0 % and 4.5 % for the three months ended September 30, 2021 and 2020, respectively, and 4.1 % and 4.7 % for the nine months ended September 30, 2021 and 2020, respectively, on weighted average debt outstanding of $ 74.5 billion and $ 69.6 billion for the three months ended September 30, 2021 and 2020, respectively, and $ 74.4 billion and $ 54.5 billion for the nine months ended September 30, 2021 and 2020, respectively. The weighted average debt outstanding was calculated by applying an average of the monthly ending balances of total short-term and long-term debt and short-term and long-term debt to affiliates, net of unamortized premiums, discounts, debt issuance costs and consent fees. 24 Index for Notes to the Condensed Consolidated Financial Statements Issuances and Borrowings During the nine months ended September 30, 2021, we issued the following Senior Notes and Senior Secured Notes: (in millions) Principal Issuances Premiums/Discounts and Issuance Costs Net Proceeds from Issuance of Long-Term Debt Issue Date 2.250 % Senior Notes due 2026 $ 1,000 $ ( 7 ) $ 993 January 14, 2021 2.625 % Senior Notes due 2029 1,000 ( 7 ) 993 January 14, 2021 2.875 % Senior Notes due 2031 1,000 ( 6 ) 994 January 14, 2021 2.625 % Senior Notes due 2026 1,200 ( 7 ) 1,193 March 23, 2021 3.375 % Senior Notes due 2029 1,250 ( 7 ) 1,243 March 23, 2021 3.500 % Senior Notes due 2031 1,350 ( 8 ) 1,342 March 23, 2021 2.250 % Senior Notes due 2026 800 ( 2 ) 798 May 13, 2021 3.375 % Senior Notes due 2029 1,100 6 1,106 May 13, 2021 3.500 % Senior Notes due 2031 1,100 6 1,106 May 13, 2021 Total of Senior Notes issued $ 9,800 $ ( 32 ) $ 9,768 3.400 % Senior Secured Notes due 2052 $ 1,300 $ ( 11 ) $ 1,289 August 13, 2021 3.600 % Senior Secured Notes due 2060 700 1 701 August 13, 2021 Total of Senior Secured Notes issued $ 2,000 $ ( 10 ) $ 1,990 Credit Facilities On October 30, 2020, we entered into a $ 5.0 billion senior secured term loan commitment with certain financial institutions. On January 14, 2021, we issued an aggregate of $ 3.0 billion of Senior Notes. A portion of the senior secured term loan commitment was reduced by an amount equal to the aggregate gross proceeds of the Senior Notes, which reduced the commitment to $ 2.0 billion. On March 23, 2021, we issued an aggregate of $ 3.8 billion of Senior Notes. The senior secured term loan commitment was terminated upon the issuance of the $ 3.8 billion of Senior Notes. Note Redemptions and Repayments During the nine months ended September 30, 2021, we made the following note redemptions and repayments: (in millions) Principal Amount Write-off of Issuance Cost and Consent Fees (1) Redemption Premium (2) Redemption Date Redemption Price 6.500 % Senior Notes due 2026 $ 2,000 $ 36 $ 65 March 27, 2021 103.250 % 6.000 % Senior Notes due 2023 1,300 10 — May 23, 2021 100.000 % 6.000 % Senior Notes due 2024 1,000 9 — May 23, 2021 100.000 % 5.125 % Senior Notes due 2025 500 3 6 May 23, 2021 101.281 % 4.500 % Senior Notes due 2026 1,000 5 23 August 23, 2021 102.250 % 7.250 % Senior Notes due 2021 2,250 — — September 15, 2021 N/A Total Senior Notes to third parties redeemed $ 8,050 $ 63 $ 94 4.500 % Senior Notes to affiliates due 2026 $ 1,000 $ 4 $ 22 August 23, 2021 102.250 % Total Senior Notes to affiliates redeemed $ 1,000 $ 4 $ 22 3.360 % Secured Series 2016-1 A-1 Notes due 2021 $ 656 $ — $ — August 20, 2021 N/A 4.738 % Secured Series 2018-1 A-1 Notes due 2025 263 — — Various N/A Other debt 167 — — Various N/A Total Repayments $ 1,086 $ — $ — (1) Write-off of issuance costs and consent fees are included in Other expense, net in our Condensed Consolidated Statements of Comprehensive Income. Write-off of issuance costs and consent fees are included in Loss on redemption of debt within Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows. (2) The redemption premium is the excess paid over the principal amount. Redemption premiums are included within Other expense, net in our Condensed Consolidated Statements of Comprehensive Income and within Net cash used in financing activities in our Condensed Consolidated Statements of Cash Flows. 25 Index for Notes to the Condensed Consolidated Financial Statements Restricted Cash Certain provisions of our debt agreements require us to maintain specified cash collateral balances. Amounts associated with these balances are considered to be restricted cash. Note 8 – Tower Obligations Existing CCI Tower Lease Arrangements In 2012, we conveyed to Crown Castle International Corp. (“CCI”) the exclusive right to manage and operate approximately 6,200 tower sites (“CCI Lease Sites”) via a master prepaid lease with site lease terms ranging from 23 to 37 years. CCI has fixed-price purchase options for the CCI Lease Sites totaling approximately $ 2.0 billion, exercisable at the end of the lease term. We lease back a portion of the space at certain tower sites for an initial term of 10 years, followed by optional renewals at customary terms. Assets and liabilities associated with the operation of the tower sites were transferred to special purpose entities (“SPEs”). Assets included ground lease agreements or deeds for the land on which the towers are situated, the towers themselves and existing subleasing agreements with other mobile network operator tenants that lease space at the tower sites. Liabilities included the obligation to pay ground lease rentals, property taxes and other executory costs. We determined the SPEs containing the CCI Lease Sites (“Lease Site SPEs”) are VIEs as they lack sufficient equity to finance their activities. We have a variable interest in the Lease Site SPEs but are not the primary beneficiary as we lack the power to direct the activities that most significantly impact the Lease Site SPEs’ economic performance. These activities include managing tenants and underlying ground leases, performing repair and maintenance on the towers, the obligation to absorb expected losses and the right to receive the expected future residual returns from the purchase option to acquire the CCI Lease Sites. As we determined that we are not the primary beneficiary and do not have a controlling financial interest in the Lease Site SPEs, the Lease Site SPEs are not included in our condensed consolidated financial statements. However, we also considered if this arrangement resulted in the sale of the CCI Lease Sites for which we would de-recognize the tower assets. By assessing whether control had transferred, we concluded that transfer of control criteria, as discussed in the revenue standard, were not met. Accordingly, we recorded this arrangement as a financing whereby we recorded debt, a financial obligation, and the CCI Lease Sites tower assets remained on our balance sheet. We recorded long-term financial obligations in the amount of the net proceeds received and recognize interest on the tower obligations at a rate of approximately 8 % using the effective interest method. The tower obligations are increased by interest expense and amortized through contractual leaseback payments made by us to CCI and through net cash flows generated and retained by CCI from operation of the tower sites. Acquired CCI Tower Lease Arrangements Prior to the Merger, Sprint entered into a lease-out and leaseback arrangement with Global Signal Inc., a third party that was subsequently acquired by CCI, that conveyed to CCI the exclusive right to manage and operate approximately 6,400 tower sites (“Master Lease Sites”) via a master prepaid lease. These agreements were assumed upon the close of the Merger, at which point the remaining term of the lease-out was approximately 17 years with no renewal options. CCI has a fixed price purchase option for all (but not less than all) of the leased or subleased sites for approximately $ 2.3 billion, exercisable one year prior to the expiration of the agreement and ending 120 days prior to the expiration of the agreement. We lease back a portion of the space at certain tower sites for an initial term of 10 years, followed by optional renewals at customary terms. We considered if this arrangement resulted in the sale of the Master Lease Sites for which we would de-recognize the tower assets. By assessing whether control had transferred, we concluded that transfer of control criteria, as discussed in the revenue standard, were not met. Accordingly, we recorded this arrangement as a financing whereby we recorded debt, a financial obligation, and the Master Lease Sites tower assets remained on our balance sheet. As of the closing date of the Merger, we recognized Property and equipment with a fair value of $ 2.8 billion and tower obligations related to amounts owed to CCI under the leaseback of $ 1.1 billion. Additionally, we recognized $ 1.7 billion in Other long-term liabilities associated with contract terms that are unfavorable to current market rates, which includes unfavorable terms associated with the fixed-price purchase option in 2037. We recognize interest expense on the tower obligations at a rate of approximately 6 % using the effective interest method. The tower obligations are increased by interest expense and amortized through contractual leaseback payments made by us to CCI. 26 Index for Notes to the Condensed Consolidated Financial Statements The tower assets are reported in Property and equipment, net in our Condensed Consolidated Balance Sheets and are depreciated to their estimated residual values over the expected useful life of the towers, which is 20 years. The following table summarizes the balances associated with both of the tower arrangements in the Condensed Consolidated Balance Sheets: (in millions) September 30, 2021 December 31, 2020 Property and equipment, net $ 2,591 $ 2,838 Tower obligations 2,862 3,028 Other long-term liabilities 1,712 1,712 Future minimum payments related to the tower obligations are approximately $ 404 million for the year ending September 30, 2022, $ 638 million in total for the years ending September 30, 2023 and 2024, $ 605 million in total for the years ending September 30, 2025 and 2026, and $ 397 million in total for the years thereafter. We are contingently liable for future ground lease payments through the remaining term of the CCI Lease Sites and the Master Lease Sites. These contingent obligations are not included in Operating lease liabilities as any amount due is contractually owed by CCI based on the subleasing arrangement. Under the arrangement, we remain primarily liable for ground lease payments on approximately 900 sites and have included lease liabilities of $ 282 million in our Operating lease liabilities as of September 30, 2021. Note 9 – Revenue from Contracts with Customers Disaggregation of Revenue We provide wireless communications services to three primary categories of customers: • Postpaid customers generally include customers who are qualified to pay after receiving wireless communications services utilizing phones, home internet, wearables, DIGITS (a service that allows our customers to use multiple mobile numbers on any compatible smartphone or device with internet connection), or other connected devices which includes tablets and SyncUP products; • Prepaid customers generally include customers who pay for wireless communications services in advance; and • Wholesale customers include Machine-to-Machine and Mobile Virtual Network Operator customers that operate on our network but are managed by wholesale partners. Postpaid service revenues, including postpaid phone revenues and postpaid other revenues, were as follows: Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2021 2020 2021 2020 Postpaid service revenues Postpaid phone revenues $ 9,952 $ 9,532 $ 29,102 $ 24,450 Postpaid other revenues 852 677 2,497 1,605 Total postpaid service revenues $ 10,804 $ 10,209 $ 31,599 $ 26,055 We operate as a single operating segment. The balances presented within each revenue line item in our Condensed Consolidated Statements of Comprehensive Income represent categories of revenue from contracts with customers disaggregated by type of product and service. Service revenues also include revenues earned for providing premium services to customers, such as device insurance services and customer-based, third-party services. Revenue generated from the lease of mobile communication devices is included within Equipment revenues in our Condensed Consolidated Statements of Comprehensive Income. We provide wireline communication services to domestic and international customers. Wireline service revenues were $ 179 million and $ 563 million for the three and nine months ended September 30, 2021, respectively, and were $ 213 million and $ 424 million for the three and nine months ended September 30, 2020, respectively. Wireline service revenues are presented in Other service revenues in our Condensed Consolidated Statements of Comprehensive Income. 27 Index for Notes to the Condensed Consolidated Financial Statements Equipment revenues from the lease of mobile communication devices were as follows: Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2021 2020 2021 2020 Equipment revenues from the lease of mobile communication devices $ 770 $ 1,350 $ 2,725 $ 2,936 Contract Balances The contract asset and contract liability balances from contracts with customers as of December 31, 2020 and September 30, 2021, were as follows: (in millions) Contract Assets Contract Liabilities Balance as of December 31, 2020 $ 278 $ 824 Balance as of September 30, 2021 262 792 Change $ ( 16 ) $ ( 32 ) Contract assets primarily represent revenue recognized for equipment sales with promotional bill credits offered to customers that are paid over time and are contingent on the customer maintaining a service contract. The change in the contract asset balance includes customer activity related to new promotions, offset by billings on existing contracts and impairment which is recognized as bad debt expense. The current portion of our Contract assets of approximately $ 201 million and $ 204 million as of September 30, 2021 and December 31, 2020, respectively, was included in Other current assets in our Condensed Consolidated Balance Sheets. Contract liabilities are recorded when fees are collected, or we have an unconditional right to consideration (a receivable) in advance of delivery of goods or services. Changes in contract liabilities are primarily related to the activity of prepaid customers. Contract liabilities are primarily included in Deferred revenue in our Condensed Consolidated Balance Sheets. Revenues for the three and nine months ended September 30, 2021 and 2020 include the following: Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2021 2020 2021 2020 Amounts included in the beginning of year contract liability balance $ 29 $ 5 $ 753 $ 543 Remaining Performance Obligations As of September 30, 2021, the aggregate amount of transaction price allocated to remaining service performance obligations for postpaid contracts with subsidized devices and promotional bill credits that result in an extended service contract is $ 1.0 billion. We expect to recognize revenue as the service is provided on these postpaid contracts over an extended contract term of 24 months at the time of origination. As of September 30, 2021, the aggregate amount of transaction price allocated to remaining service and lease performance obligations associated with operating leases was $ 286 million and $ 173 million, respectively. We expect to recognize this revenue as service is provided over the lease contract term of 18 months. Information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less has been excluded from the above, which primarily consists of monthly service contracts. Certain of our wholesale, roaming and service contracts include variable consideration based on usage. This variable consideration has been excluded from the disclosure of remaining performance obligations. As of September 30, 2021, the aggregate amount of the contractual minimum consideration for wholesale, roaming and service contracts is $ 386 million, $ 1.4 billion and $ 1.0 billion for 2021, 2022, and 2023 and beyond, respectively. These contracts have a remaining duration ranging from less than one year to nine years . Contract Costs The total balance of deferred incremental costs to obtain contracts was $ 1.3 billion and $ 1.1 billion as of September 30, 2021 and December 31, 2020, respectively, and is included in Other assets in our Condensed Consolidated Balance Sheets. Deferred contract costs incurred to obtain postpaid service contracts are amortized over a period of 24 months. The amortization period is 28 Index for Notes to the Condensed Consolidated Financial Statements monitored to reflect any significant change in assumptions. Amortization of deferred contract costs is included in Selling, general and administrative expenses in our Condensed Consolidated Statements of Comprehensive Income and was $ 277 million and $ 221 million for the three months ended September 30, 2021 and 2020, respectively, and $ 789 million and $ 631 million for the nine months ended September 30, 2021 and 2020, respectively. The deferred contract cost asset is assessed for impairment on a periodic basis. There were no impairment losses recognized on deferred contract cost assets for the three and nine months ended September 30, 2021 and 2020. Note 10 – Income Taxes Within our Condensed Consolidated Statements of Comprehensive Income, we recorded an Income tax benefit on continuing operations of $ 3 million and Income tax expense of $ 407 million for the three months ended September 30, 2021 and 2020, respectively, and Income tax expense of $ 520 million and $ 715 million for the nine months ended September 30, 2021 and 2020, respectively. The change for the three months ended September 30, 2021 was primarily from tax benefits associated with legal entity reorganization related to historical Sprint entities, including a reduction in the valuation allowance against deferred tax assets in certain state jurisdictions and lower income before income taxes. The change for the nine months ended September 30, 2021 was primarily from tax benefits associated with legal entity reorganization related to historical Sprint entities, including a reduction in the valuation allowance against deferred tax assets in certain state jurisdictions, and a reduction in expenses that were not deductible for income tax purposes, partially offset by higher income before income taxes. The effective tax rate from continuing operations was ( 0.3 )% and 24.5 % for the three months ended September 30, 2021 and 2020, respectively, and 16.7 % and 26.4 % for the nine months ended September 30, 2021 and 2020, respectively. We continue to monitor positive and negative evidence related to the utilization of our deferred tax assets subject to a valuation allowance. It is possible the valuation allowance we deem to be necessary will be reduced within the next 12 months. Note 11 – Earnings Per Share The computation of basic and diluted earnings per share was as follows: Three Months Ended September 30, Nine Months Ended September 30, (in millions, except shares and per share amounts) 2021 2020 2021 2020 Income from continuing operations $ 691 $ 1,253 $ 2,602 $ 1,994 Income from discontinued operations, net of tax — — — 320 Net income $ 691 $ 1,253 $ 2,602 $ 2,314 Weighted average shares outstanding - basic 1,248,189,719 1,238,450,665 1,246,441,464 1,111,511,964 Effect of dilutive securities: Outstanding stock options and unvested stock awards 5,471,526 11,348,075 7,950,323 10,528,564 Weighted average shares outstanding - diluted 1,253,661,245 1,249,798,740 1,254,391,787 1,122,040,528 Basic earnings per share: Continuing operations $ 0.55 $ 1.01 $ 2.09 $ 1.79 Discontinued operations — — — 0.29 Earnings per share - basic $ 0.55 $ 1.01 $ 2.09 $ 2.08 Diluted earnings per share: Continuing operations $ 0.55 $ 1.00 $ 2.07 $ 1.78 Discontinued operations — — — 0.28 Earnings per share - diluted $ 0.55 $ 1.00 $ 2.07 $ 2.06 Potentially dilutive securities: Outstanding stock options and unvested stock awards 127,732 54,485 87,968 30,469 SoftBank contingent consideration (1) 48,751,557 48,751,557 48,751,557 32,738,272 (1) Represents the weighted average SoftBank Specified Shares that are contingently issuable from the acquisition date of April 1, 2020. 29 Index for Notes to the Condensed Consolidated Financial Statements As of September 30, 2021, we had authorized 100 million shares of preferred stock, with a par value of $ 0.00001 per share. There was no preferred stock outstanding as of September 30, 2021 and 2020. Potentially dilutive securities were not included in the computation of diluted earnings per share if to do so would have been anti-dilutive or if there was a loss from continuing operations for the period. The SoftBank Specified Shares Amount of 48,751,557 shares of T-Mobile common stock was determined to be contingent consideration for the Merger and is not dilutive until the defined volume-weighted average price per share is reached. Note 12 – Leases Lessee We are a lessee for non-cancelable operating and financing leases for cell sites, switch sites, retail stores, network equipment and office facilities with contractual terms that generally extend through 2035. Additionally, we lease dark fiber through non-cancelable operating leases with contractual terms that generally extend through 2041. The majority of cell site leases have a non-cancelable term of five to 15 years with several renewal options that can extend the lease term from five to 35 years. In addition, we have financing leases for network equipment that generally have a non-cancelable lease term of two to five years . The financing leases do not have renewal options and contain a bargain purchase option at the end of the lease. On September 15, 2021, we modified the terms of one of our master lease agreements, which resulted in a $ 1.0 billion advance rent payment. Our operating lease liabilities were reduced as a result of this prepayment. Maturities of lease liabilities as of September 30, 2021, were as follows: (in millions) Operating Leases Finance Leases Twelve Months Ending September 30, 2022 $ 3,655 $ 1,196 2023 4,282 846 2024 3,892 555 2025 3,401 150 2026 2,949 48 Thereafter 17,817 37 Total lease payments 35,996 2,832 Less: imputed interest 6,640 91 Total $ 29,356 $ 2,741 Interest payments for financing leases were $ 15 million and $ 19 million for the three months ended September 30, 2021 and 2020, respectively, and $ 51 million and $ 59 million for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, we have additional operating leases for cell sites and commercial properties that have not yet commenced with future lease payments of approximately $ 227 million. As of September 30, 2021, we were contingently liable for future ground lease payments related to certain tower obligations. These contingent obligations are not included in the above table as the amounts owed are contractually owed by Crown Castle International Corp. based on the subleasing arrangement. See Note 8 - Tower Obligations and Note 9 - Tower Obligations in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020, for further information. Note 13 – Commitments and Contingencies Purchase Commitments We have commitments for non-dedicated transportation lines with varying expiration terms that generally extend through 2030. In addition, we have commitments to purchase wireless devices, network services, equipment, software, marketing sponsorship agreements and other items in the ordinary course of business, with various terms through 2045. 30 Index for Notes to the Condensed Consolidated Financial Statements Our purchase commitments are approximately $ 4.5 billion for the twelve-month period ending September 30, 2022, $ 5.6 billion in total for the twelve-month periods ending September 30, 2023 and 2024, $ 2.2 billion in total for the twelve-month periods ending September 30, 2025 and 2026, and $ 1.7 billion in total thereafter. These amounts are not reflective of our entire anticipated purchases under the related agreements but are determined based on the non-cancelable quantities or termination amounts to which we are contractually obligated. Spectrum Leases In connection with the Merger, we assumed certain spectrum lease contracts from Sprint that include service obligations to the lessors. Certain of the spectrum leases provide for minimum lease payments, additional charges, renewal options and escalation clauses. Leased spectrum agreements have varying expiration terms that generally extend through 2050. We expect that all renewal periods in our spectrum leases will be exercised by us. Our spectrum lease and service credit commitments, including renewal periods, are approximately $ 360 million for the twelve-month period ending September 30, 2022, $ 617 million in total for the twelve-month periods ending September 30, 2023 and 2024, $ 591 million in total for the twelve-month periods ending September 30, 2025 and 2026 and $ 4.8 billion in total thereafter. We accrue a monthly obligation for the services and equipment based on the total estimated available service credits divided by the term of the lease. The obligation is reduced by services provided and as actual invoices are presented and paid to the lessors. The maximum remaining service commitment on September 30, 2021 was $ 87 million and is expected to be incurred over the term of the related lease agreements, which generally range from 15 to 30 years. Merger Commitments In connection with the regulatory proceedings and approvals of the Transactions, we have commitments and other obligations to various state and federal agencies and certain nongovernmental organizations, including pursuant to the Consent Decree agreed to by us, DT, Sprint, SoftBank and DISH Network Corporation (“DISH”) and entered by the U.S. District Court for the District of Columbia, and the FCC’s memorandum opinion and order approving our applications for approval of the Merger. These commitments and obligations include, among other things, extensive 5G network build-out commitments, obligations to deliver high-speed wireless services to the vast majority of Americans, including Americans residing in rural areas, and the marketing of an in-home broadband product where spectrum capacity is available. Other commitments relate to national security, pricing, service, employment and support of diversity initiatives. Many of the commitments specify time frames for compliance. Failure to fulfill our obligations and commitments in a timely manner could result in substantial fines, penalties, or other legal and administrative actions. We expect that our monetary commitments associated with these matters are approximately $ 9 million for the twelve-month period ending September 30, 2022, $ 13 million in total for the twelve-month periods ending September 30, 2023 and 2024 and $ 1 million in total for the twelve-month periods ending September 30, 2025 and 2026. These amounts do not represent our entire anticipated costs to achieve specified network coverage and performance requirements, employment targets or commitments to provide access to affordable rate plans, but represent only those amounts for which we are required to make a specified payment in connection with our commitments or settlements. Contingencies and Litigation Litigation and Regulatory Matters We are involved in various lawsuits and disputes, claims, government agency investigations and enforcement actions, and other proceedings (“Litigation and Regulatory Matters”) that arise in the ordinary course of business, which include claims of patent infringement (most of which are asserted by non-practicing entities primarily seeking monetary damages), class actions, and proceedings to enforce FCC rules and regulations. Those Litigation and Regulatory Matters are at various stages, and some of them may proceed to trial, arbitration, hearing, or other adjudication that could result in fines, penalties, or awards of monetary or injunctive relief in the coming 12 months if they are not otherwise resolved. We have established an accrual with respect to certain of these matters, where appropriate. The accruals are reflected in the condensed consolidated financial statements but they are not considered to be, individually or in the aggregate, material. An accrual is established when we believe it is both probable that a loss has been incurred and an amount can be reasonably estimated. For other matters, where we have not determined that a loss is probable or because the amount of loss cannot be reasonably estimated, we have not recorded an accrual due to various factors typical in contested proceedings, including, but not limited to, uncertainty concerning legal theories and their resolution by courts or regulators, uncertain damage theories and demands, and a less than fully developed 31 Index for Notes to the Condensed Consolidated Financial Statements factual record. For Litigation and Regulatory Matters that may result in a contingent gain, we recognize such gains in the condensed consolidated financial statements when the gain is realized or realizable. Except as otherwise specified below, we do not expect that the ultimate resolution of these Litigation and Regulatory Matters, individually or in the aggregate, will have a material adverse effect on our financial position, but we note that an unfavorable outcome of some or all of the specific matters identified below could have a material adverse impact on results of operations or cash flows for a particular period. This assessment is based on our current understanding of relevant facts and circumstances. As such, our view of these matters is subject to inherent uncertainties and may change in the future. On February 28, 2020, we received a Notice of Apparent Liability for Forfeiture and Admonishment from the FCC, which proposed a penalty against us for allegedly violating section 222 of the Communications Act and the FCC’s regulations governing the privacy of customer information. In the first quarter of 2020, we recorded an accrual for an estimated payment amount. We maintained the accrual as of September 30, 2021, which was included in Accounts payable and accrued liabilities in our Condensed Consolidated Balance Sheets. On April 1, 2020, in connection with the closing of the Merger, we assumed the contingencies and litigation matters of Sprint. Those matters include a wide variety of disputes, claims, government agency investigations and enforcement actions, and other proceedings. These matters include, among other things, certain ongoing FCC and state government agency investigations into Sprint’s Lifeline program. In September 2019, Sprint notified the FCC that it had claimed monthly subsidies for serving subscribers even though these subscribers may not have met usage requirements under Sprint's usage policy for the Lifeline program, due to an inadvertent coding issue in the system used to identify qualifying subscriber usage that occurred in July 2017 while the system was being updated. Sprint has made a number of payments to reimburse the federal government and certain states for excess subsidy payments. We note that pursuant to Amendment No. 2 to the Business Combination Agreement, SoftBank agreed to indemnify us against certain specified matters and losses, including those relating to Lifeline matters. Resolution of these matters could require making additional reimbursements and paying additional fines and penalties, which we do not expect to have a significant impact on our financial results. We expect that any additional liabilities related to these indemnified matters would be indemnified and reimbursed by SoftBank. See Note 2 - Business Combinations for further information. On June 1, 2021, a putative shareholder class action and derivative action was filed in the Delaware Court of Chancery, Dinkevich v. Deutsche Telekom AG, et al. , Case No. C.A. No. 2021-0479, against DT, SoftBank and certain of our current and former officers and directors, asserting breach of fiduciary duty claims relating to the repricing amendment to the Business Combination Agreement, and to SoftBank’s monetization of its T-Mobile shares. We are also named as a nominal defendant in the case. We are unable to predict the potential outcome of these claims. We intend to vigorously defend this lawsuit. On October 2020, we notified MVNOs using the legacy Sprint CDMA network that we planned to sunset that network on December 31, 2021. In response to that notice, DISH, which has Boost Mobile customers who use the legacy Sprint CDMA network, has made several efforts to prevent us from sunsetting the CDMA network until mid-2023, including by urging the U.S. Department of Justice to move for a finding of contempt under the April 1, 2020 Final Judgment entered by the U.S. District Court for the District of Columbia, and by pursuing a Petition for Modification and related proceedings pursuant to the California Public Utilities Commission’s April 2020 decision concerning the T-Mobile-Sprint merger. We disagree with the merits of DISH’s positions and have opposed them. On October 22, 2021, we announced that we would delay the sunset of the legacy Sprint CDMA network for three months, until March 31, 2022, to, among other things, help ensure that DISH and other MVNOs fulfill their contractual responsibilities and transition customers off the legacy Sprint CDMA network before the sunset. We cannot predict the outcome of the proceedings described above, but we intend to vigorously oppose any efforts to further delay the sunset of the legacy Sprint CDMA network. On August 12, 2021, we became aware of a potential cybersecurity issue involving unauthorized access to T-Mobile’s systems (the “August 2021 cyberattack”). We immediately began an investigation and engaged cybersecurity experts to assist with the assessment of the incident and to help determine what data was impacted. Our investigation uncovered that the perpetrator had illegally gained access to certain areas of our systems on or before March 18, 2021, but only gained access to and took data of current, former, and prospective customers beginning on or about August 3, 2021. With the assistance of our outside cybersecurity experts, we located and closed the unauthorized access to our systems and identified current, former and prospective customers whose information was impacted and notified them, consistent with state and federal requirements. We also undertook a number of other measures to demonstrate our continued support and commitment to data privacy and protection. We also coordinated with law enforcement. Our forensic investigation is now complete and we believe we now have a full view of the data compromised. 32 Index for Notes to the Condensed Consolidated Financial Statements As a result of the cyberattack, we have become subject to numerous lawsuits, including multiple class action lawsuits, that have been filed in numerous jurisdictions seeking unspecified monetary damages, costs and attorneys’ fees arising out of the cyberattack. A request to consolidate the federal class action lawsuits is pending before the Judicial Panel on Multidistrict Litigation and we anticipate a ruling on that request later this year or in early 2022. There can be no assurance that the request will be granted, and we are unable to predict at this time the potential timing and outcome of any of these claims (whether consolidated or not) and whether we may be subject to further private litigation. We intend to vigorously defend all of these lawsuits. In addition, the Company has received inquiries from various government agencies, law enforcement and other governmental authorities related to the cyberattack. We are responding to these inquiries and cooperating fully with regulators. However, we cannot predict the timing or outcome of any of these inquiries, and whether we may be subject to further regulatory inquiries. In light of the inherent uncertainties involved in such matters and based on the information currently available to us, as of the date of this Quarterly Report, we have not recorded any accruals for losses related to the above proceedings and inquiries, as any such amounts (or ranges of amounts) are not probable or estimable at this time. We believe it is reasonably possible that we could incur losses associated with these proceedings and inquiries, and the Company will continue to evaluate information as it becomes known and will record an estimate for losses at the time or times when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable. Ongoing legal and other costs related to these proceedings and inquiries, as well as any potential future proceedings and inquiries, may be substantial, and losses associated with any adverse judgments, settlements, penalties or other resolutions of such proceedings and inquiries could be material to our business, reputation, financial condition, cash flows and operating results. Note 14 – Restructuring Costs Upon close of the Merger, we began implementing restructuring initiatives to realize cost efficiencies and reduce redundancies. The major activities associated with the restructuring initiatives to date include contract termination costs associated with the rationalization of retail stores, distribution channels, duplicative network and backhaul services and other agreements, severance costs associated with the integration of redundant processes and functions and the decommissioning of certain small cell sites and distributed antenna systems to achieve synergies in network costs. The following table summarizes the expenses incurred in connection with our restructuring initiatives: (in millions) Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021 Incurred to Date Contract termination costs $ 5 $ 14 $ 192 Severance costs ( 3 ) 16 401 Network decommissioning 36 90 587 Total restructuring plan expenses $ 38 $ 120 $ 1,180 The expenses associated with the restructuring initiatives are included in Costs of services and Selling, general and administrative in our Condensed Consolidated Statements of Comprehensive Income. Our restructuring initiatives also include the acceleration or termination of certain of our operating and financing leases for cell sites, switch sites, retail stores, network equipment and office facilities. Incremental expenses associated with accelerating amortization of the right-of-use assets on lease contracts were $ 265 million and $ 649 million for the three and nine months ended September 30, 2021, respectively, and are included within Costs of services and Selling, general and administrative in our Condensed Consolidated Statements of Comprehensive Income. Restructuring expenses related to the acceleration or termination of leases were $ 80 million for both the three and nine months ended September 30, 2020. The changes in the liabilities associated with our restructuring initiatives, including expenses incurred and cash payments, are as follows: (in millions) December 31, 2020 Expenses Incurred Cash Payments Adjustments for Non-Cash Items (1) September 30, 2021 Contract termination costs $ 81 $ 14 $ ( 73 ) $ ( 1 ) $ 21 Severance costs 52 16 ( 63 ) ( 3 ) 2 Network decommissioning 30 90 ( 88 ) ( 16 ) 16 Total $ 163 $ 120 $ ( 224 ) $ ( 20 ) $ 39 33 Index for Notes to the Condensed Consolidated Financial Statements (1) Non-cash items consists of non-cash stock-based compensation included within Severance costs and the write-off of assets within Network decommissioning. The liabilities accrued in connection with our restructuring initiatives are presented in Accounts payable and accrued liabilities in our Condensed Consolidated Balance Sheets. Our restructuring activities are expected to occur over the next three years with substantially all costs incurred by the end of 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. Note 15 – Additional Financial Information Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities are summarized as follows: (in millions) September 30, 2021 December 31, 2020 Accounts payable $ 4,101 $ 5,564 Payroll and related benefits 1,205 1,163 Property and other taxes, including payroll 1,606 1,540 Interest 824 771 Commissions 278 399 Toll and interconnect 229 217 Advertising 64 135 Other 428 407 Accounts payable and accrued liabilities $ 8,735 $ 10,196 Book overdrafts included in accounts payable and accrued liabilities were $ 245 million and $ 628 million as of September 30, 2021 and December 31, 2020, respectively. Supplemental Consolidated Statements of Cash Flows Information The following table summarizes T-Mobile’s supplemental cash flow information: Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2021 2020 2021 2020 Interest payments, net of amounts capitalized $ 884 $ 940 $ 2,742 $ 1,889 Operating lease payments 2,251 1,349 5,165 3,493 Income tax payments 38 63 123 118 Non-cash investing and financing activities Non-cash beneficial interest obtained in exchange for securitized receivables 891 1,535 3,361 4,634 Non-cash consideration for the acquisition of Sprint — — — 33,533 Change in accounts payable and accrued liabilities for purchases of property and equipment 113 ( 216 ) ( 427 ) ( 555 ) Leased devices transferred from inventory to property and equipment 214 599 1,032 2,352 Returned leased devices transferred from property and equipment to inventory ( 309 ) ( 433 ) ( 1,170 ) ( 1,030 ) Short-term debt assumed for financing of property and equipment — — — 38 Operating lease right-of-use assets obtained in exchange for lease obligations 985 11,833 2,939 13,046 Financing lease right-of-use assets obtained in exchange for lease obligations 623 219 1,109 912 34 Table of Contents