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, 2022 December 31, 2021 Assets Current assets Cash and cash equivalents $ 6,888 $ 6,631 Accounts receivable, net of allowance for credit losses of $ 161 and $ 146 4,324 4,194 Equipment installment plan receivables, net of allowance for credit losses and imputed discount of $ 624 and $ 494 5,048 4,748 Inventory 2,247 2,567 Prepaid expenses 711 746 Other current assets 2,209 2,005 Total current assets 21,427 20,891 Property and equipment, net 41,034 39,803 Operating lease right-of-use assets 29,264 26,959 Financing lease right-of-use assets 3,619 3,322 Goodwill 12,234 12,188 Spectrum licenses 95,767 92,606 Other intangible assets, net 3,763 4,733 Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount of $ 125 and $ 136 2,514 2,829 Other assets 3,877 3,232 Total assets $ 213,499 $ 206,563 Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued liabilities $ 11,971 $ 11,405 Short-term debt 7,398 3,378 Short-term debt to affiliates — 2,245 Deferred revenue 777 856 Short-term operating lease liabilities 3,367 3,425 Short-term financing lease liabilities 1,239 1,120 Other current liabilities 1,610 1,070 Total current liabilities 26,362 23,499 Long-term debt 64,834 67,076 Long-term debt to affiliates 1,495 1,494 Tower obligations 3,970 2,806 Deferred tax liabilities 10,397 10,216 Operating lease liabilities 30,271 25,818 Financing lease liabilities 1,590 1,455 Other long-term liabilities 4,430 5,097 Total long-term liabilities 116,987 113,962 Commitments and contingencies (Note 14) Stockholders' equity Common Stock, par value $ 0.00001 per share, 2,000,000,000 shares authorized; 1,256,555,323 and 1,250,751,148 shares issued, 1,250,104,426 and 1,249,213,681 shares outstanding — — Additional paid-in capital 73,797 73,292 Treasury stock, at cost, 6,450,896 and 1,537,468 shares issued ( 685 ) ( 13 ) Accumulated other comprehensive loss ( 1,263 ) ( 1,365 ) Accumulated deficit ( 1,699 ) ( 2,812 ) Total stockholders' equity 70,150 69,102 Total liabilities and stockholders' equity $ 213,499 $ 206,563 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) 2022 2021 2022 2021 Revenues Postpaid revenues $ 11,548 $ 10,804 $ 34,194 $ 31,599 Prepaid revenues 2,484 2,481 7,408 7,259 Wholesale and other service revenues 1,329 1,437 4,203 4,548 Total service revenues 15,361 14,722 45,805 43,406 Equipment revenues 3,855 4,660 12,679 15,221 Other revenues 261 242 814 706 Total revenues 19,477 19,624 59,298 59,333 Operating expenses Cost of services, exclusive of depreciation and amortization shown separately below 3,712 3,538 11,499 10,413 Cost of equipment sales, exclusive of depreciation and amortization shown separately below 4,982 5,145 16,036 15,740 Selling, general and administrative 5,118 5,212 16,030 14,840 Impairment expense — — 477 — Loss on disposal group held for sale 1,071 — 1,071 — Depreciation and amortization 3,313 4,145 10,389 12,511 Total operating expenses 18,196 18,040 55,502 53,504 Operating income 1,281 1,584 3,796 5,829 Other expense, net Interest expense, net ( 827 ) ( 836 ) ( 2,542 ) ( 2,521 ) Other expense, net ( 3 ) ( 60 ) ( 35 ) ( 186 ) Total other expense, net ( 830 ) ( 896 ) ( 2,577 ) ( 2,707 ) Income before income taxes 451 688 1,219 3,122 Income tax benefit (expense) 57 3 ( 106 ) ( 520 ) Net income $ 508 $ 691 $ 1,113 $ 2,602 Net income $ 508 $ 691 $ 1,113 $ 2,602 Other comprehensive income, net of tax Reclassification of loss from cash flow hedges, net of tax effect of $ 13 , $ 12 , $ 39 , and $ 36 39 35 113 103 Unrealized loss on foreign currency translation adjustment, net of tax effect of $ 0 , $ 0 , $( 1 ), and $ 0 ( 7 ) ( 3 ) ( 11 ) — Other comprehensive income 32 32 102 103 Total comprehensive income $ 540 $ 723 $ 1,215 $ 2,705 Earnings per share Basic $ 0.40 $ 0.55 $ 0.89 $ 2.09 Diluted $ 0.40 $ 0.55 $ 0.88 $ 2.07 Weighted-average shares outstanding Basic 1,253,873,429 1,248,189,719 1,252,783,140 1,246,441,464 Diluted 1,259,210,271 1,253,661,245 1,258,061,478 1,254,391,787 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) 2022 2021 2022 2021 Operating activities Net income $ 508 $ 691 $ 1,113 $ 2,602 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 3,313 4,145 10,389 12,511 Stock-based compensation expense 150 131 445 403 Deferred income tax (benefit) expense ( 36 ) ( 27 ) 73 410 Bad debt expense 239 105 760 259 Losses (gains) from sales of receivables 60 4 168 ( 26 ) Losses on redemption of debt — 55 — 184 Impairment expense — — 477 — Loss on remeasurement of disposal group held for sale 371 — 371 — Changes in operating assets and liabilities Accounts receivable ( 1,224 ) ( 454 ) ( 3,781 ) ( 2,197 ) Equipment installment plan receivables ( 77 ) ( 530 ) ( 801 ) ( 1,825 ) Inventories ( 7 ) 41 384 904 Operating lease right-of-use assets 1,113 1,334 4,275 3,730 Other current and long-term assets ( 334 ) ( 88 ) ( 450 ) ( 188 ) Accounts payable and accrued liabilities 342 111 319 ( 1,245 ) Short- and long-term operating lease liabilities ( 700 ) ( 2,046 ) ( 2,218 ) ( 4,411 ) Other current and long-term liabilities 550 ( 87 ) 587 ( 351 ) Other, net 123 92 334 157 Net cash provided by operating activities 4,391 3,477 12,445 10,917 Investing activities Purchases of property and equipment, including capitalized interest of $( 16 ), $( 46 ), $( 44 ), and $( 187 ) ( 3,634 ) ( 2,944 ) ( 10,587 ) ( 9,397 ) Purchases of spectrum licenses and other intangible assets, including deposits ( 360 ) ( 407 ) ( 3,319 ) ( 9,337 ) Proceeds from sales of tower sites — — — 31 Proceeds related to beneficial interests in securitization transactions 1,308 1,071 3,614 3,099 Acquisition of companies, net of cash and restricted cash acquired — ( 1,886 ) ( 52 ) ( 1,916 ) Other, net 131 14 138 46 Net cash used in investing activities ( 2,555 ) ( 4,152 ) ( 10,206 ) ( 17,474 ) Financing activities Proceeds from issuance of long-term debt 2,972 1,989 2,972 11,758 Repayments of financing lease obligations ( 311 ) ( 266 ) ( 901 ) ( 822 ) Repayments of short-term debt for purchases of inventory, property and equipment and other financial liabilities — ( 76 ) — ( 167 ) Repayments of long-term debt ( 132 ) ( 4,600 ) ( 3,145 ) ( 9,969 ) Repurchases of common stock ( 557 ) — ( 557 ) — Tax withholdings on share-based awards ( 10 ) ( 14 ) ( 225 ) ( 308 ) Cash payments for debt prepayment or debt extinguishment costs — ( 45 ) — ( 116 ) Other, net ( 35 ) ( 48 ) ( 97 ) ( 139 ) Net cash provided by (used in) financing activities 1,927 ( 3,060 ) ( 1,953 ) 237 Change in cash and cash equivalents, including restricted cash and cash held for sale 3,763 ( 3,735 ) 286 ( 6,320 ) Cash and cash equivalents, including restricted cash and cash held for sale Beginning of period 3,226 7,878 6,703 10,463 End of period $ 6,989 $ 4,143 $ 6,989 $ 4,143 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 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, 2022 1,254,010,072 1,564,549 $ ( 16 ) $ 73,552 $ ( 1,295 ) $ ( 2,207 ) $ 70,034 Net income — — — — — 508 508 Other comprehensive income — — — — 32 — 32 Stock-based compensation — — — 165 — — 165 Exercise of stock options 26,614 — — 1 — — 1 Stock issued for employee stock purchase plan 802,361 — — 89 — — 89 Issuance of vested restricted stock units 219,301 — — — — — — Forfeiture of restricted stock awards ( 42 ) 42 — — — — — Shares withheld related to net share settlement of stock awards and stock options ( 67,575 ) — — ( 10 ) — — ( 10 ) Repurchases of common stock ( 4,892,315 ) 4,892,315 ( 669 ) — — — ( 669 ) Transfers with NQDC plan 6,010 ( 6,010 ) — — — — — Balance as of September 30, 2022 1,250,104,426 6,450,896 $ ( 685 ) $ 73,797 $ ( 1,263 ) $ ( 1,699 ) $ 70,150 Balance as of December 31, 2021 1,249,213,681 1,537,468 $ ( 13 ) $ 73,292 $ ( 1,365 ) $ ( 2,812 ) $ 69,102 Net income — — — — — 1,113 1,113 Other comprehensive income — — — — 102 — 102 Stock-based compensation — — — 490 — — 490 Exercise of stock options 116,817 — — 5 — — 5 Stock issued for employee stock purchase plan 2,079,086 — — 227 — — 227 Issuance of vested restricted stock units 5,380,712 — — — — — — Forfeiture of restricted stock awards ( 42 ) 42 — — — — — Shares withheld related to net share settlement of stock awards and stock options ( 1,772,442 ) — — ( 225 ) — — ( 225 ) Repurchases of common stock ( 4,892,315 ) 4,892,315 ( 669 ) — — — ( 669 ) Remeasurement of uncertain tax positions — — — 5 — — 5 Transfers with NQDC plan ( 21,071 ) 21,071 ( 3 ) 3 — — — Balance as of September 30, 2022 1,250,104,426 6,450,896 $ ( 685 ) $ 73,797 $ ( 1,263 ) $ ( 1,699 ) $ 70,150 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 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 1,557,821 $ ( 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 ( 18,894 ) 1 ( 1 ) — — — Balance as of September 30, 2021 1,249,035,065 1,538,927 $ ( 13 ) $ 73,152 $ ( 1,478 ) $ ( 3,234 ) $ 68,427 Balance as of December 31, 2020 1,241,805,706 1,539,878 $ ( 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 ( 951 ) ( 2 ) 2 — — — Balance as of September 30, 2021 1,249,035,065 1,538,927 $ ( 13 ) $ 73,152 $ ( 1,478 ) $ ( 3,234 ) $ 68,427 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 Receivables and Related Allowance for Credit Losses 10 Note 3 Sales of Certain Receivables 12 Note 4 Spectrum License Transactions 14 Note 5 Fair Value Measurements 15 Note 6 Debt 16 Note 7 Tower Obligations 18 Note 8 Revenue from Contracts with Customers 19 Note 9 Repurchases of Common Stock 21 Note 10 Wireline 21 Note 11 Income Taxes 23 Note 12 Earnings Per Share 24 Note 13 Leases 24 Note 14 Commitments and Contingencies 25 Note 15 Restructuring Costs 28 Note 16 Additional Financial Information 29 Note 17 Subsequent Events 30 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, 2021. On September 6, 2022, Sprint Communications LLC, a Kansas limited liability company and wholly owned subsidiary of the Company (“Sprint Communications”), Sprint LLC, a Delaware limited liability company and wholly owned subsidiary of the Company, and Cogent Infrastructure, Inc., a Delaware corporation (the “Buyer”) and a wholly owned subsidiary of Cogent Communications Holdings, Inc., entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”), pursuant to which the Buyer will acquire the U.S. long-haul fiber network and operations (including the non-U.S. extensions thereof) of Sprint Communications and its subsidiaries (the “Wireline Business”). The assets and liabilities of the Wireline Business disposal group are classified as held for sale and presented within Other current assets and Other current liabilities on our Condensed Consolidated Balance Sheets as of September 30, 2022. The fair value of the Wireline Business disposal group, less costs to sell, will be reassessed during each reporting period it remains classified as held for sale, and any remeasurement to the lower of carrying amount or fair value less costs to sell will be reported as an adjustment included within Loss on disposal group held for sale on our Condensed Consolidated Statements of Comprehensive Income. Unless otherwise specified, the amounts and information presented in the Notes to the Condensed Consolidated Financial Statements include assets and liabilities that have been reclassified as held for sale as of September 30, 2022. On September 8, 2022, our Board of Directors authorized a stock repurchase program for up to $ 14.0 billion of our common stock through September 30, 2023 (the “2022 Stock Repurchase Program”). The cost of repurchased shares, including equity reacquisition costs, is included in Treasury stock on our Condensed Consolidated Balance Sheets. We accrue the cost of repurchased shares, and exclude such shares from the calculation of basic and diluted earnings per share, as of the trade date. We recognize a liability for share repurchases which have not settled and for which cash has not been paid in Other current liabilities on our Condensed Consolidated Balance Sheets. Cash payments to reacquire our shares, including equity reacquisition costs, are included in Repurchases of common stock on our Condensed Consolidated Statements of Cash Flows. See Note 9 - Repurchases of Common Stock for more information about our 2022 Stock Repurchase Program. 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. Estimates are inherently subject to judgment and actual results could differ from those estimates. Accounting Pronouncements Adopted During the Current Year 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 9 Index for Notes to the Condensed Consolidated Financial Statements 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. As of January 1, 2022, we have elected to apply the practical expedients provided by the reference rate reform standard for all ASC Topics and Industry Subtopics related to eligible contract modifications as they occur. This election did not have a material impact on our condensed consolidated financial statements for the three and nine months ended September 30, 2022, and the impact of applying the election to future eligible contract modifications that occur through December 31, 2022, is also not expected to be material . Contract Assets and Contract Liabilities Acquired in a Business Combination In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” The standard amends ASC 805 such that contract assets and contract liabilities acquired in a business combination are added to the list of exceptions to the recognition and measurement principles such that they are recognized and measured in accordance with ASC 606. As of January 1, 2022, we have elected to adopt this standard, and it will be applied prospectively to all business combinations occurring after this date. Accounting Pronouncements Not Yet Adopted Troubled Debt Restructurings and Vintage Disclosures In March 2022, the FASB issued ASU 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The standard eliminates the accounting guidance within ASC 310-40 for troubled debt restructurings by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, for public business entities, the standard requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20. The standard will become effective for us beginning January 1, 2023, and will be applied prospectively, with an option for modified retrospective application for provisions related to recognition and measurement of troubled debt restructurings. Early adoption is permitted for us at any time. We are currently evaluating the impact of the standard on our future consolidated financial statements. Note 2 – Receivables and Related Allowance for Credit Losses We maintain an allowance for credit losses by applying an expected credit loss model. Each period, management assesses the appropriateness of the level of allowance for credit losses by considering credit risk inherent within each portfolio segment as of period end. We consider a receivable past due when a customer has not paid us by the contractually specified payment due date. Account balances are written off against the allowance for credit losses if collection efforts are unsuccessful and the receivable balance is deemed uncollectible (customer default), 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 equipment installment plan (“EIP”) receivables. Accounts Receivable Portfolio Segment Accounts receivable balances are predominately comprised of amounts currently due from customers (e.g., for wireless services and monthly device lease payments), device insurance administrators, wholesale partners, non-consolidated affiliates, other carriers and third-party retail channels. We estimate credit losses associated with our accounts receivable portfolio segment using an expected credit loss model, which utilizes an aging schedule methodology based on historical information and adjusted for asset-specific considerations, current economic conditions and reasonable and supportable forecasts. 10 Index for Notes to the Condensed Consolidated Financial Statements Our approach considers a number of factors, including our overall historical credit losses, net of recoveries, and payment experience, as well as current collection trends such as write-off frequency and severity. We also consider other qualitative factors such as current and forecasted macroeconomic conditions. We consider the need to adjust our estimate of credit losses for reasonable and supportable forecasts of future economic conditions. To do so, we monitor external 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 if their assessed credit risk exceeds established underwriting thresholds. In addition, certain customers within the Subprime category may be required to pay a deposit. To determine a customer’s credit profile and assist in determining their credit class, 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. EIP receivables had a combined weighted-average effective interest rate of 6.9 % and 5.6 % as of September 30, 2022, and December 31, 2021, respectively. The following table summarizes the EIP receivables, including imputed discounts and related allowance for credit losses: (in millions) September 30, 2022 December 31, 2021 EIP receivables, gross $ 8,311 $ 8,207 Unamortized imputed discount ( 416 ) ( 378 ) EIP receivables, net of unamortized imputed discount 7,895 7,829 Allowance for credit losses ( 333 ) ( 252 ) EIP receivables, net of allowance for credit losses and imputed discount $ 7,562 $ 7,577 Classified on our condensed consolidated balance sheets as: Equipment installment plan receivables, net of allowance for credit losses and imputed discount $ 5,048 $ 4,748 Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount 2,514 2,829 EIP receivables, net of allowance for credit losses and imputed discount $ 7,562 $ 7,577 Many of our loss estimation techniques rely on delinquency-based models; therefore, delinquency is an important indicator of credit quality in the establishment of our allowance for credit losses for EIP receivables. We manage our EIP receivables portfolio segment 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, 2022: Originated in 2022 Originated in 2021 Originated prior to 2021 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 $ 2,767 $ 1,893 $ 1,744 $ 1,001 $ 229 $ 96 $ 4,740 $ 2,990 $ 7,730 31 - 60 days past due 18 28 12 19 2 2 32 49 81 61 - 90 days past due 7 14 6 10 1 1 14 25 39 More than 90 days past due 7 14 6 13 2 3 15 30 45 EIP receivables, net of unamortized imputed discount $ 2,799 $ 1,949 $ 1,768 $ 1,043 $ 234 $ 102 $ 4,801 $ 3,094 $ 7,895 We estimate credit losses on our EIP receivables segment by applying an expected credit loss model, which relies on historical loss data adjusted for current conditions to calculate default probabilities or an estimate for the frequency of customer default. 11 Index for Notes to the Condensed Consolidated Financial Statements Our assessment of default probabilities includes receivables delinquency status, historical loss experience, how long the receivables have been outstanding and customer credit ratings, as well as customer tenure. We multiply these estimated default probabilities by our estimated loss given default, which is the estimated amount or severity of the default loss after adjusting for estimated recoveries. As we do for our accounts receivable portfolio segment, we consider the need to adjust our estimate of credit losses on EIP receivables for reasonable and supportable forecasts of economic conditions through monitoring external forecasts and periodic internal statistical analyses. Activity for the nine months ended September 30, 2022 and 2021, in the allowance for credit losses and unamortized imputed discount balances for the accounts receivable and EIP receivables segments were as follows: September 30, 2022 September 30, 2021 (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 $ 146 $ 630 $ 776 $ 194 $ 605 $ 799 Bad debt expense 305 455 760 127 132 259 Write-offs, net of recoveries ( 290 ) ( 375 ) ( 665 ) ( 192 ) ( 164 ) ( 356 ) Change in imputed discount on short-term and long-term EIP receivables N/A 146 146 N/A 109 109 Impact on the imputed discount from sales of EIP receivables N/A ( 107 ) ( 107 ) N/A ( 104 ) ( 104 ) Allowance for credit losses and imputed discount, end of period $ 161 $ 749 $ 910 $ 129 $ 578 $ 707 Credit loss activity has increased during 2022, as activity normalizes relative to muted Pandemic levels and other macroeconomic trends contribute to adverse scenarios and present additional uncertainty due to, for example, the potential effects associated with higher inflation, rising interest rates and changes in the Federal Reserve’s monetary policy, as well as geopolitical risks, including the war in Ukraine. Off-Balance-Sheet Credit Exposures We do not have material, unmitigated off-balance-sheet credit exposures as of September 30, 2022. In connection with the sales of certain service and EIP accounts receivable pursuant to the sale arrangements, we have deferred purchase price assets included on 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 3 – Sales of Certain Receivables for further information. Note 3 – Sales of Certain Receivables We regularly enter 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 As of both September 30, 2022, and December 31, 2021, the EIP sale arrangement provided funding of $ 1.3 billion. In connection with this EIP sale arrangement, we formed a wholly owned subsidiary, which qualifies as a bankruptcy remote entity (the “EIP BRE”). We consolidate the EIP BRE under the VIE model. The following table summarizes the carrying amounts and classification of assets, which consist primarily of the deferred purchase price, included on our Condensed Consolidated Balance Sheets with respect to the EIP BRE: (in millions) September 30, 2022 December 31, 2021 Other current assets $ 348 $ 424 Other assets 118 125 12 Index for Notes to the Condensed Consolidated Financial Statements Sales of Service Accounts Receivable The maximum funding commitment of the service receivable sale arrangement is $ 950 million and the facility expires in February 2023. As of both September 30, 2022, and December 31, 2021, the service receivable sale arrangement provided funding of $ 775 million. 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”). We consolidate the Service BRE under the VIE model. The following table summarizes the carrying amounts and classification of assets, which consist primarily of the deferred purchase price, and liabilities included on our Condensed Consolidated Balance Sheets with respect to the Service BRE: (in millions) September 30, 2022 December 31, 2021 Other current assets $ 217 $ 231 Other current liabilities 392 348 Sales of Receivables The following table summarizes the impact of the sale of certain service accounts receivable and EIP receivables on our Condensed Consolidated Balance Sheets: (in millions) September 30, 2022 December 31, 2021 Derecognized net service accounts receivable and EIP receivables $ 2,411 $ 2,492 Other current assets 565 655 of which, deferred purchase price 563 654 Other long-term assets 118 125 of which, deferred purchase price 118 125 Other current liabilities 392 348 Net cash proceeds since inception 1,723 1,754 Of which: Change in net cash proceeds during the year-to-date period ( 31 ) 39 Net cash proceeds funded by reinvested collections 1,754 1,715 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 on 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, 2022, and December 31, 2021, our deferred purchase price related to the sales of service receivables and EIP receivables was $ 681 million and $ 779 million, respectively. We recognized losses from sales of receivables, including changes in fair value of the deferred purchase price, of $ 60 million and $ 4 million for the three months ended September 30, 2022 and 2021, respectively, and a loss of $ 168 million and a gain of $ 26 million for the nine months ended September 30, 2022 and 2021, respectively, in Selling, general and administrative expense on our Condensed Consolidated Statements of Comprehensive Income. Continuing Involvement Pursuant to the sale arrangements described above, we have continuing involvement with the service accounts receivable and EIP receivables we sell as we service the receivables, are required to repurchase certain receivables, including ineligible receivables, aged receivables and receivables where a 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. 13 Index for Notes to the Condensed Consolidated Financial Statements Note 4 – Spectrum License Transactions The following table summarizes our spectrum license activity for the nine months ended September 30, 2022: (in millions) 2022 Spectrum licenses, beginning of year $ 92,606 Spectrum license acquisitions 3,148 Spectrum licenses transferred to held for sale ( 16 ) Costs to clear spectrum 29 Spectrum licenses, end of period $ 95,767 Spectrum Transactions In January 2022, the FCC announced that we were the winning bidder of 199 licenses in Auction 110 (mid-band spectrum) for an aggregate purchase price of $ 2.9 billion. At inception of Auction 110 in September 2021, we deposited $ 100 million. We paid the FCC the remaining $ 2.8 billion for the licenses won in the auction in February 2022. On May 4, 2022, the FCC issued us the licenses won in Auction 110. The licenses are included in Spectrum licenses on our Condensed Consolidated Balance Sheets as of September 30, 2022. In September 2022, the FCC announced that we were the winning bidder of 7,156 licenses in Auction 108 (2.5 GHz) for an aggregate price of $ 304 million. At inception of Auction 108 in June 2022, we deposited $ 65 million. We paid the FCC the remaining $ 239 million for the licenses won in the auction in September 2022. The aggregate cash payments made to the FCC are included in Other assets on our Condensed Consolidated Balance Sheets as of September 30, 2022, and will remain there until the corresponding licenses are received. The timing of when the licenses will be issued will be determined by the FCC after all post-auction procedures have been completed. Cash payments to acquire spectrum licenses and payments for costs to clear spectrum are included in Purchases of spectrum licenses and other intangible assets, including deposits, on our Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2022. License Purchase Agreements DISH Network Corporation On July 1, 2020, we and DISH Network Corporation (“DISH”) entered into a license purchase agreement (the “License Purchase Agreement”) pursuant to which DISH has the option to purchase certain 800 MHz spectrum licenses for a total of approximately $ 3.6 billion in a transaction to be completed, subject to an application for FCC approval, by July 1, 2023, or within five days of FCC approval, whichever date is later. In the event DISH breaches the License Purchase Agreement or fails to deliver the purchase price following the satisfaction or waiver of all closing conditions, DISH is liable to pay us a fee of $ 72 million. Additionally, if DISH does not exercise the option to purchase the 800 MHz spectrum licenses, we have an obligation to offer the licenses for sale through an auction. If the specified minimum price of $ 3.6 billion is not met in the auction, we would be relieved of the obligation to sell the licenses. Channel 51 License Co LLC and LB License Co, LLC On August 8, 2022, we, Channel 51 License Co LLC and LB License Co, LLC (together with Channel 51 License Co LLC, the “Sellers”) entered into License Purchase Agreements pursuant to which we will acquire spectrum in the 600 MHz band from the Sellers in exchange for total cash consideration of $ 3.5 billion. The licenses will be acquired without any associated networks, but are currently being utilized through exclusive leasing arrangements with the Sellers. The parties have agreed that closing will occur within 180 days after the receipt of required regulatory approvals, and payment of the $ 3.5 billion purchase price will occur no later than 40 days after the date of such closing. We anticipate the transactions will close in mid- to late-2023. 14 Index for Notes to the Condensed Consolidated Financial Statements Note 5 – Fair Value Measurements The carrying values of Cash and cash equivalents, Accounts receivable and Accounts payable and accrued liabilities approximate fair value due to the short-term maturities of these instruments. The carrying values of EIP receivables approximate fair value as the receivables are recorded at their present value using an imputed interest rate. 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. Cash flows associated with qualifying hedge derivative instruments are presented in the same category on our Condensed Consolidated Statements of Cash Flows as the item being hedged. We did not have any significant derivative instruments outstanding as of September 30, 2022, and December 31, 2021. Interest Rate Lock Derivatives In April 2020, we terminated our interest rate lock derivatives entered into in October 2018. Aggregate changes in the fair value of the interest rate lock derivatives, net of tax and amortization, of $ 1.3 billion and $ 1.5 billion are presented in Accumulated other comprehensive loss on our Condensed Consolidated Balance Sheets as of September 30, 2022, and December 31, 2021, respectively. For the three months ended September 30, 2022 and 2021, $ 51 million and $ 47 million, respectively, and for the nine months ended September 30, 2022 and 2021, $ 151 million and $ 140 million, respectively, were amortized from Accumulated other comprehensive loss into Interest expense, net, on our Condensed Consolidated Statements of Comprehensive Income. We expect to amortize $ 215 million of the Accumulated other comprehensive loss associated with the derivatives into Interest expense, net, over the 12 months ending September 30, 2023. 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 3 – 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 on our Condensed Consolidated Balance Sheets, were $ 681 million and $ 779 million as of September 30, 2022, and December 31, 2021, respectively. Fair value was equal to the carrying amount at September 30, 2022, and December 31, 2021. Debt The fair value of our Senior 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 Notes to affiliates. The fair value estimates were based on information available as of September 30, 2022, and December 31, 2021. As such, our estimates are not necessarily indicative of the amount we could realize in a current market exchange. 15 Index for Notes to the Condensed Consolidated Financial Statements The carrying amounts and fair values of our short-term and long-term debt included on our Condensed Consolidated Balance Sheets were as follows: Level within the Fair Value Hierarchy September 30, 2022 December 31, 2021 (in millions) Carrying Amount (1) Fair Value (1) Carrying Amount (1) Fair Value (1) Liabilities: Senior Notes to third parties (2) 1 $ 68,946 $ 59,904 $ 30,309 $ 32,093 Senior Notes to affiliates 2 1,495 1,412 3,739 3,844 Senior Secured Notes to third parties (2) 1 3,255 3,095 40,098 42,393 (1) Excludes $ 31 million and $ 47 million as of September 30, 2022, and December 31, 2021, respectively, in other financial liabilities as the carrying values approximate fair value primarily due to the short-term maturities of these instruments. (2) Following the achievement of an investment grade issuer rating from each of the three main credit rating agencies and entry into an amendment to our Credit Agreement, the Senior Secured Notes, other than our Spectrum-Backed Notes, are no longer secured by any of our present or future assets and have been reclassified to Senior Notes to third parties as of September 30, 2022, within the table above. See Note 6 – Debt for additional information. Note 6 – Debt The following table sets forth the debt balances and activity as of and for the nine months ended September 30, 2022 : (in millions) December 31, 2021 Proceeds from Issuances and Borrowings (1) Note Redemptions (1) Repayments Reclassifications (1) Other (2) September 30, 2022 Short-term debt $ 3,378 $ — $ ( 500 ) $ ( 395 ) $ 4,967 $ ( 52 ) $ 7,398 Long-term debt 67,076 2,969 — — ( 4,967 ) ( 244 ) 64,834 Total debt to third parties 70,454 2,969 ( 500 ) ( 395 ) — ( 296 ) 72,232 Short-term debt to affiliates 2,245 — ( 2,250 ) — — 5 — Long-term debt to affiliates 1,494 — — — — 1 1,495 Total debt $ 74,193 $ 2,969 $ ( 2,750 ) $ ( 395 ) $ — $ ( 290 ) $ 73,727 (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 3.8 % and 4.0 % for the three months ended September 30, 2022 and 2021, respectively, and 3.9 % and 4.1 % for the nine months ended September 30, 2022 and 2021, respectively, on weighted-average debt outstanding of $ 71.6 billion and $ 74.5 billion for the three months ended September 30, 2022 and 2021, respectively, and on weighted-average debt outstanding of $ 72.4 billion and $ 74.4 billion for the nine months ended September 30, 2022 and 2021, 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. Issuances and Borrowings During the nine months ended September 30, 2022, we issued the following Senior Notes: (in millions) Principal Issuances Premiums/Discounts and Issuance Costs Net Proceeds from Issuance of Long-Term Debt Issue Date 5.200 % Senior Notes due 2033 $ 1,250 $ ( 8 ) $ 1,242 September 15, 2022 5.650 % Senior Notes due 2053 1,000 ( 11 ) 989 September 15, 2022 5.800 % Senior Notes due 2062 750 ( 12 ) 738 September 15, 2022 Total of Senior Notes issued $ 3,000 $ ( 31 ) $ 2,969 Senior Secured Notes Following the achievement of an investment grade issuer rating from each of the three main credit rating agencies, on August 22, 2022, we entered into an amendment (“Credit Agreement Amendment”) to our Credit Agreement, dated April 1, 2020. Upon effectiveness of the Credit Agreement Amendment, the liens securing the Senior Secured Notes were automatically released, and our obligations under the Senior Secured Notes (hereafter, “Senior Notes”), other than our Spectrum-Backed notes, are no longer secured by any of our present or future assets. 16 Index for Notes to the Condensed Consolidated Financial Statements Note Redemptions and Repayments During the nine months ended September 30, 2022, we made the following note redemptions and repayments: (in millions) Principal Amount Redemption or Repayment Date Redemption Price 4.000 % Senior Notes due 2022 $ 500 March 16, 2022 100.000 % 4.000 % Senior Notes to affiliates due 2022 1,000 March 16, 2022 100.000 % 5.375 % Senior Notes to affiliates due 2022 1,250 April 15, 2022 N/A Total Redemptions $ 2,750 4.738 % Secured Series 2018-1 A-1 Notes due 2025 $ 394 Various N/A Other debt 1 Various N/A Total Repayments $ 395 Asset-backed Notes Subsequent to September 30, 2022, on October 12, 2022, we issued $ 750 million of 4.910 % Class A senior asset-backed notes (“ABS Notes”) to third-party investors in a private placement transaction. Our ABS Notes are secured by $ 1.0 billion of gross EIP receivables and future collections on such receivables. In connection with issuing the ABS Notes, we formed a wholly owned subsidiary, which qualifies as a bankruptcy remote entity (the “ABS BRE”), and a trust (the “ABS Trust” and together with the ABS BRE, the “ABS Entities”), in which the ABS BRE holds a residual interest. We will include the balances and results of operations of the ABS Entities in our consolidated financial statements. The ABS BRE’s residual interest in the ABS Trust represents the rights to all funds not needed to make required payments on the ABS Notes and other related payments and expenses. Under the terms of the ABS Notes, our wholly owned subsidiary, T-Mobile Financial LLC (“FinCo”), and certain of our other wholly owned subsidiaries (collectively, the “Originators”) transfer EIP receivables to the ABS BRE, which in turn transfers such receivables to the ABS Trust, which issued the ABS Notes. The Class A senior ABS Notes have an expected weighted average life of approximately 2.5 years. Under the terms of the transaction, there is a two-year revolving period during which we may transfer additional receivables to the ABS Entities as collections on the receivables are received. The third-party investors in the Class A senior ABS Notes have legal recourse only to the assets of the ABS Issuer securing the ABS Notes and do not have any recourse to T-Mobile with respect to the payment of principal and interest. The receivables transferred to the ABS Issuer will only be available for payment of the ABS Notes and other obligations arising from the transaction and will not be available to pay any obligations or claims of T-Mobile’s creditors. Under a parent support agreement, T-Mobile has agreed to guarantee the performance of the obligations of FinCo, which will continue to service the receivables, and the other T-Mobile entities participating in the transaction to the ABS Issuer. However, T-Mobile does not guarantee any principal or interest on the ABS Notes or any payments on the underlying EIP receivables. Net proceeds of $ 748 million from our ABS Notes will be reflected in Proceeds from issuance of long-term debt in our Consolidated Statements of Cash Flows in the three months ending December 31, 2022. The ABS Notes issued and the assets securing this debt will be included on our Consolidated Balance Sheets. The expected maturities of our ABS Notes are as follows: Expected Maturities (in millions) 2024 2025 Class A Senior ABS Notes $ 198 $ 552 Credit Facilities Subsequent to September 30, 2022, on October 17, 2022, T-Mobile USA, Inc., our wholly owned subsidiary, and certain of its affiliates, as guarantors, entered into an Amended and Restated Credit Agreement (the “October 2022 Credit Agreement”) with certain financial institutions named therein. The October 2022 Credit Agreement amends and restates in its entirety the Credit Agreement originally dated April 1, 2020, and provides for a $ 7.5 billion revolving credit facility, including a letter of credit sub-facility of up to $ 1.5 billion, and a swingline loan sub-facility of up to $ 500 million. Commitments under the October 2022 17 Index for Notes to the Condensed Consolidated Financial Statements Credit Agreement will mature on October 17, 2027, except as otherwise extended or replaced. Borrowings under the October 2022 Credit Agreement will bear interest based upon the applicable benchmark rate, depending on the type of loan and, in some cases, at our election, plus a margin. The October 2022 Credit Agreement contains customary representations, warranties and covenants, including a financial maintenance covenant of 4.5 x with respect to T-Mobile USA, Inc.’s Leverage Ratio (as defined therein) commencing with the period ending December 31, 2022. Note 7 – 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 annually on a per-tranche basis at the end of the lease term during the period from December 31, 2035, through December 31, 2049. If CCI exercises its purchase option for any tranche, it must purchase all the towers in the tranche. We lease back a portion of the space at certain tower sites. 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 on 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 derecognize 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 Condensed Consolidated Balance Sheets. We recorded long-term financial obligations in the amount of the net proceeds received and recognize interest on the tower obligations. 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 our merger (the “Merger”) with Sprint Corporation (“Sprint”) in April 2020, 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. We considered if this arrangement resulted in the sale of the Master Lease Sites for which we would derecognize 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 Condensed Consolidated Balance Sheets. 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 include unfavorable terms associated with the fixed-price purchase option in 2037. 18 Index for Notes to the Condensed Consolidated Financial Statements We recognize interest expense on the tower obligations. The tower obligations are increased by the interest expense and amortized through contractual leaseback payments made by us to CCI. The tower assets are reported in Property and equipment, net on 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. Leaseback Arrangement On January 3, 2022, we entered into an agreement (the “Crown Agreement”) with CCI. The Crown Agreement extends the current term of the leasebacks by up to 12 years and modifies the leaseback payments for both the Existing CCI Tower Lease Arrangement and the Acquired CCI Tower Lease Arrangement. As a result of the Crown Agreement, there was an increase in our financing obligation as of the effective date of the agreement of approximately $ 1.2 billion, with a corresponding decrease to Other long-term liabilities associated with unfavorable contract terms. The modification resulted in a revised interest rate under the effective interest method for the tower obligations: 11.6 % for the Existing CCI Tower Lease Arrangement and 5.3 % for the Acquired CCI Tower Lease Arrangement. There were no changes made to either of our master prepaid leases with CCI. The following table summarizes the balances associated with both of the tower arrangements on our Condensed Consolidated Balance Sheets: (in millions) September 30, 2022 December 31, 2021 Property and equipment, net $ 2,421 $ 2,548 Tower obligations 3,970 2,806 Other long-term liabilities 554 1,712 Future minimum payments related to the tower obligations are approximately $ 421 million for the 12-month period ending September 30, 2023, $ 826 million in total for both of the 12-month periods ending September 30, 2024 and 2025, $ 783 million in total for both of the 12-month periods ending September 30, 2026 and 2027, and $ 4.6 billion in total thereafter. Note 8 – 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, High Speed Internet, wearables, DIGITS or other connected devices, which include 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) 2022 2021 2022 2021 Postpaid service revenues Postpaid phone revenues $ 10,481 $ 9,952 $ 31,119 $ 29,102 Postpaid other revenues 1,067 852 3,075 2,497 Total postpaid service revenues $ 11,548 $ 10,804 $ 34,194 $ 31,599 We operate as a single operating segment. The balances presented in each revenue line item on our Condensed Consolidated Statements of Comprehensive Income represent categories of revenue from contracts with customers disaggregated by type of product and service. Postpaid and prepaid 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 in Equipment revenues on our Condensed Consolidated Statements of Comprehensive Income. 19 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) 2022 2021 2022 2021 Equipment revenues from the lease of mobile communication devices $ 311 $ 770 $ 1,184 $ 2,725 We provide wireline communication services to domestic and international customers. Wireline service revenues were $ 144 million and $ 179 million for the three months ended September 30, 2022 and 2021, respectively, and $ 433 million and $ 563 million for the nine months ended September 30, 2022 and 2021, respectively. Wireline service revenues are presented in Wholesale and other service revenues on our Condensed Consolidated Statements of Comprehensive Income. In September 2022, we entered into an agreement for the sale of the Wireline Business. See Note 10 – Wireline for additional information. Contract Balances The contract asset and contract liability balances from contracts with customers as of September 30, 2022, and December 31, 2021, were as follows: (in millions) Contract Assets Contract Liabilities Balance as of December 31, 2021 $ 286 $ 763 Balance as of September 30, 2022 286 739 Change $ — $ ( 24 ) 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. Contract asset balances were impacted by 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 $ 222 million and $ 219 million as of September 30, 2022, and December 31, 2021, respectively, was included in Other current assets on 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 on our Condensed Consolidated Balance Sheets. Revenues for the three and nine months ended September 30, 2022 and 2021, include the following: Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2022 2021 2022 2021 Amounts included in the beginning of year contract liability balance $ 17 $ 29 $ 702 $ 753 Remaining Performance Obligations As of September 30, 2022, 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 $ 602 million. We expect to recognize revenue as the service is provided on these postpaid contracts over an extended contract term of 24 months from the time of origination. 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 and performance. This variable consideration has been excluded from the disclosure of remaining performance obligations. As of September 30, 2022, the aggregate amount of the contractual minimum consideration for wholesale, roaming and service contracts is $ 534 million, $ 2.3 billion and $ 5.1 billion for 2022, 2023, and 2024 and beyond, respectively. These contracts have a remaining duration ranging from less than one year to eight years . 20 Index for Notes to the Condensed Consolidated Financial Statements Contract Costs The balance of deferred incremental costs to obtain contracts with customers was $ 1.8 billion and $ 1.5 billion as of September 30, 2022, and December 31, 2021, respectively, and is included in Other assets on 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 monitored to reflect any significant change in assumptions. Amortization of deferred contract costs included in Selling, general and administrative expenses on our Condensed Consolidated Statements of Comprehensive Income were $ 375 million and $ 277 million for the three months ended September 30, 2022 and 2021, respectively, and $ 1.1 billion and $ 789 million for the nine months ended September 30, 2022 and 2021, 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, 2022 and 2021. Note 9 – Repurchases of Common Stock 2022 Stock Repurchase Program On September 8, 2022, our Board of Directors authorized our 2022 Stock Repurchase Program for up to $ 14.0 billion of our common stock through September 30, 2023. Under the 2022 Stock Repurchase Program, repurchases can be made from time to time using a variety of methods, which may include open market purchases, 10b5-1 plans, privately negotiated transactions or other methods, all in accordance with the rules of the Securities and Exchange Commission and other applicable legal requirements. The specific timing, price and size of repurchases will depend on prevailing stock prices, general economic and market conditions, and other considerations and may include up to $ 3.0 billion of our common stock in 2022. The 2022 Stock Repurchase Program does not obligate us to acquire any particular amount of common stock, and the 2022 Stock Repurchase Program may be suspended or discontinued at any time at our discretion. Repurchased shares will be held as Treasury stock on our Condensed Consolidated Balance Sheets. During the three and nine months ended September 30, 2022, we repurchased 4,892,315 shares of our common stock at an average price per share of $ 136.65 for a total purchase price of $ 669 million, all of which were purchased under the 2022 Stock Repurchase program and occurred during the period from September 8, 2022, through September 30, 2022. As of September 30, 2022, we had up to approximately $ 13.3 billion remaining under the 2022 Stock Repurchase Program, of which up to approximately $ 2.3 billion was available for the remainder of 2022. Subsequent to September 30, 2022, from October 1, 2022, through October 20, 2022, we repurchased 5,964,813 shares of our common stock at an average price per share of $ 136.57 for a total purchase price of $ 815 million. As of October 20, 2022, we had up to approximately $ 12.5 billion remaining under the 2022 Stock Repurchase Program, of which up to approximately $ 1.5 billion was available for the remainder of 2022. Note 10 – Wireline Sale of the Wireline Business On September 6, 2022, two of our wholly owned subsidiaries, Sprint Communications and Sprint LLC, and Cogent Infrastructure, Inc., entered into the Purchase Agreement, pursuant to which the Buyer will acquire the Wireline Business. The Purchase Agreement provides that, upon the terms and conditions set forth therein, the Buyer will purchase all of the issued and outstanding membership interests (the “Purchased Interests”) of a Delaware limited liability company that holds certain assets and liabilities relating to the Wireline Business (such transactions contemplated by the Purchase Agreement are collectively referred to as the “Wireline Transaction”). The parties have agreed to a $ 1 purchase price in consideration for the Purchased Interests, subject to customary adjustments set forth in the Purchase Agreement. In addition, at the consummation of the Wireline Transaction (the “Closing”), a T-Mobile affiliate will enter into a commercial agreement for IP transit services, pursuant to which T-Mobile will pay to the Buyer an aggregate of $ 700 million, consisting of (i) $ 350 million in equal monthly installments during the first year after the Closing and (ii) $ 350 million in equal monthly installments over the subsequent 42 months. The Closing is subject to customary closing conditions, including the receipt of certain required regulatory approvals and consents. Subject to the satisfaction or waiver of certain conditions and other terms and conditions of the Purchase Agreement, the Wireline Transaction is expected to close in the second half of 2023. 21 Index for Notes to the Condensed Consolidated Financial Statements As a result of the Purchase Agreement and related anticipated Wireline Transaction, we concluded that the Wireline Business met the held for sale criteria upon entering into the Purchase Agreement. As such, the assets and liabilities of the Wireline Business disposal group are classified as held for sale and presented within Other current assets and Other current liabilities on our Condensed Consolidated Balance Sheets as of September 30, 2022. The components of assets and liabilities held for sale presented within Other current assets and Other current liabilities, respectively, on our Condensed Consolidated Balance Sheets as of September 30, 2022, were as follows: (in millions) September 30, 2022 Assets Cash and cash equivalents $ 28 Accounts receivable, net 38 Prepaid expenses 5 Other current assets 4 Property and equipment, net 503 Operating lease right-of-use assets 120 Other intangible assets, net 7 Other assets 7 Remeasurement of disposal group held for sale to fair value less costs to sell (1) ( 371 ) Assets held for sale $ 341 Liabilities Accounts payable and accrued liabilities $ 63 Deferred revenue 4 Short-term operating lease liabilities 60 Operating lease liabilities 259 Other long-term liabilities 40 Liabilities held for sale 426 Liabilities held for sale, net $ ( 85 ) (1) Excludes amounts related to the establishment of liabilities for contractual and other payments associated with the Wireline Transaction, including the $ 700 million of fees payable for IP transit services discounted to present value and other payments to the Buyer anticipated in connection with the Wireline Transaction. In connection with the expected sale of the Wireline Business and classification of related assets and liabilities as held for sale, we recognized a pre-tax loss of $ 1.1 billion during the three months ended September 30, 2022, which is included within Loss on disposal group held for sale on our Condensed Consolidated Statements of Comprehensive Income. The components of the Loss on disposal group held for sale on our Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022, were as follows: in millions Three and Nine Months Ended September 30, 2022 Write-down of Wireline Business net assets $ 295 Accrual of estimated costs to sell 76 Recognition of liability for IP transit services agreement (1) 641 Recognition of other obligations to Buyer to be paid at or after Closing 59 Loss on disposal group held for sale $ 1,071 (1) We will continue to recognize accretion expense through the expiration of the agreement which will be included in Interest expense, net separate from the Loss on disposal group held for sale on our Condensed Consolidated Statements of Comprehensive Income. The present value of the liability for fees payable for IP transit services has been recognized as a component of Loss on disposal group held for sale as we have not currently identified any path to utilize such services in our continuing operations and have committed to execute the agreement as a closing condition for the Wireline Transaction. We will continue to evaluate potential uses on an ongoing basis over the life of the agreement. Approximately $ 29 million and $ 613 million of this liability, including accrued interest, is presented within Other current liabilities and Other long-term liabilities, respectively, on our Condensed Consolidated Balance Sheets as of September 30, 2022, in accordance with the expected timing of the related payments. Approximately $ 24 million and $ 35 million for contractual and other payments associated with the Transaction are presented 22 Index for Notes to the Condensed Consolidated Financial Statements within Other current liabilities and Other long-term liabilities, respectively, on our Condensed Consolidated Balance Sheets as of September 30, 2022, in accordance with the expected timing of the related payments. We do not consider the sale of the Wireline Business to be a strategic shift that will have a major effect on the Company’s operations and financial results, and therefore it does not qualify for reporting as a discontinued operation. Other Wireline Asset Sales Separate from the Wireline Transaction, we sold certain IP addresses held by the Wireline Business to other third parties during the three months ended September 30, 2022, for which we recognized a gain on disposal of $ 121 million, which is included as a reduction to Selling, general and administrative expenses on our Condensed Consolidated Statements of Comprehensive Income. Wireline Impairment We provide wireline communication services to domestic and international customers via the legacy Sprint Wireline U.S. long-haul fiber network (including non-U.S. extensions thereof) acquired through the Merger. The legacy Sprint Wireline network is primarily comprised of owned property and equipment, including land, buildings, communication systems and data processing equipment, fiber optic cable and operating lease right-of-use assets. Previously, the operation of the legacy Sprint CDMA and LTE wireless networks was supported by the legacy Sprint Wireline network. During the second quarter of 2022, we retired the legacy Sprint CDMA network and began the orderly shut-down of the LTE network. We assess long-lived assets for impairment when events or circumstances indicate that they might be impaired. During the second quarter of 2022, we determined that the retirement of the legacy Sprint CDMA and LTE wireless networks triggered the need to assess the Wireline long-lived assets for impairment, as these assets no longer support our wireless network and the associated customers and cash flows in a significant manner. In evaluating whether the Wireline long-lived assets were impaired, we estimated the fair value of these assets using a combination of the cost, income and market approaches, including market participant assumptions. The fair value measurement of the Wireline assets was estimated using significant inputs not observable in the market (Level 3). The results of this assessment indicated that certain Wireline long-lived assets were impaired, and as a result, we recorded non-cash impairment expense of $ 477 million during the nine months ended September 30, 2022, all of which relates to the impairment recognized during the three months ended June 30, 2022, of which $ 258 million is related to Wireline Property and equipment, $ 212 million is related to Operating lease right-of-use assets and $ 7 million is related to Other intangible assets. In measuring and allocating the impairment expense to individual Wireline long-lived assets, we did not impair the long-lived assets below their individual fair values. The expense is included within Impairment expense in our Condensed Consolidated Statements of Comprehensive Income. There was no impairment expense recognized for the three and nine months ended September 30, 2021. Note 11 – Income Taxes Within our Condensed Consolidated Statements of Comprehensive Income, we recorded an Income tax benefit of $ 57 million and $ 3 million for the three months ended September 30, 2022 and 2021, respectively, and Income tax expense of $ 106 million and $ 520 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in Income tax benefit for the three months ended September 30, 2022, was primarily from tax benefits associated with internal restructuring and lower income before income taxes, partially offset by tax benefits recognized in the three months ended September 30, 2021, 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 that did not impact the three months ended September 30, 2022. The decrease in Income tax expense for the nine months ended September 30, 2022, was primarily from lower income before income taxes and tax benefits associated with internal restructuring, partially offset by tax benefits recognized in the nine months ended September 30, 2021, 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, that did not impact the nine months ended September 30, 2022, and a decrease in excess tax benefits related to the vesting of restricted stock awards. The effective tax rate was ( 12.4 )% and ( 0.3 )% for the three months ended September 30, 2022 and 2021, respectively, and 8.7 % and 16.7 % for the nine months ended September 30, 2022 and 2021, respectively. 23 Index for Notes to the Condensed Consolidated Financial Statements Note 12 – 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) 2022 2021 2022 2021 Net income $ 508 $ 691 $ 1,113 $ 2,602 Weighted-average shares outstanding – basic 1,253,873,429 1,248,189,719 1,252,783,140 1,246,441,464 Effect of dilutive securities: Outstanding stock options and unvested stock awards 5,336,842 5,471,526 5,278,338 7,950,323 Weighted-average shares outstanding – diluted 1,259,210,271 1,253,661,245 1,258,061,478 1,254,391,787 Earnings per share – basic $ 0.40 $ 0.55 $ 0.89 $ 2.09 Earnings per share – diluted 0.40 0.55 0.88 2.07 Potentially dilutive securities: Outstanding stock options and unvested stock awards 50,004 127,732 79,122 87,968 SoftBank contingent consideration (1) 48,751,557 48,751,557 48,751,557 48,751,557 (1) Represents the weighted-average SoftBank Specified Shares that are contingently issuable from the acquisition date of April 1, 2020, pursuant to a letter agreement dated February 20, 2020, between T-Mobile, SoftBank and Deutsche Telekom AG (“DT”). As of September 30, 2022, 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, 2022 and 2021. Potentially dilutive securities were not included in the computation of diluted earnings per share if to do so would have been anti-dilutive. 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 13 – 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 2040. 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 for five to 50 years. In addition, we have financing leases for network equipment that generally have a non-cancelable lease term of three to five years . The financing leases do not have renewal options and contain a bargain purchase option at the end of the lease. On January 3, 2022, we entered into the Crown Agreement with CCI that modified the terms of our leased towers from CCI. The Crown Agreement modifies the monthly rental payments we will pay for sites currently leased by us, extends the non-cancellable lease term for the majority of our sites through December 2033 and will allow us the flexibility to facilitate our network integration and decommissioning activities through new site builds and termination of duplicate tower locations. The initial non-cancellable term is through December 31, 2033, followed by three optional five-year renewals. As a result of this modification, we remeasured the associated right-of use assets and lease liabilities resulting in an increase of $ 5.3 billion to each on the effective date of the modification, with a corresponding gross increase to both deferred tax liabilities and assets of $ 1.3 billion. 24 Index for Notes to the Condensed Consolidated Financial Statements The components of lease expense were as follows: Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2022 2021 2022 2021 Operating lease expense $ 1,498 $ 1,546 $ 5,231 $ 4,470 Financing lease expense: Amortization of right-of-use assets 188 205 567 553 Interest on lease liabilities 18 15 49 51 Total financing lease expense 206 220 616 604 Variable lease expense 114 113 363 298 Total lease expense $ 1,818 $ 1,879 $ 6,210 $ 5,372 As of September 30, 2022, the weighted-average remaining lease term and discount rate for operating leases were 10 years and 4.0 %, respectively. Maturities of lease liabilities as of September 30, 2022, were as follows: (in millions) Operating Leases Finance Leases Twelve Months Ending September 30, 2023 $ 4,679 $ 1,286 2024 4,472 999 2025 4,000 544 2026 3,652 54 2027 3,349 23 Thereafter 22,091 14 Total lease payments 42,243 2,920 Less: imputed interest 8,286 91 Total $ 33,957 $ 2,829 Interest payments for financing leases were $ 18 million and $ 15 million for the three months ended September 30, 2022 and 2021, respectively, and $ 49 million and $ 51 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, we have additional operating leases for commercial properties that have not yet commenced with future lease payments of approximately $ 253 million. Note 14 – Commitments and Contingencies Purchase Commitments We have commitments for non-dedicated transportation lines with varying expiration terms that generally extend through 2038. 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 2043. Our purchase commitments are approximately $ 4.8 billion for the 12-month period ending September 30, 2023, $ 5.0 billion in total for both of the 12-month periods ending September 30, 2024 and 2025, $ 2.7 billion in total for both of the 12-month periods ending September 30, 2026 and 2027, and $ 2.9 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 We lease spectrum from various parties. These leases include service obligations to the lessors. Certain 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. Certain spectrum leases also include purchase options and right-of-first refusal clauses in which we are provided the opportunity to exercise our purchase option if the lessor receives a purchase offer from a third party. The purchase of the leased spectrum is at our option and therefore the option price is not included in the commitments below. 25 Index for Notes to the Condensed Consolidated Financial Statements Our spectrum lease and service credit commitments, including renewal periods, are approximately $ 312 million for the 12-month period ending September 30, 2023, $ 585 million in total for both of the 12-month periods ending September 30, 2024 and 2025, $ 616 million in total for both of the 12-month periods ending September 30, 2026 and 2027, and $ 4.6 billion in total thereafter. In August 2022, we entered into an agreement for the purchase of certain spectrum licenses currently subject to lease agreements. The agreement remains subject to regulatory approval and the purchase price of $ 3.5 billion is excluded from our reported purchase commitments above. See Note 4 – Spectrum License Transactions for additional details. 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 or other government agency 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 on our 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 factual record. For Litigation and Regulatory Matters that may result in a contingent gain, we recognize such gains on our condensed consolidated financial statements when the gain is realized or realizable. We recognize legal costs expected to be incurred in connection with Litigation and Regulatory Matters as they are incurred. 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, 2022, and that accrual was included in Accounts payable and accrued liabilities on 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, dated as of February 20, 2020, to the Business Combination Agreement, dated as of April 29, 2018, by and among the Company, Sprint and the other parties named therein (as amended, the “Business Combination Agreement”), SoftBank agreed to indemnify us against certain specified matters and losses, including those relating to the Lifeline matters described above. 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. On June 1, 2021, a putative shareholder class action and derivative lawsuit 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 26 Index for Notes to the Condensed Consolidated Financial Statements 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. In October 2020, we notified Mobile Virtual Network Operators (“MVNOs”) using the legacy Sprint CDMA network that we planned to retire that network on December 31, 2021. In response to that notice, DISH, which had Boost Mobile customers who used the legacy Sprint CDMA network, made several efforts to prevent us from retiring the CDMA network until mid-2023, including pursuing a Petition for Modification and related proceedings pursuant to the California Public Utilities Commission’s (the “CPUC”) April 2020 decision concerning the Merger. As of June 30, 2022, the orderly decommissioning of the legacy Sprint CDMA network had been completed, although certain of the CPUC proceedings remain in process. 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 about 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 complete, and we believe we have a full view of the data compromised. As a result of the August 2021 cyberattack, we have become subject to numerous lawsuits, including mass arbitration claims and multiple class action lawsuits that have been filed in numerous jurisdictions seeking, among other things, unspecified monetary damages, costs and attorneys’ fees arising out of the August 2021 cyberattack. In December 2021, the Judicial Panel on Multidistrict Litigation consolidated the federal class action lawsuits in the U.S. District Court for the Western District of Missouri under the caption In re: T-Mobile Customer Data Security Breach Litigation , Case No. 21-md-3019-BCW. On July 22, 2022, we entered into an agreement to settle the lawsuit. On July 26, 2022, we received preliminary approval of the proposed settlement, which remains subject to final court approval. Final court approval of the terms of the settlement is expected as early as January 2023 but could be delayed by appeals or other proceedings. If approved by the court, under the terms of the proposed settlement, we would pay an aggregate of $ 350 million to fund claims submitted by class members, the legal fees of plaintiffs’ counsel and the costs of administering the settlement. We would also commit to an aggregate incremental spend of $ 150 million for data security and related technology in 2022 and 2023. We anticipate that, upon court approval, the settlement will provide a full release of all claims arising out of the August 2021 cyberattack by class members, who do not opt out, against all defendants, including us, our subsidiaries and affiliates, and our directors and officers. The settlement contains no admission of liability, wrongdoing or responsibility by any of the defendants. We have the right to terminate the settlement agreement under certain conditions. If approved by the court, we anticipate that this settlement of the class action, along with other settlements of separate consumer claims that have been previously completed or are currently pending, will resolve substantially all of the claims brought to date by our current, former and prospective customers who were impacted by the 2021 cyberattack. In connection with the proposed class action settlement and the separate settlements, we recorded a total pre-tax charge of approximately $ 400 million during the three months ended June 30, 2022. The expense is included within Selling, general and administrative expenses on our Condensed Consolidated Statements of Comprehensive Income. During the three and nine months ended September 30, 2022, we recognized $ 50 million in reimbursements from insurance carriers for costs incurred related to the August 2021 cyberattack, which is included as a reduction to Selling, general and administrative expenses on our Condensed Consolidated Statements of Comprehensive Income. The ultimate resolution of the class action depends on whether we will be able to obtain court approval of the proposed settlement, the number of plaintiffs who opt-out of the proposed settlement and whether the proposed settlement will be appealed. In addition, in September 2022, a purported Company shareholder filed a derivative action in the Delaware Chancery Court under the caption Harper v. Sievert et al., Case No. 2022-0819-SG, against our current directors and certain of our former directors, alleging claims for breach of fiduciary duty relating to the Company’s cybersecurity practices. We are also named as a nominal defendant in the lawsuit. We are unable at this time to predict the potential outcome of this lawsuit or whether we may be subject to further private litigation. We intend to vigorously defend this lawsuit. We have also received inquiries from various government agencies, law enforcement and other governmental authorities related to the August 2021 cyberattack which could result in substantial fines or penalties. We are responding to these inquiries and cooperating fully with these agencies and regulators. However, we cannot predict the timing or outcome of any of these matters, or whether we may be subject to further regulatory inquiries, investigations, or enforcement actions. 27 Index for Notes to the Condensed Consolidated Financial Statements In light of the inherent uncertainties involved in such matters and based on the information currently available to us, we believe it is reasonably possible that we could incur additional losses associated with these proceedings and inquiries, and we 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 actions, 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. In March 2022, we received $ 220 million in settlement of certain patent litigation. We recognized the settlement, net of legal fees, as a reduction to Selling, general and administrative expenses on our Condensed Consolidated Statements of Comprehensive Income during the nine months ended September 30, 2022. On June 17, 2022, plaintiffs filed a putative antitrust class action complaint in the Northern District of Illinois, Dale et al. v. Deutsche Telekom AG, et al. , Case No. 1:22-cv-03189, against DT, T-Mobile, and Softbank, alleging that the T-Mobile and Sprint merger violated the antitrust laws and harmed competition in the U.S. retail cell service market. Plaintiffs seek injunctive relief and trebled monetary damages on behalf of a purported class of AT&T and Verizon customers who plaintiffs allege paid artificially inflated prices due to the merger. We intend to vigorously defend this lawsuit, but we are unable to predict the potential outcome. Note 15 – 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 Merger 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 Merger synergies in network costs. The following table summarizes the expenses incurred in connection with our Merger restructuring initiatives: (in millions) Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022 Incurred to Date Contract termination costs $ — $ 56 $ 248 Severance costs 131 164 566 Network decommissioning 318 642 1,323 Total restructuring plan expenses $ 449 $ 862 $ 2,137 The expenses associated with our Merger restructuring initiatives are included in Costs of services and Selling, general and administrative on our Condensed Consolidated Statements of Comprehensive Income. Our Merger 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 $ 384 million and $ 265 million for the three months ended September 30, 2022 and 2021, respectively, and $ 1.6 billion and $ 649 million for the nine months ended September 30, 2022 and 2021, respectively, and are included in Costs of services and Selling, general and administrative on our Condensed Consolidated Statements of Comprehensive Income. 28 Index for Notes to the Condensed Consolidated Financial Statements The changes in the liabilities associated with our Merger restructuring initiatives, including expenses incurred and cash payments, are as follows: (in millions) December 31, 2021 Expenses Incurred Cash Payments Adjustments for Non-Cash Items (1) September 30, 2022 Contract termination costs $ 14 $ 56 $ ( 14 ) $ — $ 56 Severance costs 1 164 ( 46 ) — 119 Network decommissioning 71 642 ( 221 ) ( 231 ) 261 Total $ 86 $ 862 $ ( 281 ) $ ( 231 ) $ 436 (1) Non-cash items consist of the write-off of assets within Network decommissioning. The liabilities accrued in connection with our Merger restructuring initiatives are presented in Accounts payable and accrued liabilities on our Condensed Consolidated Balance Sheets. Our Merger restructuring activities are expected to occur over the next year 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 16 – Additional Financial Information Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities, excluding amounts classified as held for sale, are summarized as follows: (in millions) September 30, 2022 December 31, 2021 Accounts payable $ 6,822 $ 6,499 Payroll and related benefits 1,282 1,343 Property and other taxes, including payroll 1,756 1,830 Accrued interest 805 710 Commissions 340 348 Toll and interconnect 216 248 Other 750 427 Accounts payable and accrued liabilities $ 11,971 $ 11,405 Book overdrafts included in accounts payable were $ 453 million and $ 378 million as of September 30, 2022, and December 31, 2021, respectively. 29 Index for Notes to the Condensed Consolidated Financial Statements Supplemental Condensed 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) 2022 2021 2022 2021 Interest payments, net of amounts capitalized $ 781 $ 884 $ 2,548 $ 2,742 Operating lease payments 1,073 2,251 3,163 5,165 Income tax payments 12 38 75 123 Non-cash investing and financing activities Non-cash beneficial interest obtained in exchange for securitized receivables 1,181 891 3,189 3,361 Change in accounts payable and accrued liabilities for purchases of property and equipment 390 113 139 ( 427 ) Leased devices transferred from inventory to property and equipment 67 214 279 1,032 Returned leased devices transferred from property and equipment to inventory ( 65 ) ( 309 ) ( 343 ) ( 1,170 ) Increase in Tower obligations from contract modification — — 1,158 — Operating lease right-of-use assets obtained in exchange for lease obligations 479 985 7,045 2,939 Financing lease right-of-use assets obtained in exchange for lease obligations 348 623 1,197 1,109 Cash and cash equivalents, including restricted cash and cash held for sale Cash and cash equivalents, including restricted cash and cash held for sale, presented on our Condensed Consolidated Statements of Cash Flows were included on our Condensed Consolidated Balance Sheets as follows: (in millions) September 30, 2022 December 31, 2021 Cash and cash equivalents $ 6,888 $ 6,631 Cash and cash equivalents held for sale (included in Other current Assets) 28 — Restricted cash (included in Other assets) 73 72 Cash and cash equivalents, including restricted cash and cash held for sale $ 6,989 $ 6,703 Note 17 – Subsequent Events Subsequent to September 30, 2022, on October 12, 2022, we issued $ 750 million of 4.910 % Class A senior ABS Notes to third-party investors in a private placement transaction. Our ABS Notes are secured by $ 1.0 billion of gross EIP receivables and future collections on such receivables. See Note 6 – Debt for additional information. Subsequent to September 30, 2022, on October 17, 2022, we entered into an Amended and Restated Credit Agreement. See Note 6 – Debt for additional information. Subsequent to September 30, 2022, from October 1, 2022, through October 20, 2022, we repurchased 5,964,813 shares of our common stock at an average price per share of $ 136.57 for a total purchase price of $ 815 million. See Note 9 – Repurchases of Common Stock for additional information regarding the 2022 Stock Repurchase Program. 30 Table of Contents