TMUS 06/30/2014 FORM 10-Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number: 1-33409
T-MOBILE US, INC.
(Exact name of registrant as specified in its charter)

DELAWARE
 
20-0836269
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
12920 SE 38th Street, Bellevue, Washington
 
98006-1350
(Address of principal executive offices)
 
(Zip Code)
 
 
 
(425) 378-4000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer     x                        Accelerated filer             ¨
Non-accelerated filer     ¨ (Do not check if a smaller reporting company)     Smaller reporting company     ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Shares Outstanding as of July 28, 2014

Common Stock, $0.00001 par value per share
 
807,165,830



T-Mobile US, Inc.
Form 10-Q
For the Quarter Ended June 30, 2014

Table of Contents

 
 
 
 
 
 
 











2
Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

T-Mobile US, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)

(in millions, except share and per share amounts)
June 30,
2014
 
December 31,
2013
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
3,080

 
$
5,891

Accounts receivable, net of deferred interest and allowances of $473 and $381
3,939

 
3,619

Accounts receivable from affiliates
87

 
41

Inventory
791

 
586

Current portion of deferred tax assets, net
820

 
839

Other current assets
1,179

 
1,252

Total current assets
9,896

 
12,228

Property and equipment, net of accumulated depreciation of $21,137 and $19,649
15,537

 
15,349

Goodwill
1,683

 
1,683

Spectrum licenses
21,828

 
18,122

Other intangible assets, net of accumulated amortization of $643 and $476
1,040

 
1,204

Other assets
1,680

 
1,367

Total assets
$
51,664

 
$
49,953

Liabilities and Stockholders' Equity
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued liabilities
$
5,555

 
$
4,567

Current payables and short-term debt to affiliates
236

 
199

Short-term debt
272

 
244

Deferred revenue
447

 
445

Other current liabilities
621

 
353

Total current liabilities
7,131

 
5,808

Long-term debt to affiliates
5,600

 
5,600

Long-term debt
14,369

 
14,345

Long-term financial obligation
2,502

 
2,496

Deferred tax liabilities
4,757

 
4,645

Deferred rents
2,237

 
2,113

Other long-term liabilities
505

 
701

Total long-term liabilities
29,970

 
29,900

Commitments and contingencies


 


Stockholders' equity
 
 
 
Preferred stock, par value $0.00001 per share, 100,000,000 shares authorized; no shares issued and outstanding
—

 
—

Common stock, par value $0.00001 per share, 1,000,000,000 shares authorized; 808,508,529 and 803,262,309 shares issued, 807,126,024 and 801,879,804 shares outstanding
—

 
—

Additional paid-in capital
37,411

 
37,330

Treasury stock, at cost, 1,382,505 and 1,382,505 shares issued
—

 
—

Accumulated other comprehensive income
—

 
3

Accumulated deficit
(22,848
)
 
(23,088
)
Total stockholders' equity
14,563

 
14,245

Total liabilities and stockholders' equity
$
51,664

 
$
49,953


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

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Table of Contents

T-Mobile US, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions, except shares and per share amounts)
2014
 
2013
 
2014
 
2013
Revenues
 
 
 
 
 
 
 
Branded postpaid revenues
$
3,511

 
$
3,284

 
$
6,958

 
$
6,547

Branded prepaid revenues
1,736

 
1,242

 
3,384

 
1,745

Wholesale revenues
172

 
143

 
346

 
293

Roaming and other service revenues
65

 
87

 
133

 
177

Total service revenues
5,484

 
4,756

 
10,821

 
8,762

Equipment sales
1,600

 
1,379

 
3,048

 
1,984

Other revenues
101

 
93

 
191

 
159

Total revenues
7,185

 
6,228

 
14,060

 
10,905

Operating expenses
 
 
 
 
 
 
 
Cost of services, exclusive of depreciation and amortization shown separately below
1,453

 
1,327

 
2,917

 
2,436

Cost of equipment sales
2,215

 
1,936

 
4,501

 
2,822

Selling, general and administrative
2,151

 
1,847

 
4,247

 
3,353

Depreciation and amortization
1,129

 
888

 
2,184

 
1,643

MetroPCS transaction and integration costs
22

 
26

 
34

 
39

Restructuring costs
—

 
23

 
—

 
54

Other, net
(747
)
 
—

 
(757
)
 
(2
)
Total operating expenses
6,223

 
6,047

 
13,126

 
10,345

Operating income
962

 
181

 
934

 
560

Other income (expense)
 
 
 
 
 
 
 
Interest expense to affiliates
(85
)
 
(225
)
 
(103
)
 
(403
)
Interest expense
(271
)
 
(109
)
 
(547
)
 
(160
)
Interest income
83

 
40

 
158

 
75

Other income (expense), net
(12
)
 
118

 
(18
)
 
112

Total other expense, net
(285
)
 
(176
)
 
(510
)
 
(376
)
Income before income taxes
677

 
5

 
424

 
184

Income tax expense
286

 
21

 
184

 
93

Net income (loss)
$
391

 
$
(16
)
 
$
240

 
$
91

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Net gain on cross currency interest rate swaps, net of tax effect of $0, $39, $0, and $13
—

 
66

 
—

 
23

Net loss on foreign currency translation, net of tax effect of $0, ($62), $0 and ($37)
—

 
(104
)
 
—

 
(62
)
Unrealized loss on available-for-sale securities, net of tax effect of $0, $0, ($1) and $0
—

 
—

 
(3
)
 
—

Other comprehensive loss, net of tax
—

 
(38
)
 
(3
)
 
(39
)
Total comprehensive income (loss)
$
391

 
$
(54
)
 
$
237

 
$
52

Earnings (loss) per share
 
 
 
 
 
 
 
Basic
$
0.49

 
$
(0.02
)
 
$
0.30

 
$
0.15

Diluted
0.48

 
(0.02
)
 
0.30

 
0.15

Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
803,923,913

 
664,603,682

 
803,226,194

 
600,302,111

Diluted
813,556,137

 
664,603,682

 
812,903,135

 
601,694,911


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


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Table of Contents

T-Mobile US, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

 
Six Months Ended June 30,
(in millions)
2014
 
2013
Operating activities
 
 
 
Net cash provided by operating activities
$
1,729

 
$
1,715

 
 
 
 
Investing activities
 
 
 
Purchases of property and equipment
(1,887
)
 
(2,126
)
Purchases of spectrum licenses and other intangible assets
(2,367
)
 
(51
)
Short term affiliate loan receivable, net
—

 
300

Cash and cash equivalents acquired in MetroPCS business combination
—

 
2,144

Investments in unconsolidated affiliates, net
(20
)
 
—

Other, net
(1
)
 
(5
)
Net cash provided by (used in) investing activities
(4,275
)
 
262

 
 
 
 
Financing activities
 
 
 
Repayments of short-term debt for purchases of property and equipment
(231
)
 
—

Repayments related to a variable interest entity
—

 
(40
)
Distribution to affiliate
—

 
(41
)
Taxes paid related to net share settlement of stock awards
(72
)
 
—

Excess tax benefit from stock-based compensation
33

 
3

Proceeds from exercise of stock options
23

 
72

Other, net
(18
)
 
(3
)
Net cash used in financing activities
(265
)
 
(9
)
 
 
 
 
Change in cash and cash equivalents
(2,811
)
 
1,968

Cash and cash equivalents
 
 
 
Beginning of period
5,891

 
394

End of period
$
3,080

 
$
2,362


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

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Table of Contents

T-Mobile US, Inc.
Notes to the Condensed Consolidated Financial Statements

Note 1 – Basis of Presentation

The unaudited condensed consolidated financial statements of T-Mobile US, Inc. (“T-Mobile” or the “Company”) include all adjustments of a normal recurring nature necessary for the fair presentation of the results for the interim periods presented. The results for the interim periods are not necessarily indicative of those for the full year. The condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2013.

The condensed consolidated financial statements include the balances and results of operations of T-Mobile and its consolidated subsidiaries. T-Mobile consolidates all majority-owned subsidiaries over which it exercises control, as well as variable interest entities (“VIE”) where it is deemed to be the primary beneficiary and VIEs which cannot be deconsolidated. Intercompany transactions and balances have been eliminated in consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the financial statements and accompanying notes. Actual results could differ from those estimates.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers.” The standard requires entities to recognize revenue through the application of a five-step model, which includes identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations, and recognition of revenue as the entity satisfies the performance obligations. The standard will become effective for T-Mobile beginning January 1, 2017. The Company is currently evaluating the guidance to determine the potential impact on T-Mobile’s financial condition, results of operations and cash flows, and financial statement disclosures.

Note 2 – Acquisitions and Other Transactions

Spectrum License Transactions

In January 2014, T-Mobile entered into agreements with Verizon Communications Inc. (“Verizon”) for the acquisition of 700 MHz A-Block spectrum licenses for cash and the transfer of certain Advanced Wireless Service (“AWS”) and Personal Communications Service (“PCS”) spectrum licenses.  Upon closing of the transaction in April 2014, T-Mobile paid Verizon $2.4 billion in cash and transferred certain AWS and PCS spectrum licenses. T-Mobile recorded the 700 MHz A-Block spectrum licenses received at their fair value of $3.7 billion. In addition, T-Mobile recognized a non-cash gain of $517 million included in other, net for the three and six months ended June 30, 2014.

In November 2013, the Company entered into an agreement with Verizon to exchange certain AWS and PCS spectrum licenses. Upon closing of the transaction in April 2014, T-Mobile transferred certain AWS and PCS spectrum licenses to Verizon.  T-Mobile recorded the AWS and PCS spectrum licenses received at their fair value of $792 million. In addition, T-Mobile recognized a non-cash gain of $214 million included in other, net for the three and six months ended June 30, 2014.

Factoring Arrangement

Transaction Overview

In February 2014, T-Mobile entered into a two-year factoring arrangement to sell certain service accounts receivable on a revolving basis, subject to a maximum funding limit of $500 million. Sales of receivables occur daily and are settled on a monthly basis. The receivables consist of service charges currently due from customers and are short-term in nature. In connection with the factoring arrangement, the Company formed a wholly-owned subsidiary, which qualifies as a bankruptcy remote special purpose entity (“Factoring SPE”). Pursuant to the factoring arrangement, certain subsidiaries of T-Mobile transfer selected receivables to the Factoring SPE.  The Factoring SPE then sells the receivables to an unaffiliated entity (“Factoring VIE”), which was established to facilitate the sale of ownership interest in the receivables to certain third parties.


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Table of Contents

Variable Interest Entity

The Company determined the Factoring VIE is a VIE as it lacks sufficient equity to finance its activities. The Company has a variable interest in the Factoring VIE, but is not the primary beneficiary as it lacks the power to direct the activities that most significantly impact the Factoring VIE’s economic performance. As the Company has determined it is not the primary beneficiary and does not hold any equity interest, the results of the Factoring VIE are not consolidated into the Company’s condensed consolidated financial statements.

Sales of Receivables

The sales of receivables through the factoring arrangement are treated as sales of financial assets. Upon sale, T-Mobile derecognizes the receivables, as well as the related allowances, and recognizes the net proceeds in cash provided by operating activities.

As of June 30, 2014, T-Mobile derecognized net receivables of $611 million through the factoring arrangement.  For the six months ended June 30, 2014, T-Mobile received net cash proceeds of $468 million. The proceeds were net of a receivable for the remainder of the purchase price (“deferred purchase price”), which is received from collections on the service receivables. The deferred purchase price is classified as a trading security and carried at fair value with unrealized gains and losses from changes in fair value included in selling, general and administrative expense. The fair value of the deferred purchase price was determined based on a discounted cash flow model which uses unobservable inputs (Level 3 inputs), including customer default rates. Due to the short-term nature of the underlying financial assets, the carrying value approximated fair value. As of June 30, 2014, other current assets related to the factoring arrangement, which were held by the Factoring SPE and primarily consisted of the deferred purchase price, were $236 million. In addition, T-Mobile recognized an obligation to the Factoring VIE primarily related to the timing of settlements for the sales of receivables through the factoring arrangement. As of June 30, 2014, accounts payable and accrued liabilities and other current liabilities related to the factoring arrangement, which were held by the Factoring SPE, were $101 million and $23 million, respectively.

Net expenses resulting from the sales of receivables are recognized in selling, general and administrative expense. Prior to the sales of receivables, T-Mobile recognizes impairment charges, rather than bad debt expense, to reduce the receivables to fair value for estimated losses resulting from uncollectible balances. Net expenses also include any resulting gains or losses from the sales of receivables, unrealized gains and losses related to the deferred purchase price, and factoring fees. For the three and six months ended June 30, 2014, T-Mobile recognized net expenses of $77 million and $90 million, respectively.

Continuing Involvement

T-Mobile has continuing involvement with the sold receivables as it services the receivables and is required to repurchase certain receivables, including aged receivables and receivables where write-off is imminent, pursuant to the factoring arrangement. T-Mobile will continue to service the customer and their related receivables, including facilitating customer payment collection, in exchange for a monthly servicing fee. As the receivables are sold on a revolving basis, the customer payment collections are reinvested in new receivable sales. While servicing the receivables the same policies and procedures are applied to the sold receivables that apply to owned receivables, and T-Mobile continues to maintain normal relationships with its customers.

In addition, T-Mobile has continuing involvement related to the sold receivables as it may be responsible for absorbing additional credit losses pursuant to the agreement. The Company’s maximum exposure to loss related to the involvement with the Factoring VIE was $440 million as of June 30, 2014. The maximum exposure to loss, which is required disclosure under GAAP, represents an estimated loss that would be incurred under severe, hypothetical circumstances whereby the Company would not receive the portion of the contractual proceeds withheld by the Factoring VIE and would also be required to repurchase the maximum amount of receivables pursuant to the agreement without consideration for any recovery.  As T-Mobile believes the probability of these circumstances occurring is very remote, the maximum exposure to loss is not an indication of the Company’s expected loss.

Short-term Debt

In June 2014, the Company entered into a handset financing arrangement with affiliates of Deutsche Bank AG which allows for up to $108 million in borrowings.  Under the arrangement, the Company can effectively extend payment terms for invoices payable to certain handset vendors.  The interest rate on the financing arrangement will be determined based on LIBOR plus a specified margin per the arrangement.  Obligations under the financing arrangement will be included in short-term debt.  As of June 30, 2014, there was no outstanding balance.

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Transaction with MetroPCS

On April 30, 2013, the business combination involving T-Mobile USA, Inc. (“T-Mobile USA”) and MetroPCS Communications, Inc. (“MetroPCS”) was completed. In connection with the business combination, MetroPCS acquired all of the outstanding capital stock of T-Mobile USA beneficially owned by Deutsche Telekom AG (“Deutsche Telekom”) in consideration for the issuance of shares of common stock representing a majority of the fully diluted shares of the combined company. MetroPCS was subsequently renamed T-Mobile US, Inc. and is the consolidated parent of the Company’s subsidiaries, including T-Mobile USA. The business combination was accounted for as a reverse acquisition with T-Mobile USA as the accounting acquirer. Accordingly, T-Mobile USA’s historical financial statements became the historical financial statements of the combined company. The common shares outstanding and earnings (loss) per share presented for periods up to April 30, 2013 reflect the common shares issued to T-Mobile Global Holding GmbH, an indirect wholly-owned subsidiary of Deutsche Telekom, in connection with the reverse acquisition. Additionally, the acquired assets and liabilities of MetroPCS were included in the condensed consolidated balance sheets as of April 30, 2013 and the results of its operations and cash flows are included in the condensed consolidated statements of comprehensive income (loss) and cash flows for periods beginning after May 1, 2013.

Note 3 – Equipment Installment Plan Receivables

T-Mobile offers certain retail customers the option to pay for their devices and other purchases in installments over a period of up to 24 months using an Equipment Installment Plan (“EIP”). The carrying values of EIP receivables approximate fair value as the receivables are recorded at their present value, net of the deferred interest and additional allowance for credit losses. At the time of sale, the Company imputes interest, inclusive of credit risk, on the EIP receivables and records the deferred interest as a reduction to equipment sales and as an allowance against the related accounts receivable. Interest income is recognized over the financed installment term.

The following table summarizes the EIP receivables:
(in millions)
June 30,
2014
 
December 31,
2013
EIP receivables, gross
$
4,029

 
$
2,882

Deferred interest
(320
)
 
(276
)
EIP receivables, net of deferred interest
3,709

 
2,606

Allowance for credit losses
(126
)
 
(60
)
EIP receivables, net
$
3,583

 
$
2,546



 

Classified on the balance sheet as:
 
 
 
Accounts receivable, net
$
2,190

 
$
1,471

Other assets
1,393

 
1,075

EIP receivables, net
$
3,583

 
$
2,546


Based upon customer credit profiles, T-Mobile classifies EIP receivables into the credit categories of “Prime” and “Subprime”. T-Mobile uses proprietary scoring systems that measure the credit quality of the EIP receivables using several factors, such as credit bureau information, consumer credit risk scores and service plan characteristics. Prime customer receivables are those with lower delinquency risk and Subprime customer receivables are those with higher delinquency risk. Customers within the Subprime category may be required to pay a significant down payment on their equipment purchases. In addition, certain customers within the Subprime category are required to pay an advance deposit.

The balance and aging of the EIP receivables on a gross basis by credit category were as follows:
 
June 30, 2014
 
December 31, 2013
(in millions)
Prime
 
Subprime
 
Total
 
Prime
 
Subprime
 
Total
Unbilled
$
2,058

 
$
1,798

 
$
3,856

 
$
1,482

 
$
1,270

 
$
2,752

Billed - Current
59

 
60

 
119

 
45

 
45

 
90

Billed - Past Due
20

 
34

 
54

 
15

 
25

 
40

EIP receivables, gross
$
2,137

 
$
1,892

 
$
4,029

 
$
1,542

 
$
1,340

 
$
2,882


EIP receivables for which invoices have not yet been generated for the customer are classified as Unbilled. EIP receivables for which invoices have been generated but which are not past the contractual due date are classified as Billed - Current. EIP

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receivables for which invoices have been generated and the payment is past the contractual due date are classified as Billed - Past Due.

T-Mobile maintains an additional allowance for credit losses exceeding the credit risk recorded as deferred interest. The allowance is based on a number of factors, including collection experience, aging of the accounts receivable portfolio, credit quality of the customer base, and other qualitative factors such as macro-economic conditions. T-Mobile writes off account balances if collection efforts were unsuccessful and future collection is unlikely based on customer credit ratings and the length of time from the original billing date. Equipment sales that are not reasonably assured to be collectible are recorded on a cash basis as payments are received.

Activity in the deferred interest and allowance for credit losses for the EIP receivables was as follows:
(in millions)
June 30,
2014
Deferred interest and allowance for credit losses, beginning of period
$
336

Bad debt expense
187

Write-offs, net of recoveries
(121
)
Change in deferred interest on short-term and long-term EIP receivables
44

Deferred interest and allowance for credit losses, end of period
$
446


Deferred interest and allowance for credit losses includes the long-term portion of deferred interest of $64 million as of June 30, 2014 and December 31, 2013, respectively.

Note 4 – Fair Value Measurements and Derivative Instruments

Derivative Financial Instruments

Embedded Derivatives

In connection with the business combination with MetroPCS, T-Mobile issued senior reset notes to Deutsche Telekom. The interest rates are adjusted at the reset dates to rates defined in the applicable supplemental indentures to manage interest rate risk related to the senior reset notes. The Company determined certain components of the reset feature are required to be bifurcated from the senior reset notes and separately accounted for as embedded derivative instruments not designated as hedges. T-Mobile held five embedded derivatives as of June 30, 2014 and December 31, 2013, respectively.

The embedded derivatives are carried at fair value with unrealized gains and losses from changes in fair value included in interest expense to affiliates. The fair value of the embedded derivatives was determined using a lattice-based valuation model by determining the fair value of the senior reset notes with and without the embedded derivatives included. The fair value of the senior reset notes with the embedded derivatives utilizes the contractual term of each senior reset note, reset rates calculated based on the spread between specified yield curves and the yield curve on T-Mobile long-term debt adjusted pursuant to the applicable supplemental indentures, and interest rate volatility. Interest rate volatility is a significant unobservable input (Level 3) as it is derived based on weighted risk-free rate volatility and credit spread volatility. Significant increases or decreases in the weighting of risk-free volatility and credit spread volatility, in isolation, would result in a higher or lower fair value of the embedded derivatives. The embedded derivatives were classified as Level 3 in the fair value hierarchy.

Interest Rate Swaps

Prior to the closing of the business combination with MetroPCS, T-Mobile managed interest rate risk related to its long-term debt to affiliates by entering into interest rate swap agreements. T-Mobile held seven interest rate swaps with a total notional amount of $3.6 billion as of December 31, 2012. These interest rate swap agreements were not designated as hedging instruments.

In April 2013, prior to the closing of the business combination with MetroPCS, Deutsche Telekom recapitalized T-Mobile by retiring the existing T-Mobile long-term debt to affiliates and all related derivative instruments, which included the interest rate swaps. The related balance in accumulated other comprehensive income (“AOCI”) was reclassified into net income (loss). As of June 30, 2014 and December 31, 2013, there were no outstanding interest rate swaps.


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Cross Currency Interest Rate Swaps

Prior to the closing of the business combination with MetroPCS, T-Mobile managed foreign currency risk along with interest rate risk through cross currency interest rate swap agreements related to its intercompany Euro denominated long-term debt to affiliates, which were entered into upon assumption of the notes to fix the future interest and principal payments in U.S. dollars, as well as to mitigate the impact of foreign currency transaction gains or losses over the terms of the long-term debt to affiliates extending to 2025. T-Mobile had three cross currency interest rate swaps with a total notional amount of $2.3 billion as of December 31, 2012. These cross currency interest rate swaps were designated as cash flow hedges and met the criteria for hedge accounting. The hedges were evaluated as highly effective prior to the closing of the business combination with MetroPCS, thus no gains (losses) were recognized due to hedge ineffectiveness.

In April 2013, prior to the closing of the business combination with MetroPCS, Deutsche Telekom recapitalized T-Mobile by retiring the existing T-Mobile long-term debt to affiliates and all related derivative instruments, which included cross currency interest rate swaps. The related balance in AOCI was reclassified into net income (loss). As of June 30, 2014 and December 31, 2013, there were no outstanding cross currency interest rate swaps.

Fair values of derivative instruments measured on a recurring basis by level were as follows:
 
Balance Sheet Location
 
June 30, 2014
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Embedded derivatives
Other current assets
 
$
—

 
$
—

 
$
14

 
$
14

Embedded derivatives
Other assets
 
—

 
—

 
27

 
27


 
Balance Sheet Location
 
December 31, 2013
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Embedded derivatives
Other long-term liabilities
 
$
—

 
$
—

 
$
13

 
$
13


The following table summarizes the activity related to derivatives instruments:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2014
 
2013
 
2014
 
2013
Gain (loss) recognized in other comprehensive loss:
 
 
 
 
 
 
 
Cross currency interest rate swaps
$
—

 
$
57

 
$
—

 
$
(17
)
Gain (loss) recognized in interest expense to affiliates:
 
 
 
 
 
 
 
Embedded derivatives
(7
)
 
(5
)
 
54

 
(5
)
Interest rate swaps
—

 
6

 
—

 
8

Cross currency interest rate swaps
—

 
48

 
—

 
53


Long-term Debt

The fair value of the Company’s long-term debt to affiliates was determined based on a discounted cash flow approach which considers the future cash flows discounted at current rates. The approach includes an estimate for the stand-alone credit risk of T-Mobile. The Company’s long-term debt to affiliates were classified as Level 2 in the fair value hierarchy. The fair value of the Company’s long-term debt to third parties was determined based on quoted market prices in active markets, and therefore are classified as Level 1 in the fair value hierarchy.

The carrying amounts and fair values of the Company’s long-term debt were as follows:
 
June 30, 2014
 
December 31, 2013
(in millions)
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Long-term debt to affiliates
$
5,600

 
$
6,025

 
$
5,600

 
$
5,866

Long-term debt to third parties principal, excluding capital leases
13,600

 
14,597

 
13,600

 
14,251


Although the Company has determined the estimated fair value amounts using available market information and commonly accepted valuation methodologies, considerable judgment is required in interpreting market data to develop fair value estimates for the long-term debt. The fair value estimates are based on information available as of June 30, 2014 and December 31,

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2013. As such, the Company’s estimates are not necessarily indicative of the amount that the Company could realize in a current market exchange.

Note 5 – Commitments and Contingencies

Purchase Commitments

T-Mobile has commitments to purchase handsets, network services, equipment, software, marketing sponsorship agreements and other items in the ordinary course of business, with various terms through 2018. These amounts are not reflective of the Company’s entire anticipated purchases under the related agreements, but are determined based on the non-cancelable quantities or termination amounts to which the Company was contractually obligated. During the second quarter of 2014, T-Mobile entered into significant new commitments for the purchase of network services, equipment and software.

Future minimum payments for non-cancelable purchase commitments, excluding non-dedicated transportation lines, are summarized below:
(in millions)
Purchase Commitments
Twelve Months Ending June 30,
 
2015
$
1,389

2016
1,691

2017
1,257

2018
24

2019
2

Thereafter
—

Total
$
4,363


Guarantee Liabilities

T-Mobile offers a handset upgrade program, Just Upgrade My Phone (“JUMP!”), that provides eligible customers a specified-price trade-in right to upgrade their handset.  Participating customers must finance their handset using an EIP.  Upon upgrading, the customer will receive a credit for up to 50% of their initially financed EIP balance provided they trade in their eligible used handset in good working condition and purchase a new handset from T-Mobile.

For customers who enroll in the trade-in programs, the Company defers the portion of equipment sales revenue which represents the estimated value of the specified-price trade-in right guarantee.  The guarantee liabilities are valued based on various economic and customer behavioral assumptions, including the customer's estimated remaining EIP balance at trade-in, the expected fair value of the used handset at trade-in, and the probability and timing of trade-in.  When the customer upgrades their handset, the difference between the trade-in credit to the customer and the fair value of the returned handset is recorded against the guarantee liabilities.  Guarantee liabilities included in other current liabilities were $298 million and $191 million as of June 30, 2014 and December 31, 2013, respectively.  The estimated EIP receivable balance if all enrolled handset upgrade program customers were to claim their benefit, not including any trade-in value of the required used handset, was $2.1 billion as of June 30, 2014. This is not an indication of the Company’s expected loss exposure because it does not consider the expected fair value of the used handset, which is required to be in good working condition at trade-in, nor does it consider the probability and timing of trade-in.

Contingencies and Litigation

T-Mobile is involved in various lawsuits, regulatory proceedings, and other similar matters, including class actions and intellectual property claims, including patent infringement claims, that arise in the ordinary course of business. Specifically, T-Mobile faces actual and potential litigation and other legal and regulatory proceedings that challenge customer billing and other business practices, and seek awards of damages, restitution, injunctive relief, and/or penalties. T-Mobile has established an accrual with respect to certain of these matters, where appropriate, which is reflected in the condensed consolidated financial statements but that T-Mobile does not consider, individually or in the aggregate, significant. An accrual is established when T-Mobile believes it is both probable that a loss has been incurred and an amount can be reasonably estimated. For other matters, where the Company has not determined that a loss is probable or because the amount of loss cannot be reasonably estimated, the Company has not recorded an accrual due to various factors typical in contested proceedings, including but not limited to: uncertainty concerning legal theories and their resolution by courts or regulators; uncertain damage theories and demands;

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and a less than fully developed factual record. While T-Mobile does not expect that the ultimate resolution of these proceedings, individually or in the aggregate, including the Federal Trade Commission (“FTC”) litigation and related matters described below, will have a material adverse effect on the Company’s financial position, an unfavorable outcome of some or all of these proceedings could have a material adverse impact on results of operations or cash flows for a particular period. This assessment is based on T-Mobile’s current understanding of relevant facts and circumstances. As such, T-Mobile’s view of these matters is subject to inherent uncertainties and may change in the future.

As T-Mobile has previously disclosed, state Attorneys General and other government agencies have engaged in investigations and inquiries regarding third-party billing, a practice sometimes referred to as “cramming”, and are seeking restitution and changes in business practices. In particular, these investigations and inquiries have focused on alleged unauthorized billing for premium Short Message Service (“SMS”) content. Premium SMS content was provided to customers by third parties that sent text alerts on topics of interest, such as weather and sports scores, and ringtones. T-Mobile, along with the other major wireless carriers, stopped billing for these services in late 2013. In June 2014, T-Mobile announced a comprehensive refund program, under which T-Mobile will notify current and former customers who paid for premium SMS content and have not already received a refund how to request a summary of these charges and a refund for those charges customers assert to have been unauthorized. T-Mobile recognized the estimated cost of the refund program as a reduction to service revenues during the second quarter of 2014.

On July 1, 2014, the FTC filed a lawsuit alleging that T-Mobile allowed third-party merchants to include unauthorized premium SMS content charges on customer bills, and seeking restitution and changes in business practices (Federal Trade Commission v. T-Mobile USA, Inc., Case No. 2:14-cv-00967-JLR, W.D. Washington). This complaint does not seek a specified sum as monetary relief. In addition, the Federal Communications Commission (“FCC”) and other government agencies have begun investigations and inquiries regarding billing for premium SMS content. Although it is reasonably possible that T-Mobile may incur losses relating to the alleged unauthorized billing of customers for premium SMS content in excess of the amount already recognized in connection with the comprehensive refund program described above, T-Mobile cannot reasonably estimate the amount of the possible loss or the range of loss, if any, which may result from these matters given the procedural status of the disputes, the legal issues presented, T-Mobile’s legal and factual defenses, the inherent difficulty in predicting the potential for or amount of regulatory fines and penalties, and the various remedies and levels of judicial review available to T-Mobile in the event a monetary award, fine or penalty is assessed. T-Mobile is vigorously defending these proceedings.

Note 6 – Additional Financial Information

Supplemental Balance Sheet Information

Cash and Cash Equivalents

T-Mobile is required to restrict cash equivalents as collateral for certain agreements.  Restricted cash equivalents included in other current assets were $100 million as of June 30, 2014 and December 31, 2013, respectively.

Accumulated Other Comprehensive Income

There were no significant effects on net income (loss) of amounts reclassified from AOCI for the three and six months ended June 30, 2014.


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The following table presents the effects on net income (loss) of amounts reclassified from AOCI (in millions):
 
 
 
 
Amount Reclassified from AOCI to Income
AOCI Component
 
Location
 
Three Months Ended June 30, 2013
 
Six Months Ended June 30, 2013
Cross Currency Interest Rate Swaps
 
Interest expense to affiliates
 
$
(48
)
 
$
(53
)
 
 
Income tax effect
 
18

 
20

 
 
Net of tax
 
(30
)
 
(33
)
 
 
 
 
 
 
 
Foreign Currency Translation
 
Other income, net
 
166

 
166

 
 
Income tax effect
 
(62
)
 
(62
)
 
 
Net of tax
 
104

 
104

 
 
 
 
 
 
 
Total reclassifications, net of tax
 
 
 
$
74

 
$
71


Supplemental Statements of Comprehensive Income (Loss) Information

Earnings (Loss) Per Share

The computation of basic and diluted earnings (loss) per share was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions, except shares and per share amounts)
2014
 
2013
 
2014
 
2013
Basic and Diluted Earnings (Loss) Per Share:
 
 
 
 
 
 
 
Net income (loss)
$
391

 
$
(16
)
 
$
240

 
$
91

 
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
803,923,913

 
664,603,682

 
803,226,194

 
600,302,111

Dilutive effect of outstanding stock options and awards
9,632,224

 
—

 
9,676,941

 
1,392,800

Weighted average shares outstanding - diluted
813,556,137

 
664,603,682

 
812,903,135

 
601,694,911

 
 
 
 
 
 
 
 
Earnings (loss) per share - basic
$
0.49

 
$
(0.02
)
 
$
0.30

 
$
0.15

Earnings (loss) per share - diluted
0.48

 
(0.02
)
 
0.30

 
0.15


Potentially dilutive securities were not included in the computation of diluted earnings (loss) per share for certain periods if to do so would have been antidilutive.  For the three months ended June 30, 2014, potentially dilutive outstanding stock options of 1,631,748 and unvested stock awards of 65,108 as of June 30, 2014 were excluded. As the Company incurred a net loss for the three months ended June 30, 2013, all outstanding stock options of 11,319,269 and unvested stock awards of 22,911,491 as of June 30, 2013 were excluded. For the six months ended June 30, 2014 and 2013, potentially dilutive outstanding stock options of 1,631,748 and 8,460,878 and unvested stock awards of 87,816 and 22,911,491 as of June 30, 2014 and 2013, respectively, were excluded. Unvested performance stock units were based on the number of shares ultimately expected to vest based on T-Mobile’s business performance against the specified performance goal.


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Supplemental Statements of Cash Flows Information

The following table summarizes T-Mobile’s supplemental cash flows information:
 
Six Months Ended June 30,
(in millions)
2014
 
2013
Interest and income tax payments:
 
 
 
Interest payments
$
639

 
$
583

Income tax payments
23

 
14

Noncash investing and financing activities:
 
 
 
Increase in accounts payable for purchases of property and equipment
56

 
173

Short-term debt outstanding for financing of property and equipment purchases
250

 
193

Retirement of long-term debt to affiliates
—

 
14,450

Elimination of net unamortized discounts and premiums on long-term debt to affiliates
—

 
434

Issuance of new long-term debt to affiliates
—

 
11,200

Settlement of accounts receivable from affiliates and other outstanding balances
—

 
363

Income tax benefit from debt recapitalization
—

 
178

Net assets acquired in MetroPCS business combination, excluding cash acquired
—

 
827


Note 7 – Guarantor Financial Information

Pursuant to the applicable indentures and supplemental indentures, the long-term debt, excluding capital leases, issued by T-Mobile USA (“Issuer”) is fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by T-Mobile (“Parent”) and certain of the Issuer’s wholly owned subsidiaries (“Guarantor Subsidiaries”). The guarantees of the Guarantor Subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The indentures governing the long-term debt contain covenants that, among other things, limit the ability of the Issuer and the Guarantor Subsidiaries to: incur more debt; pay dividends and make distributions; make certain investments; repurchase stock; create liens or other encumbrances; enter into transactions with affiliates; enter into transactions that restrict dividends or distributions from subsidiaries; and merge, consolidate, or sell, or otherwise dispose of, substantially all of their assets. Certain provisions of each of the indentures and the supplemental indentures relating to the long-term debt restrict the ability of the Issuer to loan funds or make payments to Parent. However, the Issuer and Guarantor Subsidiaries are allowed to make certain permitted payments to the Parent under the terms of the indentures and the supplemental indentures.

In February 2014, T-Mobile entered into a factoring arrangement to sell certain service accounts receivable on a revolving basis. In connection with the factoring arrangement, the Company formed the Factoring SPE, which is included in the Non-Guarantor Subsidiaries condensed consolidating financial information. See Note 2 – Acquisitions and Other Transactions for further information regarding the factoring arrangement.

In April 2014, Parent contributed $1.7 billion of cash to the Issuer in connection with the Verizon 700 MHz A-Block spectrum license acquisition. The transaction was recorded as an equity contribution and reflected in investments in subsidiaries, net on the Parent’s condensed consolidating balance sheet information. In addition, the contribution was presented as an investing activity from the Parent to the Issuer in the condensed consolidating statement of cash flows information.

Presented below is the condensed consolidating financial information as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013, respectively. As the business combination was treated as a “reverse acquisition” and the Issuer was treated as the accounting acquirer, the Issuer’s historical financial statements are the historical financial statements of Parent for comparative purposes. As a result the Parent column only reflects activity in the condensed consolidating financial statements presented below for periods subsequent to the consummation of the business combination on April 30, 2013. The equity method of accounting is used to account for ownership interests in subsidiaries, where applicable.


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Table of Contents

Condensed Consolidating Balance Sheet Information
As of June 30, 2014
(in millions)
Parent
 
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating and Eliminating Adjustments
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,288

 
$
1,500

 
$
61

 
$
231

 
$
—

 
$
3,080

Accounts receivable, net
—

 
—

 
3,782

 
157

 
—

 
3,939

Accounts receivable from affiliates
—

 
—

 
87

 
—

 
—

 
87

Inventory
—

 
—

 
791

 
—

 
—

 
791

Current portion of deferred tax assets, net
—

 
—

 
805

 
15

 
—

 
820

Other current assets
—

 
14

 
909

 
256

 
—

 
1,179

Total current assets
1,288

 
1,514

 
6,435

 
659

 
—

 
9,896

Property and equipment, net of accumulated depreciation
—

 
—

 
14,982

 
555

 
—

 
15,537

Goodwill
—

 
—

 
1,683

 
—

 
—

 
1,683

Spectrum licenses
—

 
—

 
21,828

 
—

 
—

 
21,828

Other intangible assets, net of accumulated amortization
—

 
—

 
1,040

 
—

 
—

 
1,040

Investments in subsidiaries, net
13,455

 
29,942

 
112

 
—

 
(43,509
)
 
—

Intercompany receivables
—

 
2,172

 
—

 
—

 
(2,172
)
 
—

Other assets
2

 
50

 
1,618

 
82

 
(72
)
 
1,680

Total assets
$
14,745

 
$
33,678

 
$
47,698

 
$
1,296

 
$
(45,753
)
 
$
51,664

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
—

 
$
334

 
$
4,907

 
$
314

 
$
—

 
$
5,555

Current payables and short-term debt to affiliates
—

 
56

 
180

 
—

 
—

 
236

Short-term debt
—

 
250

 
22

 
—

 
—

 
272

Deferred revenue
—

 
—

 
447

 
—

 
—

 
447

Other current liabilities
—

 
—

 
598

 
23

 
—

 
621

Total current liabilities
—

 
640

 
6,154

 
337

 
—

 
7,131

Long-term debt to affiliates
—

 
5,600

 
—

 
—

 
—

 
5,600

Long-term debt
—

 
13,983

 
386

 
—

 
—

 
14,369

Long-term financial obligation
—

 
—

 
367

 
2,135

 
—

 
2,502

Deferred tax liabilities
—

 
—

 
4,829

 
—

 
(72
)
 
4,757

Deferred rents
—

 
—

 
2,237

 
—

 
—

 
2,237

Negative carrying value of subsidiaries, net
—

 
—

 
804

 
—

 
(804
)
 
—

Intercompany payables
182

 
—

 
1,929

 
61

 
(2,172
)
 
—

Other long-term liabilities
—

 
—

 
505

 
—

 
—

 
505

 Total long-term liabilities
182

 
19,583

 
11,057

 
2,196

 
(3,048
)
 
29,970

Total stockholders' equity
14,563

 
13,455

 
30,487

 
(1,237
)
 
(42,705
)
 
14,563

Total liabilities and stockholders' equity
$
14,745

 
$
33,678

 
$
47,698

 
$
1,296

 
$
(45,753
)
 
$
51,664



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Table of Contents

Condensed Consolidating Balance Sheet Information
As of December 31, 2013
(in millions)
Parent
 
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating and Eliminating Adjustments
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
2,960

 
$
2,698

 
$
57

 
$
176

 
$
—

 
$
5,891

Accounts receivable, net
—

 
—

 
3,541

 
78

 
—

 
3,619

Accounts receivable from affiliates
—

 
—

 
41

 
—

 
—

 
41

Inventory
—

 
—

 
586

 
—

 
—

 
586

Current portion of deferred tax assets, net
—

 
—

 
824

 
15

 
—

 
839

Other current assets
—

 
—

 
1,250

 
2

 
—

 
1,252

Total current assets
2,960

 
2,698

 
6,299

 
271

 
—

 
12,228

Property and equipment, net of accumulated depreciation
—

 
—

 
14,754

 
595

 
—

 
15,349

Goodwill
—

 
—

 
1,683

 
—

 
—

 
1,683

Spectrum licenses
—

 
—

 
18,122

 
—

 
—

 
18,122

Other intangible assets, net of accumulated amortization
—

 
—

 
1,204

 
—

 
—

 
1,204

Investments in subsidiaries, net
11,484

 
29,123

 
—

 
—

 
(40,607
)
 
—

Intercompany receivables
—

 
—

 
418

 
—

 
(418
)
 
—

Other assets
2

 
24

 
1,292

 
93

 
(44
)
 
1,367

Total assets
$
14,446

 
$
31,845

 
$
43,772

 
$
959

 
$
(41,069
)
 
$
49,953

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
—

 
$
273

 
$
4,218

 
$
76

 
$
—

 
$
4,567

Current payables and short-term debt to affiliates
—

 
56

 
143

 
—

 
—

 
199

Short-term debt
—

 
226

 
18

 
—

 
—

 
244

Deferred revenue
—

 
—

 
445

 
—

 
—

 
445

Other current liabilities
—

 
—

 
313

 
40

 
—

 
353

Total current liabilities
—

 
555

 
5,137

 
116

 
—

 
5,808

Long-term debt to affiliates
—

 
5,600

 
—

 
—

 
—

 
5,600

Long-term debt
—

 
14,010

 
335

 
—

 
—

 
14,345

Long-term financial obligation
—

 
—

 
365

 
2,131

 
—

 
2,496

Deferred tax liabilities
—

 
—

 
4,689

 
—

 
(44
)
 
4,645

Deferred rents
—

 
—

 
2,113

 
—

 
—

 
2,113

Negative carrying value of subsidiaries, net
—

 
—

 
779

 
—

 
(779
)
 
—

Intercompany payables
201

 
183

 
—

 
34

 
(418
)
 
—

Other long-term liabilities
—

 
13

 
688

 
—

 
—

 
701

 Total long-term liabilities
201

 
19,806

 
8,969

 
2,165

 
(1,241
)
 
29,900

Total stockholders' equity
14,245

 
11,484

 
29,666

 
(1,322
)
 
(39,828
)
 
14,245

Total liabilities and stockholders' equity
$
14,446

 
$
31,845

 
$
43,772

 
$
959

 
$
(41,069
)
 
$
49,953



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Table of Contents

Condensed Consolidating Statement of Comprehensive Income (Loss) Information
Three Months Ended June 30, 2014

(in millions)
Parent
 
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating and Eliminating Adjustments
 
Consolidated
Revenues
 
 
 
 
 
 
 
 
 
 
 
Service revenues
$
—

 
$
—

 
$
5,259

 
$
323

 
$
(98
)
 
$
5,484

Equipment sales
—

 
—

 
1,768

 
—

 
(168
)
 
1,600

Other revenues
—

 
—

 
70

 
34

 
(3
)
 
101

Total revenues
—

 
—

 
7,097

 
357

 
(269
)
 
7,185

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of services
—

 
—

 
1,447

 
6

 
—

 
1,453

Cost of equipment sales
—

 
—

 
2,188

 
207

 
(180
)
 
2,215

Selling, general and administrative
—

 
—

 
2,116

 
124

 
(89
)
 
2,151

Depreciation and amortization
—

 
—

 
1,108

 
21

 
—

 
1,129

MetroPCS transaction and integration costs
—

 
—

 
22

 
—

 
—

 
22

Restructuring costs
—

 
—

 
—

 
—

 
—

 
—

Other, net
—

 
—

 
(747
)
 
—

 
—

 
(747
)
Total operating expenses
—

 
—

 
6,134

 
358

 
(269
)
 
6,223

Operating income (loss)
—

 
—

 
963

 
(1
)
 
—

 
962

Other income (expense)
 
 
 
 
 
 
 
 
 
 
 
Interest expense to affiliates
—

 
(85
)
 
—

 
—

 
—

 
(85
)
Interest expense
—

 
(212
)
 
(15
)
 
(44
)
 
—

 
(271
)
Interest income
—

 
—

 
83

 
—

 
—

 
83

Other income (expense), net
—

 
(14
)
 
2

 
—

 
—

 
(12
)
Total other income (expense), net
—

 
(311
)
 
70

 
(44
)
 
—

 
(285
)
Income (loss) before income taxes
—

 
(311
)
 
1,033

 
(45
)
 
—

 
677

Income tax expense (benefit)
—

 
—

 
306

 
(20
)
 
—

 
286

Earnings (loss) of subsidiaries
391

 
702

 
(12
)
 
—

 
(1,081
)
 
—

Net income (loss)
391

 
391

 
715

 
(25
)
 
(1,081
)
 
391

Other comprehensive loss, net of tax
—

 
—

 
—

 
—

 
—

 
—

Total comprehensive income (loss)
$
391

 
$
391

 
$
715

 
$
(25
)
 
$
(1,081
)
 
$
391




















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Condensed Consolidating Statement of Comprehensive Income (Loss) Information
Three Months Ended June 30, 2013

(in millions)
Parent
 
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating and Eliminating Adjustments
 
Consolidated
Revenues
 
 
 
 
 
 
 
 
 
 
 
Service revenues
$
—

 
$
—

 
$
4,591

 
$
191

 
$
(26
)
 
$
4,756

Equipment sales
—

 
—

 
1,542

 
—

 
(163
)
 
1,379

Other revenues
—

 
—

 
85

 
44

 
(36
)
 
93

Total revenues
—

 
—

 
6,218

 
235

 
(225
)
 
6,228

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of services
—

 
—

 
1,342

 
21

 
(36
)
 
1,327

Cost of equipment sales
—

 
—

 
1,994

 
122

 
(180
)
 
1,936

Selling, general and administrative
—

 
—

 
1,821

 
35

 
(9
)
 
1,847

Depreciation and amortization
—

 
—

 
867

 
21

 
—

 
888

MetroPCS transaction and integration costs
—

 
—

 
26

 
—

 
—

 
26

Restructuring costs
—

 
—

 
23

 
—

 
—

 
23

Total operating expenses
—

 
—

 
6,073

 
199

 
(225
)
 
6,047

Operating income
—

 
—

 
145

 
36

 
—

 
181

Other income (expense)
 
 
 
 
 
 
 
 
 
 
 
Interest expense to affiliates
—

 
(225
)
 
—

 
—

 
—

 
(225
)
Interest expense
—

 
(53
)
 
(13
)
 
(43
)
 
—

 
(109
)
Interest income
—

 
—

 
40

 
—

 
—

 
40

Other income (expense), net
—

 
120

 
(2
)
 
—

 
—

 
118

Total other income (expense), net
—

 
(158
)
 
25

 
(43
)
 
—

 
(176
)
Income (loss) before income taxes
—

 
(158
)
 
170

 
(7
)
 
—

 
5

Income tax expense (benefit)
—

 
—

 
28

 
(7
)
 
—

 
21

Earnings (loss) of subsidiaries
(47
)
 
142

 
(15
)
 
—

 
(80
)
 
—

Net income (loss)
(47
)
 
(16
)
 
127

 
—

 
(80
)
 
(16
)
Other comprehensive income (loss), net of tax
—

 
(38
)
 
23

 
—

 
(23
)
 
(38
)
Total comprehensive income (loss)
$
(47
)
 
$
(54
)
 
$
150

 
$
—

 
$
(103
)
 
$
(54
)



















18
Table of Contents

Condensed Consolidating Statement of Comprehensive Income (Loss) Information
Six Months Ended June 30, 2014
(in millions)
Parent
 
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating and Eliminating Adjustments
 
Consolidated
Revenues
 
 
 
 
 
 
 
 
 
 
 
Service revenues
$
—

 
$
—

 
$
10,409

 
$
588

 
$
(176
)
 
$
10,821

Equipment sales
—

 
—

 
3,365

 
—

 
(317
)
 
3,048

Other revenues
—

 
—

 
128

 
68

 
(5
)
 
191

Total revenues
—

 
—

 
13,902

 
656

 
(498
)
 
14,060

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of services
—

 
—

 
2,907

 
10

 
—

 
2,917

Cost of equipment sales
—

 
—

 
4,501

 
345

 
(345
)
 
4,501

Selling, general and administrative
—

 
—