T-Mobile US Inc. (TMUS)

Receivables and Allowance for Credit Losses

Accounts receivable consist primarily of amounts currently due from customers, other carriers and third-party retail channels. Accounts receivable not held for sale are reported in T-Mobile’s Consolidated Balance Sheets at outstanding principal adjusted for any charge-offs and the allowance for credit losses. Accounts receivable held for sale are reported at the lower of amortized cost or fair value. T-Mobile has an arrangement to sell the majority of service accounts receivable on a revolving basis, which are treated as sales of financial assets.

T-Mobile offers certain retail customers the option to pay for their devices and other purchases in installments over a period of up to 36 months using an EIP. EIP receivables not held for sale are reported in T-Mobile’s Consolidated Balance Sheets at outstanding principal adjusted for any charge-offs, allowance for credit losses and unamortized discounts. Receivables held for sale are reported at the lower of amortized cost or fair value. At the time of an installment sale, T-Mobile imputes a discount for interest if the EIP term exceeds 12 months as there is no stated rate of interest on the EIP receivables. The EIP receivables are recorded at their present value, which is determined by discounting future cash payments at the imputed interest rate. The difference between the recorded amount of the EIP receivables and their unpaid principal balance (i.e., the contractual amount due from the customer) results in a discount which is allocated to the performance obligation of the arrangement and recorded as a reduction in transaction price in Total service revenues and Equipment revenues in T-Mobile’s Consolidated Statements of Comprehensive Income. T-Mobile determines the imputed discount rate based primarily on current market interest rates and the estimated credit risk on the EIP receivables. As a result, T-Mobile does not recognize a separate credit loss allowance at the time of issuance as the effects of uncertainty about future cash flows resulting from credit risk are included in the initial present value measurement of the receivable. The imputed discount on EIP receivables is amortized over the financed installment term using the effective interest method and recognized as Other revenues in T-Mobile’s Consolidated Statements of Comprehensive Income.

Subsequent to the initial determination of the imputed discount, T-Mobile assesses the need for and, if necessary, recognizes an allowance for credit losses to the extent the amount of estimated probable losses on the gross EIP receivable balances exceed the remaining unamortized imputed discount balances.

Total imputed discount and allowances was approximately 8.1% of the total amount of gross accounts receivable, including EIP receivables at both December 31, 2018 and 2017.

The current portion of the EIP receivables is included in Equipment installment plan receivables, net and the long-term portion of the EIP receivables is included in Equipment installment plan receivables due after one year, net in T-Mobile’s Consolidated Balance Sheets. T-Mobile has an arrangement to sell certain EIP receivables on a revolving basis, which are treated as sales of financial assets.

T-Mobile maintains an allowance for credit losses and determines its appropriateness through an established process that assesses the losses inherent in the receivables portfolio. T-Mobile develops and documents the allowance methodology at the portfolio segment level - accounts receivable portfolio and EIP receivable portfolio segments. While T-Mobile attributes portions of the allowance to the respective accounts receivable and EIP portfolio segments, the entire allowance is available to absorb credit losses inherent in the total receivables portfolio.

T-Mobile’s process involves procedures to appropriately consider the unique risk characteristics of the accounts receivable and EIP receivable portfolio segments. For each portfolio segment, losses are estimated collectively for groups of receivables with similar characteristics. T-Mobile’s allowance levels are influenced by receivable volumes, receivable delinquency status, historical loss experience and other conditions influencing loss expectations, such as macro-economic conditions.

Source: 10-K (filing date: 2019-02-07).

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Selected Financial Data (US$ in millions)
	Allowances
	Accounts receivable, gross
	Ratio
	Allowance as a percentage of accounts receivable, gross1

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-14), 10-K (filing date: 2016-02-17), 10-K (filing date: 2015-02-19).

2018 Calculations

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Selected Financial Data (US$ in millions)
	Allowance for credit losses
	EIP receivables, net of unamortized imputed discount
	Ratio
	Allowance as a percentage of eIP receivables, net of unamortized imputed discount1

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-14), 10-K (filing date: 2016-02-17), 10-K (filing date: 2015-02-19).

2018 Calculations