T-Mobile US, Inc. — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; filed February 25, 2014. The requested “2013 Q4” is not a standalone quarterly filing: this 10-K reports full-year results and includes unaudited quarterly data. T-Mobile USA and MetroPCS combined on April 30, 2013. The transaction was accounted for as a reverse acquisition, so historical comparisons primarily reflect T-Mobile USA, while 2013 includes MetroPCS from May 1 onward.
Business context and strategy
T-Mobile provides postpaid, prepaid and wholesale wireless services, as well as devices, across the U.S., Puerto Rico and the U.S. Virgin Islands. It reported 46.7 million customers at year-end. Its 2013 Un-carrier initiatives introduced no-contract Simple Choice plans, device financing and upgrade options, and international calling and roaming benefits. Management emphasized customer growth, LTE network modernization, multi-brand expansion and cost efficiency.
Financial and operating performance
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Total revenue | $24.420 billion | $19.719 billion |
| Service revenue | $19.068 billion | $17.213 billion |
| Operating income (loss) | $996 million | $(6.397) billion |
| Net income (loss) | $35 million | $(7.336) billion |
| Operating cash flow | $3.545 billion | $3.862 billion |
| Property and equipment purchases | $4.025 billion | $2.901 billion |
| Adjusted EBITDA (non-GAAP) | $4.885 billion | $4.886 billion |
| Adjusted EBITDA margin (non-GAAP; based on service revenue) | 26% | 28% |
- Revenue rose 24%, reflecting the MetroPCS combination and a 124% increase in equipment sales. Service revenue increased 11%, but branded postpaid revenue fell 9% to $13.166 billion, principally as customers moved to lower-priced plans.
- Net income was near break-even following large losses in 2012 and 2011, which included goodwill and spectrum impairment charges of $8.134 billion and $6.420 billion, respectively. No impairment charge was recorded in 2013.
- For the fourth quarter of 2013, revenue was $6.827 billion, operating income $139 million and net loss $20 million. In fourth-quarter 2012, these were $4.909 billion, $247 million and an $8 million net loss, respectively. The periods are not directly comparable because the 2013 quarter included MetroPCS.
- Branded postpaid net additions were 2.006 million, versus losses of 2.074 million in 2012; annual postpaid churn improved to 1.7% from 2.4%. Postpaid ARPU declined to $52.60 from $56.79. Reported total net additions were 4.377 million, excluding 8.918 million MetroPCS customers acquired in the combination.
- Cash and cash equivalents were $5.891 billion at year-end, compared with $394 million a year earlier. Operating cash flow less property and equipment purchases was approximately negative $480 million, calculated from the reported figures.
- Total debt, excluding the tower-related financial obligation, was approximately $20.2 billion; the separate long-term financial obligation was $2.496 billion. The company also reported $2.1 billion of restricted net assets under debt guarantees and covenants. It was in compliance with debt covenants at year-end.
Material changes and unusual items
- The MetroPCS combination materially changed scale and comparability: 2013 results include eight months of MetroPCS operations. The acquisition added $3.366 billion of revenue from May through December and $1.683 billion of goodwill; integration and transaction costs totaled $108 million in 2013.
- Deutsche Telekom recapitalized T-Mobile USA, replacing $14.5 billion of affiliate debt with $11.2 billion of new notes and contributed capital. T-Mobile also issued $2.5 billion of notes and raised $1.8 billion net from a November share offering. MetroPCS debt was assumed in the combination.
- Equipment installment plan receivables, net, rose to $2.546 billion from $691 million. This supports device sales but increases exposure to customer credit losses and collection performance.
- The 2012 tower transaction generated $2.5 billion in proceeds, most of which was distributed to Deutsche Telekom. Because the arrangement was accounted for as financing rather than a sale, it remains associated with a long-term financial obligation and continuing lease commitments.
Outlook, risks and contingencies
- Management forecast 2014 cash capital expenditures for property and equipment of $4.3 billion to $4.6 billion, excluding spectrum purchases. It said current funding sources should cover anticipated liquidity needs for the next 12 months.
- A January 2014 agreement to acquire Verizon 700 MHz A-Block spectrum for approximately $2.4 billion in cash, plus spectrum transfers, was expected to close in mid-2014 subject to regulatory approval and customary conditions. The 2014 early-termination-fee reimbursement offer was expected to reduce equipment revenue and Adjusted EBITDA.
- LTE deployment, spectrum availability and cost, network capacity and quality, intense competition, customer churn, and execution of the MetroPCS integration are prominent business risks. The company also cited device-financing credit risk, supplier dependence, cybersecurity and service disruptions, regulatory changes, litigation, and interest-rate exposure.
- Long-term debt agreements and Deutsche Telekom’s controlling ownership impose restrictions on financial and strategic flexibility. T-Mobile had no cash dividends outstanding and did not expect to pay dividends in the foreseeable future.
- The company was defending a lawsuit challenging the MetroPCS combination and faced other ordinary-course litigation, including billing and intellectual-property matters. Management did not expect the disclosed proceedings, individually or in aggregate, to have a material adverse effect, while noting outcomes remain uncertain.
- Management and the independent auditor concluded internal control over financial reporting was effective at December 31, 2013.
Important facts for investors to verify
- Separate organic customer and revenue trends from MetroPCS acquisition effects; confirm reported additions exclude acquired customers where stated.
- Track postpaid ARPU and churn alongside customer growth, equipment sales, equipment margins and the profitability of no-contract plans.
- Assess whether LTE build-out and integration spending remain within the 2014 capital expenditure outlook and deliver expected network and cost benefits.
- Review EIP receivable aging, credit-loss allowances, JUMP! trade-in assumptions and the impact of early-termination-fee reimbursements.
- Confirm the Verizon spectrum transaction’s approval, closing, funding and expected accounting effects; monitor remaining liquidity, debt service and covenant constraints.
- Compare subsequent results with the 2013 baseline in light of the reverse acquisition and the filing’s limited like-for-like historical comparability.