Employee Compensation and Benefit Plans

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

Note 11 – Employee Compensation and Benefit Plans

Under our 2013 Omnibus Incentive Plan (the “Incentive Plan”), we are authorized to issue up to 101 million shares of our common stock. Under the Incentive Plan, we can grant stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), and performance awards to eligible employees, consultants, advisors and non-employee directors. As of June 30, 2020, there were approximately 25 million shares of common stock available for future grants under the Incentive Plan.

We grant RSUs to eligible employees, key executives and certain non-employee directors and performance-based restricted stock units (“PRSUs”) to eligible key executives. RSUs entitle the grantee to receive shares of our common stock upon vesting (with vesting generally occurring annually over a three year period), subject to continued service through the applicable vesting date. PRSUs entitle the holder to receive shares of our common stock at the end of a performance period of generally up to three years if the applicable performance goals are achieved and generally subject to continued service through the applicable performance period. The number of shares ultimately received by the holder of PRSUs is dependent on our business performance against the specified performance goal(s) over a pre-established performance period. We also maintain an employee stock purchase plan (“ESPP”), under which eligible employees can purchase our common stock at a discounted price.

Stock-based compensation expense and related income tax benefits were as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
(in millions, except shares, per share and contractual life amounts)	2020		2019		2020		2019
Stock-based compensation expense	$	259	$	130	$	397	$	240
Income tax benefit related to stock-based compensation	$	49	$	25	$	71	$	45
Weighted average fair value per stock award granted	$	99.80	$	74.35	$	96.93	$	73.08
Unrecognized compensation expense	$	824	$	744	$	824	$	744
Weighted average period to be recognized (years)	2.0		2.0		2.0		2.0
Fair value of stock awards vested	$	367	$	24	$	815	$	342

Stock Awards

On April 1, 2020, we closed the Merger to combine T-Mobile and Sprint pursuant to the Business Combination Agreement. Pursuant to the Business Combination Agreement, upon the completion of the Merger, T-Mobile assumed Sprint’s stock compensation plans. In addition, pursuant to the Business Combination Agreement, at the Effective Time, each outstanding option to purchase Sprint common stock (other than under Sprint’s Employee Stock Purchase Plan), each award of time-based RSUs in respect of shares of Sprint common stock and each award of performance-based RSUs in respect of shares of Sprint common stock, in each case, that was outstanding as of immediately prior to the Effective Time was automatically adjusted by the Exchange Ratio (as defined in the Business Combination Agreement) and converted into an equity award of the same type covering shares of T-Mobile common stock, on the same terms and conditions, (including, if applicable, any continuing vesting requirements (but excluding any performance-based vesting conditions)) under the applicable Sprint plan and award agreement in effect immediately prior to the Effective Time (the “Assumed Awards”). The applicable amount of performance-based RSUs eligible for conversion was based on formulas and approximated 100% of target. Any accrued but unpaid dividend equivalents with respect to any such award of time-based RSUs or performance-based RSUs were assumed by T-Mobile at the Effective Time and became an obligation with respect to the applicable award of RSUs in respect of shares of T-Mobile common stock.

On April 22, 2020, we filed a Form S-8 to register a total of 25,304,224 shares of common stock, representing those covered by the Sprint Corporation 1997 Long-Term Stock Incentive Program, the Sprint Corporation 2007 Omnibus Incentive Plan and the Sprint Corporation Amended and Restated 2015 Omnibus Incentive Plan that T-Mobile assumed in connection with the closing of the Merger. This included 7,043,843 shares of T-Mobile common stock issuable upon exercise or settlement of the Assumed Awards held by current directors, officers, employees and consultants of T-Mobile or its subsidiaries who were directors, officers, employees and consultants of Sprint or its subsidiaries immediately prior to the Effective Time, as well as (a) 12,420,945 shares of T-Mobile common stock that remain available for issuance under the 2015 Plan and (b) 5,839,436 additional shares of T-Mobile common stock subject to awards granted under the 2015 Plan that may become available for issuance under the 2015 Plan if any awards under the 2015 Plan are forfeited, lapse unexercised or are settled in cash.

Time-Based Restricted Stock Units and Restricted Stock Awards


(in millions, except shares, per share and contractual life amounts)	Number of Units or Awards	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value

Nonvested, December 31, 2019	10,503,211	$	67.31	0.9	$	824
Assumed through acquisition	1,852,527	83.90
Granted	5,484,615	95.16
Vested	(5,430,880)	68.58
Forfeited	(374,579)	78.57

Nonvested, June 30, 2020	12,034,894	81.64		1.2	1,253

Performance-Based Restricted Stock Units and Restricted Stock Awards


(in millions, except shares, per share and contractual life amounts)	Number of Units or Awards	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value

Nonvested, December 31, 2019	3,803,539	$	69.78	1.0	$	300
Assumed through acquisition	3,535,384	83.90
Granted	1,915,768	105.37
Vested	(3,457,232)	72.76
Forfeited	(130,933)	83.90

Nonvested, June 30, 2020	5,666,526	83.68		0.9	592

PRSUs included in the table above are shown at target. Share payout can range from 0% to 200% based on different performance outcomes. Weighted average grant date fair value of RSU and PRSU assumed through acquisition is based on the fair value on the date assumed.

Payment of the underlying shares in connection with the vesting of RSU awards generally triggers a tax obligation for the employee, which is required to be remitted to the relevant tax authorities. We have agreed to withhold shares of common stock otherwise issuable under the RSU awards to cover certain of these tax obligations, with the net shares issued to the employee accounted for as outstanding common stock. We withheld 1,564,635 and 56,041 shares of common stock to cover tax obligations associated with the payment of shares upon vesting of stock awards and remitted cash of $138 million and $4 million to the appropriate tax authorities for the three months ended June 30, 2020 and 2019, respectively. We withheld 3,055,034 and 1,420,662 shares of common stock to cover tax obligations associated with the payment of shares upon vesting of stock awards and remitted cash of $279 million and $104 million to the appropriate tax authorities for the six months ended June 30, 2020 and 2019, respectively.

Employee Stock Purchase Plan

Our ESPP allows eligible employees to contribute up to 15% of their eligible earnings toward the semi-annual purchase of our shares of common stock at a discounted price, subject to an annual maximum dollar amount. Employees can purchase stock at a 15% discount applied to the closing stock price on the first or last day of the six-month offering period, whichever price is lower. The number of shares issued under our ESPP was 1,246,304 and 1,135,801 for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, the number of securities remaining available for future sale and issuance under the ESPP was 5,151,590. Sprint’s ESPP was terminated prior to the Merger close and legacy Sprint employees will be eligible to enroll in our ESPP on August 15, 2020.

Our ESPP provides for an annual increase in the aggregate number of shares of our common stock reserved for sale and authorized for issuance thereunder as of the first day of each fiscal year (beginning with fiscal year 2016) equal to the lesser of

(i) 5,000,000 shares of our common stock, and (ii) the number of shares of T-Mobile common stock determined by the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”). For fiscal years 2016 through 2019, the Compensation Committee determined that no such increase in shares of our common stock was necessary. However, an additional 5,000,000 shares of our common stock were automatically added to the ESPP share reserve as of January 1, 2020.

Stock Options

Stock options outstanding relate to the Metro Communications, Inc. 2010 Equity Incentive Compensation Plan, the Amended and Restated Metro Communications, Inc. 2004 Equity Incentive Compensation Plan, the Layer3 TV, Inc. 2013 Stock Plan, and the Sprint 2015 Plan (collectively, the “Stock Option Plans”). No new awards may be granted under the Stock Option Plans, and no awards were granted during the six months ended June 30, 2020.

The following activity occurred under the Stock Option Plans:


	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)
Outstanding at December 31, 2019	194,942	$	13.80	2.9

Assumed through acquisition	1,635,518	33.37
Exercised	(311,587)	46.92
Expired/canceled	(3,346)	45.99
Outstanding at June 30, 2020	1,515,527	53.52		4.4
Exercisable at June 30, 2020	1,509,976	53.64		4.4

Weighted average grant date fair value of stock options assumed through acquisition is based on the fair value on the date assumed.

Stock options exercised under the Stock Option Plans generated proceeds of approximately $15 million and $1 million for the six months ended June 30, 2020 and 2019, respectively.

The grant-date fair value of share-based incentive compensation awards attributable to post-combination services, including restricted stock units and stock options, from our Merger with Sprint was approximately $163 million.

Pension Plan

Upon the completion of our Merger with Sprint, we assumed the Pension Plan which provides defined benefits and other postretirement benefits to participants. The Pension Plan was amended in 2005 to freeze plan accruals for participants. The plan assets acquired and obligations assumed were recognized at fair value on the Merger close date.

The components of net expense recognized for the Pension Plan were as follows:


(in millions)	Three and Six Months Ended June 30, 2020

Interest on projected benefit obligations	17
Expected return on pension plan assets	(15)




Net pension expense	$	2

The net expense associated with the Pension Plan is included in Other expense, net of our Condensed Consolidated Statements of Comprehensive Income.

The fair value of our pension plan assets and certain other postretirement benefit plan assets in aggregate was $1.2 billion and our projected benefit obligations in aggregate was $2.1 billion as of both April 1, 2020 and June 30, 2020. As a result, the plans were underfunded by approximately $900 million as of both April 1, 2020 and June 30, 2020, and were recorded in Other long-term liabilities in our Condensed Consolidated Balance Sheets.

During the three months ended and six months ended June 30, 2020, we made contributions of $16 million to the benefit plan. No contributions were made in fiscal periods prior to April 1, 2020. We expect to make contributions to the Plan of $42 million through the year ended December 31, 2020.

Employee Retirement Savings Plan

We sponsor retirement savings plans for the majority of our employees under Section 401(k) of the Internal Revenue Code and similar plans. The plans allow employees to contribute a portion of their pretax and post-tax income in accordance with specified guidelines. The plans provide that we match a percentage of employee contributions up to certain limits. Employer matching contributions were $42 million and $29 million for the three months ended June 30, 2020 and 2019, respectively, and $79 million and $64 million for the six months ended June 30, 2020 and 2019, respectively.