10-Q
Table of Contents    

 
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 December 31, 2015
or
o
 
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 1-04721
—————————————————————
SPRINT CORPORATION
(Exact name of registrant as specified in its charter)
—————————————————————
Delaware
46-1170005
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
6200 Sprint Parkway, Overland Park, Kansas
66251
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (855) 848-3280
—————————————————————
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   o
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   o
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
o
Non-accelerated filer
o
 (Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes  o    No   x
COMMON SHARES OUTSTANDING AT FEBRUARY 2, 2016:
Sprint Corporation Common Stock
3,971,223,232

 




Table of Contents

SPRINT CORPORATION
TABLE OF CONTENTS
 
 
 
Page
Reference  
Item
PART I — FINANCIAL INFORMATION
 
1.
 
 
 
 
 
2.
3.
4.
 
 
 
 
 
 
 
PART II — OTHER INFORMATION
 
1.
1A.
2.
3.
4.
5.
6.







Table of Contents

PART I — FINANCIAL INFORMATION

Item 1.
Financial Statements (Unaudited)

SPRINT CORPORATION
CONSOLIDATED BALANCE SHEETS  
 
December 31,
 
March 31,
 
2015
 
2015
 
(in millions, except share and per share data)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
2,175

 
$
4,010

Short-term investments
41

 
166

Accounts and notes receivable, net of allowance for doubtful accounts and deferred interest of $38 and $204, respectively
1,033

 
2,290

Device and accessory inventory
995

 
1,359

Deferred tax assets

 
62

Prepaid expenses and other current assets
2,317

 
1,890

Total current assets
6,561

 
9,777

Property, plant and equipment, net
20,645

 
19,721

Intangible assets


 
 
Goodwill
6,575

 
6,575

FCC licenses and other
40,052

 
39,987

Definite-lived intangible assets, net
4,807

 
5,893

Other assets
911

 
1,077

Total assets
$
79,551

 
$
83,030

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 
 
 
Accounts payable
$
3,078

 
$
4,347

Accrued expenses and other current liabilities
4,474

 
5,293

Deferred tax liabilities
186

 

Current portion of long-term debt, financing and capital lease obligations
3,324

 
1,300

Total current liabilities
11,062

 
10,940

Long-term debt, financing and capital lease obligations
30,429

 
32,531

Deferred tax liabilities
13,773

 
13,898

Other liabilities
3,954

 
3,951

Total liabilities
59,218

 
61,320

Commitments and contingencies

 

Stockholders' equity:
 
 
 
Common stock, voting, par value $0.01 per share, 9.0 billion authorized, 3.970 billion and 3.967 billion issued, respectively
40

 
40

Treasury shares, at cost

 
(7
)
Paid-in capital
27,536

 
27,468

Accumulated deficit
(6,824
)
 
(5,383
)
Accumulated other comprehensive loss
(419
)
 
(408
)
Total stockholders' equity
20,333

 
21,710

Total liabilities and stockholders' equity
$
79,551

 
$
83,030

See Notes to the Consolidated Financial Statements

1

Table of Contents



SPRINT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 
Three Months Ended
 
Nine Months Ended
 
December 31,
 
December 31,
 
2015
 
2014
 
2015
 
2014
 
(in millions, except per share amounts)
Net operating revenues:
 
 
 
 
 
 
 
Service
$
6,683

 
$
7,272

 
$
20,600

 
$
22,404

Equipment
1,424

 
1,701

 
3,509

 
3,846

 
8,107

 
8,973

 
24,109


26,250

Net operating expenses:
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization included below)
2,348

 
2,330

 
7,194

 
7,279

Cost of products (exclusive of depreciation and amortization included below)
1,589

 
2,952

 
4,244

 
7,482

Selling, general and administrative
2,129

 
2,647

 
6,540

 
7,232

Impairments

 
2,133

 

 
2,133

Severance and exit costs
209

 
22

 
247

 
333

Depreciation
1,549

 
940

 
4,202

 
2,706

Amortization
316

 
380

 
994

 
1,189

Other, net
164

 
109

 
386

 
109

 
8,304

 
11,513

 
23,807


28,463

Operating (loss) income
(197
)
 
(2,540
)
 
302


(2,213
)
Other expense:
 
 
 
 
 
 
 
Interest expense
(546
)
 
(506
)
 
(1,630
)
 
(1,528
)
Other income, net
4

 
10

 
13

 
19

 
(542
)
 
(496
)
 
(1,617
)

(1,509
)
Loss before income taxes
(739
)
 
(3,036
)
 
(1,315
)

(3,722
)
Income tax (expense) benefit
(97
)
 
657

 
(126
)
 
601

Net loss
$
(836
)
 
$
(2,379
)
 
$
(1,441
)

$
(3,121
)
 
 
 
 
 
 
 
 
Basic net loss per common share
$
(0.21
)
 
$
(0.60
)
 
$
(0.36
)
 
$
(0.79
)
Diluted net loss per common share
$
(0.21
)
 
$
(0.60
)
 
$
(0.36
)
 
$
(0.79
)
Basic weighted average common shares outstanding
3,970

 
3,957

 
3,969

 
3,950

Diluted weighted average common shares outstanding
3,970

 
3,957

 
3,969

 
3,950

 
 
 
 
 
 
 
 
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Net unrealized holding losses on securities and other
$
(9
)
 
$
(12
)
 
$
(16
)
 
$
(18
)
Net unrecognized net periodic pension and other postretirement benefits
2

 
(208
)
 
5

 
(209
)
Other comprehensive loss
(7
)
 
(220
)
 
(11
)
 
(227
)
Comprehensive loss
$
(843
)
 
$
(2,599
)
 
$
(1,452
)
 
$
(3,348
)
See Notes to the Consolidated Financial Statements

2

Table of Contents




SPRINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS



 
Nine Months Ended
 
December 31,
 
2015
 
2014
 
(in millions)
Cash flows from operating activities:
 
 
 
Net loss
$
(1,441
)
 
$
(3,121
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Impairments

 
2,133

Depreciation and amortization
5,196

 
3,895

Provision for losses on accounts receivable
385

 
730

Share-based and long-term incentive compensation expense
58

 
89

Deferred income tax expense (benefit)
120

 
(634
)
Amortization of long-term debt premiums, net
(236
)
 
(226
)
Loss on disposal of property, plant and equipment
228

 

Other changes in assets and liabilities:
 
 
 
Accounts and notes receivable
(1,482
)
 
(1,356
)
Inventories and other current assets
(117
)
 
(1,044
)
Accounts payable and other current liabilities
(816
)
 
1,183

Non-current assets and liabilities, net
112

 
(281
)
Other, net
596

 
106

Net cash provided by operating activities
2,603

 
1,474

Cash flows from investing activities:
 
 
 
Capital expenditures - network and other
(3,958
)
 
(3,814
)
Capital expenditures - leased devices
(1,724
)
 
(143
)
Expenditures relating to FCC licenses
(75
)
 
(121
)
Reimbursements relating to FCC licenses

 
95

Proceeds from sales and maturities of short-term investments
377

 
2,913

Purchases of short-term investments
(252
)
 
(1,947
)
Proceeds from sales of assets and FCC licenses
36

 
114

Proceeds from sale-leaseback transaction
1,136

 

Other, net
(25
)
 
(9
)
Net cash used in investing activities
(4,485
)
 
(2,912
)
Cash flows from financing activities:
 
 
 
Proceeds from debt and financings
755

 
300

Repayments of debt, financing and capital lease obligations
(727
)
 
(390
)
Debt financing costs
(1
)
 
(37
)
Proceeds from issuance of common stock, net
10

 
50

Other, net
10

 

Net cash provided by (used in) financing activities
47

 
(77
)
Net decrease in cash and cash equivalents
(1,835
)
 
(1,515
)
Cash and cash equivalents, beginning of period
4,010

 
4,970

Cash and cash equivalents, end of period
$
2,175

 
$
3,455

See Notes to the Consolidated Financial Statements

3

Table of Contents



SPRINT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in millions)
 
 
Common Stock
 
Paid-in
Capital
 
Treasury Shares
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
Shares
 
Amount
Shares
 
Amount
Balance, March 31, 2015
3,967

 
$
40

 
$
27,468

 
1

 
$
(7
)
 
$
(5,383
)
 
$
(408
)
 
$
21,710

Net loss
 
 
 
 
 
 
 
 
 
 
(1,441
)
 
 
 
(1,441
)
Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
(11
)
 
(11
)
Issuance of common stock, net
3

 
 
 
3

 
(1
)
 
7

 

 
 
 
10

Share-based compensation expense
 
 
 
 
55

 
 
 
 
 
 
 
 
 
55

Capital contribution by SoftBank
 
 
 
 
10

 
 
 
 
 
 
 
 
 
10

Balance, December 31, 2015
3,970

 
$
40

 
$
27,536

 

 
$

 
$
(6,824
)
 
$
(419
)
 
$
20,333


See Notes to the Consolidated Financial Statements

4

Table of Contents



SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
INDEX
 
 
 
Page
Reference
1.
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
5.
 
 
 
6.
 
 
 
7.
 
 
 
8.
 
 
 
9.
 
 
 
10.
 
 
 
11.
 
 
 
12.
 
 
 
13.
 
 
 
14.
 
 
 
15.
 
 
 
16.
 
 
 



5

Table of Contents

Index for Notes to the Consolidated Financial Statements


SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial information. All normal recurring adjustments considered necessary for a fair presentation have been included. Certain disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) have been omitted. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes contained in our annual report on Form 10-K for the year ended March 31, 2015. Unless the context otherwise requires, references to "Sprint," "we," "us," "our" and the "Company" mean Sprint Corporation and its consolidated subsidiaries for all periods presented, and references to "Sprint Communications" are to Sprint Communications, Inc. and its consolidated subsidiaries.
The preparation of the unaudited interim consolidated financial statements requires management of the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities at the date of the unaudited interim consolidated financial statements. These estimates are inherently subject to judgment and actual results could differ.
Certain prior period amounts have been reclassified to conform to the current period presentation.

Note 2.
New Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board (FASB) issued authoritative guidance regarding Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. The updated guidance defines discontinued operations as a disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. Additionally, the disclosure requirements for discontinued operations were expanded and new disclosures for individually significant dispositions that do not qualify as discontinued operations are required. The guidance is effective prospectively for fiscal years and interim reporting periods within those years beginning after December 15, 2014, with early adoption permitted for transactions that have not been reported in financial statements previously issued or available for issuance. The standard was effective for the Company's fiscal year beginning April 1, 2015 and will be applied to relevant transactions.
In May 2014, the FASB issued new authoritative literature, Revenue from Contracts with Customers. The issuance is part of a joint effort by the FASB and the International Accounting Standards Board (IASB) to enhance financial reporting by creating common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards and, thereby, improving the consistency of requirements, comparability of practices and usefulness of disclosures. The new standard will supersede much of the existing authoritative literature for revenue recognition. In July 2015, the FASB deferred the effective date of this standard. As a result, the standard and related amendments will be effective for the Company for its fiscal year beginning April 1, 2018, including interim periods within that fiscal year. Early application is permitted, but not before the original effective date of April 1, 2017. Entities are allowed to transition to the new standard by either retrospective application or recognizing the cumulative effect. The Company is currently evaluating the guidance, including which transition approach will be applied and the estimated impact it will have on our consolidated financial statements.
In June 2014, the FASB issued authoritative guidance regarding Compensation - Stock Compensation, which provides guidance on how to treat performance targets that can be achieved after the requisite service period. The updated guidance requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition and accounted for under current guidance as opposed to a nonvesting condition that would impact the grant-date fair value of the award. The guidance is effective for the Company for its fiscal year and interim periods within those fiscal years beginning April 1, 2016 with early adoption permitted. Entities may apply the amendments either (i) prospectively to all awards granted or modified after the effective date; or (ii) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter with the cumulative effect as an adjustment to the opening retained earnings balance as of the beginning of the earliest annual period presented. The Company does not expect the adoption of this guidance to have a material effect on our consolidated financial statements.

6

Table of Contents

Index for Notes to the Consolidated Financial Statements


SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In August 2014, the FASB issued authoritative guidance regarding Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management to assess an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. The updated guidance requires management to perform interim and annual assessments on whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued and to provide related disclosures, if required. The standard will be effective for the Company’s fiscal year beginning April 1, 2016, including interim reporting periods within that fiscal year, although early adoption is permitted. The Company will evaluate the standard, as necessary, upon adoption.
In January 2015, the FASB issued authoritative guidance on Extraordinary and Unusual Items, eliminating the concept of extraordinary items. The issuance is part of the FASB’s initiative to reduce complexity in accounting standards. Under the current guidance, an entity is required to separately classify, present and disclose events and transactions that meet the criteria for extraordinary classification. Under the new guidance, reporting entities will no longer be required to consider whether an underlying event or transaction is extraordinary, however, presentation and disclosure guidance for items that are unusual in nature or occur infrequently was retained and expanded to include items that are both unusual in nature and infrequently occurring. The amendments are effective for the Company’s fiscal year beginning April 1, 2016, although early adoption is permitted if applied from the beginning of a fiscal year. The Company does not expect the adoption of this guidance to have a material effect on our consolidated financial statements. 
In February 2015, the FASB issued authoritative guidance regarding Consolidation, which provides guidance to management when evaluating whether they should consolidate certain legal entities. The updated guidance modifies evaluation criteria of limited partnerships and similar legal entities, eliminates the presumption that a general partner should consolidate a limited partnership, and affects the consolidation analysis of reporting entities that are involved with variable interest entities, particularly those that have fee arrangements and related party relationships. All legal entities will be subject to reevaluation under the revised consolidation model. The standard will be effective for the Company’s fiscal year beginning April 1, 2016, including interim reporting periods within that fiscal year, although early adoption is permitted. The Company is currently evaluating the guidance and assessing the impact it will have on our consolidated financial statements.
In April 2015, the FASB issued authoritative guidance regarding Interest - Imputation of Interest, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance is effective for fiscal years and interim reporting periods within those years beginning after December 31, 2015, with early adoption permitted. In August 2015, the FASB added Securities and Exchange Commission paragraphs to this guidance which address the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. The standard would be effective retrospectively for the Company’s fiscal year beginning April 1, 2016, however, we expect to early adopt the provisions of this standard effective January 1, 2016. The Company does not expect the early adoption of this guidance to have a material effect on our consolidated financial statements.
In July 2015, the FASB issued authoritative guidance regarding Inventory, which simplifies the subsequent measurement of certain inventories by replacing today’s lower of cost or market test with a lower of cost and net realizable value test. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, although early adoption is permitted. The standard will be effective for the Company’s fiscal year beginning April 1, 2017. The Company does not expect the adoption of this guidance to have a material effect on our consolidated financial statements.
In September 2015, the FASB issued authoritative guidance amending Business Combinations, which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, including the cumulative effect of the change in provisional amount as if the accounting had been completed at the acquisition date. The adjustments related to previous reporting periods since the acquisition date must be disclosed by income statement line item either on the face of the income statement or in the notes. The guidance is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2015, with early application permitted for financial statements that have not been issued. The amendments are to be

7

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Index for Notes to the Consolidated Financial Statements


SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

applied prospectively to adjustments that occur after the effective date. The amendments will be effective for the Company for the fiscal year beginning April 1, 2016 and will be applied, as necessary, to future business combinations.
In November 2015, the FASB issued authoritative guidance regarding Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes by requiring all deferred income tax liabilities and assets be classified as noncurrent on the consolidated balance sheets. The guidance is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2016, with early adoption permitted. The standard would be effective for the Company’s fiscal year beginning April 1, 2017, however, we expect to early adopt the provisions of this standard effective January 1, 2016 on a prospective basis. The Company does not expect the early adoption of this guidance to have a material effect on our consolidated financial statements.
In January 2016, the FASB issued authoritative guidance regarding Financial Instruments, which amended guidance on the classification and measurement of financial instruments. Under the new guidance, entities will be required to measure equity investments that are not consolidated or accounted for under the equity method at fair value with any changes in fair value recorded in net income, unless the entity has elected the new practicability exception. For financial liabilities measured using the fair value option, entities will be required to separately present in other comprehensive income the portion of the changes in fair value attributable to instrument-specific credit risk. Additionally, the guidance amends certain disclosure requirements associated with the fair value of financial instruments. The standard will be effective for the Company’s fiscal year beginning April 1, 2018, including interim reporting periods within that fiscal year. The Company is currently evaluating the guidance and assessing the impact it will have on our consolidated financial statements.

Note 3.
Funding Sources
Our device leasing and installment billing programs require a greater use of operating cash flows in the earlier part of the device contracts as our subscribers will generally pay less upfront than traditional subsidized programs. The Accounts Receivable Facility and the Handset Sale-Leaseback transactions described below were designed to mitigate the significant use of cash from purchasing devices from OEMs to fulfill our installment billing and leasing programs.
Accounts Receivable Facility
Transaction Overview
Our accounts receivable facility (Receivables Facility), which provides us the opportunity to sell eligible wireless service and installment receivables to unaffiliated third parties (Purchasers), was amended in November 2015 to include future amounts due from customers who lease certain devices from us. The amendment increased the maximum funding limit under the Receivables Facility to $4.3 billion and extended the expiration to November 2017. The amount available under the Receivables Facility fluctuates over time based on the total amount of eligible receivables generated during the normal course of our business. As of December 31, 2015, the total borrowing capacity available under the facility was approximately $2.0 billion. However, as a result of sales we have completed to date, the total amount available to be drawn as of December 31, 2015was $778 million. The proceeds from the sale of these receivables are comprised of a combination of cash and a deferred purchase price receivable (DPP). While it's at Sprint's election to decide how much cash it chooses to receive from each sale, the maximum amount of proceeds varies based on a number of factors and currently represents approximately 50% of the total amount of the receivables sold to the Purchasers. The DPP is realized by us upon the ultimate collection of the underlying receivables sold to the Purchasers or until Sprint elects to receive additional amounts in cash from the Purchasers subject to the total availability under the Receivables Facility. As of December 31, 2015, we have elected not to sell future receivables associated with certain devices leased by our customers.
Wireless service and installment receivables sold are treated as a sale of financial assets and Sprint derecognizes these receivables, as well as the related allowances, and recognizes the net proceeds received in cash provided by operating activities on the consolidated statements of cash flows. The fees associated with these sales are recognized in "Selling, general and administrative" on the consolidated statements of comprehensive loss. The sale of future lease receivables will be recorded as a financing transaction. Accordingly, the proceeds received will be reflected as cash provided by financing activities on the consolidated statements of cash flows and the fees will be recognized as "Interest expense" on the consolidated statements of comprehensive loss.

8

Table of Contents

Index for Notes to the Consolidated Financial Statements


SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Transaction Structure
Sprint contributes eligible wireless service, installment and future lease receivables as well as the associated leased devices to Sprint's wholly-owned consolidated bankruptcy-remote special purpose entities (SPEs). At Sprint's direction, the SPEs have sold, and will continue to sell, wireless service and installment receivables to Purchasers or to a bank agent on behalf of the Purchasers. Leased devices will remain with the SPEs, once sales are initiated, and continue to be depreciated over their estimated useful life.
Each SPE is a separate legal entity with its own separate creditors who will be entitled, prior to and upon the liquidation of the SPE, to be satisfied out of the SPE’s assets prior to any assets in the SPE becoming available to Sprint. Accordingly, the assets of the SPE are not available to pay creditors of Sprint or any of its affiliates (other than any other SPE), although collections from these receivables in excess of amounts required to pay the investment, yield and fees of the Purchasers and other creditors of the SPEs may be remitted to Sprint during and after the term of the Receivables Facility.
Sprint has no retained interest in the receivables sold, other than collection and administrative responsibilities and its right to the DPP. Sales of eligible receivables by the SPEs generally occur daily and are settled on a monthly basis. Sprint pays a fee for the drawn and undrawn portions of the Receivables Facility. A subsidiary of Sprint services the receivables in exchange for a monthly servicing fee, and Sprint guarantees the performance of the servicing obligations under the Receivables Facility.
DPP
The DPP related to our wireless service and installment receivables is classified as a trading security within "Prepaid expenses and other current assets" on the consolidated balance sheets and is recorded at its estimated fair value. The fair value of the DPP is estimated using a discounted cash flow model, which relies principally on unobservable inputs such as the nature and credit class of the sold receivables and subscriber payment history, and, for installment receivables sold, the estimated timing of upgrades and upgrade payment amounts for those with upgrade options. Accretable yield on the DPP is recognized as interest revenue within net operating service revenue on the consolidated statements of comprehensive loss and other changes in the fair value of the DPP are recognized in "Selling, general and administrative" on the consolidated statements of comprehensive loss. Changes in the fair value of the DPP did not have a material impact on our statements of comprehensive loss for the three and nine-month periods ended December 31, 2015. Changes to the unobservable inputs used to determine the fair value are not expected to result in a material change in the fair value of the DPP.
Wireless Service Receivable Sales
On March 31, 2015, we sold approximately $1.8 billion of wireless service receivables in exchange for $500 million in cash (reflected within the change in accounts and notes receivable on the consolidated statement of cash flows) and a DPP of $1.3 billion, with an estimated fair value of $1.2 billion. In accordance with our rights under the Receivables Facility, in April 2015 Sprint elected to temporarily suspend sales of receivables by the SPEs and remitted payments received to the Purchasers to reduce the funded amount to zero.
In September 2015, we sold wireless service receivables of approximately $1.9 billion in exchange for $400 million in cash and $1.5 billion of DPP, with an estimated fair value of $1.4 billion. In October 2015, we elected to receive $300 million of cash and reduced the amount of the associated DPP due to Sprint. As of December 31, 2015, the total amount available under the Receivables Facility associated with wireless service receivables was $193 million and the total fair value of the associated DPP was $1.1 billion.
Installment Receivable Sales
In October 2015, we sold installment receivables of approximately $1.2 billion under the Receivables Facility in exchange for $100 million in cash and $1.1 billion of DPP, with an estimated fair value of $1.0 billion. In November 2015, we elected to receive $400 million of cash and reduce the amount of the associated DPP due to Sprint. During the period from our initial sale in October to December 31, 2015, cash collections on previously sold installment receivables exceeded sales of new receivables such that the DPP decreased by approximately $150 million. As of December 31, 2015, the total amount available under the Receivables Facility associated with installment receivables was $29 million and the total fair value of the associated DPP was $491 million.

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SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Future Lease Receivable Sales
As of December 31, 2015, we had not sold any future lease receivables. As of December 31, 2015, the amount available under the Receivables Facility associated with future lease receivables was $556 million.
Continuing Involvement
Sprint has continuing involvement in the receivables sold by the SPEs to the Purchasers because a subsidiary of Sprint services the receivables. Additionally, in accordance with the Receivables Facility, Sprint is required to repurchase aged receivables, or those that will be written off in accordance with Sprint's credit and collection policies, both of which result from subscriber non-payment. Sprint recognizes assets and liabilities, as applicable, with respect to its continuing involvement at fair value. Sprint's continuing involvement did not have a material impact on its financial statements as of December 31, 2015.
Variable Interest Entity
Sprint determined that certain of the Purchasers, which are multi-seller asset-backed commercial paper conduits (Conduits) are considered variable interest entities because they lack sufficient equity to finance their activities. Sprint's interest in the service and installment receivables purchased by the Conduits, which is comprised of the DPP due to Sprint, is not considered a variable interest because it is in assets that represent less than 50% of the total activity of the Conduits.
Handset Sale-Leaseback
In November 2015, Sprint entered into agreements (Handset Sale-Leaseback) to sell and lease-back certain leased devices excluded from our Receivables Facility, which allowed us to monetize the devices including the device residual values. Under the agreements with Mobile Leasing Solutions, LLC (MLS), a company formed by a group of equity investors, including SoftBank Group Corp. (SoftBank), Sprint maintains the customer lease, will continue to collect and record lease revenue from the customer and will remit monthly rental payments to MLS, which are recognized as "Cost of products" on the consolidated statements of comprehensive loss during the lease-back period.
In December 2015, Sprint contributed $1.3 billion of certain leased devices and the associated customer leases to wholly-owned consolidated bankruptcy-remote special purpose entities of Sprint (SPE Lessees). The SPE Lessees then sold the devices and transferred certain specified customer lease end rights and obligations, such as the right to receive the proceeds from customers who elect to purchase the device at the end of the customer lease term, to MLS in exchange for proceeds totaling $1.1 billion (Cash Purchase Price) and a DPP of $126 million.
The difference between the fair value and the net book value of the devices sold was recognized as a loss on disposal of property, plant and equipment in the amount of $65 million and is included in "Other, net" on the consolidated statements of comprehensive loss. Simultaneously with the sale of the devices, MLS leased back each device to the SPE Lessees pursuant to the Master Lease Agreement (Device Lease) in exchange for monthly rental payments to be made by the SPE Lessees to MLS. Monthly rental payments made to MLS totaled $60 million during the three and nine-month periods ended December 31, 2015. As of December 31, 2015, the minimum estimated amounts due to MLS were $176 million for the remaining fiscal year 2015, $673 million for fiscal year 2016, and $113 million for fiscal year 2017.
The SPE Lessees retain all rights to the underlying customer leases, such as the right to receive the rental payments during the device lease-back period, other than the aforementioned certain specified customer lease end rights. Each SPE Lessee is a separate legal entity with its own separate creditors who will be entitled, prior to and upon the liquidation of the SPE Lessee, to be satisfied out of the SPE Lessee’s assets prior to any assets in the SPE Lessee becoming available to Sprint. Accordingly, the assets of the SPE Lessee are not available to pay creditors of Sprint or any of its affiliates. Settlement for the DPP occurs at the end of the agreement and can be reduced to the extent that MLS experiences a loss on the device (either not returned or sold at a loss), but only to the extent of the device's DPP balance. The DPP associated with the Handset Sale-Leaseback is recorded in “Other assets” in the consolidated balance sheets at its estimated net realizable value. Changes to the DPP prior to settlement with MLS are recorded as an adjustment to rent expense in “Cost of products” in the consolidated statements of comprehensive loss. Brightstar US, Inc. (Brightstar), a wholly-owned subsidiary of SoftBank, provides reverse logistics and remarketing services to MLS with respect to the devices.
Unless a Device Lease is terminated early, the SPE Lessees are obligated to pay the full monthly rental payments under each Device Lease, regardless of whether customers make lease payments on the devices leased to them or whether the

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SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

customer lease is still in effect. Sprint has guaranteed to MLS, the performance of the covenants, agreements and undertakings of the SPE Lessees under the transaction documents.
All devices must be returned to MLS, subject to purchase rights of the customers and provided that SPE Lessees have no obligation to return devices not returned by the customers to Sprint. Sprint will act as servicer for MLS, to the extent needed, after the end of the device leaseback period. To secure the obligations of the SPE Lessees under the Device Lease, the SPE Lessees provide a security interest to MLS in, among other things, the customer leases. In the event that MLS is able to sell the returned devices at a price greater than the expected device residual value, Sprint has the potential to share some of the excess proceeds.

Note 4.
Installment Receivables
Certain subscribers have the option to purchase their devices in installments up to a 24-month period. Short-term installment receivables are recorded in "Accounts and notes receivable, net" and long-term installment receivables are recorded in "Other assets" in the consolidated balance sheets. Beginning in October 2015, Sprint sold and derecognized all installment receivables as well as the related allowances and deferred interest.
The following table summarizes the installment receivables:
 
March 31,
2015
 
(in millions)
Installment receivables, gross
$
1,725

Deferred interest
(139
)
Installment receivables, net of deferred interest
1,586

Allowance for credit losses
(190
)
Installment receivables, net
$
1,396



Classified on the consolidated balance sheets as:

Accounts and notes receivable, net
$
1,035

Other assets
361

Installment receivables, net
$
1,396

The balance and aging of installment receivables on a gross basis by credit category were as follows:
 
March 31, 2015
 
Prime
 
Subprime
 
Total
 
(in millions)
Unbilled
$
1,243

 
$
359

 
$
1,602

Billed - current
65

 
22

 
87

Billed - past due
21

 
15

 
36

Installment receivables, gross
$
1,329


$
396


$
1,725

Activity in the deferred interest and allowance for credit losses for the installment receivables is as follows:
 
Nine Months Ended
December 31,
 
Twelve Months Ended
 March 31,
 
2015
 
2015
 
(in millions)
Deferred interest and allowance for credit losses, beginning of period
$
329

 
$
124

Bad debt expense
93

 
398

Write-offs, net of recoveries
(105
)
 
(255
)
Change in deferred interest on short-term and long-term installment receivables
(43
)
 
62

Derecognition of deferred interest and allowance for credit losses
(274
)
 

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


$
329



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SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 5.
Financial Instruments
The carrying amount of cash and cash equivalents, accounts and notes receivable, and accounts payable approximates fair value. Short-term investments (consisting primarily of commercial paper), totaling approximately $41 million and $166 million as of December 31, 2015 and March 31, 2015, respectively, are recorded at amortized cost, and the respective carrying amounts approximate fair value. The fair value of marketable equity securities totaling $42 million and $40 million as of December 31, 2015 and March 31, 2015, respectively, are measured on a recurring basis using quoted prices in active markets.
The estimated fair value of the majority of our current and long-term debt, excluding our credit facilities, is determined based on quoted prices in active markets or by using other observable inputs that are derived principally from, or corroborated by, observable market data.
The following table presents carrying amounts and estimated fair values of current and long-term debt:
 
Carrying amount at December 31, 2015
 
Estimated Fair Value Using Input Type
 
 
Quoted prices in active markets
 
Observable
 
Unobservable
 
Total estimated fair value
 
(in millions)
Current and long-term debt
$
33,424

 
$
21,194

 
$
4,494

 
$
1,644

 
$
27,332

 
Carrying amount at March 31, 2015
 
Estimated Fair Value Using Input Type
 
 
Quoted prices in active markets
 
Observable
 
Unobservable
 
Total estimated fair value
 
(in millions)
Current and long-term debt
$
33,434

 
$
27,238

 
$
4,906

 
$
1,410

 
$
33,554


Note 6.
Property, Plant and Equipment
Property, plant and equipment consists primarily of network equipment and other long-lived assets used to provide service to our subscribers. Non-cash accruals included in property, plant and equipment (excluding leased devices) totaled $763 million and $2.0 billion as of December 31, 2015 and 2014, respectively. The following table presents the components of property, plant and equipment and the related accumulated depreciation:
 
December 31,
2015
 
March 31,
2015
 
(in millions)
Land
$
266

 
$
266

Network equipment, site costs and related software
21,304

 
18,990

Buildings and improvements
793

 
754

Non-network internal use software, office equipment, leased devices and other
5,346

 
2,979

Construction in progress
1,395

 
2,090

Less: accumulated depreciation
(8,459
)
 
(5,358
)
Property, plant and equipment, net
$
20,645

 
$
19,721

In September 2014, Sprint introduced a leasing program, whereby qualified subscribers can lease a device for a contractual period of time. At the end of the lease term, the subscriber has the option to turn in their device, continue leasing their device, or purchase the device. As of December 31, 2015, a majority of our device leases were classified as operating leases. At lease inception, the devices leased through Sprint's direct channels are reclassified from inventory to property, plant and equipment. For those devices leased through indirect channels, Sprint purchases the device to be leased from the retailer at lease inception. The devices are then depreciated using the straight-line method to their estimated residual value over the estimated useful life, which is based on the lease term.

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SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following table presents leased devices and the related accumulated depreciation:
 
December 31,
2015
 
March 31,
2015
 
(in millions)
Leased devices
$
4,120

 
$
1,974

Less: accumulated depreciation
(799
)
 
(197
)
Leased devices, net
$
3,321

 
$
1,777

During the nine-month periods ended December 31, 2015 and 2014, there were non-cash transfers to leased devices of approximately $2.6 billion and $700 million, respectively, along with a corresponding decrease in "Device and accessory inventory." In addition, during the three-month period ended December 31, 2015, we sold devices totaling $1.3 billion (See Note 3. Funding Sources). Non-cash accruals included in leased devices totaled approximately $306 million and $150 million as of December 31, 2015 and 2014, respectively, for devices purchased from indirect dealers that were leased to our subscribers. Depreciation expense incurred on all leased devices for the three and nine-month periods ended December 31, 2015 was $535 million and $1.2 billion, respectively. Depreciation expense incurred on all leased devices for three and nine-month periods ended December 31, 2014 was $54 million and $56 million, respectively.
During the three and nine-month periods ended December 31, 2015, we recorded $78 million and $163 million, respectively, of loss on disposal of property, plant and equipment, which is included in "Other, net" in our consolidated statements of comprehensive loss. These losses resulted from the write-off of leased devices associated with lease cancellations prior to the scheduled customer lease terms where customers did not return the devices to us and cell site construction costs that are no longer recoverable as a result of changes in the Company's network plans.
Impairments
During the three-month period ended December 31, 2014, we also recorded an impairment loss of $233 million, which is included in “Impairments” in our consolidated statements of comprehensive loss, to reduce the carrying value of the Wireline asset group, which includes the Wireline long-lived assets, to its estimated fair value of $918 million as of December 31, 2014.

Note 7.
Intangible Assets
Indefinite-Lived Intangible Assets
Our indefinite-lived intangible assets consist of FCC licenses, which were acquired primarily through FCC auctions and business combinations, certain of our trademarks, and goodwill. At December 31, 2015, we held 1.9 GHz, 800 MHz and 2.5 GHz FCC licenses authorizing the use of radio frequency spectrum to deploy our wireless services. As long as the Company acts within the requirements and constraints of the regulatory authorities, the renewal and extension of these licenses is reasonably certain at minimal cost. Accordingly, we have concluded that FCC licenses are indefinite-lived intangible assets. Goodwill represents the excess of consideration paid over the estimated fair value of net tangible and identifiable intangible assets acquired in business combinations.
 
March 31,
2015
 
Net
Additions
 
December 31,
2015
 
(in millions)
FCC licenses
$
35,952

 
$
65

 
$
36,017

Trademarks
4,035

 

 
4,035

Goodwill
6,575

 

 
6,575

 
$
46,562

 
$
65

 
$
46,627

Assessment of Impairment
Our annual impairment testing date for goodwill and indefinite-lived intangible assets is January 1 of each year; however, we test for impairment between our annual tests if an event occurs or circumstances change that indicate that the asset may be impaired, or in the case of goodwill, that the fair value of the reporting unit is below its carrying amount. After the merger with SoftBank, actual results and expectations of net postpaid handset subscriber additions were lower than the forecasts used to allocate the purchase price to the assets acquired and liabilities assumed. During the quarter ended

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SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014, we determined that recoverability of the carrying amount of goodwill and the Sprint trade name should be evaluated for impairment and it was determined that the carrying value of the Sprint trade name exceeded its estimated fair value of $3.3 billion. Accordingly, during the quarter ended December 31, 2014 we recorded an impairment loss of $1.9 billion, which is included in “Impairments” in our consolidated statements of comprehensive loss.
The stock price at December 31, 2015 of $3.62 was below the net book value per share price of $5.12. Subsequent to the balance sheet date, the stock price has decreased further to $2.84 at February 3, 2016. The quoted market price of our stock is not the sole consideration of fair value. Other considerations include, but are not limited to, expectations of future results and an estimated control premium.
The determination of fair value requires considerable judgment and is highly sensitive to changes in underlying assumptions. Consequently, there can be no assurance that the estimates and assumptions made for the purposes of the goodwill, spectrum and trade names impairment tests will prove to be an accurate prediction of the future. Continued, sustained declines in the Company’s operating results, future forecasted cash flows, growth rates and other assumptions, as well as significant, sustained declines in the Company’s stock price and related market capitalization could impact the underlying key assumptions and our estimated fair values, potentially leading to a future material impairment of goodwill or other indefinite-lived intangible assets.
Intangible Assets Subject to Amortization
Customer relationships are amortized using the sum-of-the-months' digits method, while all other definite-lived intangible assets are amortized using the straight line method over the estimated useful lives of the respective assets. We reduce the gross carrying value and associated accumulated amortization when specified intangible assets become fully amortized. Amortization expense related to favorable spectrum and tower leases is recognized in "Cost of services" in our consolidated statements of comprehensive loss.
 
 
 
December 31, 2015
 
March 31, 2015
 
Useful Lives
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
 
 
 
(in millions)
Customer relationships
4 to 8 years
 
$
6,923

 
$
(3,755
)
 
$
3,168

 
$
6,923

 
$
(2,791
)
 
$
4,132

Other intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Favorable spectrum leases
23 years
 
884

 
(103
)
 
781

 
884

 
(71
)
 
813

Favorable tower leases
3 to 7 years
 
589

 
(269
)
 
320

 
589

 
(189
)
 
400

Trademarks
34 years
 
520

 
(39
)
 
481

 
520

 
(27
)
 
493

Other
4 to 10 years
 
81

 
(24
)
 
57

 
72

 
(17
)
 
55

Total other intangible assets
 
2,074


(435
)

1,639


2,065


(304
)

1,761

Total definite-lived intangible assets
 
$
8,997


$
(4,190
)

$
4,807


$
8,988


$
(3,095
)

$
5,893


Note 8.
Accounts Payable
Accounts payable at December 31, 2015 and March 31, 2015 include liabilities in the amounts of $72 million and $90 million, respectively, for checks issued in excess of associated bank balances but not yet presented for collection.


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 9.
Long-Term Debt, Financing and Capital Lease Obligations
 
 
Interest Rates
 
Maturities
 
December 31,
2015
 
March 31,
2015
 
 
 
 
 
 
 
 
 
(in millions)
Notes
 
 
 
 
 
 
 
 
 
 
 
Senior notes
 
 
 
 
 
 
 
 
 
 
 
Sprint Corporation
7.13
-
7.88%
 
2021
-
2025
 
$
10,500

 
$
10,500

Sprint Communications, Inc.
6.00
-
11.50%
 
2016
-
2022
 
9,280

 
9,280

Sprint Capital Corporation
6.88
-
8.75%
 
2019
-
2032
 
6,204

 
6,204

Guaranteed notes
 
 
 
 
 
 
 
 
 
 
 
Sprint Communications, Inc.
7.00
-
9.00%
 
2018
-
2020
 
4,000

 
4,000

Secured notes
 
 
 
 
 
 
 
 
 
 
 
Clearwire Communications LLC (1)
14.75%
 
2016
 
300

 
300

Exchangeable notes
 
 
 
 
 
 
 
 
 
 
 
Clearwire Communications LLC (1)
8.25%
 
2040
 
629

 
629

Credit facilities
 
 
 
 
 
 
 
 
 
 
 
Bank credit facility
3.63%
 
2018
 

 

Export Development Canada (EDC)
3.78
-
5.56%
 
2017
-
2019
 
550

 
800

Secured equipment credit facilities
1.99
-
2.75%
 
2017
-
2021
 
960

 
610

Financing obligation
6.10%
 
2021
 
237

 
275

Capital lease obligations and other
2.35
-
10.52%
 
2016
-
2023
 
231

 
127

Net premiums
 
 
 
 
 
 
 
 
862

 
1,106

 
 
 
 
 
 
 
 
 
33,753

 
33,831

Less current portion
 
 
 
 
 
 
 
 
(3,324
)
 
(1,300
)
Long-term debt, financing and capital lease obligations
 
 
 
 
 
 
 
 
$
30,429

 
$
32,531

________ 
(1)
Notes of Clearwire Communications LLC are also direct obligations of Clearwire Finance, Inc. and are guaranteed by certain Clearwire subsidiaries.
As of December 31, 2015, Sprint Corporation, the parent corporation, had $10.5 billion in aggregate principal amount of senior notes outstanding. In addition, as of December 31, 2015, the outstanding principal amount of senior notes issued by Sprint Communications, Inc. and Sprint Capital Corporation, guaranteed notes issued by Sprint Communications, Inc., exchangeable notes issued by Clearwire Communications LLC, the EDC agreement, and the secured equipment credit facilities, totaling $21.8 billion in principal amount of our long-term debt issued by 100% owned subsidiaries, was fully and unconditionally guaranteed by Sprint Corporation. The indenture governing the secured notes of Clearwire Communications LLC restricts the ability of it and its subsidiaries to distribute cash to its parent. Although certain financing agreements restrict the ability of Sprint Communications, Inc. and its subsidiaries to distribute cash to Sprint Corporation, the ability of the subsidiaries to distribute cash to their respective parents, including to Sprint Communications, Inc. is generally not restricted.
Cash interest payments, net of amounts capitalized of $40 million and $41 million, totaled $1.8 billion during each of the nine-month periods ended December 31, 2015 and 2014, respectively.
Notes
As of December 31, 2015, our outstanding notes consisted of senior notes, guaranteed notes, and exchangeable notes, all of which are unsecured, as well as secured notes of Clearwire Communications LLC, which are secured solely by assets of Clearwire Communications LLC and certain of its subsidiaries. Cash interest on all of the notes is generally payable semi-annually in arrears. As of December 31, 2015, $30.1 billion aggregate principal amount of the notes was redeemable at the Company's discretion at the then-applicable redemption prices plus accrued interest.
As of December 31, 2015, approximately $21.6 billion aggregate principal amount of our senior notes and guaranteed notes provide holders with the right to require us to repurchase the notes if a change of control triggering event (as defined in the applicable indentures and supplemental indentures) occurs. As of December 31, 2015, $300 million aggregate

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SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

principal amount of Clearwire Communications LLC notes provide holders with the right to require us to repurchase the notes if a change of control occurs (as defined in the applicable indentures and supplemental indentures). If we are required to make such a change of control offer, we will offer a cash payment equal to 101% of the aggregate principal amount of notes repurchased plus accrued and unpaid interest.
Upon the close of the acquisition of Clearwire Corporation, the Clearwire Communications, LLC 8.25% Exchangeable Notes due 2040 became exchangeable at any time, at the holder’s option, for a fixed amount of cash equal to $706.21 for each $1,000 principal amount of notes surrendered. As a result, $444 million, which is the total cash consideration payable upon an exchange of all $629 million principal amount of notes outstanding, is now classified as a current debt obligation. The remaining carrying value of these notes is classified as a long-term debt obligation.
Credit Facilities
Bank credit facility
The Company has a $3.3 billion unsecured revolving bank credit facility that expires in February 2018. Borrowings under the revolving bank credit facility bear interest at a rate equal to the London Interbank Offered Rate (LIBOR) plus a spread that varies depending on the Company’s credit ratings. As of December 31, 2015, approximately $323 million in letters of credit were outstanding under this credit facility, including the letter of credit required by the Report and Order (see Note 12. Commitments and Contingencies). As a result of the outstanding letters of credit, which directly reduce the availability of borrowings, the Company had approximately $3.0 billion of borrowing capacity available under the revolving bank credit facility as of December 31, 2015. The required ratio (Leverage Ratio) of total indebtedness to trailing four quarters earnings before interest, taxes, depreciation and amortization and other non-recurring items, as defined by the credit facility (adjusted EBITDA), was not to exceed 6.5 to 1.0 through the quarter ended December 31, 2015, and is not to exceed 6.25 to 1.0 through the quarter ending December 31, 2016 and 6.0 to 1.0 each fiscal quarter ending thereafter through expiration of the facility. The facility allows us to reduce our total indebtedness for purposes of calculating the Leverage Ratio by subtracting from total indebtedness the amount of any cash contributed into a segregated reserve account, provided that, after such cash contribution, our cash remaining on hand for operations exceeds $2.0 billion. Upon transfer, the cash contribution will remain restricted until and to the extent it is no longer required for the Leverage Ratio to remain in compliance.
EDC agreement
The unsecured EDC agreement provides for covenant terms similar to those of the revolving bank credit facility. However, under the terms of the EDC agreement, repayments of outstanding amounts cannot be re-drawn. In the quarter ended December 2015, we made a scheduled principal repayment of $500 million, leaving a principal balance of $300 million, which matures in December 2019. At the time of the repayment, the EDC agreement was also amended to increase the facility by $250 million through the addition of a new tranche due December 2017, which was fully drawn. Accordingly, as of December 31, 2015, the total principal amount of our borrowings under the EDC facility was $550 million.
Secured equipment credit facilities
Eksportkreditnamnden (EKN)
The EKN secured equipment credit facility provides for covenant terms similar to those of the revolving bank credit facility. In 2013, we had fully drawn and began to repay the EKN secured equipment credit facility totaling $1.0 billion, which was used to finance certain network-related purchases from Ericsson. We made regularly scheduled principal repayments totaling $127 million during the nine-month period ended December 31, 2015. The balance outstanding at December 31, 2015 was $381 million.
Finnvera plc (Finnvera)
The Finnvera secured equipment credit facility provides us with the ability to borrow up to $800 million to finance network-related purchases from Nokia. The facility, which initially could be drawn upon as many as three consecutive tranches, now has one tranche remaining and available for borrowing through October 2017. Such borrowings are contingent upon the amount and timing of Sprint's network-related purchases. During the nine-month period ended December 31, 2015, we drew $208 million on the facility, and we made principal repayments totaling $28 million, resulting in a total principal amount of $224 million outstanding at December 31, 2015.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

K-sure
The K-sure equipment credit facility provides for the ability to borrow up to $750 million to finance network-related purchases from Samsung. The facility can be divided in up to three consecutive tranches of varying size with borrowings available until May 2018, contingent upon the amount of network-related purchases made by Sprint. During the nine-month period ended December 31, 2015, we drew $266 million on the facility, resulting in a total principal amount of $323 million outstanding at December 31, 2015.
Delcredere | Ducroire (D/D)
The D/D secured equipment credit facility provides for the ability to borrow up to $250 million to finance network equipment-related purchases from Alcatel-Lucent. During the nine-month period ended December 31, 2015, we drew $32 million on the facility, resulting in a total principal amount of $32 million outstanding at December 31, 2015.
Borrowings under the EKN, Finnvera, K-sure and D/D secured equipment credit facilities are each secured by liens on the respective equipment purchased pursuant to each facility's credit agreement. In addition, repayments of outstanding amounts borrowed under the secured equipment credit facilities cannot be redrawn. Each of these facilities is fully and unconditionally guaranteed by both Sprint Communications, Inc. and Sprint Corporation. The covenants under each of the four secured equipment credit facilities are similar to one another and to the covenants of our revolving bank credit facility and EDC agreement.
Financing, Capital Lease and Other Obligations
We have approximately 3,000 cell sites that we sold and subsequently leased back. Terms extend through 2021, with renewal options for an additional 20 years. These cell sites continue to be reported as part of our property, plant and equipment due to our continued involvement with the property sold and the transaction is accounted for as a financing. Our capital lease and other obligations are primarily related to wireless network equipment and inventory.
Covenants
Certain indentures and other agreements require compliance with various covenants, including covenants that limit the ability of the Company and its subsidiaries to sell all or substantially all of its assets, limit the ability of the Company and its subsidiaries to incur indebtedness and liens, and require that we maintain certain financial ratios, each as defined by the terms of the indentures, supplemental indentures and financing arrangements.
As of December 31, 2015, the Company was in compliance with all restrictive and financial covenants associated with its borrowings. A default under any of our borrowings could trigger defaults under certain of our other debt obligations, which in turn could result in the maturities being accelerated.
Under our revolving bank credit facility and certain other agreements, we are currently restricted from paying cash dividends because our ratio of total indebtedness to adjusted EBITDA (each as defined in the applicable agreements) exceeds 2.5 to 1.0.

Note 10.
Severance and Exit Costs
Severance and exit costs consist of lease exit costs primarily associated with tower and cell sites, access exit costs related to payments that will continue to be made under our backhaul access contracts for which we will no longer be receiving any economic benefit, and severance costs associated with reductions in our work force.
As a result of the United States Cellular (U.S. Cellular) asset acquisition, which closed in May 2013, we recorded a liability related to network shutdown costs, which primarily consisted of lease exit costs, for which we agreed to reimburse U.S. Cellular. During the quarter ended June 30, 2015, we revised our estimate and, as a result, we reduced the reserve, resulting in approximately $20 million of income included in "Other, net" on the consolidated statements of comprehensive loss.
We continually refine our network strategy and evaluate other potential network initiatives to improve the overall performance of our network. Additionally, we have commenced a major cost cutting initiative, which is expected to include headcount reductions, among other actions, to reduce operating expenses and improve our operating cash flows. As a result of these ongoing activities, we may incur future material charges associated with lease and access exit costs, severance, asset

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SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

impairments, and accelerated depreciation, among others. To date, we have specifically identified exit costs, which are expected to range between approximately $100 million to $175 million, primarily related to ceasing use of WiMAX technology and access exit costs, of which the majority is expected to be incurred by March 31, 2016.
The following provides the activity in the severance and exit costs liability included in "Accounts payable," "Accrued expenses and other current liabilities" and "Other liabilities" within the consolidated balance sheets:
 
March 31,
2015
 
Net
Expense
 
Cash Payments
and Other
 
December 31,
2015
 
(in millions)
Lease exit costs
$
291

 
$
30

(1) 
$
(107
)
 
$
214

Severance costs
119

 
194

(2) 
(129
)
 
184

Access exit costs
44

 
3

(3) 
(26
)
 
21

 
$
454

 
$
227

 
$
(262
)
 
$
419

 _________________
(1)
In addition to the $20 million income (Wireless only) related to U.S. Cellular, we recognized costs of $32 million (Wireless only), and $50 million (Wireless only) for the three and nine-month periods ended December 31, 2015, respectively, included in "Severance and Exit Costs" on the consolidated statements of comprehensive loss.
(2)
For the three and nine-month periods ended December 31, 2015, we recognized costs of $176 million ($156 million Wireless, $20 million Wireline), and $194 million ($172 million Wireless, $22 million Wireline), respectively, included in "Severance and Exit Costs" on the consolidated statements of comprehensive loss.
(3)
For the three and nine-month periods ended December 31, 2015, we recognized costs of $1 million (Wireless only), and $3 million (Wireless only), respectively, included in "Severance and Exit Costs" on the consolidated statements of comprehensive loss.

Note 11.
Income Taxes
The differences that caused our effective income tax rates to vary from the 35% U.S. federal statutory rate for income taxes were as follows:
 
Nine Months Ended
December 31,
 
2015
 
2014
 
(in millions)
Income tax benefit at the federal statutory rate
$
460

 
$
1,303

Effect of:
 
 
 
State income taxes, net of federal income tax effect
33

 
96

State law changes, net of federal income tax effect
23

 

Change in federal and state valuation allowance
(647
)
 
(797
)
Other, net
5

 
(1
)
Income tax (expense) benefit
$
(126
)
 
$
601

Effective income tax rate
(9.6
)%
 
16.1
%
The realization of deferred tax assets, including net operating loss carryforwards, is dependent on the generation of future taxable income sufficient to realize the tax deductions, carryforwards and credits. However, our history of annual losses reduces our ability to rely on expectations of future income in evaluating the ability to realize our deferred tax assets. Valuation allowances on deferred tax assets are recognized if it is determined that it is more likely than not that the asset will not be realized. As a result, the Company recognized income tax expense to increase the valuation allowance by $647 million during the nine-month period ended December 31, 2015 on deferred tax assets primarily related to losses incurred during the period that were not currently realizable and expenses recorded during the period that were not currently deductible for income tax purposes. The Company recognized income tax expense to increase the valuation allowance by $797 million during the nine-month period ended December 31, 2014 primarily attributable to the net increase in deferred tax assets related to the federal and state net operating loss carryforwards generated during the period offset by a $73 million decrease related to the disposition of certain FCC licenses. The disposition of the FCC licenses resulted in the ability to schedule the reversal of the temporary difference to generate future taxable income during the net operating loss carryforward period when evaluating the ability to realize our deferred tax assets. We do not expect to record significant tax benefits on future net operating losses until our circumstances justify the recognition of such benefits.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

We believe it is more likely than not that our remaining deferred income tax assets, net of the valuation allowance, will be realized based on current income tax laws and expectations of future taxable income stemming from the reversal of existing deferred tax liabilities. Uncertainties surrounding income tax law changes, shifts in operations between state taxing jurisdictions and future operating income levels may, however, affect the ultimate realization of all or some of these deferred income tax assets.
Income tax expense of $126 million for the nine-month period ended December 31, 2015 was primarily attributable to taxable temporary differences from the tax amortization of FCC licenses partially offset by tax benefits recorded from changes in state income tax laws enacted during the period. Income tax benefit of $601 million for the nine-month period ended December 31, 2014 was primarily attributable to recognition of a tax benefit on the $1.9 billion Sprint trade name impairment loss partially offset by tax expense on taxable temporary differences from the tax amortization of FCC licenses during the period. FCC licenses are amortized over 15 years for income tax purposes but, because these licenses have an indefinite life, they are not amortized for financial statement reporting purposes. These temporary differences result in net deferred income tax expense since they cannot be scheduled to reverse during the loss carryforward period.
As of December 31, 2015 and March 31, 2015, we maintained unrecognized tax benefits of $167 million and $163 million, respectively. Cash paid for income taxes, net, was $34 million and $36 million for the nine-month periods ended December 31, 2015 and December 31, 2014, respectively.

Note 12.
Commitments and Contingencies
Litigation, Claims and Assessments
In March 2009, a stockholder brought suit, Bennett v. Sprint Nextel Corp., in the U.S. District Court for the District of Kansas, alleging that Sprint Communications and three of its former officers violated Section 10(b) of the Exchange Act and Rule 10b-5 by failing adequately to disclose certain alleged operational difficulties subsequent to the Sprint-Nextel merger, and by purportedly issuing false and misleading statements regarding the write-down of goodwill. The plaintiff sought class action status for purchasers of Sprint Communications common stock from October 26, 2006 to February 27, 2008. On January 6, 2011, the Court denied the motion to dismiss. Subsequently, our motion to certify the January 6, 2011 order for an interlocutory appeal was denied. On March 27, 2014, the court certified a class including bondholders as well as stockholders. On April 11, 2014, we filed a petition to appeal that certification order to the Tenth Circuit Court of Appeals. The petition was denied on May 23, 2014. After mediation, the parties reached an agreement to settle the matter, and the settlement amount was substantially paid by the Company's insurers. The district court granted final approval of the settlement in August 2015, and the case is now completed.
In addition, five related stockholder derivative suits were filed against Sprint Communications and certain of its present and/or former officers and directors. The first, Murphy v. Forsee, was filed in state court in Kansas on April 8, 2009, was removed to federal court, and was stayed by the court pending resolution of the motion to dismiss the Bennett case; the second, Randolph v. Forsee, was filed on July 15, 2010 in state court in Kansas, was removed to federal court, and was remanded back to state court; the third, Ross-Williams v. Bennett, et al., was filed in state court in Kansas on February 1, 2011; the fourth, Price v. Forsee, et al., was filed in state court in Kansas on April 15, 2011; and the fifth, Hartleib v. Forsee, et. al., was filed in federal court in Kansas on July 14, 2011. These cases were essentially stayed while the Bennett case was pending, and the stay has been extended to allow the parties the opportunity to pursue settlement. We do not expect the resolution of these matters to have a material adverse effect on our financial position or results of operations.
On April 19, 2012, the New York Attorney General filed a complaint alleging that Sprint Communications has fraudulently failed to collect and pay more than $100 million in New York sales taxes on receipts from its sale of wireless telephone services since July 2005. The complaint also seeks recovery of triple damages under the False Claims Act as well as penalties and interest. Sprint Communications moved to dismiss the complaint on June 14, 2012. On July 1, 2013, the court entered an order denying the motion to dismiss in large part, although it did dismiss certain counts or parts of certain counts. Sprint Communications appealed that order and the intermediate appellate court affirmed the order of the trial court. On October 20, 2015, the Court of Appeals of New York affirmed the decision of the appellate court that the tax statute requires us to collect and remit the disputed taxes. We have accrued $180 million during the nine-month period ended

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015 associated with this matter. We will continue to defend this matter vigorously and we do not expect the resolution to have a material effect on our financial position or results of operations.
Eight related stockholder derivative suits have been filed against Sprint Communications and certain of its current and former officers and directors. Each suit alleges generally that the individual defendants breached their fiduciary duties to Sprint Communications and its stockholders by allegedly permitting, and failing to disclose, the actions alleged in the suit filed by the New York Attorney General. One suit, filed by the Louisiana Municipal Police Employees Retirement System, was dismissed by a federal court. Two suits were filed in state court in Johnson County, Kansas and one of those suits was dismissed as premature; and five suits are pending in federal court in Kansas. The remaining Kansas suits were stayed pending resolution of Sprint's motion to dismiss the Attorney General's suit and the appeals. We do not expect the resolution of these matters to have a material adverse effect on our financial position or results of operations.
Sprint Communications, Inc. is also a defendant in a complaint filed by stockholders of Clearwire Corporation asserting claims for breach of fiduciary duty by Sprint Communications, and related claims and otherwise challenging the Clearwire Acquisition. ACP Master, LTD, et al. v. Sprint Nextel Corp., et al., was filed April 26, 2013, in Chancery Court in Delaware. Our motion to dismiss the suit was denied, and discovery is substantially complete. Plaintiffs in the ACP Master, LTD suit have also filed suit requesting an appraisal of the fair value of their Clearwire stock. Discovery in that case was consolidated with the breach of fiduciary duty case and is substantially complete. Sprint Communications intends to defend the ACP Master, LTD cases vigorously. We do not expect the resolution of these matters to have a material adverse effect on our financial position or results of operations.
Sprint is currently involved in numerous court actions alleging that Sprint is infringing various patents. Most of these cases effectively seek only monetary damages. A small number of these cases are brought by companies that sell products and seek injunctive relief as well. These cases have progressed to various degrees and a small number may go to trial if they are not otherwise resolved. Adverse resolution of these cases could require us to pay significant damages, cease certain activities, or cease selling the relevant products and services. In many circumstances, we would be indemnified for monetary losses that we incur with respect to the actions of our suppliers or service providers. We do not expect the resolution of these cases to have a material adverse effect on our financial position or results of operations.
In October 2013, the FCC Enforcement Bureau began to issue notices of apparent liability (NALs) to other Lifeline providers, imposing fines for intracarrier duplicate accounts identified by the government during its audit function. Those audits also identified a small percentage of potentially duplicative intracarrier accounts related to our Assurance Wireless business. No NAL has yet been issued with respect to Sprint and we do not know if one will be issued. Further, we are not able to reasonably estimate the amount of any claim for penalties that might be asserted. However, based on the information currently available, if a claim is asserted by the FCC, Sprint does not believe that any amount ultimately paid would be material to the Company’s results of operations or financial position. 
Various other suits, inquiries, proceedings and claims, either asserted or unasserted, including purported class actions typical for a large business enterprise and intellectual property matters, are possible or pending against us or our subsidiaries. If our interpretation of certain laws or regulations, including those related to various federal or state matters such as sales, use or property taxes, or other charges were found to be mistaken, it could result in payments by us. While it is not possible to determine the ultimate disposition of each of these proceedings and whether they will be resolved consistent with our beliefs, we expect that the outcome of such proceedings, individually or in the aggregate, will not have a material adverse effect on our financial position or results of operations.
Spectrum Reconfiguration Obligations
In 2004, the FCC adopted a Report and Order that included new rules regarding interference in the 800 MHz band and a comprehensive plan to reconfigure the 800 MHz band. The Report and Order provides for the exchange of a portion of our 800 MHz FCC spectrum licenses, and requires us to fund the cost incurred by public safety systems and other incumbent licensees to reconfigure the 800 MHz spectrum band. Also, in exchange, we received licenses for 10 MHz of nationwide spectrum in the 1.9 GHz band.
The minimum cash obligation is $2.8 billion under the Report and Order. We are, however, obligated to pay the full amount of the costs relating to the reconfiguration plan, even if those costs exceed $2.8 billion. As required under the terms of the Report and Order, a letter of credit has been secured to provide assurance that funds will be available to pay the

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

relocation costs of the incumbent users of the 800 MHz spectrum. The letter of credit was initially $2.5 billion, but has been reduced during the course of the proceeding to $256 million as of December 31, 2015. Since the inception of the program, we have incurred payments of approximately $3.5 billion directly attributable to our performance under the Report and Order, including approximately $26 million and $62 million during the three and nine-month periods ended December 31, 2015, respectively. When incurred, substantially all costs are accounted for as additions to FCC licenses with the remainder as property, plant and equipment. Although costs incurred through December 31, 2015 have exceeded $2.8 billion, not all of those costs have been reviewed and accepted as eligible by the transition administrator. During the three-month period ended June 30, 2014, we received a cash payment of approximately $95 million, which represented a reimbursement of prior reconfiguration costs incurred by us that also benefited spectrum recently auctioned by the FCC. We do not expect any further reimbursements.
Completion of the 800 MHz band reconfiguration was initially required by June 26, 2008 and public safety reconfiguration is nearly complete across the country with the exception of the States of Washington, Arizona, California, Texas and New Mexico. The FCC continues to grant the remaining 800 MHz public safety licensees additional time to complete their band reconfigurations which, in turn, delays our access to our 800 MHz replacement channels in these areas. In the areas where band reconfiguration is complete, Sprint has received its replacement spectrum in the 800 MHz band and Sprint is deploying 3G CDMA and 4G LTE on this spectrum in combination with its spectrum in the 1.9 GHz and 2.5 GHz bands.

Note 13.
Per Share Data
Basic net loss per common share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share adjusts basic net loss per common share, computed using the treasury stock method, for the effects of potentially dilutive common shares, if the effect is not antidilutive. Outstanding options and restricted stock units (exclusive of participating securities) that had no effect on our computation of dilutive weighted average number of shares outstanding as their effect would have been antidilutive were approximately 83 million shares and 78 million shares as of the periods ended December 31, 2015 and 2014, respectively, in addition to all 55 million shares issuable under the warrant held by SoftBank. The warrant was issued to SoftBank at the close of the merger with SoftBank and is exercisable at $5.25 per share at the option of SoftBank, in whole or in part, at any time on or prior to July 10, 2018.

Note 14.
Segments
Sprint operates two reportable segments: Wireless and Wireline.
Wireless primarily includes retail, wholesale, and affiliate revenue from a wide array of wireless voice and data transmission services and equipment revenue from the sale of wireless devices (handsets and tablets) and accessories in the U.S., Puerto Rico and the U.S. Virgin Islands.
Wireline primarily includes revenue from domestic and international wireline voice and data communication services provided to other communications companies and targeted business subscribers, in addition to our Wireless segment.
We define segment earnings as wireless or wireline operating (loss) income before other segment expenses such as depreciation, amortization, severance, exit costs, goodwill impairments, asset impairments, and other items, if any, solely and directly attributable to the segment representing items of a non-recurring or unusual nature. Expense and income items excluded from segment earnings are managed at the corporate level. Transactions between segments are generally accounted for based on market rates, which we believe approximate fair value. The Company generally re-establishes these rates at the beginning of each fiscal year. Over the past several years, there has been an industry-wide trend of lower rates due to increased competition from other wireline and wireless communications companies as well as cable and Internet service providers.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Segment financial information is as follows:  
Statement of Operations Information
Wireless
 
Wireline
 
Corporate,
Other and
Eliminations
 
Consolidated
 
(in millions)
Three Months Ended December 31, 2015
 
 
 
 
 
 
 
Net operating revenues
$
7,670

 
$
434

 
$
3

 
$
8,107

Inter-segment revenues(1)

 
147

 
(147
)
 

Total segment operating expenses
(5,804
)
 
(548
)
 
143

 
(6,209
)
Segment earnings
$
1,866

 
$
33

 
$
(1
)
 
1,898

Less:
 
 
 
 
 
 
 
Depreciation
 
 
 
 
 
 
(1,549
)
Amortization
 
 
 
 
 
 
(316
)
Other, net(2)
 
 
 
 
 
 
(230
)
Operating loss
 
 
 
 
 
 
(197
)
Interest expense
 
 
 
 
 
 
(546
)
Other income, net
 
 
 
 
 
 
4

Loss before income taxes
 
 
 
 
 
 
$
(739
)
 
 
 
 
 
 
 
 
Statement of Operations Information
Wireless
 
Wireline
 
Corporate,
Other and
Eliminations
 
Consolidated
 
(in millions)
Three Months Ended December 31, 2014
 
 
 
 
 
 
 
Net operating revenues
$
8,433

 
$
536

 
$
4

 
$
8,973

Inter-segment revenues(1)

 
156

 
(156
)
 

Total segment operating expenses
(7,399
)
 
(681
)
 
151

 
(7,929
)
Segment earnings
$
1,034

 
$
11

 
$
(1
)
 
1,044

Less:
 
 
 
 
 
 
 
Depreciation
 
 
 
 
 
 
(940
)
Amortization
 
 
 
 
 
 
(380
)
Impairments(3)
 
 
 
 
 
 
(2,133
)
Other, net(2)
 
 
 
 
 
 
(131
)
Operating loss
 
 
 
 
 
 
(2,540
)
Interest expense
 
 
 
 
 
 
(506
)
Other income, net
 
 
 
 
 
 
10

Loss before income taxes
 
 
 
 
 
 
$
(3,036
)
 
 
 
 
 
 
 
 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Statement of Operations Information
Wireless
 
Wireline
 
Corporate,
Other and
Eliminations
 
Consolidated
 
(in millions)
Nine Months Ended December 31, 2015
 
 
 
 
 
 
 
Net operating revenues
$
22,726

 
$
1,372

 
$
11

 
$
24,109

Inter-segment revenues(1)

 
448

 
(448
)
 

Total segment operating expenses
(16,807
)
 
(1,749
)
 
435

 
(18,121
)
Segment earnings
$
5,919

 
$
71

 
$
(2
)
 
5,988

Less:
 
 
 
 
 
 
 
Depreciation
 
 
 
 
 
 
(4,202
)
Amortization
 
 
 
 
 
 
(994
)
Other, net(2)
 
 
 
 
 
 
(490
)
Operating income
 
 
 
 
 
 
302

Interest expense
 
 
 
 
 
 
(1,630
)
Other income, net
 
 
 
 
 
 
13

Loss before income taxes
 
 
 
 
 
 
$
(1,315
)
 
 
 
 
 
 
 
 
Statement of Operations Information
Wireless
 
Wireline
 
Corporate,
Other and
Eliminations
 
Consolidated
 
(in millions)
Nine Months Ended December 31, 2014
 
 
 
 
 
 
 
Net operating revenues
$
24,555

 
$
1,684

 
$
11

 
$
26,250

Inter-segment revenues(1)

 
462

 
(462
)
 

Total segment operating expenses
(20,358
)
 
(2,073
)
 
438

 
(21,993
)
Segment earnings
$
4,197

 
$
73

 
$
(13
)
 
4,257

Less:
 
 
 
 
 
 
 
Depreciation
 
 
 
 
 
 
(2,706
)
Amortization
 
 
 
 
 
 
(1,189
)
Impairments(3)
 
 
 
 
 
 
(2,133
)
Other, net(2)
 
 
 
 
 
 
(442
)
Operating loss
 
 
 
 
 
 
(2,213
)
Interest expense
 
 
 
 
 
 
(1,528
)
Other income, net
 
 
 
 
 
 
19

Loss before income taxes
 
 
 
 
 
 
$
(3,722
)
 
 
 
 
 
 
 
 
Other Information
Wireless
 
Wireline
 
Corporate and
Other
 
Consolidated
 
(in millions)
Capital expenditures for the nine months ended December 31, 2015
$
5,236

 
$
205

 
$
241

 
$
5,682

Capital expenditures for the nine months ended December 31, 2014
$
3,485

 
$
205

 
$
267

 
$
3,957

 _________________
(1)
Inter-segment revenues consist primarily of wireline services provided to the Wireless segment for resale to, or use by, wireless subscribers.
(2)
Other, net for the three and nine-month periods ended December 31, 2015 consists of $209 million and $247 million, respectively, of severance and exit costs and $21 million and $178 million, respectively, of accruals for ongoing legal matters. In addition, the nine-month period ended December 31, 2015 includes an $85 million loss on disposal of property, plant and equipment related to cell site construction costs that are no longer recoverable as a result of changes in the Company's network plans and a $20 million release of liability reserves associated with the May 2013 U.S. Cellular asset acquisition. Other, net for the three and nine-month periods ended December 31, 2014 consists of $22 million and $333 million, respectively, of severance and exit costs. In addition, both the three and nine-month periods ended December 31, 2014 included $91 million for legal reserves related to various pending legal suits and proceedings and $59 million for a partial pension settlement, partially offset by a $41 million release of liability reserves associated with the May 2013 U.S. Cellular asset acquisition.
(3)
Impairments for the three and nine-month periods ended December 31, 2014 consist of a $1.9 billion Sprint trade name impairment related to the Wireless segment and a $233 million impairment related to Wireline long-lived assets.


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Operating Revenues by Service and Products
Wireless
 
Wireline
 
Corporate,
Other and
Eliminations(1)
 
Consolidated
 
(in millions)
Three Months Ended December 31, 2015
 
 
 
 
 
 
 
Wireless services
$
6,058

 
$

 
$

 
$
6,058

Wireless equipment
1,424

 

 

 
1,424

Voice

 
201

 
(82
)
 
119

Data

 
42

 
(17
)
 
25

Internet

 
317

 
(48
)
 
269

Other
188

 
21

 
3

 
212

Total net operating revenues
$
7,670

 
$
581

 
$
(144
)
 
$
8,107

 
 
 
 
 
 
 
 
Operating Revenues by Service and Products
Wireless
 
Wireline
 
Corporate,
Other and
Eliminations(1)
 
Consolidated
 
(in millions)
Three Months Ended December 31, 2014
 
 
 
 
 
 
 
Wireless services
$
6,523

 
$

 
$

 
$
6,523

Wireless equipment
1,701

 

 

 
1,701

Voice

 
289

 
(94
)
 
195

Data

 
52

 
(22
)
 
30

Internet

 
333

 
(42
)
 
291

Other
209

 
18

 
6

 
233

Total net operating revenues
$
8,433

 
$
692

 
$
(152
)
 
$
8,973

 
 
 
 
 
 
 
 
Operating Revenues by Service and Products
Wireless
 
Wireline
 
Corporate,
Other and
Eliminations(1)
 
Consolidated
 
(in millions)
Nine Months Ended December 31, 2015
 
 
 
 
 
 
 
Wireless services
$
18,631

 
$

 
$

 
$
18,631

Wireless equipment
3,509

 

 

 
3,509

Voice

 
646

 
(249
)
 
397

Data

 
134

 
(55
)
 
79

Internet

 
968

 
(140
)
 
828

Other
586

 
72

 
7

 
665

Total net operating revenues
$
22,726

 
$
1,820

 
$
(437
)
 
$
24,109

 
 
 
 
 
 
 
 
Operating Revenues by Service and Products
Wireless
 
Wireline
 
Corporate,
Other and
Eliminations(1)
 
Consolidated
 
(in millions)
Nine Months Ended December 31, 2014
 
 
 
 
 
 
 
Wireless services
$
20,124

 
$

 
$

 
$
20,124

Wireless equipment
3,846

 

 

 
3,846

Voice

 
910

 
(271
)
 
639

Data

 
161

 
(68
)
 
93

Internet

 
1,018

 
(121
)
 
897

Other
585

 
57

 
9

 
651

Total net operating revenues
$
24,555

 
$
2,146

 
$
(451
)
 
$
26,250

 
 
 
 
 
 
 
 
_______________
(1)
Revenues eliminated in consolidation consist primarily of wireline services provided to the Wireless segment for resale to or use by wireless subscribers.


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 15.
Related-Party Transactions
Sprint has entered into various arrangements with SoftBank or its controlled affiliates (SoftBank Parties) or with third parties to which SoftBank Parties are also parties, including for international wireless roaming, wireless and wireline call termination, real estate, logistical management, and other services.
Brightstar
We have arrangements with Brightstar, whereby Brightstar provides supply chain and inventory management services to us in our indirect channels and whereby Sprint may sell new and used devices and new accessories to Brightstar for its own purposes. The supply chain and inventory management arrangement contemplates that Brightstar will purchase inventory from the original equipment manufacturers (OEMs) to sell directly to our indirect dealers. As compensation for these services, we remit per unit fees to Brightstar for each device sold to dealers or retailers in our indirect channels. During the three and nine-month periods ended December 31, 2015, we incurred fees under these arrangements totaling $29 million and $82 million, respectively. For those OEMs for which Brightstar has not successfully negotiated contracts or does not have sufficient credit under existing contracts, Brightstar will purchase device and accessory inventory from us in order to fulfill orders within our indirect channel. We have provided a $1.0 billion credit line to Brightstar to facilitate certain of these arrangements. As a result, we shifted our concentration of credit risk away from our indirect channel partners to Brightstar. As Brightstar is a wholly-owned subsidiary of SoftBank, we expect SoftBank will provide the necessary support to ensure that Brightstar will fulfill its obligations to us under these agreements. However, we have no assurance that SoftBank will provide such support. We may also purchase new and used devices and accessories from Brightstar to be sold in our direct channels or used to fulfill service and repair needs.
Amounts included in our consolidated financial statements associated with these arrangements with Brightstar were as follows:
Consolidated balance sheets:
December 31,
2015
 
March 31,
2015
 
(in millions)
Accounts receivable
$
239

 
$
430

Accounts payable
$
46

 
$
96

Consolidated statements of comprehensive loss:
Three Months Ended
December 31,
 
Nine Months Ended
December 31,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Equipment revenues
$
598

 
$
1,030

 
$
1,375

 
$
1,149

Cost of products
$
601

 
$
1,071

 
$
1,362

 
$
1,165

Handset Sale-Leaseback
In November, 2015, Sprint entered into a Handset Sale-Leaseback transaction to sell and lease-back certain leased devices with MLS, a company formed by a group of equity investors, including SoftBank. Simultaneously with the sale of the devices and transfer of certain specified customer lease end rights and obligations to MLS, MLS leased back to us each device in exchange for monthly rental payments to be made to MLS. All devices must be returned to MLS. In the event that MLS is able to sell the returned devices at a price greater than the expected device residual value, Sprint has the potential to share some of the excess proceeds. Sprint will act as servicer for MLS, to the extent needed, after the end of the device leaseback period. Brightstar will provide reverse logistics and remarketing services to MLS with respect to the devices (See Note 3. Funding Sources).
All other transactions under agreements with SoftBank Parties, in the aggregate, were immaterial through the period ended December 31, 2015.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 16.
Guarantor Financial Information
On September 11, 2013, Sprint Corporation issued $2.25 billion aggregate principal amount of 7.250% notes due 2021 and $4.25 billion aggregate principal amount of 7.875% notes due 2023 in a private placement transaction with registration rights. On December 12, 2013, Sprint Corporation issued $2.5 billion aggregate principal amount of 7.125% notes due 2024 in a private placement transaction with registration rights. Each of these issuances is fully and unconditionally guaranteed by Sprint Communications, Inc. (Subsidiary Guarantor), which is a 100 percent owned subsidiary of Sprint Corporation (Parent/Issuer). In connection with the foregoing, the registration rights agreements with respect to the notes required the Company and Sprint Communications, Inc. to use their reasonable best efforts to cause an offer to exchange the notes for a new issue of substantially identical exchange notes registered under the Securities Act of 1933. Accordingly, in November 2014, we completed an exchange offer for these notes in compliance with our registration obligations. We did not receive any proceeds from this exchange offer. In addition, on February 24, 2015, Sprint Corporation issued $1.5 billion aggregate principal amount of 7.625% notes due 2025 in a registered transaction, which are fully and unconditionally guaranteed by Sprint Communications, Inc.
Under the Subsidiary Guarantor's revolving bank credit facility and certain other agreements, the Subsidiary Guarantor is currently restricted from paying cash dividends to the Parent/Issuer or any Non-Guarantor Subsidiary because the ratio of total indebtedness to adjusted EBITDA (each as defined in the applicable agreement) exceeds 2.5 to 1.0.
Sprint has a Receivables Facility providing for the sale of eligible wireless service, installment and certain future lease receivables. In November 2015, Sprint also entered a Handset Sale-Leaseback transaction to sell and lease-back certain leased devices. In connection with the Receivables Facility and the Handset Sale-Leaseback, Sprint formed certain wholly-owned consolidated bankruptcy-remote SPEs and SPE Lessees that are included in the Non-Guarantor Subsidiaries condensed consolidated financial information. Each SPE and SPE Lessee is a separate legal entity with its own separate creditors who will be entitled, prior to and upon the liquidation of the SPE or SPE Lessee, to be satisfied out of the SPE or SPE Lessee’s assets prior to any assets in the SPE and SPE Lessee becoming available to Sprint (see Note 3. Funding Sources).
We have accounted for investments in subsidiaries using the equity method. Presented below is the condensed consolidating financial information.


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Table of Contents

Index for Notes to the Consolidated Financial Statements


SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEET
 
As of December 31, 2015
 
Parent/Issuer
 
Subsidiary Guarantor
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
(in millions)
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
1,670

 
$
505

 
$

 
$
2,175

Short-term investments

 
26

 
15

 

 
41

Accounts and notes receivable, net
196

 
6

 
1,033

 
(202
)
 
1,033

Device and accessory inventory

 

 
995

 

 
995

Prepaid expenses and other current assets

 
17

 
2,300

 

 
2,317

Total current assets
196

 
1,719

 
4,848

 
(202
)
 
6,561

Investments in subsidiaries
20,333

 
22,524

 

 
(42,857
)
 

Property, plant and equipment, net

 

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